Recently in Employee Benefits Category

October 21, 2014

Employee Benefits-IRS Provides Guidance On Directing Distributions To Multiple IRAs

In Employee Plans News, Issue 2014-16, October 15, 2014, the Internal Revenue Service (the "IRS") provides guidance on directing retirement plan distributions to multiple IRAs. Here is what the IRS said.

Beginning January 1, 2015, when participants choose to direct their retirement plan distribution to go to multiple destinations, the amounts will be treated as a single distribution for allocating pre-tax and after-tax basis (Notice 2014-54 and REG-105739-11). This will allow qualified, 403(b) and 457(b) governmental retirement plan participants to:

• roll over amounts to both a Roth IRA and a non-Roth IRA;

• allocate the pre-tax amount of the distribution to the non-Roth IRA and the after-tax amount to the Roth IRA; and

• avoid having to pay income tax on pre-tax amounts rolled over to the non-Roth IRA.

Current separate distributions rule

Under current rules, each destination of a retirement plan distribution (for example, a distribution split between a direct rollover to an IRA and an actual distribution of funds) is considered a separate distribution. If a participant's account balance contains both pre-tax and after-tax amounts, each distribution includes a pro rata share of both. A participant can't choose to transfer the pre-tax amount to a traditional IRA and the after-tax amount to a Roth IRA.

Transition rules

The new single distribution allocation rules aren't mandatory for plan distributions prior to January 2015. However, plan sponsors may apply this allocation rule to distributions made on or after September 18, 2014, and apply a reasonable interpretation of the allocation rules for distributions made prior to September 18.

October 16, 2014

Employee Benefits-DOL Issues FAQ Providing Guidance On Reference Pricing And Annual Cost- Sharing Limit

In Affordable Care Act Implementation Frequently Asked Questions (FAQs Part XXI), the U.S. Department of Labor (the "DOL") provides guidance on reference pricing and the annual cost- sharing limit.

Background. Public Health Service ("PHS") Act section 2707(b), as added by the Affordable Care Act, provides that a non-grandfathered group health plan must ensure that any annual cost-sharing imposed under the plan does not exceed the limitations provided for under section 1302(c)(1) of the Affordable Care Act. Section 1302(c)(1) limits an enrollee's out-of-pocket costs. For plan years beginning in 2015, the annual limit on an individual's maximum out-of-pocket ("MOOP") costs in effect under Affordable Care Act section 1302(c)(1) is $6,600 for self-only coverage and $13,200 for coverage other than self-only coverage. The limit is adjusted for inflation for subsequent plan years.

Previous Guidance. Previous FAQs on MOOP clarified that if a plan includes a network of providers, the plan need not (but may if it wishes) count an individual's out-of-pocket spending for out-of-network items and services toward the annual limit on cost-sharing.

The previous FAQs also addressed reference-based pricing in non-grandfathered large group insurance market and self-insured group health plans ("Affected Plans"). Reference pricing means that the Affected Plan pays a fixed amount for a particular procedure (for example, a knee replacement), which certain providers will accept as payment in full.

The FAQs further stated that, until guidance was issued and effective, the DOL (and the other agencies which enforce the Affordable Care Act) will not treat an Affected Plan as failing to comply with the MOOP requirements, merely because the plan treats providers that accept the reference amount as the only in-network providers, as long as the plan uses a reasonable method to ensure that it offers adequate access to quality providers. That is, so long as the proviso is met, the providers who accept reference pricing may be treated as in-network, so the annual cost-sharing limit will apply to their services (and the agreed upon fee mitigates the limit from the plan's perspective). Consequently, any provider who does not accept the reference pricing is treated as out-of-network, and may (unless the plan chooses otherwise-not a likely event) provide services without any cost-sharing limit.

