The IRS Significantly Increased the Availability of Mid-Year Changes to Safe Harbor Plans

Mid-year changes to safe harbor 401(k) plans have long been thought to be available in only very limited circumstances.  However, the IRS recently released guidance in Notice 2016-16 that significantly increases the scope of permissible mid-year changes to safe harbor 401(k) plans.

Generally, safe harbor 401(k) plan provisions must be adopted (and participants must be notified) before the first day of the plan year and remain in effect for the entire 12-month plan year.  Such a plan generally loses its safe harbor status if changes are made during the plan year.  However, the safe harbor regulations set out the following limited exceptions to the general rule:

1.   Read More ›

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IRS Announces 2016 Retirement Plan Dollar Limits

The IRS recently announced cost of living adjustments for 2016.  In general, the dollar limitations for retirement plans remained the same.  The key dollar amounts are noted below, all of which remain unchanged from 2015.

Maximum Qualified Retirement Plan Dollar Limits
2015/2016
Limit on Section 401(k) deferrals (Section 402(g)) $18,000
Dollar limitation for catch-up contributions (Section 414(v)(2)(B)(i)) $6,000
Limit on deferrals for government and tax-exempt organization deferred compensation   plans (Section 457(e)(15)) $18,000
Annual benefit limitation for a defined benefit plan (Section 415(b)(1)(A)) $210,000
Limitation on annual contributions to a defined contribution plan (Section 415(c)(1)(A)) $53,000
Limitation on compensation that may be considered by qualified retirement plans (Section   401(a)(17)) $265,000
Dollar amount for the definition of highly compensated employee (Section   414(q)(1)(B)) $120,000
Dollar amount for the definition of key employee in a top-heavy plan (Section   416(i)(1)(A)(i)) $170,000
Dollar amount for determining the maximum account balance in an ESOP subject to a   five-year distribution period (Section 409(o)(1)(C)(ii)) $1,070,000
SIMPLE retirement account limitation (Section 408(p)(2)(E)) $12,500
Social Security Taxable Wage Base $118,500
Read More ›
Posted in Employee Benefits, Qualified Retirement Plans

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The IRS Takes Aim at De-Risking of Defined Benefit Plans

Many defined benefit plan sponsors are looking for ways to reduce the on-going liability and the volatility of the annually required contributions to their defined benefit plans, which is sometimes referred to as “de-risking.”  One de-risking strategy involves offering lump-sum payouts to retirees in pay status as a replacement of their annuity payments.  This strategy was never approved by the IRS on a universal basis, but the IRS, in private letter rulings (“PLRs”), ruled that Ford and General Motors were able to employ this strategy in connection with their defined benefit plans.  While PLRs only apply to the parties requesting the ruling (e.g., Ford and GM), PLRs are often times viewed as informal guidance on the IRS’s views on certain issues.  Read More ›

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Obergefell v. Hodges – Same-Sex Marriage Now Legal in All 50 States

In 2013, the Supreme Court, in United States v. Windsor, struck down Section 3 of the Defense of Marriage Act (“DOMA”) which defined marriage, for Federal purposes, as between one man and one woman. The Windsor ruling resulted in numerous Federal benefits for same-sex couples who were legally married in a jurisdiction that performed same-sex marriages. However, at that time, the Supreme Court declined to address whether states could define marriage as between one man and one woman. This allowed states to continue to ban same-sex marriage, which caused confusion among employers with respect to the interplay between complying with Federal law and complying with the laws of the states in which they operated. Read More ›

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State of Celebration Standard Now in Effect for FMLA

In a previous blog, I wrote about regulations issued by the Department of Labor (“DOL”) proposing to revise the regulatory definition of “spouse” under the Family and Medical Leave Act (“FMLA”) to be based on the law of the place where a marriage was performed, which is known as the “state of celebration” standard.  The DOL finalized the proposed regulations by issuing a Final Rule on February 25, 2015.

