Employee Benefits Blog : Employee Benefits & Executive Compensation Lawyers & Attorneys: McDermott Will & Emery Law Firm

by Andrew C. Liazos, Todd A. Solomon and Kary Crassweller

The Internal Revenue Service recently published final regulations under the Foreign Account Tax Compliance Act (FATCA), which are effective immediately.  FATCA imposes significant reporting obligations on both non-U.S. foreign financial institutions (FFIs) and U.S. taxpayers holding foreign financial accounts.  A non-U.S. retirement plan may be subject to FATCA reporting responsibilities as an FFI unless there is an available exemption.  Failure to comply with applicable reporting requirements may trigger substantial withholding taxes and penalties.  This On The Subject summarizes what you need to know about FATCA for both plans and participants.

To read the full article, click here.

• Print
• Share Link

by Jeffrey M. Holdvogt, Ruth Wimer and David Diaz

On February 27, 2013, the Internal Revenue Service (IRS) issued News Release IR-2013-23 to provide additional favorable guidance regarding modifications to the Voluntary Classification Settlement Program (VCSP) issued in Announcements 2012-45 and 2012-46 addressing worker classification issues.  The VCSP allows eligible employers to voluntarily reclassify their workers for federal employment tax purposes and obtain considerable "forgiveness" for previous non-employee treatment.  The IRS describes the program as a "low-cost option" for achieving certainty under the law by reclassifying workers as employees for future tax periods.

To read the full article, click here.

• Print
• Share Link

by Mary K. Samsa, Todd A. Solomon and Joseph K. Urwitz

On February 21, 2013, the Internal Revenue Service (IRS) added to its “self-help” resources a new “403(b) Plan Fix-It Guide” to provide guidance more specifically directed at 403(b) plan sponsors that identify qualification or operational plan failures under their 403(b) plans.  Additionally, the IRS issued as a companion piece a booklet entitled “Voluntary Correction Program Submission Kit,” which provides more detailed directions to 403(b) plan sponsors on how to complete and file a correction filing with the IRS specifically relating to the failure to adopt a written 403(b) plan document.

This new “fix-it” tool addresses 10 potential errors (likely the most common 403(b) plan errors), including, but not limited to, ineligible organizations offering 403(b) plans, failure to adopt a written plan document as required by the final 403(b) regulations, violation of the universal availability rule, failure to appropriately limit elective deferrals and failure to follow the underlying terms of the plan document.  Although these types of failures are not necessarily new (i.e., they could have occurred in prior years), the IRS is slowly bringing 403(b) plans under more scrutiny as the dollars being contributed to these types of plans continue to increase.  The IRS is developing more expertise in this area and is training more agents to be able to identify the particular differences between 401(k) plans and 403(b) plans, and the specific nuances and legal requirements of operating 403(b) plans.  Since the 403(b) regulations were issued in 2007, this is the first step in which the IRS is taking a more active role to ensure compliance under these types of plans.

Revenue Procedures 2013-12 (Employee Plans Compliance Resolution System, or EPCRS) may be used with respect to any 403(b) plan corrections going forward.  It incorporates in greater detail the “403(b) Plan Fix-It Guide.”  Although prior EPCRS guidance such as Revenue Procedure 2008-50 was often applied to 403(b) plans by analogy for correcting errors, new Revenue Procedure 2013-12 is drafted to be directly applicable to 403(b) plans.  Consequently, given the IRS movement toward greater scrutiny of 403(b) plans, tax-exempt organizations that have not recently conducted any type of internal compliance review are encouraged to review, at a minimum, the mistakes highlighted in the “403(b) Plan Fix-It Guide” to determine whether greater analysis is required with respect the compliance and operation of their 403(b) plans.

• Print
• Share Link

by Lisa K. Loesel, Mary K. Samsa and Kary Crassweller

The Internal Revenue Service (IRS) recently updated the Employee Plans Compliance Resolution System (EPCRS), the comprehensive system of correction programs for sponsors of qualified retirement plans.  The components of EPCRS continue to be the Self-Correction Program, the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program.  This newsletter describes some of the significant changes to EPCRS, including revisions to the VCP submission procedures and enhanced access for 403(b) plans.

To read the full article, click here.

• Print
• Share Link

by Anne W. Hance and Amy M. Gordon

The U.S. Department of Health and Human Services (HHS) and the Internal Revenue Service (IRS) released on January 30, 2013, two proposed rules and a final rule relating to the Affordable Care Act’s (ACA) requirement that individuals maintain “minimum essential coverage” (MEC) or be subject to a “shared responsibility” payment.

