Industry & Regulatory News

IRS Says 2017 IRA and HSA Contribution Deadline Was April 17 Despite Accepting Returns on April 18

Although the IRS has yet to release official word, an agency representative confirmed to Ascensus that the deadline to make 2017 IRA and HSA contributions was not extended from April 17 to April 18, despite the agency having announced an that it would accept 2017 tax returns by midnight on April 18. The reason for the tax return extension was a systems failure preventing processing of returns. The deadline for IRA and HSA contributions generally is the date that income tax returns must be filed.

The IRS representative informed Ascensus that the agency determined these contribution deadlines for 2017 would remain April 17 because a taxpayer’s ability to make contributions was not affected by the IRS’s systems failure. The decision was said to be communicated to IRS staff at mid-day today (April 19).


SEC Proposes Regulations to Govern Investment Advising Relationships

Following a near-unanimous 4-1 vote, the Securities and Exchange Commission (SEC) is issuing proposed regulations intended to govern relationships between investment professionals and the investors they serve. These regulations are seen by many as an alternative to the Department of Labor (DOL) investment fiduciary regulations and prohibited transaction exemption guidance package. (Full enforcement of the DOL guidance is currently suspended, with less stringent advisor standards through July 1, 2019, with the prospect that they may be significantly modified or withdrawn.)

The SEC has for some time been expected to act on its own to propose standards for investment advising relationships, having been given a directive to do so under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The SEC, in fact, held a public hearing yesterday, Wednesday (April 18, 2018), on standards for relationships between investors and broker-dealers or investment advisors. Some opponents of the DOL’s investment advice guidance had long argued that it is more properly the province of the SEC to regulate investment advising relationships, including advice given to retirement savers.

The SEC release includes three documents.

Under the proposed SEC regulations, broker dealers would be required to put investors’ interests before their own. In addition, the proposal would clarify the SEC’s views on the application of the fiduciary duties and standards that investment advisers owe their clients. The regulations also aim to clarify investor confusion about their relationship with investment professionals, and propose to restrict some broker-dealers and their associated financial professionals from using the term “adviser” or “advisor” as part of their name. Finally, the proposal would require firms to disclose their registration status with the SEC.

Public comments will be accepted for a 90-day period following publication of the proposal in the Federal Register. The SEC will then determine its next steps.

IRS Testimony Before House Committee Hints at More Retirement Plan Self-Correction

An IRS representative speaking yesterday (April 17, 2018) at a hearing of the House of Representatives’ Small Business Subcommittee on Economic Growth, Tax and Capital Access, told lawmakers that the IRS is considering ways in which the retirement plan correction option known as “self-correction” could be expanded.

The IRS representative indicated that discussions will take place in meetings planned with business groups in May about options for expanding plan self-correction. Self-correction is one of the options within the IRS’s Employee Plans Compliance Resolution System (EPCRS). Only a limited number of plan operational failures currently may be remedied through self-correction, meaning without direct communication with the IRS and accompanied by payment of a correction program fee.

Expanding self-correction options would likely be applauded by certain employers that now face increased fees if they correct plan failures under the IRS’s popular alternative Voluntary Correction Program (VCP) option. Under VCP an employer submits an application for correction to the IRS, and if approved, has assurance that the failure will not disqualify the plan or result in other potentially greater sanctions.

In January the IRS announced a new VCP fee structure based on plan assets, rather than the former structure based on the number of plan participants. Eliminated under the new structure, too, were several exceptions that carried a fixed or reduced general fee, including amendment and loan failures. As a result, many smaller employers now face significantly higher fees to correct operational failures under the VCP program. Vigorous criticism of the fee revisions affecting these employers may be one of the motivations for the IRS considering allowing more plan failures to be remedied through self-correction.

IRS Extends Tax Filing and Payment Deadline to Today Due to Internal Processing Disruption

The IRS has announced a one-day extension of this year’s tax return filing and payment deadline—to today, April 18—due to internal tax return processing difficulties. Thus, Wednesday, April 18 at midnight, is the new filing and payment deadline for individuals and for businesses to which this deadline would apply. No extra action on the part of filers is required, the IRS noted.

The announcement did not state whether the IRA or health savings account (HSA) prior-year contribution deadline, which by statute is the tax return deadline not including extensions, is extended. Ascensus has reached out to its IRS contacts for clarification.

