Federal Updates
2015 Archive

December 15, 2015

Congress Repeals Form 5500 Extension Expansion

In the Oct. 6, 2015 edition of Compliance Corner, we reported that Congress passed legislation extending the Form 5500 automatic extension to Nov. 15 for 2016 and later plan years. However, on Dec. 4, 2015, the Fixing America’s Surface Transportation Act, Pub. L. No 114-94 Section 32104 repealed that extension. As a result, the extension period available for filing the Form 5500 will remain at two and a half months beyond the filing deadline, instead of being lengthened to three and a half months. Since this repealed change was not going to be effective until Jan. 1, 2016, employers will experience no change to their current practice of filing their Forms 5500 no later than two and a half months after the filing deadline of seven months following the end of the plan year.

Fixing America’s Surface Transportation Act »

IRS Releases 2016 Versions of HSA Reporting Forms

The IRS recently released the 2016 versions of Forms 5498-SA and 1099-SA. The two forms, along with joint instructions, are used by trustees and custodians of HSAs, Archer Medical Savings Accounts (MSAs) and Medicare Advantage MSAs to report contributions to, and distributions from, these accounts.

The 2016 versions are substantially similar to the 2015 versions, with only minimal changes. Use of the 2016 forms does not begin until 2017, when reporting for the 2016 tax year is due.

Finally, the IRS has discontinued the distribution of preprinted forms and provides both forms only in an online fillable format. No changes were made to the requirements for filing Copy A with the IRS electronically.

Form 5498-SA »
Form 1099-SA »
Instructions »

IRS Publishes FAQs Related to New Retirement Plan Compliance Questions on 2015 Form 5500 Series Returns

On Dec. 4, 2015, the IRS published several FAQs relating to new questions posed on the recently released 2015 versions of Form 5500. The FAQs are meant to clarify new questions relating to retirement plans. There are nine FAQs, and each addresses a different Form 5500 question. For example, one FAQ addresses the correct box to check when answering a question relating to nondiscrimination requirements for employee deferrals and employer matching contributions. Another addresses how to answer a question where the plan meets exceptions to the coverage rules under IRC Section 410(b), and lists the exceptions that might apply. A different question addresses the situations under which a plan sponsor would check “N/A” to indicate whether the plan trust incurred unrelated business taxable income.

Retirement plan sponsors should review the FAQs to familiarize themselves with the new Form 5500 questions. According to the FAQs, although plan sponsors are encouraged to answer the new questions, answers to the questions are optional for the 2015 plan year.

IRS FAQs »


November 17, 2015

EBSA Proposes Rules Related to Disability Claims Procedures

On Nov. 13, 2015, the EBSA released proposed regulations related to disability plan claims procedures. The proposed regulations are intended to amend the existing rules under ERISA to better align with PPACA’s internal claims appeal rules for health plans.

Under the proposed rules, a disability plan would have to ensure that all disability benefit claims and appeals are adjudicated in a manner designed to ensure the independence and impartiality of the decision makers. For example, a claims adjudicator or medical expert should not be hired, promoted, terminated or compensated based on the likelihood of his denials of benefit claims.

There are three proposed changes to the disclosure requirements. If a claim is denied, the adverse benefit determination must contain:

  • A discussion of the decision, including the basis for disagreeing with any determination made by the Social Security Administration, a treating physician or other third party disability payor, if applicable.
  • The internal rules, guidelines, protocols, standards or other similar criteria of the plan that were used in denying the claim.
  • A statement during the claims stage that the claimant is entitled to receive, upon request, relevant documents. Currently this notice is only required of denied claims on appeal.

The proposed rules would require that the plan provide the claimant with any new or additional evidence in connection with the claim. The information must be provided free of charge and must be provided prior to the appeal decision so that the claimant has reasonable opportunity to respond.

Currently, a participant only has the right to appeal a rescission of coverage (i.e., retroactive termination of coverage) if a claim is involved. The proposed rules would permit a participant to appeal any rescission of coverage, regardless of whether the participant was currently receiving benefits.

EBSA proposes that disability plans adopt the culturally and linguistically appropriate notice requirements under PPACA. Specifically, if a disability claimant’s address is in a county where 10 percent or more of the population is literate only in the same non-English language, notices of adverse benefit determinations must include a prominent one-sentence statement in the relevant non-English language about the availability of language services. The plan would also be required to provide a verbal customer assistance process in the non-English language.

Lastly, EBSA requests comments not only on the provisions outlined here, but also specifically related to statute of limitations and whether plans should be required to provide claimants with a clear and prominent statement of any applicable contractual limitations period and its expiration date for the claim at issue in the final notice of adverse benefit determination on appeal. Comments are due by Jan. 17, 2016.

Proposed Regulations »

U.S. Treasury Announces Launch of Expanded Funding Options under myRA Program

On Nov. 4, 2015, the U.S. Department of the Treasury announced the rollout of the full myRA program, with new funding options. The myRA program, a concept first introduced by President Obama in his January 2014 State of the Union Address, was previously in a pilot phase and contributions could only be made through an employer.

Now, in addition to setting up contributions via direct deposit through an employer, individuals can set up one-time or recurring contributions to a myRA from a checking or savings account. Additionally, savers can direct all or part of a federal tax refund to a myRA.

As shared in the January 2014 issue of Compliance Corner, features of myRA include:

  • Low cost to employers. Employers do not administer or contribute to the accounts.
  • Low investment barriers.
  • Principal protection. The accounts are backed by the U.S. government, similar to savings bonds.
  • Contributions can be withdrawn tax-free at any time.
  • Individuals can keep the account if they change jobs or can roll it over to a private sector plan.

myRA is an option for individuals who do not have access to a retirement savings plan (e.g., 401(k) plan) at work. myRA is a Roth IRA and is subject to the same eligibility requirements. In order to participate, individual savers (or their spouses, if married filing jointly) must have taxable compensation and must be within the Roth IRA income guidelines. For 2015, those guidelines state that an eligible person must have an annual income below $131,000 (if single) or $193,000 (if married filing jointly).

Treasury Dept. News Release »
myRA Fact Sheet »
myRA FAQs »


November 3, 2015

Proposed IRS Regulations on Same-Sex Marriage Apply Windsor and Obergefell Decisions

On Oct. 21, 2015, the IRS issued proposed regulations establishing that a marriage of two individuals, whether of the same sex or the opposite sex, will be recognized for federal tax purposes if that marriage is recognized by any state, possession or territory of the United States, or is a valid marriage performed in a foreign jurisdiction, consistent with the Supreme Court’s decisions in Windsor and Obergefell. The proposed regulations would also interpret the terms “husband” and “wife” to include same-sex spouses as well as opposite-sex spouses.

As background, the Supreme Court, in U.S. v. Windsor, ruled Section 3 of the Defense of Marriage Act (DOMA) unconstitutional in 2013. For all purposes under federal law, including ERISA and the IRC, Windsor required employers and plans to recognize a legally married same-sex spouse as a spouse under federal law, at least in states that allowed same-sex marriage. The Supreme Court, in Obergefell v. Hodges, went one step further in finding that the Fourteenth Amendment of the U.S. Constitution requires a state to license and to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out of state.

The proposed regulations will apply to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

The proposed regulations are consistent with our understanding following Windsor and Obergefell. They do not change the federal tax treatment of domestic partnerships or civil unions. Specifically, the proposed regulations would not treat registered domestic partnerships, civil unions or similar relationships not denominated as marriage under state law as marriage for federal tax purposes. This is to distinguish between individuals who have specifically chosen to enter into a state law registered domestic partnership, civil union or similar relationship rather than a marriage in order to retain their status as single for federal tax purposes.

Comments on these proposed regulations must be received by Dec. 7, 2015. The regulations as proposed would be applicable as of the date the Treasury Department publishes them as final regulations.

Proposed Regulation »
Treasury Department Press Release »

IRS, SSA Issue 2016 Cost of Living Adjustments

On Oct. 21, 2015, the IRS issued News Releases IR-2015-118, IR-2015-119 and Revenue Procedure 2015-53, which all relate to certain cost-of-living adjustments for a wide variety of tax-related items, including pension plans, health FSAs and other limitations for tax year 2016.

For 2016, the elective deferral limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remained unchanged at $18,000. Additionally, the catch-up contribution limit for employees age 50 and over who participate in any of those plans remains at $6,000. The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts remains at $12,500.

Also unchanged are the annual limit for defined contribution plans under Section 415(c)(1)(A) which will stay at $53,000, and the annual limit on compensation that can be taken into account for contributions and deductions remains $265,000. The threshold for determining who is a “highly compensated employee” (HCE) also remains the same, at $120,000.

Other limits, including the annual benefit for a defined benefit plan under Section 415(b)(1)(A), the dollar limitation concerning the definition of key employee in a top-heavy plan and the limitation on IRA contributions also remain the same for 2016.

According to the revenue procedure, the annual limit on employee contributions to a health FSA will remain $2,550 for plan years beginning in 2016.

Some changes impact the small business health care tax credit, since the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10. For 2016, the average annual wage level at which the credit phases out for small employers is $25,900 (up $100 from 2015). The maximum average annual wages to qualify for the credit as an “eligible small employer” for 2016 will be $51,800 (a $200 increase from the 2015 amount).

Another change is that the maximum amount an employee may exclude from his or her gross income under an employer-provided adoption assistance program for the adoption of a child will be $13,460 for 2016 (a $60 increase from the 2015 maximum of $13,400).

Regarding qualified transportation fringe benefits, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits in 2016 will be $255 (a $5 increase from the 2015 monthly limit of $250). The combined monthly limit for transit passes and vanpooling expenses for 2016 will remain at $130. Whether Congress will eventually extend the “rule of parity” that made the combined transit/vanpooling limit the same as the parking limit until the end of 2014 remains to be seen.

Related to health care reform, for taxable years beginning in 2016, the following limitations on the tax for excess advance credit payments will apply.

  • For unmarried individuals (other than surviving spouses and heads of household):
    • $300 for household income less than 200 percent of the federal poverty line (FPL)
    • $750 for household income at least 200 percent but less than 300 percent of FPL
    • $1,275 for household income at least 300 percent but less than 400 percent of FPL
  • For all other taxpayers:
    • $600 for household income less than 200 percent of FPL
    • $1,500 for household income at least 200 percent but less than 300 percent of FPL
    • $2,550 for household income at least 300 percent but less than 400 percent of FPL.

This tax is imposed if a taxpayer’s advance premium tax credit payments for health insurance purchased through an exchange for a year exceed the allowed credit. It does not impact employer-sponsored health insurance.

Finally, on Oct. 15, 2015, the Social Security Administration (SSA) issued a news release stating that there is no COLA adjustment for Social Security and that Medicare premium and deductible changes have not yet been announced. A fact sheet comparing 2015 and 2016 limitations side-by-side (mostly reflecting no changes) was also released. The press release states that when available, Medicare changes for 2016 will be found at www.medicare.gov.

NFP has a white paper which includes the updated annual employee benefit limits. Please ask your advisor for a copy. Sponsors and administrators of benefits with limits that are changing (adoption assistance plans and transportation plans) will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.

IR-2015-118 »
IR-2015-119 »
Rev. Proc. 2015-53 »
Social Security Press Release »
Social Security 2016 COLA Fact Sheet »

IRS Publishes Appeal Procedures for Adverse Determination Letter on Qualification of a Retirement Plan

The IRS recently issued the 2015 version of Publication 5153, Appeal Procedures: Adverse Determination Letter on Qualification of a Retirement Plan, to assist employers with disagreements on retirement plan qualification matters. Specifically, the IRS has an administrative appeal system to help settle differences with employers who have received a proposed adverse determination letter.

This publication gives instructions for employers that wish to appeal adverse findings to the IRS Office of Appeals. To appeal, an employer must file a written appeal with the Director, Employee Plans Rulings and Agreements, at the address shown on the proposed adverse determination letter within 30 days from the date of the letter. This publication details the information that needs to be contained in the written protest. Once the appeal is received, the IRS will arrange a conference or telephone meeting at a convenient time and place with an appeals officer. Most issues can be resolved at this conference.

If the employer still disagrees with the decision of the IRS after the conference, they may be able to petition the United States Tax Court for a declaratory judgment on the qualification of their plan if certain requirements outlined in this publication are met. If the employer disagrees with the Tax Court’s decision, they may appeal to the U.S. Court of Appeals. This publication includes a helpful flow chart illustrating the various appeal procedures that are available once an employer receives a final adverse determination letter from the IRS.

Publication 5153 »

EEOC Proposed Regulations Address GINA’s Application to Wellness Programs

On Oct. 29, 2015, the EEOC published proposed regulations and a press release relating to GINA’s application to employer-sponsored wellness programs. As background, GINA generally prohibits employers from discriminating against employees based on genetic information and from requesting or requiring genetic information from employees. “Genetic information” includes information about an individual’s genetic tests and information about the manifestation of a disease or disorder in family members (including spouses and other dependents) of an individual. One exception to those general prohibitions relates to a voluntary wellness program where an employee voluntarily accepts health or genetic services or requests offered by an employer. The proposed regulations address that exception.

