IRS Guidance Addresses Retirement Plan UnCashed Check Withholding, Reporting

The IRS has issued Revenue Ruling 2019-19, which addresses the responsibilities of retirement plan administrators when a distribution check that represents a taxable amount is issued to a plan participant, but remains uncashed. The facts and circumstances described in the guidance define the distribution as not including designated Roth account (e.g., Roth 401(k)) amounts—which are potentially tax-exempt—or other amounts not subject to normal taxation.

The guidance notes the following.

  • The check amount is taxable in the year received by the recipient, whether cashed or not.
  • Plan administrator obligations for withholding—and remitting of withholding—are not altered by whether the check is cashed.
  • The recipient’s failure to cash the check does not alter the plan administrator’s requirement to report the distribution on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (reporting is required for distributions of $10 or more).

HRA Final Regulations Published in Federal Register

On June 14, 2019, the U.S. Departments of Health and Human Services, Treasury, and Labor jointly issued final regulations entitled Health Reimbursement Arrangements and Other Account-Based Group Health Plans, as well as several accompanying items of guidance and general information. The final regulations are published in today’s Federal Register and will become effective August 19, 2019 (60 days from publication). The announced applicability date is for plan years beginning on or after January 1, 2020.

A health reimbursement arrangement (HRA) is an employer-funded account to be used for paying unreimbursed medical expenses, with variations that include both a pre-retirement and post-retirement HRA. The account generally cannot be used to pay most health insurance premiums.

The final regulations identify new employer-funded HRA variations. The “individual coverage HRA” would allow a member of a group of employees that is not offered a group health plan to use this HRA’s funds to purchase health insurance coverage in the individual market, including public exchanges under the Affordable Care Act.

The “excepted benefit HRA” would allow employees to use a limited amount each year from this HRA to cover certain specified expenses—including premiums for vision, dental, and what is known as short-term/limited duration health insurance.

Watch for any further information about this extensive guidance.

Health Reimbursement Arrangement Regulations and Guidance Identify New HRA Variations

The U.S. Departments’ of Health and Human Services, Treasury, and Labor have jointly issued final regulations, entitled Health Reimbursements and Other Account-Based Group Health Plans, as well as several accompanying items of guidance and general information. These other items include a news release, frequently-asked-questions (FAQ), model notice, and model attestation.

Health reimbursement arrangements (HRAs) are employer-funded accounts to be used unreimbursed medical expenses, with variations that include both pre-retirement and post-retirement HRAs. In general, these accounts cannot be used to pay most health insurance premiums.

The final regulations identify new employer-funded HRA variations. The Individual Coverage HRA would allow a member of a group of employees that is not offered a group health plan to use this HRA’s funds to purchase health insurance coverage in the individual market, including public exchanges under the Affordable Care Act (ACA).

The Excepted Benefit HRA would allow employees to use a limited amount each year from this HRA to cover certain specified expenses—including premiums for vision, dental, and what is known as short-term/limited duration insurance coverage.

IRS Withholding Regulations in Today’s Federal Register; to Apply to IRAs and Employer Plans

Published in today’s Federal Register are IRS proposed regulations that would govern tax withholding from certain payments from retirement savings arrangements and commercial annuities, when a payment is to be sent to a destination outside the United States. The regulations also address withholding when a payment is be delivered to a financial organization within the U.S. if the recipient has no U.S. residence address, and certain other situations—including payments sent to military or diplomatic postal destinations.

If finalized, the regulations would apply to IRAs and to employer-sponsored retirement plans governed by Internal Revenue Code Section 401(a)—which includes profit sharing/401(k), defined benefit, money purchase pension, and certain other “qualified plans”—as well as 403(b), governmental 457(b), SEP, and SIMPLE plans.

Further details can be found in the May 30, 2019, Latest News article.

The Federal Register-published IRS document can be found here.


IRS Seeks Continued Authority to Collect Information on EPCRS Correction Program

Published in today’s Federal Register is an IRS request for continued authority to collect information with respect to its Employee Plans Compliance Resolution System (EPCRS), the program under which certain retirement plan operational or document compliance failures can be resolved. Agencies like the IRS are limited by the federal Paperwork Reduction Act as to the length of time they are allowed to contact employers or taxpayers to request information pertaining to a program, an administrative form, etc.

Such authority must generally be renewed every three years, and—while usually a formality—requests for continuing authority must be published in the Federal Register and the public must have an opportunity to comment. This IRS information collection authority request pertaining to the EPCRS program can be found here.




IRS Regulations Address Withholding on Retirement Payments Made Outside the U.S.

Scheduled for publication in tomorrow’s Federal Register are proposed IRS regulations on circumstances when income tax withholding must be applied to certain payments from retirement arrangements and commercial annuities.

Specifically, these regulations address required withholding for payments made to destinations outside the United States, or made to a U.S. financial institution by a person with no U.S. address. The proposed regulations are intended to replace IRS Notice 87-7, the primary guidance currently governing such withholding.

The proposed regulations are not intended to replace rules that apply to an eligible rollover distribution (ERD) from an employer-sponsored retirement plan; a mandatory 20 percent withholding rate generally applies to such payments (other than distributions from IRA-based employer plans). Also, these regulations do not alter the general rule that withholding may be waived for employer plan payments that are not ERDs (e.g., required minimum distributions); the regulations—in general—apply to IRA distributions.

Key provisions of these proposed regulations include the following.

