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Undermining the Goal of Expanding Coverage for Nonhighly Compensated Employees

Piggy Bank in CrosshairsOne might be led to believe that the current administration is in favor of expanding retirement savings opportunities. After all, the DOL has somewhat apologetically subverted ERISA to allow the States to sponsor employer-based savings plans.  And the President’s recently proposed budget endeavors to provide a national retirement savings program. (See page 135 of the General Explanations of the Administration’s Fiscal Year 2017 Revenue Proposals) So why then would the IRS reverse two decades of regulation that favors cross-tested plans in small businesses, an action that might cause many small employers to terminate their qualified plans or amend them to reduce the employer contribution to employee’s accounts?

Some background may be in order. Cross-tested defined contribution plans are allowed to test equivalent benefit accrual rate (EBAR) groups separately using the ratio percentage test or the average benefits test. Unlike testing for coverage, application of the average benefits test here does not include testing for a reasonable business classification. This has permitted cross-tested plans to create small rate groups each of which meets the modified average benefits test and permits greater relative nonelective contribution (NEC) amounts for HCEs. Typically, the average benefits test for cross-testing finds that the EBARs for HCEs are the same or less than the EBARs for NHCEs.

Do You Know Where Your Participants Are?

Missing ParticipantThe Department of Labor (“DOL”) has recently implemented an initiative to investigate the manner in which defined benefit plans of large employers comply with the required minimum distribution rules set forth in Section 401(a)(9) of the Internal Revenue Code (“Code”). The initiative is focused on the extent to which large employers have processes in place to (i) locate missing plan participants, (ii) inform deferred vested participants that a benefit is payable, and (iii) commence benefit payments in a timely fashion by each participant’s “required beginning date” (generally, the April 1 following the later of the calendar year in which the participant reaches age 70½ or the calendar year in which the participant terminates employment).

In light of the DOL’s audit initiative, employers will want to assure that they have procedures in place to (i) locate missing plan participants, (ii) inform terminated vested participants regarding their right to elect benefits, and (iii) commence benefit payments on or before each participant’s required beginning date. In addition, employers will want to confirm that such procedures are consistently followed in practice, and that documentary evidence regarding compliance is being maintained and preserved. For example, employers will want to retain evidence of all certified mailings to terminated vested participants and lost participants, as well as efforts made through locator services to locate lost participants.

Outside

Payroll and HR Professionals Beware: Phishing Schemes are now Trying to Lure You

March 7, 2016

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ThinkstockPhotos-465512675 (2)ALERT, ALERT!!!! The IRS has renewed a consumer alert for e-mail schemes regarding phishing and malware incidents targeted at individuals. That renewal came after an approximate 400 percent surge in such incidents so far this tax season. The 400 percent surge was not the end of the phishing schemes this tax season, and now a phishing scheme is emerging to target payroll and HR.

The IRS has also issued a second alert to warn about additional scams this tax season which are designed to trick HR and payroll professionals to provide personal information on employees. Unlike prior scams, the e-mails are no longer just designed to trick taxpayers into thinking the IRS is attempting to contact them for personal information. This latest phishing scheme is a variation known as a “spoofing” e-mail crafted to look as though it came from within the company being targeted – e.g., company executives.

A common example described in the most recent alert indicates that the e-mail will use the actual name of the company chief executive officer so that the email appears to be from the “CEO” to a company payroll office employee. The “CEO” will ask that the employee provide a variety of personal information for “review”. Some of the reported requests include:

  • Kindly send me the individual 2015 W-2 (PDF) and earnings summary of all W-2 of our company

The President’s Benefits Budget Proposals

ThinkstockPhotos-122516159A few weeks ago, the President released his proposed budget for the fiscal year 2017. As usual, it is dense. However, the President has suggested some changes to employee benefits that are worth noting. While they are unlikely to get too much traction in an election year, it is useful to keep them in mind as various bills wind their way through Congress to see what the President might support.

  • Auto-IRAs. Stop us if you’ve heard this one before. The proposal would require every employer with more than 10 employees that does not offer a retirement plan to automatically enroll workers in an IRA. No employer contribution would be required and, of course, individuals could choose not to contribute. (In case you’ve forgotten, we’ve seen this before.)
  • Tax Credits for Retirement Plans. Employers with 100 or fewer employees who “offer” an auto-IRA (note the euphemistic phrasing in light of the first proposal) would be eligible for a tax credit up to $4,500. The existing startup credit for new retirement plans would also be tripled. Small employers who have a plan, but add automatic enrollment would also be eligible for a $1,500 tax credit.
  • Change in Eligibility for Part-Timers. The budget would require part-time workers who work 500 hours per year for three consecutive years to be made eligible for a retirement plan.
  • Spending Money to Help Save Money. The President proposes to set
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