IRS Issues 2017 “Required Amendments List”

The IRS has issued the 2017 “Required Amendments List” for qualified plans. This is the second list issued since the IRS eliminated the five-year remedial amendment cycle and significantly curtailed the favorable determination letter program for individually designed plans. The IRS will issue a new List each year.

This new List, set forth in Notice 2017-72 contains amendments that are required as a result of changes in qualification requirements that become effective on or after January 1, 2017. The plan amendment deadline for a disqualifying provision arising as a result of a change in qualification requirements that appears on the 2017 List must be adopted by December 31, 2019.

The Required Amendments List is divided into two parts:

Part A lists the changes that would require an amendment to most plans or to most plans of the type affected by the particular change. Part A of the 2017 List contains two changes applicable to most plans of the type affected by the changes:

Final regulations regarding cash balance/hybrid plans. Cash balance/hybrid plans must be amended to the extent necessary to comply with those portions of the regulations regarding market rate of return and other requirements that first become applicable to the plan for the plan year beginning in 2017. (This requirement does not apply to those collectively bargained plans that do not become subject to these portions of the regulations until 2018 or 2019 under the extended applicability dates provided in § 1.411(b)(5)-1(f)(2)(B)(3).)

Note: The relief from the anti-cutback requirements of § 411(d)(6) provided in § 1.411(b)(5)-1(e)(3)(vi) applies only to plan amendments that are adopted before the effective date of these regulations.

Note: See also Notice 2016-67, which addresses the applicability of the market rate of return rules to implicit interest pension equity plans.

• Benefit restrictions for certain defined benefit plans that are eligible cooperative plans or eligible charity plans described in section 104 of the Pension Protection Act of 2006, as amended (“PPA”)). An eligible cooperative plan or eligible charity plan that was not subject to the benefit restrictions of § 436 for the 2016 plan year under § 104 of PPA ordinarily becomes subject to those restrictions for plan years beginning on or after January 1, 2017. However, a plan that fits within the definition of a “CSEC plan” (as defined in § 414(y)) continues not to be subject to those rules unless the plan sponsor has made an election for the plan not to be treated as a CSEC plan.

Part B lists changes that the Treasury Department and IRS do not anticipate will require amendments in most plans, but might require an amendment because of an unusual plan provision in a particular plan. Part B of the 2017 List contains a single change that may apply to certain defined benefit plans as follows:

Final regulations regarding partial annuity distribution options for defined benefit pension plans (81 Fed. Reg.  62359). Defined benefit plans that permit benefits to be paid partly in the form of an annuity and partly as a single sum (or other accelerated form) must do so in a manner that complies with the § 417(e) regulations. Section 1.417(e)-1(d)(7) provides rules under which the minimum present value rules of § 417(e)(3) apply to the distribution of only a portion of a participant’s accrued benefit.

Section 1.417(e)-1(d)(7) applies to distributions with annuity starting dates in plan years beginning on or after January 1, 2017, but taxpayers may elect to apply § 1.417(e)-1(d)(7) with respect to any earlier period.

Note: The regulations provide relief from the anti-cutback rules of § 411(d)(6) for certain amendments adopted on or before December 31, 2017.

Note: Model  amendments that a sponsor of a qualified defined benefit plan may use to amend its plan to offer bifurcated benefit  distribution options in accordance with these final regulations are provided in Notice 2017-44.

Additional Background

In Rev. Proc. 2016-37, the IRS eliminated, effective January 1, 2017, the five-year remedial amendment/determination letter cycle for individually-designed qualified plans. After January 1, 2017, individually-designed plans will only be able to apply for a determination letter upon initial qualification, upon termination, and in certain other circumstances that the IRS may announce from time to time. See Announcement 2015-19.

To provide individually designed plans with guidance on what amendments must be adopted and when, the IRS announced that it would publish annually a Required Amendments List. The Required Amendments List generally applies to changes in qualification requirements that become effective on or after January 1, 2016. The List also establishes the date that the remedial amendment period expires for changes in qualification requirements contained on the list. Generally, an item will be included on a Required Amendments List only after guidance (including any model amendment) has been issued.

