The U.S. Fifth Circuit Court of Appeals has released its official mandate document vacating (repealing) the Department of Labor’s (DOL’s) 2016 fiduciary investment advice final regulations and accompanying prohibited transaction exemptions. This action officially seals the repeal of this guidance, which has been the subject of intense debate and opposition for the last several years. Multiple attempts had been made by the DOL during the Obama administration to arrive at guidance that would provide greater protection for retirement investors, while considering the challenges faced by the investment advising industry.
The Fifth Circuit Court’s mandate has been expected since the deadline for a possible appeal passed earlier this month. The original Fifth Circuit Court ruling striking down the DOL fiduciary guidance was issued in March. When the DOL failed to appeal the Court’s decision and attempt to save the guidance, several states joined the American Association of Retired Persons (AARP) in seeking standing to appeal, but were denied.
Multiple delays in full implementation and enforcement of the 2016 fiduciary guidance had followed the transition from the Obama administration-led DOL to the present administration and its DOL leadership, which advocated the guidance’s reexamination or rollback. A temporary relaxed enforcement policy was announced in May, to be in effect until full implementation and enforcement, which officially were scheduled for July 1, 2019. Some industry watchers, however, doubted that the 2016 fiduciary guidance was likely to take full effect in its current form.
No statement on today’s Fifth Circuit Court mandate vacating the guidance has yet been issued by the DOL.
The IRS has issued News Release HI-2018-02, announcing tax-related deadline relief for certain Hawaii residents who are victims of recent volcanic eruptions and earthquakes. In addition to postponement of tax return deadlines falling within dates identified in the news release, the relief includes postponement of deadlines for completing certain time-sensitive tax-related acts specified in Treasury Regulation 301.7508A-1(c)(1).
These acts include completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under this regulation. For those who qualify, such deadlines falling on or after May 3, 2018, and on or before September 17, 2018, are postponed to September 17, 2018.
The area identified as directly qualifying for relief is “Hawaii County” (also referred to as the Island of Hawaii, or the “Big Island”). The relief applies specifically to residents of the identified area, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area who is injured or killed as a result of the events is also entitled to deadline relief. Affected taxpayers who reside or have a business located outside the covered disaster area are required to call the IRS disaster hotline at 1-866-562-5227 to request relief.
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The Advisory Committee on Tax-Exempt and Government Entities (ACT) has issued its 2018 Report of Recommendations to the IRS on several issues potentially affecting tax-exempt entities, including tax-qualified retirement plans. Recommendations specific to retirement plans include potential broadening of the IRS determination letter program, and administration of the IRS’s missing participant program.
The IRS in 2015 announced a significant scaling back of its program of issuing determination letters, which affirm plans’ qualified status. For example, beginning in 2017, individually designed plans could only submit for determination letters at the time of plan establishing or termination, with certain exceptions to later be specified by the IRS. Earlier this year the IRS requested comments on types of plans and circumstances that might justify the Service reopening a broadened determination letter program for 2019. This 2018 ACT report offers recommendations on circumstances and parameters for a limited reopening of the determination letter program not only for 2019, but for beyond as well.
The report also makes recommendations concerning missing plan participants. Among these are a recommendation that IRS coordinate missing participant guidance with the Department of Labor and Pension Benefit Guaranty Corporation, that it reopen the IRS’s former letter forwarding program, allow uncashed check amounts to be forfeited (subject to reclaiming), apply plan distribution field directives to distributions other than required minimum distributions, etc.
A lawsuit was filed last week (May 31, 2018) in an attempt to block implementation of a new retirement savings program established by the State of California. The California Secure Choice Retirement Savings Program—recently rename CalSavers—is an IRA-based retirement savings program for that state’s private sector employees whose employers do not offer a workplace retirement plan, which was authorized by legislation enacted in 2016. According to CalSavers, some 7.5 million Californians work for employers that do not offer a retirement plan.
The lawsuit was filed by the Howard Jarvis Taxpayers Association (HJTA) and seeks to prevent introduction of this program projected to launch sometime in 2018. In addition to the program itself, also named as defendant is John Chiang, California State Treasurer and Chair of the California Secure Choice Retirement Savings Board.
HJTA claims to have standing to sue based on the fact that some of its members—claimed in the filing to number more than 200,000—could be affected either as employers required to participate in the payroll withholding program, or employees who might be automatically enrolled. The lawsuit was filed in U.S. District Court for the Eastern District of California.
The IRS published proposed Treasury regulations late last week (June 1, 2018) that would alter the rules for required electronic filing of certain information returns. This would include information returns in the Forms 1098, 1099, 1042 and 5498 series, which are used to report information for IRAs, retirement plans, health savings accounts, Coverdell education savings accounts, college savings IRC Section 529 plans, and ABLE accounts for special-needs individuals.
The proposed regulations would require preparers to file information returns electronically if the aggregate number of returns totals 250 or more. Current rules require electronic filing of an information return by type, only if that specific return numbers 250 or more, not aggregated with other information returns. The proposed regulations cite the fact that electronic transfer of data and various filings has in many instances become the norm, and electronic filing generally should not pose a hardship for most preparers.
The regulations are proposed to be effective for information returns filed after December 31, 2018. This would appear to include those returns that report 2018 information and are filed in 2019.
The regulations also propose that corrected information returns in any quantity must be filed electronically if the original filing was by electronic means, and the correction is filed after December 31, 2018. The ability to request a waiver of the electronic filing requirement would remain available under these proposed regulations.
Friday’s publication marks the beginning of a 60-day period during which public comments and/or requests for a public hearing may be made, and thus, must be received on or before July 30, 2018. See the regulations for submission details.
The IRS has released Revenue Ruling (Rev. Rul) 2018-17, which addresses withholding and reporting requirements for the payment of an IRA owner’s interest to a state unclaimed property fund (an action sometimes referred to as “escheatment”).
