Recently in Employee Benefits Category

December 16, 2014

Employee Benefits-IRS Provides Guidance On Maintaining Retirement Plan Records

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.
For example:

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

Also keep:

• 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.

Additional resources

Revenue Procedure 98-25 - lists the basic requirements for recordkeeping when a taxpayer maintains their records in an automatic data processing system.

December 15, 2014

Employee Benefits-IRS Provides Reminder On Required Distributions From Retirement Plans and IRAs

In Employee Plans News, Issue 2014-22, December 9, 2014, the Internal Revenue Service ("IRS") reminded taxpayers born before July 1, 1944, that they generally must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by Dec. 31. Here is what the IRS said.

Known as required minimum distributions (RMDs), these payments normally must be made by the end of 2014. But a special rule allows first-year recipients of these payments, those who reached age 70½ during 2014, to wait until as late as April 1, 2015 to receive their first RMDs. This means that those born after June 30, 1943 and before July 1, 1944 are eligible for this special rule. Though payments made to these taxpayers in early 2015 can be counted toward their 2014 RMD, they are still taxable in 2015.

The required distribution rules apply to owners of traditional IRAs but not Roth IRAs while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount on Form 5498 in Box 12b. For a 2014 RMD, this amount was on the 2013 Form 5498 normally issued to the owner during January 2014.

The special April 1 deadline only applies to the RMD for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, for example, a taxpayer who turned 70½ in 2013 (born after June 30, 1942 and before July 1, 1943) and received the first required payment on April 1, 2014 must still receive the second RMD by Dec. 31, 2014.

The RMD for 2014 is based on the taxpayer's life expectancy on Dec. 31, 2014, and their account balance on Dec. 31, 2013. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Use the online worksheets on or find worksheets and life expectancy tables to make this computation in the Appendices to Publication 590.

For most taxpayers, the RMD is based on Table III (Uniform Lifetime) in the IRS publication on IRAs. So for a taxpayer who turned 72 in 2014, the required distribution would be based on a life expectancy of 25.6 years. A separate table, Table II, applies to a taxpayer whose spouse is more than 10 years younger and is the taxpayer's only beneficiary.

Though the RMD rules are mandatory for all owners of traditional IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulations in Publication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.Find more information on RMDs, including answers to frequently asked questions, on

December 9, 2014

Employee Benefits-IRS Issues 2014 Cumulative List of Changes in Plan Qualification Requirements/Extends Deadlines For Upcoming Filings

The IRS has issued Notice 2014-77. The Notice contains the 2014 Cumulative List of Changes in Plan Qualification Requirements (2014 Cumulative List) described in section 4 of Rev. Proc. 2007-44. The 2014 Cumulative List is to be used by plan sponsors and practitioners submitting determination letter applications for plans during the period beginning February 1, 2015 and ending January 31, 2016.

The Notices says that plans using this Cumulative List will primarily be single employer individually designed defined contribution plans and single employer individually designed defined benefit plans that are in Cycle E. Generally an individually designed plan is in Cycle E if the last digit of the employer identification number of the plan sponsor is 5 or 0, or if the plan is a § 414(d) governmental plan (including governmental multiemployer or governmental multiple employer plans) for which an election has been made by the plan sponsor to treat Cycle E as the second remedial amendment cycle for the plan.

To help filers for the current filing cycles, in Announcement 2014-41, the IRS extends from February 2, 2015 to June 30, 2015, the deadline for submitting on-cycle applications for opinion and advisory letters for pre-approved defined benefit plans for the plans' second six-year remedial amendment cycle. This announcement also provides a two day extension, from Saturday, January 31, 2015, to Monday, February 2, 2015, for Cycle D on-cycle submissions (primarily individually designed plans including multiemployer plans).

December 8, 2014

Employee Benefits-IRS Updates Its Rollover Chart

Anyone up for a rollover? In Employee Plans News, Issue 2014-19, November 24, 2014, the IRS make available a one-page chart which, as of November 17, 2014, shows which rollovers from and to retirement plans and IRAs are permitted. Take a look.

December 3, 2014

Employee Benefits-IRS Provides Guidance On Qualified Transportation Fringe Benefits

In Revenue Ruling 2014-32, the Internal Revenue Service (the "IRS") provides guidance on:

(1) whether certain employer-provided transportation benefits, provided through electronic media, are excluded from gross income under Code sections 132(a)(5) and 132(f) (and from wages for employment tax purposes) (concluding that in some cases "yes", in other cases "no");

(2) whether, under certain facts, qualified transportation fringe benefits include delivery charges incurred by an employee in acquiring transit passes (concluding "yes" under those facts); and

(3) whether, under certain facts, qualified transportation fringe benefits can be provided through a bona fide reimbursement arrangement (concluding "no", beginning after 2015).