The Concern And This FAQ. Will the foregoing rule on establishing the in-network fail to provide adequate access to quality providers? This FAQ says the following on this concern:

Pending issuance of future guidance, for purposes of enforcing the requirements in PHS Act section 2707(b), the DOL (and the other agencies which enforce the Affordable Care Act) will consider all the facts and circumstances when evaluating whether a plan's reference-based pricing design (or similar network design) that treats providers that accept the reference-based price as the only in-network providers, and excludes or limits cost-sharing for services rendered by other providers, is using a reasonable method to ensure adequate access to quality providers at the reference price, including:

1. Type of service. Plans should have standards to ensure that the network is designed to enable the plan to offer benefits for services from high-quality providers at reduced costs, and does not function as a subterfuge for otherwise prohibited limitations on coverage. For this purpose:

a. In general, reference-based pricing that treats providers that accept the reference amount as the only in-network providers should apply only to those services for which the period between identification of the need for care and provision of the care is long enough for consumers to make an informed choice of provider.
b. Limiting or excluding cost-sharing from counting toward the MOOP with respect to providers who do not accept the reference-based price would not be considered reasonable with respect to emergency services. Furthermore, any provision in an Affected Plan that involves a more restrictive network cannot be applied to emergency services pursuant to PHS Act section 2719A (incorporated by reference into ERISA section 715 and Code section 9815) and its implementing regulations.

2. Reasonable access and quality. Plans should have procedures to ensure that an adequate number of providers that accept the reference price are available to participants and beneficiaries and meet reasonable quality standards.

3. Exceptions process. Plans should have an easily accessible exceptions process, allowing services rendered by providers that do not accept the reference price to be treated as if the services were provided by a provider that accepts the reference price if:
a. Access to a provider that accepts the reference price is unavailable (for example, the service cannot be obtained within a reasonable wait time or travel distance).
b. The quality of services with respect to a particular individual could be compromised with the reference price provider (for example, if co-morbidities present complications or patient safety issues).

4. Disclosure. Plans should provide the following disclosures regarding reference-based pricing (or similar network design) to plan participants free of charge.

a. Automatically. Plans should provide information automatically (e.g., in the SPD) regarding the pricing structure, including a list of services to which the pricing structure applies and the exceptions process.

b. Upon Request. Plans should provide upon request:
i. A list of providers that will accept the reference price for each service;
ii. A list of providers that will accept a negotiated price above the reference price for each service; and
iii. Information on the process and underlying data used to ensure that an adequate number of providers accepting the reference price meet reasonable quality standards.

October 9, 2014

Employee Benefits-IRS Says It's Not Too Late for a Tax Break - Start a SEP Retirement Plan for 2013

In Retirement News for Employers, October 2, 2014 Edition, the Internal Revenue Service (the "IRS") reminds us that, if you own a business, you still have time to set up a Simplified Employee Pension ("SEP") plan for 2013. Here is what the IRS says.

If you set up and fund your SEP by the due date of your 2013 business return (including extensions), you can still take a deduction for 2013. If your business uses the calendar year for its tax year, the deadline to set up and contribute to a SEP plan for 2013 depends on the type of your business organization:

• If your business is a corporation, filing Form 1120 or 1120S, you have until
March 15, 2014 (September 15, 2014, if you file for an extension).

• If your business is a partnership, filing Form 1065, you have until April 15, 2014 (September 15, 2014, if you file for an extension).

• If your business is a sole proprietorship, reported on Schedule C of Form 1040,
you have until April 15, 2014 (October 15, 2014, if you file for an extension).

You can set up a SEP plan for little or no cost at a bank, investment firm or insurance company.

SEP plans offer high contribution and deduction limits, minimal paperwork and no
annual Form 5500 filing. You can contribute to a SEP plan even if you participate in an unrelated employer's plan (for example, a 401(k) plan). Contributions to a SEP plan are subject to the SEP contribution limits.

Other kinds of business-sponsored retirement plans must have been established before the end of 2013 in order for the business to get a deduction for 2013.

October 8, 2014

Employee Benefits-IRS Discussed Retirement Plans Startup Costs Tax Credit

In Retirement News for Employers, October 2, 2014 Edition, the Internal Revenue Service (the "IRS") discusses the startup costs tax credit for retirement plans. Here is what the IRS said.

You may be able to claim a tax credit for some of the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan. A tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis.

