Tag Archives: IRS

IRS ANNUAL COST-OF-LIVING ADJUSTMENTS EMPLOYEE BENEFIT DOLLAR LIMITATIONS FOR 2019

EFFECTIVE: JANUARY 1, 2019

The IRS has released the 2019 cost-of-living adjustments applicable to the dollar limits and thresholds for retirement plans and health and welfare benefit plans.  Plan sponsors should update their systems and formulas to include the limits that have been adjusted.

To view the chart, click here.

Share Button

IRS Annual Cost-Of-Living Adjustments Employee Benefit Dollar Limitations for 2018

Making a few adjustments, the IRS has released the 2018 cost-of-living adjustments applicable to the dollar limits and thresholds for retirement plans and health and welfare benefit plans.  Plan sponsors should update their systems and formulas to include the limits that have been adjusted.

To view the chart, click here.

Share Button

IRS ANNUAL COST-OF-LIVING ADJUSTMENTS EMPLOYEE BENEFIT DOLLAR LIMITATIONS FOR 2017

Cost-of-LivingMaking a few adjustments, the IRS has released the 2017 cost-of-living adjustments applicable to the dollar limits and thresholds for retirement plans and health and welfare benefit plans. Plan sponsors should update their systems and formulas to include the limits that have been adjusted.

To view the chart, click here.

Share Button

IRS ANNUAL COST-OF-LIVING ADJUSTMENTS EMPLOYEE BENEFIT DOLLAR LIMITATIONS FOR 2016

Cost-of-LivingThe IRS has released the 2016 cost-of-living adjustments applicable to the dollar limits and thresholds for retirement plans and health and welfare benefit plans.  Plan sponsors should update their systems and formulas to include the limits that have been adjusted.  Generally, the limits have remained the same as 2015.

To view the chart, click here.

Share Button

IRS Limits Scope of Determination Letter Program

irsDue to limited resources and a need for greater efficiency, the IRS recently announced it will be eliminating the staggered five-year determination letter remedial amendment cycles for individually designed retirement plans in order to cut back on determination letter applications. Effective January 31, 2017, the IRS will be limiting the scope of the determination letter program to initial plan qualification and qualification upon plan termination. Effective July 21, 2015 through December 31, 2016, the IRS will no longer accept “off-cycle” determination letter applications.

The IRS will allow “Cycle A” plans (certain plans sponsored by controlled groups or plan sponsors with EINs ending in 1 or 6) to submit determination letter applications between February 1, 2016 and January 31, 2017 to ensure a smooth transition to the revised program. Furthermore, the IRS recognizes that there will be other, limited circumstances in which plan sponsors may need permission to submit determination letter applications. Therefore, the IRS has requested that comments be submitted regarding the new program and issued specific questions that it would like the comments to address:

  • What changes should be made to the remedial amendment period that would otherwise apply to individually designed plans under Section 401(b)?
  • What additional considerations should be taken into account in connection with the current interim amendment requirement?
  • What guidance do plan sponsors think would be helpful in converting an individually designed plan to a pre-approved plan?
  • What changes should be made to other IRS programs to facilitate the new changes?

While there are many questions about the revised program that the IRS still needs to answer, companies should start thinking about the ways in which this will affect their individually-designed retirement plans. If your company has a “Cycle A” plan, any final 5-year cycle determination letter applications should be filed according to the transition rule. Additionally, any company with a “Cycle E” plan should file its application by January 31, 2016.

Share Button

When Bad Things Happen To Good Plans: IRS Enhances Plan Correction Methods

Corrective Action

The Employee Plans Compliance Resolution System (“EPCRS”) is a program offered by the IRS that allows plan sponsors to correct retirement plan compliance violations on a voluntary basis. Plan sponsors whose plans experience operational errors or mistakes can avail themselves of EPCRS and pay a penalty that is a fraction of the penalty that would otherwise be assessed if the defect is discovered under an IRS audit. In some cases, if the defect qualifies for self-correction without IRS approval, the sanction or penalty can be entirely avoided.

EPCRS continues to improve as a very beneficial tool for plan sponsors who desire to maintain legal compliance in a complex regulatory environment. Most recently, the IRS published two new Revenue Procedures, which serve to further entice plan sponsors to utilize EPCRS by expanding the program and lowering the cost of certain corrections. The opportunity to correct certain defects in accordance with the Revenue Procedures is available immediately. This article provides a brief summary of the more pertinent enhancements to EPCRS offered by the Revenue Procedures.

Employee Elective Deferral (401(k)) Contributions

A common plan error is the failure on the part of the plan sponsor to accurately honor the salary deferral election of eligible employees in a 401(k) plan. Before the issuance of the Revenue Procedures, the permitted corrective measure under EPCRS was for the plan sponsor to contribute 50% of the amount that should have been contributed and the full matching contribution that would have been contributed if the participant’s election had been followed. These corrective contributions were adjusted for earnings.

