Retirement Updates
2019 Archive

December 10, 2019

IRS Releases Required Amendment List for Retirement Plans

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On December 4, 2019, the IRS issued Notice 2019-64, which is the 2019 Required Amendments List (RA List) for qualified retirement plans. The yearly RA Lists provide changes in retirement plan qualification requirements that could result in disqualifying provisions and require a remedial amendment. A disqualifying provision is a required provision that isn’t listed in the plan document, a provision in the document that doesn’t comply with the qualification requirements, or a provision that the IRS defines as such.

The RA List is divided into two parts: Part A and Part B. Part A gives changes in qualification requirements that generally will require affected plans to be amended. Part B gives changes that would likely not require amendments to most plans, but might require an amendment because of an unusual plan provision in a particular plan.

This year, Part A includes two changes in requirements that would require plan document amendments. The first requires plan sponsors to amend their plan documents to reflect the recently adopted changes to the hardship distribution rules. Specifically, those changes no longer require employers to suspend employees’ elective deferrals after they’ve taken a hardship distribution or to require that employees represent that they do not have sufficient cash or liquid assets to use for the hardship. The second change requires plan sponsors to amend their plan document to reflect the final rules on cash balance and hybrid defined benefit plans. There are no Part B entries. Notably, this RA list also applies to 403(b) plans.

The remedial amendment deadline for disqualifying provisions resulting from items on the 2019 RA List is December 31, 2021 (or later, for certain governmental plans). Therefore, plan sponsors should determine whether amendments are necessary for their particular retirement plans.

IRS Notice 2019-64 »

New Mailing Address for IRS Employee Plan Submissions

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On November 29, 2019, the IRS provided a new mailing address for employee plan submissions regarding determination letters, letter rulings, and IRA opinion letters. This update provides an additional address for regular United States Postal Service delivery.

The address for regular USPS delivery is:
Internal Revenue Service
P.O. Box 12192
TE/GE Stop 31A Team 105
Covington, KY 41012-0192

The address for deliveries by private delivery services is:
Internal Revenue Service
7940 Kentucky Drive
TE/GE Stop 31A Team 105
Florence, KY 41042

This address change will affect the place to which a number of different forms must be mailed. However, many employers will not utilize this new address, as it applies to very specific forms. Plan sponsors should familiarize themselves with the announcement to ensure that they are sending their plan submissions to the correct address.

IRS Announcement »


November 12, 2019

IRS Announces 2020 Limits on Benefits and Contributions for Qualified Retirement Plans

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On November 6, 2019, the IRS issued Notice 2019-59, which provides certain cost-of-living adjustments for a wide variety of tax-related items, including retirement plan contribution maximums and other limitations. Several key figures are highlighted below. These cost-of-living adjustments are effective January 1, 2020.

The elective deferral limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases to $19,500 in 2020 (from $19,000 in 2019). Additionally, the catch-up contribution limit for employees age 50 and over who participate in any of these plans increases from $6,000 to $6,500. Accordingly, participants in these plans who have attained age 50 will be able to contribute up to $26,000 in 2020. The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts will increase from $13,000 to $13,500.

The annual limit for defined contribution plans under Section 415(c)(1)(A) increases to $57,000 (from $56,000). The limitation on the annual benefit for a defined benefit plan under Section 415(b)(1)(A) increases from $225,000 to $230,000. Additionally, the annual limit on compensation that can be taken into account for allocations and accruals increases from $280,000 to $285,000.

The threshold for determining who is a highly compensated employee under Section 414(q)(1)(B) increases to $130,000 (from $125,000). The dollar limitation concerning the definition of a key employee in a top-heavy plan increases from $180,000 to $185,000.

Employers should review the notice for additional information. Sponsors of benefits with limits that are changing will need to determine whether their plan documents automatically apply the latest limits or must be amended to recognize the adjusted limits. Any applicable changes in limits should also be communicated to employees.

IRS Notice 2019-59 »

IRS Proposes Rules that Would Update Life Expectancy and Distribution Tables

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On November 8, 2019, the IRS released a proposed rule that would update the life expectancy and distribution period tables that are used to calculate required minimum distributions (RMDs). As background, in August 2018, President Trump issued an Executive Order on Strengthening Retirement Security in America. As part of that order, President Trump directed the treasury to review the life expectancy and distribution period tables to determine if they should be updated.

Subsequently, the IRS has proposed this rule, which will update the Single Life, Uniform Lifetime, and Joint and Last Survivor Tables to recognize longer life expectancies. This will ultimately reduce annual RMDs.

The updated life expectancy distribution tables would apply for any distribution calendar year beginning on or after January 1, 2021. The IRS is also requesting comments on how often they should update these tables. Retirement plan sponsors should keep this update in mind for future RMDs.

Proposed Rule »


October 29, 2019

DOL Proposes New Electronic Disclosure Safe Harbor

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On October 23, 2019, the DOL proposed a new rule to expand the options available to retirement plan sponsors for electronic delivery of required disclosures. The proposal followed Executive Order 13847, which instructed the DOL to determine whether regulatory actions could be taken to improve the effectiveness of participant disclosures and reduce their cost to employers. After review and consultation with other regulatory agencies, the DOL set forth a new "notice and access" safe harbor under which ERISA retirement plan disclosures could be made available on a website following specified notice.

As background, in 2002, the DOL issued a safe harbor that permitted electronic delivery of disclosures provided that the method was reasonably calculated to ensure actual receipt, notice and content requirements were satisfied, and participants maintained the right to request paper copies. Under this prior safe harbor, employees with "integral access" to the employer’s computer system at work could be defaulted to electronic delivery; all others were required to affirmatively consent to the electronic method. In recognition of technological advances and increased participant internet access, the notice and access option is offered as a new alternative to (rather than a replacement of) the existing 2002 safe harbor.

The proposed alternative permits required disclosures for retirement plans (including multi-employer plans) to be posted online following notice to covered individuals, who can then access the documents continuously using an internet connected device. Covered individuals are participants, beneficiaries, and any other individuals entitled to documents, who have provided the plan administrator (or designee) with an electronic address, such as email address or smartphone number. Alternatively, if an electronic address is assigned by an employer for this purpose, the employee is treated as if they provided the electronic address. Covered documents include all disclosures required under Title 1 of ERISA, with the exception of documents that must be furnished upon request (such as the plan document).

The new safe harbor requires plan administrators to send a notice of internet availability to each covered individual’s electronic address whenever a covered document is made available on the website. Administrators are permitted to combine certain annual disclosures, for which the notice of availability would be considered timely if furnished not later than 14 months following the date of the prior plan year’s notice.

The new safe harbor lays out specific content that must be included in the notice. The referenced website address must be "sufficiently specific" to provide ready access to the covered document, either by leading the covered individual directly to the covered document or to a login page that provides a prominent link to the covered document. Generally, the notice must not contain additional information or be accompanied by other documents and it must be written in a manner calculated to be understood by the average plan participant.

