The Puerto Rico Department of the Treasury recently issued Tax Policy Circular Letter No. 16-07 (the “Circular“), which announced applicable qualified retirement plan limits for 2017, as required by the Puerto Rico Internal Revenue Code of 2011 (the “PR Code“). For plans qualified in Puerto Rico and for those plans dual qualified in the United States and Puerto Rico, only the limits on annual benefits, annual contributions, and plan compensation have changed for 2017. The applicable plan limits are as follows: Annual Benefit Limit (All Defined Benefit Plans): $215,000 (increased from $210,000 for 2016). Annual Contribution Limit (All Defined Contribution Plans): $54,000 (increased from $53,000 for 2016). Annual Compensation Limit (All Plans): $270,000 (increased from $265,000 for 2016). Compensation Limit for a Highly Compensated Employee: $120,000 (unchanged). Elective Deferrals Limit (Dual Qualified Plans or Federal Government Thrift Plans): $18,000 (unchanged). Elective Deferrals Limit (Puerto Rico-Only Plans): $15,000 (unchanged). Catch-up Contribution… Continue Reading
In Notice 2016-80, the IRS published the first Required Amendments List, which lists statutory and administrative changes in plan qualification requirements that (i) are first effective in the plan year in which the list is published and (ii) may require a plan amendment. This year’s list included just one item, which related to restrictions on accelerated distributions from underfunded single-employer, collectively-bargained defined benefit plans due to an employer’s bankruptcy. The deadline for adopting any required amendments described in this year’s Required Amendments List is December 31, 2018. View Notice 2016- 80.
The following non-exhaustive list describes year-end action items and the annual notices for retirement plans that generally must be distributed within a reasonable time prior to the start of the plan year. For calendar year plans, providing the notices outlined below by December 1 will meet this requirement in most cases. Safe Harbor 401(k) Notice: For 401(k) plans that are designed to comply with the safe harbor requirements of the Internal Revenue Code. Automatic Enrollment Notice: For any plan that includes automatic enrollment provisions. Qualified Automatic Contribution Arrangement Notice: For plans that are designed to comply with the Internal Revenue Code’s qualified automatic contribution provisions. Eligible Automatic Contribution Arrangement Notice: For plans that are designed to comply with the Internal Revenue Code’s eligible automatic contribution provisions. Qualified Default Investment Alternative (“QDIA”) Notice: For plans with participant-directed investments that include a QDIA in which a participant’s account will be invested if… Continue Reading
The IRS recently announced cost-of-living adjustments for 2017. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2017: Compensation limit in calculating a participant’s benefit accruals: increased to $270,000. Elective deferrals to 401(k) and 403(b) plans: remains unchanged at $18,000. Annual additions to a defined contribution plan: increased to $54,000. Catch-up contributions for employees aged 50 and over to 401(k) and 403(b) plans: remains unchanged at $6,000. Annual benefit limit for a defined benefit plan: increased to $215,000. Compensation dollar limit for defining a “key employee” in a top heavy plan: increased to $175,000. Compensation dollar limit for defining a “highly compensated employee”: remains unchanged at $120,000. The full list of 2017 plan limits can be found in IRS Notice 2016-62.
The DOL has issued the first of several FAQs addressing the DOL’s new fiduciary rule, which was finalized in April 2016 (the “Rule”). The Rule, which will generally become effective on April 10, 2017, prohibits parties that provide fiduciary investment advice to plan sponsors, plan participants, and IRA owners from receiving payments that create conflicts of interest, unless the parties comply with a prohibited transaction exemption (“PTE”). The FAQs generally address how the Rule will be implemented and clarify a number of issues related to the new “best interest contract” and “principal transactions” PTEs. View the FAQs. View the DOL’s announcement of the FAQs.
PBGC Missing Participant Program to Include 401(k) Plans and Certain Other Plans That Terminate after 2017
The PBGC issued a proposed rule that would expand its existing missing participants program to cover terminated defined contribution plans, such as 401(k) and profit-sharing plans, as well as certain other plans not currently covered under the program, that voluntarily elect to participate. Under the program, for a low one-time fee, and following a diligent search, the terminating plan may transfer the account balances or accrued benefits of all missing participants to the PBGC. The PBGC will then maintain a centralized, online searchable directory of the missing participants and periodically search for the missing participants. In the proposed rule, the PBGC also modifies the criteria for a participant to be considered ”missing” and provides specific diligent search rules for plans to attempt to locate missing participants. Read the proposed rule.
Rev. Proc. 2016-37 provides new guidance on changes to the IRS’s determination letter program for individually designed, qualified retirement plans. As previously announced in Notice 2016-03, the five-year remedial amendment cycle for individually designed plans will be eliminated effective January 1, 2017. After that date, individually designed plans may only seek a determination letter for the plan’s initial qualification, upon the plan’s termination, and in “certain other circumstances.” Rev. Proc. 2016-37 states that such “other circumstances” may include significant law changes, new plan design approaches, and the inability of certain plans to convert to pre-approved plan documents. The IRS will consider its current case load and available resources when deciding if and when to permit determination letter requests in these other circumstances. To help plan sponsors remain in operational compliance with the Internal Revenue Code’s various qualification requirements, the IRS will begin issuing an annual Operational Compliance List that identifies… Continue Reading
Over the past several months, high profile class action lawsuits have been filed against plan sponsors and fiduciaries of very large 401(k) plans alleging breaches of fiduciary duty related to excessive plan administrative fees and underperforming investment options. A new class action lawsuit filed in the U.S. District Court of Minnesota raises concerns that plan sponsors and fiduciaries of relatively small 401(k) plans may also become targets of such suits. Similar to the class actions filed against fiduciaries of large 401(k) plans, plaintiffs in the case of Severson v. LaMettry’s Collision, Inc. allege their employer, its president, and its CFO breached their fiduciary duties by causing the employer’s 401(k) plan to pay excessive administrative fees, selecting imprudent classes of investments, and selecting investment options that were unnecessarily expensive. Unlike the other class actions, the LaMettry 401(k) plan is relatively small, having just over 100 participants and approximately $9.2 million in… Continue Reading
The IRS issued a memorandum providing examples of acceptable interpretations of who may be counted as “excludable employees” for purposes of coverage testing under Code Section 410(b)(4)(B) and performing the ADP test under Code Section 401(k)(3). An “excludable employee” may include an employee (i) until the date on which he or she attains age 21 and completes one year of service, (ii) through the earlier of the date six months after he or she attains age 21 and completes one year of service or the first day of the first plan year after he or she attains age 21 and completes one year of service, or (iii) through the date on which he or she attains age 21 and completes one year of service and any additional waiting period specified in the plan. Note that the IRS memorandum cannot be used or cited as precedent. The IRS memorandum is available here.
The IRS recently reminded plan sponsors of pre-approved defined contribution plans (e.g., prototype and volume submitter plans) that they must adopt restated plan documents, which incorporate certain changes in the law, such as the Pension Protection Act of 2006, no later than April 30, 2016. Sponsors of pre-approved plans should have already received a restated plan document from their service provider, along with a copy of the IRS opinion letter that will apply to the restated plan. In a related announcement, the IRS provided an additional method for employers to correct a failure to timely adopt a pre-approved plan document. Previously, the only correction method available was for an employer to file an application under the IRS’s Voluntary Correction Program under the Employee Plans Compliance Resolution System. Now, the financial institution or service provider responsible for the pre-approved plan can submit a proposal to the IRS for an umbrella closing… Continue Reading