The proposed GINA regulations emphasize that a wellness program cannot condition inducements to employees on the provision of genetic information (this is derived from GINA’s explicit prohibition against adjusting premium or contributions amounts based on genetic information). The regulations clarify that GINA does not prohibit employers from offering limited inducements (whether in the form of rewards or penalties) for the provision by spouses (those covered by the employer’s group health plan) of information about their current or past health status as part of a health risk assessment (HRA) or other screening. The HRA or screening may include a medical questionnaire and a medical examination, as long as the HRA or screening is voluntary and the individual provides prior, knowing, voluntary and written authorization (including in electronic format). The word “inducement” includes financial and similar rewards, such as time off, prizes or other items of value. Importantly, incentives are limited to 30 percent of the total cost of coverage for the plan in which the employee and any dependents are enrolled. In addition, the maximum portion of an incentive that may be offered to an employee alone may not exceed 30 percent of the total cost of self-only coverage.

The regulations contain an example that helps illustrate how the incentive may be apportioned. According to the example, if an employee is enrolled in a health plan that covers the employee and his or her dependents, and the cost of that coverage is $14,000, the maximum inducement the employer can offer for the employee and employee’s spouse to provide information about their current or past health status is 30 percent of $14,000, or $4,200. If the employer’s self-only coverage costs $6,000, the maximum allowable incentive the employer may offer for the employee’s participation is 30 percent of $6,000, or $1,800. The rest of the inducement ($4,200 minus $1,800, or $2,400) may be offered for the spouse to provide current or past health information. However, an employer would be free to offer all or part of the $2,400 inducement in other ways as well, such as for the employee, spouse and/or another of the employee’s dependents to undertake activities that would be considered as participatory or health-contingent (under HIPAA’s rules) but do not include requests for genetic information, disability-related inquiries or medical examinations. Thus, an employer could offer $1,800 for the employee to answer disability-related questions or take medical examinations as part of an HRA, could offer the same amount for the employee’s spouse to answer the same questions and to take the same examinations and could offer the remaining $600 for the employee, spouse or both to undertake a walking program.

Importantly, employers may not condition wellness program participation or an inducement on an employee (or the employee’s spouse or other dependent) agreeing to the sale of genetic information or otherwise waiving other protections afforded by GINA. In addition, the GINA regulations add a requirement that any health or genetic services offered via a wellness program be reasonably designed to promote health or prevent disease. It’s important to remember that the EEOC previously published proposed regulations on the ADA’s application to wellness programs. Many of the GINA proposals are meant to align the GINA regulations with the ADA regulations.

Before finalizing the proposed regulations, the EEOC will accept comments through Dec. 29, 2015. Although the proposed regulations are not yet effective, employers should familiarize themselves with the GINA rules, particularly if they have or are contemplating a wellness program in conjunction with their group health plan.

Proposed Regulations »
Press Release »
Q/As on the Proposed Regulations »
Small Business Fact Sheet »


October 6, 2015

IRS Publishes Employee Plans News Issue No. 2015-10

On Sept. 30, 2015, the IRS published Issue No. 2015-10 of Employee Plans News. In this edition, the IRS notified the public that Congress has continued the Form 5500 automatic extension to Nov. 15 for 2016 and later plan years. In the future, employers will be able to get an extension to file their Forms 5500 no later than Nov. 15, which is much later than the extra two months currently allowed. The IRS also clarified that although they recently revised Forms 8950 and 8951 (the forms used by employers who are utilizing the Voluntary Correction Program), employers may continue using the old versions of those forms until Jan. 1, 2016.

The IRS also announced that April 30, 2016, is the deadline for employers to restate an updated version of their pre-approved retirement plan documents.

Additionally, the IRS included information on correcting retirement plan mistakes by providing links to recorded webinars on this topic and provided a new 403(b) plan Fix-It-Guide. They also announced that the IRS retirement plans webpage has a new look with additional categories of information.

Finally, the IRS outlined various IRA and defined benefit guidance and reported on some subjects already covered in Compliance Corner, such as the draft of the 2015 Form 8955-SSA and the procedure for requesting a waiver of electronic filings of those forms.

Employers with retirement plans should review the resources provided by the IRS to ensure compliance for their retirement plans.

Employee Plans News Issue No. 2015-10 »

IRS Publishes 2016 Instructions for Form 1098-Q

The IRS recently published the 2016 instructions for Form 1098-Q. As background, the IRS made qualifying longevity annuity contracts (QLACs) accessible to defined contribution plans beginning in 2014. QLACs are deferred income annuities that pay monthly income beginning at an advanced age, such as 80 or 85. Form 1098-Q reports to the IRS and the individual how much the individual has invested in a QLAC.

Any employer that offers QLACs as an investment option should familiarize themselves with the instructions so they are prepared to file Forms 1098-Q.

1098-Q Instructions »


September 22, 2015

Executive Order Establishes Paid Sick Leave for Federal Contractors

On Sept. 7, 2015, President Obama signed an executive order requiring federal contractors to provide employees with at least one hour of paid sick leave for every 30 hours worked, up to 56 hours of paid sick leave. Employees may use the sick leave earned under this order for absences resulting from physical or mental illness, injury or medical condition, or obtaining diagnosis, care or preventive care. This sick leave can also be used to care for a child, parent, spouse, domestic partner or any other blood relative with whom the employee has a family relationship, as long as that person has a condition or needs diagnosis, care or preventive care. The order also allows the employee to take leave to address conditions resulting from domestic violence, sexual assault or stalking.

The order gives various details about the sick leave that must be offered. Specifically, the sick leave must be carried over from year to year, and it must be reinstated to any employee who is rehired by a federal contractor less than 12 months after separating. However, contractors are not required to pay employees for their accrued sick leave upon separation from employment.

Additionally, employees must request paid sick leave at least seven days in advance when leave is foreseeable and as soon as is practicable when leave is not foreseeable. The contractor may only request documentation of the need for leave for absences that are three or more consecutive days.

The order also discusses the interaction of this new law and the Service Contract Act (SCA) and Davis-Bacon Act (DBA). Specifically, contractors will not receive credit towards their prevailing wage or fringe benefit requirements for any paid sick leave that is provided under this order. However, paid sick leave provided under a contractor’s SCA or DBA obligations will satisfy the requirements under this order if the paid sick leave is sufficient to meet the requirements of this order.

The order directs the U.S. Secretary of Labor to issue regulations on this order by Sept. 30, 2016, and the effective date will be Jan. 1, 2017.

Any employer with federal contracts should review this order in preparation of offering the requisite paid sick leave. Please contact your advisor if you have additional questions about this order’s application to your employees.

Executive Order »

IRS Publishes Retirement Plan Guidance on Economic Hardship Waiver for Electronic Filing of Forms 8955-SSA and 5500-EZ

On Sept. 14, 2015, the IRS published Rev. Proc. 2015-47, which relates to procedures for requesting a waiver of the electronic filing requirements for Forms 8955-SA and 5500-EZ. Under IRS rules, retirement plan sponsors must electronically file these forms if required to file at least 250 forms during a calendar year. According to Rev. Proc. 2015-47, the electronic filing requirement may be waived where electronic filing would result in “undue economic hardship,” which is generally determined by comparing the cost of electronic filing to that of paper filing. If electronic filing costs more, a waiver may be requested, although the Rev. Proc. states that it will grant waivers only in exceptional cases.

The Rev. Proc. outlines the process for requesting a waiver. The request, sent to the IRS, must include information relating to the plan and describe the steps taken to comply with the electronic filing requirement. The request must provide reasons why those steps failed, including specific calculations indicating that the electronic cost of filing exceeds the paper cost of filing. Lastly, the waiver must include a statement relating to strides the plan sponsor will take in future years to comply with the electronic filing requirement.

The request must be submitted to the IRS on or before the due date of the particular form, although earlier submission is encouraged. The IRS then sends a written notice of approval or rejection of the request. Plan sponsors that do not hear back from the IRS should assume the request has been denied (and plan to file electronically).

Rev. Proc. 2015-47 is effective Sept. 28, 2015.

Rev. Process 2015-47 »

IRS Issues Revised Publication 1220 on Electronic Filing for Certain Forms

The IRS recently issued the 2015 version of Publication 1220, Specifications for Electronic Filing of Forms. The publication gives instructions for entities (including employers) that electronically file any of the following information reports with the IRS: Forms 1097, 1098, 1099, 3921, 3922, 5498, 8027, 8955-SSA, 1042-S and W-2G. These forms should be filed through the Filing Information Returns Electronically (FIRE) System.

The publication gives detailed instruction on filing, including file formats and record layouts. First time filers are required to submit Form 4419, Application for Filing Information Returns Electronically, to receive authorization to file electronically, which could take up to 45 days. Filers should plan appropriately considering the due date of the information returns.

This publication does not apply to Forms 1094-B, 1095-B, 1094-C and 1095-C, which will be filed through the Affordable Care Act Information Returns (AIR) Program.

Generally speaking, employers who file 250 or more information returns must file electronically, unless they qualify and file Form 8508 Request for Waiver From Filing Information Returns Electronically. Employers filing fewer than 250 forms are permitted to file electronically or by paper.

IRS Publication 1220 »


September 8, 2015

IRS Revises Form 8951, Modifies Certain Voluntary Correction Program Fees

The IRS has published a revised Form 8951, modifying certain filing fees required under its Voluntary Correction Program (VCP). As background, retirement plan sponsors who discover certain plan document or operational failures can correct those failures through the VCP. The IRS then approves those corrections and the plan maintains its tax-favored status.

There are fees associated with making corrections under the VCP, and Form 8951 provides the schedule of those fees. The Form 8951 revisions acknowledge the VCP changes adopted by the IRS in Rev. Proc. 2015-27.

Specifically, in Rev. Proc. 2015-27 the IRS lowered the filing fees for VCP submissions relating to plan loan failures. VCP submissions that seek to correct a plan loan failure that does not affect more than 25 percent of plan participants will now pay reduced fees. Prior to this revision, the filing fees for this failure ranged from $375 to $12,500. The new fees range from $300 (for participant loan failures affecting 13 or fewer plan participants) to $3,000 (for participant loan failures affecting more than 150 participants).

Additionally, the IRS modified the fees to correct missed required minimum distribution failures. Prior to this update, a reduced VCP filing fee was only available for minimum distribution failures that involved 50 or fewer participants. The new rules allow for a reduced fee of $500 for minimum distribution failures that involve up to 150 participants and $1,500 for those that involve 151-300 participants.

Any employer who discovers plan failures should consider the VCP as a way to protect the plan’s qualified status. Please see your adviser for more information on correcting plan failures.

Form 8951 »
VCP General Description »

IRS Sending Compliance Check Letters Concerning 4971(a) Excise Tax

The IRS began sending compliance check letters to certain 401(k) plan sponsors who filed a Form 5330 reporting an excise tax under IRC Section 4971(a). The IRS is sending these information request letters as part of a project to determine if certain plan sponsors have been incorrectly filing Forms 5330.

As background, IRC Section 4971(a) requires an excise tax of sponsors whose plans are subject to the minimum funding requirements found in IRC Section 412 but who did not timely deposit the required minimum contributions. However, that requirement only applies to defined benefit plans, and the IRS has noted that several plan sponsors of defined contribution plans have also filed Form 5330, reporting an excise tax under the IRC Section 4971(a) requirements. As such, the IRS is sending these compliance check letters to determine how this failure is occurring and to determine if there is some other excise tax that is applicable to these plans.

If your plan files Form 5330 to correct certain failures, please review the instructions to ensure the excise taxes are being reported correctly. Additionally, if you receive one of the information request letters from the IRS, it is best practice for you to review your plan, fill out the information request and return it to the IRS. Please see your adviser if you have any additional questions.

401(k) Plans Reporting 4971(a) Tax Project Questionnaire »
IRS Project Information »


August 25, 2015

IRS Publishes Draft 2015 Form 8955-SSA

The IRS recently published a draft of the 2015 Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits. As background, Form 8955-SSA is used to report information about participants who separated from service during the plan year and are entitled to deferred vested benefits under the retirement plan. The information in this form is given to the Social Security Administration (SSA), and the SSA provides that information to separated participants when they file for social security benefits.

The 2015 draft version of Form 8955-SSA is unchanged from the 2014 version. However, the IRS has yet to publish the 2015 instructions. We will continue to report on this issue as there are developments.

Keep in mind that this draft is informational only, and employers will need to file using the final version once it is published by the IRS. In the meantime, plan sponsors should review the draft form and ensure the final form is filed by the employer or another service provider.

Draft of 2015 Form 8955-SSA »


August 11, 2015

FASB Issues Guidance Relating to Accounting Standards for Employee
Benefit Plans

On July 31, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-12. The new guidance is meant to simplify three areas of employee benefit plan accounting: plan investment disclosures, fully benefit responsive investment contracts (known as ‘FBRICs’) and measurement dates for employee benefit plans.

Regarding plan investment disclosures, the update states that investments must be disaggregated only by general type as required by certain accounting topics. The update also eliminates certain disclosures (participant and non-participant directed investments) related to investments at net asset value or that represent five percent or more of net assets.

Regarding FBRICs, the update streamlines accounting by designating contract value as the only required measure, eliminating the requirement to present and disclose a FBRIC’s fair market value. For this purpose, ‘contract value’ is defined as the amount plan participants would normally receive if they were to initiate permitted transactions under the terms of the underlying plan.

Regarding measurement dates for employee benefit plans, the update states that such benefit plans may apply a measurement date practical expedient to measure investments and investment-related accounting using the month-end that is closest to the plan’s fiscal year end date where the fiscal year end does not match the month’s end.

The FASB update is quite technical, and is most relevant for accountants and other tax professionals handling retirement plan accounting issues. The update contains no additional immediate compliance actions for employers. The new FASB guidance is effective for fiscal years beginning after Dec. 15, 2015.

