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Regulatory roundup

January 26th, 2015 No comments

More retirement-related regulatory news for plan sponsors, including links to detailed information.

PBGC announces section 4062(e) – new law is enacted
On December 16, President Obama signed into law H.R. 83, which made major changes to the provision of ERISA that created liability in certain situations where there was a reduction in active participants in a plan as a result of a cessation of operations (section 4062(e)).

With the new law in effect the Pension Benefit Guaranty Corporation (PBGC) will not continue the six-month moratorium on the enforcement of section 4062(e) that expired December 31.

The new law generally applies both to future cessations of operations and to those that have already occurred, except where a settlement agreement was entered into before June 1, 2014. The PBGC has outlined some of the major changes in the law and provided a point of contact for questions here. Further guidance will be issued in the future.

PBGC seeks OMB approval of modifications to Form 10, 10-Advance and Form 200
The PBGC has issued Forms 10 and 10-Advance (10-A) and related instructions under subparts B and C. The PBGC has also issued Form 200 and related instructions under subpart D. The Office of Management and Budget’s (OMB) approval of both of these collections of information expires March 31, 2015. The PBGC intends to request that OMB extend its approval for three years with modifications.

IRS issues relief for certain participants in Section 414(d) governmental plans
The Internal Revenue Service (IRS) has issued Notice 2015-07. The notice announces that the IRS and Treasury Department anticipate issuing proposed regulations that would permit a state or local retirement system that is a governmental plan (within the meaning of section 414(d)) to cover public charter school employees if certain requirements are satisfied. The notice also announces that broader transition relief will be addressed in the proposed regulations. The notice includes a request for public comments.

To read Notice 2015-07, click here.

IRS posts 2014 reference list of changes in qualification requirements for retirement plans
The IRS has published the 2014 reference list which contains items that first appeared on the 2014 cumulative list of changes in plan qualification requirements.

• Determination letter applications – For an individually designed plan submitted on Form 5300, complete the five reference lists for the five years of your remedial amendment cycle (RAC). These are the years covered by the cumulative list applicable to your submission. For an employer adopting a volume submitter plan and submitting on Form 5307, complete the six reference lists for the six years in your RAC.
• Interim amendments – Complete each year’s reference list to check whether your plan document is up-to-date. If you missed any relevant amendments, your plan may have a qualification failure and you must correct the error.

To download the reference list, click here.

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Regulatory roundup

January 12th, 2015 No comments

More retirement-related regulatory news for plan sponsors, including links to detailed information.

PBGC requests OMB approval for reporting of pension plan de-risking measures
The Pension Benefit Guaranty Corporation (PBGC) is modifying the collection of information under its regulation on payment of premiums and is requesting that the Office of Management and Budget (OMB) approve the revised collection of information under the Paperwork Reduction Act for three years.

PBGC is revising the 2015 filing procedures and instructions for payment of premiums to require after-the-fact reporting of certain risk transfers through lump-sum windows and annuity purchases. Risk transfers can substantially reduce the premiums that plans otherwise would pay to PBGC. Because PBGC premiums and the investment income earned on them are a major source of income for PBGC, information about risk transfers is critical to PBGC’s ability to assess its future financial condition. There is currently no available comprehensive, detailed, and reliable source for information on risk transfers.

PBGC is also changing certain premium declaration certification procedures, offering the option for a plan to provide a telephone number specifically for inclusion in PBGC’s Search Plan List on PBGC’s web site, updating the premium rates (including reflecting the Consolidated and Further Continuing Appropriations Act, 2015, Pub. L. 113-235), and making conforming, clarifying, and editorial changes.

To read the entire notice, click here.

PBGC issues changes to ERISA Section 4062(e)
This announcement provides information about two important changes regarding ERISA section 4062(e). First, on December 16, 2014, the President signed into law H.R. 83, which made major changes to section 4062(e). Second, the PBGC is ending the moratorium on enforcement of 4062(e) cases that it announced in July 2014.

For more information on the changes to ERISA Section 4062(e), click here.