• IRS Final Rule: The IRS issued final regulations in May 2012 addressing eligibility for the health insurance premium tax credit, which is available to certain low-income individuals purchasing a qualified health plan on a health insurance exchange.  The January 30, 2013 final rule supplements these regulations by finalizing the requirement that “affordability” of coverage available for the employee under an employer-sponsored group health plan is determined based on self-only coverage (and not family coverage).
• IRS Proposed Rule: The  proposed rule addresses (1) the obligation each taxpayer has to make a “shared responsibility payment” for himself, herself and any dependents who, for a calendar month, do not have MEC, and (2) exemptions to this payment obligation.  The limited exceptions for this payment obligation include individuals who lack access to affordable MEC.  The proposed rule addresses the difference in determining affordable MEC for an employee eligible for coverage under a group health plan (as described above) versus affordability for a “related individual.”  A “related individual” is one for whom an Internal Revenue Code Section 151 deduction can be claimed.
• HHS Proposed Rule: The HHS proposed rule sets forth standards and processes by which a health insurance exchange will make eligibility determinations and grant exemptions from the shared responsibility payment.  This proposed rule also (1) identifies certain types of coverage deemed to be MEC , and (2) sets forth standards by which HHS may designate certain health benefits coverage as MEC. 
  
  

  For example, self-funded student health insurance coverage and Medicare Advantage Plans are proposed to be designated as MEC.  Additionally, sponsors of other types of coverage that meet designated criteria, such as providing consumer protections required by the Affordable Care Act, may apply to HHS for recognition as MEC.

Next Steps

Health insurance issuers will want to consider whether the various products they offer or administer will meet the MEC requirements set forth in HHS’s proposed rule, in order to respond to inquiries from customers, to meet notice requirements (including inserting model statements into existing plan documents, as applicable), and potentially to respond to exchanges making eligibility determinations.  If a product does not constitute MEC, issuers may want to consider whether to continue to offer the product in its current form or revise the coverage to meet the MEC requirements.

Sponsors of group health plans will need to consider the separate affordability standards for employees and for related individuals and the implications for group health plan participants, and either modify coverage to meet the MEC standards, or consider the consequences of the shared responsibility payment.

• Print
• Share Link

by Diane Morgenthaler, Maureen O'Brien and Kary Crassweller

Recently the Internal Revenue Service provided the first set of guidance on the new notice requirements for single employer defined benefit plans subject to funding-related restrictions under Section 436 of the Internal Revenue Code.  This guidance includes information on notice recipients, content, delivery and timing.  Because significant penalties apply to a notice failure, plan sponsors need to carefully review this new guidance. 

To read the full article, click here.

• Print
• Share Link

by Jeffrey M. Holdvogt and Susan Peters Schaefer

The Internal Revenue Service (IRS) recently discontinued its letter forwarding service for missing participants or beneficiaries entitled to a benefit under an employee retirement plan.  Until now, retirement plan sponsors have frequently used the IRS letter forwarding service as a way to locate missing participants or beneficiaries to whom benefits are owed under a retirement plan.  Following this discontinuance, plan sponsors will need to utilize another more expensive government forwarding service or utilize internet search tools, commercial locater services and credit report agencies to locate missing retirement plan participants.

To read the full article, click here.

• Print
• Share Link

by Jonathan J. Boyles

Agreements that require a release or other signed document from an employee before payment should be reviewed to ensure compliance with Code Section 409A guidance.  Transition relief ends on December 31, 2012, and the penalties for noncompliance can be harsh.  Employers that conducted a fulsome Code Section 409A review in 2007 and 2008 should ensure their arrangements are in compliance with new guidance.

To read the full article, click here.

• Print
• Share Link

by Amy Gordon, Susan Nash, Maureen O'Brien

Recent guidance issued by the Departments of Health and Human Services and Labor and the Internal Revenue Service clarifies health care reform rules regarding waiting periods and the definition of full-time employee for purposes of the employer requirement to provide health care coverage beginning in 2014.   The Internal Revenue Service has also issued guidance relating to the determination of wages for purposes of determining affordability of health care coverage under the Affordable Care Act.

Click here to see IRS Notice 2012-58 and here for Technical Release 2012-02.  McDermott will be releasing a detailed analysis of the new guidance soon.

• Print
• Share Link

by Maureen O'Brien and Susan Nash

The Internal Revenue Service (IRS) recently released guidance on the implementation of the $2,500 limit on health flexible spending accounts (FSA) scheduled to go into effect in 2013.  IRS Notice 2012-40 (Notice) clarifies the application of the new limit for plan years beginning after 2013 and solicits comments regarding whether to modify the use-or-lose rule set forth in the current proposed regulations under Section 125 of the Internal Revenue Code of 1986, as amended (Code).

