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March 31st Deadline to Adopt Compliant 403(b) Plan

Tax-exempt organizations that sponsor individually-designed 403(b) plans that have not received favorable determination letters and which may contain one or more form defects, and plan sponsors that have not timely adopted amendments to reflect changes in the law or regulations, generally have until March 31, 2020 to cure any defects by either (i) amending and restating their plan on an up-to-date pre-approved plan document or (ii) correcting any form defects retroactively to January 1, 2010 (or the plan?ÇÖs original effective date, if later). After the March 31, 2020 deadline, generally, the only way to cure form defects in a 403(b) plan that arose prior to March 31, 2020 will be through the IRS?ÇÖs voluntary correction program.

Agencies Update Group Health Plan Required Disclosure Documents

Federal agencies recently issued updated versions of certain documents that are required to be disclosed to individuals under applicable employer-sponsored group health plans. A set of FAQs regarding the Affordable Care Act (?Ç£ACA?Ç¥) was issued by the federal Departments of Labor (?Ç£DOL?Ç¥), Health and Human Services (?Ç£HHS?Ç¥), and Treasury (collectively, the ?Ç£Departments?Ç¥), which describe recent changes made by the Departments to the ?Ç£summary of benefits and coverage?Ç¥ template under the ACA (?Ç£SBC?Ç¥). Among other minor changes to the SBC, certain verbiage on the SBC and the associated uniform glossary were revised to reflect the prior elimination, as of January 1, 2019, of the tax penalty related to an individual?ÇÖs failure to comply with the so-called ?Ç£individual mandate?Ç¥ under the ACA. The FAQs also provide additional guidance regarding the updated SBC coverage examples calculator that was released by HHS late last year. The revised SBC and SBC coverage examples calculator each… Continue Reading

IRS Emphasizes Requirement to Retain Executed Copies of Plan Documents

The IRS recently released Chief Counsel Memorandum 2019-002 (the ?Ç£CCM?Ç¥), in which it emphasized an employer?ÇÖs obligation to timely sign and retain a copy of its qualified plan document pursuant to Section 6001 of the Internal Revenue Code or risk plan disqualification. The IRS issued the CCM in response to the Tax Court?ÇÖs holding in Van Lanes Recreation Center v. Commissioner, TC Memo 2018-92. In Van Lanes, the Tax Court held that the IRS had abused its discretion by disqualifying a plan when the employer failed to produce a signed copy of the restated plan document. The Tax Court determined that there was both credible evidence that the restated plan had been adopted and credible explanations for the absence of the signed documents including flooding of the employer?ÇÖs premises and seizure of its accountant?ÇÖs computers. Plan documents must be signed by the plan sponsor or someone authorized to act on… Continue Reading

IRS Publishes 2019 Required Amendments List

In Notice 2019-64, the IRS published the Required Amendments List for 2019, 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 contains two items related to the final regulations for (x) hardship distributions, which implement legislative changes enacted in the Bipartisan Budget Act of 2018, and (y) certain collectively bargained cash balance/hybrid defined benefit plans maintained pursuant to one or more collective bargaining agreements ratified on or before November 13, 2015. The deadline for adopting any required amendments described in this year?ÇÖs list is December 31, 2021. In addition, any required amendments that were listed in the 2017 Required Amendments List must be adopted (if applicable to an employer?ÇÖs plan) by December 31, 2019. The 2017 list included three items that relate to (i)… Continue Reading

IRS Issues Guidance on Remedial Amendment Periods for 403(b) Plans

In Revenue Procedure 2013-22, as modified by Revenue Procedure 2017-18, the IRS previously established an initial remedial amendment period for correcting form defects in a 403(b) plan that ends on March 31, 2020. In Revenue Procedure 2019-39, the IRS has now established a system of ongoing remedial amendment periods for correcting form defects in 403(b) plans that occur after March 31, 2020, as well as extending the deadline for certain defects that occur before March 31, 2020. In addition, to assist plan sponsors, the IRS will begin including changes to 403(b) plan requirements on its Required Amendments List and Operational Compliance List. The IRS also introduced a cycle program for pre-approved plans during which Section 403(b) prototype plans and volume submitter plans can request to receive a pre-approved plan letter from the IRS. Under this new guidance, the remedial amendment period for non-governmental Section 403(b) individually-designed plans will end on… Continue Reading