The justification by the IRS for requiring the 50% contribution in lieu of the elective deferral is that even though the participant received the cash amount that should have been deferred, the participant was deprived of the tax deferred savings opportunity. Recognizing that the 50% could be considered a “wind-fall” for the participant, the Revenue Procedures provide that if the correct deferral amount begins not later than the first payroll after a three month period after the failure first occurred, only the corrective matching contribution is required. If the correction is made after three months, the corrective percentage for missed deferrals is 25% rather than 50%. In order to be eligible for the lower 25% correction percentage, the following conditions apply:

  • The participant election must be followed not later than the first payroll after the second year following the year the failure occurred or, if the plan sponsor is notified by the employee, the first payroll made after the month of the notification;
  • The corrective contribution must be made before the last day of the second plan year after the year of the failure and, in no case, after the plan or plan sponsor is under examination by the IRS; and
  • Corrective contributions for missed matching contributions are made in accordance with existing EPCRS rules and all corrective contributions are adjusted for earnings.

Regardless of whether the correction is made within the first 3 months or the second year following the initial failure, notice of the failure must be provided to the employee no later than 45 days after the date the correct deferrals begin.

Automatic Enrollment/Contributions

Recognizing that automatic enrollment errors are common, the Revenue Procedures provide significant relief with respect to the available correction method for failure by a plan sponsor to implement a plan’s automatic contribution feature. The Revenue Procedures provide that where the failure to implement a plan’s automatic contribution feature does not extend beyond 9½ months after the end of the plan year during which the failure occurs, no corrective contribution is required to be made by the plan sponsor if:

  • The correct deferrals begin no later than the end of the 9½ month period after the end of the plan year in which the failure first occurred or the first payroll date after the end of the month the plan sponsor is notified of the failure by the affected employee;
  • Notice of the failure is provided to the affected employee no later than 45 days after the date the correct deferral amount begins; and
  • Corrective contributions for missed matching contributions are made in accordance with the existing EPCRS rules and all corrective contributions are adjusted for earnings.

Other Revisions

The Revenue Procedures include several other revisions to the correction methods including an extended period to correct excess annual additions, reduced sanctions for required minimum distribution and participant loan violations under certain conditions, clarification regarding the plan sponsor’s duty to collect excess distributions, a new permitted method for calculating lost earnings in some situations and a variety of procedural changes.

Summary

The revisions to EPCRS by the recently released Revenue Procedures provide an impetus to plan sponsors to utilize the IRS voluntary correction program and to make the corrections sooner rather than later. By catching errors within the stated timeframes, plan sponsors can significantly reduce the cost of correction. The regulatory environment surrounding retirement plans is vast and complex; however, when errors occur, prompt correction can serve to significantly reduce and eliminate further costs and financial exposure. If you have questions regarding the IRS plan correction program, please feel free to contact one of our employee benefits lawyers or your McGrath North attorney.

Share Button

New IRS Plan Limits Announced for 2015

2015IRSlimitsOn October 23, 2014, the IRS released the new plan limits for 2015.  The following is a brief summary of the changes in retirement plan limits:

  1. Salary deferral contributions have been increased from $17,500 to $18,000.  This salary deferral limit applies to 401(k), 403(b), and eligible 457(b) plans.
  2. Catch-up contribution limits for those age 50 and over has been increased from $5,500 to $6,000.  This limit also applies to 401(k), 403(b), and eligible 457(b) plans.
  3. The total contribution limit for defined contribution plans in 2015 has been increased from $52,000 to $53,000.  Note, the limit on contributions is the lesser of 100% of compensation or $53,000 for a defined contribution plan in 2015.
  4. The annual compensation limit has been increased from $260,000 to $265,000.  Note, this means that any compensation paid over and above $265,000 may not be taken into account in calculating contributions to a defined contribution plan.
  5. The dollar limit for the definition of key employee in a top-heavy plan is unchanged at $170,000.
  6. The definition of HCE (highly compensated employee) has been increased from $115,000 to $120,000.
  7. The limit on the annual benefit under a defined benefit pension plan remains unchanged at $210,000 for 2015.
  8. The annual limit on contributions to an IRA remains unchanged at $5,500 and the catch-up contribution for those 50 and over stays at $1,000.
  9. The taxable wage base is increasing from $117,000 to $118,500 by the Social Security Administration for 2015.

These are just a few of the changes in plan limits (or lack of changes) for 2015.  If you have any questions or need any additional information on other adjustments for 2015, please do not hesitate to give us a call.

Share Button

Beware Upcoming 409A Audits

audit

The IRS recently announced that it is rolling out a formal compliance initiative examining selected employers and their deferred compensation arrangements that are subject to Code Section 409A of the Internal Revenue Code.  As many of you know, Code Section 409A applies to non-qualified deferred compensation arrangements and contains very specific and complicated rules relating to the ability of an employer, employee, or other service provider to defer the receipt of certain compensation to later tax years.  Compensation that is deferred and not documented or operated in a manner that is consistent with the rules of Code Section 409A will be immediately included in the employee’s income, even where the amount has not actually been paid to the employee, and the amount will also be subject to an additional 20% tax and penalty interest.  In light of this recent announcement, we are encouraging all of our clients to review their deferred compensation arrangements to ensure compliance with the complex rules contained in Code Section 409A.

Share Button