The IRS has released very little guidance on SIMPLE IRA plans since the release of Notice 98-4. Scheduled to be published in tomorrow’s Federal Register is an IRS request for comments, in which the IRS seeks public input on the SIMPLE IRA plan documents and Notice 98-4. The document for which it seeks comments are Form 5304-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)—Not for Use With a Designated Financial Institution, and Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)—for Use With a Designated Financial Institution.
Notice 98-4 contains SIMPLE IRA plan guidance that answers many general questions. Forms 5304-SIMPLE and 5305-SIMPLE are IRS model employer-level documents used to adopt SIMPLE IRA plans. Employers may elect to use the 5304-SIMPLE when a designated financial institution (i.e., the single organization where all plan contributions are forwarded) is not named, and Form 5305-SIMPLE when one is named. Notice 98-4 provides guidance on SIMPLE plans beyond that contained in Internal Revenue Code section 408(p).
Written comments are due to the IRS on or before February 4, 2019. The request for comments provides details on how to submit the comments.
The IRS has released Notice 2018-95, which provides transition period relief from the “once in always in” (OIAI) condition for excluding part-time employees (i.e., employees who normally work fewer than 20 hours a week) from making elective deferrals under a 403(b) plan.
The 403(b) plan exclusion rules found under Treasury Regulation 1.403(b)-5(b)(4) state, in part, that an employee may be excluded if the employee is reasonably expected to work less than 1,000 hours in the employee’s first year of employment. For subsequent years, the employee must have actually worked fewer than 1,000 hours in the preceding 12-month period. Most crucial is the OIAI rule, which states that once a participant does not meet the conditions for exclusion as previously stated, the employee may no longer be excluded under the part-time exclusion. That is, once eligible to defer, an employee cannot lose this eligibility due to the part-time exclusion, even if he works less than 1,000 hours in a preceding 12-month period.
In Notice 2018-95, the IRS provides transition period relief for 403(b) plans that have not followed the OIAI rule (i.e., have been excluding participants as part-time after they became eligible).
The relief stems from comments related to the pre-approved 403(b) plan Listing of Required Modifications (LRMs). The LRMs address the OIAI rule, stating that “once an Employee becomes eligible to have Elective Deferrals made on his or her behalf under the Plan…the Employee cannot be excluded from eligibility…in any later year under this standard.” Commenters requested transition relief based on this LRMs language, claiming that many employers were not aware that the OIAI rule existed.
The notice provides relief for taxable years beginning after December 31, 2008, and ending on the last day of the last exclusion year that ends before December 31, 2019. During this period, plans will not be treated as failing to satisfy the conditions of the part-time exclusion merely because the plan was not operated in compliance with the OIAI rule. The notice goes on to provide examples, and also establishes a “fresh start” opportunity for plans once the relief period expires, requiring plans to follow the OIAI rule for exclusion years beginning on or after January 1, 2019.
Employers whose retirement plans have compliance issues in need of correction through the IRS’ Voluntary Correction Program (VCP) will now have a few new and different hoops to jump through to get the IRS’ stamp of approval. The IRS has modified its VCP procedures under the Employee Plans Compliance Resolution System (EPCRS) with the release of Revenue Procedure 2018-52. It requires that submissions and VCP fee payments be made electronically on the pay.gov website starting April 1, 2019.
Submitting and Paying Online
Corrections through the new pay.gov procedure may be applied for beginning January 1, 2019.
- Transition period: From January 1, 2019, through March 31, 2019, the IRS will accept either electronic submissions through pay.gov or traditional paper submissions. Paper submissions that are postmarked on or after April 1, 2019, will not be accepted.
- Starting April 1st: All VCP submissions made on or after this date must be made through pay.gov.
These payment rules also apply to plans assessed sanctions through the IRS’ Audit Closing Agreement Program (Audit CAP). Plans that correct failures using the Self-Correction Program (SCP) are not required to submit to the IRS or pay a fee.
A 15MB file size restriction is imposed on pay.gov submissions. Submissions typically fall in the 5MB to 10MB range, but information for a submission that is above the 15MB threshold must be faxed to the IRS. Thus, a submission that is above the size restriction may need to be broken into two parts—one 15MB file sent to pay.gov and the rest of the information above 15MB faxed to the IRS.
Other EPCRS Changes
Although the major change lies in how VCP corrections are submitted, Revenue Procedure 2018-52 also contains several other noteworthy updates to the IRS’ EPCRS.
- The reference to the IRS Letter Forwarding Program as an option for locating participants and beneficiaries is removed. (Though, that service under the program was technically discontinued years ago.)
- If the IRS deems a VCP submission deficient or determines that issuing a compliance statement approving the correction is inappropriate, it can refuse to issue a compliance statement and may close the correction case, possibly without issuing a refund for the VCP fee. The previous IRS approach was to work with plans that made incomplete submissions in order to gather the required information so that the submission could be approved.