IRS updates 2015 revenue procedures for employee plans and exempt organizations
The IRS published its January 2, 2015, Internal Revenue Bulletin, which includes the various revenue procedures, revised for 2015, for issuing letters, rulings, determination letters, and technical advice on specific issues related to employee benefits. The documents are:

• Rev. Proc. 2015-1
• Rev. Proc. 2015-2
• Rev. Proc. 2015-3
• Rev. Proc. 2015-5
• Rev. Proc. 2015-5
• Rev. Proc. 2015-6
• Rev. Proc. 2015-7
• Rev. Proc. 2015-8

For an electronic version of Internal Revenue Bulletin 2015-1 which contains these revenue procedures and user fee schedules, click here.

IRS provides guidance on automatic approval of change in funding method for takeover plans
The IRS has released Announcement 2015-03, providing guidance on the automatic approval of a change in funding method for single-employer defined benefit plans under certain circumstances in which the change in method results from a change in plans’ enrolled actuary.

To read Announcement 2015-03 in its entirety, click here.

PBGC publishes “2014 PBGC participant and plan sponsor advocate report”
The PBGC has released the first annual report of the participant and plan sponsor advocate.

To read the entire report, click here.

DOL issues fact sheet on EBSA’s enforcement efforts
Through its enforcement of ERISA, the Employee Benefits Security Administration (EBSA) is responsible for ensuring the integrity of the private employee benefit plan system in the United States. EBSA’s oversight authority extends to nearly 684,000 retirement plans, approximately 2.4 million health plans, and a similar number of other welfare benefit plans, such as those providing life or disability insurance. These plans cover about 141 million workers and their dependents and include assets of over $7.6 trillion (as of October 29, 2014). In FY 2014, EBSA recovered $599.7 million for direct payment to plans, participants, and beneficiaries.

For more information, click here.

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Regulatory roundup

December 29th, 2014 No comments

More retirement-related regulatory news for plan sponsors, including links to detailed information.

IRS issues guidance on rollovers of after-tax contributions in retirement plans
Prior to the issuance of Notice 2014-54, the Internal Revenue Service (IRS) treated disbursements from a retirement plan that were rolled over to multiple destinations as separate distributions to each destination, with each distribution treated as containing a pro rata portion of the pretax and after-tax amounts. Notice 2014-54, which was issued September 18, 2014, provides that all disbursements from a retirement plan scheduled to be made at the same time are treated as a single distribution even if they are sent to multiple destinations.

As a result of this notice, taxpayers with pretax and after-tax amounts in their plans, for example, can transfer through direct rollovers the pretax portion of the distribution (including earnings on after-tax amounts) to a traditional IRA and the after-tax portion of the distribution to a Roth IRA. (Previous interpretations allowed accomplishing this result through 60-day rollovers but not direct rollovers.) The guidance provided in Notice 2014-54 applies only to distributions from qualified plans described in section 401(a) of the Code (such as profit-sharing and 401[k] plans), section 403(b) plans, and section 457(b) governmental plans. The guidance in Notice 2014-54 is generally effective January 1, 2015; however, transitional rules included in the guidance permit taxpayers to utilize the new rules provided in the guidance prior to the effective date.

The guidance in Notice 2014-54 does not apply to distributions from IRAs.

For more information, click here and here.

IRS proposes changes to annual employee benefit plan report
The IRS has issued a notice and request for comment on continuing information collections: Annual Return/Report of Employee Benefit Plan, with proposed changes. Currently, employee benefit plans are required to annually file Form 5500 or Form 5500-SF, and schedules. The IRS uses the report to determine if the plan is operating properly or whether the plan should be audited.

The IRS proposes revising a currently approved collection by creating Form 5500-SUP (DRAFT), a paper-only form, to be used by retirement plan sponsors and administrators to satisfy the reporting requirements of Section 6058. Form 5500–SUP would only be used if certain IRS compliance questions are not answered electronically on the Form 5500 or Form 5500–SF. Comments are due on or before February 23, 2015.

To read the entire notice, click here.

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Regulatory roundup

December 22nd, 2014 No comments

More retirement-related regulatory news for plan sponsors, including links to detailed information.

