Articles Posted in Employee Benefits

Employee Benefits-IRS Offers Guidance On Correcting Errors In Plan Loans

The Internal Revenue Service (the “IRS”) provides on-line guidance on how to correct errors in plan loans. The guidance is entitled “Fixing Common Plan Mistakes-Plan Loan Failures and Deemed Distributions”. Here is what the IRS says.

The Issue

Advantages Of Grandfather Status.

Your group health plan may still be treated as a “grandfathered plan” for purposes of the Affordable Care Act (the “ACA”). And you should try to keep it that way. Why? A grandfathered group health plan is NOT subject to some of the more cumbersome requirements of the ACA. The requirements which do not apply to a grandfathered plan include:

–the more stringent internal review and an external review of denied claims for benefits;

In IRS Notice 2019-09 (the “Notice”), the Internal Revenue Service (“IRS”) has provided guidance on the excise tax imposed on a tax-exempt entity under Code section 4960 that pays excess remuneration (or an excess parachute payment) to an employee. Here are the highlights of the Notice.

The General Rule of Code Section 4960. Under Code section 4960, an applicable tax-exempt organization (an “ATEO”) that pays excess remuneration or makes an excess parachute payment to a covered employee during a taxable year is subject to an excise tax on this excess.  The rate of this excise tax is equal to the rate of tax under Code section 11. For taxable years beginning after December 31, 2017, this rate of tax is 21 percent.

What is An ATEO?  As provided in Code section 4960(c)(1), an ATEO is any organization which, for its taxable year:

So, you and your family are receiving COBRA continuation health care coverage, and you or a family member becomes disabled.  How does the disability affect the COBRA coverage?

A. Normal Period of COBRA Coverage.

COBRA provides a temporary extension of the group health care coverage that you and your family are receiving because of your job, but would otherwise be lost due to certain life events.

In 84 Fed. Reg. 213 (Jan. 23, 2019), the Department of Labor (the “DOL”) lists the Federal civil penalty amounts for 2019. The list, normally due out by January 15 of the year, was delayed this year due to the government shutdown and apply to penalties assessed after January 23, 2019 (an effective date that is later than usual). These adjustments include:

–Under ERISA section 502(c)(2), the penalty for each failure to properly (e.g., timely) file the annual Form 5500 is increased from $2,140 to $2,194 per day;

— Under ERISA section 502(c)(4), the penalty for each failure to disclose certain documents upon request under ERISA section 101(k) and (l) (information pertaining to multiemployer plans), and for each failure to furnish notices under 101(j) (notice about funding restrictions on distributions) and 514(e)(3) (notice under automatic contribution arrangements) increased from $1,693 to $1,736 per day;

In Notice 2018-76 (the “Notice”), the Internal Revenue Service (the “IRS”) provides transitional guidance on the deductibility of expenses for certain business meals under § 274 of the Internal Revenue Code (the “Code”).

Section 274 was amended by the Tax Cuts and Jobs Act (2017) (the “Act”).  As so amended, § 274(a)(1) generally disallows a deduction for expenses with respect to entertainment, amusement, or recreation.  However, the Act does not specifically address the deductibility of expenses for business meals.  This deductibility could be lost to the extent the business meals constitute entertainment expenses.  The Notice provides guidance on this topic, on which taxpayers may rely for now, and announces that the IRS and Treasury intend to publish regulations to provide permanent guidance.

The Act did not change the definition of entertainment under § 274(a)(1); therefore, the regulations under § 274(a)(1) that define entertainment continue to apply.  The Act did not address the circumstances in which the provision of food and beverages might constitute entertainment.  However, the legislative history of the Act clarifies that taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business, in accordance with pre-Act law.

