Tag Archives: IRS

COLAs for retirement, Social Security, and health benefits for 2018

With the release of the September 2017 Consumer Price Index (CPI) by the Bureau of Labor Statistics, the Social Security Administration (SSA) and the IRS have announced cost-of-living adjusted figures for Social Security and retirement plan benefits, respectively, for 2018. The 2018 adjusted figures for high-deductible health plans (HDHPs) and health savings accounts (HSAs) included in this Client Action Bulletin were released by the IRS earlier this year and are provided here for convenience.

Regulatory roundup

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

Proposed rule on claims procedure for plan providing disability benefits; extension of applicability date
The Department of Labor (DOL) has proposed a delay to the applicability of the final rule amending the claims procedure requirements applicable to ERISA-covered employee benefit plans that provide disability benefits for 90 days – through April 1, 2018.

The final rule was published in the Federal Register on December 19, 2016, and became effective on January 18, 2017. The rule is currently scheduled to apply to claims for disability benefits under ERISA-covered employee benefit plans that are filed on or after January 1, 2018.

For more information on the proposed rule, click here.

Guidance providing funding methods for single-employer defined benefit plans
The Internal Revenue Service (IRS) has released two pieces of guidance providing funding methods for single-employer defined benefit plans.

Revenue Procedure 2017-56 updates Rev. Proc. 2000-40 to take into account the provisions of § 430 of the Internal Revenue Code, which was enacted as part of the Pension Protection Act of 2006. This revenue procedure provides automatic approval for certain changes in funding method used for single-employer defined benefit plans for calculations described under § 430. The approvals under this revenue procedure are granted in accordance with § 412(d)(1) of the Code and section 302(d)(1) of the Employee Retirement Income Security Act of 1974, as amended.

Revenue Procedure 2017-57 updates Rev. Proc. 2000-41 to take into account the enactment of subsequent legislation. This revenue procedure sets forth the procedure for obtaining approval of the Internal Revenue Service (IRS) for a change in the funding method used for a defined benefit plan, as provided by § 412(d)(1) of the Internal Revenue Code and section 302(d)(1) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). This revenue procedure also sets forth the procedure for obtaining approval of the IRS to revoke an election relating to interest rates pursuant to § 430(h)(2)(D)(ii) or § 430(h)(2)(E) of the Code and the corresponding sections of ERISA.

For more information on Revenue Procedure 2017-56, click here.

For more information on Revenue Procedure 2017-57, click here.

IRS issues final rule on mortality tables for defined benefit plans

The Treasury Department and the IRS released a final rule updating the mortality assumptions that single-employer defined benefit (DB) pension plans must use to calculate the actuarial liabilities for minimum funding requirements, benefit restrictions, and the Pension Benefit Guaranty Corporation (PBGC) variable-rate premiums. The updated mortality tables are also used to calculate lump-sum distributions to plan participants in DB plans that offer such one-time payments. The final rule generally is applicable for plan years beginning on or after Jan. 1, 2018, but also provides a limited one-year transition period (to Jan. 1, 2019), in certain circumstances.

The IRS concurrently released Notice 2017-60, with two mortality tables. The first is a sex-distinct table for the above-mentioned one-year 2018 transition period. The second is a unisex table (blended as 50% female mortality rates and 50% male mortality rates) that must be used for the calculation of certain optional forms of payments, such as lump-sum distributions, beginning with the 2018 plan years. Also released was Revenue Procedure 2017-55, providing instructions to obtain IRS approval of plan-specific mortality tables.

Although the final rule is aimed at single-employer DB plans, its mortality assumptions are also used to determine “current liability” for multiemployer pension plans and cooperative and small employer charity (CSEC) plans. This Client Action Bulletin provides more perspective on the final rule.

Regulatory roundup

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

Final regulations prescribing mortality tables for pension plans
The IRS released final regulations prescribing mortality tables to be used by most defined benefit (DB) pension plans. The tables specify the probability of survival year-by-year for an individual based on age, gender, and other factors. This information is used (together with other actuarial assumptions) to calculate the present value of a stream of expected future benefit payments for purposes of determining the minimum funding requirements for a defined benefit plan.

