Near the end of 2016, the Department of Treasury (Treasury) and the Internal Revenue Service (IRS) published two significant sets of proposed regulations on issues pertaining to defined benefit pension plans, including mortality table updates that likely would increase pension funding liabilities for many plan sponsors.
M&A advisors are becoming increasingly familiar with leveraged ESOP transactions and are routinely considering the ESOP platform in structuring acquisitions and divestitures. The first part of this article references the ways in which leveraged ESOPs have historically been used to provide a tax-advantaged exit strategy for privately held business owners. The article then discusses the advantages the leveraged ESOP structure can bring to M&A advisors and private equity groups charged with structuring acquisitions and divestitures during a down economy.
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.
Read the full article here.
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.
Read the full article here.
On June 22, 2016, the Internal Revenue Service (IRS) issued proposed changes to the regulations under the Internal Revenue Code (Code) §409A. The Code intends to clarify or modify a wide range of very restrictive rules pertaining to “nonqualified” deferred compensation plans as well as other types of compensation arrangements that may defer compensation. The proposed changes are designed to benefit taxpayers, with a few intending to close potential loopholes.
The following PowerPoint highlights key points from the proposed regulations and what employers and employees should know and can expect moving forward.
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.
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 and U.S. Departments of Health and Human Services and Labor recently issued guidance on the Affordable Care Act employer mandate and market reforms. Notice 2015-87 contains 26 FAQs that clarify the application of market reforms to health reimbursement arrangements and employer payment plans and the affordability of employer-sponsored health coverage, among other topics.
The IRS recently issued guidance providing safe harbor 401(k) plan sponsors with increased flexibility to make mid-year plan changes. Notice 2016-16 sets forth new rules for when and how safe harbor plan sponsors may amend their plans to make mid-year changes, a process which traditionally has been subject to significant restrictions.
The Internal Revenue Service has issued correction procedures for Forms 941 and W-2 in response to the retroactive increase in transit benefit exclusions.
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