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IRS Releases 2015 COLAs for Benefit Plans
By: Jason Lacey

The IRS has released the annual cost of living adjustments for various benefit-plan limits. The adjusted amounts will apply for 2015. Here are the highlights:

  • Retirement plan elective deferrals (402(g) limit) - $18,000 ($500 increase)
  • Retirement plan catch-up contributions - $6,000 ($500)
  • Annual additions to a defined contribution plan (415 limit) - $53,000 ($1,000 increase)
  • Definition of highly compensated employee - $120,000 ($5,000 increase)
  • Annual compensation limit (401(a)(17) limit) - $265,000 ($5,000 increase)

For individuals age 50 and older, these increased limits represent the ability to electively contribute up to $24,000 to a 401(k) plan, 403(b) plan, or governmental 457(b) plan during 2015. 

Inflation-adjusted amounts for high deductible health plans (HDHPs) and health savings accounts (HSAs) were released earlier this year (see prior post here).

IRS Provides Guidance on Treatment of Same-Sex Spouses In Retirement Plans
By: Jason Lacey

The IRS released its long-anticipated guidance today on the impact of the Windsor case to qualified retirement plans. The guidance resolves a potentially thorny issue on retroactive recognition of same-sex marriages and clarifies when plans must adopt any amendments required to comply with Windsor. Here are the highlights:

Retroactivity Permitted But Not Required. Plans are not required to recognize same-sex marriages for any period before June 26, 2013 (the date of the Windsor decision). They are permitted to designate an earlier date as of which same-sex marriages will be recognized for plan purposes, although the guidance observes that recognizing same-sex marriages for all purposes as of a date earlier than June 26, 2013 may trigger requirements that are difficult to implement retroactively and may create unintended consequences, so caution must be exercised. 

Amendments May Not Be Necessary. A plan must be amended to reflect the outcome in Windsor only if the plan terms are inconsistent with Windsor. For example, a plan that defines a spouse as only a person of the opposite sex would be inconsistent with the outcome in Windsor. But a plan that merely uses the term "spouse" or "lawful spouse" without limiting it to persons of the opposite sex may be ok.

Amendment Timing. To the extent an amendment is required, it generally must be adopted by December 31, 2014. (Special rules may apply for non-calendar-year plans and governmental plans.)

Health and Welfare Plans Unaffected. This guidance addresses only retirement plans and does not impact health and welfare plans. 

The IRS's notice (Notice      Continue Reading...

Supreme Court Invalidates DOMA
By: Jason Lacey

In a closely watched and sharply divided opinion today, the Supreme Court invalidated the federal Defense of Marriage Act (DOMA) and its directive that only opposite-sex spouses may be recognized as spouses for purposes of federal law. Although the details and impact of the decision are still being parsed and evaluated, the bottom line is that same-sex couples who are recognized as validly married under state law are entitled to be recognized as spouses for purposes of federal law.

Brief Background. The case involved a same-sex couple, Edith Windsor and Thea Spyer, who had been married in Canada and whose marriage was recognized as valid under New York law, where they lived. Ms. Spyer died and left her estate to Ms. Windsor, who was required to pay federal estate tax because, under DOMA, she could not rely on an estate tax exception that allows for tax-free transfers of property between spouses at death. She sued for a refund of the taxes, claiming DOMA was unconstitutional.

The Court’s Analysis. Five of the nine Supreme Court justices agreed that DOMA was unconstitutional because it violated the equal protection rights of same-sex individuals who were recognized under state law as validly married. The Court essentially said that if a same-sex couple and an opposite-sex couple are treated the same under state law, they are constitutionally entitled to equal treatment under federal law.

Implication for Employee Benefit Plans. The case has many implications for employee benefit plans. For health plans, qualifying same-sex spouses that are covered under      Continue Reading...

Forgot to File Form 5500? There's an App For That.
By: Jason Lacey

Most employee benefit plans that are subject to ERISA are required to file Form 5500. This includes both retirement plans (including most 403(b) plans) and welfare-benefit plans, although many welfare-benefit plans covering fewer than 100 participants are exempt.

The failure to file Form 5500 can result in serious penalties. The DOL currently assesses a penalty of $300 per day, up to $30,000 per year for a failure to file Form 5500. Ouch.

But there is good news. The DOL maintains a voluntary compliance program that allows employers to correct a failure to file Form 5500 and pay a substantially reduced fee. Even in cases where there have been failures to file Form 5500 over multiple years, the maximum fee under the program is only $4,000. That's still a lot of money, but it's better than staring down something approaching a 6-digit penalty.

The program was recently updated (see here). The technical details of how the program works and what has changed will not be of interest to most of you. But it's a good time to remind ourselves the program exists - and should be used whenever possible.

Do You Have a Written Plan Document for Your 403(b) Plan?
By: Jason Lacey

If you sponsor a 403(b) retirement plan - which might be the case if you are a 501(c)(3) organization or a governmental educational agency - you are required to maintain a written plan document for the plan. This hasn't always been the law, however. The plan-document requirement began in 2009 when the current 403(b) regulations went into effect.