CBO releases new long-term projections for Social Security
The Congressional Budget Office (CBO) has published a new report entitled “CBO’s 2014 long-term projections for Social Security – additional information.” The CBO projects that under current law, the Disability Insurance (DI) trust fund will be exhausted in fiscal year 2017, and the Old-Age and Survivors Insurance (OASI) trust fund will be exhausted in 2032. If a trust fund’s balance fell to zero and current revenues were insufficient to cover the benefits specified in law, the Social Security Administration would no longer have legal authority to pay full benefits when they were due.

To read the entire report, click here.

IRS releases changes to employee plans determination letter processing
The Internal Revenue Service (IRS) released Announcement 2015-01, describing changes to the processing of employee plans determination letters that will take effect in 2015. These changes are being adopted as a result of a process improvement strategy designed to promote case processing efficiency.

The changes to the determination letter procedures described in this announcement will be reflected in Rev. Proc. 2015-6, which will be published in IRB 2015-1 and will be effective on February 1, 2015. Rev. Proc. 2015-6 will set forth the IRS’s procedures for issuing determination letters on the qualified status of employee plans.

To read the entire announcement, click here.

DOL issues information letter on myRAs facilitated by employers
The U.S. Department of Labor (DOL) has released an information letter stating that employers facilitating retirement savings accounts known as “myRAs” will not be establishing an ERISA-covered “employee pension benefit plan.” The DOL’s letter responds to a Treasury Department inquiry that asked whether the accounts would be covered by ERISA Title I.

The Treasury recently released a final rule on the savings bonds that are only available through the program announced by the president in January. Until the program is expanded, in order for an employee to make contributions to a myRA account, the employer must agree to forward the employee’s payroll deduction contributions. Employers would not make contributions to the myRAs and they would have no investment or other funding obligations, or have any custody or control over account assets.

To read the entire information letter, click here.

DOL releases advance copies of 2014 Form 5500 and 5500-SF
The DOL’s Employee Benefits Security Administration has updated its website with advance informational copies of the 2014 Form 5500 and 5500-SF and final copy of the 2014 Form M-1 of Form 5500.

To download Form 5500 and 5500-SF, click here.
To download Form M-1, click here.

For more information, click here.

Regulatory roundup

December 8th, 2014 No comments

More retirement-related regulatory news for plan sponsors, including links to detailed information.

House approves tax extenders bill with multiemployer pension plan provisions
On December 3, the U.S. House of Representative voted 404-17 to approve the “Achieving a Better Life Experience Act” (ABLE Act, H.R.647), which would allow for the creation of savings accounts to enable certain disabled beneficiaries to help pay for qualified expenses, effective for tax years beginning in 2015. Following the vote, the House combined the bill with the tax extenders legislation (H.R.5771) before sending it to the Senate.

Of interest to some employers are two provisions included in the ABLE Act:

• The Internal Revenue Service (IRS) would be authorized to certify “professional employer organizations” (PEOs). Such PEOs would pay an annual fee of $1,000, satisfy certain requirements (including posting a bond to ensure they satisfy employment tax withholding and payment obligations and submitting audited financial statements), and assume sole responsibility for the customer’s employment taxes. The provision generally would be effective for wages paid by a certified PEO for services performed by an employee after 2015, and the IRS would be required to establish the PEO certification program by July 1, 2015. (The Joint Committee on Taxation estimates this provision would increase revenues by $8 million over 10 years.)

• Certain civil penalties under the tax code would be adjusted for inflation, beginning in 2015, including for failures to file a tax return or to pay tax; failures to file certain information returns, registration statements, and other statements; and failures to file correct information returns and payee statements. (The Joint Committee on Taxation estimates this provision will increase revenues by $115 million over 10 years.)

IRS extends submission deadlines
The IRS released Announcement 2014-41. This announcement extends to June 30, 2015, the deadline for submitting on-cycle applications for opinion and advisory letters for preapproved defined benefit plans for the plans’ second six-year remedial amendment cycle. This announcement also provides a two day extension (from Saturday, January 31, 2015, to Monday, February 2, 2015) for Cycle D on-cycle submissions (primarily individually designed plans including multiemployer plans).

