When participants in qualified retirement plans are no longer current employees of the plan sponsor, it can be challenging to ensure that the contact information in the plan?ÇÖs records is up to date and accurate. However, inaccurate contact information in the plan?ÇÖs records is problematic for a variety of reasons, including causing operational failures when participants do not receive distribution of benefits by the plan?ÇÖs required distribution date and increasing the possibility of fraud when a participant?ÇÖs information is sent to the wrong address. Plan administrators should review their procedures for locating missing participants and ensure that they are (1) consistent with available guidance from the IRS and the DOL, (2) appropriate for the plan and its participant population, and (3) being followed consistently by the plan administrator or its delegate. Plan administrators should also document any steps undertaken to locate missing participants. The plan?ÇÖs procedures should also address how… Continue Reading
The Puerto Rico Department of the Treasury recently issued Circular Letter Internal Revenue No. 18-21 (the ?Ç£Circular?Ç¥), which announced applicable qualified retirement plan limits for 2019, as required by the Puerto Rico Internal Revenue Code of 2011, as amended (the ?Ç£PR Code?Ç¥). For plans qualified only in Puerto Rico, the limits on elective deferrals, catch-up contributions, and after-tax contributions all remain unchanged for 2019, while the limits on annual benefits, annual contributions, plan compensation, and the highly compensated employee threshold all increased for 2019. For plans qualified in both Puerto Rico and the U.S. (including the Federal Government Thrift Plan), the limits on catch-up and after-tax contributions remain unchanged for 2019, while the limits on elective deferrals, annual benefits, annual contributions, plan compensation, and the highly-compensated employee threshold, all increased for 2019. The applicable plan limits are as follows: Annual Benefit Limit (All Defined Benefit Plans): $225,000 (increased from $220,000)… Continue Reading
In 2017, the PBGC introduced a program that offered voluntary mediation with certain termination liability collection and Early Warning Program cases. The program was made permanent and was expanded to include fiduciary breach cases in 2019. Mediation is offered to eligible plan sponsors either with the demand letter (for fiduciary breach cases) or at the outset of mediation (for Early Warning Program cases) or after review of the information disclosed to the PBGC under 29 C.F.R. ?º 4062.6 (for termination liability cases). View the PBGC Mediation Program.
Possible Year-End Deadline for Retirement Plans of Plan Sponsors Involved in a 2017 Corporate Transaction
Generally, employee benefit plans of members of the same controlled group must satisfy certain requirements of the Internal Revenue Code on an aggregated basis (e.g., retirement plan nondiscrimination and coverage testing). Following a corporate transaction, such as a merger or a stock or an asset sale, the benefit plans of the buyer and seller may differ significantly. In order for plan sponsors to have a period of time post-closing to determine how best to structure their benefit plans going forward, Code Section 410(b)(6)(C) provides transition relief by permitting the plans to choose to be operated and tested separately, if certain requirements are met, such as coverage under the plan not being materially modified during a transition period. The transition period begins on the transaction?ÇÖs closing date and, generally, ends on the last day of the first plan year beginning after the year in which the transaction occurred or, if earlier,… Continue Reading
In Notice 2018-91, the IRS published the Required Amendments List for 2018, 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?ÇÖs list did not include any such items. Nevertheless, a required amendment that was listed in the 2016 Required Amendments List must be adopted (if applicable to an employer?ÇÖs plan) by December 31, 2018. That required amendment relates to restrictions on accelerated distributions from underfunded single-employer, collectively-bargained defined benefit plans due to a plan sponsor?ÇÖs bankruptcy. Additional information on the 2016 Required Amendments List is available on our prior blog post. View Notice 2018-91
The IRS recently announced cost-of-living adjustments for 2019. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2019: Compensation limit used in calculating a participant?ÇÖs benefit accruals: increased to $280,000. Elective deferrals to 401(k) and 403(b) plans: increased to $19,000. Annual additions to a defined contribution plan: increased to $56,000. 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 $225,000. Compensation dollar limit for defining a ?Ç£key employee?Ç¥ in a top heavy plan: increased to $180,000. Compensation dollar limit for defining a ?Ç£highly compensated employee?Ç¥: increased to $125,000. View the full list of 2019 plan limits in Notice 2018-83.
The IRS?ÇÖs Tax Exempt and Government Entities Division (?Ç£TE/GE?Ç¥) recently issued its Compliance Program Letter for 2019, which lists TE/GE?ÇÖs compliance priorities for the 2019 calendar year. Those priorities include issuing additional guidance under the Tax Cuts and Jobs Act (the ?Ç£Act?Ç¥), which was enacted in December 2017, and expanding its use of Pay.gov and secure messaging with taxpayers and practitioners in the TE/GE?ÇÖs employee plans program. The letter does not list any specific guidance topics to be addressed under the Act or provide that guidance is forthcoming on Internal Revenue Code changes enacted by the Bipartisan Budget Act of 2018, such as changes to the hardship distribution rules. The letter does, however, state that if additional issues are identified in the future, TE/GE will modify its list of priority items to ensure that TE/GE remains focused on the highest priority items. View the 2019 Compliance Program Letter.
As we enter the last quarter of 2018, plan sponsors should ensure that all required plan amendments will be made to their tax-qualified retirement plans by the applicable deadlines and that the plan administrator is prepared for any changes in administrative procedures that will be required as of January 1, 2019. As a practical matter, plans should be amended for any applicable changes as soon as practicable to conform the plan document (and its summary plan description) to match the plan?ÇÖs administration.
Consider Periodic Internal Plan Audits to Ensure Proper Application of Plan?ÇÖs Definition of ?Ç£Compensation?Ç¥
A frequent, but often times avoidable, operational error for retirement plans is the failure to use the proper definition of compensation for various purposes, including, without limitation, calculating employee deferrals and employer contributions. A retirement plan?ÇÖs definition of compensation typically includes dozens of components that all must be properly coded in the plan sponsor?ÇÖs payroll system as eligible or ineligible plan compensation. Plan sponsors should periodically compare the plan?ÇÖs definition of ?Ç£compensation?Ç¥ to the employer?ÇÖs payroll records to verify that the proper definition of compensation has been used for all plan purposes, including calculating employee deferrals and employer contributions. Performing such an audit can help identify any errors and help to minimize the amount of any corrective contributions and other fees and expenses that may be associated with correcting the error.
While many qualified retirement plans allow for the reimbursement of certain administrative expenses from plan assets, plan fiduciaries must ensure that plan assets are being used only to reimburse reasonable administrative expenses, and not expenses that could be considered personal or business expenses. This issue may arise in a variety of contexts, including, in particular, a plan?ÇÖs reimbursement of travel expenses. The DOL has taken the position that no personal or business related expenses are payable from plan assets, even if the travel is related to the administration of the plan. The concern with using plan assets to reimburse travel expenses is being able to prove that the travel expenses relate solely to the administration of the plan, and are not merely a personal or business expense.