In Retirement News for Employers, April 2, 2015 Edition, the IRS provides guidance on keeping records for hardship withdrawals and plan loans. The guidance is here.
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In Retirement News for Employers, April 2, 2015 Edition, the IRS provides guidance on keeping records for hardship withdrawals and plan loans. The guidance is here.
As appropriate for this time of year, in Retirement News for Employers, April 2, 2015 Edition, the IRS discusses IRA contribution limits. This discussion is here.
Employee Plans-IRS Discusses How A Self-Employed Individual Should Calculate His Or Her Retirement Plan Contribution And Deduction
In Retirement News for Employers, April 2, 2015 Edition, the IRS discusses how a self-employed individual should calculate his or her retirement plan contribution and deduction. This discussion is here.
Employee Plans-IRS Discusses Correction Of A Violation Of The Universal Available Rule For 403(b) Plans
In Retirement News for Employers, April 2, 2015 Edition, the IRS discusses how you may correct the mistake of excluding eligible employees from your 403(b) plan, that is, correction of a violation of the universal available rule that applies to 403(b) plans. This discussion is here.
In FAQs about Affordable Care Act Implementation (Part XXIV), the Employee Benefits Security Administration (the "EBSA") discusses the intention of the Departments (namely, the Department of Labor, the Department of Health and Human Services, and the Treasury), who are responsible for the rules governing the summary of benefits and coverage (the "SBC"), to finalize certain changes relating to the SBCs. Here is what the EBSA said:
SBC Guidance In General. Public Health Service ("PHS") Act section 2715, as added by the Affordable Care Act and incorporated by reference into ERISA and the Internal Revenue Code, directs the Departments to develop standards for use by a group health plan in compiling and providing an SBC that "accurately describes the benefits and coverage under the applicable plan or coverage." On February 14, 2012, the Departments published joint final regulations to implement the disclosure requirements under PHS Act section 2715 and an accompanying document announcing the availability of templates, instructions, and related materials. After the 2012 final regulations were published, the Departments released six sets of FAQs regarding implementation of the SBC requirements. After consideration of the comments and feedback from interested stakeholders, on December 30, 2014, the Departments published a notice of proposed rulemaking, as well as a new set of proposed SBC templates, instructions, an updated uniform glossary, and other materials.
Upcoming Changes. The Departments intend to finalize changes to the regulations in the near future, which are intended to apply in connection with coverage that would renew or begin on the first day of the first plan year that begins on or after January 1, 2016 (including open season periods that occur in the Fall of 2015 for coverage beginning on or after January 1, 2016).
The Departments also intend to utilize consumer testing and offer an opportunity for the public, including the National Association of Insurance Commissioners, to provide further input before finalizing revisions to the SBC template and associated documents. The Departments anticipate the new template and associated documents will be finalized by January 2016 and will apply to coverage that would renew or begin on the first day of the first plan year that begins on or after January 1, 2017 (including open season periods that occur in the Fall of 2016 for coverage beginning on or after January 1, 2017).
The Departments are fully committed to updating the template and associated documents (including the uniform glossary) to better meet consumers' needs as quickly as possible.
Employee Benefits-IRS Reminds Us That Expanded Actuarial Certifications For Multiemployer Plans Are Due March 31 (For Calendar Year Plans)
In Employee Plans News, Issue 2015-3, March 25, 2015, the Internal Revenue Service ("IRS") reminds us that expanded annual actuarial certifications for multiemployer plans are due March 31 for calendar year plans. Here is what the IRS says:
The Multiemployer Pension Reform Act of 2014 (MPRA), enacted on December 16, 2014, revised the annual funding certification requirements for multiemployer plans by:
• adding a new zone status, and
• providing special rules for entering into and emerging from certain zones.
The revisions generally apply to certifications for 2015 and subsequent plan years. For calendar year plans, the 2015 certification is due by March 31, 2015. MPRA also amended certain provisions of the Pension Protection Act of 2006 (PPA).
Pension Protection Act changes
MPRA made the following changes for zone certifications:
• Made permanent the annual requirement to certify a plan's funding zone. Before MPRA was passed, the annual certification requirement was scheduled to "sunset" on or after December 31, 2014.