Where a required amendment appears on the List, then for an individually-designed non-governmental plan, the deadline to adopt the amendment is extended to the end of the second calendar year that begins after the issuance of the Required Amendments List in which the change in qualification requirements appear (i.e. until December 31, 2018 for items on the 2016 List; and until December 31, 2019 for items on the 2017 List.)

See our prior post regarding the 2016 Required Amendment List Here.

Updated Form 5500s Released for 2017

The U.S. Department of Labor’s Employee Benefits Security Administration, the IRS, and the Pension Benefit Guaranty Corporation (PBGC) have releasedadvance informational copies of the 2017 Form 5500 annual return/report and related instructions. The “Changes to Note” section of the 2017 instructions highlight important modifications to the Form 5500 and Form 5500-SF and their schedules and instructions.

Modifications are as follows:

  • IRS-Only Questions. IRS-only questions that filers were not required to complete on the 2016 Form 5500 have been removed from the Form 5500, Form 5500-SF and Schedules, including preparer information, trust information, Schedules H and I, lines 4o, and Schedule R, Part VII, regarding the IRS Compliance questions (Part IX of the 2016 Form 5500-SF).
  • Authorized Service Provider Signatures. The instructions for authorized service provider signatures have been updated to reflect the ability for service providers to sign electronic filings on the plan sponsor and Direct Filing Entity (DFE) lines, where applicable, in addition to signing on behalf of plan administrators.
  • Administrative Penalties. The instructions have been updated to reflect an increase in the maximum civil penalty amount under ERISA Section 502(c)(2), as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Department regulations published on Jan. 18, 2017, increased the maximum penalty to $2,097 a day for a plan administrator who fails or refuses to file a complete or accurate Form 5500 report. The increased penalty under section 502(c)(2) is applicable for civil penalties assessed after Jan. 13, 2017, whose associated violation(s) occurred after Nov. 2, 2015 – the date of enactment of the 2015 Inflation Adjustment Act.
  • Form 5500/5500-SF-Plan Name Change. Line 4 of the Form 5500 and Form 5500-SF have been changed to provide a field for filers to indicate the name of the plan has changed. The instructions for line 4 have been updated to reflect the change. The instructions for line 1a have also been updated to advise filers that if the plan changed its name from the prior year filing(s), complete line 4 to indicate that the plan was previously identified by a different name.
  • Schedule MB. The instructions for line 6c have been updated to add mortality codes for several variants of the RP-2014 mortality table and to add a description of the mortality projection technique and scale to the Schedule MB, line 6 – Statement of Actuarial Assumptions/Methods.
    Form 5500-SF-Line 6c. Line 6c has been modified to add a new question for defined benefit plans that answer “Yes” to the existing question about whether the plan is covered under the PBGC insurance program. The new question asks PBGC-covered plans to enter the confirmation number – generated in the “My Plan Administration Account system” – for the PBGC premium filing for the plan year to which the 5500-SF applies. For example, the confirmation number for the 2017 premium filing is reported on the 2017 Form 5500-SF.

Information copies of the forms, schedules and instructions are available online

IRS Announces 2018 COLA Adjusted Limits for Retirement Plans

The IRS has released Notice 2017-64 announcing cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2018.

Highlights Affecting Plan Sponsors of Qualified Plans for 2018

  • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from  $18,000 to $18,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,000.
  • The limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $215,000 to $220,000.
  • The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2017 from $54,000 to $55,000.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $270,000 to $275,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $175,000.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $120,000.
  • The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5‑year distribution period is increased from $1,080,000 to $1,105,000, while the dollar amount used to determine the lengthening of the 5‑year distribution period is increased from $215,000 to $220,000.
  • The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,500.

The IRS previously Updated Health Savings Account limits for 2018. See our post here.

