The Treasury Department and the IRS recently finalized new hardship distribution rules applicable to defined contribution plans. Plan sponsors should prepare for operational changes to comply with the new regulations, including some beginning January 1, 2020.
The IRS recently issued proposed amendments to regulations concerning 401(k) plan hardship distributions. The proposed regulations address changes to hardship distribution rules from the Bipartisan Budget Act of 2018 and other legislation.
Though the regulations are only proposed, 401(k) plan sponsors should promptly consider these changes because decisions should be made on applying certain optional changes, which generally can be effective for plan years beginning after December 31, 2018.
The IRS recently issued new mortality tables for 2018, which will likely increase pension funding liabilities for many plan sponsors. Plan sponsors should consider options to delay the use of the new mortality tables for funding purposes, while large plan sponsors should consider the option to utilize plan-specific mortality tables instead.
President-elect Trump proposes to reduce the maximum corporate income tax rate from 35 percent to 15 percent. While the effective date of any rate reduction is uncertain, it likely will not occur before 2018. Deductions claimed when tax rates are 35 percent are worth 20 percent more to the taxpayer than if the same deduction is claimed when rates are 15 percent. Thus, a deduction for a $10 million pension contribution is worth an additional $2 million if claimed in 2017 when the tax rate is 35 percent than if claimed in 2018 when the tax rate is 15 percent.
This article, Accelerating Deductions for Compensation and Benefits if Corporate Tax Rates Are Reduced, discusses how bonus accruals, welfare benefits and pension contributions that might be deducted in 2017 rather than 2018 without much, if any, in the way of additional costs or administrative burdens for the employer and no adverse tax consequences for the employees/participants. Accelerating the deductions for these amounts will result in considerable savings if rates are reduced.
by Diane M. Morgenthaler, Natalie M. Nathanson and Maureen O’Brien
The IRS recently extended the deadline for defined benefit plan sponsors to adopt amendments to comply with Section 436 of the Internal Revenue Code of 1986, as amended (the Code). Code Section 436 was added by the Pension Protection Act of 2006 (PPA) and contains limitations on benefit payments and accruals for defined benefit plans that do not meet the funding targets required by PPA.
Please click here for a discussion of the new deadlines.
by Joseph S. Adams, Anne S. Becker and Stephen Pavlick
In October 2011, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued Notice 2011-85 (Notice), announcing their intent to extend certain requirements applicable to hybrid pension plans such as cash balance plans. Given the highly technical nature of cash balance plans and the related government guidance, it is important to carefully understand the scope of the relief. In a separate matter affecting cash balance plans, the Pension Benefit Guaranty Corporation also recently published a proposed rule on terminating cash balance and hybrid plans. The proposed rule is intended to implement changes made by the Pension Protection Act of 2006. Comments on the proposed rule are due December 30, 2011.
Please click here for more information on this recent guidance.
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