- A new Penalty of Perjury statement that includes a plan sponsor signature must be included with submissions. This information previously was included on Form 8950, Application for Voluntary Correction Program (VCP) under the Employee Plans Compliance Resolution System (EPCRS).
- Form 5265, which is an acknowledgement letter for Form 8950 submissions, will no longer be filed with the submission.
- Corrective amendments detailed in the revenue procedure now also apply to pre-approved 403(b) plans.
More to Come
Several outstanding questions remain as 2019 approaches. Details at pay.gov are scarce at this time. For example, the revenue procedure does not state what plans should do if the submission is rejected—whether a second submission and fee would be required.
It is clear, however, that effective April 1, 2019, the VCP will become almost exclusively digital. The pay.gov website is active as it is used for other payment purposes as well, but as of this writing, the retirement plan correction information was not yet available. Watch ascensus.com Industry & Regulatory News as additional guidance becomes available.
The IRS has provided FAQs at its website that explain opinion and advisory letter reliance regarding its relatively new program under which certain employers may establish 403(b) plans using a pre-approved plan document.
Because the IRS generally is no longer issuing rulings or determination letters on individually designed plans, the importance of pre-approved plans has increased. 403(b) plans can be established as prototype or volume submitter plans.
The FAQs describe eligible employers, what opinion and advisory letters are, and the reliance on an IRS opinion or advisory letter.
A tax bill has emerged from the House Ways and Means Committee, extending certain expiring tax provisions, addressing provisions of 2017 tax reform legislation and several recent disaster events (hurricanes and California wildfires), and proposing additional provisions that would affect tax-advantaged retirement savings arrangements. H.R. 88, titled the “Retirement, Savings, and Other Tax Relief Act of 2018,” is being reported as having bipartisan support.
How the legislation in its current form will be received in the Senate, if passed by the House, remains to be seen, although it is known that there have previously been negotiations on retirement provisions between leaders of both congressional bodies. Control of the House of Representatives will change with the start of the 116th Congress in January 2019, resulting from the November 2018 midterm elections. Leadership of the House Ways and Means Committee—the source of this bill—will shift from Rep. Kevin Brady (R-CA) to a Democratic House leader, widely expected to be Rep. Richard Neal (D-MA).
The following provisions of this legislation would in some manner impact retirement savings arrangements.
- Enhance retirement plan options related to distributions and repayments, plan loans, prorated tax treatment of distributions, etc., for several geographic areas recently affected by hurricanes, wildfires, typhoons, and volcanic eruptions
- Broaden options for employers to participate in multiple employer plans (MEPs) or a similar new design known as “pooled employer plan” (PEP)
- Extend the period within which a 401(k)-type plan may elect a safe harbor plan design
- Make Traditional IRA contributions an option for taxpayers of any age who have earned income
- Exempt $50,000 of aggregate retirement savings from RMD requirement (to be COLA-adjusted)
- Allow graduate student fellowship and stipend payments to qualify as earned income for IRA purposes
- Prohibit credit card-enabled retirement plan loan programs
- Allow retirement plan lifetime income investments to be distributed and rolled over to another accepting retirement arrangement if the plan ceases to offer this investment option
- Allow a higher cap (15 percent) on deferral rates in certain automatic enrollment 401(k) type plans
- Increase the maximum tax credit for small employers that establish retirement plans (maximum of $1,500 per year)
- Provide a tax credit incentive for employers to add automatic enrollment features to their retirement plans
- Allow 403(b)(7) custodial accounts to retain 403(b) status even if the plan is terminated by the sponsoring employer
- Permit recipients of military Ready Reserve compensation to make additional retirement plan salary deferrals
- Allow certain qualified retirement plans to be established through an employer’s tax return deadline, including filing extensions
- Provide nondiscrimination testing relief to certain defined benefit pension plans that are closed to new participants
- Enhance the fiduciary safe harbor for employer selection of lifetime income retirement plan investments
- Require an annual projection of potential lifetime income based on a participant’s retirement plan account balance
- Modify certain defined benefit pension plan insurance premiums paid to the Pension Benefit Guaranty Corporation (PBGC)
- Create a birth or adoption exemption to the 10 percent excise tax on early distributions from retirement plans
The IRS has released the 2019 Form 1099-Q, Payments from Qualified Education Programs (Under Sections 529 and 530), and the associated detailed instructions for this form. The form is used by entities that administer funds in IRC Sec. 529 qualified tuition programs (“529 plans”) and Coverdell education savings accounts (ESAs).
A notable change is the ability to roll over certain amounts from 529 plans to Achieving a Better Life Experience (ABLE) accounts of special-needs individuals, based on a provision of the Tax Cuts and Jobs Act of 2017.
The Department of Labor’s Employee Benefits Security Administration (EBSA) has released a fact sheet containing guidance and relief for those impacted by the 2018 California wildfires. This followed the release of FAQ a couple days earlier.
