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Posts Tagged ‘IRS’

Regulatory roundup

July 28th, 2015 No comments

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

IRS announces changes to determination letter program for qualified retirement plans
The Internal Revenue Service (IRS) has issued Announcement 2015-19, describing important changes to the determination letter program for qualified retirement plans.

The changes outlined will eliminate the staggered 5-year determination letter remedial amendment cycles for individually designed plans and will limit the scope of the determination letter program for individually designed plans to initial plan qualification and qualification upon plan termination. The announcement also provides a transition rule with respect to the remedial amendment period for certain plans currently on the 5-year cycle.

The IRS is requesting comments on specific issues relating to the implementation of these changes to the determination letter program.

To read the entire announcement, click here.

PBGC issues proposed rule to amend annual financial-actuarial information reporting
The Pension Benefit Guaranty Corporation (PBGC) is proposing to amend its regulation on annual financial and actuarial information reporting to codify provisions of the Moving Ahead for Progress in the 21st Century Act (MAP-21) and the Highway Transportation and Funding Act of 2014 (HATFA-14) and related guidance that affect reporting under ERISA section 4010.

PBGC is proposing to limit the reporting waiver under the current regulation tied to aggregate plan underfunding of $15 million or less to smaller plans and to add reporting waivers for plans that must file solely on the basis of either a statutory lien resulting from missed contributions over $1 million or outstanding minimum funding waivers exceeding the same amount (provided the missed contributions or funding waivers were previously reported to PBGC). The proposed rule also makes some technical changes.

To read the entire proposed rule, click here.

IRS updates guidance and FAQs for pre-approved retirement plan
The IRS has updated its guidance and frequently asked questions (FAQs) for employers adopting pre-approved retirement plans. The guidance and FAQs were updated after the Service issued:

• Rev. Proc. 2015–36, which sets forth the procedures for issuing opinion and advisory letters regarding the acceptability under §§ 401, 403(a), and 4975(e)(7) of the Internal Revenue Code (Code) of the form of pre-approved plans (that is, master and prototype and volume submitter plans)

• Announcement 2015-16, on the issuance of opinion and advisory letters for pre-approved defined contribution plans for the second six-year cycle, deadline for employer adoption, and opening of determination letter program for pre-approved plan adopters.

To read the FAQs, click here.

The guidance is available at the following links:

Types of pre-approved retirement plans

Deadline extended for pre-approved defined benefit plans

Preapproved plan submission procedures

DOL web page houses comment letters related to conflicts of interest rule
The Department of Labor (DOL) has a web page containing submitted comment letters on the fiduciary definition, conflicts of interest rule, which was re-proposed on April 14, 2015. The comment period closed on July 21, 2015.

To read the comment, click here.

Categories: Benefit News Tags: , , ,

Paying a lump sum to retirees in a lump-sum window? “Not so fast my friend”

July 23rd, 2015 No comments

Herman-TimOn July 9, 2015, the Internal Revenue Service (IRS) announced that the U.S. Department of the Treasury and the IRS intend to amend regulations to prohibit qualified defined benefit plans from paying lump sums to retirees and beneficiaries in a lump-sum window. In Notice 2015-49, the IRS reported that its intent is to have the amendments to regulations apply as of July 9, 2015, except in certain situations described below.

What does this mean?
Many pension plan sponsors have provided a lump-sum window offer to deferred vested participants, and some of these sponsors have included retirees and beneficiaries in the window. After July 9, 2015, plan sponsors will not be permitted to offer lump sums to retirees or beneficiaries in a lump-sum window unless the amendment satisfies one of the exceptions below. However, there is nothing included in the IRS Notice that would preclude offering a lump sums to deferred vested participants.

Exceptions
The amendments to the regulations are intended by the IRS to apply as of July 9, 2015. However, the amendments will not apply to a plan amendment for a lump-sum window in one of the following four situations:

1. If the amendment is adopted or authorized prior to July 9, 2015.
2. An amendment where a private letter ruling or determination letter was issued by the IRS prior to July 9, 2015.
3. Where written communication to participants stating an “explicit and definite intent” to implement a lump-sum window was received by participants prior to July 9, 2015.
4. Adopted pursuant to a collective bargaining agreement between the plan sponsor and a union prior to July 9, 2015.

