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Hacienda Issues Guidance on Tax Prepayment Window for Puerto Rico Retirement Plans

In Administrative Determination No. 14-16, Hacienda clarified certain ambiguities in the recently enacted Tax System Adjustment Act, which amended the Puerto Rico Internal Revenue Code of 2011 (the ?Ç£PR Code?Ç¥) to provide a window, from July 1, 2014 to October 31, 2014, for the prepayment of Puerto Rico income taxes on all or part of a participant?ÇÖs retirement plan account balance or accrued benefits. During the window, the tax rate on prepayments is reduced to 8 percent for plans qualified under the PR Code and to 15 percent for non-qualified plans. Prepayments may be made with the participant?ÇÖs own funds or with funds distributed from the plan. Although a plan is not required to permit distributions for tax prepayments, a plan amendment may be needed if the plan chooses to permit such distributions. Such an amendment is not a qualifying amendment and need not be filed with Hacienda. Administrative Determination… Continue Reading

Certain Puerto Rico Retirement Plans May Participate in 81-100 Group Trusts

In Rev. Rul. 2014-24, the IRS recently announced that certain Puerto Rico retirement plans that are qualified only under the PR Code are eligible to participate in group trusts described in Rev. Rul. 81-100 (?Ç£81-100 Group Trusts?Ç¥). In general, an 81-100 Group Trust is a trust in which qualified retirement plans and individual retirement accounts pool their assets for investment purposes, if certain requirements are met. To be eligible to participate in an 81-100 Group Trust, a Puerto Rico retirement plan must meet the plan qualification requirements of Section 1081.1 of the PR Code. Rev. Rul. 2014-24 is available here.

ISS Launches New Equity Plan Data Verification Portal

Institutional Shareholder Services Inc. (?Ç£ISS?Ç¥) recently announced the launch of a new Equity Plan Data Verification portal that covers information on equity-based compensation plans that U.S. companies submit for approval by shareholders. Companies may now access the portal to review and update key datapoints that are evaluated by ISS before ISS issues its proxy recommendation. Companies planning to feature an equity plan on their proxy ballot, and will file their definitive proxy materials with the SEC after September 8, 2014, are eligible to participate in Equity Plan Data Verification. Any such company is encouraged to register with ISS to receive notification of the availability of company data, and upon notification, the company will have two business days to verify the data and/or request modifications. More information, including FAQs, can be found here.

New Guidance on Locating Missing Participants of Terminated Defined Contribution Plans

The Department of Labor issued new guidance to help plan administrators locate missing participants and distribute their benefits following a defined contribution plan?ÇÖs termination. The guidance sets forth certain ?Ç£required steps,?Ç¥ such as using certified mail and free Internet search tools, and states that distributing missing participant benefits into individual retirement plans is the preferred distribution option. Transferring the benefits to a federally insured bank account or state unclaimed property fund may be permissible based on particular facts and circumstances, but 100 percent income tax withholding would violate fiduciary requirements and is not an option. Field Assistance Bulletin No. 2014-01 can be found here.

Fourth Circuit Rejects ?Ç£Could Have?Ç¥ Standard for Determining Fiduciary Breach

The U.S. Court of Appeals for the Fourth Circuit held that the plan administrator failed to follow a prudent process when it decided to forcibly divest all stock of a predecessor employer while such stock was priced at an all-time low.?á As a result, the burden shifted to the administrator to prove that despite its imprudent decision-making process, its ultimate investment decision was ?Ç£objectively prudent.?Ç¥?á The lower court ruled the decision was objectively prudent because a hypothetical prudent fiduciary ?Ç£could have?Ç¥ made the same decision after performing a proper investigation.?á Rejecting this standard for determining loss causation, the Fourth Circuit held that the proper standard is whether a reasonable fiduciary ?Ç£would have?Ç¥ made the same decision.?á Tatum v. RJR Pension Investment Committee, No. 13-1360 (4th Cir. Aug. 4, 2014).

IRS Adjusts Coverage Affordability Percentage for Tax Credit (Not Safe Harbor) Purposes

In recently released Revenue Procedure 2014-37 (the ?Ç£Rev. Proc.?Ç¥), the IRS adjusted the contribution percentage, from 9.5 percent to 9.56 percent, to be used in plan years beginning after calendar year 2014 to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage (?Ç£ER MEC?Ç¥) for purposes of the Affordable Care Act?ÇÖs premium tax credit (the ?Ç£Tax Credit?Ç¥). An individual is not treated as eligible for ER MEC with respect to the Tax Credit if the required contribution for plan coverage exceeds the applicable percentage of the taxpayer?ÇÖs ?Ç£household income.?Ç¥ Plan sponsors should be aware that the adjustment of the contribution percentage under the Rev. Proc. is limited to the Tax Credit; it does not necessarily apply to the affordability safe harbors for plan sponsors as provided by the final ?Ç£play-or-pay?Ç¥ regulations under the Affordable Care Act, which specifically reference a contribution percentage of 9.5 percent as applied… Continue Reading

Operational Error if ESOP Allocated Shares Contrary to Loan Documents

Generally, shares in a leveraged ESOP may be released from the suspense account and allocated to participants?ÇÖ accounts using a principal-only method or a principal and interest method. The IRS recently stated that, if an ESOP allocates shares using the principal-only method but the loan documents require the principal and interest method to be used, there is an operational failure and a prohibited transaction has occurred.?á IRS Technical Advice Memorandum 201425019 can be found here.

Upcoming Deadline for Amending Certain Business Associate Agreements

The deadline is September 22, 2014 for group health plans to amend certain business associate agreements (?Ç£BAAs?Ç¥) for compliance with amendments to the Health Insurance Portability and Accountability Act (?Ç£HIPAA?Ç¥) Privacy, Security and Enforcement Rules (the ?Ç£Changes?Ç¥) that were issued by the Department of Health and Human Services (?Ç£HHS?Ç¥). The Changes impact the requirements that BAAs must meet to be compliant with HIPAA Privacy and Security Rules. However, BAAs that qualified for a transition rule (i.e., generally those BAAs which (i) were entered into on or before January 25, 2013 and (ii) were not amended or renewed between March 26, 2013 and September 23, 2013), were deemed to comply with the Changes until the earlier of (i) the date the BAA was modified or renewed on or after September 23, 2013 or (ii) September 22, 2014. Consequently, any group health plan which qualified for this transition rule must amend such… Continue Reading

August 2014