Sobel & Co.’s Employee Benefit Plan Practice is sending you this summary of recent Internal Revenue Service (IRS) changes and proposed changes as well as changes proposed by the Department of Labor (DOL) to employee benefits to provide you with some key insights and information that is relevant for you as a business owner, CFO, Plan Sponsor or Plan Administrator. After reviewing this, if you have any questions, I encourage you to call us at 973-994-9494 or emailing elizabeth.harper@sobel-cpa.com or Kenneth.bagner@sobel-cpa.com.

  1. Changes to the Determination Letter Program for Tax-Qualified Retirement Plans

The IRS announced that as of January 1, 2017 it will eliminate the current staggered five year determination letter program for individually designed tax-qualified retirement plans and as of six months ago in July 21, 2015, it stopped accepting off-cycle determination letter applications except in the case of a new or terminating plan.

What does this mean for you? The change in the determination letter program means that sponsors of individually designed plans will only be permitted to submit applications for determination letters for initial plan qualifications and upon the plan’s termination – except in the case of Cycle E filers who will have until January 31, 2-16 and Cycle A filers who will have from February 1, 2016 until January 31, 2017 to file on- cycle determination letter applications.

The elimination of the five year remedial amendment cycles means the extended remedial amendment period will cease being available on December 31, 2016 while the general rules under Sec. 401 (b) which permits certain retroactive plan amendments, will continue to apply. Despite the announced changes, the IRS will extend the remedial amendment period for individually designed plans to a date no earlier than December 31, 2017.

The IRS is considering ideas to make it easier for plan sponsors to comply with qualified plan document requirements, so stayed tuned and we will keep you informed as these are confirmed.

  1. Department of Labor Proposes to Redefine Fiduciary Investment Advice and Update Class Exemptions

The U.S. Department of Labor (DOL) has now proposed regulations that will redefine who is termed as a “fiduciary.”

What does this mean for you? The suggested new definition is intended to protect plan participants from conflicts of interest which do not have to be disclosed under existing rules and it exempts general educational information for the definition of fiduciary investment advice. The proposed rule would require financial advisors, planners, brokers, asset or investment managers and other similar persons to adhere to ERISA’s fiduciary standards and prohibited transaction exemption requirements, make certain related disclosures and generally act in their clients’ best interests. This definition applies to any individual who is directly or indirectly compensated for providing individualized advice or advice that is directed to a particular plan sponsor, participant, or IRA owner for purposes of making retirement investment decisions. The DOL has also proposed several new transaction exemptions intended to provide relief for many common types of transactions and in addition has released proposed modifications to several existing class exemptions commonly relied on by advisors and financial institutions. If and when these proposal are accepted, we will alert you immediately.

  1. IRS Notice Prohibits Offering Lump Sums to Retirees in Pay Status

The IRS has announced that it intends to propose an amendment to the required minimum distribution regulations under Sec. 401 (a)(9)to prohibit defined benefit plans from replacing an annuity currently being paid with a lump sum or other accelerated distribution. Further, the amendment will provide that the types of permitted benefit increases described in the regulation include only those that increase the ongoing annuity payments and do not include those that accelerate the annuity payments.

What does this mean for you? The amendments to the regulations are to apply as of July 9, 2015 except for any de-risking program:

  • That was adopted or specifically authorized by a board, committee, or similar body with authority to amend the plan prior to July 9, 2015

  • That was the subject of a private letter ruling or determination letter issued by the IRS prior to July 9, 2015

  • If plan participants were officially notified about the lump sum risk transferring program prior to the July 9, 2015 or

  • That was adopted pursuant to an agreement between the plan sponsor and the labor union specifically authorizing a lump sum window that was entered into and was binding prior to July 9, 2015

Other provisions remain undecided – but as soon as details are finalized we will provide you with the updates.

  1. Updated Employee Plans Compliance Resolution System Procedures

In March 2015, the IRS released Rev. Proc. 2015-27 which clarifies certain previous correction rules for overpayments of plan benefits, making minor clarifications and modifications to current Employee Plans Compliance Resolution Systems (EPCRS) procedures. Notice please that these modify but do not replace Rev. Proc. 2013-12.

What does this mean for you? These updates clarify that plan sponsors have flexibility in correcting overpayment failures. So, plan sponsors may not always have to request that a participant or beneficiary return an overpayment. What can occur instead is correcting an overpayment resulting from a benefit calculation error may include having the employer or another person contribute the overpayment amount – with interest - rather than seeking repayment from the affected participants and beneficiaries. The correction might also include a plan sponsor adopting a retroactive amendment to confirm the plan document to operations. No matter what, the correction must be consistent with the EPCRS’s generally applicable correction principles.

Within days of issuing Rev. Proc. 2015-27 the IRS immediately released Rev. Proc. 2015-28 adding several new safe harbor correction methods applicable to overpayments. Specifically, Rev. Proc. 2015-28 adds new safe harbor correction methods for employee elective deferral failures in Sections 401(k) and 403(b) plans including failures to implement automatic enrollment or automatic increases in accordance with a plan’s terms and participant’s elections and improper exclusions from plan participation. Under these new safe harbor correction methods, an employer can correct failures to follow 401(k) or 403(b) plan’s automatic enrollment terms and failures to apply an employee’s affirmative election with less financial cost, if certain conditions are satisfied. Each correction method requires the employer to make corrective contributions (adjusted for earnings) to make up for any missed matching corrections and also requires that employers provide employees notice not later than 45 days after the correct deferrals begin.

Under these new correction methods, no qualified non-elective contribution (QNEC) for missed elective deferrals is required if the affected employee’s correct deferrals begin on or before the first pay date occurring on or after the three month period following the date the failure first occurred with respect to the affected employee or, if earlier, the first pay date on or after the last day of the month following the month the employee notifies the employer of the failure.

Alternate methods for calculating earnings for missed elective deferrals under automatic contribution features, including a simplified earnings calculation method, are designed to encourage employers to take quick action to correct employee elective deferral failures.

In Conclusion

This summary covers just some of the most important changes that have been announced or proposed by the IRS and DOL. For details on how these may impact your specific situation, please feel free to call us, Elizabeth Harper and Ken Bagner, at 973-994-9494.