December 2, 2014

Employee Benefits-New 402(f) Notices Available!

In Notice 2014-74 (the "Notice"), the Internal Revenue Service (the "IRS") amends the two safe harbor explanations in Notice 2009-68. Those explanations can be used to satisfy the requirement under Code section 402(f) that certain information be provided to recipients of eligible rollover distributions. These amendments relate to the allocation of pre-tax and after-tax amounts, distributions in the form of in-plan Roth rollovers, and certain other clarifications to the two safe harbor explanations. The Notice also includes two new, complete model notices which can be used to satisfy section 402(f), and which incorporate the amendments. The Notice indicates that the amendments to the safe harbor explanations, and the included model notices, may be used for plans that apply the guidance in section III of Notice 2014-54, with respect to the allocation of pretax and after-tax amounts.

November 19, 2014

Employee Benefits-Deadline For Health Plans to Submit Enrollment Counts To HHS is Extended to December 5 (From November 15)

Per an Alert Message (effective 11/14/2014) from CMS: Attention ACA Transitional Reinsurance Reporting Entities: CMS has received requests for an extension of the deadline for contributing entities to submit their 2014 enrollment counts for the transitional reinsurance program contributions under 45 CFR 153.405(b). The deadline has now been extended until 11:59 p.m. on December 5, 2014. The January 15, 2015 and November 15, 2015 payment deadlines remain the same. If you have any questions regarding the ACA Transitional Reinsurance Program Annual Enrollment Contributions Submission form, please contact the Health and Human Services (HHS) Centers for Medicare & Medicaid Services (CMS) directly at 877-292-6978, or e-mail

November 13, 2014

Employee Benefits-IRS Provides Guidance On Application of One-Per-Year Limit on IRA Rollovers

In IRS Announcement 2014-32, the Internal Revenue Service ("IRS") follows up
Announcement 2014-15, by addressing the application to Individual Retirement Accounts and Individual Retirement Annuities (collectively, "IRAs") of the one-rollover-per-year limitation of § 408(d)(3)(B) of the Internal Revenue Code. Here is what the IRS said.

Background. Section 408(d)(3)(A)(i) provides generally that any amount distributed from an IRA will not be included in the gross income of the distributee, to the extent the amount is paid into an IRA for the benefit of the distributee by no later than 60 days after he or she receives the distribution (often referred to as a "60-day rollover"). Section 408(d)(3)(B) provides that an individual is permitted to make only one nontaxable 60-day rollover between IRAs in any 1-year period. As discussed in Announcement 2014-15, Proposed Regulation § 1.408-4(b)(4)(i) and IRS Publication 590 provided that the one-rollover-per-year limitation was applied on an IRA-by-IRA basis.

However, the Tax Court in Bobrow v. Commisioner held that the limitation applies on an aggregate basis, meaning that an individual could not make more than one nontaxable 60-day rollover within each 1-year period, even if the rollovers involved different IRAs. In Announcement 2014-15, the IRS indicated that it anticipated following the interpretation of § 408(d)(3)(B) in Bobrow, and accordingly that it would (and subsequently did) withdraw the proposed regulation and revise Publication 590 to as needed to follow that interpretation, but that it would not apply the Bobrow interpretation of § 408(d)(3)(B) before 2015.

New Concerns. This Announcement is intended to address certain concerns that have arisen since the release of Announcement 2014-15. The IRS will apply the Bobrow interpretation of § 408(d)(3)(B) for distributions that occur on or after January 1, 2015. This means that an individual receiving an IRA distribution on or after January 1, 2015, cannot roll over any portion of the distribution into an IRA, if the individual has received a distribution from any IRA in the preceding 1- year period that was rolled over into an IRA. However, as a transition rule for distributions in 2015, a distribution occurring in 2014 that was rolled over is disregarded for purposes of determining whether a 2015 distribution can be rolled over under § 408(d)(3)(A)(i), provided that the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution.

Roth IRAs. A rollover from a traditional IRA to a Roth IRA (a "conversion") is not subject to the one-rollover-per-year limitation, and such a rollover is disregarded in applying the one-rollover-per-year limitation to other rollovers. However, a rollover between an individual's Roth IRAs would preclude a separate rollover within the 1-year period between the individual's traditional IRAs, and vice versa.