Accounting Standards Update No. 2015-12 »

IRS Publishes Employee Plans News Issue No. 2015-9

On July 31, 2015, the IRS published Issue No. 2015-9 of Employee Plans News. In this edition, the IRS notified the public that as of Oct. 1, 2015, the Employee Plans (EP) unit will no longer answer technical questions by email. Although they no longer have the resources to research and provide answers to legal questions, EP will continue to answer questions concerning employers’ accounts with the IRS, basic information about EP forms (such as the Form 5500) and the status of any pending applications. Employers who have questions that will no longer be answered by EP should consult with their tax professionals or speak with their adviser about submitting those questions to the NFP compliance team.

The IRS also highlighted Announcement 2015-19, which made changes to the determination letter program. Specifically, effective Jan. 1, 2017, the IRS is eliminating the staggered 5-year determination letter remedial amendment cycles for individually designed plans. As a result, those plans will only need to apply for a determination letter upon initial plan qualification and upon plan termination. Further, from July 21, 2015 through Dec. 31, 2016, the IRS will no longer accept off-cycle determination letters, with the exception of determination letters for new plans and for terminating plans. Employers who must apply for determination letters should be mindful of these changes in the determination letter process.

The issue also discussed Notice 2015-49, which includes information concerning the use of lump sum payments being provided to retirees under a defined benefit plan.

Employee Plans News Issue No. 2015-9 »


July 28, 2015

DOL Releases FAB 2015-02 on the Selection and Monitoring of Annuities in
DC Plans

On July 13, 2015, the DOL issued Field Assistance Bulletin (FAB) No. 2015-02, which clarified ERISA’s prudence standard as it pertains to a fiduciary’s selection and monitoring of annuities offered under defined contribution plans. As background, the regulations concerning ERISA 404(c) provide a safe harbor for fiduciaries who select annuity providers for benefit distributions. Among other things, the safe harbor rules are met if the plan fiduciary determines, at the time of selection, that the annuity provider is financially able to make all future payments under the annuity contract.

This FAB clarifies that a fiduciary’s prudence in selecting annuities is evaluated based on the information that was available to the fiduciary at the time of selection, and is not based on circumstances that may be brought to the fiduciary’s attention at a later date. Although the fiduciary still has a duty to conduct periodic reviews of the annuities, those periodic reviews are facts and circumstances based. Specifically, the FAB mentions that if fiduciaries become aware of any “red flags” concerning the annuity provider, the fiduciaries should examine necessary information to determine whether the annuity is still suitable for the plan. However, it is unnecessary to review the annuity every time it is selected by a plan participant.

The FAB also includes two examples explaining when monitoring and review of an immediate or deferred annuity may no longer be necessary. In closing, the DOL discussed the statute of limitations on fiduciary breaches in selecting annuities, stating that an action cannot be brought against a fiduciary after the earlier of six years after the date of the last violation or three years after the earliest date on which the plaintiff had actual knowledge of the violation.

This guidance is effective immediately. Employers who select annuities as part of the investment lineup of their defined contribution plan offerings should keep their fiduciary duty in mind both when making those selections and when reviewing those annuities investments later.

Field Assistance Bulletin No. 2015-02 »

DOL Issues Guidance on Employee/Independent Contractor Misclassification

On July 15, 2015, the DOL published Administrator’s Interpretation (AI) No. 2015-1 relating to standards for the identification of employees misclassified as independent contractors. The proper classification of employees is important for application of the FLSA, which provides certain protections for employees (including minimum wage, overtime compensation, unemployment insurance and workers’ compensation) and for the application of federal and state employment taxes. Proper classification is also important for FMLA and PPACA’s employer mandate. To help enforce the FLSA and other laws, the DOL has previously issued guidance and entered into working relationships with many states. AI No. 2015-1 is not meant to change DOL policy, but it does contain new guidance relating to the application of standards in determining who is an employee.

According to the AI, in assessing whether a worker is an employee or an independent contractor, the employer must consider several factors, including:

  • The extent to which the work performed is an integral part of the employer’s business
  • The worker’s opportunity for profit or loss
  • The extent of the relative investments of the employer and the worker
  • Whether the work performed requires special skills and initiative
  • The permanency of the relationship
  • The degree of control exercised or retained by the employer.

The AI states that no single factor is determinative, and all should be considered under a broader idea of economic dependence. Regarding work that is integral to a business, the AI clarifies that work can be integral to a business even if the work is just one component of the business or the work is also performed by other workers. Work can also be integral to the business if it is performed off premises (e.g., at the worker’s home or on the premises of a client). As an example, the AI states that a software developer who develops customized software for a construction company may be more easily classified as an independent contractor than a carpenter working for the same company.

Regarding opportunity for profit and loss, the AI explains that determination of whether there is such an opportunity should be focused on how the worker’s managerial skills affect that opportunity. Managerial skills that might affect profit and loss include decisions about hiring others, purchasing materials and equipment, advertising, renting space and managing timetables. Thus, a proper independent contractor classification would tie compensation to defined project goals (leaving it to the worker to make decisions on how to achieve those goals) rather than to hours worked. The AI explains that when considering the extent of relative investments, the worker’s investment must be significant in nature and magnitude relative to the employer’s investment in its overall business in order for the worker to be considered an independent contractor. The AI states that indicators of this factor include an investment that furthers the independent contractor’s capacity to expand his or her business (such as an investment in advertising), reduces his or her cost structure or extends the reach of his or her market. Overall, on this factor, employers should be cautious when providing independent contractors with supplies, administrative support or equipment.

The AI clarifies that a worker’s business skill, judgment and initiative should also be considered in determining whether the worker is economically dependent. This factor should focus on whether the employer or the worker is providing instruction on how to complete the work. The AI also clarifies that although the permanency or indefiniteness of a work relationship indicates employee status, a lack of such permanency or indefiniteness does not automatically suggest independent contractor status. The employer should look closely at the reason for the lack of permanency. If the reason relates to the worker’s own business initiative (rather than just the seasonal nature of the work, for example), then independent contractor status is more likely.

Lastly, the AI explains that to be an independent contractor, the worker must control meaningful aspects of the work, and the employer must not control things such as the worker’s schedule, dress and specific tasks. However, the AI also clarifies that this control factor should not be overemphasized as other factors appear to be more indicative.

The AI does not supersede or otherwise change other guidance relating to misclassification, including IRS Publication 15-A which many employers use to undertake the analysis. However, the AI should be reviewed by all employers that currently have independent contractors, even if that employer has already used other DOL, IRS or state guidance with respect to classification. Since the analysis implicates many laws, and since the analysis requires the application of several factors to each employer’s specific facts and circumstances, employers should work closely with outside counsel in performing the analysis.

Administrator’s Interpretation No. 2015-1 »


July 14, 2015

Health Coverage Tax Credit Restored

On June 29, 2015, President Obama signed the Trade Preferences Extension Act of 2015 into law, creating Public Law No. 114-27. Included in that Act was a provision that extends and modifies the Health Coverage Tax Credit (HCTC). Before this action, legislation authorizing the HCTC expired Jan. 1, 2014, making the tax credit unavailable.

Under the legislation that expired in 2014, the HCTC provided a credit of up to 72.5 percent of the monthly qualified health insurance premiums for eligible individuals. Eligible individuals included those who had lost their jobs due to foreign competition and retirees (at least age 55) who worked for companies whose pension plans had been taken over by the Pension Benefit Guaranty Corp. The HCTC was used to offset premiums for a variety of health insurance coverage types, including COBRA continuation coverage and individual policies offered by commercial insurers.

Under this new legislation, the HCTC is restored retroactively with a few modifications. The most significant change is that premium tax credits through the exchange will impact payment of the HCTC. The amendments apply retroactively to the point when the HCTC expired. Federal agencies are were instructed to carry out programs of public outreach to inform potential eligible individuals of the availability of the HCTC prospectively as well as for periods back to January 1, 2014.

We encourage individuals who may be eligible to consult with a tax professional to determine eligibility.

Trade Preferences Extension Act »


June 30, 2015

U.S. Supreme Court Rules Same-sex Marriage Bans Unconstitutional

On June 26, 2015, the U.S. Supreme Court issued its ruling in Obergefell v. Hodges, No. 14-556, holding in a 5-4 decision that the Fourteenth Amendment of the U.S. Constitution requires a state to license a marriage between two people of the same sex and to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out-of-state.

The Obergefell ruling addresses four cases which were appealed from decisions in the U.S. Court of Appeals for the Sixth Circuit and consolidated by the Supreme Court; Obergefell (Ohio), Tanco v. Haslam, No. 14-562 (Tennessee), DeBoer v. Snyder, No. 14-571 (Michigan) and Bourke v. Beshear, No. 14-574 (Kentucky). Each of these cases either challenged that state’s same-sex marriage ban, the state’s failure to recognize same-sex marriage licenses issued by other states or both. Oral arguments before the Supreme Court took place on April 28, 2015.

The Supreme Court began their opinion by discussing the history of marriage. They also discussed the fact that the Supreme Court has long recognized the right to marry as a personal choice that is protected as a fundamental liberty under the Fourteenth Amendment’s Due Process Clause.

In further identifying marriage as a fundamental right, the Supreme Court discussed four principles and traditions that show that the right to marriage should also be applied to same-sex couples. Specifically, the Supreme Court reasoned that marriage is a personal choice based on personal autonomy, is fundamental because it supports a two-person union, safeguards children and families when it is recognized, and is a ‘keystone of the Nation’s social order.’ The court then reasoned that the limitation of marriage to opposite-sex couples is inconsistent with these principles and the fundamental right to marry.

The Supreme Court held that marriage is a fundamental Fourteenth Amendment right that cannot be limited to opposite-sex couples, and that the right of same-sex couples to marry is also derived from the Fourteenth Amendment’s Equal Protection Clause. Essentially, marriage laws that ban same-sex marriage are unequal because denying same-sex couples the fundamental right to marry is denying them of benefits that are afforded to opposite-sex couples.

The Supreme Court also briefly addressed the notion that the democratic process would have been a better route to take in deciding on this issue, holding that same-sex couples do not have to wait for legislative action before asserting their fundamental right to marry.

Finally, the Supreme Court addressed recognition of same-sex marriages performed in other states. Since they determined that same-sex couples have the fundamental right to marry in every state, they noted that there is no legal reason that a state could refuse to recognize a same-sex marriage performed in another state.

The last major Supreme Court decision on same-sex marriage was U.S. v. Windsor, No. 12-307, which ruled Section 3 of the Defense of Marriage Act (DOMA) unconstitutional in 2013. For all purposes under federal law, including ERISA and the IRC, Windsor required employers and plans to recognize a legally married same-sex spouse as a spouse under federal law, at least in states that allowed same-sex marriage. This had many implications for health and retirement plans that are sponsored in states where same-sex marriage is legal.

While this decision will make it unconstitutional to deny same-sex marriages, it seems that this case will most impact the states where same-sex marriage is not currently recognized. Those states are Arkansas, Georgia, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee and Texas. For employers, although the Supreme Court did not directly address the effect of this decision on employment and employee benefits, it is highly likely that all states will have to allow same-sex spouses to be covered on group health plan coverage where coverage for opposite sex spouses is provided.

Additionally, since all states are now prohibited from banning same-sex marriage, it would seem to follow that the federal government will also require all health plans providing coverage to opposite-sex spouses to also recognize a legally married same-sex spouse, including self-insured plans, which are not subject to state insurance laws. Note that this decision does not impact other relationships, such as domestic partnerships or civil unions, but only impacts valid marriages performed between those of the same-sex.

Further litigation is possible on the issue, particularly as states with same-sex marriage bans implement the Supreme Court’s decision. Employers should expect future guidance from both federal and state agencies, including the decision’s effective date and timing of implementation. NFP Benefits Compliance will continue to monitor any developments and address them in future editions of Compliance Corner.

Obergefell v. Hodges »

IRS Publishes Employee Plans News Issue No. 2015-7

On June 23, 2015, the IRS published Issue No. 2015-7 of Employee Plans News. In this edition, the IRS includes worksheets, explanations and information about the determination letter review process for the second Cycle E plan language and an updated Voluntary Correction Program (VCP) submission kit. The IRS also built upon guidance issued in the last edition for the penalty relief program for late Form 5500-EZ filers. Importantly, this newsletter also included updated links for three popular IRS Fix-It Guides, including:

  • 403(b) Plan Fix-It Guide
  • SEP Fix-It Guide
  • SIMPLE IRA Plan Fix-It Guide

Finally, the IRS included information about the suspension of benefits under the Multiemployer Pension Reform Act of 2014, including links to temporary regulations, proposed regulations and application procedures and a model notice.

Employers may find this newsletter helpful, especially the updated Fix-It Guides, as these guides can provide a simple way to determine if the employer-sponsored retirement plan is in compliance with the many IRS requirements which apply to such plans.

Issue No. 2015-7 »
403(b) Plan Fix-It Guide »
SEP Fix-It Guide »
SIMPLE IRA Plan Fix-It Guide »


June 16, 2015

IRS Offers Delinquent Filer Relief to Certain One-participant and Foreign Plans

On May 29, 2015, the IRS published Revenue Procedure 2015-32, which permanently extends delinquent filer relief to certain one-participant and foreign retirement plans. As background, the IRC and ERISA require annual reporting on retirement plans through the Form 5500 series. To encourage compliance, the DOL offers the Delinquent Filer Voluntary Compliance Program (DFVCP) to employers who have failed to file the annual return in a timely manner.

