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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’s 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

IRS Publishes 2018 Required Amendments List

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’s 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’s 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’s bankruptcy. Additional information on the 2016 Required Amendments List is available on our prior blog post. View Notice 2018-91

IRS Announces 2019 Qualified Retirement Plan Limits

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’s 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 “key employee” in a top heavy plan: increased to $180,000. Compensation dollar limit for defining a “highly compensated employee”: increased to $125,000. View the full list of 2019 plan limits in Notice 2018-83.

IRS Tax Exempt and Government Entities Division Issues 2019 Compliance Program Letter

The IRS’s Tax Exempt and Government Entities Division (“TE/GE”) recently issued its Compliance Program Letter for 2019, which lists TE/GE’s compliance priorities for the 2019 calendar year. Those priorities include issuing additional guidance under the Tax Cuts and Jobs Act (the “Act”), which was enacted in December 2017, and expanding its use of Pay.gov and secure messaging with taxpayers and practitioners in the TE/GE’s 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.

Hardship Withdrawals

The Bipartisan Budget Act of 2018 (the “Budget Act”) contains changes that will impact 401(k) plans that offer hardship withdrawals. Effective January 1, 2019, the following key changes to the Internal Revenue Code’s hardship withdrawal rules become effective: Permissible Contribution Sources Expanded: The contribution sources from which hardship withdrawals are permitted have been expanded to include qualified nonelective contributions (“QNECs”), qualified matching contributions (“QMACs”), 401(k) safe harbor plan contributions, and earnings on such QNECs, QMACs, and employee deferrals (including post-1988 earnings on elective deferrals). Loan Exhaustion Requirement Eliminated: Participants may take a hardship withdrawal without first having to take out all nontaxable loans available under the plan. Six Month Suspension Requirement Eliminated: Plan administrators are no longer required to suspend a participant’s elective deferrals for six months following a hardship withdrawal. Although the IRS has not yet issued explanatory guidance regarding these changes, plan sponsors need to decide now how… Continue Reading

Disability Claims Procedures

New disability benefit claims procedures regulations were issued by the DOL and became applicable to disability benefit claims filed after April 1, 2018. Employers who maintain retirement plans that provide certain disability benefits (i.e., benefits based upon a determination of disability that is made under the plan) must amend the plan’s claims procedures by no later than December 31, 2018, to reflect the required changes in disability claims administration. These regulations do not apply to retirement plans that provide disability benefits that are based upon a determination of disability made outside of the plan (e.g., disability determinations made by the Social Security Administration or by the administrator of the employer’s long-term disability plan).

Practice Tip: Retirement Plans

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’s administration.

Church Plan Exemption Class Action Advances, Court to Determine What Constitutes a “Principal Purpose Organization”

Last year, the U.S. Supreme Court jointly heard and ruled on a series of long-running, class action lawsuits challenging the church plan status of retirement plans sponsored by certain religiously affiliated healthcare systems. In its opinion, the Supreme Court overturned the lower courts’ decisions and held that such plans could qualify as church plans, even if they were not originally established by a church, if the plans were maintained by a church-affiliated organization whose principal purpose is the administration or funding of the plan (view our prior blog post on this Supreme Court opinion). The cases were then remanded back to their original district courts for further proceedings consistent with the Supreme Court’s order. One of those federal district courts recently ruled, in partially denying a motion to dismiss, that the plaintiffs had pled enough facts to adequately allege a claim that the Dignity Health retirement plan was not a… Continue Reading

IRS Private Letter Ruling Approves Student Loan Repayment Feature in 401(k) Plan

A recently released IRS Private Letter Ruling (the “PLR”) describes a potential approach for an employer to integrate a student loan repayment program with the employer’s defined contribution plan. As described in the PLR, the employer proposed to amend its 401(k) plan to permit employees to enroll in a voluntary student loan benefit program (the “Program”) under which the employer would make a nonelective contribution to an employee’s account under the plan for each pay period during which the employee made a student loan repayment equal to a specified amount of eligible compensation. The IRS ruled that, based on the conditions described in the PLR, the Program did not violate the Internal Revenue Code’s “contingent benefit” prohibition (i.e., an employer cannot offer a benefit, other than a matching contribution, that is contingent upon the employee making contributions to a 401(k) plan). The PLR did not address what impact such a… Continue Reading

Sixth Circuit Decision Highlights Importance of Distributing Accurate SPDs

A recent case decided by the U.S. Court of Appeals for the Sixth Circuit provides yet another example of the importance of ensuring that plan documents and summary plan descriptions (“SPDs”) accurately and consistently describe plan benefits. In Pearce v. Chrysler Group LLC Pension Plan, the plan document provided that a participant who was not actively employed at retirement would be ineligible to receive an early retirement supplement. In contrast, the SPD stated that a participant did not need to be actively employed at retirement to remain eligible for the early retirement supplement. This discrepancy became an issue when an employee accepted a termination incentive, and the employer, relying on the language in the plan document, argued that this made the employee ineligible for the early retirement supplement. The employee requested that the lower court (i) grant equitable estoppel to prevent the employer from relying on the plan document, and… Continue Reading

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