For more information, click here.

DOL report to Congress finds EBSA has not provided guidance and oversight of use of limited-scope audits
The Office of Inspector General (OIG) of the U.S. Department of Labor (DOL) has issued its Semiannual Report to Congress on the DOL’s activities, accomplishments, and concerns for the six-month period ending September 30, 2014. During this reporting period, the OIG issued 19 audit and other reports that identified needed improvements in DOL programs and operations.

Of interest to employee benefit practitioners was an audit of the oversight of the use of limited-scope audits for employee benefit plans by the Employee Benefits Security Administration (EBSA), which found that EBSA has not provided the guidance and oversight needed to adequately protect more than $1 trillion of plan assets invested in complex trust arrangements and hard-to-value assets held and certified by custodians.

To read the entire report, click here.

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Regulatory roundup

December 1st, 2014 No comments

More retirement-related regulatory news for plan sponsors, including links to detailed information.

PBGC issues final rule on treatment of rollovers from DC to DB plans
The Pension Benefit Guaranty Corporation (PBGC) is publishing a final rule that makes it easier for participants in 401(k) plans with rollover options to get lifetime income by moving their funds into traditional pensions. The agency hopes to encourage people to get lifetime income by removing potential barriers to moving their benefits from defined contribution (DC) plans to defined benefit (DB) plans. The final rule removes the fear that the amounts rolled over would suffer under guarantee limits should PBGC step in and pay benefits. When PBGC first proposed the rule in April it was well-received from various organizations in the pension and retirement community.

Under the final rule, benefits earned from a rollover generally would not be affected by PBGC’s maximum guarantee limits. For a plan terminating in 2015, the agency’s maximum guaranteed benefit for a 65-year-old retiree will be just over $60,000 a year.

Also, rollover amounts generally would remain untouched by PBGC’s five-year phase-in limits. Normally, benefit increases from changes to a plan in the five years before it ends are partially guaranteed. Under the new proposal, these restrictions generally would not apply.

To read the entire final rule, click here.

IRS issues notice amending two safe harbor explanations for eligible rollover distributions
The Internal Revenue Service (IRS) has released Notice 2014-74, which amends the two safe harbor explanations in Notice 2009-68, 2009-2 C.B. 423, that can be used to satisfy the requirement under § 402(f) of the Internal Revenue Code (Code) that certain information be provided to recipients of eligible rollover distributions.

Amendments to the safe harbor explanations reflected in this notice relate to the allocation of pretax and after-tax amounts, distributions in the form of in-plan Roth rollovers, and certain other clarifications to the two safe harbor explanations. The amendments to the safe harbor explanations (and attached model notices) may be used for plans that apply the guidance in section III of Notice 2014-54, 2014-41 I.R.B. 670, with respect to the allocation of pretax and after-tax amounts.

Notice 2014-74 will be published in Internal Revenue Bulletin 2014-50 on December 8, 2014. To read the entire notice, click here.

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IRS issues final and proposed rules for hybrid pension plans

November 25th, 2014 No comments

The Internal Revenue Service (IRS) has published a final rule covering tax-qualified cash balance (hybrid) pension plans, providing guidance on the key issue of “market rate of return.” Sponsors of hybrid plans have waited for four years for this guidance since the agency delayed the effective date of an October 2010 final rule following practitioners’ concerns that the IRS had incorrectly interpreted the statutory definition. In general, the final rule applies to plan years that begin on or after January 1, 2016.

The IRS also published a companion proposed rule to facilitate the transition for plan sponsors to adopt requirements, allowing for an election to apply the proposed rule to amendments adopted earlier than January 1, 2016. The IRS seeks comments on the proposal by December 18, 2014.

This Client Action Bulletin discusses final and proposed rules for hybrid pension plans.

Regulatory roundup

November 24th, 2014 No comments

More retirement-related regulatory news for plan sponsors, including links to detailed information.

PBGC annual report shows improvement in single-employer program and deterioration in multiemployer program
The Pension Benefit Guaranty Corporation (PBGC) has released its Annual Report, which showed that PBGC’s deficit increased to about $62 billion in fiscal year 2014, which was largely due to the declining condition of a few multiemployer plans. The financial condition of the single-employer program improved with a deficit of about $19.3 billion, down from $27.4 billion in the previous year.