If you qualify, you may claim the credit using Form 8881, Credit for Small Employer Pension Plan Startup Costs.

Eligible employers

You qualify to claim this credit if:

• You had 100 or fewer employees who received at least $5,000 in compensation
from you for the preceding year;

• You had at least one plan participant who was a non-highly compensated
employee; and

• In the 3 tax years before the first year you're eligible for the credit, your
employees weren't substantially the same employees who received
contributions or accrued benefits in another plan sponsored by you, a member
of a controlled group that includes you, or a predecessor of either.

Amount of the credit

The credit is 50% of your ordinary and necessary eligible startup costs up to a
maximum of $500 per year.
Eligible startup costs

You may claim the credit for ordinary and necessary costs to:

• Set up and administer the plan, and

• Educate your employees about the plan.

Eligible tax years

You can claim the credit for each of the first 3 years of the plan and may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective. The credit is part of the general business credit and you may carry it back or forward to other tax years if you can't use it in the current year. However, you can't carry it back to a tax year beginning before January 1, 2002.

No deduction allowed

You can't both deduct the startup costs and claim the credit for the same expenses. You aren't required to claim the allowable credit.

October 6, 2014

Employee Benefits-IRS Permits New Election Changes Under Cafeteria Plans For Health Coverage

In IRS Notice 2014-55, the Internal Revenue Service (the "IRS") permits election changes under a cafeteria plan, when a participant may wish to revoke, during a period of coverage (generally the plan year), the employee's election under the plan for employer-sponsored health coverage in order to purchase a health plan under an Affordable Care Act Health Insurance Exchange (a "Qualified Health Plan"). This Notice does not apply to a health care flexible spending account (a "health FSA") offered under the cafeteria plan.

The Notice provides that a cafeteria plan may allow an employee to prospectively revoke an election of coverage under a group health plan (again, other than an FSA), which provides minimum essential coverage (as defined in § 5000A(f)(1)), so long as the following conditions are met:

(1) the employee has been in an employment status under which the employee was reasonably expected to average at least 30 hours of service per week, and there is a change in that employee's status so that the employee will reasonably be expected to average less than 30 hours of service per week after the change,even if that reduction does not result in the employee ceasing to be eligible under the group health plan (that is, the employee switches from full-time to part-time status under the Affordable Care Act); and

(2) the revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee, and any related individuals who cease coverage due to the revocation, in another plan that provides minimum essential coverage (e.g., a Qualified Health Plan), with the new coverage effective no later than the first day of the second month following the month that includes the date the original coverage is revoked.

For these purposes, a cafeteria plan may rely on the reasonable representation by the employee that condition (2) will be satisfied.

In addition, the cafeteria plan may allow a prospective revocation of an election of coverage under the group health plan (again, other than an FSA), so long as:

(a) the employee is eligible for a Health Insurance Exchange's special enrollment period to enroll in a Qualified Health Plan, or seeks to enroll in a Qualified Health Plan during the Health Insurance Exchange's annual open enrollment period; and

(b) the revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee and any related individuals who cease coverage due to the revocation in a Qualified Health Plan, for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked.

For these purposes, a cafeteria plan may rely on the reasonable representation by the employee that condition (b) will be satisfied.

The guidance in the Notice is effective on September 18, 2014. To allow the new permitted election changes under this Notice, a cafeteria plan must be amended to provide for such changes. The amendment must be adopted on or before the last day of the plan year in which the election changes are allowed, and may be effective retroactively to the first day of that plan year, so long as the cafeteria plan operates in accordance with the guidance under this Notice and the employer informs participants of the amendment. As a transition rule, the cafeteria plan may be amended to adopt the new permitted election changes for a plan year that begins in 2014 at any time on or before the last day of the plan year that begins in 2015. However, in no event may an election to revoke coverage on a retroactive basis be allowed.

September 26, 2014

Employee Benefits-DOL Requests Information On Brokerage Windows

According to Employee Plans News, Issue 2014-15, September 22, 2014, the Department of Labor's Employee Benefits Security Administration (DOL/EBSA) on, August 21, published a Request for Information on the use of brokerage windows, self-directed brokerage accounts and similar features in 401(k)-type plans.