The proposed rule includes two significant protections for individuals who prefer to receive paper versions of covered documents. First, any covered individual has the right to request and receive a paper copy free of charge. Second, a covered individual who prefers to receive all covered documents in paper may opt out of receiving covered documents electronically. If a plan administrator becomes aware of an invalid address (for example, if an email is returned as undeliverable), the individual must be treated as if they opted out of electronic delivery.

Plan administrators who choose to use the new safe harbor must send an initial paper notification to apprise covered individuals of the new electronic delivery method and the opportunity to opt out.

The DOL has requested public comments and information regarding the proposed alternative electronic delivery method on or before November 22, 2019. The new safe harbor option will be effective 60 days following publication of a final rule. In response to the executive order's directive, the DOL is also seeking information and ideas regarding measures (in addition to the notice and access framework) that would enhance the effectiveness of ERISA disclosures for participants and beneficiaries. This second request focuses upon the design and content of the disclosures and includes specific questions upon which feedback is sought.

Employers who are seeking an alternative electronic delivery method for retirement plan disclosures may want to review the proposed rule. It is important to note that the proposed notice and access delivery method does not currently incorporate welfare benefit plan disclosures. (The DOL declined to extend the proposal to welfare benefit plans, pending review and consultation with other regulatory authorities.)

Please stay tuned to Compliance Corner for further updates on these initiatives.

Default Electronic Disclosure Rule »

IRS Provides Recurring Remedial Amendment Periods for 403(b) Plans

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On September 30, 2019, the IRS released Revenue Procedure 2019-39, which sets up recurring remedial amendment periods for 403(b) plans. As background, remedial amendment periods allow plan sponsors to retroactively correct form defects in their plan document. This guidance comes after the IRS established a pre-approved plan program for 403(b) back in 2013. The last day of the remedial amendment period established under that previous guidance is March 31, 2020.

Rev. Proc. 2019-39 establishes recurring remedial amendment periods for form defects occurring after March 31, 2020. It also gives plan sponsors deadlines by which they must adopt 403(b) plan documents or plan amendments.

403(b) plan sponsors should work with their advisers to correct any form defects. The IRS indicated that they will provide additional guidance at a later date. We will continue to report on any developments in Compliance Corner.

Rev. Proc. 2019-39 »


October 15, 2019

IRS Releases Draft Version of 2019 Form 5500-EZ Instructions

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On October 3, 2019, the IRS published a draft version of the 2019 Form 5500-EZ instructions. As background, IRS Form 5500-EZ is an annual filing requirement for retirement plans that are either a one-participant plan or a foreign plan. The draft instructions are only for informational purposes and may not be used for 2019 Form 5500-EZ filings, but employers should familiarize themselves with the instructions in preparation for 2019 plan year filings. They should be reviewed in connection with the draft form discussed in the October 1, 2019 edition of Compliance Corner.

The IRS does not appear to have made any significant changes to this year’s form or instructions. While many employers outsource the preparation and filing of this form, employers should also familiarize themselves with the form’s requirements and work closely with outside vendors to collect the applicable information.

Draft 2019 Form 5500-EZ Instructions:  »


October 1, 2019

IRS Finalizes Hardship Distribution Rules

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On September 23, 2019, the IRS published the final rule changing the requirements that must be met for a participant to take a hardship distribution. As background, the IRS proposed new rules for hardship distributions back in November 2018 (as discussed in our November 28, 2018, Retirement Update for Compliance Corner).

The final rules are very similar to the proposed rules. As such, participants will be able to take a hardship distribution even if they have not exhausted all plan loans. They will also be allowed to continue contributing to their 401(k) after they take a hardship distribution. Likewise, the proposed rule would allow participants to draw hardship distributions from qualified matching contributions and qualified nonelective contributions (if their employer plan sponsor chooses to allow it).

There were a few clarifying changes to note:

  • The safe harbor for expenses incurred due to federally declared disasters has been updated to make it clear that employees can only receive a hardship distribution for their own losses, and not for the losses of their relatives or dependents. It also clarifies that there is no deadline for requesting a distribution and that there is no extended deadline for employers that want to adopt disaster-related hardship provisions.
  • The funds that are available for hardship distributions can include safe harbor contributions.
  • Participants can apply for a hardship distribution as long as the distribution is necessary to satisfy the participant’s financial need. They can do so even if they have access to funds that will be needed for another purpose soon. They can certify this need by telephone.

With some exceptions, the final regulations apply to distributions made after January 1, 2020. However, parts of the rule have been in effect since January 1, 2018.

Employers offering hardship distributions should determine how this rule will affect their plan and discuss these final rules with their advisor.

Final Rule on Hardship Distributions »

Justice Department Contends CalSavers Is Preempted by ERISA

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On September 13, 2019, the U.S. Department of Justice (DOJ) filed a Statement of Interest in Jarvis Taxpayers Association et al. v. CA Secure Choice Retirement Savings Program, asserting that California’s mandatory payroll deduction retirement program (CalSavers) is preempted by ERISA. The submission follows a DOJ request to the California district court to delay ruling on a pending dismissal motion. According to the DOJ, the purpose of the filing was to advance a correct and consistent interpretation of the scope of ERISA preemption and to promote the voluntary establishment of employer-sponsored retirement plans.

As background, Congress enacted ERISA in 1974 to ensure that employees would receive the benefits to which they were entitled under employer-sponsored plans. Significantly, ERISA did not require that employers establish benefit plans, but instead provided incentives for employers to do so. ERISA also established a uniform set of plan administrative rules and procedures, so employers operating in more than one state did not have to navigate various state laws. As federal law, ERISA was designed to supersede or “preempt” any conflicting state laws.

The Secure Choice Act was enacted by the California legislature and applies to California employers that have five or more employees and do not already sponsor an ERISA retirement savings plan. These employers are required to automatically enroll employees in individual retirement accounts (IRAs) managed by a state board, and to fulfill ongoing responsibilities with respect to their employees covered by the CalSavers program. The DOJ indicated that it had a heightened interest in a preemption ruling in this case because the Secure Choice Act was the first amongst similar state auto-IRA laws to be challenged.

In the brief, the DOJ asserts that the California law is preempted by ERISA because ERISA plans are vital to its framework: an employer is compelled to either establish an ERISA plan or participate in the California equivalent. So, an employer who elects not to sponsor an ERISA plan must now enroll employees in CalSavers and follow the state’s administrative structure. Accordingly, the Secure Choice Act obstructs ERISA’s voluntary plan sponsorship and uniform national administrative scheme.

Additionally, the DOJ emphasizes that CalSavers is a plan as defined by ERISA and Ninth Circuit precedent because the benefits, beneficiaries, funding source, and procedures for receiving benefits can be reasonably ascertained from the Secure Choice Act’s terms. The state law also requires an employer to determine and monitor eligibility, payroll deductions, and contribution rates for employees, thus assuming obligations analogous to those of maintaining an ERISA plan. As a result, the Department alternatively argues, the CalSavers program as maintained by an employer is actually an ERISA plan.

The brief further notes that the existing 1975 IRA Safe Harbor, which provides an exception from ERISA coverage for payroll deduction IRAs, is not applicable to CalSavers because the program is not “completely voluntary.” Past precedents have established that “completely voluntary” for purposes of the exception requires an employee’s affirmative election to participate (as opposed to automatic enrollment and the opportunity to opt out, as is the case under the CalSavers regime).