The Notice states that the $2,500 limit on contributions to health flexible spending accounts is applicable for plan years beginning on or after January 1, 2013.  This means that non-calendar year plans do not need to institute a mid-year limit to comply with applicable law.  In addition, the Notice states that the $2,500 limit does not apply to heath savings accounts or health reimbursement accounts or “flex-credits” granted by an employer.  In addition, for cafeteria plans under Section 125 of the Code with grace periods which allow use of contributions for up to two and one-half months after the end of the plan year, the $2,500 limit does not apply to any amounts contributed for the previous plan year and available during such grace period.

If an employee erroneously contributes more than $2,500 to his or her health flexible spending account for plan years beginning on or after January 1, 2013, the Notice provides for a correction method for employers to refund amounts over the limit to the employee and adjust the employee’s reportable wages for the applicable tax year.  This correction method is available only if the employer has complied with the written plan requirements of Section 125 of the Code, the erroneous contribution was due to reasonable mistake and not willful neglect by the employer and the employer’s cafeteria plan is not under examination for the plan year in which the erroneous contributions occurred.

The Notice also provides that employers may amend the cafeteria plan anytime prior to December 31, 2014 to comply with the new FSA limit.  Such amendment may express the limit as a maximum dollar amount or use another method to express the new $2,500 limit.  The $2,500 limit will be subject to cost of living increases and this type of indexing should be considered when drafting any required amendments.

Finally, the Notice requests comments on modifications to the use-or-lose rule for health flexible spending accounts currently in effect given implementation of the new dollar limit.  McDermott will continue to update employers on any changes to the use-or-lose rule for health flexible spending account plans.  

• Print
• Share Link

by Joseph S. Adams and Andrew C. Liazos

Earlier today, the Internal Revenue Service (IRS) released new proposed Section 83 regulations, which clarify several points including:

1. A substantial risk of forfeiture (SRF) may be established only through a service condition or a condition related to the purpose of the transfer.  Citing the U.S. Court of Appeals for the First Circuit’s opinion in Robinson, the preamble noted that “[s]ome confusion has arisen as to whether other conditions may also give rise to a substantial risk of forfeiture.”  The proposed regulations retain the language from Section 83 final regulations that refraining from service may be a service condition.
2. In determining whether a SRF exists, it is necessary to consider both (a) the likelihood that the forfeiture event will occur, and (b) the likelihood that the forfeiture will be enforced.  All of the facts and circumstances must be evaluated to determine whether a performance-based vesting condition for a restricted stock award will be treated as a substantial risk of forfeiture for purposes of Section 83.
3. Transfer restrictions such as lock-up agreements, Rule 10b-5 insider trading restrictions) do not create a SRF – in other words, they do not defer the taxable event – even if there is a potential for forfeiture or disgorgement of some or all of the property, or other penalties, if the restriction is violated.  The only exception to this rule is with respect to Section 16(b) “short swing” profit liabilities.  The proposed regulations provide three new examples illustrating when transfer restrictions will – and will not – constitute a SRF.  The proposed regulations incorporate the IRS’ position in Revenue Ruling 2005-48.

These regulations under section 83 are proposed to apply to transfers of property on or after January 1, 2013. Taxpayers may rely on the proposed regulations for property transfers occurring after the publication of the proposed regulations until further notice.  Comments are due by August 28, 2012.

Further details on the newly proposed regulations will be provided in subsequent McDermott publications.
 

• Print
• Share Link

by Ruth Wimer

Recent press coverage of Internal Revenue Service and U.S. Securities and Exchange Commission problems with executive travel on company aircraft makes continued use challenging.  The known benefits of business-owned aircraft include security, privacy and efficiency, particularly in light of delays inherent in commercial travel.  This newsletter describes in plain English the basic requirements and strategies for dealing with the myriad rules presented with respect to executive and guest travel on company aircraft, and recommends as a solution the adoption of a carefully drafted executive aircraft use policy.

To read the full article, please click here. 

• Print
• Share Link

by Amy M. Gordon, Susan M. Nash and Jamie A. Weyeneth. 

The Internal Revenue Service recently issued requests for comments in advance of issuing proposed regulations on health care reform reporting and minimum value requirements.

To read the full article, click here. 

• Print
• Share Link

by Joseph S. Adams, Stephen Pavlick and David Diaz

Two years after the Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) jointly issued a high-profile Request for Information regarding how defined contribution plans can better provide lifetime income, the IRS and Department of the Treasury have issued some initial guidance.  DOL guidance, expected to further underscore the importance of the issue, is anticipated “in the near future.”