If the amendment satisfies one of these four exceptions, then a lump-sum payment in lieu of future annuity benefits for retirees and beneficiaries appears to be allowed.

Plan termination
It is not clear whether or not the IRS intends to prohibit defined benefit plans from paying lump sums to retirees and beneficiaries when a pension plan is terminated. This issue will need to be clarified when the amended regulations are published by the IRS.

Observations on regulatory action
Earlier this year, the U.S. Government Accountability Office (GAO) issued a report entitled “Participants need better information when offered lump sums that replace their lifetime benefits,” and the Pension Benefit Guaranty Corporation (PBGC) announced its plans to begin collecting data on pension plan de-risking measures. In a surprising move, IRS Notice 2015-49 was issued on July 9, 2015, with an intended effective date of July 9, 2015. There was little or no indication of pending guidance from the IRS or any indication that the IRS is open to feedback on the notice. This is unlikely to be the last step in the regulation of lump-sum windows.

Please contact a Milliman consultant to discuss how this notice might impact your intentions to offer a lump-sum window.

Regulatory roundup

July 20th, 2015 No comments

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

IRS releases Revenue Procedure concerning pre-approved plans
The IRS published Revenue Procedure 2015-36, providing procedures of the Internal Revenue Service for issuing opinion and advisory letters regarding the acceptability under §§ 401, 403(a), and 4975(e)(7) of the Internal Revenue Code (Code) of the form of pre-approved plans (that is, master and prototype (M&P) and volume submitter (VS) plans).

To read the IRS’ official statement, click here.

DOL releases Field Assistance Bulletin related to defined contribution plans
The Department of Labor (DOL) has issued Field Assistance Bulletin (FAB) 2015-02, Selection and Monitoring under the Annuity Selection Safe Harbor Regulation for Defined Contribution Plans. The FAB provides clarification of plan sponsors’ fiduciary obligations concerning annuity product selection for defined contribution plans.

The purpose of the FAB is to provide guidance regarding these issues, including the application of ERISA’s statute of limitations to claims relating to annuity selection, and assist the Employee Benefits Security Administration’s national and regional offices in responding to questions from employers and other interested parties.

To read the entire FAB, click here.

JCT issues present law and background information on federal excise taxes
The Joint Committee on Taxation released the report entitled “Present law and background information on federal excise taxes” (JCT Report JCX-99-15). The document provides a description of present-law federal excise taxes, and when applicable, background information on trust funds financed with excise tax revenues.

The document contains information on excise taxes relating to employee pension and benefit plans and excise taxes related to healthcare.

To entire report can be downloaded here.

Regulatory roundup

June 23rd, 2015 No comments

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

IRS releases temporary and proposed regulations on suspension of MPRA benefits
The Internal Revenue Service (IRS) has released temporary regulations on suspension of benefits under the Multiemployer Pension Reform Act (MPRA). These temporary regulations affect multiemployer pension plans that are projected to have insufficient funds, at some point in the future, to pay the full benefits to which individuals will be entitled under the plans (referred to as plans in “critical and declining status”).

To read the temporary regulations, click here.
To read the proposed regulations, click here.

IRS releases procedures for multiemployer pension plans in critical and declining status
The IRS has released Revenue Procedure 2015-34, which describes procedures for a multiemployer defined benefit plan in critical and declining status to apply for approval of a proposed suspension of benefits under § 432(e)(9).

The revenue procedure provides that the U.S. Department of the Treasury will accept applications beginning June 19, 2015. The revenue procedure is being issued in conjunction with temporary and proposed regulations providing guidance on benefit suspensions. Section 432(e)(9) was amended by Section 201 of the Multiemployer Pension Reform Act of 2014, Division O of the Consolidated and Further Continuing Appropriations Act, 2015, Public Law 113-235 (128 Stat. 2130 [2014]).

To read Revenue Procedure 2015-34, click here.