• Election of Critical status: Plans projected to be in Critical status in any of the succeeding five plan years may elect to be in Critical status in the current plan year. Plans may bypass Endangered status by making this election.
• Changes made to emergence from Critical status: This was amended to include a condition for projected insolvency and special rules for plans with automatic amortization extensions.
Zone status changes
MPRA added a new zone status available for a plan actuary's annual certification. MPRA also added special rules allowing a plan to be treated as being in a particular zone when, before enactment, the plan would have been in a different zone. The new zone and special rules are indicated in bold below.
• Neither Endangered nor Critical (new special rule): A plan is treated as Neither Endangered nor Critical if it's projected to be in that status as of the end of the 10th plan year following the current plan year. The plan must not have been in either Critical status or Endangered status in the immediately preceding plan year.
• Seriously Endangered.
• Critical (new special rule): A plan can elect to be treated as Critical if the plan is projected to be in Critical status in any of the succeeding five plan years, but not in Critical status in the current plan year.
• Critical and Declining: This is the new zone status that applies if the plan is in Critical status for the current plan year and is projected to become insolvent in the current year or any of the succeeding 14 plan years. The period in which the plan is projected to become insolvent is extended from 14 plan years to 19 plan years if the ratio of inactive participants to active participants exceeds 2:1, or if the funded percentage is less than 80%.
Email and e-fax available for certifications
Actuaries can submit the Annual Actuarial Certification by email, e-fax or regular mail. Certifications must be filed by 90 days after the beginning of the plan year (March 31, 2015, for calendar year plans). The Employee Plans Compliance Unit (EPCU) doesn't provide return-receipt acknowledgements.
File a certification using only one of the following methods:
• Email: EPCU@irs.gov (Note: IRS cannot guarantee internet security for incoming email submissions)
• E-fax: 855-215-7122
• Mail: Internal Revenue Service, Employee Plans Compliance Unit, Group 7602 (TEGE:EP:EPCU), 230 S. Dearborn Street, Room 1700 - 17th Floor Chicago, IL 60604
EPCU offers more information on submission requirements and the actions taken if certifications are not received.
Employee Benefits-IRS Reminds Us That Many Retirees Face April 1 Deadline To Take Required Retirement Plan Distributions
An Internal Revenue Service ("IRS") Release, dated March 19, 2015, reminds us that many retirees face an April 1 deadline to take required retirement plan distributions. This reminder applies generally to individuals who turned 70½ during 2014. The Release is here.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") discusses the Retirement Savings Contributions Credit ( sometimes called the Saver's Credit). What the IRS says is here.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") discusses the various types of retirement plan contributions which may be made. Here is what the IRS says:
Types of Retirement Plan Contributions
If you participate in an employer-sponsored retirement plan, you may be able to make different types of plan contributions from your wages:
• Pre-tax elective deferrals aren't included in your gross income in the year that you make them. For example, if you asked your employer to contribute $2,000 from your $30,000 salary to the plan, you'd only include $28,000 in income. You must include these contributions, plus any earnings, in your income when you later withdraw them.
• Designated Roth contributions are elective deferrals that are included in your gross income in the year you make them, but not when you withdraw them from the plan. If you meet certain conditions, you don't have to include any earnings on these contributions in your income when you withdraw them.
• After-tax employee contributions are also included in your gross income in the year you make them. You don't include these contributions in income when you withdraw them, but you must include any earnings. Unlike elective deferrals, there isn't an annual dollar limit on the amount of these contributions you can make, but if you're a highly compensated employee, your after-tax employee contributions may be limited by what other employees contribute.
• Catch-up contributions are additional elective deferrals you may be able to contribute to the plan if you're age 50 or older by the end of the calendar year. You can make these contributions as pre-tax elective deferrals or designated Roth contributions (if your plan allows them) or any combination of the two.