The DOJ’s filing is significant because it reinforces the federal government’s role as primary regulator of employer sponsored retirement plans. The core issue is one of federal preemption and the scope of ERISA’s application. Clearly, the DOJ views the obligations imposed by the CalSavers program as conflicting with and preempted by ERISA.

It is not yet known to what extent the DOJ’s opinion will influence the district court’s ruling on the pending dismissal motion. However, employers in California to which the CalSavers program applies will likely want to follow this litigation. Although not directly affected by the immediate ruling, employers in other states with similar IRA programs may also wish to monitor this development.

Jarvis v. CA Secure Choice »

IRS Releases Draft Version of 2019 Form 5500-EZ

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On September 23, 2019, the IRS published a draft version of the 2019 Form 5500-EZ return/report. As background, IRS Form 5500-EZ is an annual filing requirement for retirement plans that are either a one-participant plan or a foreign plan. This draft is only for informational purposes and may not be used for 2019 Form 5500-EZ filings, but employers should familiarize themselves with the form in preparation for 2019 plan year filings.

The IRS does not appear to have made any changes to this year’s form. While many employers outsource the preparation and filing of this form, employers should also familiarize themselves with the form’s requirements and work closely with outside vendors to collect the applicable information.

Draft Form 5500-EZ »

IRS Releases Draft Instructions for 2019 Form 8955-SSA

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On September 13, 2019, the IRS published a draft version of the instructions for 2019 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. This draft of the instructions is only for informational purposes and may not be used for 2019 Form 8955-SSA filings, but employers should familiarize themselves with the instructions in preparation for 2019 plan year filings.

The IRS does not appear to have made any changes to this year’s instructions. While many employers outsource the preparation and filing of this form, employers should also familiarize themselves with the form’s requirements and work closely with outside vendors to collect the applicable information.

Draft Instructions for 2019 Form 8955-SSA »


September 17, 2019

New Mailing Address for IRS Submissions

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On September 12, 2019, the IRS provided a new mailing address for employee plan submissions regarding determination letters, letter rulings, and IRA opinion letters.

The new address is:

Internal Revenue Service
7940 Kentucky Drive
MS 31A
Florence, KY 41042

This address change will affect the place to which a number of different forms must be mailed. However, many employers will not utilize this new address, as it applies to very specific forms. Plan sponsors should familiarize themselves with the announcement to ensure that they are sending their plan submissions to the correct address.

New Mailing Address for Employee Plan Submissions »

Expanded Determination Letter Program for Hybrid and Merged Plans Effective

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On September 1, 2019, the IRS’ determination letter program expansion took effect. As background, back in 2016, the IRS changed the determination letter program to only require individually designed retirement plans to seek determination letters upon plan creation/qualification and termination (instead of at certain intervals, as in the past). However, on May 1, 2019, the IRS released Revenue Procedure 2019-20, which expanded the determination letter program to allow statutory hybrid plans and merged plans to request a determination letter outside of initial qualification and plan termination. (See our May 14, 2019, Compliance Corner article for more information.)

As of September 1, 2019, employers that sponsor statutory hybrid plans (which are plans that have a feature that pays out a lump sum, like a cash-balance plan) can apply for a determination letter even if the plan sponsor has already received one. Employers merging plans may also request a determination letter as long as the application is completed no later than the end of the plan year that includes the date of the transaction.

Pursuant to this guidance, employers sponsoring these types of plans (hybrid or merged) should consider whether they should avail themselves of the opportunity to confirm the compliance of their plan documents. Most defined contribution plans that have not merged will not need to take advantage of this guidance; plan sponsors to which this guidance could apply should consult with their advisors.

Rev. Proc 2019-20 »


September 4, 2019

DOL Provides Fact Sheet on USERRA’s Application to Retirement Plans

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On August 9, 2019, the DOL published a fact sheet that discusses retirement plan sponsors’ obligations under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). The guidance applies to any retirement plan that provides retirement income to employees or defers payment of income to employees until after employment has ended.

As background, USERRA provides certain protections for employees who must be absent from work due to uniformed service. These protections include reemployment rights, protection from discrimination, and the right to the continuation of group health coverage. As it pertains to retirement plan benefits, USERRA generally requires employers to credit employees with the time they spent on military leave (since many retirement plan contributions are based on employee compensation or time in service).

The fact sheet provides practical guidance on how employers should administer their retirement plans when an employee takes USERRA leave. Since USERRA requires employers to provide returning service members with the same benefits that they would have been entitled to had they remained continuously employed, employers must determine the employee’s eligibility, vesting, and accrual of benefits as if the service member had not left for military service.

Employer contributions to the retirement plan must be made no later than 90 days following the service member’s reemployment. The service member must also be given the chance to make up any missed employee deferrals, although they are not required to do so. The fact sheet also describes how the employer should determine the rate of compensation used to calculate contributions by taking into account the service member’s hours worked prior to the military leave.

Employers should familiarize themselves with this guidance and work with their advisers to provide service members the appropriate retirement benefits upon reemployment.

USERRA Fact Sheet 1 »

Circuit Court Allows Arbitration for ERISA Breach of Fiduciary Duty Claims

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On August 20, 2019, the U.S. Court of Appeals for the Ninth Circuit, in Dorman v. Charles Schwab Corp., held that claims relating to a breach of ERISA’s fiduciary duties may be arbitrated. As background, previously, the Ninth Circuit (in Amaro v. Continental Can Co.) held that ERISA lawsuits cannot be arbitrated. The Ninth Circuit found that as a result of post-Amaro U.S. Supreme Court decisions, Amaro is no longer applicable law; so, the Dorman decision overturns Amaro.

In Dorman, the plaintiff (Dorman) – a former Charles Schwab employee – had, as an employee, participated in the company’s 401(k) plan. In 2014, an amendment was added to the 401(k) plan that stated any claim, dispute, or breach arising out of or connected to the 401(k) plan “shall be settled by binding arbitration.” The amendment also provided a waiver of class or collective action — meaning that employees waive their right to be part of any class action. In 2014, Dorman was promoted to a consultant role, and he enrolled in a consultant compensation plan. That compensation plan also included an arbitration clause, and also stated that benefit claims would be resolved pursuant to the terms of the 401(k) plan. In 2015, Dorman terminated employment with Charles Schwab, and two months later ceased participation in both the 401(k) and the compensation plan, and received a full distribution of his benefits.

Then, in 2017, Dorman filed a class action complaint against Charles Schwab, the 401(k) plan, fiduciaries of the 401(k) plan, and company executives, claiming that those defendants had breached their ERISA fiduciary duties of loyalty and prudence by selecting 401(k) plan investments that were affiliated with Charles Schwab. Dorman also claimed that the board of directors had breached their ERISA fiduciary duty to monitor plan fiduciaries. In response, Charles Schwab and the other defendants filed a motion to compel arbitration (instead of resolving the case in court); their motion was based on the 401(k) and compensation plan terms relating to arbitration as the medium for resolving plan-related disputes, as outlined in the 2014 401(k) plan amendment.