As discussed in yesterday’s blog, in Notice 2018-99 (the “Notice”), the Internal Revenue Service (the “IRS”) provides interim guidance: (1) for taxpayers to determine the amount of parking expenses treated as qualified transportation fringes (“QTFs”) (under Code section 132(f) that is nondeductible under § 274(a)(4) of the Internal Revenue Code (the “Code”) and (2) for tax-exempt organizations to determine the corresponding increase in the amount of unrelated business taxable income (“UBTI”) under § 512(a)(7) of the Code attributable to the nondeductible parking expenses.

The Notice provides interim guidance how to calculate the amounts in (1) and (2) above.  The IRS intends to issue regulations in the future to provide more permanent rules.

Yesterday’s blog discussed the Notice’s interim guidance pertaining to the determination by taxpayers of the amount of parking expenses treated as QTFs that is nondeductible under § 274(a)(4).  Today’s blog summarizes the Notice’s interim guidance on the determination by tax-exempt organizations of the increase in the amount of UBTI under § 512(a)(7) of the Code attributable to the nondeductible parking expenses.

In Notice 2018-99 (the “Notice”), the Internal Revenue Service (the “IRS”) provides interim guidance: (1) for taxpayers to determine the amount of parking expenses, which are treated as qualified transportation fringes (“QTFs”) (under Code section 132(f); generally being “qualified parking” for these purposes), and which are nondeductible under § 274(a)(4) of the Internal Revenue Code (the “Code”) and (2) for tax-exempt organizations to determine the corresponding increase in the amount of unrelated business taxable income (“UBTI”) under § 512(a)(7) of the Code attributable to the nondeductible parking expenses.  The Notice provides interim guidance on how to determine the amounts described in (1) and (2) above.  The IRS intends to issue governing regulations in the future.

Changes To The Law.  Sections 274 and 512 were amended by the Tax Cuts and Jobs Act (2017) (the “Act”), effective for amounts paid or incurred after December 31, 2017.

Determining The Nondeductible Amount Of Parking Expenses.  Under the Notice, the method of determining this amount depends on whether the taxpayer pays a third party to provide parking for its employees, or the taxpayer owns or leases a parking facility where its employees park.

In IRS Notice 2018-74 (the “Notice”), the Internal Revenue Service (the “IRS”) has issued new eligible rollover distribution notices.  The Notice contains revised safe harbor explanations, which may be used to meet the requirement found in Code section 402(f), that a plan administrator of a qualified retirement plan provide an explanation of the tax rules applying to an eligible rollover distribution made to the recipient.  The applicable safe harbor explanations in the Notice should be used immediately.  The Notice states that it has the following purposes.

This Notice modifies the two safe harbor explanations in Notice 2014-74 that may be used to satisfy the requirement under § 402(f) of the Internal Revenue Code (“Code”) that certain information be provided to recipients of eligible rollover distributions.  The safe harbor explanations as modified by this notice take into consideration certain legislative changes and recent guidance, including changes related to qualified plan loan offsets (as defined in section 13613 of the Tax Cuts and Jobs Act of 2017 (“TCJA”)) and guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover (described in Rev. Proc. 2016-47), and include other clarifying changes.

To assist with the implementation of the modified safe harbor explanations, this Notice contains two appendices. Appendix A contains two model safe harbor explanations: one for distributions that are not from a designated Roth account, and a second for distributions from a designated Roth account. Appendix B provides instructions on how to amend the safe harbor explanations contained in Notice 2014-74 to reflect the revisions included in the modified safe harbor explanations in Appendix A.

Further to yesterday’s blog, in a statement issued December 17, 2018, the Department of Health and Human said the following:

The recent U.S. District Court decision regarding the Affordable Care Act is not an injunction that halts the enforcement of the law and not a final judgment. Therefore, HHS will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision. This decision does not require that HHS make any changes to any of the ACA programs it administers or its enforcement of any portion of the ACA at this time. As always, the Trump Administration stands ready to work with Congress on policy solutions that will deliver more insurance choices, better healthcare, and lower costs while continuing to protect individuals with pre-existing conditions.