The fact sheet focuses on verification procedures for plan loans and distributions, the deposit timing of participant contributions and loan repayments, blackout notices, ERISA claims compliance, and Form 5500, Annual Return/Report of Employee Benefit Plan, filing relief in light of the recent wildfires.
The fact sheet provides the following guidance for employers who were located in a county or tribal area identified now or in the future for individual assistance by the Federal Emergency Management Agency (FEMA) because of the 2018 California Wildfires.
- The EBSA will not treat a distribution or loan provided because of the wildfires as a failure if procedural requirements for plan loans or distributions are not followed due to the wildfires (provided the wildfires are the cause, and the plan administrator makes a good-faith effort to comply with the requirements and makes an attempt to gather any missing documentation as soon as practicable).
- It will not take enforcement action with respect to a temporary delay in forwarding participant contributions and loan repayments to a plan (employers and service providers must act reasonably to comply with existing rules as soon as practicable).
- It will not require a fiduciary determination regarding blackout notice timing, as natural disasters are “beyond the reasonable control of the plan administrator” (an exception to the blackout notice timing).
- It will not take enforcement action with respect to ERISA claims processing that is delayed (provided employers act reasonably, prudently, and in the best interest of participants and beneficiaries).
Form 5500 filing relief is detailed in the IRS news releases listed on the IRS disaster relief website. Impacted employers, advisors, and employees are encouraged to visit the EBSA’s disaster relief website, or to contact the DOL or IRS directly.
The IRS released an updated list of tax-related time-sensitive acts that may be postponed due to federally-declared disasters or service in the Armed Forces in Revenue Procedure 2018-58.
The revenue procedure itself does not provide for any postponements. Instead, it states that postponements under Internal Revenue Code section 7508A (referring to disasters) are contingent on IRS notices or other guidance, but that postponements of acts listed under Internal Revenue Code section 7508 (referring to service in the Armed Forces) is allowed regardless of whether the IRS issues notices or other guidance. As the regulations stand now, when an individual qualifies for relief by virtue of serving in the Armed Forces in a combat zone, the time for performing tax-related acts is not postponed. So, Revenue Procedure 2018-58 contains a list of these acts, so that individuals serving in combat zones may also receive a postponement.
A partial list of notable acts that are cited in the revenue procedure follows.
Business and Individual Tax Issues
- Indirect rollover timing (60-day requirement) from 529 plans, ABLE accounts, Coverdell ESAs
- Distribution of excess contributions from 529 plans
- Filing of Form 5498-QA with the IRS
- Distribution of excess contributions from Coverdell ESAs
- Filing of Form 5498-ESA with the IRS
Employee Benefit Issues
- Timing requirements for loan repayments
- Substantially equal periodic payments timing
- IRA contribution timing
- Indirect rollover timing (60-day requirement) from Archer MSAs, HSAs, and qualified retirement plans
- Filing of Form 5498-SA with the IRS
- RMDs from qualified plans
- Distribution of qualified plan excess deferrals, excess contributions, and excess aggregate contributions
- Plan loan offset timing
- Qualified plan, SEP, and SIMPLE IRA contribution deadlines
- Filing of Form 5498 with the IRS
- Recharacterization deadlines/timing
- Permissible withdrawal timing for EACAs and QACAs
- Distribution of IRA excesses
- Form 5500, 5500-SF, Form 5500-EZ, and Form 8955-SSA filing deadlines
The Department of Labor’s Employee Benefits Security Administration (EBSA) released an FAQ for participants and beneficiaries in benefit plans impacted by the recent California wildfires.
The FAQ addresses several benefits-related issues in light of the wildfires, such as health, COBRA, and retirement benefit questions. The retirement benefit questions address issues such as an employer’s business being closed due to the fires, who to contact, how to receive funds, and where to get more information.
The guidance encourages individuals with additional questions about their rights under a benefit plan to speak with their plan administrator or contact an EBSA benefits advisor.
Senate Finance Committee ranking member Ron Wyden (D-Ore) and four other Democratic senators have introduced the Encouraging Americans to Save Act (EASA). A similar bill with the same title was introduced by Senator Wyden in 2016, but did not reach the floor for a vote. The 2018 version of EASA contains the same provisions as the 2016 version, with a few minor changes.
If enacted, the bill would do the following.
- Replace the current saver’s credit with a government-funded 50% match of up to $1,000 to be deposited directly into a 401(k), IRA, or similar account (subject to modified adjusted gross income ranges for individuals and married filers). The match would be claimed on Form 1040 or its equivalent.
- Reestablish the myRA (Roth IRA) program, which was a President Obama initiative that was phased out in September 2017, so that the aforementioned match may be deposited into a myRA for employees who do not provide an account for the match or who provide erroneous account numbers.
The bill was introduced by Democrats in a Republican-controlled Senate, and it is unknown if it will advance through the Senate. Watch this ascensus.com News for further developments, if applicable.