The following chart summarizes various significant benefit Plan limits for 2016 through 2018:

Type of Limitation 2018 2017 2016
415 Defined Benefit Plans $220,000 $215,000 $210,000
415 Defined Contribution Plans $55,000 $54,000 $53,000
Defined Contribution Elective Deferrals $18,500 $18,000 $18,000
Defined Contribution Catch-Up Deferrals $6,000 $6,000 $6,000
SIMPLE Employee Deferrals $12,500 $12,500 $12,500
SIMPLE Catch-Up Deferrals $3,000 $3,000 $3,000
Annual Compensation Limit $275,000 $270,000 $265,000
SEP Minimum Compensation $600 $600 $600
SEP Annual Compensation Limit $275,000 $270,000 $265,000
Highly Compensated $120,000 $120,000 $120,000
Key Employee (Officer) $175,000 $175,000 $170,000
Income Subject To Social Security Tax  (FICA) $128,400 $127,200 $118,500
Social Security (FICA) Tax For ER & EE (each pays) 6.20% 6.20% 6.20%
Social Security (Med. HI) Tax For ERs & EEs (each pays) 1.45% 1.45% 1.45%
SECA (FICA Portion) for Self-Employed 12.40% 12.40% 12.40%
SECA (Med. HI Portion) For Self-Employed 2.9% 2.9% 2.90%
IRA Contribution $5,500 $5,500 $5,500
IRA Catch-Ip Contribution $1,000 $1,000 $1,000
HSA Max. Contributions Single/Family Coverage $3,450/ $6,900 $3,400/ $6,750 $3,350/ $6,750
HSA Catchup Contributions $1,000 $1,000 $1,000
HSA Min. Annual Deductible Single/Family $1,350/ $2,700 $1,300/ $2,600 $1,300/ $2,600
HSA Max. Out Of Pocket Single/Family $6,650/ $13,300 $6,550/ $13,100 $6,550/ $13,100

 

Attorney Erwin Kratz Named to the Best Lawyers in America© 2018

ERISA Benefits Law attorney Erwin Kratz was recently selected by his peers for inclusion in The Best Lawyers in America© 2018 in the practice area of Employee Benefits (ERISA) Law. Mr. Kratz has been continuously listed on The Best Lawyers in America list since 2010.

Since it was first published in 1983, Best Lawyers® has become universally regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Lawyers are not required or allowed to pay a fee to be listed; therefore inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”

Supreme Court Rules ERISA-Exempt “Church Plan” Includes Plan Maintained by Church-Affilaited Organizations (like hospitals and schools)

The United States Supreme Court has held, in Advocate Health Care Network v Stapleton that a benefit plan maintained by a church-affiliated organization, whose principal purpose is to fund or administer a benefits plan for the employees of either a church or a church-affiliated nonprofit (a “principal purpose organization”) is a church plan under ERISA Section 3(33), regardless of who established the Plan. This is in accordance with the long-standing regulatory position adopted by the IRS, Department of Labor and PBGC.

Background on ERISA’s Church Plan Exception

ERISA generally obligates private employers offering pension plans to adhere to an array of rules designed to ensure plan solvency and protect plan participants. “Church plans” however, are exempt from those regulations.

From the beginning, ERISA  defined a “church plan” as “a plan established and maintained . . . for its employees . . . by a church.”  Congress then amended the statute to expand that definition in two ways:

  • “A plan established and maintained for its employees . . . by a church . . . includes a plan maintained by an organization . . . the principal purpose . . . of which is the administration or funding of [such] plan . . . for the employees of a church . . . , if such organization is controlled by or associated with a church.” (The opinion refers to these organizations  as “principal-purpose organizations.”)
  • An “employee of a church” includes an employee of a church-affiliated organization.

The Case

The Petitioners in Advocate Health Care Network v Stapleton were three church-affiliated nonprofits that run hospitals and other healthcare facilities, and offer their employees defined-benefit pension plans. Those plans were established by the hospitals themselves, and are managed by internal employee-benefits committees. Respondents, current and former hospital employees, filed class actions alleging that the hospitals’ pension plans do not fall within ERISA’s church plan exemption because they were not established by a church. The Supreme Court held for the hospitals, ruling that a plan maintained by a principal-purpose organization qualifies as a “church plan,” regardless of who established it. 

The Court reasoned that the term “church plan” initially “mean[t]” only “a plan established and maintained . . . by a church.” But the amendment provides that the original definitional phrase will now “include” another—“a plan maintained by [a principal-purpose] organization.” That use of the word “include” is not literal, but tells readers that a different type of plan should receive the same treatment (i.e., an exemption) as the type described in the old definition. In other words, because Congress deemed the category of plans “established and maintained by a church” to “include” plans “maintained by” principal purpose organizations, those plans—and all those plans—are exempt from ERISA’s requirements.