IRS Announces Final Regulations Implementing New Hardship Distribution Requirements

The IRS recently published final 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. The final regulations do not contain any substantive differences to the proposed regulations issued by the IRS in November 2018. The new final regulations: ?Çó Permit, but do not require, hardship distributions from a participant?ÇÖs elective contributions, QNECs, QMACs (including safe harbor matching contributions), and any earnings on those amounts, regardless of when they were contributed or earned. ?Çó 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). ?Çó 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).… Continue Reading

IRS: Retirement Plan Distributions are Taxable Even if a Participant Refuses to Cash a Distribution Check

In Revenue Ruling 2019-19, the IRS clarified that a plan participant?ÇÖs refusal to cash a distribution check after she received it does not (i) permit her to exclude the amount of the distribution from her taxable income, (ii) alter her employer?ÇÖs duty to withhold all applicable taxes from the distribution, or (iii) alter her employer?ÇÖs duty to report the taxable income on a Form 1099-R. While this Revenue Ruling addresses the treatment of plan distributions when a participant receives, but refuses to cash, a distribution check, the ruling does not address other situations in which a distribution check is not cashed, such as in the case of missing participants. The ruling states that the IRS and Treasury are continuing to analyze such issues and may publish related guidance in the future. Revenue Ruling 2019-19 is available here.

Practice Tip: Warning Signs Your Plan May Have a Missing Participants Problem

When participants in a qualified retirement plan terminate employment with the plan sponsor, it can be challenging to ensure that their contact information in the plan?ÇÖs records is kept up to date and accurate. Inaccurate contact information is problematic for a variety of reasons, including potentially causing an operational failure when such participants do not receive distribution of their plan benefits by their required distribution date, as well as increasing the possibility of fraud when a participant?ÇÖs information is sent to the wrong address. In addition, a plan sponsor?ÇÖs failure to make reasonable efforts to locate missing participants would be a breach of their fiduciary duties of loyalty and prudence. Often, the first indication that a participant may be missing is that mail sent to their last known address is returned undeliverable or their distribution checks are returned or remain uncashed. In addition, a plan sponsor should check to see… Continue Reading

IRS Opens Determination Letter Program to Merged Plans and Hybrid Plans

In Revenue Procedure 2019-20, the IRS extended the determination letter program, effective as of September 1, 2019, to include merged plans resulting from a corporate merger or similar transaction. For a merged plan to be eligible for a favorable determination letter, (i) the date of the plan merger must occur no later than the last day of the first plan year beginning after the plan year that includes the closing date of the corporate transaction, and (ii) the determination letter application must be submitted between the date of the plan merger and the last day of the first plan year beginning after the date of the plan merger. In addition, the IRS will accept determination letter applications for individually designed statutory hybrid plans during a 12-month window beginning on September 1, 2019. As always, the IRS will continue to process determination letter applications for initial plan qualification and for qualification… Continue Reading

IRS Expands Self-Correction Program Under EPCRS

The IRS recently published Rev. Proc. 2019-19, which sets forth the most current consolidated statement of the correction programs under the IRS?ÇÖs Employee Plans Compliance Resolution System (?Ç£EPCRS?Ç¥). Pursuant to the new guidance, which became effective April 19, 2019, eligible plan sponsors may use the self-correction program (?Ç£SCP?Ç¥) component of EPCRS to correct certain failures that were previously only correctable under the voluntary correction program (?Ç£VCP?Ç¥) 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.

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