The IRS recently published Rev. Proc. 2019-19, which sets forth the most current consolidated statement of the correction programs under the IRS’s Employee Plans Compliance Resolution System (“EPCRS”). Pursuant to the new guidance, which became effective April 19, 2019, eligible plan sponsors may use the self-correction program (“SCP”) component of EPCRS to correct certain failures that were previously only correctable under the voluntary correction program (“VCP”) or Audit CAP components of EPCRS. Unlike VCP and Audit CAP, SCP does not require any filings or payments to the IRS. The amended SCP now includes procedures for correcting certain plan document failures and for correcting certain participant loan failures (including defaulted plan loans). Rev. Proc. 2019-19 also expands the circumstances under which certain operational failures may be corrected by plan amendment under SCP. View Rev. Proc. 2019-19. View a summary of the key changes to the SCP component of EPCRS.
The IRS recently published an updated Operational Compliance Checklist (the “Checklist”), which lists changes in qualification requirements that became effective during the 2016 through 2019 calendar years. Examples of items added to the Checklist for 2019 include, among other things: Changes to the hardship distribution rules enacted by the Bipartisan Budget Act of 2018, such as eliminating the requirement to first take out all available plan loans and expanding the types of contributions eligible for distribution Proposed regulations enacting certain other changes to the hardship distribution rules, such as eliminating the six-month contribution suspension requirement and expanding the safe harbor list of expenses deemed to constitute an immediate and heavy financial need The extension of temporary nondiscrimination relief for closed defined benefit plans The Checklist is only available online and is updated periodically to reflect new legislation and IRS guidance. The Checklist does not, however, include routine, periodic changes, such… Continue Reading
When participants in qualified retirement plans are no longer current employees of the plan sponsor, it can be challenging to ensure that the contact information in the plan’s records is up to date and accurate. However, inaccurate contact information in the plan’s records is problematic for a variety of reasons, including causing operational failures when participants do not receive distribution of benefits by the plan’s required distribution date and increasing the possibility of fraud when a participant’s 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’s procedures should also address how… Continue Reading
The federal government shutdown is affecting IRS operations relating to determination letter filings and submissions under the Employee Plans Compliance Resolution System, among other things. According to page 94 of the IRS Lapsed Appropriations Contingency Plan in effect at the time of the shutdown (the “Contingency Plan”), only three employees in the IRS TEGE Employee Plans department are authorized to continue working through the shutdown to ensure statute protection and continued processing of remittances. Attempts to contact the IRS general assistance line for determination letter filings result in the following automated message: Welcome to the Internal Revenue Service. Live telephone assistance is not available at this time. Normal operations will resume as soon as possible. You may continue to use our self-service tools… View the Contingency Plan.
The IRS recently published proposed regulations addressing changes enacted by the Tax Cuts and Jobs Act of 2017, the Bipartisan Budget Act of 2018, and other prior changes to the tax code. Specifically, the proposed regulations: Permit, but don’t require, hardship distributions from a participant’s elective contributions, QNECs, QMACs (including safe harbor matching contributions), and any earnings on those amounts, regardless of when they were contributed or earned Eliminate the requirement that a participant take out all available plan loans before receiving a hardship distribution (although plans may continue to contain such a requirement) Prohibit plans from containing a requirement that a participant may not contribute to the plan for any period of time following a hardship distribution (in other words, eliminate the six-month suspension rule). If a suspension is still being applied as of January 1, 2019 for a prior hardship distribution, a plan may eliminate the suspension as… Continue Reading
In December 2017, under the Tax Cuts and Jobs Act, Congress broadened the $1 million deduction limitation under Code Section 162(m) for a public company’s top executives by, among other things, broadening the scope of “covered employees” and eliminating the performance-based compensation exception. The more restrictive Code Section 162(m) generally applies for tax years after 2017, but certain arrangements in existence on November 2, 2017, may be grandfathered. On August 21, 2018, the IRS issued new guidance on Code Section 162(m) under IRS Notice 2018-68 (the “Notice”). Notably, the Notice provides guidance with respect to the grandfathering relief (including the impact of negative discretion and what constitutes a material modification), and provides guidance on the expanded scope of who is a “covered employee” (and will remain a covered employee). The Notice leaves open for comment several issues, including, the rule which allows certain newly public companies to limit the application… Continue Reading
IRS Finalizes Rules Permitting Use of Forfeitures to Fund Safe Harbor Contributions, QNECs, and QMACs
As we previously reported, on January 18, 2017, the IRS proposed amendments to regulations under Section 401(k) of the Internal Revenue Code that would permit the use of forfeitures to fund safe harbor contributions, qualified non-elective contributions (“QNECs”), and qualified matching contributions (“QMACs”). The IRS recently finalized the proposed amendments, effective as of July 20, 2018, without substantive changes. The prior regulations had provided that employer contributions could only qualify as safe harbor contributions, QNECs, or QMACs if they were non-forfeitable and not eligible for early distribution at the time they were contributed to the plan. The final regulations now provide that safe harbor contributions, QNECs, and QMACs be non-forfeitable and not eligible for early distribution at the time they are allocated to participants’ accounts. View the final regulations.
In Rev. Proc. 2018-19, the IRS reduced the fee for filing for a favorable determination letter on Form 5310 in conjunction with a plan termination from $3,000 to $2,300. The reduced fee is effective retroactively for all Forms 5310 filed on or after January 2, 2018. Filers who paid the $3,000 user fee will receive a $700 refund. View Rev. Proc. 2018-19.
In Rev. Proc. 2018-21, the IRS modified the favorable determination letter program to allow pre-approved defined benefit plans containing a cash balance formula to provide for the actual rate of return on plan assets as the rate used to determine interest credits, and modifies the guidance in prior Revenue Procedures accordingly. View Rev. Proc. 2018-21.
On January 11, 2018, the IRS released Notice 1036, which contains updated income tax withholding tables for 2018 that reflect changes made to the tax code by the Tax Cuts and Jobs Act. The notice also provides that the new withholding rate for supplemental wages of up to $1 million is now 22 percent, down from 25 percent, and the rate for supplemental wages in excess of $1 million is now 37 percent, down from 39.6 percent. Employers should implement the new withholding rates as soon as administratively possible, but in no event later than February 15, 2018. View Notice 1036.