However, the DOL DFVCP is not available to sponsors of one-participant or foreign plans, as they are not subject to ERISA. One-participant plans are those plans that cover only business owners and their spouses, and foreign plans are those maintained outside the U.S. for the benefit of nonresident aliens.

Last year the IRS introduced a pilot program that allowed one-participant plans and foreign plans to receive relief for delinquent filing. Under the new regulation, one-participant plans and foreign plans that are not subject to ERISA can permanently participate in this IRS delinquent filer program.

This program became available June 3, 2015. The fee to participate is $500 per return up to a maximum of $1,500 per plan. Currently the program requires paper submission of the Form 5500-EZ with all the necessary schedules and Form 14704 attached.

Rev. Proc. 2015-32 »

IRS Publishes Employee Plans News Issue No. 2015-6

On June 10, 2015, the IRS published Issue No. 2015-6 of Employee Plans News. In this edition, the IRS includes a recap of changes to Forms 5500 for 2014, an updated Voluntary Correction Program (VCP) fee chart, and a link to guidance for a permanent program for late Form 5500-EZ filers.

In December 2014, the DOL released updated Forms 5500 (as covered in the Jan. 13, 2015, edition of Compliance Corner). The IRS now has its own recap of changes made to the Form 5500 series. Updates include changes to Form 5500 and Form 5500-SF (for additional multiple-employer plan information), Schedule H (enhanced to describe what is meant by an “investment company”), Schedule MB (includes a new line, 4f, which requires new information for plans that are in “critical status”) and Schedule SB (changes to several lines to report the vested and total funding targets separately for each type of participant).

In addition, the newsletter includes a link to an IRS web page describing VCP fees. These fees apply to single submissions involving qualified retirement plans established under IRC Sections 401(a) or 403(b), and are generally based on the number of participants in the plan. The web page also includes a description of exceptions to the fee and the process for paying the fee for multiemployer, multiple-employer and group plans. Lastly, the page describes how to report fees on Form 8951, Compliance Fee for Application for Voluntary Correction Program.

Lastly, the newsletter also mentions guidance for a permanent program for late Form 5500-EZ filers, and includes a link to Rev. Proc. 2015-32 (covered earlier in this edition of Compliance Corner).

Issue No. 2015-6 »


June 2, 2015

U.S. Supreme Court: Monitoring Plan Investments is an Ongoing Fiduciary Duty

On May 18, 2015, the U.S. Supreme Court, in Tibble v. Edison International, No. 13-550, found that plan fiduciaries have an ongoing ERISA fiduciary duty to monitor plan investments. According to the court, that duty is separate and distinct from the fiduciary’s duty to act prudently in selecting initial plan investments.

In Tibble, 401(k) plan participants in 2007 claimed that fiduciaries imprudently made investment selections in 1999 and 2002. Specifically, the plan participants alleged that the fiduciaries acted imprudently by offering higher priced mutual funds when there were lower priced funds which were materially identical to those offered.

The fiduciaries argued that ERISA imposes a six-year statute of limitations on fiduciary breaches. Based on that limitation, the trial and appellate courts found the participants’ 1999 claims to be untimely and they dismissed them. Although the lower courts agreed that there was a duty to monitor plan investment selections, they held that the six-year limitation period should be determined from the date of the funds’ selection unless some significant change in circumstances had occurred.

However, the Supreme Court unanimously rejected the argument of the lower courts. Drawing upon trust law, the Supreme Court held that plan fiduciaries have a continuing duty to monitor trust investments and remove imprudent selections. Further, the continuing duty to monitor investments is separate from the duty to act prudently in the initial selection of plan investments. Specifically, the Court stated that the fiduciary must “systematically consider all the investments of the trust at regular intervals to ensure that they are appropriate.” The Supreme Court then remanded the case to the appellate level for the Ninth Circuit to determine if the fiduciaries breached their fiduciary duty in light of their continuing obligation to monitor.

While this case is still evolving, it is clear that retirement plan fiduciaries should review their processes and procedures and ensure that periodic review of plan investment selections is completed. In addition, fiduciaries should document decisions and reasoning related to any changes to the plan’s investment options. Please see your advisor for more information on plan investment monitoring.

Tibble v. Edison International »

DOL Issues Revised FMLA Certification Forms

The DOL posted new versions of the FMLA certification forms, which now expire May 31, 2018. The forms are similar to previous versions with one exception. On Form WH-380-E (Certification of Health Care Provider for Employee’s Serious Health Condition) and WH-380-F (Certification of Health Care Provider for Family Member’s Serious Health Condition), the following has been added to the health care provider’s section:

“Do not provide information about genetic tests, as defined in 29 C.F.R. § 1635.3(f), genetic services, as defined in 29 C.F.R. § 1635.3(e), or the manifestation of disease or disorder in the employee’s family members, 29 C.F.R. § 1635.3(b).”

Thus, an employer should not request such information from an employee’s health care provider or the health care provider of the employee’s family member.

Revised FMLA Forms »


May 19, 2015

IRS Publishes 2016 HSA Contribution Limits and Qualifying HDHP Deductible and Maximum Out-of-pocket Limits

On May 4, 2015, the IRS published Rev. Proc. 2015-30, which provides the 2016 inflation-adjusted amounts for HSAs and HSA-qualifying HDHPs. According to the Rev. Proc., the 2016 annual HSA contribution limit remains $3,350 for individuals with self-only HDHP coverage (no change from 2015) but increases to $6,750 for individuals with family HDHP coverage (up $100 from 2015).

For HSA-qualifying HDHPs, the 2016 minimum statutory deductibles are the same as those for 2015: $1,300 for self-only coverage and $2,600 for family coverage. The 2016 maximum on out-of-pocket expenses increases to $6,550 for self-only HDHP coverage (up $100 from 2015) and $13,100 for family HDHP coverage (up $200 from 2015). Out-of-pocket expenses include deductibles, copayments and coinsurance, but not premiums.

The 2016 limits may impact employer benefit strategies, particularly for employers coupling HSAs with HDHPs. Employers should ensure that employer HSA contributions are designed to comply with the 2016 limits and with applicable comparability and nondiscrimination rules.

NFP has updated the Employee Benefit Annual Limits table to reflect these updates, linked below.

Rev. Proc. 2015-30 »
Employee Benefit Annual Limits (NFP Office Version) »
Employee Benefit Annual Limits (Benefits Partners Version) »

IRS Publishes Employee Plans News Issue 2015-5

On May 6, 2015, the IRS published Issue 2015-5 of Employee Plans News. In this edition, the IRS introduces updated retirement plan FAQs regarding multiple employer plans, highlights recent guidance and includes timely reminders regarding filing deadlines and important requirements.

The introduction to the multiple employer retirement plan FAQs includes a reminder that a multiple employer plan is a plan maintained by two or more employers who are not related. The FAQs address whether each adopting employer has to come in for an individual determination letter, whether the employers maintaining the plan may rely on the plan’s determination letter, as well as which form should be used to request a determination letter if a plan has been modified from a volume submitter plan to a multiple employer plan.

In addition, the newsletter mentions guidance that has been addressed in recent issues of Compliance Corner. In the Jan. 13, 2015 edition, we addressed Announcement 2015-01, which describes changes to the employee plans determination letter procedures. In the April 7, 2015 edition of Compliance Corner, we addressed both Rev. Proc. 2015-27 and Rev. Proc. 2015-28. Rev. Proc. 2015-27 modifies the Employee Plans Compliance Resolution System (EPCRS) guidelines; the most significant modification relating to correcting overpayments. Rev. Proc. 2015-28 modifies EPCRS guidelines by providing new safe harbor correction methods for errors related to automatic contribution features, including automatic enrollment and automatic escalation of elective deferrals.

The newsletter also contains a reminder that small businesses that have failed to timely file certain required retirement plan returns (usually Form 5500-EZ) have until Tuesday, June 2, 2015, to take advantage of a special penalty relief program. There is also a reminder that only tax-exempt employers may sponsor 403(b) plans.

Finally, the newsletter mentions Notice 2015-7, in which the IRS states it anticipates issuing proposed regulations defining the term “governmental plan.” The proposed regulations would provide that employees of a public charter school may participate in a state or local retirement system if certain conditions are met.

Employee Plan News Issue 2015-5 »


May 5, 2015

Ninth Circuit Holds that Insurance Contract Overrules More Specific SPD

On April 21, 2015, the U.S. Court of Appeals for the Ninth Circuit ruled in Pritchard v. Metropolitan Life Insurance Company (2015 BL 112847 (9th Cir. 2015)), that an insurance certificate was an official plan document that overrode the plan’s summary plan description (SPD). At dispute was which standard of review the district court should have used to review the insurer’s decision to deny disability benefits to the plaintiff. The district court found for the insurer using the abuse of discretion standard (a standard where the result would only be overturned if the court found the insurer acted in an arbitrary or unreasonable way). On appeal, the Ninth Circuit Court concluded that the district court erred in applying the abuse of discretion standard of review and remanded the case back to the district court to apply the correct de novo standard of review (a lower standard of review where the court reviews the matter anew as if they were the insurer).

The plaintiff was covered by an insured long-term disability (LTD) plan. The insurer applied a two-year limit on plaintiff’s benefits and then denied his application for an extension. The plaintiff sued to appeal the insurer’s decision.

The Ninth Circuit Court said the district court must review a plan administrator’s denial of benefits de novo unless the benefit plan gives the administrator fiduciary discretionary authority to determine eligibility for benefits. In this case, the discretionary authority was reserved in the SPD, but not in the insurance certificate, which the Ninth Circuit Court ruled to be an official plan document containing the terms of the plan. Therefore, citing the U.S. Supreme Court’s decision in Amara, statements made in SPDs do not themselves constitute the terms of the plan. Since no discretion was granted in the insurance certificate, the SPD’s grant of discretion cannot be applied.

This case is a good reminder that changes to plans should be reflected in the plan documents and that an SPD is just what it is called: a “summary” plan description. Ensuring SPDs are consistent with plan documents may prevent situations such as this.

Pritchard v. Metropolitan Life Insurance Company »

Classifying Vanpools: New IRS Information Letter

The IRS recently released an information letter it issued on Dec. 14, 2014, addressing how to determine who operates a vanpool, which has not been addressed in the statute or the regulations. This is an important distinction because the three types of allowable vanpools include employer-operated, employee-owned vanpools and public transit-operated vanpools. The constituent who requested guidance needed help understanding who is determined to “operate” a vanpool for purposes of ensuring it complies with the Treasury regulations regarding vanpools. In this case, the employer did not provide the vehicle. The vehicle was owned by a private company, but it was driven by a member of the vanpool.

In its response, the IRS included the definition of “operate” to provide clarification on whether the vanpool is operated by the employer, employee or public transit authority. Relevant factors to consider when determining who operates the vanpool include 1) who drives the van, 2) who determines the route, 3) who determines the pick-up and drop-off locations and times and 4) who is responsible for administration. Finally, the letter clarifies that when employees receive transit passes to pay for their vanpool rides, that does not necessarily mean that the vanpool is private or public transit-operated.

Note that information letters are not legal advice and cannot be relied upon for guidance. Taxpayers needing binding legal advice from the IRS must request a private letter ruling. However, it does provide general information which may be helpful to employers with questions on this particular topic.

IRS Information Letter 2015-0004 »


April 21, 2015

EEOC Publishes Proposed Rule on Employer Wellness Programs

On April 16, 2015, the EEOC released a proposed rule and interpretive guidance on the manner in which an employer’s wellness program may comply with Title I of the Americans with Disabilities Act (ADA). Importantly, the rule and guidance do not address the manner in which Title II of GINA governs incentives contained within a participatory wellness program. The EEOC will address this issue in future rulemaking.

Following the EEOC’s lawsuit against Honeywell Intl. concerning a wellness program that complied with the PPACA’s regulatory requirements, there were regulatory inquiries for the EEOC to clarify when a wellness program is considered “voluntary” for purposes of complying with the ADA. The lawsuit alleged that Honeywell’s biometric testing of employees and their spouses was not voluntary because the company imposed certain penalties on those who did not participate in the testing. To comply with the ADA, wellness programs that include disability-related inquiries or medical examinations must be voluntary; however, the EEOC previously had not provided guidance on the definition of voluntary.

The proposed rule amends the EEOC’s regulations on medical examinations and outlines the conditions for a program to be deemed voluntary. For example, one condition requires that the employer not deny coverage under any of its group health plans or retaliate against the employee for non-participation in the wellness program. Notably, the rule applies to participatory programs, health-contingent programs or some combination of the two.

Additionally, the proposed rule clarifies that incentives for wellness programs that include disability-related inquiries or medical examinations will not render the program involuntary if the total incentives available under the program do not exceed 30 percent of the total cost of employee-only coverage. The rule also noted that smoking cessation programs that include a biometric screening or other medical exam to test for the presence of nicotine or tobacco would have to comply with the ADA’s 30 percent incentive limit. The EEOC reminds employers that the ADA only applies to wellness programs that include disability-related inquiries or medical examinations. Thus programs that require an individual to attend nutrition, weight loss or smoking cessation classes would not have to comply.

The EEOC’s guidance also reminds employers that reasonable accommodations must be provided to allow a disabled employee to earn any financial incentive offered through the wellness program; however, the EEOC clarified that the reasonable accommodation requirements under the ADA are broader than those under the PPACA. Under the ADA, reasonable accommodations must be provided in connection with a participatory program whereas HIPAA and the PPACA limit these requirements to health-contingent programs.