Some 401(k)-type plans offer participants access to brokerage windows in addition to, or in place of, specific investment options chosen by the employer or another plan fiduciary. These "window" arrangements can enable or require individual participants to choose from a broad range of investments. DOL/EBSA received a number of questions about brokerage windows following the 2012 publication of a final regulation on participant-level fee disclosure.
The RFI asks questions concerning brokerage windows, including:

• the scope of investment options typically available through a window;• demographic and other information about participants who commonly use
brokerage windows;
• the process of selecting a brokerage window and provider for a plan;
• the costs of brokerage windows; and
• what kind of information about brokerage windows and underlying investment
options typically is available and disclosed to participants.

Comments are due by November 19, 2014. Comments can be submitted electronically by email to or through the federal eRulemaking portal. Written comments may also be sent to:

U.S. Department of Labor
Office of Regulations and Interpretations
Employee Benefits Security Administration, N-5655
Attn: Brokerage Window RFI
200 Constitution Ave, NW,
Washington, DC 20210

September 24, 2014

Employee Benefits-IRS Talks About Missing Participants Or Beneficiaries

In Employee Plans News, Issue 2014-15, September 22, 2014, the IRS talks about missing participants or beneficiaries. It says the following:

Plan sponsors, administrators and qualified termination administrators (QTAs)
sometimes need to locate missing participants or beneficiaries. For example, correction of a plan failure under the Employee Plans Compliance Resolution System (EPCRS) may require payment of additional benefits to terminated participants. See Revenue Procedure 2013-12, Section 6.02(5)(d), for plan correction principles relating to lost participants.

Previously, the IRS provided letter-forwarding services to help locate missing plan
participants, but with the August 31, 2012, release of Revenue Procedure 2012-35, the IRS stopped this letter forwarding program. The IRS will no longer process requests to locate retirement plan participants or beneficiaries.

In the absence of IRS letter forwarding services, sponsors, administrators and QTAs may use a variety of other methods to locate missing participants and beneficiaries, including:

• commercial locator services;
• credit reporting agencies; and
• internet search tools.

The Department of Labor in Field Assistance Bulletin No. 2014-01 lists the following search methods as the minimum steps the fiduciary of a terminated defined contribution plan must take to locate a participant:

• Send a notice using certified mail;
• Check the records of the employer or any related plans of the employer;
• Send an inquiry to the designated beneficiary of the missing participant; and
• Use free electronic search tools.

Field Assistance Bulletin 2014-01 generally updates DOL/EBSA guidance on how fiduciaries of terminated defined contribution plans can fulfill their obligations under ERISA to locate missing participants and properly distribute the participants' account balances.

September 23, 2014

Employee Benefits-IRS Reminds Us That Errors by IRA Trustees, Issuers and Custodians On Form 5498 May CauseTax Trouble

In Employee Plans News, Issue 2014-15, September 22, 2014, the IRS says that incorrect information on Form 5498, IRA Contribution Information, may cause taxpayers to make IRA reporting errors on their tax returns. Common examples of incorrect information include:

• Reporting the IRA contribution for the wrong year;

•Failing to report the contribution as a conversion from a traditional IRA to a Roth IRA; and

• Issuing duplicate Forms 5498.

IRA trustees, issuers and custodians can avoid making these common errors by
checking the information on Form 5498 before submitting it to the IRS and providing a copy to the client.

September 4, 2014

Employee Benefits-IRS Changes Group Trust Rules

The Internal Revenue Service (the "IRS") has made some changes to the 81-100 group trust rules. These changes are discussed in Employee Plans News, Issue 2014-13, September 2, 2014. Here is what the IRS says:

New Revenue Ruling

Revenue Ruling 2014-24 modifies the rules regarding 81-100 group trusts by:

• stating that certain retirement plans qualified under the Puerto Rico Code may
invest in 81-100 group trusts even if such a plan is not also qualified under the
Internal Revenue Code.

