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Now You Can Be Up to Your QNEC in Forfeitures

Money in basket. Isolated over whiteOn January 18, 2017, the IRS issued proposed regulations allowing amounts held as forfeitures in a 401(k) plan to be used to fund qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs). This sounds really technical (and it is), but it’s also really helpful.  Some plan sponsors of 401(k) plans use additional contributions QNECs and/or QMACs to satisfy nondiscrimination testing.  Before these proposed rules, they could not use forfeitures to fund these contributions because the rules required that QNECs and QMACs be nonforfeitable when made (and also subject to the same distribution restrictions as 401(k) contributions).  If you have money sitting in a forfeiture account, then by definition it was forfeitable when made, so that money couldn’t possibly have been used to fund a

ACA Facelift to Disability Claims Process Could Affect All Plans

claimIt might be tempting to conclude that the recent Department of Labor regulations on disability claims procedures is limited to disability plans.  However, as those familiar with the claims procedures know, it applies to all plans that provide benefits based on a disability determination, which can include vesting or payment under pension, 401(k), and other retirement plans as well. Beyond that, however, the DOL also went a little beyond a discussion of just disability-related claims.

The New Rules

The new rules are effective for claims submitted on or after January 1, 2018. Under the new rules, the disability claims process will look a lot like the group health plan claims process.  In short:

  • Disability claims procedures must be designed

SEC Guidance on Registration of 401(k) Plan Interests when Brokerage Windows are Offered

secThe Securities Act of 1933 prohibits the offer or sale of securities unless either a registration statement has been filed with the SEC or an exemption from registration is applicable. Although most qualified plan interests qualify for an exemption from the registration requirement, offers or sales of employer securities as part of a 401(k) plan generally will not qualify for such an exemption.  Accordingly, 401(k) plans with a company stock investment option typically register the shares offered as an investment option under the plan using Form S-8.

On September 22, 2016, the SEC released a Compliance and Disclosure Interpretation addressing the application of the registration requirements to offers and sales of employer securities under 401(k) plans that (i) do not include a company securities fund but (ii) do allow participants to select

2017 Qualified Plan Limits Released

The IRS recently released updated limits for retirement plans.  Our summary of those limits (along with the limits from the last few years) is below.

Type of Limitation 2017 2016 2015 2014 Elective Deferrals (401(k), 403(b), 457(b)(2) and 457(c)(1)) $18,000 $18,000 $18,000 $17,500 Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans (457(b)(3) and 402(g) provide separate catch-up rules to be considered as appropriate) $6,000 $6,000 $6,000 $5,500 SIMPLE 401(k) or regular SIMPLE plans, Catch-Up Deferrals $3,000 $3,000 $3,000 $2,500 415 limit for Defined Benefit Plans $215,000 $210,000 $210,000 $210,000 415 limit for Defined Contribution Plans $54,000 $53,000 $53,000 $52,000 Annual Compensation Limit $270,000 $265,000 $265,000 $260,000 Annual Compensation Limit for Grandfathered Participants in Governmental Plans Which Followed 401(a)(17) Limits (With Indexing) on July 1, 1993 $400,000 $395,000 $395,000 $385,000 Highly Compensated Employee 414(q)(1)(B) $120,000 $120,000 $120,000 $115,000 Key employee in top heavy plan (officer) $175,000

IRS Overhauls the Retirement Plan Correction Program

IRS Overhauls the Retirement Plan Correction Program

October 20, 2016

Authored by: Katharine Finley and benefitsbclp

old-way-new-wayWith the looming end of the determination letter program as we know it, the IRS has issued an updated Revenue Procedure for the Employee Plans Compliance Resolutions System (EPCRS). Released on September 29, 2016, Rev. Proc. 2016-51 updates the EPCRS procedures, replaces Rev. Proc. 2013-12 and integrates the changes provided in Rev. Proc. 2015-27 and Rev. Proc. 2015-28. The updated revenue procedure is effective January 1, 2017 and its provisions cannot be used until that date. Rev. Proc. 2013-12, as modified by Rev. Proc. 2015-27 and Rev. Proc. 2015-28, should be used for any corrections under the EPCRS for the remainder of 2016. Highlights from the new revenue procedure are outlined below.