The proposed rule was published in the Federal Register April 20, 2015 and comments are due by June 19, 2015. The EEOC is specifically seeking comments on whether it would be appropriate to provide that incentives employers offer to employees for participatory wellness programs that render the cost of coverage unaffordable should result in the program being deemed involuntary under the ADA. While this proposed rule provides much needed clarification, employers are not required to rely upon the proposed rule at this time, and this summary is provided as informational in nature only. Once the comment period closes, a final rule with effective dates will be issued at some point in the future. Employers will be required to comply with these rules once they are issued in their final form.

Proposed Rule »

DOL Proposes Regulations Regarding Definition of Fiduciary; Conflict of Interest Rule

On April 14, 2015, the DOL released a proposed regulation that would amend the definition of “fiduciary” by creating a new Conflict of Interest Rule. This regulation broadens the definition of fiduciary under ERISA by recognizing more forms of investment advice than are recognized under existing ERISA regulations. The regulation also identifies the circumstances which would render the person providing investment advice a fiduciary.

An earlier version of this rule was proposed in Oct. 2010. That version of the rule also sought to expand the definition of fiduciary, but it was withdrawn after meeting much opposition from the business community and Congress.

As background, ERISA identifies fiduciaries as parties engaged in certain actions, including rendering ‘investment advice for a fee’. The original regulations identified investment fiduciaries using a 5-part test in which the fiduciary 1) renders advice as to the value of securities, 2) does so on a regular basis, 3) renders advice pursuant to a mutual agreement, 4) gives advice which serves as the primary basis for investment decisions; and 5) provides individualized advice.

The proposed rule clarifies the definition of investment advice, nullifying the previous 5-part test. Specifically, the rule lays out the types of advice which, if provided in exchange for a fee, would be considered investment advice.

The types of advice outlined in the proposed regulation include:

  • Any recommendation as to the advisability of acquiring, holding, disposing of or exchanging securities or other property. The DOL clarified that this category includes any recommendations concerning the distribution of benefits through rollovers from a retirement plan or IRA.
  • Any recommendation as to the management of securities or other property, including property to be rolled over or distributed. The DOL clarified that this category also includes any recommendations affecting the rights to vote stock or to exercise proxy.
  • Appraisals, fairness opinions or similar statements concerning the value of securities or other property. The DOL clarified that this category applies only to appraisals that relate to a particular transaction. This category does not include general reports or statements required under the reporting and disclosure regulations found in ERISA, the IRC, or any applicable regulatory organization rules; valuations provided to investment funds that hold assets of various investors or ESOP appraisals.
  • Any recommendation of a person to provide investment advice or management services for a fee. Although existing regulations already consider the selection of investment managers or advisers to be investment advice, the DOL seeks to remove any doubt about this provision. The proposed rule also clarifies that general advice on what to consider when selecting an investment manager would not be investment advice.

Further, the DOL explains that people who provide investment advice in any of the above areas will fall under the term ‘fiduciary’ if they 1) represent themselves as acting in a fiduciary capacity, or 2) provide advice pursuant to an agreement, arrangement or understanding that the advice is individualized to a plan, plan sponsor, plan participant or IRA owner.

The rule also proposes several carve-outs in which advisers would not be considered fiduciaries for certain transactions. The “Seller’s Carve-out” applies to incidental advice provided in connection with an arm’s length transaction between an expert plan investor and the adviser. An expert plan investor is an ERISA plan with 100 or more participants or $100 million or more in plan assets. There are also carve-outs for swap and security-based swap transactions, employees of the plan sponsor, third-party service providers who provide a platform of investment options, ESOP valuations and investment education.

The DOL also proposed two new prohibited transaction exemptions (PTEs). The first is the “Best Interest Contract Exemption,” which the DOL included in order to permit common compensation structures. This exemption would provide prohibited transaction relief to investment fiduciaries who agree to be subject to a best interest standard. Specifically, the exemption would apply to compensation received by investment fiduciaries if they contractually acknowledge fiduciary status, commit to adhere to basic standards of impartial conduct, warrant that they will comply with applicable federal and state laws, adopt policies and procedures designed to mitigate harmful conflicts of interest and disclose basic information on their conflicts of interest and on the cost of their advice. The DOL also clarified that impartial conduct constitutes giving advice that is in the customer’s best interest, avoiding misleading statements and receiving no more than reasonable compensation.

The second proposed PTE covers principal transactions involving debt securities sold to plans from their broker-dealers or advisers. Entities who engage in principal transactions would receive this exemption by satisfying conditions similar to those required under the Best Interest Contract Exemption.

The DOL also proposed amendments to existing PTEs. Specifically, the DOL proposed changes to PTEs 75-1, 77-4, 80-83, 83-1, 84-24, 86-128.

The proposed rule is now open for comments. The initial deadline for comments is July 6, 2015. Although this proposed rule provides clarification of the definition of fiduciary, it is not effective until the comment period closes and the final rule is issued. NFP will continue to monitor this rule and will report on any developments.

Proposed Conflict of Interest Rule »

CMS Issues Medicare Part D Benefit Parameters for 2016

On April 6, 2015, CMS issued an announcement and press release relating to Medicare Part D benefit parameters for 2016. As background, employer plan sponsors that offer prescription drug coverage to Part D-eligible individuals must disclose to those individuals and to CMS whether the prescription plan coverage is creditable (as compared to Part D coverage).

In the announcement, CMS released the following parameters for the 2016 defined standard Medicare Part D prescription drug benefit, which will assist plan sponsors in making that determination:

  • Deductible: $360 (a $40 increase from 2015)
  • Initial coverage limit: $3,310 (a $350 increase from 2015)
  • Out-of-pocket threshold: $4,850 (a $150 increase from 2015)
  • Total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are not eligible for the coverage gap discount program: $7,062.50 (a $382.50 increase from 2015)
  • Estimated total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are eligible for the coverage gap discount program: $7,515.22 (a $453.46 increase from 2015)
  • Minimum copayments under the catastrophic coverage portion of the benefit:
    • $2.95 for generic/preferred multi-source drugs (a 30-cent increase from 2015)
    • $7.40 for all other drugs (an 80-cent increase from 2015)

Part D Parameters »
Press Release »

EEOC Releases Informal Discussion Letter Addressing ADEA Implications of Paying Employees’ Medicare Premiums

The EEOC recently released an informal discussion letter written Dec. 22, 2014 in response to an inquiry from a member of the public. The letter of inquiry was written regarding health insurance options for Medicare-eligible employees. The party, a consulting firm, asked whether it was appropriate for employers to give Medicare-eligible employees the choice between remaining on the employer-provided group health plan and receiving employer-provided payment of Medicare Part B premiums. Historically this party had instructed employers to give employees information about both choices, then require employees who opted for the Medicare reimbursement option to acknowledge they had received the information and were voluntarily withdrawing from the employer plan.

The letter explains that the EEOC and some courts have found that distinctions based on Medicare-eligibility are based on age, since most individuals qualify for Medicare by reaching age 65. The ADEA only prohibits conduct that adversely treats older workers. As such, providing older workers better options than those presented to younger workers does not violate the ADEA. However, there is no bright line test for what is “better.” Whether an arrangement provides better options to older workers or treats them adversely cannot be determined without looking at the facts of an individual case.

If an employer’s actions create adverse treatment for older workers, then it would be in violation of the ADEA unless an exemption or defense applied. The ADEA’s retiree-health exemption does not apply to current employees. However, the employer may be able to meet the “equal benefits” defense, under which the employer either incurs an equal (or greater) cost for the benefit relative to the health insurance provided to younger employees or provides an equivalent benefit to older employees.

Please note that while the discussion letter addresses ADEA implications of this type of arrangement, it does not address any Medicare or tax questions raised by this situation, as the EEOC does not enforce those laws. For instance, the Medicare Secondary Payer regulations prohibit an employer (with 20 or more employees) from providing a financial incentive for a Medicare-eligible individual to not enroll in or terminate group coverage in order to make Medicare primary. Reimbursing an employee for the cost of Medicare premiums or Medicare supplement premiums would most likely be considered a financial incentive for the employee to drop group coverage, making Medicare primary. Further, the Centers for Medicare and Medicaid Services (CMS) has stated that an employer must not "subsidize, purchase, or be involved in the arrangement of an individual supplement policy for the employee or family member” (CMS Instruction Booklet for IRS/SSA/CMS Data Match).

The letter is intended to provide an informal discussion of the ADEA implications and is not an official opinion of the EEOC. Therefore, while it helps in understanding how the EEOC approaches this issue, decisions should not be made solely in reliance on it.

Informal Discussion Letter »


April 7, 2015

IRS Modifies Guidelines Related to EPCRS

On March 27, 2015, the IRS released Rev. Proc. 2015-27, modifying Employee Plans Compliance Resolution System (EPCRS) guidelines introduced in Rev. Proc. 2013-12. The EPCRS allows plan sponsors of qualified retirement plans to correct plan errors that raise qualification issues and avoid the risk of having the IRS disqualify their plans for these errors. Rev. Proc. 2015-27 contains several changes designed to improve the EPCRS system.

The most significant change relates to correcting overpayments. Many plan participants and beneficiaries have reported that plan sponsors have requested immediate repayment of large overpayments, including interest, for circumstances where the plan had made an error over a long period of time and the participants/beneficiaries did not have the financial means to make repayment quickly. In response, Rev. Proc. 2015-17 gives plan sponsors flexibility and clarifies that, depending on the circumstances, requiring return of an overpayment may not be essential. Previously it was understood that any correction of plan overpayments must include reasonable efforts to have the overpayment returned to the plan. An example provided by the IRS would allow the employer or another person to remit the overpayment to the plan instead of pursuing it from the participant or beneficiary.

Another modification involves adjustment of fees related to the Voluntary Correction Program (VCP) for required minimum distribution (RMD) errors and plan loan errors.

Rev. Proc. 2015-27 also requests comments on recoupment of overpayments.

On April 2, 2015, the IRS issued Rev. Proc. 2015-28, again modifying the EPCRS guidelines by providing new safe harbor correction methods for errors related to automatic contribution features, including automatic enrollment and automatic escalation of elective deferrals.

Rev. Proc. 2015-28 modifies the safe harbor correction methods and examples in Appendices A and B of Rev. Proc. 2013-12 to provide additional leeway and alternative correction methods for employee elective deferral failures.

Before Rev. Proc. 2015-28, when an employer plan sponsor failed to execute a contribution, the sponsor was required to rectify the mistake by making employer matching contributions as though the employee contributions had been made, plus any earnings, plus a penalty equivalent to 50 percent of the employee deferral. This revenue procedure eliminates the 50 percent penalty for plans with automatic enrollment or automatic escalation features if certain conditions are met. For plans without those automatic features, there is a reduction of the 50 percent penalty provided certain conditions are met.

For this new safe harbor to apply the following conditions must be satisfied:

  • Correct deferrals must begin no later than the earlier of: 1) First payment after 9 and ½ months following the end of the plan year to which the failure relates, or 2) if the plan sponsor was notified of the failure by the affected eligible employee, by the first payment after the last day of the month after the month of notification.
  • Proper notice of the failure is given to the affected eligible employee no later than 45 days after the date on which correct deferrals begin.
  • Corrective contributions to make up for any missed matching contributions are made and are adjusted for earnings.

The new safe harbor for plans using automatic contribution features applies to administrative errors occurring before 2021. The guidance also invites public comment on potential further improvements.

A safe harbor correction method allowing for lesser corrective contributions was also introduced for employee elective deferrals that extend beyond three months but do not extend beyond the normal self-correction program period for significant failures.

Rev. Proc. 2015-27 »
Rev. Proc. 2015-28 »

IRS Retirement Plan Compliance Unit Opens New Projects and Issues Employer Stock Diversification Summary Report

Recently the IRS Employee Plans Compliance Unit (EPCU) opened three new projects relating to Form 5500 filing and other retirement plan compliance requirements. As background, in an effort to focus its resources, the EPCU uses information from its projects to gather general information on retirement plan compliance. Once opened, the EPCU may contact retirement plan sponsors for information relating to the plan, including information on Form 5500 filing. While project-related contact is not an official audit, failure to respond to an EPCU inquiry may result in an audit.

Beyond responding to an EPCU inquiry, plan sponsors may be interested in the projects generally, since they describe issues that might raise red flags and potentially trigger an audit. The three recently opened projects all relate to Form 5500 reporting, and indicate Form 5500 failures that may trigger an audit. The first relates to failure to provide a benefit, and states that where a Form 5500 filer has indicated they did not properly provide a benefit, they may be asked to provide the reason the benefit was not provided, whether the benefit has since been provided and whether IRS records reflect accurate information.

The second relates to Form 5500-EZ (or Form 5500-SF) filers that indicated it is the first return filed, even though the plan had assets in excess of $250,000 at the beginning of the plan year. (The requirement to file is generally triggered if plan assets at the end of the year exceed $250,000.) In that instance, the EPCU may ask why a return was not filed for the previous year. The third relates to Form 5500 filers that indicated they had transferred plan assets, but provided no additional information relating to the transfer. In that situation, the EPCU may ask the plan sponsor to submit additional information on the transfer.

Lastly, the EPCU recently published a summary report on the diversification requirement (IRC Section 401(a)(35)) for defined contribution retirement plans and publicly traded employer stock. According to the report, while the majority of plans are in compliance with IRC diversification requirements, the IRS found that some plan documents did not contain the appropriate diversification language. Employers with defined contribution retirement plans should review the summary report and work with outside counsel to ensure compliance.