• clarifying that assets held by insurance company separate accounts may be
invested in 81-100 group trusts under some circumstances.

• giving transition relief for certain dual-qualified plans (plans with U.S. trusts qualified
under both the U.S. and Puerto Rico Codes) to allow sponsors of those plans an
additional year to spin off the assets and liabilities of their Puerto Rico employees
into Puerto Rico-only qualified plans satisfying ERISA Section 1022(i)(1).

• providing other miscellaneous guidance.

Group trust investment requirements

Rev. Rul. 81-100 provides that qualified retirement plans and individual retirement accounts (IRAs) may pool their assets for investment purposes in a group trust if certain requirements are met. Subsequent revenue rulings added Internal Revenue Code Section 403(b), 457(b) and 401(a)(24) plans to the list of plans that may invest in 81-100 group trusts and added some additional requirements (Rev. Ruls. 2011-1 and 2004-67).

Puerto Rico plans and transition relief

With respect to Puerto Rico plans, Rev. Rul. 2014-24:

• states that a plan described in ERISA Section 1022(i)(1) is eligible to participate in
an 81-100 group trust if the requirements of Rev. Rul. 2011-1, as modified by Rev.
Rul. 2014-24, are satisfied; and

• extends certain transition relief provided in Rev. Rul. 2008-40 to transfers to ERISA
Section 1022(i)(1) plans from qualified retirement plans that participated in 81-100
group trusts on January 10, 2011, if the transfers occur before January 1, 2016.
The transition relief under Rev. Rul. 2008-40 is not extended for any other plans.

Separate account investment requirements

Rev. Rul. 2014-24 provides that assets held in an insurance company's separate
account may be invested in an 81-100 group trust if the:

• assets of the separate account consist solely of assets from group trust retiree
benefit plans;

• insurance company timely enters into an agreement with the trustee of the group
trust that meets the requirements of Rev. Rul. 2014-24; and

• assets of the separate account are insulated from the claims of insurance
company's creditors.

Written agreement timing requirements

If plan assets are invested through an insurance company's separate account in a 81-
100 group trust as of December 8, 2014, the trustee of the group trust and the
insurance company must enter into a written arrangement meeting the requirements of
Rev. Rul. 2014-24 before January 1, 2016. Otherwise, the group trust trustee and the
insurance company must enter into a written arrangement no later than the time of the

Other provisions clarified

Rev. Rul. 2014-24 also:

• clarifies that, in the case of a governmental plan, the governing document includes
any statute that sets forth the terms applicable to the plan as well as any
regulations, ordinances, and other state or local rules or policies binding on the plan
under state or local law; and

• modifies condition 6 under Rev. Rul. 2011-1 to make clear that the group trust
instrument must expressly provide for separate accounting (not separate accounts)
to reflect the interest that each adopting group trust retiree benefit plan has in the
group trust.

August 25, 2014

Employee Benefits-Eighth Circuit Rules That The Taxpayer Made A Rollover Contribution To An IRA, Thereby Offsetting Income From An Earlier IRA Withdrawal

In Haury v. Commissioner of Internal Revenue, No. 13-1780 (8th Cir. 2014), the issue arose as to whether the taxpayer ("Haury") had made a $120,000 rollover contribution an IRA, which would offset the income attributable to earlier IRA withdrawals.

In this case, Haury had made certain loans to two companies, which he funded with withdrawals from his IRA account, taken from February 15, 2007 through October 25, 2007 totalling about $425,000, including a withdrawal of $168,000 on April 9, 2007. Haury was less than 59 ½ years old, so his IRA withdrawals were taxable as ordinary income subject to a 10% additional tax. Haury also made a $120,000 contribution to his IRA account on April 30, 2007. The issue is whether that contribution was a qualifying "rollover" that reduced Haury's 2007 taxable IRA-distribution income by $120,000.

The Eighth Circuit Court of Appeals (the "Court") noted that, under Code section 408(d)(3)(A)(i), an individual may exclude an IRA withdrawal from taxable income if it is "rolled over" into an IRA account, by not later than the 60th day after the day on which he receives the withdrawal. An amount less than the entire withdrawal is likewise excluded if it is paid into an IRA, under Code section 408(d)(3)(D). The rollover contribution exclusion does not apply if the distributee used it to exclude another withdrawal from tax in the year prior to the date of the withdrawal in question, under Code section 408(d)(3)(B).