In January 2018, the district court denied the defendants’ arbitration motion, holding that – despite the plans’ terms – neither the 401(k) nor the compensation plan required arbitration. The court reasoned that the 401(k) arbitration provision didn’t apply because it took effect after Dorman’s 401(k) participation ended, and that because Dorman’s claims were benefit claims, they were not included in the compensation plan’s arbitration provision. The court also concluded that even if Dorman’s claims were within the plans’ arbitration scope, because Dorman’s claims were brought on behalf of the plan (as a class action) and not on Dorman’s own behalf, he could not waive 401(k) plan rights without the plan’s consent.

On appeal, the Ninth Circuit found several reasons to disagree with the district court’s findings and reasoning, and ultimately overturned its own precedent (the Amaro case). The court relied on several U.S. Supreme Court rulings that arbitrators are competent to interpret and apply laws (one argument in denying arbitration was that arbitrators are incompetent). The Ninth Circuit (in an unpublished memorandum), reasoned that the district court’s reasoning was flawed in several ways.

First, the record showed that Dorman was actually a 401(k) plan participant for almost a year while the arbitration provision was in effect. Second, Dorman was actually bound by the 401(k) arbitration provision because the plan had agreed to arbitrate benefit claims. Third, arbitration was not a subterfuge for fiduciaries to avoid ERISA liability, but rather a quicker and cheaper form of resolution for benefit claim disputes. As a result, the Ninth Circuit sent the case back to the district court with instructions to order arbitration with regard to Dorman’s claims.

For employers, the case signals a bit of a shift in how courts might treat ERISA fiduciary claims where arbitration is outlined in the related plan documents. The court’s holding means that arbitration agreements and class and collective action waivers in ERISA fiduciary duty breach claims can be enforced, at least where the plan documents explicitly include those provisions and waivers. Generally speaking, ERISA fiduciary breach claims are not commonly arbitrated; rather, they are usually put before courts. As a takeaway, employers’ plan sponsors will want to discuss the issue with outside counsel. In some situations, adding arbitration provisions and class/collective action waivers to plan documents may help employers avoid costly court appearances; in other situations, court proceedings may be the best process to an equitable resolution.

Dorman v. Charles Schwab Corp. »


August 20, 2019

IRS Clarifies Tax Treatment of Uncashed Retirement Plan Checks

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On August 14, 2019, the IRS published Revenue Ruling 2019-19, clarifying the tax treatment of retirement plan distribution checks that are not cashed by the participant to which they are distributed. Specifically, the ruling discusses a fact pattern in which a participant receives a required distribution in 2019, but fails to cash that check by the end of the year.

In this situation, the IRS confirms that

  1. the distribution should be included in the employee’s gross income for 2019;
  2. the employer should withhold taxes from the distribution in 2019; and
  3. the employer should report on the distribution in 2019, by providing the employee with a 2019 1099-R.

So even if an employee fails to cash a distribution check in the year that the distribution was made, the distribution is still deemed to be made in that year (for tax purposes). Employers should consider this guidance to ensure that they are following the correct protocol in distributing retirement plan funds and taxing those distributions.

Revenue Ruling 2019-19 »


August 6, 2019

DOL Issues Final Rules Expanding Access to Multiple Employer Plans

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On July 31, 2019, the DOL issued final rules expanding access to multiple employer plans (MEPs). As background, in October 2018, the DOL issued proposed rules that redefined the term “employer” under ERISA to allow certain employer groups and associations or PEOs to sponsor defined contribution retirement plans. That proposed rule was the DOL’s response to an executive order directing them to propose rules that would make it easier for small employers to band together to offer retirement plans. (We discussed the proposed rules in the October 30, 2018 edition of Compliance Corner, found here.)

The final rules do not vary much from the proposed rules. “Bona fide groups or associations of employers” and “bona fide professional employer organizations” can establish MEPs. Working owners with no employees can also participate in the MEPs under certain circumstances. The final rules still require the following for a MEP that wants to form under the new rules:

  • There must be a formal organizational structure that’s controlled by its employer members with at least one substantial business purpose outside of providing a retirement plan.
  • The members of the group or association must share a commonality of interest, which would be met if the members are in the same trade, industry, line of business or profession, OR if the members are in the same state or metropolitan area.
  • The members must employ at least one participant and participation must only be offered to employees and former employees.
  • The group or association must not be a financial services company such as a bank, trust company, insurance issuer, or broker-dealer.

One difference between the proposed rules and the final rules is that the final rules do not contain a safe harbor for “certified PEOs.” Instead, a PEO must show that they bear responsibility for employees’ wages, tax withholding and reporting, job offer and terminations, and employee benefits. Additionally, the final rules require that PEOs continue in their obligations as plan sponsor to participants even after the PEO ends its relationship with the client-employer.

The IRS simultaneously published a Request for Information (ROI) on “Open MEPs.” Open MEPs are MEPs that would potentially cover employers that have no relationship. The ROI also asks for comments on “corporate MEPs,” which would cover related employers that are not related enough to be considered a controlled group. This would allow even more employers the chance to band together to provide retirement plans. Comments must be submitted by October 29, 2019. Interestingly, Congress is also considering providing open MEPs through legislation.

The final rule will go into effect on September 30, 2019. Any plan sponsor that is considering joining a MEP should work with their adviser.

Final Rule »
DOL News Release »
Fact Sheet »
Request for Comment on Open MEPs »

DOL Offers Temporary Relief to Multiple Employer Plans with Annual Reporting Failures

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On July 24, 2019, the DOL issued Field Assistance Bulletin No. 2019-01, which provides temporary penalty relief from certain Form 5500 filing requirements for multiple employer plans (MEPs) subject to Title 1 of ERISA. Generally, MEPs file one Form 5500 that aggregates the data of the underlying participating employers.

However, in 2014, Congress added Section 103(g) to ERISA, which requires MEPS to include a list of names and EINs of participating employers and a good faith estimate of the percentage of total contributions made by each employer for the plan year. Unfunded or insured welfare plans must also specify the participating employers, but do not need to include the contribution information.

The DOL initiated enforcement action in 2019, upon recognition that a significant number of MEP filings in recent years had failed to fully comply with the ERISA Section 103(g) requirements. Following a dialogue with MEP plan sponsors, some of whom objected to the release of the employer-specific data, the DOL reiterated its position that such data is public information and must be open for public inspection.

Before proceeding with further civil penalty enforcement actions, the DOL is offering transition relief to MEPs who voluntarily comply with ERISA Section 103(g) by providing complete and accurate employer information for the 2017 plan year or any prior plan year. Specifically, the DOL will not reject such filings or assess civil penalties solely for the failure to include the ERISA Section 103(g) employer details, provided the plan’s 2018 Form 5500 complies with the requirements.

Additionally, for 2018 calendar year plans, which have a July 31, 2019 Form 5500 filing deadline, the DOL granted a special two and a half month extension to comply with ERISA Section 103(g). The special extension requires only the selection of a designated box on the Form 5500; however, the filer can also complete the standard Form 5558 to request an extension. The relief is also available to MEPs that already filed the 2018 Form 5500, provided the filing is amended by October 15, 2019.