EPCU Home Page »
Summary Report »

IRS Newsletter Reminds Employers of Record Retention Requirements and Tax Withholding

On April 1, 2015, the IRS published Issue 2015-4 of Employee Plans News. In this edition, the IRS reminds employers of record retention requirements associated with loans and hardship distributions. Ultimately, the responsibility for retaining all loan and hardship distribution records falls on the plan sponsor, even if a third party handles those transactions. As a result, plan sponsors should retain all documents pertaining to the request, review and approval of hardship distributions. Likewise, plan sponsors should retain all loan applications, documents reflecting the review and approval process, executed loan repayments and evidence of loan repayments.

The publication also reminds employers that make distributions to foreign persons that they must withhold 30 percent of those plan distribution payments for federal income tax purposes. The newsletter also discusses the documentation required to prove that a participant is entitled to a withholding rate lower than 30 percent.

In addition to updating several publications on IRAs and other retirement plan options, the IRS also highlights information on applying for and expediting determination letters, created a new FAQ on reference lists and updated the IRC Section 403(b) Listing of Required Modifications.

Employee Plans News 2015-4 »


March 24, 2015

Final Regulations Outline Details for Limited Wraparound Coverage

On March 18, 2015, the IRS, HHS and DOL jointly published final regulations in the Federal Register amending existing regulations regarding excepted benefit coverage. The amendment specifies requirements for limited wraparound coverage that may qualify as excepted benefit coverage.

Employers are permitted to participate in a pilot program which will allow them to offer limited health coverage designed to wrap around either of two plan designs, each with specific requirements, outlined below:

Option #1: Individual Health Insurance Coverage

  1. Under this category, eligibility for wraparound coverage must be limited to part-time employees (those expected to average less than 30 hours per week, as reasonably determined at the time of enrollment), or retirees who are eligible for other non-excepted employer-sponsored health plan coverage. To be eligible for wraparound coverage, individuals cannot be enrolled in a health FSA. Wraparound coverage can cover dependents and spouses.

  2. The employer sponsoring or participating in wraparound coverage must offer its full-time employees coverage that 1) is substantially similar to coverage the employer would need to offer to its full-time employees to avoid employer mandate penalty "A" (even if the employer mandate does not apply to the employer), 2) provides minimum value and 3) is reasonably expected to be affordable.

  3. Importantly, employers may not offer this limited wraparound coverage to full-time employees.

Option #2: Coverage in a Multi-State Plan (MSP)

  1. Under this category, wraparound coverage must be approved by the Office of Personnel Management (OPM) and provide benefits in conjunction with MSP coverage. In addition, employers must meet a "maintenance of effort" threshold, which requires that for the 2013 or 2014 plan year, they offered coverage that was "substantially similar" to coverage they would need to have offered to their full-time employees in order to avoid penalty "A" under the employer mandate. For either the 2013 or 2014 plan year, employers must also have offered affordable minimum value coverage to a "substantial portion" of their full-time employees. For the duration of the pilot program, annual aggregate employer contributions for both primary and wraparound coverage be "substantially the same" as total employer contributions for coverage offered to full-time employees in 2013 or 2014.

Coverage meeting one of the two criteria outlined above will qualify as an excepted benefit that is exempt from group health plan mandates under HIPAA and health care reform, although reporting is required. Employers offering wraparound coverage to part-time employees or retirees under option #1 must report to HHS information reasonably required to determine if the exception for wraparound coverage allows employers to provide comparable benefits to workers whether they are enrolled in an individual policy with wraparound coverage or minimum essential coverage under an employer-sponsored plan. Separate reporting requirements apply for coverage wrapping around an MSP.

The pilot program is available for plans first offered no earlier than Jan. 1, 2016 and no later than Dec. 31, 2018, ending the later of three years after first offered or the date on which the last collective bargaining agreement relating to the plan terminates after the date wraparound coverage is first offered. Under the pilot program, wraparound coverage must provide meaningful benefits beyond cost-sharing. Examples include reimbursements for the entire cost of primary care, cost of prescription drugs "not on the formulary of the plan," 10 visits to a physician per year and access to on-site clinics at no additional cost. Importantly, wraparound coverage cannot be solely an account-based reimbursement arrangement (such as an HRA) and it cannot 1) impose preexisting condition exclusions; 2) discriminate in eligibility, benefits, or premiums based on a health factor; or 3) discriminate in favor of highly compensated individuals. Finally, the annual cost of wraparound coverage for employees and dependents (including both employer and employee contributions) cannot exceed the greater of the maximum annual salary reduction for health FSAs (i.e., $2,550 for 2015) or 15 percent of the cost of coverage under the primary plan.

Generally, the ability to offer wraparound coverage will be limited to select employers who are willing to overcome the compliance challenges of the strict requirements for offering wraparound coverage. It is recommended that employers wishing to utilize this benefit strategy contact an NFP advisor for plan design assistance, as the rules that apply to such plans will make implementation for the pilot program tedious. The final regulations are effective May 18, 2015.

Final Regulations »
News release »

DOL Publishes Final Rules on Defined Contribution Plan Annual Disclosure Requirements

On March 18, 2015, the DOL published final rules concerning the timing of participant-level fee disclosures distributed to participants in defined contribution plans. As background, the 2010 participant-level fee disclosure regulations required plan administrators to disclose detailed information about plan investments, including plan fees and expenses.

Under those regulations, the disclosure had to be furnished to plan participants and beneficiaries at or before the first opportunity to direct investments and "at least annually thereafter." The annual disclosure requirement was defined in the regulations to mean that the disclosures needed to be distributed "at least once in any 12-month period."

The new regulations give plan administrators additional time to meet the annual disclosure requirement. Specifically, the rule provides a two-month grace period for furnishing the annual disclosure, which effectively changes the term "at least annually thereafter" to mean "at least once in any 14-month period."

The DOL simultaneously published proposed rules that would amend the 2010 participant-level fee disclosure regulations. This amendment would be effective June 17, 2015.

The DOL also conveyed that EBSA will allow plan administrators to rely on the new 14-month deadline before the June effective date as long as the extended deadline benefits participants and beneficiaries.

Final Regulations »
Proposed Regulations »
DOL Fact Sheet »
DOL News Release »

DOL Staff Members Provide Informal Views on Retirement-related Issues

The American Bar Association (ABA) recently released a transcript from the May 2014 meeting of its Joint Committee on Employee Benefits. During the meeting, DOL staff provided ABA members an opportunity to ask questions in an informal setting. Both retirement and health and welfare issues were discussed. The most relevant health and welfare informal views are discussed in the next article. Although the responses are not binding, they offer insight on how the DOL would likely resolve such issues if presented. Among the retirement-related issues discussed include DOL informal views on fee disclosures, self-correction, settlement agreements and administration fee rebates as plan assets.

Fiduciary-Level Fee Disclosures (Q&As 34 & 36): In response to a question about using a range of fees for a Section 408(b)(2) disclosure, DOL staff members recognized that there may be circumstances where disclosing a range of fees may be appropriate, but that such range must be reasonable and founded on actual services provided (not generic ranges). They noted, however, that if exact numbers are known, a range should not be used.

Self-correction (Q&A 44): DOL staff members stated that although they encourage self-correction of fiduciary breaches, such self-corrections would not preclude potential civil actions and penalties arising from those breaches (for instance where 401(k) deferrals are deposited to the plan’s trust late). Currently, the only way to obtain relief is through the DOL’s Voluntary Fiduciary Correction Program (VFCP). The DOL is considering requests from a number of parties to add a self-correction element to the VFCP program.

Settlement Agreements (Q&A 26): While ABA members assumed the DOL only used settlement agreements to resolve legal actions the DOL has initiated, DOL staff members shared that the Department uses settlement agreements to memorialize and potentially enforce the terms of any number of corrections, at their discretion.

Administration Fee Rebates are Plan Assets (Q&A 9): DOL staff members affirmed that administration fee rebates become plan assets when placed in the plan’s trust.

Transcript »

DOL Provides Informal Views on Certain Health and Welfare Plan Issues

The ABA’s Joint Committee on Employee Benefits (JCEB) recently released a transcript of its May 2014 Q&A session during which DOL staff members provided informal views on certain health plan issues. Although the DOL answers are informal and cannot be relied upon, they are helpful in understanding how the DOL might view a certain issue.

Q&A 18 relates to disability claims processing, particularly in situations where information (e.g., an independent medical evaluator’s report) is delayed or otherwise arrives later in the process. The question asks whether a final claims adjudicator might have the ability to unilaterally extend the final decision date in order to give the claimant a reasonable opportunity to respond. The DOL response states that such unilateral delay is not permissible. However, the DOL stated that it will consider the situation as it develops rules on the issue (and that such rules are currently on their 2015 agenda).

Some questions have been addressed through more formal guidance, including Q&A 2, which relates to the definition of "spouse" for purposes of FMLA.

Other issues were raised, including DOL Model COBRA notices, national medical child support notices, medical reimbursement accounts (including the interaction with the San Francisco Health Care Security Ordinance) and PPACA’s rules for automatic enrollment. One particularly interesting question posed is whether an ERISA-covered group health plan must have a separate SPD and written plan document. However, the DOL and JCEB had a separate meeting discussing those issues, so the DOL answers were not provided. It’s not clear whether a transcript from that separate meeting will be released.

Transcript »

IRS Issues Publication 969 Addressing HSAs, HRAs and Health FSAs

On March 10, 2015, the IRS issued Publication 969 for use in preparing 2014 individual federal income tax returns. While here are no major changes to the 2014 version, the publication provides a general overview of HSAs, HRAs and health FSAs, including brief descriptions of benefits, eligibility requirements, contribution limits and distribution issues. Minor changes include the updated 2014 limits for HSA contributions ($3,300/self-only and $6,550/anything other than self-only) and out-of-pocket maximums ($6,350/self-only and $12,700/anything other than self-only), as well as references to the increased 2015 limits. The health FSA limitation of $2,500 for 2014 is unchanged (although for 2015 the limit increased to $2,550). Finally, the publication cross-references IRS Notices 2013-54 and 2015-17, which is a reminder for those filing tax returns that pre-tax reimbursement of individual health insurance premiums cannot be made from a health FSA or from an HRA using employer contributions.

IRS Publication 969 »

DOL Publishes Final Rules Regarding Same-sex Spouses and FMLA

On Feb. 25, 2015, the DOL published final rules regarding the eligibility of same-sex spouses under FMLA. Effective March 27, 2015, eligibility for same-sex spouses will be based on the "place of celebration" standard. This means same-sex spouses will be eligible for leave under FMLA based on the fact that their marriage was legal where the marriage was performed. This includes countries outside the U.S. as long as the couple could have entered into the marriage in at least one U.S. state. It also includes common-law marriages as long as the marriage is valid in the state in which it was established. Prior to the final rule, same-sex spouses were eligible based on place of residence, which was difficult to administer for large employers with employees residing in several states.

The new rules grant employees the right to take leave related to a same-sex spouse with a serious health condition, for an exigency related to a spouse's covered military service and for military caregiver leave. Additionally, it is important to note that FMLA contains a limitation for spouses who work for the same employer. An employer may require spouses to share the 12 weeks of leave time under FMLA following the birth, adoption or placement of a child for foster care. Spouses may also be required to share the maximum leave period to care for an employee's parent with a serious health condition.

As an important distinction, partners to a civil union or domestic partnership are not considered spouses and are not granted rights under FMLA. However, such partners may be entitled to leave benefits under state law.

Employers should review their FMLA policies and revise them to reflect the eligibility of same-sex spouses.

Final Rules »
DOL FAQs »

DOL Extends Expiration Date on FMLA Forms

On Feb. 28, 2015, the series of forms used to administer FMLA expired. The DOL has extended the expiration date to March 31, 2015 and the forms have been revised to reflect the new date. Employers may continue to use the revised forms until further notice. The forms affected are:

  • WH-380-E, Certification of Health Care Provider for Employee's Serious Health Condition
  • WH-380-F, Certification of Health Care Provider for Family Member's Serious Health Condition
  • WH-381, Notice of Eligibility and Rights & Responsibilities
  • WH-382, Designation Notice
  • WH-384, Certification of Qualifying Exigency For Military Family Leave
  • WH-385, Certification for Serious Injury or Illness of Current Servicemember -- for Military Family Leave
  • WH-385-V, Certification for Serious Injury or Illness of a Veteran for Military Caregiver Leave

Revised FMLA Forms »

IRS Releases Three Publications for Small Business Retirement Options

The IRS recently released Publications 3988, 4334, and 4587, which describe retirement plan options available for small businesses. In addition to information about the retirement plan options, each publication includes a list of DOL and IRS resources a small business owner can use to evaluate their retirement plan offerings.

Publication 3988, "Choosing a Retirement Solution for Your Small Business", discusses the advantages of offering a retirement plan to employees. The publication also includes a chart of side-by-side comparisons of the options, as well as a description of each retirement option in narrative form.

Publication 4334, "SIMPLE IRA Plans for Small Businesses", discusses how to establish and operate a SIMPLE IRA.

Publication 4587, "Payroll Deduction IRAs for Small Businesses", discusses how to establish and operate payroll deduction IRAs.

