On July 11, 2016, the Department of Labor (DOL) and Internal Revenue Service (IRS) announced a proposal to implement significant changes to the forms and regulations that govern annual employee benefit plan reporting on Form 5500. The proposed changes, which were published in the Federal Register on July 21, 2016, would considerably increase the annual reporting obligations for nearly all health and welfare plans. The changes would also have a considerable impact on annual retirement plan reporting obligations. For more information about the effect of the proposed changes on retirement plan sponsors, see Proposed Changes to Form 5500 Reporting Requirements May Have Significant Impact on Retirement Plan Sponsors.
The DOL is seeking written comments on the proposed changes, which must be provided by October 4, 2016. The revised reporting requirements, if adopted, generally would apply for plan years beginning on and after January 1, 2019.
On July 11, 2016, the Department of Labor (DOL), Internal Revenue Service (IRS) and Pension Benefit Guaranty Corporation (PBGC) announced a proposal to implement sweeping changes to the forms and regulations that govern annual employee benefit plan reporting on Form 5500. The proposed changes, which were published in the Federal Register on July 21, 2016, would significantly increase the annual reporting obligations for nearly all retirement plans. The changes also would have a considerable impact on employer-sponsored group health plans. For more information about the effect of the proposed changes on health and welfare plan sponsors, see Proposed Changes to Form 5500 Would Significantly Increase Reporting Obligations for Health and Welfare Plan Sponsors.
The DOL is seeking written comments on the proposed changes, which must be provided by October 4, 2016. The revised reporting requirements, if adopted, generally would apply for plan years beginning on and after January 1, 2019. Certain compliance questions will, however, be effective for Form 5500 series returns filed for the 2016 plan year.
On June 29, 2016, the Internal Revenue Service (IRS) officially sounded the death knell for the five-year remedial amendment cycle with its release of Revenue Procedure 2016-37. Effective January 1, 2017, employers that sponsor an individually designed qualified retirement plan—a group that includes most large retirement plans—may no longer request periodic determination letters. Instead, the IRS will continue to conduct random audits to assess plan compliance with plan document operational requirements.
The IRS will continue to conduct random audits to assess plan compliance with plan document operational requirements. Beginning in 2017, the IRS expects plan sponsors to amend written plan documents in accordance with Revenue Procedure 2016‑37 and without reliance on a determination letter. In the context of an audit, a plan sponsor may rely on a plan’s last favorable determination letter, but only with respect to provisions that have not been amended since the last issued determination letter. Sponsors of individually designed plans must develop new means for assuring they comply with the qualification requirements in the wake of Revenue Procedure 2016-37.
The IRS and US Department of Treasury have issued final and temporary regulations which address benefit and self-employment tax issues regarding partners in a partnership which is the sole owner of a second, wholly owned legal entity. The regulations are intended to clarify that where the partners are separately working for the second legal entity, such individuals may not be treated as employees, and must be treated as self-employed individuals for both self-employment and employee benefit plan purposes. As a result, the partners may not be provided the tax benefits provided employees with respect to benefit plans such as cafeteria plans, parking and transit benefits, health benefits and health insurance.
Recent comments from an official with the Department of Labor (DOL) indicate that the DOL’s Employee Benefits Security Administration (EBSA) has begun investigating large defined benefit plans to review how plan administrators are keeping track of benefits owed to terminated vested participants and if they are really paying participants like they should be. According to the February 2, 2015 BNA Pension & Benefits Reporter, Elizabeth Hopkins, counsel for appellate and special litigation for the DOL’s Office of the Solicitor, Plan Benefits Security Division, stated at a pension conference that EBSA is interested in monitoring whether plan administrators are following their own procedures to locate and pay out terminated vested participants. In particular, EBSA is investigating how plan administrators locate and pay out terminated vested participants over the age of 70 ½ who are owed required minimum distributions.
Defined benefit pension plans must provide that they will distribute benefits beginning no later than the required beginning date, which for most plan participants means April 1 of the calendar year following the later of (i) the calendar year in which a participant turns 70 ½ or (2) the calendar year in which the participant retires. As we noted in our recent article on the “Top IRS and DOL Audit Issues for Retirement Plans,” plan sponsors have a fiduciary duty to try to locate missing participants, to contact terminated vested participants, and to begin distributing benefits within required timeframes. Failure to pay required minimum distributions after a participant turns 70 ½ is a plan qualification error, and participants who miss required distributions may be subject to a 50 percent excise tax. The DOL has also indicated that it may impose personal liability on plan fiduciaries for any tax consequences owed to their employees. For all of these reasons, it is crucial that plan sponsors ensure that proper procedures are in place, and that plan procedures are being followed, to locate and contact terminated vested participants.
The Internal Revenue Service (IRS) recently issued Notice 2015-86, which provides some additional clarification, in the form of questions and answers, on the treatment of same-sex spouses under tax-qualified retirement plans and health and welfare plans, including cafeteria plans, as a result of the June 26, 2015, decision from the Supreme Court of the United States in Obergefell v. Hodges.
The Internal Revenue Service has issued correction procedures for Forms 941 and W-2 in response to the retroactive increase in transit benefit exclusions.
To avoid tax reporting and withholding penalties as 2015 draws to a close, employers need to properly plan and check their reporting for employees under non-qualified deferred compensation, fringe benefits, health benefits or other remuneration. Year-end planning for employers is important, because employee information reporting, including both Form W-2 and the new Affordable Care Act (ACA) Forms, is now subject to significantly increased penalties.
The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans for 2016. Although some of the dollar limits currently in effect for 2015 will change, the majority of the limits will remain unchanged for 2016.
Generally, any type of organization can offer a defined benefit pension plan under Section 4019a) in the Internal Revenue Code of 1986, as amended (the “Code) or a Code Section 401(k) Plan. However, only employers described in Code Section 501(a) and educational organizations described in Code Section 170(b)(A)(iii) are permitted to sponsor Code Section 403(b) plans. Equally, Code Section 457 plans can only be sponsored by governmental and other organizations exempt from tax under the Code. Until roughly 2009, both Code Sections 403(b) plans and Code Section 457 plans had been basically ignored or overlooked by the Internal Revenue Service (“IRS”) and the Department of Labor (“DOL”). However, as these two plans have accumulated significant assets over the course of time (many occurring due to the consolidation of large plans in the healthcare sector through business combinations), the IRS and DOL have deemed it necessary to start taking a closer look. The audits of Code Section 403(b) plans and Code Section 457 plans has increased dramatically in the last few years to the point where the IRS has now issued its “top ten list” of issues which tax-exempt entities need to focus on when sponsoring these types of plans.
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