The Internal Revenue Service today released the 2018 dollar limits for retirement plans, as adjusted under Code Section 415(d). We have summarized the new limits (along with the limits from the last few years) in the chart below.

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*For taxable years beginning after 12/31/12, an employer must withhold Additional Medicare Tax on wages or compensation paid to an employee in excess of $200,000 in a calendar year for single/head of household filing status ($250,000 for married filing jointly).

Update: On November 24, 2017, the Department of Labor filed a final rule to delay the applicability date of new disability claims procedures regulation by 90 days, through April 1, 2018.

Plan sponsors are typically forced to wait for last minute guidance to satisfy year-end compliance obligations. As a result, those of us who work with these plans spend the last days of the year frantically ensuring plans are in compliance mode while friends and family ring in the new year with frivolity and festivities. While we can’t guarantee that won’t happen again this year, if it happens to you because you are evaluating the impact of the new disability claim procedures on plans, then shame on you. As discussed below, the information necessary to comply with the new rules is already available. So address these obligations now – then dig out your little-black-dress or tux, and join the year-end frivolity!

The final rule modifying the disability claims procedures, issued late last year, became effective January 18, 2017, and applies to claims for disability benefits which are filed on or after January 1, 2018.  Plan sponsors should identify their claims procedures, plan documents and SPDs that may need to be updated to reflect the new rule. To assist in that endeavor, the key changes implemented by the new rule are summarized below.

1. New Independence and Impartiality Provisions. These new provisions are intended to reduce the possibility of unfair claims review. The change requires that “decisions regarding hiring, compensation,
   

Originally posted on BankBryanCave.com.

Employee Stock Ownership Plans offer an opportunity for banks to offer an attractive employee benefit plan, but can also do so much more.  On the latest episode of The Bank Account, Jonathan and I are joined by Bryan Cave Partner, Steve Schaffer, to discuss the advantages to banks considering implementing an ESOP.

To hear the Bank Account Podcast, please visit here.

Retirement plans are complicated creatures to administer so it perhaps is not surprising that the process of determining the beneficiary of a deceased participant can present its own set of challenges and, if things go awry, expose a plan to paying twice for the same benefit.

These risks were recently highlighted in an 11th Circuit Court of Appeals decision decided in the aftermath of the Supreme Court case of Kennedy v. Plan Administrator for DuPont Savings and Investment Plan.  In that 2009 decision, the Supreme Court ruled that a beneficiary designation naming a spouse had to be given effect even though the spouse had subsequently waived her interest in any of her husband’s retirement benefits in a divorce agreement.

In the 11th Circuit case, Ruiz v. Publix Super Markets, the question was whether a deceased participant’s prior designation of her niece and nephew as beneficiaries would trump the participant’s considerable efforts to change that designation shortly before her death.  In deciding the case upon Publix’s motion for summary judgment, the Court assumed as true statements from the deposition of Arlene Ruiz, the partner of the deceased participant, who was asserting a right to the benefits as the newly intended beneficiary of Ms. Ruiz.  According to the deposition, Ms. Ruiz spoke with a Publix representative who advised her that the beneficiary designation could be changed if the participant wrote a letter and delivered

In today’s virtual world, we suspect most plan sponsors rely upon the self-certification process to document and process 401(k) distributions made on account of financial hardship. The IRS has recently issued examination guidelines for its field agents for their use in determining whether a self-certification process has an adequate documentation procedure.  While these examination guidelines do not establish a rule that plan sponsors must follow, we believe most plan sponsors will want to ensure that their self-certification processes are consistent with these guidelines to minimize the potential for any dispute over the acceptability of its practices in the event of an IRS audit.

The examination guidelines describe three required components for the self-certification process:

(1)        the plan sponsor or TPA must provide a notice to participants containing certain required information;

(2)        the participant must provide a certification statement containing certain general information and more specific information tailored to the nature of the particular financial hardship; and

(3)        the TPA must provide the plan sponsor with a summary report or other access to data regarding all hardship distributions made during each plan year.

The notice provided to participants by the plan sponsor or TPA must include the following:

(i)         a warning that the hardship distribution is taxable and additional taxes could apply;

(ii)        a statement that the amount of the distribution cannot

On January 20, 2017, President Trump signed an executive order entitled “Regulatory Freeze Pending Review” (the “Freeze Memo“).  The Freeze Memo was anticipated, and mirrors similar memos issued by Presidents Barack Obama and George W. Bush during their first few days in office.  In light of the Freeze Memo, we have reviewed some of our recent posts discussing new regulations to determine the extent to which the Freeze Memo might affect such regulations.

