The Internal Revenue Service (IRS) recently released “Issue Snapshots” on a number of topics related to tax-qualified retirement plans, including both pension and savings plans. Historically, the snapshots have explained new(er) laws and guidance, and have often included audit tips for IRS examiners. As a result, although the IRS has indicated that the snapshots are not official pronouncements of law or directives, the snapshots provide helpful insight into issues that the IRS thinks merit further discussion or clarification. Therefore, the snapshots can be instructive for plan sponsors and plan administrators.
The most recent “Issue Snapshots” cover topics ranging from the qualification requirements applicable to non-electing church plans and how interest crediting rates can be changed under cash balance pension plans, to the use of plan forfeitures and the calculation of the maximum loan limit for participants. More specifically, the topics include:
- Qualification Requirements for Non-Electing Church Plans. This snapshot includes an overview of how various qualification requirements under the tax code apply to non-electing church plans. Of particular note, the snapshot includes a description of certain pre-ERISA requirements that a non-electing church plan must satisfy in order to be tax-qualified, including requirements for non-discrimination in vesting, participation and coverage.
- How to Change Interest Crediting Rates in a Cash Balance Plan. This snapshot discusses the complex issues that arise when a plan amendment reduces (or potentially reduces) the interest crediting rate under a cash balance pension plan, including wearaway and restrictions on “greater of” interest crediting rates under the market rate of return rules.
- Plan Forfeitures Used for Qualified Nonelective and Qualified Matching Contributions. This snapshot confirms that plan sponsors may use plan forfeitures to fund qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs) in defined contribution plans (for example, to pass nondiscrimination tests). After the snapshot was issued, the IRS finalized new regulations addressing this same issue.
- Borrowing Limits for Participants with Multiple Plan Loans. This snapshot contains examples explaining the complicated rules governing the calculation of the maximum amount of a loan available when a participant has prior loans outstanding.
- Vesting Schedules for Matching Contributions. This snapshot outlines the different vesting requirements that apply to matching contributions made to certain defined contribution plans.
- Spousal Consent Period to Use an Accrued Benefit as Security for Loans. This snapshot discusses the time period for obtaining spousal consent under certain tax-qualified retirement plans, and how that spousal consent period applies in situations where a participant’s accrued benefit is used as security for a loan.
- Treatment of 415(c) Dollar Limitations in a Short Limitation Year. This snapshot provides examples for the calculation of the prorated 415 dollar limit for defined contribution plans when there is a short plan year (for example, due to an amended limitation year or plan termination).
- Treatment of 401(a)(17) Limitation in Defined Contribution Plan in a Short Plan Year. This snapshot provides examples for the calculation of the prorated annual compensation limit when there is a short plan year (for example, due to an amended plan year, plan termination or participants who join or leave mid-year).
Plan sponsors and administrators should utilize these snapshots as resource and confirm plan administration complies with applicable IRS rules. The IRS focus on these issues suggests that these issues may be looked at more closely by plan auditors in the future.