The Court concluded that Haury's April 30, 2007 IRA contribution of $120,000 was made well within 60 days of the April 9 withdrawal of $168,000. There was no previous rollover contribution during the year preceding April 30, 2007. Therefore, the April 30 contribution was a qualifying partial rollover contribution under § 408(d)(3)(D), and Haury is entitled to reduce his taxable 2007 IRA withdrawals by $120,000.

August 18, 2014

Employee Benefits-A Reminder: Revised Business Associate Agreements Must Be Executed By September 22

Introduction. Generally, under HIPAA, a health plan-including a multiemployer health plan-may disclose protected health information ("PHI") to a business associate only if the plan and the business associate meet several requirements, including the entering of a "business associate agreement" between them. This agreement must reflect the requirements of the HIPAA regulations.

The U.S. Health and Human Services Department (the "HHS") issued, on January 25, 2013, final regulations modifying a number of requirements under HIPAA. These modifications changed some of the requirements for the business associate agreement, so that the plan and business associate are required modify their agreement.

Changes to the Business Associate Agreements. The changes to the requirements for business associate agreements in the final regulations cause the agreements to reflect the following:

1) If the health plan delegates any of its obligations under the HIPAA Privacy Rule to the business associate, then the business associate must comply with the Privacy Rule when carrying out the obligations.

2) The business associate must comply with the HIPAA Security Standards for electronic PHI.

3) The business associate is required to report to the plan any breaches of unsecured PHI, in addition to any security incidents.

4) The business associate is required to enter into an agreement with each of its subcontractors that create or receive PHI for or from the business associate, and this agreement must be substantially similar to the business associate agreement with the plan (a "subcontractor agreement").

Due Date for Revised Business Associate and Subcontractor Agreements. The plan and the business associate were generally required to revise their business associate agreement to reflect the above changes by September 23, 2013. However, a transitional deadline has been available if the plan and business associate had a business associate agreement which:

-- was in place prior to January 25, 2013,

--complied-prior to January 25, 2013- with the HIPAA regulations in effect as of such date, and

--is not renewed or modified from March 26, 2013, until September 23, 2013.

If the transitional deadline applied to a business associate agreement, then such agreement need not be revised to reflect the changes in the regulations until the earlier of: (1) the date on which such agreement is renewed or modified on or after September 23, 2013 or (2) September 22, 2014.

The same regular and transitional deadline apply to subcontractor agreements.
Bottom Line: The revisions to all business associate agreements must be completed and executed by this coming September 22.

August 6, 2014

Employee Benefits-IRS Provides Guidance On Retirement Plan Terminations

In Employee Plans News, Issue 2014-11, August 4, 2014, the Internal Revenue Service ("IRS") provides guidance on retirement plan terminations, including partial terminations. If you are contemplating a plan termination, or think you may be facing a partial termination, you may want to take a look at what the IRS says in this guidance, which may be found here.

July 8, 2014

Employee Benefits-IRS Issues Final Regulations On Use Of Qualified Longevity Annuity Contracts

The Internal Revenue Service (the "IRS") has issued final regulations which will allow participants in a qualified defined contribution plan (e.g., profit sharing or 401(k))to purchase and hold qualified longevity annuity contracts ("QLACs") in their accounts. A QLAC will pay lifetime benefits starting as late as age 85. It will thus will help the participant to defer funds and begin to receive a stream of income at a late age, and hopefully to not outlive his or her retirement income. The final regulations also provide rules for holding QLACs in traditional IRAs, 403(b) plans, and eligible government 457(b), although those rules are beyond the scope of today's blog. The rules for QLACs do NOT apply to defined benefit plans. For a qualified defined contribution plan, the rules are as follows:

In General. A QLAC is an annuity contract which is purchased from an insurance company for a participant, and which meets the requirements set forth below:

Limitation On Premiums. The amount of the premiums paid for the QLAC under the plan on a given date cannot exceed the lesser of $125,000 or 25% of the employee's account balance on the payment date.