PBGC releases interim final rule on partitions of eligible multiemployer plans
The Pension Benefit Guaranty Corporation (PBGC) has issued an interim final rule prescribing the application process and notice requirements for partitions of eligible multiemployer plans under Title IV of ERISA, as amended by the Multiemployer Pension Reform Act of 2014 (MPRA).

The interim final rule is published pursuant to Section 122 of MPRA in order to carry out the provisions of Section 4233 of ERISA. PBGC is soliciting public comments on the interim final regulation.

To learn more about the interim final rule, click here.

FASB issues technical corrections and improvements
The Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) No. 2015-10, Technical Corrections and Improvements. The amendments contained in this ASU include items raised to the Board through the codification’s feedback mechanism.

Regarding employee benefits, the ASU contains:

• Amendments to Subtopic 715-30, Compensation—Retirement Benefits—Defined Benefit Plans—Pension (p. 25)
• Amendments to Subtopic 715-80, Compensation—Retirement Benefits—Multiemployer Plans Disclosure (p.26)
• Amendments to Subtopic 718-40, Compensation—Stock Compensation—Employee Stock Ownership Plans (p. 27-33)

To read the entire ASU, click here.

IASB proposed narrow-scope amendments to pension accounting standards
The International Accounting Standards Board (IASB) proposed narrow-scope amendments to pension accounting standards. The proposed changes are included in an exposure draft entitled “Remeasurement on a plan amendment, curtailment or settlement/availability of a refund from a defined benefit plan.”

When a defined benefit plan is amended, curtailed, or settled during a reporting period, the entity needs to update the assumptions about its obligation and fair value of its plan assets to calculate costs related to these changes. The proposed amendments to IAS 19 Employee Benefits specify that the entity is required to use the updated information to determine current service cost and net interest for the period followed by these changes.

To read the entire exposure draft, click here.

IRS guidance on favorable determination letters for individually designed plans expected this summer

June 19th, 2015 No comments

Smith-SuzanneEvery summer we look forward to nice weather, vacations, picnics, and barbecue. And Internal Revenue Service (IRS) guidance.

Yes, this summer we are expecting IRS guidance relating to changes in the determination letter program. The IRS has informally communicated a possible halt, beginning in 2016, to the issuance of IRS determination letters for individually designed retirement plans except for new plans or terminating plans. A formal announcement with details and an opportunity for comment is expected this summer.

Initially, this may sound like a beneficial change for employers because it eliminates a burdensome and costly process that individually designed retirement plans must generally undertake every five years.

But the potential negative impact of such a change is very concerning. While there is no federally regulated requirement to have favorable determination letters for each retirement plan, there are many good reasons for employers to seek them:

Reliance on audit: By having a current determination letter, an employer has assurance that its plan language is tax-qualified. If a plan is audited, the employer can rely on the determination letter to prove the plan’s tax-qualified status.
Approval of amendments to plan: Most plans are amended from time to time to incorporate new laws and optional plan provisions. A determination letter is important to demonstrate that the amended plan language meets the tax-qualified rules.
Due diligence for corporate restructuring transactions: When corporate restructuring transactions such as mergers, acquisitions, or divestitures occur, it is prudent to obtain current determination letters to review the tax qualifications of the plans involved in the transaction.

Without the ability to secure a current determination letter, plan sponsors would not be able to confirm the tax-qualified status of their plans, thereby leaving them unprotected in the event the IRS finds the plan language to be noncompliant during a future audit. Such a finding could result in severe penalties.

Two types of plans that have been considered individually designed and for which an employer would generally seek a favorable determination letter are employee stock ownership plans (ESOPs) and cash balance plans.

Perhaps recognizing that it will be limiting the availability of determination letters for individually designed plans, the IRS has recently released guidance that would expand the preapproved plan document program to include ESOPs and cash balance plans. If an employer uses preapproved language without modifications, an employer would have reliance on the IRS opinion/advisory letter without the need for a favorable determination letter. Thus, employers with individually designed ESOPs and cash balance plans may want to consider converting their plans to preapproved plan documents in the future.

So, as we kick off summer, we are anxiously awaiting IRS guidance on the future of the determination letter program as well as watermelon, fireworks, and pool parties.