Some plans have yet to come into compliance with this rule. In most cases this is not due to willful disregard of the law. Rather, plan sponsors may not understand the requirement or - more likely - they may think they have a plan document, because they have entered into an annuity contract or custodial agreement with the investment provider for the plan. But that contract typically will not satisfy all the requirements of a plan document. 

Well, if you happen to sponsor a 403(b) plan that hasn't yet fully complied with the plan-document requirement, the IRS has a deal for you. Under a recently released update to its Employee Plans Compliance Resolution System or "EPCRS" (see here), the IRS has outlined a specific procedure for correcting this problem. It requires filing an application with the IRS and paying a fee. But the relief and peace of mind it provides is nearly priceless.

And there's even better news: If you file your application to correct this problem by December 31, 2013, the required fee is half of what it would be normally. For example, a plan with 51 to 100 participants would typically pay      Continue Reading...

Hurricane Sandy Relief for Retirement Plan Loans and Hardship Distributions
By: Jason Lacey

The IRS has issued guidance temporarily relaxing certain requirements related to loans and hardship distributions from 401(k), 403(b), and governmental 457(b) plans, in an effort to make those funds more readily available to individuals affected by Hurricane Sandy. The new rules apply to loans and hardship distributions made between October 26, 2012 and February 1, 2013, if they are made for the purpose of assisting plan participants or their family members who live or work in a Sandy-related federally declared disaster area.

As described in an IRS news release:

“This broad-based relief means that a retirement plan can allow a Sandy victim to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.”

Highlights of the specific relief provided:

Plan Amendment. Plans can make qualifying loans or hardship distributions before the plan document has been formally amended to allow for loans or hardship distributions, so long as an amendment is made by the end of the first plan year beginning after December 31, 2012.
Broader Hardship Standards. Hardship distributions can be made for any Sandy-related hardship, not just the “safe harbor” hardship standards typically relied upon.
Relaxed Documentation Requirements. Documentation and procedural requirements related to hardship distributions      Continue Reading...

Retirement Plan Cost-of-Living Adjustments Released for 2013
By: Jason Lacey

The IRS has released its annual cost-of-living adjustments for retirement plans for 2013. Among the highlights:

  • The annual limit on elective contributions (other than catch-up contributions) to a 401(k), 403(b), or 457(b) plan has increased to $17,500.
  • The annual limit on catch-up contributions (for plan participants age 50 or older) remains the same at $5,500.
  • The maximum amount of annual additions that may be made to a defined contribution plan (the "415 limit") has increased to $51,000.
  • The maximum amount of compensation that may be taken into account for the year (the "401(a)(17) limit") has increased to $255,000.
  • The compensation threshold for identifying certain highly compensated employees remains the same at $115,000.

Separately, the Social Security Administration announced that the Social Security taxable wage base will increase to $113,700 for 2013 - up from $110,100 in 2012. In addition to affecting certain retirement-plan contributions, this impacts the amount of wages and earned income that are subject to the Social Security portion of the FICA and SECA taxes.

IRS Releases 403(b) Plan Checklist
By: Jason Lacey

The IRS has posted a new 403(b) Plan Checklist to its website. It is a list of 10 common operational problems, intended as a "quick tool" to help employers spot check for key compliance issues. 

Among the issues identified:

  • Is the employer eligible to sponsor a 403(b) plan?
  • Is the plan complying with the "universal availability" requirement?
  • Are employee contributions being monitored and appropriately limited?
  • Are the dollar limits on plan loans being monitored and repayments enforced?
  • Is the plan obtaining proper substantiation of hardship withdrawals?

A key issue that is NOT addressed on the checklist is the written-plan requirement. Since 2009, IRS regulations have required that 403(b) plans be maintained under a written plan document. Although it's a fairly simple requirement to comply with, it has been often overlooked. But you can be sure the IRS will check for a written document in every 403(b) examination it conducts.

Employers that sponsor 403(b) plans would be well-advised to use this checklist to conduct a mini self-audit at least once a year. Any issues that may be identified are much easier to resolve through voluntary correction than if the IRS discovers them on audit.

DOL Clarifies Non-ERISA Safe Harbor for 403(b) Plans
By: Jason Lacey

In a recent advisory opinion, the U.S. Department of Labor (DOL) clarified the scope of its regulation on non-ERISA 403(b) plans. Under that regulation, certain 403(b) plans sponsored by 501(c)(3) organizations are considered exempt from ERISA. Among other things, the plans must be voluntary, must only allow for employee contributions (no employer contributions), and must limit other employer involvement.

The new advisory opinion describes an employer that maintains two plans: a 403(b) plan that allows for only employee salary-reduction contributions and a separate 401(a) qualified retirement plan through which employees receive matching contributions based on their contributions to the 403(b) plan. The DOL noted that simply maintaining two plans did not preclude the 403(b) plan from qualifying for the non-ERISA safe harbor. But in this case the close relationship between the two plans caused the 403(b) plan to fail the safe harbor. Specifically, the coordinated matching contribution provided through the 401(a) plan was too much employer involvement and caused the 403(b) plan not to be strictly "voluntary".


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Don Berner, the Labor Law, OSHA, & Immigration Law Guy
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Boyd Byers, the General Employment Law Guy
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Jason Lacey, the Employee Benefits Guy
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