On Saturday, the Senate passed its version of the Tax Cuts and Jobs Act. The process of reconciling the House and Senate versions of the bill has already begun in earnest. Currently, the retirement-plan-related changes included in each version of the bill still differ in many respects, and it is unclear which (if any) changes will be included in the final bill. As a result, with only a few weeks left until the holiday recess, a clear picture of the potential impact of tax reform on retirement plan sponsors has yet to emerge.
Through a series of recent settlements, the US Department of Labor has outlined the process steps fiduciaries should follow in connection with a transaction involving a purchase from, or sale to, an employee stock ownership plan.
The US Department of the Treasury recently issued guidance that retirement plan sponsors should consider as part of their obligation to take reasonable steps to locate missing participants. Specifically, the Treasury issued a memorandum which sets forth guidelines that prohibit auditors from challenging qualified plans as failing to satisfy the required minimum distribution standards under Internal Revenue Code (IRC) Section 401(a)(9) if the plan has fulfilled all of the following with respect to participants that cannot be located:
- Searched for alternative contact information in plan, plan sponsor and publicly available records for directories;
- Used a commercial locator service, credit reporting agency or a proprietary internet search tool for locating individuals; and
- Sent mail via United States Postal Service (USPS) certified mail to the last known mailing address and attempted contact “through appropriate means for any address or contact information,” which includes email addresses and telephone number.
The Treasury guidance is similar to, but also expands upon, prior guidance provided by the US Department of Labor, which addresses locating missing participants for terminated retirement plans.
Locating missing participants and beneficiaries can be challenging for plan sponsors. Many plan sponsors find that they are unable to locate participants who left employment many years prior and, as a result, are unable to make required minimum distributions. Both the IRS and Department of Labor have stepped up their enforcement of these requirements in recent years. In particular, the Department of Labor has made locating missing participants an enforcement priority for plan audits.
The US House of Representatives Committee on Ways and Means proposed Tax Cuts and Jobs Act intends to reduce corporate and individual tax rates. To pay for the proposed changes, the House Tax Bill would, if enacted, negatively impact long-standing current executive compensation practices.
At the 36th Annual ISCEBS Symposium, Todd Solomon presented best practices for plan fiduciaries to avoid 401(k) plan and 403(b) plan class action lawsuits. Todd discussed fiduciary responsibilities under ERISA as well as potential consequences of breaching fiduciary responsibilities. He highlighted notable cases brought against plan fiduciaries, including those that allege excess plan fees. Todd discussed the need for rigorous monitoring and documentation of the review process.
Mary Samsa and Allison Wilkerson discussed that the majority of ERISA disclosures are in fact employee communications – many of which are viewed as “routine” by employers. As such, plan sponsors are continually balancing the best way in which to relay complex benefit plan information in a manner to best be understood by employees but equally satisfy the applicable regimented disclosure requirements. Some key takeaways from their presentation included not only the compliance and content requirements, but methods for delivering communications to employees, traps for the unwary (i.e., inconsistent information communicated, the advantage of having these communications reviewed by legal counsel, and oversight of third parties who assist in preparing communications) and some common sense approaches for routine reviews of communications and continuing education to participants so that periodic communications are not always monumental tasks.
Since the announcement by the Internal Revenue Service (IRS) that sponsors of individually designed retirement plans may no longer receive a periodic determination letter, plan sponsors have faced uncertainty about how to demonstrate compliance for their retirement plans. Our McDermott Retirement Plan Compliance Program, a new opinion letter and operational review program for individually designed 401(a) and 403(b) retirement plans, will allow plan sponsors to document their plans’ compliance with tax code requirements in response to the curtailment of the IRS’ determination letter program.
According to U.S. News & World Report, estimates for the cost of Hurricane Harvey’s damage have come in as high as $190 billion, and damage estimates for Hurricane Irma are still rolling in but range up to $100 billion. To assist taxpayers affected by these devastating storms, the Internal Revenue Service, Department of Labor, and Pension Benefit Guaranty Corporation have granted multiple forms of relief to taxpayers impacted by Hurricane Harvey, Hurricane Irma, and other disasters enumerated by the Federal Emergency Management Agency.
The Internal Revenue Service (IRS) recently extended the temporary nondiscrimination relief for closed defined benefit plans. This extended relief is intended to enable closed pension plans (defined as pension plans that have been closed to new participants but continue to provide ongoing benefit accruals for certain participants) to more easily satisfy certain nondiscrimination testing requirements. In most cases where the relief applies, the closed defined benefit plan is aggregated with a defined contribution plan to satisfy the nondiscrimination testing requirements, and the relief assists the aggregated plan in passing nondiscrimination requirements that apply to accrued benefits and to certain rights and features relating to those benefits.
The original nondiscrimination testing relief for closed pension plans was provided several years ago in an earlier IRS Notice. This relief was already extended on two prior occasions, and the recent IRS Notice further extends the relief until the end of plan years that begin before 2019, as long as the conditions of the original IRS Notice continue to be satisfied. In 2018, the IRS also intends to issue final regulations under Section 401(a)(4) of the tax code that address the nondiscrimination requirements for closed pension plans. Until then, the IRS indicated that plan sponsors can still rely on the proposed 2016 IRS regulations under Section 401(a)(4) for plan years that begin before 2019.
The Internal Revenue Service and the Department of Labor relaxed some deadlines for eligible employee benefit plans and expanded the availability of withdrawals and loans for eligible defined contribution plan participants in the disaster area. However, the Pension Benefit Guaranty Corporation announced that some of its required filings will not be extended automatically.