Qualified Plans/Trustee-Trustee Transfers. The one-rollover-per-year limitation also does not apply to a rollover to or from a qualified plan (and such rollover is disregarded in applying the one-rollover-per-year limitation to other rollovers), nor does it apply to trustee-to-trustee transfers. IRA trustees are encouraged to offer IRA owners requesting a distribution for rollover the option of a trustee-to-trustee transfer from one IRA to another IRA. IRA trustees can accomplish a trustee-to-trustee transfer by transferring amounts directly from one IRA to another or by providing the IRA owner with a check made payable to the receiving IRA trustee.

November 11, 2014

Employee Benefits-DOL Provides Guidance On Premium Reimbursement Arrangements

In FAQs about Affordance Care Act Implementation (Part XXII), the U.S. Department of Labor (the "DOL") provides guidance on premium reimbursement arrangements.
This FAQ posits the following three questions:

Q1: My employer offers employees cash to reimburse the purchase of an individual market policy. Does this arrangement comply with the Affordable Care Act ("ACA") market reforms?

Q2: My employer offers employees with high claims risk a choice between enrollment in its standard group health plan or cash. Does this comply with the ACA market reforms?

Q3: A vendor markets a product to employers claiming that employers can cancel their group policies, set up a Code section 105 reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies, and allow eligible employees to access the premium tax credits for ACA Insurance Marketplace coverage. Is this permissible?

The DOL answers "NO" to each question. See the FAQ for details.

November 10, 2014

Employee Benefits-IRS Discusses Issues Arising When A Group Health Plan Fails To Cover In-Patient Hospitalization Services

In IRS Notice 2014-69, the Internal Revenue Service (the "IRS") raises the issues an employer faces when its group health plan fails to cover in-patient hospitalization services. Here is a summary of what the IRS says.

Offering Minimum Value. The IRS, as well as the Department of Health and Human Services (the "HHS") (together the "Departments"), have become aware that certain group health plan benefit designs, which do not provide coverage for in-patient hospitalization services, are being promoted to employers. These promotors contend that such plans provide "minimum value" or "MV" for purposes of the Affordable Care Act (the "ACA"), when tested using the on-line MV Calculator referred to in final HHS regulations and proposed Treasury regulations.

Consequences Of Offering MV. An employee or family member who is offered coverage under an eligible employer-sponsored plan that provides affordable MV coverage for the employee may not receive premium tax credit assistance under Code section 36B for coverage in a qualified health plan offered under an ACA Insurance Exchange. An applicable large employer (as defined in Code section 4980H(c)(2)) may be liable for a section 4980H assessable payment if one or more of its full-time employees receives a premium tax credit.

Intention To Publish Proposed Regulations. The Departments believe that plans that fail to provide substantial coverage for in-patient hospitalization services or for physician services (or for both) ("Non-Hospital/Non-Physician Services Plans") do not provide the minimum value intended by the ACA, and will shortly propose regulations to this effect which can be finalized in 2015. Under the final regulations, an employer will not be entitled to rely solely on the MV Calculator to demonstrate that a Non-Hospital/Non-Physician Services Plan provides MV for any portion of a taxable year ending on or after January 1, 2015. In short, an employer should not adopt a Non-Hospital/Non-Physician Services Plan for any plan year starting in or after 2015. As a transition rule, solely in the case of an employer that has entered into a binding written commitment to adopt, or has begun enrolling employees in, a Non-Hospital/Non-Physician Services Plan prior to November 4, 2014, based on the employer's reliance on the results of use of the MV Calculator, the final regulations will not upset this reliance before the end of the plan year that begins by no later than March 1, 2015.

Effect On Employees. Pending issuance of final regulations, an employee will not be required to treat a Non-Hospital/Non-Physician Services Plan as providing MV for purposes of his or her eligibility for a premium tax credit under Code section 36B. An employer that offers a Non-Hospital/Non-Physician Services Plan (including one subject to the transition rule) to an employee: (1) must not state or imply any disclosure that the offer of coverage under the Non-Hospital/Not-Physician Services Plan precludes an employee from obtaining a premium tax credit, if otherwise eligible, and (2) must timely correct any prior disclosures that stated or implied that the offer of the Non-Hospital/Non-Physician Services Plan would preclude an otherwise tax-credit-eligible employee from obtaining a premium tax credit.

November 5, 2014

Employee Benefits-IRS Announces 2015 Pension Plan Limitations

The Internal Revenue Service (the "IRS") has announced the 2015 pension plan limitations, as adjusted for cost-of-living increases. The announcement is here. The highlight: taxpayers may contribute up to $18,000 to their 401(k) plans in 2015. One important number not included in this announcement is that the Social Security tax wage base for 2015 will be $118,500.