Required Commencement Date. Distributions must begin by not later than the first day of the month next following the participant's 85th birthday.

After Distributions Begin. After distributions begin, they must satisfy the requirements of Internal Revenue Code section 401(a)(9)(other than the requirement that annuity payments commence on or before the participant's required beginning date) which apply to annuity contracts, such as the limitation on increasing payments.

No Cash-Out. The QLAC does not make available any commutation benefit, cash surrender right, or other similar feature, except it may allow a premium refund to a beneficiary.

Limited Death Benefits. No benefits are provided by the QLAC after the participant's death, except benefits specifically permitted under the regulations, such as a life annuity payable to a beneficiary.

Statement Of QLAC Status. When the QLAC is issued, the QLAC contract (or a rider or endorsement) states that the contract is intended to be a QLAC.

Prohibited Features. The QLAC is not a variable contract under section 817 of the Internal Revenue Code, an indexed contract, or a similar contract, except as permitted by the IRS.

RMD Calculation. While not technically a requirement for being a QLAC, in determining the amount of a minimum required distribution from the plan, the participant's account balance does not include the value of any LAC purchased on or after July 2, 2014 (the effective date of the regulations).

June 11, 2014

Employee Benefits - IRS Provides Guidance On Verifying Rollover Contributions

In Employee Plans News, Issue 2014-8, May 16, 2014, the Internal Revenue Service (the "IRS") provides guidance on verifying rollover contributions. Here is what the IRS said:

A retirement plan isn't required to accept rollover contributions from other plans or IRAs, but if it does, the incoming funds must:

• be permissible rollovers allowed by the plan document,
• come from a qualified plan or IRA,
• be the type of funds eligible to be rolled over, and
• be paid into the new plan no later than 60 days after the employee receives the funds from the old plan or IRA.

The plan administrator should take reasonable steps to evaluate whether these conditions are met. If the funds are coming directly from the old plan or IRA - for example, via a check made out to the new plan - then there is no 60-day requirement.

Safe harbor procedures. Revenue Ruling 2014-9 describes simplified due diligence procedures for a plan administrator to confirm the sending plan or IRA's tax-qualified status and conclude that a rollover contribution is valid. These procedures are generally sufficient:

• employee certification of the source of the funds
• verification of the payment source (on the incoming rollover check or wire transfer) as the participant's IRA or former plan
• if the funds are from a plan, looking up that plan's Form 5500 filing, if any, in the Department of Labor's EFAST2 database for assurance that the plan is intended to be a qualified plan.

It's not necessary to obtain a letter from the distributing plan when its qualified status can be checked using the online Department of Labor filing search.

Example (1): Alice makes a direct rollover contribution to Plan A with a check from Plan B payable to the trustee of Plan A, for the benefit of Alice. Plan A accepts all rollover contributions except after-tax or designated Roth contributions. Plan A's administrator may reasonably conclude that Alice's rollover contribution is valid based on these factors:

1. Alice, aged 50, certifies that her Plan B distribution doesn't include after-tax contributions or amounts attributable to designated Roth contributions.
2. Plan A's administrator verifies that the rollover check was issued by Plan B payable to the trustee of Plan A. The plan administrator may reasonably conclude that the trustee of the distributing plan treated the amount as an eligible rollover distribution.
3. Plan A's administrator checks the EFAST2 database for Plan B's most recent Form 5500 filing and sees that the entry on line 8a (identifying plan characteristics) indicates the plan is intended to be a qualified plan.

Example (2): Brian, aged 60, gives Plan A's administrator a check from the trustee of his traditional IRA, payable to Plan A for the benefit of Brian. The check stub identifies the source of the funds as "IRA of Brian." Brian also certifies that the distribution includes no after-tax amounts. Based on the information on the checkstub and Brian's certification, the plan administrator may conclude that Brian's rollover contribution is valid.