Affected MEP sponsors should review previous Form 5500 filings (beginning with the 2014 plan year) to determine if the ERISA Section 103(g) required information was provided. Sponsors who failed to specify the necessary employer details on past filings can voluntarily provide such information and take advantage of the available penalty relief.

For the 2018 plan year, MEPs on extension (either through the special extension option or the Form 5558) should ensure the required employer data is attached. If the 2018 Form 5500 was already filed without the complete ERISA Section 103(g) data, relief under this guidance is still available to sponsors who amend the form to include the missing employer specifics prior to October 15, 2019.

FAB No. 2019-01 »


July 9, 2019

IRS Proposes Rules on Multiple Employer Plans

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On July 3, 2019, the IRS proposed rules that modify how employer qualification failures are treated if the employer provides retirement benefits through a multiple employer plan (MEP). As background, a MEP is a defined contribution plan in which multiple employers participate. For IRC and ERISA purposes, MEPs are considered a single plan. In the previous IRS rules on MEPs, there was a “unified plan rule” that meant that the whole MEP could be disqualified if one participating employer failed to satisfy a plan qualification requirement. This was known as the “one-bad-apple rule.”

This proposed rule does away with the one-bad-apple rule if certain conditions are met. This change comes in response to President Trump’s executive order on Strengthening Retirement Security in America. You can find more information on that executive order in our Compliance Corner article here.

Under the proposed rule, MEPs can avoid the disqualification of one participating employer causing the disqualification of the entire plan if the following requirements are met:

  • The MEP has to “spin off” the participant accounts of the employer that has been unresponsive after committing a qualification failure.
  • The MEP must establish procedures that promote compliance.
  • The MEP’s plan documents must explain the procedures the MEP will use to address participating employer failures.
  • The MEP must notify the participating employer of a failure by providing up to three notices that identify the failure, suggest remedial actions, and warn of the consequences of failing to take remedial action.
  • The MEP must allow the participating employer 90 days to respond to the qualification failure notice.
  • In implementing the spin-off of the disqualified participating employer, the MEP must give notice to the employees, stop accepting contributions from that employer, and spin-off the plan assets of that employer’s employees.

This proposed rule will be welcome news to MEP sponsors. The rule would become effective on or after the date the final rule is published in the federal register. The IRS will accept comments on the rule until October 1, 2019. MEP sponsors and their participating employers should consider the requirements set in place by this rule.

Proposed Rule on Multiple Employer Plans »

IRS Revises Resources Related to 401(k) Hardship Distributions

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The IRS has updated their web page related to hardship distributions from a 401(k) based on changes made by the Bipartisan Budget Act of 2018.

Beginning in 2019, hardship distributions may be made from elective deferrals, qualified nonelective contributions (QNECs), qualified matching contributions (QMACs), and earnings attributable to any of those.

Also effective in 2019, a participant is no longer prohibited from making elective deferrals in the six month period following the receipt of a hardship distribution. Additionally, the participant is not required to take all available plan loans prior to requesting the hardship distribution.

These changes are already in effect. Thus, plan sponsors should already be in compliance. Please contact your NFP advisor with any questions.

IRS Issue Snapshot - Hardship Distributions from 401(k) Plans »


May 29, 2019

US House of Representatives Passes SECURE Act

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On May 23, 2019, the US House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) by a vote of 417-3. While the Benefits Compliance team doesn’t normally report on bills that haven’t yet been written into law, we chose to provide this information as the SECURE Act. If passed, the SECURE Act would result in major changes to retirement regulations. In fact, the act would provide the most sweeping changes to retirement legislation that we’ve seen in over a decade. We provided more detail on this act in an article in our April 16, 2019 edition of Compliance Corner.

The act is now expected to be voted on in the Senate, where the Senate could vote on it as-is or could reconcile the act with the Retirement Enhancement and Savings Act (RESA), which is currently in the Senate Finance Committee. Either way, given the bipartisan support for the legislation, it seems very likely that some version of the act will be passed in the Senate and sent on to the president.

We will continue to report on any developments with this act.

SECURE Act »

Ninth Circuit Awards Surviving Spouse Benefits to Domestic Partner

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On May 16, 2019, in Reed v. KRON/IBEW Local 45 Pension Plan, the U.S. Court of Appeals for the Ninth Circuit reversed a district court decision to deny a domestic partner from receiving the pension benefits upon an employee’s death. The court ruled that the pension plan committee abused its discretion in the denial and remanded with instructions to determine the payments owed to the plaintiff.

In this case, the plaintiff (Reed) registered as a domestic partner with the (now deceased) Gardner in 2004. At that time, Gardner worked for a television station and was a participant in the company’s pension benefit plan. Gardner retired in April 2009 and began receiving pension benefits. Gardner and Reed married in May, 2014, and Gardner passed away five days later. The pension payments ceased upon Gardner’s death.

Reed submitted a claim for a survivor-spousal benefit, but it was denied, because the plan terms had “consistently interpreted the term spouse to exclude domestic partners.” Reed sued the plan committee that made the decision. The plan argued that the Defense of Marriage Act (DOMA), which was in place at the time of Gardner’s retirement, prohibited the plan from recognizing Reed as Gardner’s spouse. The district court found in favor of the plan committee stating that it did not abuse its discretion in denying Reed’s claim for benefits.

In considering the appeal, the ninth circuit focused on the plan document’s choice-of-law provision that stated the plan was to be “administered and its provisions interpreted in accordance with California law.” The ninth circuit determined that the plan committee should have awarded spousal benefits to Reed, because in either time the committee reviewed the case, in 2009 (at the time of Gardner’s retirement) and 2016 (at the time of Gardner’s death), California law afforded domestic partners the same rights, protections, and benefits as those granted to spouses. The fact that DOMA was law at the time of Gardner’s retirement did not supersede the plan’s terms.

This case serves as a good reminder of the protections extended to domestic partners in certain states, including CA. Plan administrators should know and understand the implications of applicable state laws when interpreting a plan’s terms.

Reed v. KRON/IBEW Local 45 Pension Plan


May 14, 2019

IRS Expands Determination Letter Program for Hybrid and Merged Plans

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On May 1, 2019, the IRS released Revenue Procedure 2019-20, which expands the determination letter program to allow statutory hybrid plans and merged plans to request a determination letter outside of initial qualification and plan termination. As background, back in 2016, the IRS changed the determination letter program to only require individually designed retirement plans to seek determination letters upon plan creation/qualification and termination (instead of at certain intervals, as in the past). (See our July 12, 2016, Compliance Corner article for more information on that change.) When that change occurred, the IRS also contemplated leaving the determination letter program open for certain specified circumstances.

Rev. Proc. 2019-20 comes after the IRS solicited and received comments on those “specified circumstances.” The guidance allows for employers that sponsor statutory hybrid plans (which are plans that have a feature which pays out a lump sum, like a cash-balance plan) to apply for a determination letter even if the plan sponsor has already received one. The guidance also allows for employers merging plans to request a determination letter. Specifically, a plan sponsor can submit a determination letter application if a plan merger is completed no later than the end of the plan year that includes the date of the transaction.

