Articles Posted in Employee Benefits

Following yesterday’s blog, here is what the IRS says on correcting common hardship distribution errors:

Sometimes, plan sponsors don’t follow the terms of their plan document when it comes to hardship distributions. Some of the most common errors are:

  1. making hardship distributions even though they aren’t permitted by the plan document,

Here is what the IRS says in this guidance:

Although not required, a retirement plan may allow participants to receive hardship distributions. A distribution from a participant’s elective deferral account can only be made if the distribution is both:

  • Due to an immediate and heavy financial need.

The IRS has issued Revenue Procedure 2016-47 (the “Rev. Proc.”), which provides guidance concerning waivers of the 60-day rollover requirement contained in sections 402(c)(3) and 408(d)(3) of the Internal Revenue Code (the “Code”). Specifically, the Rev. Proc. provides for a self-certification procedure (subject to verification on audit) that may be used by a taxpayer claiming eligibility for a waiver under Code section 402(c)(3)(B) or 408(d)(3)(I) with respect to a rollover into a plan or individual retirement arrangement (an “IRA”). It provides that a plan administrator, or an IRA trustee, custodian, or issuer, may rely on the certification in accepting and reporting receipt of a rollover contribution. It also modifies Rev. Proc. 2003-16 by providing that the IRS may grant a waiver during an examination of the taxpayer’s income tax return. An appendix in the Rev. Proc. contains a model letter that may be used for self-certification.

The IRS discussed the Rev. Proc. in IR-2016-113, August 24, 2016. There, the IRS says the following:

The IRS today provided a self-certification procedure designed to help recipients of retirement plan distributions who inadvertently miss the 60-day time limit for properly rolling these amounts into another retirement plan or IRA. In the Rev. Proc., posted today on, the IRS explained how eligible taxpayers, encountering a variety of mitigating circumstances, can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes. In addition, the Rev. Proc. includes a sample self-certification letter that a taxpayer can use to notify the administrator or trustee of the retirement plan or IRA receiving the rollover that they qualify for the waiver. Normally, an eligible distribution from an IRA or workplace retirement plan can only qualify for tax-free rollover treatment if it is contributed to another IRA or workplace plan by the 60th day after it was received. In most cases, taxpayers who fail to meet the time limit could only obtain a waiver by requesting a private letter ruling from the IRS. A taxpayer who missed the time limit will now ordinarily qualify for a waiver if one or more of 11 circumstances, listed in the Rev. Proc., apply to them. These circumstances include a distribution check that was misplaced and never cashed, the taxpayer’s home being severely damaged, the death of a family member, the serious illness of the taxpayer or a family member was seriously ill, the taxpayer was incarcerated or restrictions were imposed by a foreign country.

In  Rabinek v. United Bhd. Of Carpenters Pension Fund, No. 15-1717 (7th Cir. 2016), the situation was as follows. William Rabinak had worked full-time as a business representative for the Chicago Regional Council of Carpenters. By virtue of his position, he also served on the Council’s Executive Board. Rabinak received quarterly payments of $2,500 for his service on the Board. The Council made these quarterly payments in checks separate from those for Rabinak’s weekly salary.

When he retired, Rabinak qualified for a pension benefit from the United Brotherhood of Carpenters Pension Fund (the “Fund”). However, when he received the calculation of his pension benefit, he thought something was off. The annual salaries listed did not appear to take into account the $2,500 quarterly payments for serving on the Executive Board. Rabinak appealed and maintained that those payments should have been taken into account in the calculation. The Fund’s appeals committee denied his appeal.

Upon reviewing the case, the Seventh Circuit Court of Appeals (the “Court”) said the following. Controlled as we are by a standard of review that asks only whether the defendant’s decision was arbitrary and capricious, we affirm the denial by the Fund’s appeals committee. The Fund’s definition of compensation includes only “salary,” and the $2,500 quarterly payments for Board service were paid separately from Rabinak’s weekly salary payments and coded differently as well. The conclusion that the payments at issue were not salary payments under this particular Fund was not arbitrary and capricious.