IRS Publication 3998: Choosing a Retirement Solution for Your Small Business »
IRS Publication 4334: SIMPLE IRA Plans for Small Businesses »
IRS Publication 4587: Payroll Deduction IRAs for Small Businesses »

IRS Employee Plans News 2015-2

On Feb. 27, 2015, the IRS published "Employee Plans News" Issue 2015-2. In this edition, the IRS discussed the voluntary compliance process for IRC Section 457(b) plans, announced two March webinars and highlighted the updated PBGC forms and premiums.

With regard to the 457(b) plan correction process, the IRS explained that the voluntary compliance team will consider certain requests for voluntary correction of 457(b) retirement plan failures. However, the IRS clarified they will not process submissions that involve failures in the form or timeliness of the plan document. They also asserted that governmental plan sponsors can self-correct their 457(b) plans.

The two March webinars are as follows: On March 5, 2015 at 2:00 p.m. EST, the IRS hosted a webinar entitled "Highlights of the Second Cycle E Determination Letter Application Process". On March 26, 2015 at 2:00 p.m. EST, the IRS will host the "Retirement Plan Loans to Participants" webinar.

Finally, the publication also discussed the new PBGC forms and instructions available for use during standard or distressed terminations. In addition to these new forms, the IRS announced the 2015 PBGC flat-rate and variable rate premium amounts.

Employee Plans News 2015-2 »


March 10, 2015

DOL Publishes Final Rules Regarding Same-sex Spouses and FMLA

On Feb. 25, 2015, the DOL published final rules regarding the eligibility of same-sex spouses under FMLA. Effective March 27, 2015, eligibility for same-sex spouses will be based on the "place of celebration" standard. This means same-sex spouses will be eligible for leave under FMLA based on the fact that their marriage was legal where the marriage was performed. This includes countries outside the U.S. as long as the couple could have entered into the marriage in at least one U.S. state. It also includes common-law marriages as long as the marriage is valid in the state in which it was established. Prior to the final rule, same-sex spouses were eligible based on place of residence, which was difficult to administer for large employers with employees residing in several states.

The new rules grant employees the right to take leave related to a same-sex spouse with a serious health condition, for an exigency related to a spouse's covered military service and for military caregiver leave. Additionally, it is important to note that FMLA contains a limitation for spouses who work for the same employer. An employer may require spouses to share the 12 weeks of leave time under FMLA following the birth, adoption or placement of a child for foster care. Spouses may also be required to share the maximum leave period to care for an employee's parent with a serious health condition.

As an important distinction, partners to a civil union or domestic partnership are not considered spouses and are not granted rights under FMLA. However, such partners may be entitled to leave benefits under state law.

Employers should review their FMLA policies and revise them to reflect the eligibility of same-sex spouses.

Final Rules »
DOL FAQs »

DOL Extends Expiration Date on FMLA Forms

On Feb. 28, 2015, the series of forms used to administer FMLA expired. The DOL has extended the expiration date to March 31, 2015 and the forms have been revised to reflect the new date. Employers may continue to use the revised forms until further notice. The forms affected are:

  • WH-380-E, Certification of Health Care Provider for Employee's Serious Health Condition
  • WH-380-F, Certification of Health Care Provider for Family Member's Serious Health Condition
  • WH-381, Notice of Eligibility and Rights & Responsibilities
  • WH-382, Designation Notice
  • WH-384, Certification of Qualifying Exigency For Military Family Leave
  • WH-385, Certification for Serious Injury or Illness of Current Servicemember -- for Military Family Leave
  • WH-385-V, Certification for Serious Injury or Illness of a Veteran for Military Caregiver Leave

Revised FMLA Forms »

IRS Releases Three Publications for Small Business Retirement Options

The IRS recently released Publications 3988, 4334, and 4587, which describe retirement plan options available for small businesses. In addition to information about the retirement plan options, each publication includes a list of DOL and IRS resources a small business owner can use to evaluate their retirement plan offerings.

Publication 3988, "Choosing a Retirement Solution for Your Small Business", discusses the advantages of offering a retirement plan to employees. The publication also includes a chart of side-by-side comparisons of the options, as well as a description of each retirement option in narrative form.

Publication 4334, "SIMPLE IRA Plans for Small Businesses", discusses how to establish and operate a SIMPLE IRA.

Publication 4587, "Payroll Deduction IRAs for Small Businesses", discusses how to establish and operate payroll deduction IRAs.

IRS Publication 3998: Choosing a Retirement Solution for Your Small Business »
IRS Publication 4334: SIMPLE IRA Plans for Small Businesses »
IRS Publication 4587: Payroll Deduction IRAs for Small Businesses »


IRS Employee Plans News 2015-2

On Feb. 27, 2015, the IRS published "Employee Plans News" Issue 2015-2. In this edition, the IRS discussed the voluntary compliance process for IRC Section 457(b) plans, announced two March webinars and highlighted the updated PBGC forms and premiums.

With regard to the 457(b) plan correction process, the IRS explained that the voluntary compliance team will consider certain requests for voluntary correction of 457(b) retirement plan failures. However, the IRS clarified they will not process submissions that involve failures in the form or timeliness of the plan document. They also asserted that governmental plan sponsors can self-correct their 457(b) plans.

The two March webinars are as follows: On March 5, 2015 at 2:00 p.m. EST, the IRS hosted a webinar entitled "Highlights of the Second Cycle E Determination Letter Application Process". On March 26, 2015 at 2:00 p.m. EST, the IRS will host the "Retirement Plan Loans to Participants" webinar.

Finally, the publication also discussed the new PBGC forms and instructions available for use during standard or distressed terminations. In addition to these new forms, the IRS announced the 2015 PBGC flat-rate and variable rate premium amounts.

Employee Plans News 2015-2 »


February 24, 2015

Eighth Circuit Affirms Denial of Statutory Penalties for COBRA Notice Failure Due to No Harm Found

On Dec. 15, 2014, in Cole v. Trinity Health Corp., No. 14-1408 (8th Cir. 2014), the U.S. Court of Appeals for the Eighth Circuit upheld a trial court's denial of statutory penalties relating to the employer's failure to provide a timely COBRA election notice. The employee had been on medical leave, had exhausted her short-term disability (STD) benefits and had applied for long-term disability benefits which were denied. Even though the employee's eligibility for health coverage ended when the STD benefits expired, the employer did not notify the carrier. Therefore, coverage continued and the carrier continued to pay claims for ten months, without any contributions from the ineligible employee. The now former employee joined her spouse's plan two months after being terminated from employment and her employer's plan. Nevertheless, the employee sued, seeking statutory penalties from the employer for failing to provide a timely COBRA election notice. The trial court declined to assess any penalties, finding that the employer acted in good faith and that the employee was not harmed by the failure. The trial court's reasoning was that the employee had received medical coverage at no cost for several months and the value of that coverage far outweighed the claims she incurred before joining her husband's plan two months thereafter.

The Eighth Circuit Court of Appeals found that the trial court's decision was not in error and therefore affirmed the trial court's ruling.

While the employer in this case escaped penalty for their COBRA notice violation, the decision does not lessen the severity of COBRA violations. Failure to comply with COBRA carries significant penalties.

  • Excise tax penalties may be assessed under the IRC for each day's failure to comply with COBRA.
  • Statutory penalties of up to $110 per day may be recovered under ERISA for failure to provide certain notices under COBRA.
  • Qualified beneficiaries may sue to recover COBRA coverage under ERISA. Such suits carry the potential for large damages which, in the case of an insured plan, might not be covered by the plan's insurance.
  • Failure to provide adequate initial and election notices can create exposure to "other relief," including extra-contractual damages.
  • In all suits under ERISA, the court is permitted to award attorney's fees and interest to the prevailing party.

Cole v. Trinity Health Corp. »

CMS Issues Ruling Regarding Same-sex Marriages in Relation to Medicare

On Feb. 13, 2015, CMS announced its policy for recognition of same-sex marriages (consistent with the U.S. Supreme Court's Windsor decision) in relation to Medicare. This includes certain age-based and end-stage renal disease (ERSD) entitlement, eligibility and enrollment provisions of Medicare. The ruling explains that various Medicare provisions impacted by this ruling are controlled by either Title II or Title XVIII of the Social Security Act (SSA). Unfortunately, this ruling further complicates Medicare by acknowledging different standards for recognizing same-sex marriage depending on which part of the SSA a particular provision falls under.

Tile II of the SSA, which addresses eligibility for Medicare based on age or ESRD, already contains a provision defining marital relationships. The determination of whether to recognize a marriage is made looking at the law of domicile of the Social Security number holder. With this ruling, CMS will continue to use this method of determination for purposes of provisions in Title II.

Title XVIII of the SSA, on the other hand, does not have any controlling provisions defining marital relationships. Among other things, Title XVIII addresses calculation of certain Medicare premiums and late enrollment penalties, as well as eligibility for special enrollment periods. This ruling clarifies that the determination of whether to recognize a marriage for purposes of provisions in Title XVIII will be based on a "place of celebration" rule, meaning that a same-sex marriage is treated as a lawful marriage if the same-sex marriage was lawful where and when it occurred.

The ruling became effective Feb. 9, 2015.

CMS Ruling »

IRS Revises Publication 4484: Choose a Retirement Plan for Employees of Tax-Exempt and Government Entities

On Feb. 10, 2015, the IRS published revised Publication 4484, Choose a Retirement Plan for Employees of Tax-Exempt and Government Entities. In this edition of the publication, the IRS reviews eight types of retirement plans available to employees of tax-exempt entities such as churches or charities. The publication provides the latest tax laws specific to each retirement plan and has been revised to reflect 2015 annual limitations. The publication also provides basic information about each plan's benefits in the form of a summary table, which helps tax-exempt entities find the plans that best fit them and their employees. It allows users the ability to click on the plan tabs to view and compare the complete details on each plan. It also provides a list of other IRS publications that may provide helpful information and resources for establishing retirement plans.

The publication's goal is to show tax exempt and government entities that offering a retirement plan helps employees save for the future. Retirement plans may also help an organization attract and retain better qualified employees.

IRS Publication 4484 »


February 10, 2015

U.S. Supreme Court Rejects Presumptions Favoring Vested Retiree Health Benefits

On Jan. 26, 2015, the U.S. Supreme Court rejected presumptions established by the U.S. Court of Appeals for the Sixth Circuit, holding that whether an employer provides continued health benefits to retirees is a matter of contractual interpretation. As background, M&G Polymers USA, LLC (M&G) entered into a collective bargaining agreement that entitled certain retirees to 100 percent employer-provided health benefits for the duration of the agreement. However, when the collective bargaining agreement expired, M&G announced they would require retirees to contribute to the cost of their health benefits. A group of the retirees filed suit, claiming the agreement had created a vested right to lifetime contribution-free health benefits.

The district court previously dismissed the case for failure to state a claim, but the Sixth Circuit reversed the dismissal based on its decision in International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc. (“Yard-Man”). Yard-Man was based on similar facts, but the collective bargaining agreement at issue in that case had no provision that specifically addressed the duration of retiree health benefits. Since the Sixth Circuit found no termination provisions in that agreement, it inferred the intent to vest those retiree health benefits for life.

However, the U.S. Supreme Court rejected the Yard-Man presumption in this case. The Court first reasoned that ERISA does not require vesting of health benefits as it does for pension benefits. Second, the Court pointed out that they interpret collective bargaining agreements based on ordinary principles of contract law, and that unambiguous terms should be viewed as having a plainly expressed intent.

The Court further argued that the Sixth Circuit failed to show evidence that it was industry practice to negotiate for future benefits. In fact, retiree health benefits cannot be assumed to last for the duration of an individual's retirement. Instead, under contract principles, the duration of the agreement applies to all the agreement's terms unless expressly stated. The Court even argued that in the case of ambiguity or silence, the contract cannot be construed to create a lifetime vesting of health benefits.

Since the Court rejected the presumptions asserted in Yard-Man, the Court sent the case back to the Sixth Circuit to consider the issue under ordinary principles of contract law.

Although the final disposition of the case is still pending, the Court's assessment of the issue reflects the importance of providing clear and unambiguous language in plan documents and any other agreements that affect employers' pension and welfare plans.

M&G Polymers USA, LLC v. Tackett »


January 28, 2015

IRS Issues Notice Regarding Reporting of Sick Pay Paid by Third Parties

On Jan. 15, 2015, the IRS published Notice 2015-6, which provides guidance on reporting certain sick pay paid by third parties and employers. Form 8922 must now be used by third parties and employers for filing “third-party sick pay recaps” to report payments of certain sick pay paid on or after Jan. 1, 2014. For this purpose, “sick pay” is any amount paid to an employee for any period during which the employee is temporarily absent from work because of injury, sickness or disability. When this payment is made to an employee from another person, other than the common-law employer, it is considered third-party sick pay. Special rules, defined in the notice, explain whether federal income tax, FICA, FUTA and the Additional Medicare Tax withholding is required for sick pay. Whether such withholding is required will depend on whether the sick pay is paid by the employer of the employee, by an agent of the employer, or by a third party that is not the agent of the employer, among other factors.

This form must now be filed instead of the previously required Form W-2 and Form W-3, which were used for third-party sick pay recaps paid prior to Jan. 1, 2014. In another important change, while the Form W-2 and Form W-3 third-party sick pay recaps previously were filed with the Social Security Administration, employers and third parties will now file Form 8922 with the IRS.

Employers who provide sick pay to their employees should work with third parties administering these payments as well as tax counsel or payroll providers to ensure the proper withholding and payment of employment taxes, as well as the reporting of this payment to the IRS using Form 8922. The guidance is effective for certain sick pay paid on or after Jan. 1, 2014.

