Recently the Internal Revenue Service provided the first set of guidance on the new notice requirements for single employer defined benefit plans subject to funding-related restrictions under Section 436 of the Internal Revenue Code. This guidance includes information on notice recipients, content, delivery and timing. Because significant penalties apply to a notice failure, plan sponsors need to carefully review this new guidance.
The Internal Revenue Service (IRS) recently discontinued its letter forwarding service for missing participants or beneficiaries entitled to a benefit under an employee retirement plan. Until now, retirement plan sponsors have frequently used the IRS letter forwarding service as a way to locate missing participants or beneficiaries to whom benefits are owed under a retirement plan. Following this discontinuance, plan sponsors will need to utilize another more expensive government forwarding service or utilize internet search tools, commercial locater services and credit report agencies to locate missing retirement plan participants.
Agreements that require a release or other signed document from an employee before payment should be reviewed to ensure compliance with Code Section 409A guidance. Transition relief ends on December 31, 2012, and the penalties for noncompliance can be harsh. Employers that conducted a fulsome Code Section 409A review in 2007 and 2008 should ensure their arrangements are in compliance with new guidance.
Recent guidance issued by the Departments of Health and Human Services and Labor and the Internal Revenue Service clarifies health care reform rules regarding waiting periods and the definition of full-time employee for purposes of the employer requirement to provide health care coverage beginning in 2014. The Internal Revenue Service has also issued guidance relating to the determination of wages for purposes of determining affordability of health care coverage under the Affordable Care Act.
Click here to see IRS Notice 2012-58 and here for Technical Release 2012-02. McDermott will be releasing a detailed analysis of the new guidance soon.
The Internal Revenue Service (IRS) recently released guidance on the implementation of the $2,500 limit on health flexible spending accounts (FSA) scheduled to go into effect in 2013. IRS Notice 2012-40 (Notice) clarifies the application of the new limit for plan years beginning after 2013 and solicits comments regarding whether to modify the use-or-lose rule set forth in the current proposed regulations under Section 125 of the Internal Revenue Code of 1986, as amended (Code).
The Notice states that the $2,500 limit on contributions to health flexible spending accounts is applicable for plan years beginning on or after January 1, 2013. This means that non-calendar year plans do not need to institute a mid-year limit to comply with applicable law. In addition, the Notice states that the $2,500 limit does not apply to heath savings accounts or health reimbursement accounts or “flex-credits” granted by an employer. In addition, for cafeteria plans under Section 125 of the Code with grace periods which allow use of contributions for up to two and one-half months after the end of the plan year, the $2,500 limit does not apply to any amounts contributed for the previous plan year and available during such grace period.
If an employee erroneously contributes more than $2,500 to his or her health flexible spending account for plan years beginning on or after January 1, 2013, the Notice provides for a correction method for employers to refund amounts over the limit to the employee and adjust the employee’s reportable wages for the applicable tax year. This correction method is available only if the employer has complied with the written plan requirements of Section 125 of the Code, the erroneous contribution was due to reasonable mistake and not willful neglect by the employer and the employer’s cafeteria plan is not under examination for the plan year in which the erroneous contributions occurred.
The Notice also provides that employers may amend the cafeteria plan anytime prior to December 31, 2014 to comply with the new FSA limit. Such amendment may express the limit as a maximum dollar amount or use another method to express the new $2,500 limit. The $2,500 limit will be subject to cost of living increases and this type of indexing should be considered when drafting any required amendments.
Finally, the Notice requests comments on modifications to the use-or-lose rule for health flexible spending accounts currently in effect given implementation of the new dollar limit. McDermott will continue to update employers on any changes to the use-or-lose rule for health flexible spending account plans.
A substantial risk of forfeiture (SRF) may be established only through a service condition or a condition related to the purpose of the transfer. Citing the U.S. Court of Appeals for the First Circuit’s opinion in Robinson, the preamble noted that “[s]ome confusion has arisen as to whether other conditions may also give rise to a substantial risk of forfeiture.” The proposed regulations retain the language from Section 83 final regulations that refraining from service may be a service condition.
In determining whether a SRF exists, it is necessary to consider both (a) the likelihood that the forfeiture event will occur, and (b) the likelihood that the forfeiture will be enforced. All of the facts and circumstances must be evaluated to determine whether a performance-based vesting condition for a restricted stock award will be treated as a substantial risk of forfeiture for purposes of Section 83.
Transfer restrictions such as lock-up agreements, Rule 10b-5 insider trading restrictions) do not create a SRF – in other words, they do not defer the taxable event – even if there is a potential for forfeiture or disgorgement of some or all of the property, or other penalties, if the restriction is violated. The only exception to this rule is with respect to Section 16(b) “short swing” profit liabilities. The proposed regulations provide three new examples illustrating when transfer restrictions will – and will not – constitute a SRF. The proposed regulations incorporate the IRS’ position in Revenue Ruling 2005-48.
These regulations under section 83 are proposed to apply to transfers of property on or after January 1, 2013. Taxpayers may rely on the proposed regulations for property transfers occurring after the publication of the proposed regulations until further notice. Comments are due by August 28, 2012.
Further details on the newly proposed regulations will be provided in subsequent McDermott publications.
Recent press coverage of Internal Revenue Service and U.S. Securities and Exchange Commission problems with executive travel on company aircraft makes continued use challenging. The known benefits of business-owned aircraft include security, privacy and efficiency, particularly in light of delays inherent in commercial travel. This newsletter describes in plain English the basic requirements and strategies for dealing with the myriad rules presented with respect to executive and guest travel on company aircraft, and recommends as a solution the adoption of a carefully drafted executive aircraft use policy.
The Internal Revenue Service recently issued requests for comments in advance of issuing proposed regulations on health care reform reporting and minimum value requirements.
Two years after the Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) jointly issued a high-profile Request for Information regarding how defined contribution plans can better provide lifetime income, the IRS and Department of the Treasury have issued some initial guidance. DOL guidance, expected to further underscore the importance of the issue, is anticipated “in the near future.”
Under some defined benefit plans, participants receive a portion of the benefit as an annuity and a portion as a lump sum. Sponsors of such plans should review the method used for calculating these benefits, particularly annuity benefits, to determine whether the combined value of both portions meets the minimum present value requirements for lump sums. Recent proposed IRS regulations include an interpretation of current law that may differ from the way some plans have been administered.
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