Recently issued regulations provide long-awaited guidance to sponsors of hybrid retirement plans on a variety of issues, including the market rate of return requirement and required changes for plans using crediting rates that do not meet this requirement. In a change from earlier regulations, hybrid plans are now allowed to offer subsidized survivor and early retirement annuity benefits. The regulations also provide some guidance concerning pension equity plans.
In Notice 2014-55, the Internal Revenue Service (IRS) announced two new situations in which employees may change their health plan elections midyear under their employer’s cafeteria plan. In the first, an employee’s hours are reduced below 30 per week (without a corresponding loss of eligibility for the employer’s group health plan). In the second, an employee decides to enroll in coverage through a Marketplace Exchange (Exchange). Both of these are optional changes in status; neither is mandatory.
Reduction in Hours
If an employee who was expected to work on average at least 30 hours per week is then expected midyear to work on average less than 30 hours per week, the employee may drop his or her employer-provided group health plan coverage, even if the reduction in hours does not result in the employee’s loss of eligibility under the group health plan. The change in election must correspond to the employee’s intended enrollment (and the intended enrollment of any family members whose coverage is being dropped) in other minimum essential coverage (group health plan or Exchange). The new coverage must be effective no later than the first day of the second month following the month in which the employer-sponsored coverage is dropped. The administrator of the employer’s cafeteria plan may rely on an employee’s reasonable representation about the intended enrollment.
Exchange Coverage
An employee who is eligible to enroll in Exchange coverage (during an Exchange open enrollment or special enrollment period) may drop employer-provided group health plan coverage midyear. The change must correspond to the employee’s intended enrollment (and the intended enrollment of any family members whose coverage is being dropped) in Exchange coverage that is effective no later than the day after the last day of the employer-sponsored coverage. The administrator of the employer’s cafeteria plan may rely on an employee’s reasonable representation about the intended enrollment.
Plan Amendment
If an employer chooses to adopt one or more of these midyear election changes for its cafeteria plan, a plan amendment is necessary. The amendment generally must be adopted on or before the last day of the plan year in which the additional changes are allowed and can be effective retroactively to the first day of that plan year, provided that the plan operates in accordance with the guidance, including notification to participants of the amendment.
Special Rule for the 2014 Plan Year
Under a special rule, an employer that adopts these new midyear election changes for its 2014 cafeteria plan year has until the last day of the 2015 plan year to adopt the amendment. Although plan amendments may be adopted retroactively, election changes to revoke coverage retroactively are not permitted.
The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans for 2015. Although many dollar limits currently in effect for 2014 will change, some limits will remain unchanged for 2015.
Every year the Internal Revenue Service (IRS) and Department of Labor (DOL) conduct thousands of audits of employee benefit retirement plans. While IRS audits focus on compliance with the Internal Revenue Code, and DOL audits focus on violations of the Employee Retirement Income Security Act of 1974, as amended (ERISA), a review of these audits over the last five years reveals that auditors at both agencies are increasingly focused on the internal controls employers maintain for their employer benefit plans.
Please click here to read the full article View From McDermott: Top IRS and DOL Audit Issues for Retirement Plans, published by Bloomberg BNA Pension & Benefits Daily on 8/13/14.
2014 presents particular challenges with respect to FBAR, the Report of Foreign Bank and Financial Accounts, for certain U.S. persons with interests in or signature authority over assets exceeding $10,000 held outside the U.S. in foreign accounts. The deadline for calendar year 2013 reporting obligations is June 30, 2014, and by then all taxpayers must e-file completed forms using the Bank Secrecy Act (BSA) E-Filing System. Failure to file the FBAR can result in criminal sanctions. In addition, failure to file the FBAR can result in civil penalties exceeding 100 percent of the foreign account balance, as recently determined by the Federal District Court in the May 28, 2014, decision inU.S. v. Carl R. Zwerner.
The BSA requires any U.S. person with a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account, exceeding certain thresholds to report the “maximum value of the account” yearly to the Internal Revenue Service (IRS). This requirement may now only be satisfied by filing electronically a Financial Crimes Enforcement Network (FinCEN) Form 114, FBAR, which replaces Form 90.22-1. An overview of the FBAR filing requirements is provided by the IRS. But in summary, an FBAR must be filed by any U.S. person who either owns or has signature authority over a foreign account that, at any point during the year, was valued at or greater than $10,000. For FBAR purposes, a foreign account includes any account that is held outside the United States, including those at foreign branches of U.S. banks. For more details regarding the specifics of which accounts must be reported, two prior On the Subject newsletters about FBAR reporting can be found here and here.
FinCEN is attempting to make the new e-filing user friendly. The mandatory e-filing requirement information, capability to register and to upload completed FBARs, and new Form 114 for those individuals and businesses that must file an FBAR is accessible through the BSA e-file website.
The BSA e-file website allows a taxpayer to either file the Form 114 directly as an “Individual” by uploading a completed file or, alternatively, to fill out Form 114a permitting another party, designated by the BSA system as an “Institution,” to file the Form 114 on his or her behalf. For example, the new Form 114a may be used by an employer company to file the FBAR as an Institution on behalf of any of its executives who are required to file an FBAR because of non-exempt signatory authority over the employer’s foreign bank accounts. (Note that FBAR filing by certain individuals with signatory authority but no ownership interest in a foreign account may be deferred until June 30, 2015, pursuant to FinCEN Notice 2013-1.) For its own FBAR, the employer company may register as an Institution and designate a “Supervisory User,” who has authority to file on behalf of the company and who, [...]