Effective March 27, 2015, the regulatory definition of “spouse” under the FMLA was changed from a “state of residence” standard to a “state of celebration” standard.  This means that employers must now look to the law of the place in which the marriage was performed rather than the law of the state in which the employee resides.  Read More ›

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Proposed Regulations for Summary of Benefits and Coverage Seek to Simplify Compliance

As part of Health Care Reform, employers and insurers are required to provide group health plan participants with a Summary of Benefits and Coverage (“SBC”) describing the important features of the group health plan option(s) offered by the employer/insurer.  The SBC is also intended to provide participants a way to easily compare different group health plan options.  The current rules for complying with the SBC requirement were viewed by some as not being “user-friendly.”  On December 22, 2014, the DOL, HHS and Treasury released proposed guidance that is designed “to improve consumer access to important plan information so that [the consumers] can make more informed choices.”

The proposed regulations suggest the following changes/additions:

•  A new coverage example regarding a foot fracture and emergency room visit would be added to the existing coverage examples of “having a baby” and “managing type 2 diabetes.”  These coverage examples have been shown to be helpful in a participant’s understanding of how their coverage works. Read More ›

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Accurate Documentation of Welfare Plans May Save Employers Certain Costs and Headaches Down the Road

ERISA requires all pension and welfare benefit plans to be maintained in a written plan document.  The DOL and several courts have taken a broad view of what constitutes a “written plan document,” and while pension plans are usually very well documented, many welfare plans consist of a loose, and often out-of-date, collection of insurance policies, certificates of coverage and summary plan descriptions.

While a loose collection of documents may technically satisfy the ERISA written plan document rule, there are many other reasons an employer may want to consider more formal, updated plan documents:

•  The DOL has recently started to focus more on welfare plan audits.  Read More ›

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Pre-Approved Plan Sponsors are Starting to Contact Adopting Employers

Many employers adopt defined contribution retirement plans that have been pre-approved by the IRS.  Plan sponsors of pre-approved plans submit the plans to the IRS to obtain approval of whether the form of the plan meets the requirements of Internal Revenue Code Section 401.  These pre-approved plans are often referred to as “volume submitter plans” or “master and prototype plans.”   An adopting employer of a pre-approved plan must then adopt the plan within a two-year period announced by the IRS.  The adoption period for the latest round of pre-approved defined contribution plans is open from May 1, 2014 to April 30, 2016. Read More ›

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FMLA to Apply to All Employees in Same-Sex Marriages

When the U.S. Supreme Court declared DOMA unconstitutional in United States v. Windsor, many federal benefits that were previously denied to individuals in same-sex marriages became available to those individuals.  However, job-protected leave under the Family and Medical Leave Act (“FMLA”) was not one of them.

Generally, an employee is able to take 12 weeks of unpaid, job-protected leave to care for a sick family member (including a spouse).  For purposes of FMLA, “spouse” is defined as a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides.  This is known as the “state of residence” standard, which means that an employee validly married to a same-sex spouse cannot receive FMLA protections if they live in a state that does not recognize same-sex marriage. Read More ›

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Complying with the Windsor Decision: Mid-Year Amendment for Safe-Harbor 401(k) Plans

Previously, the IRS issued guidance on what employers need to do in order to comply with the United States v. Windsor decision. The guidance insturcts employers on how and when to amend a qualified retirement plan if its current terms regarding marriage and the definition of spouse are inconsistent with Windsor.  In short, the employer must adopt an amendment by December 31, 2014 that is consistent with the Windsor decision.  Please see IRS Notice 2014-19, Anne Meyer’s blog post, and Nancy Campbell’s blog post for more information on the Windsor decision and the required amendment.

One question that was left unanswered by the IRS’s prior guidance on Windsor was whether a Section 401(k) or 401(m) safe-harbor plan could adopt a mid-year amendment without risking its safe-harbor status.  Read More ›

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