November 4, 2014

Employee Benefits-HHS Postpones November 5 Deadline For Obtaining Health Plan Identifier

Referring to my blog of October 30, the Health and Human Services Department (HHS) has now postponed the November 5 deadline for large health plans to obtain a health plan identifier (HPID) "until further notice". If the process for obtaining the HPID has already started, it is recommended that the process be completed notwithstanding the delay, since the plan will probably need the HPID eventually.

October 31, 2014

Employee Benefits-IRS Reminds Us That, For Certain Plans, An Application For An Updated Determination Letter Must Be Filed By January 31, 2015

In Employee Plans News, Issue 2014-17, October 27, 2014, the Internal Revenue Service (the "IRS") provides guidance on when a qualified retirement plan must next be submitted for an updated IRS determination letter. The guidance indicates that the following qualified retirement plan must be submitted by January 31, 2015:

--a plan for which the last digit of the plan sponsor's EIN is 4 or 9; and

--a multiemployer plan.

October 30, 2014

Employee Benefits-Certain Health Plans Face November 5 and 15 Deadlines

A reminder: any health plan, which is self-insured and constitutes a "large health plan", must obtain a health plan identifier number (a "HPID") by November 5, 2014. The HPID is obtained by registering online with the Centers for Medicare & Medicaid Services' Health Insurance Oversight System. A "large health plan" is one which paid at least $5 million in claims during its most recently ended fiscal year. It may take a few days to complete the registration, so an affected health plan should start immediately. A self-insured health plan which is not a large health plan has until November 5, 2015 to obtain the HPID.

Another reminder: any health plan, which is self-insured and provides major medical coverage, must furnish the Department of Health and Human Services with a participant count by November 15, 2014. This count is provided in connection with the plan's Transitional Reinsurance Fee, and is submitted online at The transitional reinsurance fee is $63/covered life. The fee for 2014 (or the first installment thereof, if the fund chooses to pay in two installments) is due by January 15, 2015. The fee will not be due for 2015 or 2016, provided that the plan is "self-administered".

October 29, 2014

ERISA - DOL Says That A Series Of Target Date Funds Could Serve As QDIAs

Basically at the same time that the IRS said that a qualified defined contribution plan could offer for investment a series of Target Date Funds ("TDFs") (see yesterday's blog), the U.S. Department of Labor (the "DOL") offers some thoughts on the TDFs.

The DOL says, in an October 23, 2014 letter from Phyliss Borzi (Assistant Secretary) to J. Mark Iwry (the "Letter"), that the TDFs in the series could serve as "qualified default investment alternatives" or "QDIAs", within the meaning 29 CFR §2550.404c-5 (the QDIA regulation), in light of the TDFs' investments in unallocated deferred annuity contracts, described in IRS Notice 2014-66 (the" Notice"). If an investment fund qualifies as a QDIA, the plan does not lose the "no liability for bad investment" protection for its fiduciaries under ERISA section 404(c), merely because plan contributions are automatically invested in that fund without participant choice.

The Example. The Letter focuses on the following example in the Notice: The subject is a profit-sharing plan (the "Plan") qualified under Code section 401(a). Participants in the Plan can commence distribution at age 65, the normal retirement age under the Plan, or upon severance from employment. The Plan provides for the allocation of investment responsibilities to participants and beneficiaries. The Plan offers an array of designated investment alternatives, including the TDFs. The TDFs are designed to provide varying degrees of long term appreciation and capital preservation through a mix of equity and fixed income exposures based on generally accepted investment theories. The TDFs' asset mix is designed to change over time, becoming more conservative through a gradual reduction in the allocation to equity investments and a gradual increase in the allocation to fixed income investments as the participants in each TDF become older.

The intent of the plan sponsor is to satisfy the conditions of the QDIA regulation. Thus, for example, participants may transfer their holdings, in whole or in part, from the TDFs to other investment alternatives available under the Plan on at least a quarterly basis. The TDFs do not impose any fees or restrictions on the ability of a participant to transfer his or her holdings, in whole or in part, to other investments available under the Plan, or to make withdrawals pursuant to Code section 414(w)(2)(B), during the 90-day period beginning with the initial investment of a participant's assets in a TDF. Following the end of this 90-day period, the TDFs do not have any transfer or withdrawal restrictions or fees that differ depending on whether the particular participants affirmatively selected the TDFs, rather than having been defaulted into the TDFs.