The IRS is also providing sanction relief to any entities that apply for a determination letter pursuant to this guidance. If the IRS discovers any plan document failures while reviewing the determination letter application for these plans, they will apply a reduced sanction equal to the user fee under the Employee Plans Compliance Resolution System (EPCRS).

Pursuant to this guidance, employers sponsoring these types of plans (hybrid or merged) should consider whether they should avail themselves of the opportunity to confirm the compliance of their plan documents. Most defined contribution plans that have not merged will not need to take advantage of this guidance; plan sponsors to which this guidance could apply should consult with their advisers.

Rev. Proc. 2019-20 »

IRS Requests Comments on Form 5500-EZ Filing Process

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On May 8, 2019, the IRS published a request for information, titled “Comment Request for the Annual Return/Report of Employee Benefit Plan,” in the federal register. The request for comments relates to the method in which Form 5500-EZ is filed; the IRS is proposing to make Form 5500-EZ available on the EFAST2 system for direct electronic filing rather than using Form 5500-SF. Either way, Form 5500-EZ could still be filed via paper copy.

As background, Form 5500-EZ is an annual return filed by a one-participant (owners/partners and their spouses) retirement plan or a foreign plan to satisfy the Form 5500 filing requirement. While Forms 5500 and 5500-SF are generally filed electronically through the web-based EFAST 2 system, Form 5500-EZ is generally filed by paper with the IRS or through answering questions on Form 5500-SF itself (also filed electronically via EFAST2).

According to the request, the IRS is seeking comments on a few things. Specifically, they are soliciting comments on:

  • Whether the collection of information is necessary for the proper performance of the functions of the IRS, including whether the information has practical utility
  • The accuracy of the agency’s estimate of the burden of the collection of the information on Form 5500-EZ
  • Ways to enhance quality, utility, and clarity of the information collection
  • Ways to minimize the burden of the collection information on respondents, including through the use of automated collection techniques or other forms of technology
  • Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information

Employers are not required to respond — this is merely the IRS requesting comments relating to Form 5500-EZ. Comments should be submitted to the IRS on or before July 8, 2019.

IRS Request for Comment »


April 30, 2019

IRS Expands the Employee Plan Compliance Resolution System

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Effective April 19, 2019, the IRS expanded the system of correction programs for plan sponsors of retirement plans with the release of Rev. Proc. 2019-19. As background, plan sponsors are permitted to correct certain failures through the Employee Plans Compliance Resolution System (EPCRS) and in some circumstances avoid paying any fees or sanctions. There are three programs in the system: the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP).

This revenue procedure allows plan sponsors of a qualified plan, a 403(b) Plan, a Simplified Employee Pension Plan (SEP), or a SIMPLE IRA Plan that satisfy the eligibility requirements to correct certain operational failures or plan document failures under SCP. A plan sponsor may correct an operational failure by plan amendment to conform the terms of the plan to the plan’s prior operations if three conditions are satisfied: 1) the plan amendment would result in an increase of a benefit, right, or feature, 2) the increase in the benefit, right, or feature is available to all eligible employees, and 3) providing the increase in the benefit, right, or feature is permitted under the Code and satisfies the correction principles.

Also, this revenue procedure provides a new correction method for failure to obtain spousal consent for a plan loan. The sponsor must notify the affected participant and spouse so that the spouse can provide consent. If consent is not obtained, the failure must be corrected using either VCP or Audit CAP. Plan loans that are made in excess of loan limits may be corrected only under VCP or Audit CAP.

Finally, the EPCRS may not be used to correct the initial failure to adopt a qualified plan or failure to timely adopt a written 403(b) plan document.

The Treasury Department and the IRS invite comments on how to improve EPCRS and expect to update the system in the future based on those comments.

If a plan is currently out of compliance with requirements based on an operational or plan document failure, the plan sponsor should work with their retirement plan consultant to see if they are eligible to use EPCRS to get the plan into compliance.

Rev. Proc. 2019-19 »

Ninth Circuit Holds that Bank Violated ERISA by Setting its Own Recordkeeping Fees

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On April 23, 2019, in Acosta v. City National Corporation, a panel of the U.S. Court of Appeals for the Ninth Circuit held that City National Corporation and other defendants (City National) violated ERISA by engaging in prohibited self-dealing. As background, City National Corporation sponsors a defined contribution plan and its subsidiary, City National Bank (CNB), serves as the plan’s trustee and record-keeper. As the plan’s record-keeper, CNB received compensation through revenue sharing. CNB also served over 200 other ERISA plans in this capacity.

The DOL brought this case against City National, alleging that they had violated ERISA’s prohibition against self-dealing. Specifically, they argued that CNB had set and approved their own compensation and had failed to maintain a system for tracking how much time its employees actually spent servicing City National’s plan versus other plans. The District Court granted summary judgment in favor of the DOL and the Ninth Circuit affirmed that decision.

In their ruling, the Ninth Circuit affirmed the idea that self-dealing cannot be overcome by claiming the reasonable compensation exemption provided in ERISA. In other words, where a fiduciary engages in self-dealing, it is not enough that the fees that are paid under the arrangement are for reasonable compensation for services. Instead, in this case, the fees paid to CNB were self-dealing, and they needed to be able to prove that the fees were paid in direct compensation for services actually rendered to this plan. This would allow them to offset those amounts against the damages assessed for the self-dealing.

Unfortunately, in this case, the court found that CNB had not actually met their burden of proof in showing that the fees paid directly correlated to the services offered to the plan. They could not prove that CNB employees had directly spent certain time completing tasks for this plan. Instead, all they could provide was a generalized report based on an average of all fees paid to CNB by all the plans they serviced. As such, the court found that they were liable for damages for their self-dealing.

While the case was remanded to the District Court to determine the exact amount of damages, this case presents a warning to plan sponsors. Where fiduciaries of the plan are also offering services to the plan for a fee, it’s important that they keep accurate records of the services that are offered so that they can accurately offset any damages that could be imposed because of self-dealing. Importantly, plans should also consider whether other arrangements need to be made to avoid self-dealing, or whether an independent fiduciary should be called upon to determine fees paid to a fiduciary.

Acosta v. City National Corporation »


April 16, 2019

House Committee Unanimously Approves SECURE Act

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On April, 2019, the US House of Representatives’ Ways and Means Committee unanimously approved the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”). While the Benefits Compliance team doesn’t normally report on bills that haven’t yet passed, we chose to provide this information as the SECURE Act, if passed, would result in major changes to retirement regulations. Additionally, the unanimous vote from the Ways and Means Committee reflects bipartisan support for the Act, which means that there are good chances that some version of it will be signed in to law.

As background, the SECURE Act comes after multiple bills attempted to include similar provisions. Specifically, the Retirement Enhancement and Savings Act (RESA) was approved by the Senate Finance Committee and the Family Savings Act was passed by the House in 2018, respectively. The SECURE Act includes provisions found in both of those bills and adds some new provisions.