To learn more, click here.

Guidance released on mortality table to determine minimum lump sums
The IRS released Notice 2017-60 and Revenue Procedure 2017-55. Notice 2017-60 sets forth: (1) the mortality table to be used to determine minimum lump sums for distributions during stability periods beginning in the 2018 calendar year, and (2) updated mortality tables for 2018 determined under prior regulations. The updated mortality tables determined under prior regulations apply to certain plans with end-of-year valuation dates, and certain plans for which a transition option under new regulations is used for the 2018 plan year.

Revenue Procedure 2017-55 provides procedures for obtaining approval to use plan-specific mortality tables for pension funding purposes in lieu of the standard mortality tables that are generally required to be used.

To download Notice 2017-60, click here.

To download Revenue Procedure 2017-55, click here.

Disaster relief for employee benefit plans

The IRS, the Department of Labor (DoL), and the Pension Benefit Guaranty Corporation (PBGC) have released guidance to ease some of the rules applicable to benefit plan sponsors and participants affected by Hurricanes Harvey, Irma, and Maria. The new pieces of guidance provide relief separate from the IRS’s normal tax-related disaster relief (e.g., IRS Revenue Ruling 2003-12, which permits employers to provide tax-free cash or benefits to help employees in a presidentially declared disaster; or IRS announcements postponing tax return filing or payment deadlines for individuals and businesses). In general, the new relief is similar to that provided in 2012 under Hurricane Sandy (see Client Action Bulletin 12-10).

This Client Action Bulletin provides an overview of the federal agencies’ employee benefit plan-related guidance to date, along with a summary chart. Although the guidance offers relief to those directly in the covered disaster areas, it also applies some relief to retirement plans with participants in other parts of the country with relatives in the disaster areas.

Hurricane Irma victims: Hardship and loan relief available

Good news: the Internal Revenue Service (IRS) announced that 401(k) plans and similar defined contribution (DC) employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Irma and members of their families. Similar relief was provided to victims of Hurricane Harvey. Plans will be allowed to make loans and hardship distributions before they are formally amended to provide for these features. This relief applies to 401(a), 403(a), 403(b), and certain 457(b) plans. Defined benefit (DB) plans and money purchase plans cannot make hardship distributions unless they contain either employee contributions that are separately accounted for or rollover amounts.

Loans and hardship distributions will provide the financial resources needed to those suffering in the wake of the hurricanes. Announcement 2017-13 states that both current and former employees are able to take loans or hardship distributions if their principal residences on September 4, 2017, were located in the Florida counties identified for individual assistance by the Federal Emergency Management Agency (FEMA) because of the devastation caused by Hurricane Irma, or whose places of employment were located in one of these counties on that applicable date, or whose lineal ascendant or descendant, dependent, or spouse had principal residences or places of employment in these counties on that date.

Plans can ignore the reasons that normally apply to hardship distributions, thus allowing the funds to be used, for example, for food and shelter. If a qualified plan requires certain documentation before a distribution is made, the plan can relax this requirement and still be considered qualified. The amount available for a hardship distribution is still limited to the maximum amount available under the IRS Code. In addition, there are no post-distribution contribution restrictions required as there normally are in plans, if the distribution is being made for hurricane relief. Employees still have to pay income taxes on hardship distributions and may have to pay the 10% early penalty tax. Loans, if not repaid, but rather defaulted, become taxable income to the participant.

There is a window of time in which employees can take advantage of this relief. The distributions must be taken from a qualified plan on or after September 4, 2017, but no later than January 31, 2018. Employers need to amend their retirement plans to provide for loans or hardship distributions generally by December 31, 2018.

Why this relief is important does not need debating, but the significant impact it may have on retirement plans and employee retirement accounts remains to be seen. It is challenging for employees to save money and, with an unforeseeable emergency in front of them, employees will turn to where they have most if not all of their savings. Employees may also stop saving for the future indefinitely because of their need for current income to survive now. All of this can’t help but compromise their future retirements.