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.
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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.
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.
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:
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.
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.
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.
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.
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.
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:
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.”
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.
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