The IRS issued Revenue Procedure 2011-6 this week, updating the process of requesting employee plans determination letters from the agency on the qualified status of pension, profit-sharing, stock bonus, annuity and employee stock ownership plans. In addition, the IRS published Revenue Procedure 2011-8, increasing user fees effective February 1, 2011. This guidance is available here.
Federal District Court Permits Employer’s “Mistake of Fact” Rescission Based on Employer Presumption
The United States District Court for the Eastern District of California reviewed a 401(k) plan administrator’s decision allowing the employer to rescind its employer contributions on behalf of an employee under the “mistake of fact ” doctrine. The “mistake of fact ” was that the employee committed misconduct on the job which would have resulted in termination (and no contribution) had the employer known about the misconduct sooner. The federal district court allowed the plan administrator’s decision to stand because its interpretation was not unreasonable, and therefore not an abuse of discretion. Anderson v. Strauss Neibauer & Anderson APC Profit Sharing 401(k) Plan, No. 1:09-cv-01446 OWW JLT, Slip op. (E.D. Cal. Dec. 6, 2010).
Sponsors of individually designed qualified retirement plans that have a zero or five as the last digit of their employer identification number (EIN) generally fall under?áCycle E of the Internal Revenue Service’s determination letter filing program.?á The deadline for Cycle E determination letter filings is January 31, 2011.
Generally, single-employer defined benefit pension plans must amortize shortfalls in funding over seven years. However, certain relief from the seven-year period was enacted this year. The IRS has issued Notice 2011-3, which provides guidance on the rules on funding relief for these plans (including multiple employer plans). The notice is presented in question and answer format and provides guidance on various topics, including the general rules for funding relief, questions relating to the effects on funding relief of installment acceleration amounts (including calculation of excess compensation amounts, excess shareholder payment amounts, and the impact of mergers and acquisitions), and elections to use an alternative amortization schedule. The notice also answers questions about notice and reporting requirements and transition rules. A copy of the notice can be found here.
New FAQs clarify that employers do not have to comply with the automatic enrollment rules of healthcare reform until regulations are issued. In addition, the 60-day prior notice requirement for material modifications to group health plans is not effective until March 23, 2012, when plans are required to provide the new summary of benefits and coverage explanation. The FAQs also provide that if a plan has a deductible or out-of-pocket limit that is based on a formula using a percentage of the employee?ÇÖs compensation formula, that arrangement will not cause the plan to lose its grandfathered status as long as the formula remains the same (even if the employee?ÇÖs compensation increases). Finally, although healthcare reform generally requires non-grandfathered group health plans to provide coverage for recommended preventive services without cost sharing, it is permissible for a group health plan to impose a copayment on a preventive service performed at an… Continue Reading
Prior guidance under healthcare reform provided that except with respect to certain ?Ç£90 percent pharmacies,?Ç¥ debit cards used in connection with health flexible spending accounts and health reimbursement accounts could not be used to purchase over-the-counter medicines or drugs after January 15, 2011. However, guidance was issued this week providing that debit cards could be used to purchase over-the-counter medicines or drugs after January 15, 2011 if: (1) prior to purchase, the prescription for the drug is presented to the pharmacist, the pharmacist dispenses the drug in accordance with applicable law, and an Rx number is assigned, (2) the pharmacy retains a record of the Rx number, the name of the purchaser and the date and amount of the purchase in a manner that meets IRS recordkeeping requirements, (3) these records are available to the employer upon request, and (4) the debit card system will not accept a charge for… Continue Reading
From Texas Tax Lawyer, Vol. 38, No. 1, State Bar of Texas Tax Section, October 13, 2010.?á?áThis article focuses on the tax issues that the IRS has identified in “Rollovers as Business Start-ups” (ROBS) arrangements, the consequences of a ROBS transaction that does not comply with applicable tax law, and?Çöfor those who choose to proceed with a ROBS transaction?Çösteps that may reduce the risk of adverse tax consequences.?á To read the article, click here.
Under healthcare reform, as originally enacted, non-grandfathered fully-insured group health plans are subject to the nondiscrimination requirements of the Internal Revenue Code, effective for the first plan year beginning on or after September 23, 2010. In order to provide fully-insured group health plan sponsors with time to implement the required changes, the Departments of Treasury, Labor and Health and Human Services have delayed the effective date of compliance until after more specific guidance is issued. The announcement of the delayed effective date is available here.
For purposes of the funding-related determinations used in the waivers, extensions, and advance reporting threshold tests in the reportable events regulation, the PBGC announced that a plan’s unfunded vested benefits and the value of its assets and vested benefits are determined for a plan year beginning in 2011 in the same manner as for variable-rate premiums for the preceding plan year. The PBGC also announced that for purposes of the reportable events regulation, if a required quarterly contribution for the 2011 plan year is not timely made to a plan, and financial inability to make the contribution is not the reason for not making the contribution, the reporting requirement (1) is waived if the plan has fewer than 25 participants for the prior plan year and (2) if the plan has at least 25 but fewer than 100 participants for the prior plan year, will be considered satisfied if a… Continue Reading
The IRS issued additional relief allowing nonqualified deferred compensation plans to correct operational and document failures to comply with Internal Revenue Code section 409A. With respect to correction of plan document failures, the additional relief provides: (1) that the types of plans eligible for relief include (a) a nonqualified plan linked to a qualified plan or another nonqualified plan, provided that the linkage does not affect the time and form of payments under the plans and (b) certain stock rights (stock options and stock appreciation rights) that were intended to be subject to, and compliant with, 409A but that have a plan document failure; (2) an additional method of correction for certain failures involving payments at separation from service subject to the requirement to submit a release of claims or similar document, and transition relief through December 31, 2012 to correct such failures that were in effect on or before… Continue Reading