To read the full article, please click here. 

• Print
• Share Link

by Stephen Pavlick, Daniel Senecoff and Alan Nesburg

Under some defined benefit plans, participants receive a portion of the benefit as an annuity and a portion as a lump sum.  Sponsors of such plans should review the method used for calculating these benefits, particularly annuity benefits, to determine whether the combined value of both portions meets the minimum present value requirements for lump sums.  Recent proposed IRS regulations include an interpretation of current law that may differ from the way some plans have been administered.

To read the full article, click here. 

• Print
• Share Link

by Nancy S. Gerrie and Jeffrey M. Holdvogt

On December 21, 2011, the U.S. Internal Revenue Service (IRS) issued Notice 2012-6, which provides welcome relief for U.S. employers with qualified employee retirement plans that cover Puerto Rico employees. Notice 2012-6 provides that the IRS will extend the deadline for employers sponsoring plans that are tax-qualified only in Puerto Rico (ERISA Section 1022(i)(1) Plans) to continue to pool assets with U.S.-qualified plans in group and master trusts described in Revenue Ruling 81-100 (81-100 group trusts) until further notice, provided the plan was participating in the trust as of January 10, 2011, or holds assets that had been held by a qualified plan immediately prior to the transfer of those assets to an ERISA Section 1022(i)(1) Plan pursuant to a spin-off from a U.S.-qualified plan under Revenue Ruling 2008-40.

Notice 2012-6 also extends the deadline for sponsors of retirement plans qualified in both the United States and Puerto Rico (dual-qualified plans) to spin off and transfer assets attributable to Puerto Rico employees to ERISA Section 1022(i)(1) Plans, with the resulting plan assets considered Puerto Rico-source income and not subject to U.S. tax.

There are now two separate deadlines:

1. First, in recognition of the fact that Puerto Rico adopted a new tax code in 2011 with significant changes to the requirements for qualified retirement plans, the IRS has extended the general deadline to December 31, 2012, for dual-qualified plans to make transfers to Puerto Rico-only plans, in order to give plan sponsors time to consider the effect of the changes made by the new tax code.
2. Second, in recognition of the fact that the IRS has not yet issued definitive guidance on the ability of an ERISA Section 1022(i)(1) Plan to participate in 81-100 group trusts, the IRS has extended the deadline for dual-qualified plans that participate in an 81-100 group trust to some future deadline, presumably after the IRS reaches a conclusion on the ability of a dual-qualified plan to participate in an 81-100 group trust, as described in Revenue Ruling 2011-1.

For more information on the issues related to participation of ERISA Section 1022(i)(1) Plans in 80-100 group trusts, see “IRS Permits Puerto Rico-Qualified Plans to Participate in U.S. Group and Master Trusts for Transition Period, Extends Deadline for Puerto Rico Spin-Offs.”

For more information on the issues plan sponsors should consider with respect to a dual-qualified plan spin-off and transfer of assets attributable to Puerto Rico employees to ERISA section 1022(i)(1) plans, see “IRS Sets Deadline for Transfers from Dual-Qualified to Puerto Rico-Only Qualified Plans.”

• Print
• Share Link

by Ralph E. DeJong, Todd A. Solomon and Patrick D. Ryan

Revenue Procedure 2011-44 modifies the procedures for submitting a private letter ruling request that a retirement plan constitutes a church plan to include a requirement that the applicant provide a notice to certain interested persons. The guidance provides rules regarding the timing and method for providing the notice as well as a Model Notice that applicants can modify as required.

Letter ruling applicants are required to provide a notice to each plan participant, beneficiary, QDRO alternate payee, and any employee organization representing employees who are plan participants (the interested parties). The notice informs recipients that the plan is not protected by ERISA's statutory protections, including eligibility rules, vesting rules and minimum funding requirements.

A request for a letter ruling filed on or after September 26, 2011 must include a copy of the notice along with a statement that the notice was provided interested parties. An applicant whose letter ruling request is pending with the Internal Revenue Service (IRS) on September 26, 2011 must submit by November 25, 2011, a copy of the notice along with a cover letter containing a statement that references the pending request and the date the notice was provided to interested persons. The IRS may consider the letter ruling request as withdrawn if the notice is submitted after the November 25, 2011 deadline. If the applicant fails to submit the notice, the IRS will not rule on the pending request.

Plan sponsors with pending letter ruling requests should provide the notice to interested parties as soon as possible, and provide a copy to the IRS no later than November 25, 2011.

To read the full article, click here.

• Print
• Share Link