Regulatory roundup

June 15th, 2015 No comments

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

IRS issues guidance expanding preapproved determination letter program
The Internal Revenue Service (IRS) has issued Revenue Procedure 2015-36, which expands the scope of the preapproved program to include defined benefit plans containing cash balance features and defined contribution plans containing employee stock ownership plan (ESOP) features and extends the deadline for submitting on-cycle applications for opinion and advisory letters for preapproved defined benefit plans to October 30, 2015.

In addition, this revenue procedure updates Rev. Proc. 2011-49 to reflect changes made to the determination letter program in 2012. Rev. Proc. 2011-49 is superseded.

Revenue Procedure 2015-36 will appear in IRB 2015-25 dated June 22, 2015.

To read the entire Revenue Procedure, click here.

SSA issues final rule on 60-month period of employment requirement for government pension offset exemption
The Social Security Administration (SSA) has issued a final rule that adopts, with clarifying changes, the proposed rule previously published in the Federal Register on August 3, 2007. This final rule revises the SSA’s Government Pension Offset (GPO) regulations to reflect changes to the Social Security Act (Act) made by section 9007 of the Omnibus Budget Reconciliation Act of 1987 (OBRA 1987) and Section 418 of the Social Security Protection Act of 2004 (SSPA). These regulations explain how and when the SSA will reduce the Social Security spouse’s benefit for some people who receive federal, state, or local government pensions if Social Security did not cover their government work.

To read the entire final rule, click here.

IRS updates listing of required modifications for cash balance and employee stock ownership plans
The IRS has published a collection of information packages designed to assist sponsors who are drafting or redrafting plans to conform with applicable law and regulations related to cash balance and employee stock ownership plans.

Document release: ERISA Form 8955-SSA, 2-D Barcode Standards
This document covers only the 2D barcode on ERISA Form 8955-SSA, valid for plan years 2009 to 2011. The 2D barcode is intended to represent the information on the paper form. Barcodes for this form are generated from two sources:

  • The IRS Form 8955-SSA Fill-able PDF produces a barcode after printing the form in Adobe.
  • The approved software vendors for Form 8955-SSA produce a barcode when printing their forms from their software packages.

To read the entire document, click here.

IRS explanation, worksheet (alert guidelines), and deficiency check sheets
The IRS has issued three explanations, worksheets (alert guidelines), and deficiency check sheets:

IRS posts nonqualified deferred compensation audit techniques guide
The IRS has posted a guide on nonqualified deferred compensation audit techniques. The guide provides:

  • An overview
  • Audit potential
  • Compliance focus
  • General audit steps

To access the guide, click here.

IRS issues latest Employee Plans News
The IRS has issued the June 10, 2015, edition of its newsletter Employee Plans News. The latest edition contains the following content:

  • Preapproved plan program expanded to include cash balance plans and ESOPs
  • Sample plan language (listings of required modifications) for ESOPs, and cash balance and 403(b) plans
  • Guidance for permanent program for late 5500EZ filers
  • IRS Nationwide Tax Forums begin in July
  • Changes to Forms 5500 for 2014
  • IRS names seven new members to Advisory Committee on Tax Exempt and Government Entities (ACT) panel
  • Updated Voluntary Correction Program fee chart

To read the newsletter, click here.

IRS updates 403(b) fix-it guide
The IRS has updated its 403(b) Plan Fix-It Guide. The document contains charts and explanations that address potential issues in plan administration. It includes how to find, fix, and avoid common plan errors, with hypertext links to online forms and guidance.

To access the fix-it guide, click here.

Regulatory roundup

May 11th, 2015 No comments

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

PBGC updates premium payment addresses
The Pension Benefit Guaranty Corporation (PBGC) has updated addresses for pension plan premium payments made by electronic funds transfer outside of the agency’s electronic filing and payment system.

For more information, click here.

FASB releases accounting standards update on fair value measurement
The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update 2015-07 on fair value measurement (Topic 820) disclosures for investments in certain entities that calculate net asset value per share (or its equivalent).

To read the entire FASB update, click here.

IRS: New issue of employee plans newsletter
The latest edition of the Internal Revenue Service (IRS) newsletter, Employee Plans News, provides information on changes to the employee plans (EP) determination letter application processing, new revenue procedure updates related to the Employee Plans Compliance Resolution System (EPCRS), and more.