The SECURE Act is broken up into four titles, and some of the major provisions are summarized as such:

Title I: Expanding and Preserving Retirement Savings
  • Increases auto enrollment safe harbor cap to 15 percent
  • Simplifies 401(k) safe harbor, notably eliminating the notice requirement
  • Increases tax credit for small employer plan start ups
  • Provides credit for small employers that start plans that include automatic enrollment
  • Prohibits plan loan distribution through credit cards
  • Allows portability of lifetime income investments for defined contribution, 403(b), and governmental plans
  • Requires employers to offer 401(k) plan participation to long-term part-time workers
  • Provides penalty-free withdrawals for qualified births and adoptions
  • Increases the age for required minimum distributions from age 70 1/2 to age 72
Title II: Administrative Improvements
  • Permits plans adopted by the employer’s tax return due date to be treated as in effect as of the close of the plan year
  • Requires annual benefit statements to include a lifetime income disclosure
  • Provides safe harbor for fiduciaries that select lifetime income provider
Title III: Other Benefits
  • Expands Section 529 plans to cover additional educational costs, notably include student loan repayment
Title IV: Revenue Provisions
  • Modifies required minimum distribution rules relating to death of the account owner
  • Increases penalties for failure to file a Form 5500

As noted, this legislation would result in an overhaul of many of the retirement regulations that have been in place for decades. If passed, it will likely require employers to amend their plans and adjust their plan operations. We will continue to monitor any developments.

SECURE Act Text »

SECURE Act Press Release »

SECURE Act Summary »


April 2, 2019

IRS Updates Operational Compliance List for 2019

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On March 26, 2019, the IRS updated their operational compliance list (“OC List”) to include changes to the hardship distribution rules. As background, the OC List is provided by the IRS to help plan sponsors and practitioners achieve operational compliance by identifying changes in qualification requirements effective during a calendar year.

The updated list incorporated the most recent changes to the hardship distribution rules. (We discussed those changes in the November 28, 2018, edition of Compliance Corner.) The list also highlights the relief available to victims of the hurricanes that occurred in 2018.

The IRS periodically updates the OC List to reflect new legislation and guidance. As such, it is a useful tool for plan sponsors. However, the list is not intended to be a comprehensive list of every item of IRS legislation or guidance. Plan sponsors should work with their advisers to ensure their continued compliance with the retirement plan regulations.

Operational Compliance List »


March 5, 2019

IRS FAQs for Employers Adopting Pre-Approved Retirement Plans

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On Feb. 21, 2019, the IRS released a set of FAQs providing guidance for employers adopting pre-approved retirement plans. As background, employers may adopt a pre-approved retirement plan offered by document providers instead of individually designing a plan. The FAQs describe how an employer can adopt such a pre-approved plan, including the timeline by which to adopt the plan and how to request a determination letter for the pre-approved plan. The FAQs also address the steps an employer needs to take when amending the pre-approved plan.

Employers looking to adopt a pre-approved retirement plan should familiarize themselves with this guidance.

Pre-Approved Retirement Plan Adopting Employer FAQs »

IRS Publishes 2018 Form 8915B Instructions

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The IRS has published the 2018 version of Instructions for Form 8915B: Qualified 2017 Disaster Retirement Plan Distribution and Repayments. As background, Form 8915B must be filed by participants who received a qualified disaster distribution from a SEP, SIMPLE, Roth IRA, 457 deferred compensation, qualified 401(k), pension, profit sharing, stock bonus or annuity plan in 2017. Specifically, any of the following must file: those who received a qualified 2017 disaster distribution in 2018, those who received such distribution in 2017 that is being included in their income over three years, and those who made a repayment of such distribution in 2018.

As a reminder, the 2017 disasters covered by the favorable tax treatment are Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, Hurricane Maria and the California wildfires. Distributions associated with these disasters are included in taxable income in the year in which the distribution was received or spread over three years, at the individual’s choice. The distributions are not subject to the additional tax for early distributions, which is generally 10 percent (25 percent for certain SIMPLE IRA distributions).

Form 8915B must be filed with an impacted individual’s tax return. Any plan participant seeking guidance should be directed to their accountant for assistance.

Instructions for Form 8915B »

Form 8915B »


February 21, 2019

IRS Releases Final Form 8955-SSA and Instructions

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In January, the IRS published the final 2018 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.

Additionally, the IRS also released the final 2018 instructions for the Form 8955-SSA. They don’t highlight any substantive changes in the updated forms. Minor changes to the instructions include the addition of a reference to affiliated service groups in the definition of a single employer plan and the ability for certain filers to submit paper filings because they qualify for the DOL’s Delinquent Filer Voluntary Compliance Program. Finally, there were also updates in the instructions to the address for private deliveries.

Employers should review this form in preparation for filing the 2018 Forms 8955-SSA.

Form »
Instructions »

IRS Updates 2018 Publication 560 – Retirement Plans for Small Business

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On Jan. 24, 2019, the IRS issued Publication 560 to help employers prepare the 2018 returns for certain small business retirement plans, including SEP (simplified employee pension plans), SIMPLE (savings incentive match plan for employees), and qualified plans (including 401(k) plans). This publication contains information for employers to understand what types of plans may be best for them to set up, how to set up such a plan, the allowable contributions under each plan, how much of the contribution is deductible, and how to report information about the plan to the IRS and to employees.

For 2018, there are several notable changes to the hardship distribution rules for 401(k) plans. Most significantly, the Bipartisan Budget Act of 2018 changed the hardship distribution rules to:

  1. Remove the 6-month prohibition on contributions following a hardship distribution
  2. Allow hardship distributions to be made from contributions, earnings on contributions and employer contributions
  3. Eliminate any requirement to take plan loans prior to taking a hardship distribution

These updates apply to plan years beginning after Dec. 31, 2018.

The publication also highlights the following updates:

  • Compensation limits. The maximum compensation used for figuring contributions and benefits in 2018 is $275,000 (and $280,000 for 2019).
  • Elective deferral limits. Elective deferral limits for SARSEPs, 401(k) plans (excluding SIMPLE plans), 403(b) plans and 457(b) plans is $18,500 in 2018 and $19,000 for 2019 (not including catch-up contributions).
  • Defined Contribution limits. The contribution limit for a participant in a defined contribution plan is $55,000 for 2018 and $56,000 in 2019 (not including catch-up contributions).
  • Defined benefit limits. Annual participant limits in a defined benefit plan is $220,000 for 2018 and $225,000 for 2019.
  • SIMPLE plan salary reduction limit. The salary reduction contribution limit is $12,500 for 2018 and $13,000 for 2019 (not including catch-up contributions).
  • Catch-up contribution limits. Participants who are 50 years old or older may be permitted to make additional catch-up contributions of up to $6,000 for 2018 and 2019. The catch-up contribution for SIMPLE plans is $3,000 for 2018 and 2019.

Certain retirement plans may also extend certain tax relief to employees and their family members who live or work in disaster areas affected by Hurricane Michael or Florence, if made by March 15, 2019.