The increase in PBGC’s deficit in the report is consistent with the estimates included in the FY 2013 Projections Report that was released in June. The projections report found that the insolvencies of a minority of multiemployer plans have become both more likely and more imminent.

To read the entire report, click here.

IRS updates rollover chart
The Internal Revenue Service (IRS) has updated its “Rollover Chart” for 2014. It’s a one-page summary in the form of a table, listing the eight kinds of plans and IRAs that can make rollover-eligible distributions, and the corresponding eight kinds of plans and IRAs into which those distributions can (or cannot) be rolled over. The chart was updated November 17, 2014, to reflect revised rollover rules.

To view the chart, click here.

Joint Committee on Taxation publishes analysis of the Tax Reform Act of 2014
The U.S. Joint Committee on Taxation (JCT) has released a Discussion Draft prepared by the Chairman of the House Committee on Ways and Means. This document provides a technical explanation, estimated revenue effects, distributional analysis, and macroeconomic analysis of the Tax Reform Act of 2014. The draft proposes to reform the Internal Revenue Code. Provisions related to pension and retirement begin on page 101, and include:

• Changes to rules for individual retirement arrangements
• Repeal of exception to 10% penalty for first-time home purchases and elimination of first-time home purchase as a qualified distribution from a Roth IRA
• Termination of new simplified employee pensions
• Termination for new SIMPLE 401(k) plans
• Modification of required distribution rules for pension plans
• Reduction in age for allowable in-service distributions
• Modification of rules governing hardship distributions
• Extended rollover period for the rollover of plan loan offset amounts in certain cases
• Coordination of contribution limitations for 403(b) plans and governmental 457(b) plans
• Application of 10% early distribution tax to governmental 457 plans; and inflation adjustments for employer-sponsored retirement plan dollar limitations on benefits and contributions

To read the entire draft, click here.

Picturing potential IRS penalties on audit, NDCP sponsors should seek selfies

November 13th, 2014 No comments

Pizzano-DominickAfter taking a selfie, the photographer/subject can examine the resulting image before deciding to share it. If the image is not satisfactory, appropriate adjustments can be made before others have the chance to view it. This same principle applies to nonqualified deferred compensation plans (NDCPs) with all the complex rules governing them and the costly consequences of noncompliance. Why risk the executive or sponsor being subjected to the paparazzi-like blitz of an Internal Revenue Service (IRS) audit, which could capture an unflattering candid shot of the plan’s operation? Wouldn’t it make more sense to take a selfie of the plan (i.e., conduct a self-audit) so that any operational blemishes may be fixed before seen through the unforgiving lens of an IRS audit? Encouraging such selfies, the NDCP operational correction procedures issued by the IRS generally provide that the quicker any errors are caught and corrected, the better the chances are of minimizing or even eliminating negative tax results for the affected participants.

While the sponsor may incur some cost in conducting a self-audit of its NDCPs, failing to find and promptly correct operational errors could potentially be even more expensive. IRC Section 409A violations can result in substantial tax penalties for the affected participants. The nonqualified deferred compensation (NDC) in question becomes fully taxable as soon as the participant has a vested (nonforfeitable) right to receive it. Furthermore, a 20% additional tax penalty on the value of the NDC will be imposed at the same time and, under certain circumstances, an interest charge will be imposed. Beyond the 409A ramifications, there may be other tax penalties for under-withholding if, for example, the applicable Federal Insurance Contributions Act (FICA) tax is not paid when due.