To read the entire newsletter, click here.

Categories: Benefit News Tags: , , ,

Regulatory roundup

May 4th, 2015 No comments

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

IRS provides guidance on changes to the EP determination process
The Internal Revenue Service (IRS) has made changes to the determination letter program for retirement plans. The revised procedures generally apply to Form 5300 series determination letter applications received after February 1, 2015. These changes will improve the program’s efficiency and consistency.

For more information, click here.

ERISA to address pension risk transfers and plan sponsor education and lifetime plan participation
The ERISA Advisory Council has issued two statements:

• Statement on model notices and pension risk transfers
The 2015 council will supplement the work of the 2013 council by focusing specifically on the information that participants need to make informed decisions when faced with lump-sum risk transfers and insurance annuity risk transfers, and best practices for plan sponsors in communicating that information. The goal of the 2015 council is to offer the U.S. Department of Labor (DOL) draft model notices and disclosures that can be used by plan sponsors, participants, and the public.

For more information, click here.

• Statement on model notices and plan sponsor education and lifetime plan participation
The council would like to hear recommendations related to the drafting of model notices concerning lifetime participation in ERISA plans. The council would welcome witnesses and others to submit examples of model notices or other communications, including documents that are currently being delivered to participants. The council would like to hear recommendations related to outreach materials the DOL can provide to plan sponsors on the topic of innovative plan features that may encourage lifetime participation. The council requests testimony as it relates to data security issues.

For more information, click here.

IRS issues correction concerning the failure to comply with Section 409A
The IRS’s chief counsel has issued Memorandum 201518013 regarding the correction of a failure to comply with Section 409A. To read the entire memo, click here.

Categories: Benefit News Tags: , , ,

A major change to correction procedures provides much needed relief for sponsors

April 20th, 2015 No comments

Jakobe-KariOn April 2, the Internal Revenue Service (IRS) rolled out major changes to the correction methods related to failure to implement automatic enrollment or to having missed participant-elected deferral changes.

Previously, the prescribed correction in the Employee Plans Compliance Resolution System (EPCRS) was for the employer to make up 50% of the missed deferrals and 100% of the match, plus earnings on both. This was often a windfall for participants and penalty for sponsors that deterred many from adopting auto-enroll provisions in their plans.

There are now two new safe harbor corrections: one for plans with auto-enroll provisions, another for faulty elective deferrals. The general guideline of the new correction methods are as follows:

For plans with auto-enroll features:
• If the failure is found within nine months of the plan year-end in which the auto-enroll should have begun:
o Start the deferral immediately
o Send a notice of the failure to the participant
o 100% of any missed match is made up and adjusted for earnings

• If the failure is found outside the nine-month window following the plan year-end, the old procedure remains in place.

For other elective deferral changes that are not completed as requested by the participant, if the failure is found within three months:
• Start the deferral immediately
• Send a notice of the failure to the participant
• 100% of any missed match is made up and adjusted for earnings

If found after three months from the date the change was to be effective:
• Start the deferral immediately
• Send a notice of the failure to the participant
• 100% of any missed match is made up and adjusted for earnings and the participant must receive a qualified nonelective contribution (QNEC) in the amount of 25% of the missed deferral, plus earnings

For a more detailed explanation on the new regulations, see the recent Client Action Bulletin published by Milliman.

IRS eases correction methods for common 401(k)/403(b) plan failures

April 14th, 2015 No comments

This Client Action Bulletin discusses recently issued IRS Revenue Procedure 2015-28 that will allow sponsors of 401(k) and 403(b) plans to fix two common administrative errors. The Internal Revenue Service (IRS) released guidance that will allow sponsors of 401(k) and 403(b) plans to easily correct two common administrative errors without first having to obtain approval from the agency. Revenue Procedure 2015-28 modifies and improves the Employee Plans Compliance Resolution System (EPCRS) by providing a new safe harbor relating to automatic contribution features (including automatic enrollment and automatic escalation of elective deferrals) and a separate new special safe harbor correction method for faulty elective deferrals that occur over a period of limited duration.