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IRS Announces Employee Benefit Plan Limits for 2015

The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans for 2015. Although many dollar limits currently in effect for 2014 will change, some limits will remain unchanged for 2015.

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View From McDermott: Top IRS and DOL Audit Issues for Retirement Plans

Every year the Internal Revenue Service (IRS) and Department of Labor (DOL) conduct thousands of audits of employee benefit retirement plans.  While IRS audits focus on compliance with the Internal Revenue Code, and DOL audits focus on violations of the Employee Retirement Income Security Act of 1974, as amended (ERISA), a review of these audits over the last five years reveals that auditors at both agencies are increasingly focused on the internal controls employers maintain for their employer benefit plans.

Please click here to read the full article View From McDermott: Top IRS and DOL Audit Issues for Retirement Plans, published by Bloomberg BNA Pension & Benefits Daily on 8/13/14.




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June 30 Deadline Approaches for Mandatory E-File FBAR Reporting

2014 presents particular challenges with respect to FBAR, the Report of Foreign Bank and Financial Accounts, for certain U.S. persons with interests in or signature authority over assets exceeding $10,000 held outside the U.S. in foreign accounts.  The deadline for calendar year 2013 reporting obligations is June 30, 2014, and by then all taxpayers must e-file completed forms using the Bank Secrecy Act (BSA) E-Filing System.  Failure to file the FBAR can result in criminal sanctions.  In addition, failure to file the FBAR can result in civil penalties exceeding 100 percent of the foreign account balance, as recently determined by the Federal District Court in the May 28, 2014, decision inU.S. v. Carl R. Zwerner.

The BSA requires any U.S. person with a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account, exceeding certain thresholds to report the “maximum value of the account” yearly to the Internal Revenue Service (IRS).  This requirement may now only be satisfied by filing electronically a Financial Crimes Enforcement Network (FinCEN) Form 114, FBAR, which replaces Form 90.22-1.  An overview of the FBAR filing requirements is provided by the IRS.  But in summary, an FBAR must be filed by any U.S. person who either owns or has signature authority over a foreign account that, at any point during the year, was valued at or greater than $10,000.  For FBAR purposes, a foreign account includes any account that is held outside the United States, including those at foreign branches of U.S. banks.  For more details regarding the specifics of which accounts must be reported, two prior On the Subject newsletters about FBAR reporting can be found here and here.

FinCEN is attempting to make the new e-filing user friendly.  The mandatory e-filing requirement information, capability to register and to upload completed FBARs, and new Form 114 for those individuals and businesses that must file an FBAR is accessible through the BSA e-file website.

The BSA e-file website allows a taxpayer to either file the Form 114 directly as an “Individual” by uploading a completed file or, alternatively, to fill out Form 114a permitting another party, designated by the BSA system as an “Institution,” to file the Form 114 on his or her behalf.  For example, the new Form 114a may be used by an employer company to file the FBAR as an Institution on behalf of any of its executives who are required to file an FBAR because of non-exempt signatory authority over the employer’s foreign bank accounts.  (Note that FBAR filing by certain individuals with signatory authority but no ownership interest in a foreign account may be deferred until June 30, 2015, pursuant to FinCEN Notice 2013-1.)  For its own FBAR, the employer company may register as an Institution and designate a “Supervisory User,” who has authority to file on behalf of the company and who, [...]

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What You Need to Know About FATCA’s Impact on Non-U.S. Retirement Plans

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.

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IRS Provides Additional Favorable Guidance on Recently Modified Voluntary Classification Settlement Program

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.

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IRS Issues 403(b) Plan Fix-It Guide

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.




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IRS Updates Employee Plans Compliance Resolution System

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.

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New ACA Regulations Address Minimum Essential Coverage and Exemptions

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.




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New Notice Requirements Effective November 1, 2012, for Single Employer Pension Plans with Funding-Related Restrictions

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.

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IRS Eliminates Use of Letter Forwarding Service to Find Missing Participants and Beneficiaries

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.

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