Because the IRS announced this extension late last night, most account owners intending to make prior-year contributions would have already completed these transactions before the decision was made to extend the filing deadline.

Watch this news for more details.

Treasury Regulations to Receive More Scrutiny by OMB

Under an agreement announced today (April 12) by the Treasury Department and the White House Office of Management and Budget (OMB), many future Treasury regulations are likely to receive more extensive review before release. The agreement reflects an April 2017 executive order of President Trump to review a policy that since 1983 had allowed for expedited issuance of certain Treasury regulations.

Under the new policy announced today, most Treasury regulations will be subject to a 45-day review by OMB’s Office of Information and Regulatory Affairs (OIRA) before publication in the Federal Register. (An exception is to be made for Treasury regulations that pertain to the Tax Cuts and Jobs Act, tax reform legislation enacted in December of 2017, as such regulations would instead be subject to a 10-day expedited review process.)

According to the agreement, OMB’s 45-day review is to take the following questions into consideration.

  • Will the proposed Treasury regulation create an inconsistency with regulations planned by another federal agency?
  • Could the regulation “raise novel legal or policy issues?”
  • Is the regulation expected to have an impact on the economy of $100 million or more?

SEC to Hold Hearing on Investment Advice Standards

The Securities and Exchange Commission (SEC) announced that it has scheduled a public hearing to be held Wednesday, April 18, on standards for relationships between investors and broker-dealers or investment advisors.

The SEC was given a directive by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to consider standards for advice provided to investors, an initiative that until now has not been taken up by the SEC. In the interim, the Department of Labor (DOL) proposed and finalized guidance on investment advice standards that specifically apply to retirement savings investors. Much of this DOL guidance is technically in effect, but enforceable only to a limited extent during an interim period through July 1, 2019—many expect that its most restrictive provisions may never be implemented.

Some opponents of the DOL’s regulations and prohibited transaction exemption package had argued that it was more properly the province of the SEC to regulate investment advice, including advice given to retirement savers.

The public hearing scheduled by the SEC for April 18 is announced as intended to address the following issues.

  • Whether existing rules should be amended to require broker-dealers and registered investment advisors to provide a brief summary of their relationship with the investor
  • Whether the SEC should propose regulations establishing a standard of conduct for broker-dealers (and their agents) when making recommendations for investments or investment strategies
  • Whether to propose an official SEC interpretation of standards of conduct for investment advisors

The hearing is to be held at the SEC’s Washington, D.C., headquarters.

ERISA Advisory Group Recommends Streamlining Retirement Plan Disclosure Process

The ERISA Advisory Council in late 2017 issued a report recommending that the Department of Labor (DOL) take certain steps to enhance the process of providing mandated retirement plan disclosures.

The Council itself is a body composed of representatives from several financial services disciplines, representatives from employers and from employee organizations, and the general public. The Council was created by the 1974 ERISA legislation that governs tax-favored retirement savings plans with its purpose being to advise the Secretary of Labor in matters pertaining to ERISA governance of these plans.

This study, entitled Mandated Disclosure for Retirement Plans – Enhancing Effectiveness for Participants and Sponsors, makes several recommendations, including the following.

  • Explore more fully the option of providing disclosures to participants by electronic means, with the objective of reducing burdens on plan sponsors and helping participants better understand their benefits.
  • Combine elements of a plan’s Summary Plan Description and Summary of Material Modifications documents into a single, more readable “quick reference guide” to be distributed to plan participants annually.
  • Create an alternative to the current requirement to provide to participants a Summary Annual Report, which contains selected information from a plan’s filing of Form 5500, Annual Return/Report of Employee Benefit Plan. An alternative proposed by the Council would be to provide participants with information on how to access the plan sponsor’s filed Form 5500, from which certain information contained in the Summary Annual Report is now drawn.
  • Simplify the single-employer defined benefit pension plan annual funding notice, focusing on funded status and other key items of information.

Sample disclosures reflecting the above recommendations have been drafted by members of the ERISA Advisory Council.  (The DOL notes in the published document that Mandated Disclosure for Retirement Plans – Enhancing Effectiveness for Participants and Sponsors reflects positions taken by the Advisory Council, not the DOL itself.)

IRA Seeks Comments on Determination Letter Requests for Individually Designed Plans

The IRS issued Notice 2018-24 in which it is requesting public comment on a potential expansion of the scope of its determination letter program for individually designed qualified retirement plans. The comment deadline is June 4, 2018.