IRS Health Care Tax Tip 2016-65, August 17, 2016  says the following:

In general, under the employer shared responsibility provisions of the Affordable Care Act, an applicable large employer may either offer affordable minimum essential coverage that provides minimum value to its full-time employees and their dependents or potentially owe an employer shared responsibility payment to the IRS.

Here is information to help you understand affordable coverage and minimum value coverage.

In a note provided by the IRS, the IRS provides guidance on correcting required minimum distribution failures. Here is what the IRS says.

Plan sponsors can use the Employee Plans Compliance Resolution System (Rev. Proc. 2013-12, as modified) to voluntarily correct the mistake of not making required minimum distributions (RMDs) under Internal Revenue Code Section 401(a)(9) to affected participants and beneficiaries.

Self Correction Program (SCP) – Depending on the specific plan circumstances, you can use SCP to correct a RMD failure even if the plan is under an Employee Plans examination. However, the participant-owed excise tax under IRC section 4974 can’t be waived under the SCP.

An annual fee to help pay for the Patient-Centered Outcomes Research Institute (“PCORI”) is imposed by the Affordable Care Act (the “ACA”) on issuers of specified health insurance policies and sponsors of self-insured health plans. In the case of a self-insured multiemployer plan, the sponsor is normally the Board of Trustees which administers the plan and manages its assets.

The payment of the fee must be accompanied by a tax return, Form 720, Quarterly Excise Tax Return (Second Quarter). This form and its instructions are here and here.  The payment may, but need not, be made electronically, through the Electronic Federal Tax Payment System. Similarly, the Form 720 may, but need not, be filed electronically.

This year, the fee and return are due by August 1, 2016. The fee generally applies to major medical coverage. It does not apply to dental and vision coverage which are excepted benefits. For more information on whether a type of insurance coverage or arrangement is subject to the fee, see this Chart.

The New Rev. Proc. The IRS has issued Rev. Proc. 2016-37, its periodic update on the determination letter program for qualified retirement plans. But this year there is a twist-as announced last year, in IRS Announcement 2015-19, the IRS is curtailing the program for individually designed plans. Rev. Proc. 2016-37 summarizes the new rules for individually designed plans as follows.

The New Rules.

–Consistent with IRS Announcement 2015-19, this revenue procedure eliminates, as of January 1, 2017, the staggered five-year remedial amendment cycle system for individually designed plans, currently set forth in Rev. Proc. 2007-44. However, sponsors of Cycle A plans (that is, generally, plan sponsors with employer identification numbers ending in 1 or 6) will continue to be permitted to submit determination letter applications during the period beginning February 1, 2016, and ending January 31, 2017.

The U.S. Department of Labor (the “DOL”) has issued a new FAQ (Part 32), to provide guidance on the Notice of Coverage Options required in accordance with COBRA and the Affordable Care Act (the “ACA”). Here is what the FAQ says:

Notice of Coverage Options – COBRA and Health Insurance Marketplace Coverage

The ACA Health Insurance Marketplaces (the “Marketplaces”) are designed to ensure that individuals and small businesses have access to affordable coverage through a competitive private health insurance market. The Marketplaces offer “one-stop shopping” to assist individuals in finding, comparing and enrolling in private health insurance options. In general, under the COBRA continuation coverage provisions, an individual who was covered by a group health plan on the day before a qualifying event (such as termination of the covered employee’s employment, divorce, or a dependent aging out of a plan, if the event causes a loss of coverage) may be able to elect COBRA continuation coverage upon experiencing the qualifying event. Individuals with such a right are called qualified beneficiaries. A group health plan must provide qualified beneficiaries with a COBRA election notice that, among other things, describes their rights to COBRA continuation coverage and how to make a COBRA coverage election.

In IRS Health Care Tax Tip 2016-57, June 22, 2016, self-insured employers, applicable large employers and health coverage providers are reminded that the June 30 deadline to electronically file information returns with the IRS is approaching. The Tax Tip and the helpful information therein is here.