Rev. Rul. 2018-17 states that payments made in this manner are treated as includable in gross income, and are therefore designated as distributions subject to the rules on federal income tax withholding for IRAs. The revenue ruling also states that the distributing trustee must report these payments on the applicable year’s Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., identifying the IRA owner as the recipient.
For payments made before the earlier of January 1, 2019, or the date it becomes reasonably practicable to comply with the requirements, a person will not be treated as failing to comply with the withholding and reporting requirements described in the revenue ruling.
One week after filing an appeal in an attempt to save the DOL’s ill-fated investment fiduciary guidance (the Department of Labor conflict-of-interest regulations), the states of California, New York, and Oregon are denied that opportunity by the U.S. Fifth Circuit Court of Appeals. This Court had ruled in March 2018 that the Department of Labor’s (DOL’s) fiduciary investment advice guidance for retirement savers went beyond the agency’s authority, and vacated—essentially nullified in its entirety—the DOL’s final regulations and related exemptions. When the DOL failed to appeal this ruling, these states and the American Association of Retired Persons (AARP) filed a motion on April 26 seeking the right to intervene in support of the DOL fiduciary guidance, on the grounds that investors and the states would be harmed by the Appeals Court’s action vacating the guidance.
On May 2, this request by the states and AARP to intervene was denied by the Fifth Circuit Court. Two weeks later, on May 16, the state Attorneys General of California, New York and Oregon (this time absent the participation of AARP) filed an appeal. The states hoped their arguments in support of maintaining the DOL fiduciary guidance would be heard by the full 17-member panel of Fifth Circuit Appeals Court judges, rather than the three-judge panel that had vacated the guidance in March. Instead, the same three-judge panel has now denied both of the state attempts to intervene.
There appear to be no more options for the states in pursuit of maintaining the DOL investment fiduciary guidance, although the Fifth Circuit has yet to issue its official mandate implementing the March 15 decision that would vacate the guidance nationwide. It appears that the only known litigation step that could now be taken would be for the DOL itself to appeal to the U.S. Supreme Court. Given the DOL’s decision not to appeal at the Circuit Court level, most feel there is no reason to believe the agency will do so.
Unwilling to concede defeat, however, on May 17 a group of five Senate Democrats—Patti Murray (WA), Ron Wyden (OR), Elizabeth Warren (MA), Sherrod Brown (OH) and Cory Booker (NJ)—sent a letter to Secretary of Labor Alexander Acosta asking the Secretary and his agency to pursue an appeal to the U.S. Supreme Court. They pointed out that before the Fifth Circuit Court’s March 15 ruling nullifying the DOL investment fiduciary guidance, four other court challenges to the fiduciary guidance had been attempted and all had failed. Only one court—the Fifth Circuit—found that the DOL had exceeded its rulemaking authority in issuing its investment fiduciary guidance.
The senators also cited the statement by Secretary Acosta in 2017 that there was “no principled legal basis” to delay implementing the investment fiduciary guidance. The senators pointedly asked the Secretary to tell them how his agency proposes to protect the interests of retirement savers, absent the DOL’s fiduciary guidance. They have requested a response by June 1.
The states’ Attorneys General of California, New York, and Oregon yesterday (May 16) filed an appeal of their recent setback in litigation over the Department of Labor (DOL) fiduciary investment advice guidance. The U.S. Fifth Circuit Court of Appeals ruled in March 2018 that the DOL’s fiduciary guidance had gone beyond the agency’s authority and vacated—essentially nullified—the DOL’s final regulations and related exemptions in their entirety.
Background and New Filing
When the DOL failed to appeal this ruling, these three states and the American Association of Retired Persons (AARP) filed a motion on April 26 seeking the right to intervene in support of the DOL fiduciary guidance on the grounds that investors and the states would be harmed by the Appeals Court’s action vacating it. On May 2, this joint request for the right to intervene in support of the guidance was denied by the Fifth Circuit Court.
Yesterday (May 16, 2018) was the deadline for an appeal of this denial, and as noted earlier, the three Attorneys General did file another appeal yesterday asking the Fifth Circuit Court of Appeals to reconsider its May 2 decision. This appeal, however, does not include the AARP.
Possible Consideration by Full 15-Member Appeals Court
The March ruling that vacated the DOL fiduciary guidance was rendered by a three-judge panel, rather than the full membership of judges (15) on the Fifth Circuit Appeals Court. The states would ultimately prefer to make their case for retaining the DOL fiduciary guidance before the entire 15-member Appeals Court. The Attorneys General wrote in their filing, “If the panel declines to reconsider its order denying intervention, the States ask that the Court direct the Clerk to permit the filing of a petition seeking review of that order by the full Court.”
If this attempt by the states to intervene on behalf of the fiduciary guidance fails, it appears that the only step that could be taken to preserve the fiduciary guidance would be for the DOL itself to appeal to the U.S. Supreme Court. Given the DOL’s decision not to appeal at the Circuit Court level, there is no reason to believe it would do so.
The IRS has released a reminder notice that a group submission option is available to correct retirement plan failures to amend timely for provisions of the Pension Protection Act (PPA).
The deadline for signing a restated plan document for PPA provisions was April 30, 2016. Plans may submit individually to correct this missed deadline failure under the IRS’s Voluntary Correction Program (VCP), which is an option within the broader Employee Plans Compliance Resolution System (EPCRS).
The group submission option allows financial organizations and service providers to essentially bundle multiple retirement plans that have this same amending failure, thereby reducing paperwork and cost. Several conditions apply to group submissions, the most basic being that 20 or more plans are required. The submission fee is $10,000 for 20 plans and $250 for each additional plan, up to a maximum of $50,000.