IRS Notice 2015-6 »


January 13, 2015

myRA Accounts Facilitated by Employers Not Covered Under Title I of ERISA

On Dec. 15, 2014, the DOL posted an information letter clarifying that retirement savings accounts established under the Department of the Treasury’s retirement security program (known as myRA) are not subject to ERISA Title I. As background, President Obama directed the Department of the Treasury (the “Treasury”) to create a retirement savings program for new savers and savers of small-dollar amounts. The Treasury responded by establishing the myRA program, which allows individuals who are not eligible to participate in an employer-sponsored retirement plan to contribute to Roth IRAs sponsored by the Treasury.

Although myRA accounts are sponsored by the Treasury, initial participants will only be able to contribute to their accounts via payroll deduction. This means their employers must agree to forward their contributions from payroll. Employers who are not offering a retirement plan could also choose to encourage their employees to participate in myRA by distributing information about the program.

Considering the employer involvement, the Treasury asked the DOL whether an employer’s facilitation and encouragement of the myRA program would be considered establishing or maintaining a pension benefit plan under ERISA. In coming to a conclusion on the matter, the DOL reasoned that Congress did not intend for a federal government retirement savings program created and operated by the Treasury to be subject to the requirements of ERISA. Additionally, since the myRA program is voluntary, and since employers can’t fund, administer, or design the program, the DOL concluded that an employer is not establishing a pension benefit plan that would be subject to ERISA by withholding and forwarding contributions or facilitating employee enrollment in myRA accounts.

IRS Notice 2015-6 »

DOL Publishes 2014 Versions of Forms 5500, 5500-SF and M-1

On Dec. 14, 2014, the DOL published advance information copies of 2014 Form 5500, which includes Form 5500-SF and related Form 5500 schedules. There are some notable changes to the 2014 versions of these documents. First, Form 5500 filers are now required to provide the total number of active participants at the beginning of the plan year and at the end of the plan year on both forms. Previously, the only active participant count required was at the end of the plan year, as well as overall participant counts at the beginning and end of the plan year. In addition, there are new requirements for Form 5500-SF (filed by smaller plans that meet certain criteria). Specifically, all filers must provide active participant counts at the beginning and end of the plan year, and pension plan filers must provide the number of participants that terminated during the year that were not fully vested. “Active participants” are defined for purposes of 401(k) plans as all current employees who are eligible to make deferrals (even if they chose not to). There is no specific definition for health plans, but it likely means a current employee covered by the plan.

Second, the Form 5500 and Form 5500-SF instructions for “Signature and Date” have been updated to caution filers to check the filing status. If it is “Processing Stopped” or “Unprocessable”, the submission may not have a valid electronic signature and may be considered not to have been filed. Third, the 2014 forms incorporate applicable questions about Form M-1 compliance. Previously these questions were addressed in a separate statement.

Third, multiple employer plans must include an attachment identifying participating employers and providing a good-faith estimate of each participating employer’s contributions during the year. Lastly, other minor changes were made to several of the related schedules, as noted in a DOL press release (link provided below).

On the same date, the DOL also published the 2014 version of Form M-1, which relates to multiple employer welfare arrangements (MEWAs)—arrangements providing benefits to employees of two or more non-related employers. MEWAs must use Form M-1 to report annually on their compliance obligations under several different group health plan mandates. According to the same DOL press release, the 2014 form and instructions include minor clarifications, but no substantive changes, as compared to the 2013 form. The Form M-1 Instructions do include the latest version of the self-compliance tool, which was recently updated in conjunction with final mental health parity rules. The tool is meant to assist filers with assessing and complying with Form M-1 reporting obligations.

Although many employers outsource the preparation and filing of these important forms, employers should familiarize themselves with the new requirements and work closely with outside vendors to gather the appropriate information.

2014 Form 5500, Schedules and Instructions »
2014 Form M-1 and Instructions »
DOL Press Release »

Agencies Issue Proposed Regulations Related to Wraparound Coverage

On Dec. 23, 2015, the EBSA, IRS and HHS jointly issued proposed regulations related to excepted benefits. The regulations propose a new category of excepted benefits called “wraparound coverage.” As a reminder, excepted benefits are exempt from many HIPAA Portability and PPACA provisions. The other categories of excepted benefits are limited scope dental or vision coverage, noncoordinated benefits (specified disease/illness or hospital indemnity coverage), non-health coverage (workers compensation or accidental death and dismemberment) and supplemental coverage (supplemental to Medicare, TRICARE or group health coverage).

There are two types of proposed wraparound coverage. The first wraps around individual coverage. The individual coverage cannot be grandfathered, transitional coverage or excepted benefits. The coverage must meet the following four criteria to be excepted:

  • The wraparound coverage covers additional benefits beyond the primary plan’s coverage. For example, the wraparound coverage provides an expanded network or pays benefits for non-covered services.
  • The cost of the wraparound coverage cannot exceed the amount of health FSA contributions (2015- $2,550)
  • Neither the wraparound coverage nor the primary coverage may discriminate based on a health factor or compensation.
  • Those eligible for the wraparound coverage may not be enrolled in a health FSA.

Employers may only offer wraparound coverage to retirees or employees who are not full-time (i.e., 30 hours or more per week). Employers must offer full-time employees minimum value, affordable coverage. The plan must comply with certain reporting requirements.

The second type of coverage wraps around a multi-state plan. The coverage must meet all criteria listed above, and these additional criteria:

  • The coverage must be approved by the Office of Personnel Management.
  • In 2014, the employer must have offered minimum value affordable coverage.
  • The employer’s combined contributions toward the cost of the primary and wraparound coverage must be substantially the same as the contributions to the cost of coverage for full-time employees.

Wraparound coverage offered under the proposed regulations would be permitted under a pilot program that would sunset for coverage offered after Dec. 31, 2017.

Comments are being accepted on the proposed regulations through Feb. 6, 2015.

Proposed Regulations »

IRS Introduces Changes to Employee Plans Determination Letter Processing

On Dec. 19, 2014, the IRS published Announcement 2015-01, which describes changes to the employee plans determination letter procedures. The changes noted in this announcement were reflected in Rev. Proc. 2015-6, which was published Jan. 2, 2015.

In the announcement, the IRS mentioned two specific changes to the procedure. The first change updates the procedural requirements of incomplete applications. The IRS specifically announced that upon receipt of a determination letter application, they will review the application to determine if it is complete. In order for the application to be considered complete, it must include all documents required by Rev. Proc. 2015-6. One of the required documents is the procedural requirements checklist, which has been designed to assist applicants with filing a complete application. If the IRS receives an incomplete application, they will contact the applicant to request the missing information. At that point, the applicant has 30 days from the date of the request to provide the missing information. If the information is not provided within the 30-day period, then the case will be closed and the applicant will have to refile the application.

The second change concerns technical review of the application. Specifically, the IRS will not begin technical review of the application until it is complete. After beginning technical review, the IRS may request additional information from the applicant. In that case, the IRS will specify a time period by which the applicant must provide the additional information. If the applicant does not respond to this request, the IRS will issue a second request. If the applicant fails to provide the information after the second request, the IRS will close the case and the applicant will have to refile.

This procedure will be effective Feb. 1, 2015.

Announcement 2015-01 »
Rev. Proc. 2015-6 »

IRS FAQs Clarify Rollovers of After-tax Contributions in Retirement Plans

On Dec. 23, 2014, the IRS publication Employee Plans News addressed two questions concerning rollovers of after-tax contributions in retirement plans. As background, IRS Notice 2014-54 now allows for multiple disbursements from a retirement plan to be considered a single distribution if they were disbursed at the same time. As a result, taxpayers who have both pretax and after-tax funds in their plan accounts can use a direct rollover to transfer pretax funds to a traditional IRA and after-tax funds to a Roth IRA.

The first question the IRS addressed was whether a taxpayer could take a partial distribution of just the after-tax amounts in a retirement plan account. The IRS answered that this is not allowed, and clarified that each distribution from a plan must still include a proportional share of the pretax and after-tax amounts in the account. The new ruling allows for both pretax and after-tax amounts to be sent to different accounts while being considered a single distribution.

The second question the IRS addressed was whether a taxpayer could roll over after-tax contributions to a Roth IRA, while rolling over the earnings on those contributions to a traditional IRA. The IRS answered that earnings from after-tax contributions are considered pretax funds. Therefore, earnings from after-tax contributions may be rolled over to a traditional IRA with other pretax funds.

Employee Plans News »

IRS Publishes Draft Instructions for Forms 1099-R and 5498

On Jan. 7, 2015, the IRS published 2015 Draft Instructions for Forms 1099-R and 5498. Generally, Form 1099-R is to be filed by a plan sponsor for each person to whom they made a distribution from a retirement account. Form 5498, sent to the IRS with an additional copy sent to the individual, is an annual document prepared by a financial institution to report information about IRAs and other tax-preferred savings accounts.

Draft Instructions for Forms 1099-R and 5498 »

CMS Publishes New Version of GHP User Guide for Medicare Section 111 Reporting

On Jan. 5, 2015, CMS released a new version (Version 4.6) of the Section 111 GHP User Guide. As background, Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) added mandatory reporting requirements with respect to Medicare beneficiaries who have coverage under group health plan (GHP) arrangements. These are often referred to as “Medicare Section 111 reporting requirements”. Most employer-sponsored group health plans, including self-insured plans and HRAs, are subject to Section 111 reporting requirements. Health FSAs, HSAs and stand-alone vision, dental and prescription plans are not. For self-insured plans, the employer is responsible for the reporting unless the employer uses a TPA, in which case the TPA is the responsible party. For fully insured plans, the insurer is generally responsible for the reporting. Regardless, employers need to understand the reporting requirements, as they either must file themselves or must work with TPAs/insurers to provide the appropriate and relevant information for the TPA/insurer to file.

The user guide provides an overview of related Section 111 legislation, Medicare Secondary Payer (MSP) rules, entities that are required to report and the reporting process with detailed instructions and requirements. The new version contains minor changes, including an updated description for the MSP effective date (clarifying how that date may be automatically set to a future date) and for a certain error code (clarifying that the SP31 error may be returned if the record was submitted prior to the individual’s Medicare entitlement effective date).

Employers that are responsible for Medicare Section 111 reporting should review the new user guide. In addition, where TPAs and insurers are responsible, employers should be ready to assist those entities in their filing obligations by providing relevant information when needed.

Section 111 Reporting GHP User Guide »

Retroactive Transit Parity Bill for 2014 Becomes Law; IRS Issues Notice Outlining Tax Reporting

On Dec. 19, 2014, the President signed the Tax Increase Prevention Act of 2014 (TIPA) into law, which relates to retroactive transit parity. This law retroactively increases the 2014 combined limit for transit and vanpooling benefits provided under a qualified transportation plan. Previously the 2014 combined limit for transit pass and vanpooling benefits was $130 per month, far less than the 2014 limit of $250 per month for qualified parking. These limits are now equal for 2014, but interestingly, not for 2015. Absent further Congressional action, the combined limit for transit pass and vanpooling benefits revert to $130 per month for 2015.

Employers are not required to make changes to their transportation plans in response to this new law. However, the law permits plans to allow higher qualified limits for transit passes and vanpooling retroactively for 2014. That said, the law does not permit, employees to retroactively increase their transit elections, so employers that did not allow after-tax transit benefit elections in 2014 would not have withholding and reporting adjustment obligations.

In connection with the new law, on Jan. 8, 2015, the IRS released Notice 2015-2, explaining the procedure for tax reporting in relation to the retroactive increase in 2014 qualified transportation benefits. The procedure is similar to that offered in 2013 (described in the Jan. 29, 2013 edition of Compliance Corner).

The notice also clarifies that employees cannot retroactively increase their 2014 compensation reduction elections nor can they take additional compensation deductions in 2015 to pay for 2014 transit expenses. For employers that treated transit benefits in excess of the previous limit as wages and have not filed Form 941 for the fourth quarter of 2014, there is a special procedure available to account for tax corrections without filing a Form 941-X. If the employer either repays or reimburses employees for overcollected FICA taxes for all four quarters before filing the fourth quarter Form 941, the employer may reduce the fourth quarter amounts by the refunded amounts that transit parity made excludable. Employers that have already filed their fourth quarter Form 941 for 2014 will need to make any corrections by filing a Form 941-X.

If Forms W-2 have not yet been provided to employees, the forms must be adjusted to correctly note the increased exclusion and any related overcollected FICA taxes that were reimbursed. If Forms W-2 have already been filed with the Social Security Administration, corrections will need to be made through W-2c.

Tax Increase Prevention Act of 2014 »
IRS Notice 2015-2 »

IRS Publishes New Edition of Retirement News for Employers

On Dec. 18, 2014, the IRS released Retirement News for Employers, a brief newsletter containing tips and insight for employers sponsoring retirement plans. The newsletter encouraged employers to set up new retirement plans no later than Dec. 31, 2014. Some small businesses, however, have until their tax filing deadline or April 15, 2015 to establish a retirement plan for their employees. The newsletter also includes information on record retention in the event of an IRS audit and advice on correcting Roth contribution failures.

The newsletter includes an important article describing the new IRS one-rollover-per-year rule, which is effective in 2015. While this is most applicable to individuals requesting rollovers, employers should be aware of the new limitations, especially if the employer sponsors a SEP or SIMPLE IRA for its employees. Finally, an article outlining key dates for retirement plan sponsors is included, which should be helpful for all employers sponsoring retirement plans.

Retirement News for Employers »