More retirement-related regulatory news for plan sponsors, including links to detailed information.
IRS updates article on employer “pick-up” contributions to benefit plans
Retirement plans that feature a salary reduction or cash-deferred arrangement allow employees to choose to defer some income from tax by electing to place it in a trust account for retirement. By making such an election, the amount deferred is not subject to income tax at the time it was placed in the trust. The deferred amounts are subject to Social Security and Medicare (FICA) tax.
However, other employer retirement plans are funded either through employer contributions only, or by mandatory employee contributions, with no elections to defer salary. These plans can raise questions about whether the contributions are considered paid by the employer or by the employee, and thus whether these amounts are subject to income tax and FICA withholding.
The Internal Revenue Service (IRS) has updated am article intended to address recent guidance on these questions. To read the entire article, click here.
IRS updates its examination process guide on multiemployer plans
The IRS has updated its examination process guide on multiemployer plans and identified the 10 top errors found during audits. The 10 issues are:
1. Errors made in benefit calculations, crediting service, reduction factors, or general administration.
2. Internal Revenue Code Section 412 violations—funding deficiencies.
3. Plans did not make required actuarial adjustments for benefit payments beginning after normal retirement date.
4. Deficient plan language and/or conflict between plan document and other agreements (e.g., collectively bargained, joinder, or participation).
5. Internal Revenue Code Section 401(a)(9) violations (required minimum distributions).
6. Plans fail to follow or do not have participation agreements for each participating employers.
7. Accruals/service credits are dependent on employer contributions being made.
8. Internal Revenue Code Section 411 violations including cash out/forfeitures from lost participants, wrong vesting schedule used, and errors in vesting percentages.
9. Delinquent/late contributions.
10. Misuses/diversions of pension funds.
For more information, click here.
IRS issues quick reference guide for public employees
The IRS has issued “Quick Reference Guide for Public Employees” (Publication 5138 (2-2014). The guide is produced annually by the IRS office of Federal, State, and Local Governments (FSLG). It is intended to provide a brief introduction to basic federal employment tax and reporting information issues for governmental employers.
For more detailed information in these areas, see IRS Publication 963, “Federal/State Reference Guide.” For a general discussion of employment tax responsibilities that apply to all employers, see Publication 15, “Employer’s Tax Guide.” These publications discuss the general rules for reporting wages on Form W-2, Wage and Tax Statement, and on Form 941, Employer’s Quarterly Employment Tax Return. They also address requirements for withholding and depositing of taxes.
This guide is intended to focus on the key points facing public employers and to point to sources for further information. To read the entire guide, click here.
President signs executive order hiking minimum wage for federal contractors
The president has signed an executive order that raises the minimum wage to $10.10/hour for federal contract workers, effective for new and renewed contracts beginning January 1, 2015.
The order also raises the tipped minimum wage, from the current minimum base wage of $2.13/hour to $4.90/hour for new contracts and replacements put out for bid after January 1, 2015. The base amount increases by $0.95 annually until it reaches 70% of the regular minimum wage; if a worker’s tips do not add up to at least $10.10/hour, the employer must pay the difference.
In addition, the order covers individuals with disabilities. (Currently, specialized certificate programs allow workers whose productivity is affected because of their disabilities to be paid less than the others performing the same jobs.)