Elective deferral limits:
• $17,500 to 401(k) (other than a SIMPLE 401(k)), 403(b) and 457(b) plans (plus
$5,500 catch-up contributions)
• $12,000 to SIMPLE plans (plus $2,500 catch-up contributions)
• $18,000 to 401(k) (other than a SIMPLE 401(k)), 403(b) and 457(b) plans (plus $6,000 catch-up contributions)
• $12,500 to SIMPLE plans (plus $3,000 catch-up contributions)
Ask your employer or check your summary plan description to find out which types of contributions you can make to your workplace retirement plan.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") provides guidance on correcting a Roth contribution failure. The IRS says the following:
Many employers have added a Roth feature to their 401(k), 403(b) or governmental 457(b) plans. This feature allows employees to choose to designate some or all of their elective contributions as Roth contributions. Employees must make this designation before the deferral is withheld from their salary. A Roth contribution differs from a pre-tax elective contribution in that the Roth contribution amount is included in gross income.
A common mistake we've encountered in the operation of a Roth feature is that the employer doesn't follow the employee's election as to the type of elective deferral. The employee elects a Roth contribution, but the employer treats it as a pre-tax deferral.
Fixing the mistake
To fix the mistake of not following an employee's election to designate the contribution as a Roth contribution you must transfer the deferrals, adjusted for earnings, from the pre-tax account to the Roth account. There are two options on how to report this transfer:
1. The employer issues a corrected Form W-2 and the employee must file an amended Form 1040 for the year of the failure.
2. The employer includes the amount transferred from the pre-tax to the Roth account in the employee's compensation in the year it's transferred. If the employer elects, it may compensate the employee for the additional amount he or she owes in income tax for that year . This must likewise be included in the employee's income for that year.
The employee elects pre-tax deferral, but the employer treats it as a Roth contribution.
Fixing the mistake
The employer can transfer the erroneously deposited deferrals, adjusted for earnings, from the Roth account to the pre-tax account. The employer would file a corrected W-2 and the employee would file an amended 1040 for the year of the failure.
Correction programs available
The plan sponsor can use the Voluntary Correction Program (VCP) (if the error issignificant and it meets the other conditions of VC). The error can be self-corrected, without IRS approval, if the mistake is insignificant or, if significant, if the plan sponsor corrects the mistake within two years. A plan sponsor can use self-correction only if the plan has practices and procedures in place designed to promote overall tax law compliance. If the plan is under IRS examination, then mistakes are generally corrected under a closing agreement using the Audit Closing Agreement Program.
Making sure it doesn't happen again
Establish procedures that ensure that the participants' elections are correctly implemented. This could include educating those responsible for processing the deferral elections on how to interpret and implement the information on the election forms. In addition, periodically check the process of withholding, classifying and depositing salary deferrals so that you can timely fix errors and adjust internal controls, as needed.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service ("IRS") discuss the one-rollover-per year rule that applies to IRAs. Here is what the IRS says:
Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (IRS Announcements 2014-15 and 2014-32). The limit will apply by aggregating all of an individual's IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.
• Trustee-to-trustee transfers between IRAs are not limited
• Rollovers from traditional to Roth IRAs ("conversions") are not limited
Transition rule ignores some 2014 distributions
IRA distributions rolled over to another (or the same) IRA in 2014 will not prevent a 2015 distribution from being rolled over provided the 2015 distribution is from a different IRA involved in the 2014 rollover.
Example: If you have three traditional IRAs, IRA-1, IRA-2 and IRA-3, and in 2014 you took a distribution from IRA-1 and rolled it into IRA-2, you could not roll over a distribution from IRA-1 or IRA-2 within a year of the 2014 distribution but you could roll over a distribution from IRA-3. This transition rule applies only to 2014 distributions and only if different IRAs are involved. So if you took a distribution from IRA-1 on January 1, 2015, and rolled it over into IRA-2 the same day, you could not roll over any other 2015 IRA distribution (unless it's a conversion).
Background of the one-per-year rule
Under the basic rollover rule, you don't have to include in your gross income any amount distributed to you from an IRA if you deposit the amount into another eligible plan (including an IRA) within 60 days (Internal Revenue Code Section 408(d)(3)). Internal Revenue Code Section 408(d)(3)(B) limits taxpayers to one IRA-to-IRA rollover in any 12-month period. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), published in 1981, and IRS Publication, Individual Retirement Arrangements (IRAs) interpreted this limitation as applying on an IRA-by-IRA basis, meaning a rollover from one IRA to another would not affect a rollover involving other IRAs of the same individual. However, the Tax Court held in 2014 that you can't make a non-taxable rollover from one IRA to another if you have already made a rollover from any of your IRAs in the preceding 1-year period (Bobrow v. Commissioner, T.C. Memo. 2014-21).