Please note that this document does not contain all of the details necessary to create and maintain these plans. Employers should consult with their advisers or legal counsel to ensure they are set up and administered properly.

IRS 2018 Publication 560 »

IRS Provides 401(k) Fix-It-Guides for Hardship Distribution and Participant Loan Failures

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The IRS recently released 401(k) Plan Fix-It-Guides for situations where hardship distributions weren’t made properly or where plan loans didn’t conform to the IRC’s requirements. As background, IRS Fix-It-Guides provide information on how to identify, fix and avoid common 401(k) plan compliance failures.

Specifically, the guide on hardship distribution failures identifies the circumstances that will allow for a hardship distribution and identifies the steps to take if a hardship distribution was provided that did not comply with the plan document terms. Likewise, the guide on participant loan failures identifies the IRC requirements for plan loans and how to fix a failure.

Although this guide does not impose any specific employer requirements, it does provide valuable information to plan sponsors who are looking to keep their 401(k) plan compliant. Employers should consult with their adviser if they have committed any of these operational failures.

401(k) Plan Fix-It-Guide for Hardship Distributions »
401(k) Plan Fix-It-Guide for Participant Loan Failures »


February 5, 2019

IRS Releases VCP Submission Kit for Failure to Adopt Pre-Approved Retirement Plans

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On Jan. 31, 2019, the IRS released a Voluntary Compliance Program (VCP) Submission Kit for plan sponsors that failed to adopt an updated pre-approved defined contribution (DC) plan. As background, DC plan sponsors were generally required to update their plan document by April 30, 2016, to reflect the changes imposed by the Pension Protection Act. If plan sponsors failed to do so, their plan is no longer entitled to tax-favored treatment.

However, plan sponsors that failed to adopt an updated plan can restore their plan’s tax-favored status by adopting an updated plan document and filing a VCP submission. The submission kit describes the process by which plan sponsors can file their submission. Specifically, it details the steps to take, lists the required documentation and forms, and discusses fees. Additionally, the guidance outlines what will happen after the submission is filed.

DC plan sponsors that have not filed an updated pre-approved plan document should consult with their advisers about whether they should file for the VCP relief.

VCP Submission Kit »

IRS Releases 2018 Publication 590-B, Distributions from IRAs

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The IRS recently released the 2019 Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), to be used to prepare 2018 returns. This publication details rules for receiving distributions (withdrawals) from a traditional or Roth IRA. The instructions summarize the changes for 2018 which include:

  • No recharacterizations of conversions made in 2018 or later.
  • Miscellaneous itemized deductions are no longer permitted.
  • The 2018 Form 1040 has been redesigned with additional schedules to be used for more complex returns.
  • Form 1040A and 1040-EZ are no longer available. Instead, filers must use the revised Form 1040.

In addition, the publication reminds individuals that there is still qualified disaster tax relief for IRAs related to Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, Hurricane Maria and the California wildfires. There is also relief for economic losses suffered as a result of disasters declared by the President under Section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016.

Employers that offer Roth or traditional IRAs should familiarize themselves with this guidance.

Publication 590-B, Distributions from IRAs »


January 23, 2019

IRS Issues Revised Procedures for Determination Letters and Letter Rulings

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On Jan. 2, 2019, the IRS issued Revenue Procedures 2019-01 and 2019-04. Rev. Proc. 2019-01 contains revised procedures for letter rulings and information letters issued by the various IRS departments, including the Associate Chief Counsel (Employee Benefits, Exempt Organizations and Employment Taxes). The guidance also identifies the different departments from which taxpayers can request advice. Other than updating some fees and making certain technical changes, Rev. Proc. 2019-01 is not that different from the guidance found in the preceding version (Rev. 2018-01).

Rev. Proc 2019-04 contains revised procedures for determination letters and letter rulings issued by the Commissioner, Tax Exempt Agreements Office (Employee Plans). This guidance reflects the 2017 changes made to the IRS determination letter process (discussed in the July 11, 2017, article found here). This guidance also updates the fees required to submit pre-approved plans, participate in the Voluntary Correction Program (VCP) or request determinations for plan terminations. Other changes have been made that will affect how plans must engage with the IRS if they are requesting relief from retroactive disqualification.

Employers that hope to obtain determination letters or letter rulings from the IRS should consult these revenue procedures so that they understand how the new procedures differ from the 2018 procedures.

Rev. Procs. 2019-01 & 2019-04 »

IRS Releases Final 2018 Form 5500-EZ

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The IRS recently released the final 2018 IRS Form 5500-EZ. Though not much has changed, the 2018 form has an updated name to match the purpose of the form to include both a one-participant retirement plan and a foreign plan. The form name is now the “Annual Return of A One-Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan.” There was also an update to the plan characteristics codes for Line 8 (Part IV) to reflect the IRS changes for the pre-approved plans.

As background, IRS Form 5500-EZ is an annual filing requirement for retirement plans that are either a one-participant plan or a foreign plan. Form 5500-EZ is used by one-participant plans that are not subject to the requirements of IRC Section 104(a) and that are not eligible or choose not to file Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, electronically to satisfy certain annual reporting and filing obligations imposed by the Code.

Applicable plan sponsors must file a Form 5500-EZ on or before the last day of the seventh month after their plan year ends. As a result, calendar-year plans generally must file by July 31 of this year (reporting for the 2018 plan year). Plans may request a two-and-a-half month filing extension by submitting a Form 5558, “Application for Extension of Time to File Certain Employee Plan Returns,” by the plan’s original due date.

Need help filing? We have vendors available to assist. Please ask your advisor for assistance.

Form 5500-EZ »
Instructions for Form 5500-EZ »
Form 5558 »

IRS Releases 2018 Publication 590-A, Contributions to IRAs

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The IRS recently released the 2019 Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), to be used in preparing 2018 returns. The instructions summarize the changes for 2018 including:

  • An extended rollover period for qualified plan loan offsets
  • No re-characterizations of conversions of a traditional IRA to a Roth IRA
  • The modified adjusted gross income limits (AGI) for both traditional IRA and Roth contributions

The publication also details the modified AGI limits for 2019 contributions, which vary by marital status and type of IRA. Lastly, the publication reminds individuals that there is still qualified disaster tax relief for IRAs related to Hurricane Harvey, Tropical Storm Harvey, Hurricane Irma, Hurricane Maria and the California wildfires. There is also relief for economic losses suffered as a result of disasters declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016.

Employers that offer Roth IRAs should familiarize themselves with this guidance.

Publication 590-A, Contributions to IRAs »


January 8, 2019

IRS Updates Publication 571 on 403(b) Plans

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In January 2019, the IRS updated Publication 571, entitled “Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations.” This publication is designed to help tax filers better understand 403(b) plans and the related tax rules.

Specifically, Publication 571 provides information that will help individuals determine the amounts that can be contributed to their 403(b) plans (in 2018 and 2019), identify excess contributions, understand the basic rules for claiming the retirement savings contribution credits and understand the basic distribution rules.

Although the updates to the publication mainly describe the increased contribution and tax credit limits, this publication would be helpful to any employer that sponsors a 403(b) plan.

Publication 571 »