Changes

  • Determination Letter Applications. Determination letter applications are no longer

PBGC Proposed Rule May Offer DC Plans New Tool for Finding Missing Participants

where-are-youFor many years, the PBGC has been helping reunite missing participants with their benefits under single-employer defined benefit plans. Now, a new PBGC proposed rule may open up the program to missing participants under other terminated plans.

Under this proposed rule, terminated defined contributions plans may choose to transfer benefits of missing participants to the PBGC or to establish an IRA to receive the transfer and send information to the PBGC about the IRA provider.   The PBGC will attempt to locate the missing participants and add them to a searchable database. The PBGC notes that once the program is established, it may issue guidance making the reporting requirement mandatory for defined contribution plans as authorized under section 4050 of ERISA.

The PBGC will accept the transfer of accounts of

Kübler-Ross and IRS Announcement 2016-32

griefWhen the IRS announced that it would virtually eliminate the determination letter program for individually designed retirement plans, many practitioners moved through the classic Kübler-Ross five stages of grief (see the picture at the right).  Some have yet to finish.  In Announcement 2016-32, the IRS requested comments on how these plans can maintain compliance going forward since determination letters are no longer available.

As a general rule, the IRS used to deny plans the ability to incorporate tax code provisions by reference (rather than reciting them wholesale in the plan), except for a very short list available here.  The IRS is asking if there are additional provisions that would also be appropriate to incorporate by reference.  This would avoid the need to reproduce these provisions wholesale and run the risk of

I Know My Rollover is Late, but It’s Okay. Trust Me.

certified-with-ink-padAs retirement plan professionals know, certain distributions from plans and IRAs to taxpayers can be rolled over to another plan or IRA within 60 days. Of course, sometimes 60 days is just not enough and the IRS recognizes that, having permitted a seemingly innumerable number of private letter rulings granting extensions.  These often occur where a financial advisor gave bad advice or made some kind of mistake or where some tragedy worthy of a blues or country song (or worse) befell the taxpayer that made it impossible to complete the rollover in 60 days.

The IRS has had a small cottage industry the last decade or so of granting private letter rulings extending the 60-day period for these rollovers.  But now, they’ve decided to let plans and IRAs just take the taxpayer’s word

Update on the Apparent Demise of the Determination Letter Program

IRSAs we previously reported, the IRS had said last year that determination letter program for retirement plans would largely be going away. Rev. Proc. 2016-37 includes information with respect to the future of the determination letter program.  As highlighted in a recent IRS webcast, a noteworthy development is that “subject to IRS resources” that post-initial determination letters may be available after 2017 in specified circumstances:

(1) significant law changes,

(2) new plan designs, and

(3) Plan types that can’t convert to a pre-approved format.

Number 3 means complex plans that do not fit on a pre-approved document may, ‘subject to IRS resources’ as published annually, be able to be submitted for a ruling under the determination letter program.  Therefore, complex individually designed plans may still have hope that the IRS will

Penalty Amounts Get Adjustment (Upward, of Course)

PenaltyThe Department of Labor (DOL), along with several other federal agencies, recently released adjusted penalty amounts for various violations. The amounts had not been adjusted since 2003, so there was some catching up to do, as required by legislation passed late last year.

These new penalty amounts apply to penalties assessed after August 1, 2016 for violations that occurred after November 2, 2015 (which was when the legislation was passed). Therefore, while the penalty amounts aren’t effective yet, they will be very soon and they will apply to violations that may have already occurred.  Additionally, per the legislation, these amounts will be subject to annual adjustment going forward, so they will keep going up.

The DOL released a Fact Sheet with

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