Tax consequences of the one-rollover-per-year limit
Beginning in 2015, if you receive a distribution from an IRA of previously untaxed amounts:
• you must include the amounts in gross income if you made an IRA-to-IRA rollover in the preceding 12 months (unless the transition rule above applies), and
• you may be subject to the 10% early withdrawal tax on the amounts you include in gross income.
Additionally, if you pay the distributed amounts into another (or the same) IRA, the amounts may be:
• treated as an excess contribution, and
• taxed at 6% per year as long as they remain in the IRA.
Direct transfers of IRA money are not limited
This change won't affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn't a rollover (Revenue Ruling 78-406). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service ("IRS") provides some year-end reminders. Here is what the IRS said:
IRA Year- End Reminders
Whether you are still working or retired, you should periodically review your IRAs. Here are few things to remember.
If you're still working, review the 2014 IRA contribution and deduction limits to make sure you are taking full advantage of the opportunity to save for your retirement. You can make 2014 IRA contributions until April 15, 2015.
If you exceed the 2014 IRA contribution limit, you may withdraw excess contributions from your account by the due date of your tax return (including extensions). Otherwise, you must pay a 6% tax each year on the excess amounts left in your account.
Required minimum distributions
If you are age 70½ or older this year, you must take a 2014 required minimum distribution by December 31, 2014 (by April 1, 2015, if you turned 70½ in 2014). You can calculate the amount of your IRA required minimum distribution by using IRS Worksheets. You must calculate the required minimum distribution separately for each IRA that you own other than any Roth IRAs, but you can withdraw the total amount from one or more of your non-Roth IRAs. Remember that you face a 50% excise tax on any required minimum distribution that you fail to take on time.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") reminds us that retirement plan needs regular care to keep it operating properly. What the IRS says is here.
In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") reminds us that it is not too late to set up a retirement plan for 2014. What the IRS says is here.
In Employee Plans News, Issue 2014-22, December 9, 2014, the Internal Revenue Service (the "IRS") provides guidance on maintaining retirement plan records. Here is what the IRS said.
As an employer sponsoring a retirement plan, you are required by law to keep your books and records available for review by the IRS. Having these records will also facilitate answering questions when determining participants' benefits. Employee plans covers the qualification of pension, annuity, profit sharing and stock bonus plans, IRAs, SEPs, SIMPLEs, tax sheltered annuities, and 457 plans.
Which plan records should you keep in case of an IRS audit?
As a plan sponsor you should keep the plan and trust document, recent amendments, determination and approval letters, related annuity contracts and collective bargaining agreements. The records you keep are based on the type of plan you sponsor.
• SEP Plans - Keep Form 5305-SEP or 5305A-SEP as your plan document
• SIMPLE IRA plans - Keep Form 5304-SIMPLE or 5305-SIMPLE as your plan document
• Profit sharing, 401(k) or defined benefit plans - Keep your plan document, adoption agreement (if you have one) and all plan amendments
• trust records such as investment statements, balance sheets, and income statements
• participant records such as census data, account balances, contributions and earnings, loan documents and information, compensation data and participant statements and notices
How long should you keep plan records?
You should keep retirement plan records until the trust or IRA has paid all benefits and enough time has passed that the plan won't be audited. Retirement plans are designed to be long-term programs for participants to accumulate and receive benefits at retirement. As a result, plan records may cover many years of transactions. The Internal Revenue Code and Income Tax Regulations as well as the Employee Retirement Income Security Act of 1974, as amended (ERISA) require plan sponsors to keep records of these transactions because they may become material in administering pension law.
If you're audited
You are required to provide complete, accurate records in either paper or electronic format if the IRS requests them during an audit.
Revenue Procedure 98-25 - lists the basic requirements for recordkeeping when a taxpayer maintains their records in an automatic data processing system.