Will an invalid rollover contribution jeopardize my plan's qualification? In general, a plan can accept a direct rollover contribution without jeopardizing its qualified status if the plan administrator:

1. reasonably concludes that the rollover contribution is valid, and
2. distributes any ineligible rollover contribution, with earnings, within a reasonable time of discovering the error (Treasury Regulation Section 1.401(a)(31)-1, Q&A 14).
Form 5500 filings database.

A plan administrator can access the EFAST2 database maintained by the Department of Labor, and:
• Search for the most recently filed Form 5500 or 5500-SF for the plan making the rollover distribution.
• On the latest Form 5500 or 5500-SF for the plan, check the entry on the line for plan characteristics (line 8a on Form 5500 and line 9a for Form 5500-SF).
• Code 3C entered on this line indicates that the plan is not intended to be a qualified plan. If any other code is entered on this line, the plan administrator may reasonably conclude that the plan is qualified.

Not all plans are required to file a Form 5500 or Form 5500-SF, so sometimes this information will not be available.

It's not necessary for the distributing plan to have a determination letter from the IRS on its qualified status for a plan administrator to conclude that a rollover contribution is valid.

Eligible rollover distributions. IRAs: You can roll over all or part of any distribution from your IRA except:

• A required minimum distribution or
• A distribution of excess contributions and related earnings.

Retirement plans: You can roll over all or part of any distribution of your retirement plan account except:

• Required minimum distributions,
• Loans treated as a distribution,
• Hardship distributions,
• Distributions of excess contributions and related earnings,
• A distribution that is one of a series of substantially equal payments,
• Withdrawals electing out of automatic contribution arrangements,
• Distributions to pay for accident, health or life insurance,
• Dividends on employer securities, or
• S corporation allocations treated as deemed distributions.

Distributions that can be rolled over are called "eligible rollover distributions." Of course, to get a distribution from a retirement plan, you have to meet the plan's conditions for a distribution, such as termination of employment.

June 3, 2014

Employee Benefits-IRS Provides Guidance On Retirement Plan Payments for Accident, Health and Disability

In Employee Plans News, Issue 2014-8, May 16, 2014, the Internal Revenue Service (the "IRS") provides guidance on retirement plan payments for accident, health and disability. Here is what the IRS said:

Final regulations. Final regulations (T.D. 9665) state that payments from a qualified defined contribution plan to pay a participant's:

• accident and health insurance premiums are taxable distributions to the participant unless a statutory exception applies (Internal Revenue Code Sections 72 and 402(a)), and

• disability insurance premiums aren't taxable distributions if they meet certain conditions.

The regulations finalize the 2007 proposed regulations and add the exception for disability insurance coverage; they are effective January 1, 2015, but may be applied earlier.

Accident and health insurance. The 2007 proposed regulations stated the general rule that payments from a qualified plan to pay a participant's accident or health insurance premiums are taxable distributions unless they're paid:

• from a qualified retiree health account (IRC Section 401(h)), or

• for qualified public safety officers (IRC Section 402(l)).

Disability insurance. The final regulations include an exception for disability insurance premiums being taxed to participants if the following conditions are met:

1. Premiums for the disability insurance contract are paid directly from the plan.

2. The plan receives the benefit payments as required by the disability insurance contract.

3. Benefit payments under the contract are paid because of an employee's inability to continue employment with the employer because of disability.

4. The benefit payments to a participant's account aren't more than a reasonable expectation of what the participant would've received as an annual contribution during the disability period, reduced by any other contributions.

If these conditions are satisfied, the disability insurance is considered a plan investment, and the plan's premium payments and the insurance's benefit payments to the plan aren't taxable to the participant.

If the disability insurance premiums aren't paid by the plan, the insurance benefits paid to the plan aren't a return on a plan investment. Instead, these payments are contributions to the plan governed by qualified plan contribution rules (generally, IRC Section 415(c), which limits employer contributions to a defined contribution plan).

If an employer self-insures this disability coverage (or doesn't finance it through third party insurance), the amount paid to the plan because of the employee's disability is also considered a contribution to the plan governed by the general qualified plan contribution rules.