In general, effective January 1, 2017, individually designed plans are to seek IRS determination letters only at inception and termination. However, IRS guidance issued in Revenue Procedure 2016-37 provides that special circumstances may alter this general restriction.

Notice 2018-24 notes that each year the IRS and Treasury Department will consider whether to accept determination letter applications for individually designed plans at times other than at inception or termination. Such circumstances may include significant tax law changes, new approaches to plan design, etc. The request contained in IRS Notice 2018-24 is for comments addressing specific types of plans for which the IRS and Treasury Department should consider accepting determination letter requests at times other than plan inception or termination.

Notice 2018-24 identifies the methods and where such comments may be sent.

Trade Group Settles Lawsuit Challenging Oregon’s State-Sponsored IRA Savings Program

The ERISA Industry Committee (ERIC), a trade group that describes itself as representing large employers on health and retirement issues, has settled a lawsuit filed in October 2017 against the Oregon Retirement Savings Board.

ERIC had charged that OregonSaves—a retirement program for private sector workers with no workplace plan—conflicts with the Employee Retirement Income Security Act of 1974 (ERISA), and therefore OregonSaves requirements are preempted by that federal law. The lawsuit was filed in U.S. District Court for the District of Oregon.

OregonSaves requires most employers offering no retirement plan to enroll employees in its payroll withholding Roth IRA savings program. In order to be exempt from participating, employers that sponsor a plan must communicate this to the program. ERIC contended that this information-sharing requirement places a burden on employers that violates ERISA, and therefore, under preemption principles, the requirement should not be enforced.

The lawsuit did not proceed to the point where the Court ruled on the OregonSaves employer exemption procedure, which requires an employer to indicate online that it has a retirement plan, and the plan type.

Under the terms of the settlement, Oregon employers seeking exemption may inform OregonSaves of their ERIC member status, which can then be confirmed with ERIC. (No alternative procedure is provided under this settlement for Oregon employers that sponsor a retirement plan and are not ERIC members.)

ERIC has indicated at its website that it intends to work with regulators in hopes of finding an alternate means of providing information on plan sponsorship, whether to OregonSaves or to other state-sponsored programs seeking similar information.

New York to Establish IRA-Based Private Sector Retirement Program

An amendment to New York’s state finance law has established an IRA-based retirement savings program for the state’s private sector employers and their employees. Full establishment of the program is envisioned within 24 months.

The New York State Secure Choice Savings Program is to be a Roth IRA-based program that complies with Internal Revenue Code requirements for Roth IRAs. The program is to cover employees age 18 or older who have compensation from an employer (either for-profit or nonprofit) engaged in an enterprise in the state of New York, an employer that has not offered a “qualified retirement plan” within the two prior years. “Plan” is to include such traditional qualified plans as profit sharing/401(k), money purchase, target benefit, and defined benefit plans, as well as 403(b), SEP, and SIMPLE IRA plans, and governmental 457(b) plans.

Employees will be offered an opportunity to contribute or to decline participation. If no election is made, employees would be automatically enrolled and contributions withheld from their compensation at a rate of three percent. Employees can opt out of participation at any time or may change their rate of contribution. Other provisions of the program as identified in the state’s finance law amendment include the following.

  • A governing Board is to choose available investments, with an initial default investment proposed to be a life-cycle or target date fund; future options to potentially include principal protection, growth, and “secure return” investment options.
  • Investments are to be pooled to take advantage of cost savings “through efficiencies and economies of scale.”
  • The Board would set minimum and maximum contributions consistent with Roth IRA rules, as well as determine withdrawal provisions.
  • Employers participating in the program will “begin employee enrollment at most nine months after the Board opens the program for enrollment.”
  • A website is to be established to provide information and enable participant transactions.
  • Communications with employees will be provided in eight specified languages, and others as “the state comptroller deems necessary.”
  • Deposits of amounts withheld from employee pay are to occur no later than the last day of the month following the month of withholding, and consistent also with an employer’s deposit requirements for income tax and unemployment insurance withholding.
  • There would be no New York state funding obligation or liability.
  • Employers would not be liable for employee participation decisions or governing board decisions.

The program’s governing board may delay implementation beyond the anticipated 24-month period if adequate funds to administer the program are not obtained. Funds for such administration can come from state, federal, or local government sources, as well as any individual, firm, partnership, or corporation.