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by Andrew C. Liazos, Todd A. Solomon and Kary Crassweller
The Internal Revenue Service recently published final regulations under the Foreign Account Tax Compliance Act (FATCA), which are effective immediately. FATCA imposes significant reporting obligations on both non-U.S. foreign financial institutions (FFIs) and U.S. taxpayers holding foreign financial accounts. A non-U.S. retirement plan may be subject to FATCA reporting responsibilities as an FFI unless there is an available exemption. Failure to comply with applicable reporting requirements may trigger substantial withholding taxes and penalties. This On The Subject summarizes what you need to know about FATCA for both plans and participants.
To read the full article, click here.
by Jeffrey M. Holdvogt, Ruth Wimer and David Diaz
On February 27, 2013, the Internal Revenue Service (IRS) issued News Release IR-2013-23 to provide additional favorable guidance regarding modifications to the Voluntary Classification Settlement Program (VCSP) issued in Announcements 2012-45 and 2012-46 addressing worker classification issues. The VCSP allows eligible employers to voluntarily reclassify their workers for federal employment tax purposes and obtain considerable “forgiveness” for previous non-employee treatment. The IRS describes the program as a “low-cost option” for achieving certainty under the law by reclassifying workers as employees for future tax periods.
To read the full article, click here.
by Mary K. Samsa, Todd A. Solomon and Joseph K. Urwitz
On February 21, 2013, the Internal Revenue Service (IRS) added to its “self-help” resources a new “403(b) Plan Fix-It Guide” to provide guidance more specifically directed at 403(b) plan sponsors that identify qualification or operational plan failures under their 403(b) plans. Additionally, the IRS issued as a companion piece a booklet entitled “Voluntary Correction Program Submission Kit,” which provides more detailed directions to 403(b) plan sponsors on how to complete and file a correction filing with the IRS specifically relating to the failure to adopt a written 403(b) plan document.
This new “fix-it” tool addresses 10 potential errors (likely the most common 403(b) plan errors), including, but not limited to, ineligible organizations offering 403(b) plans, failure to adopt a written plan document as required by the final 403(b) regulations, violation of the universal availability rule, failure to appropriately limit elective deferrals and failure to follow the underlying terms of the plan document. Although these types of failures are not necessarily new (i.e., they could have occurred in prior years), the IRS is slowly bringing 403(b) plans under more scrutiny as the dollars being contributed to these types of plans continue to increase. The IRS is developing more expertise in this area and is training more agents to be able to identify the particular differences between 401(k) plans and 403(b) plans, and the specific nuances and legal requirements of operating 403(b) plans. Since the 403(b) regulations were issued in 2007, this is the first step in which the IRS is taking a more active role to ensure compliance under these types of plans.
Revenue Procedures 2013-12 (Employee Plans Compliance Resolution System, or EPCRS) may be used with respect to any 403(b) plan corrections going forward. It incorporates in greater detail the “403(b) Plan Fix-It Guide.” Although prior EPCRS guidance such as Revenue Procedure 2008-50 was often applied to 403(b) plans by analogy for correcting errors, new Revenue Procedure 2013-12 is drafted to be directly applicable to 403(b) plans. Consequently, given the IRS movement toward greater scrutiny of 403(b) plans, tax-exempt organizations that have not recently conducted any type of internal compliance review are encouraged to review, at a minimum, the mistakes highlighted in the “403(b) Plan Fix-It Guide” to determine whether greater analysis is required with respect the compliance and operation of their 403(b) plans.
by Lisa K. Loesel, Mary K. Samsa and Kary Crassweller
The Internal Revenue Service (IRS) recently updated the Employee Plans Compliance Resolution System (EPCRS), the comprehensive system of correction programs for sponsors of qualified retirement plans. The components of EPCRS continue to be the Self-Correction Program, the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program. This newsletter describes some of the significant changes to EPCRS, including revisions to the VCP submission procedures and enhanced access for 403(b) plans.
To read the full article, click here.
by Anne W. Hance and Amy M. Gordon
The U.S. Department of Health and Human Services (HHS) and the Internal Revenue Service (IRS) released on January 30, 2013, two proposed rules and a final rule relating to the Affordable Care Act’s (ACA) requirement that individuals maintain “minimum essential coverage” (MEC) or be subject to a “shared responsibility” payment.
Next Steps
Health insurance issuers will want to consider whether the various products they offer or administer will meet the MEC requirements set forth in HHS’s proposed rule, in order to respond to inquiries from customers, to meet notice requirements (including inserting model statements into existing plan documents, as applicable), and potentially to respond to exchanges making eligibility determinations. If a product does not constitute MEC, issuers may want to consider whether to continue to offer the product in its current form or revise the coverage to meet the MEC requirements.
Sponsors of group health plans will need to consider the separate affordability standards for employees and for related individuals and the implications for group health plan participants, and either modify coverage to meet the MEC standards, or consider the consequences of the shared responsibility payment.
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