The Regulatory Freeze

The two-page Freeze Memo requires that:

1. Agencies not send for publication in the Federal Regulation any regulations that had not yet been so sent as of January 20, 2017, pending review by a department or agency head appointed by the President.
2. Regulations that have been sent for publication in the Federal Register but not yet published be withdrawn, pending review by a department or agency head appointed by the President.
3. Regulations that have been published but have not reached their effective date are to be delayed for 60 days from the date of the Freeze Memo (until March 21, 2017), pending review by a department or agency head appointed by the President. Agencies are further encouraged to consider postponing the effective date beyond the minimum 60 days.

Putting a Pin in It: Impacted Regulations

We have previously discussed a number of proposed IRS regulations which have not yet been finalized.  These include the proposed regulations to

On Friday, President Trump issued an order directing the Department of Labor to review the new regulation to determine whether it is inconsistent with the current administration’s policies and, as it deems appropriate, to take steps to revise or rescind it.

The long awaited Fiduciary Rule expanded protection for retirement investors and included a requirement that brokers offering investment advice in the retirement space put clients’ interests first.  Financial institutions that either implemented, or were rapidly completing, their compliance efforts to comply with the Fiduciary Rule will need to assess the impact of this order on these efforts.  Notwithstanding many earlier reports that the rule would be delayed 180 days, the date on which the rule was to take effect (April 10, 2017) has not been delayed.  However, it is anticipated that a delay will be forthcoming, making the decision whether or not to proceed with further compliance efforts a difficult one.  Many of those institutions may choose to implement only certain aspects of the Fiduciary Rule, while delaying complying with other aspects of that rule, pending the results of the DOL review.

Some have speculated that regardless of whether the Fiduciary Rule is finally made effective, compliance with the Fiduciary Rule could become the new “best practice” model; however, it is unlikely that financial institutions will voluntarily assume most of the obligations and resulting exposure of serving retirees in a fiduciary capacity.

Last week, the Department of Labor (DOL) released adjusted penalty amounts which are effective for penalties assessed on or after January 13, 2017, whose associated violations occurred after November 2, 2015.  You might remember that these penalties were just adjusted effective August 1, 2016 (also for violations which occurred after November 2, 2015); however, the DOL is required by law to release adjusted penalties every year by January 15th, so you shouldn’t be surprised to see these amounts rise again next year.

All of the adjusted penalties are published in the Federal Register, but we’ve listed a few of the updated penalty amounts under the Employee Retirement Income Security Act of 1974 (ERISA) for you below:

General Penalties

• For a failure to file a 5500, the penalty will be $2,097 per day (up from $2,063).
• If you don’t provide documents and information requested by the DOL, the penalty will be $149 per day (up from $147), up to a maximum penalty of $1,496 per request (up from $1,472).
• A failure to provide reports to certain former participants or failure to maintain records to determine their benefits remained stable at $28 per employee.

Pension and Retirement

• A failure to provide a blackout notice will be subject to a $133 per day per participant penalty (up
  

On 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 QNEC or QMAC.

The proposed regulations provide that amounts used to make these contributions must satisfy the vesting requirements and distribution requirements applicable to 401(k) contributions when they are allocated to participants’ accounts rather than when they are contributed to the plan.  The regulations are only proposed, but the IRS has said taxpayers may rely on them.  If the final regulations turn out to be more restrictive, then those restrictions will only apply after the regulations are finalized.

Going forward, plan sponsors wishing to apply amounts held in forfeiture accounts to fund QNECs and QMACs under the 401(k) plan should

It 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 to ensure independence and impartiality of reviewers.
• Claim denials for disability benefits have to include additional information, including a discussion of any disagreements with the views of medical and vocational experts and well as additional internal information relied upon in denying the claim. In particular, the DOL made it clear in the preamble that a plan cannot decline to provide internal rules, guidelines, protocols, etc. by claiming they are proprietary.
• Notices have to be provided in a “culturally and linguistically appropriate manner.” The upshot of this is that, if the claimant lives in a county where the U.S. Census Bureau