IRS Changes Course on Lump Sums to Retirees

In Notice 2019-18, the Internal Revenue Service (the “IRS”) changed its position and now will permit employers to offer lump sum payments to retirees who are currently receiving annuity payments from a defined benefit plan.  This is a reversal from its position in Notice 2015-49, in which the Treasury Department and the IRS stated that they intended to propose amendments to the required minimum distribution regulations to address the payment of lump sums to replace ongoing annuity payments under a defined benefit plan.  Prior to the issuance of Notice 2015-49, a number of defined benefit plans started offering retirees who were receiving annuities an opportunity to elect to convert their annuities into lump sum benefits during a limited period of time in what became known as “de-risking” transactions.  Read More ›

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IRS Issues Updated Tax Notice for Qualified Retirement Plan Distributions

The Internal Revenue Service (“IRS”) recently released guidance that contains two updated safe harbor notices that retirement plans may use to satisfy the requirements of the Internal Revenue Code (the “Code”) to provide an advance notice to a participant prior to the date on which the participant receives a distribution that meets the requirements for an eligible rollover distribution.  This notice is commonly referred to as the “402(f) Notice” after the relevant section of the Code that requires the notice to be provided.

The IRS guidance contains two model notices, one that may be used when distributions are not from a Roth account and a second model notice that may be used for distributions that are from a Roth account. Read More ›

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Much Ado about $50… IRS Announces Relief for Reduction of Maximum HSA Contributions

On April 3, we blogged about a reduction in the HSA contribution limit for family coverage in 2018 from $6,900 to $6,850.  This was a technical change resulting from the Tax Cuts and Jobs Act that adjusted the method for calculating inflation.  On April 26, in Revenue Procedure 2018-27, the IRS came through with a fix for this $50 technical issue.  For 2018, taxpayers with family coverage under a high deductible health plan (HDHP) may treat $6,900 as the maximum deductible HSA contribution. 

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Review of Qualified Plan Compensation Definition May be Needed Due To Tax Reform

Tax reform made few changes that directly impact qualified retirement plans; however, it made some changes that may indirectly impact qualified retirement plans.  We previously blogged on the indirect changes that tax reform had on hardship distributions. 

Tax reform also made changes to the taxation of certain fringe benefits that may impact the definition of “compensation” used in some qualified plans. Some qualified plans define compensation for plan purposes based on the taxability of a fringe benefit.  For example, a qualified plan may exclude from its definition of compensation “moving expenses, to the extent excluded from gross income.”  After tax reform, employers may no longer pay or reimburse moving expenses on a tax-free basis.  Read More ›

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IRS Publishes 2017 Required Amendments List

 

In our 2017 End of Year Plan Sponsor “To Do” List (Part 4) Qualified Plans, we suggested that sponsors of all qualified retirement plans should be on the lookout for the Internal Revenue Service’s (“IRS”) 2017 Required Amendments List (“RA List”).  The IRS recently published Notice 2017-72, which contains the 2017 RA List, https://www.irs.gov/pub/irs-drop/n-17-72.pdf

Part A of the RA List addresses changes in qualification requirements that require amendments to most plans (or to the types impacted by the change).  The 2017 RA List contains two changes in Part A:  those required by final regulations regarding cash balance/hybrid plans and those that address benefit restrictions for certain defined benefit plans that are eligible cooperative plans or eligible charity plans described in Section 204 of the Pension Protection Act of 2006, as amended.  Read More ›

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IRS Issues Hurricane Harvey Relief

In Announcement 2017-11, the IRS relaxed standards for hardship distributions and loans from qualified retirement plans for those affected by Hurricane Harvey. This relief applies to employees or former employees and their family members who live or work in the disaster areas designated for individual assistance by the Federal Emergency Management Agency (“FEMA”).

The Announcement provides for the following relief:

  • Relaxes the administrative rules that apply to hardship distributions by permitting plan administrators to rely on a participant’s representations regarding the need for, and the amount of, the hardship distribution unless the plan administrator has actual knowledge to the contrary.
  • Permits hardship distributions for Hurricane Harvey-related needs for family members, including parents, children and spouses.
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Missing Participants – Out of Sight Out of Mind?

Imagine it’s March 31 and you are a retirement plan administrator.  You have a participant who terminated employment 15 years ago.  He turned 70½ last year and now you owe him his first required minimum distribution from the Plan on April 1.  You have not thought about this participant or attempted to locate him in the past 15 years.  It doesn’t seem like a big deal until you realize if the participant does not receive his required minimum distribution, he will owe a 50% excise tax on the required minimum distribution.

This scenario is common to plan administrators.  In trying to keep up with the day to day requirements of administering retirement plans, it is easy to lose touch with former employees or beneficiaries.  Read More ›

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IRS Warns Employers of Dangerous Email Scam

The IRS has recently warned employers of another scam targeting employee information. The IRS has learned that scammers are posing as internal executives and are requesting Forms W-2 and Social Security Numbers from payroll or human resources departments.  The scammers may even initiate contact with a “Hi, are you in today” message before requesting the Forms W-2 and Social Security numbers.  It appears that scammers are using this information to file fraudulent tax returns and claim tax refunds in the names of the victims.

The target for the most recent scam is employers, including tax exempt entities, universities and schools, government and private sector businesses. Read More ›

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Did Hardship Distributions Just Get Easier?

In a previous blog, we addressed an issue of Employee Plans News in which the IRS took the position that 401(k) plan administrators must maintain hardship distribution records and should not rely on electronic participant self-certification for hardship distributions.

On February 23, 2017, the IRS issued a memorandum to its Employee Plans Examiners that sets forth substantiation guidelines for the examination of 401(k) hardship distributions.  The memorandum provides that a plan administrator may maintain either of the following to establish a participant’s need for a hardship distribution: (1) source documents that support the need for the hardship distribution or (2) a summary of the information contained in the source documents. Read More ›

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IRS Issues First Required Amendments List for Qualified Plans

In a previous blog, we discussed the IRS’ elimination of its five year staggered determination letter cycle for individually designed plans.  The IRS recently provided guidance to help sponsors of individually designed plans keep their plans in compliance with applicable law.  Notice 2016-80 contains the first Required Amendments List (the “RA List”) for individually designed qualified retirement plans.  In general, the RA List is a list of changes in the plan qualification requirements for changes that became effective in 2016.  The list is divided into two parts—(A) changes in qualification requirements that would generally require an amendment to most plans  or to most plans of the type affected by the change and (B) changes that the IRS and Treasury anticipate will not require an amendment in most plans, but might require an amendment due to an unusual provision in a particular plan.  Read More ›

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