Each TDF within the series is available only to participants who will attain normal retirement age within a limited number of years around the TDF's target date. Each TDF available to participants age 55 or older holds unallocated deferred annuity contracts, which constitute a portion of the TDF's fixed income investments. TDFs with such annuities normally do not permit participants whose ages fall outside the designated age band for the TDF to hold an interest in that TDF, because it is not actuarially reasonable for an insurer to offer a deferred annuity at a price that does not vary based on the age of the purchaser. As the age of the group of participants in such TDF increases, a larger portion of the assets in the TDF will be used to purchase unallocated deferred annuity contracts each year. TDFs that are available to participants younger than age 55 do not include unallocated deferred annuity contracts. However, the series is designed so that as the asset allocation changes over time, each TDF will include unallocated deferred annuity contracts beginning when the participants in that TDF attain age 55.

An "unallocated deferred annuity contract" is a contract with a licensed insurance company that promises to pay income to covered plan participants at some date in the future (possibly far into the future) on a regular basis for a period of time or for life. The annuity is written on behalf of a group of participants and not issued to and owned by a specific individual. As such, unallocated deferred annuity contracts do not ordinarily require the insurance company to have or maintain any personal information on individuals in the group. Rather, units of the unallocated annuity generally are largely interchangeable among members of the covered group, which facilitates transferability and allocation within the group, for example at the dissolution date of each TDF.

At its target date, each TDF dissolves, and participants with an interest in the TDF will receive an annuity certificate providing for immediate or deferred commencement of annuity payments. The certificate represents the participant's interest in the unallocated deferred annuity contracts held by the TDF. For instance, if a TDF 's asset mix contains a fifty percent investment in unallocated deferred annuity contracts, then half of each participant's individual account balance will be reflected in the certificate. The remaining portion of each such participant's interest in the TDF will be reinvested by the participant or plan fiduciary in other Plan investment alternatives in accordance with title I of ERISA.

The assets of the Funds include plan assets for purposes of part 4 of title I of ERISA and such Funds are managed by an investment manager as described in section 3(38) of ERISA. The investment manager has complete discretion to manage, acquire, or dispose of any assets of the Funds, including the unallocated deferred annuity contracts held by the Funds, and complete discretion to choose and retain the insurance company or companies issuing the contracts. The investment manager is independent from the insurance company or companies issuing such contracts. The investment manager acknowledges in writing that he is a fiduciary with respect to the Plan.

The QDIA Regulation. After reviewing the Notice's example, the Letter explains that the the QDIA regulation implements ERISA section 404(c)(5). Under this section, a participant or beneficiary in an individual account plan who fails to provide investment directions for his or her account will be treated as exercising control over assets in the account, if the plan fiduciary complies with certain notice requirements and invests the assets in accordance with regulations prescribed by the DOL. The QDIA regulation requires, among other things, that participants on whose behalf the investment is made had the opportunity to direct the investment of the assets in their account but did not, and that they are furnished a notice describing the circumstances under which their assets may be invested in the QDIA, their right to direct the investment of their assets into any other plan investment alternatives, and the investment objectives, risk and return characteristics, and fees and expenses attendant to the QDIA.

The QDIA regulation also describes the attributes necessary for an investment fund, product, model portfolio, or managed account to be QDIA. A TDF that meets the specific requirements of the regulation is a type of fund that could be a QDIA. 29 CFR §2550.404c-5(e)(4)(i). Among other things, such a fund must be designed to produce varying degrees of long-term appreciation and capital preservation through a mix of equity and fixed income exposures based on the participant's age or target retirement date. In the DOL's view, the use of unallocated deferred annuity contracts as fixed income investments, as described in the Notice, would not cause the TDFs to fail to meet the requirements of paragraph (e)(4)(i) of the QDIA regulation. It is also the DOL's view that the distribution of annuity certificates as each TDF dissolves on its target date is consistent with paragraph (e)(4)(vi) of the QDIA regulation. This section provides that an investment product will not fail to be a QDIA "solely because the product or portfolio is offered through variable annuity or similar contracts or through common or collective trust funds or pooled investment funds and without regard to whether such contracts or funds provide annuity purchase rights, investment guarantees, death benefit guarantees or other features ancillary to the investment [product.]"

Annuity Selection Safe Harbor. The Letter also provides guidance on whether, and to what extent, the DOL's "annuity selection safe harbor," 29 CFR §2550.404a-4, is available in connection with the selection of the unallocated deferred annuity contracts as investments of the TDFs.

Conclusion. The Letter concludes by stating that the use of unallocated deferred annuity contracts as fixed income investments, as described in the Notice, would not cause the TDFs to fail to meet the requirements of paragraph (e)(4)(i) of the QDIA regulation.