What Comes Next?

Advocate Health Care Network v Stapleton does not rule on what is or is not a “principle purpose organization”, and that is where we can expect future litigation to focus. The key question will be whether such organization is “controlled by or associated with a church.” Therefore, church-affiliated organizations, such as hospitals, schools, and social welfare agencies, that are relying on ERISA’s church plan exception ought to review their documentation and evidence of either control by or affiliation with a church.

IRS Provides Guidance on Calculating the Maximum Loan Amount under IRC § 72(p)(2)(A)

The IRS has issued a memorandum providing guidance to its Employee Plans (EP) Examinations staff to determine, the amount available for a loan under § 72(p)(2) of the Internal Revenue Code (IRC), where the participant has received multiple loans during the past year from a qualified plan.

Background
In general, IRC § 72(p)(1) provides that a loan from a plan is a distribution to the participant. IRC § 72(p)(2)(A) excepts a loan that does not exceed the lesser of:

(i) $50,000, reduced by any excess of

(I) the highest outstanding balance of loans during the 1-year period ending on the day before the date on which such loan was made, over

(II) the outstanding balance of loans on the date on which such loan was made; or

(ii) the greater of

(I) half of the present value of the vested accrued benefit, or

(II) $10,000.

Under IRC § 72(p)(2)(A)(i), if the initial loan is less than $50,000, the participant generally may borrow another loan within a year if the aggregate amount does not exceed $50,000. The $50,000 is reduced by the highest outstanding balance of loans during the 1-year period ending the day before the second loan, in turn reduced by the outstanding balance on the date of the second loan.

The guidance to EP examiners is best illustrated by an example: assume a participant borrowed $30,000 in February, which was fully repaid in April, and then borrowed $20,000 in May, which was fully repaid in July, before applying for a third loan in December.

In this example, the IRS instructs its examiners that the Plan can apply the limitations in one of two ways.

In the first approach, the plan may determine that no further loan would be available in December, since $30,000 + $20,000 = $50,000.

Alternatively, the plan may identify “the highest outstanding balance” as $30,000, and permit the third loan in the amount of $20,000 in December.

At this time, IRS EP examiners will accecpt the position that the law does not clearly preclude either computation of the highest outstanding loan balance in the above example.

President Orders Review of Fiduciary Duty Rule

On February 3, 2017, the President issued a Presidential Memorandum on the Fiduciary Duty Rule, ordering the Department of Labor (DOL) to “examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice”.

DOL Review

The memorandum directs the DOL to “prepare an updated economic and legal analysis concerning the impact of the Fiduciary Duty Rule”, considering whether the rule:

  • has harmed or is likely to harm investors due to a reduction in access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice;
  • has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees; or
  • is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.

Possible Revision or Rescission

The memorandum also instructs the DOL to rescind or revise the rule if it makes an affirmative determination as to any of the above considerations, or if it concludes for any other reason after appropriate review that the Fiduciary Duty Rule is inconsistent with the Administration’s stated priority “to empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build the individual wealth necessary to afford typical lifetime expenses, such as buying a home and paying for college, and to withstand unexpected financial emergencies”.

Possible Delay

While the Memorandum does not directly delay the rule, the acting U.S. Secretary of Labor, Ed Hugler, responded to the President’s direction through a News Release stating that “The Department of Labor will now consider its legal options to delay the applicability date as we comply with the President’s memorandum.”

While it is still unclear whether the DOL will delay the rule, it is entirely possible, likely even, that the DOL will delay the rule within the next few weeks. It is also a good bet that the DOL will ultimately make some revisions to the rule, even if they do not rescind it entirely. In the meantime, financial advisors and others subject to the Rule will need to evaluate their compliance efforts so that they remain as nimble as possible in the face of he constantly shifting regulatory sands.

Plan Sponsors and Plan Administrators should note that neither the Fiduciary Duty Rule, nor the potential impending changes to the rule, directly impact their responsibilities as plan fiduciaries, other than how the rule impacts those providing financial advice to Plan Sponsors and Administrators.

More:

DOL Conflict of Interest Final Rule Page

IRS Issues Updated Determination Letter Revenue Procedure

The IRS has updated and restated its revenue procedures governing determination letters for various types of employee benefit plans.