Maintaining operational compliance and correct reporting of amounts deferred to and distributed from their NDCPs poses a significant challenge for many sponsors who, while well-versed in qualified plan administration, do not have the same level of expertise available internally when it comes to the various and sometimes subtle differences presented by NDCPs. Just three of the plethora of potential pitfalls:

(1) Timely distributions: Most distributions from qualified plans do not occur until a participant elects to commence the benefit. The sponsor typically starts the process by sending an election package requesting the participant to make an election on the timing and form of the distribution. If no such election is made, it’s not uncommon for the benefit to be deferred in the plan. In contrast, there’s considerably less flexibility regarding the participant’s ability to choose the timing and form of distribution in NDCPs. Once the distribution triggering event occurs, the 409A compliance clock begins ticking and failure to transfer the applicable funds to the participant on a timely basis produces a 409A failure. It’s essential for sponsors to accurately track these distribution dates and stress to participants the importance of making sure the sponsor always has up-to-date instructions on where to send payments (especially in cases where participants terminate employment long before payment is due). A self-audit can determine if the current procedures are ensuring that all distributions are commencing in accordance with the plan’s terms.

(2) FICA calculation: While federal and most state income tax rules typically permit participants in a 409A-compliant NDCP to defer taxation until distribution, FICA taxation timing rules may require earlier inclusion in income. One of the most common omissions occurs in defined contribution style NDCPs that feature both executive deferrals and employer allocations. FICA rules require amounts deferred under these plans to be taxed when vested. Employee deferrals are 100% immediately vested and thus generally processed correctly (i.e., they are run through payroll and FICA tax procedures at that time). However, because employer allocations are treated separately and often subject to a vesting schedule, they can be overlooked and not properly FICA taxed once vesting occurs. A self-audit ascertains whether or not deferred amounts are being FICA taxed when due.

(3) W-2 reporting and withholding: There are separate, specific instructions and guidance that apply to which boxes need to be completed and what amounts should be entered on W-2 forms in order to properly report NDCP deferrals and distributions. NDCP sponsors must be extremely careful to not only accurately communicate the terms of their NDCPs to their payroll providers but also to review a provider’s initial withholding/report setup for the plan. Failure to address this during the initial stages can result in a wide range of negative tax consequences for participants. In addition to possibly triggering 409A violations, if amounts are not accurately reported, the participant may be overtaxed, under-taxed, and/or have their Social Security benefits adversely affected. A self-audit can compare the amounts currently being reported on W-2 with the supporting plan materials (e.g., election forms, benefit statements, salary information) to assure proper agreement.

NDCP sponsors would need a photographic memory to retain every nuance of the 409A rules, the FICA tax implications, and the reporting/withholding requirements. The preceding information represents just a very small snapshot of some of the issues that illustrate the need to self-audit. However, it is important to note that if the sponsors do not have the internal expertise in these areas, they should strongly consider seeking consulting advice to identify any and all imperfections so as to make sure that their selfies produce a pretty plan picture.

Regulatory roundup

November 3rd, 2014 No comments

More retirement-related regulatory news for plan sponsors, including links to detailed information.

IRS posts submission procedures for individually designed plans five-year remedial amendment cycle
The Internal Revenue Service (IRS) has published a web page outlining submission procedures for plan sponsors with individually designed plans and employer identification numbers (EINs) ending in 4 or 9.

For more information, click here.

GAO publishes report on pension valuation
The U.S. Government Accountability Office (GAO) has released a report entitled “Pension plan valuation: Views on using multiple measures to offer a more complete financial picture.” In this report the GAO discusses how defined benefit plans use interest rates to “discount,” or determine the current value, of estimated future benefits.

Experts in the United States have disagreed on both the approach that should be taken by plans to determine a discount rate and the appropriate rate to be used. Different discount rates can create large differences in the valuation of a plan’s obligations, which in turn can lead various stakeholders to draw different conclusions about a plan’s health, the value of a plan’s benefits, and the contributions required to fund them.

As requested, GAO examined different approaches used to determine the discount rate. This report addresses:

• The significance of differences in approaches used to determine discount rates among public and private plans
• Purposes for measuring the value of a plan’s future benefits and key considerations for determining discount rate policy
• Approaches selected countries have taken to choose discount rates

To read the entire report, click here.

PBGC announces maximum guarantee benefit for 2015
The Pension Benefit Guaranty Corporation (PBGC) has announced that the annual maximum guaranteed benefit for a 65-year-old retiree in a single-employer pension plan will increase to $60,136 for 2015, up from $59,318 in 2014. A table showing amounts for other ages is here.

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