Rev. Proc. 2017-4 reflects the prior elimination of the five-year remedial amendment cycles for individually designed plans and includes other changes made to the determination letter program, including:

  • limited-scope determination letters on partial terminations if an employer is not otherwise eligible to request a determination letter;
  • determination letters on leased employees only if the employer is otherwise eligible to request a determination letter;
  • no determination letters on affiliated service groups; and
  • modified procedures for requesting relief from retroactive revocations of determination letters or letter rulings.

IRS Issues 2016 “Required Amendments List”

The IRS has issued its first “Required Amendments List” for qualified plans since it eliminated the five-year remedial amendment cycle, and significantly curtailed the favorable determination letter program for individually designed plans. The IRS will issue a new List each year.

This first List, set forth in Notice 2016-80 contains amendments that are required as a result of changes in qualification requirements that become effective on or after January 1, 2016. December 31, 2018 is the plan amendment deadline for a disqualifying provision arising as a result of a change in qualification requirements that appears on the 2016 List.

The Required Amendments List is divided into two parts:

Part A lists the changes that would require an amendment to most plans or to most plans of the type affected by the particular change. Part A of the 2016 List contains no changes applicable to most plans.

Part B lists changes that the Treasury Department and IRS do not anticipate will require amendments in most plans, but might require an amendment because of an unusual plan provision in a particular plan. Part B of the 2016 List contains a single change that may apply to certain collectively bargained defined benefit plans: Restrictions on accelerated distributions from underfunded single-employer plans in employer bankruptcy under Code § 436(d)(2), which was enacted as part of the Highway and Transportation Funding Act of 2014, P.L. 113-159, § 2003. Code Section provides (amendments made by P.L. 113-159, § 2003 in italics):

A defined benefit plan which is a single-employer plan shall provide that, during any period in which the plan sponsor is a debtor in a case under title 11, United States Code, or similar Federal or State law, the plan may not pay any prohibited payment. The preceding sentence shall not apply on or after the date on which the enrolled actuary of the plan certifies that the adjusted funding target attainment percentage of such plan (determined by not taking into account any adjustment of segment rates under section 430(h)(2)(C)(iv)) is not less than 100 percent.

Section 430(h)(2)(C)(iv) sets minimum and maximum and maximum rates for actuarial calculations of the funded status of defined benefit plans.

If a defined benefit plan incorporates the limitation of Section 436(d)(2) by reference to the statute or regulations (or through the use of the sample amendment in Notice 2011-96, which incorporated the statute and regulations), then no amendment to the plan would be required to comply with the changes.

Additional Background

In Rev. Proc. 2016-37, the IRS eliminated, effective January 1, 2017, the five-year remedial amendment/determination letter cycle for individually-designed qualified plans. After January 1, 2017, individually-designed plans will only be able to apply for a determination letter upon initial qualification, upon termination, and in certain other circumstances that the IRS may announce from time to time. See Announcement 2015-19.

To provide individually designed plans with guidance on what amendments must be adopted and when, the IRS announced that it would publish annually a Required Amendments List. The Required Amendments List generally applies to changes in qualification requirements that become effective on or after January 1, 2016. The List also establishes the date that the remedial amendment period expires for changes in qualification requirements contained on the list. Generally, an item will be included on a Required Amendments List only after guidance (including any model amendment) has been issued.

Where a required amendment appears on the List, then for an individually-designed non-governmental plan, the deadline to adopt the amendment is extended to the end of the second calendar year that begins after the issuance of the Required Amendments List in which the change in qualification requirements appear (i.e. until December 31, 2018 for items on the 2016 List).

ERISA Benefits Law Receives Recognition as a Top Tier Law firm in 2017 U.S. News – Best Lawyers® “Best Law Firms” Rankings

Just eight months after opening its doors as a niche ERISA and employee benefits law firm focused on providing the highest quality legal services at the most affordable rates anywhere, ERISA Benefits Law has been recognized as a top tier law firm in the 2017 U.S. News – Best Lawyers® “Best Law Firms” rankings. The firm received a Tier 1 metropolitan ranking in Tucson, Arizona in Employee Benefits (ERISA) Law.

The U.S. News – Best Lawyers “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process.