  • As with Notice 87-7, the guidance would apply to both periodic—annuity, or similar—payments and nonperiodic payments.
  • In general, the proposed regulations would not apply to foreign nationals (those who are not U.S. citizens); other rules apply to these persons.
  • As before, a recipient who furnishes a payor with a U.S. residence address could generally waive the standard 10 percent withholding rate if the payment is not subject to mandatory withholding (e.g., an ERD).
  • A recipient who furnishes a U.S. residence address but requests that a payment be directed outside the U.S would not be permitted to waive withholding (this is a major change from Notice 87-7).
  • A recipient with a foreign address who requests that a payment be made to a financial institution within the U.S. also would not be permitted to waive withholding; the IRS cited “the ease with which funds deposited with a financial institution within the United States can be withdrawn by a person outside the United States” as the reason for this regulatory position.
  • Consistent with Notice 87-7, a recipient with a non-U.S. address only, or who does not furnish the payor with a residence address, may not waive withholding.
  • Recipients who furnish a military or diplomatic post office address (APO, FPO, or DPO) would be treated as having a U.S. residence address. A payment to such an address would be treated as being delivered to a U.S. address; therefore, the recipient could waive withholding on such payment if the payment was not subject to mandatory withholding (e.g., an ERD).

These proposed regulations would officially apply upon their approval in final form; until such time the guidance in Notice 87-7 would continue to apply. However, the regulations’ proposed recognition of military and diplomatic post office addresses as U.S. addresses may be relied upon in the interim.

Public comments must be received within 90 days of publication in the Federal Register; a public hearing will be held if requested in such public comments.

A pre-publication version of the proposed regulations can be found here.

IRS Reveals Plans to Enable Electronic Filing of Form 5500-EZ

The IRS has informally revealed that it intends to enable owner-only retirement plans to file Form 5500-EZ electronically through the web-based EFAST2 Electronic Filing System. Form 5500-EZ, Annual Return/Report of One-Participant Retirement Plan or a Foreign Plan (form title revised to reflect foreign plans) is a simplified plan return that can be filed by sole proprietors and spouses or partners and spouses that have no common law employees.

At present, however, Form 5500-EZ can only be filed with the IRS in hard copy form. Employers that wish to file electronically must submit their plan information on Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan. This form is longer than Form 5500-EZ.

In a May 7 Federal Register posting requesting continued authority to gather information on Form 5500 series forms, the IRS noted that it “…plans to make the Form 5500-EZ available on the EFAST2 system for direct electronic filing instead of using Form 5500-SF.” The IRS further indicates that paper filing of Form 5500-EZ still will be possible after the electronic filing option is in place. No proposed timing for the electronic filing option was revealed.

IRS Expands Determination Letter Program for Certain Retirement Plans

The IRS issued Revenue Procedure (Rev. Proc.) 2019-20 providing guidance that describes a limited expansion of the agency’s determination program for retirement plans.  An IRS determination letter expresses to the plan sponsor the Service’s opinion regarding the qualified status—the compliance—of the plan’s document. It is not an opinion or affirmation of the plan’s compliance in operation.

Recent Program Changes

In recent years, the IRS determination letter program has moved steadily in the direction of limiting determination letter applications for plans established and operated on pre-approved (prototype or volume submitter) documents. Such plans generally may only apply for an IRS determination at the time of termination. The IRS determination letter program has in practice become limited primarily to individually designed plan documents, with these determinations generally issued at the time a plan is established or is terminated.

New Plan Types Added

The IRS announced the addition of “Plan Mergers” and “Statutory Hybrid Plans” as new categories for which plan sponsors may request determination letters. Specifically, Rev. Proc. 2019-20 describes the following plan types and events that would justify applying for a determination letter at a time other than when the plan is established or terminated.

Individually designed merged plans – Rev. Proc. 2019-20 limits this to the merging of two or more plans of previously unrelated sponsors, in connection with “a corporate merger, acquisition, or other similar business transaction among unrelated entities that each maintained its own plan or plans prior to the plan merger.” Going forward, applications for an IRS determination for such events will be accepted on a continuing basis.

Individually designed “statutory hybrid” plans – These are plans that calculate “accrued benefits by reference to hypothetical account balance or equivalent amounts.” One example is cash balance defined benefit pension plans. Rev. Proc. 2019-20 explains that the most recent remedial amendment cycle for such plans did not include all provisions of final IRS statutory hybrid plan regulations, thus warranting this new application opportunity for existing plans.  Applications by these plans will be accepted only from September 1, 2019, through August 31, 2020.

IRS Updates Operational Compliance List for Retirement Plans

The IRS has updated the agency’s periodically-issued operational compliance (OC) list for employer-sponsored retirement plans. This list identifies the legislative provisions or agency guidance issued during the covered period that plans have been required to comply with in operation.

The updated list covers the years 2016 through 2019, and following are those items of legislation or guidance described in the updated OC.

  • Hardship distribution changes due to enactment of the Bipartisan Budget Act of 2018, and subsequent proposed regulations (the OC list confirms IRS informal guidance that the proposed regulations may be relied upon until issued as final)
  • Specified disaster relief and resulting retirement plan options
  • Final qualified nonelective contribution (QNEC) and qualified matching contribution (QMAC) regulations
  • Extensions (several) of temporary nondiscrimination relief for closed defined benefit pension plans
  • Extended rollover period for certain retirement plan loan offsets and improper IRS tax levies on participant assets
  • Mid-year changes to 401(k) safe harbor plans
  • Final regulations on cash balance/hybrid retirement plans
  • Final regulations on partial annuity distributions from defined benefit pension plans
  • Proposed regulations on normal retirement age in governmental pension plans
  • Restrictions on distributions during bankruptcy for collectively-bargained single-employer defined benefit pension plans
  • Benefit restrictions for certain defined benefit pension plans of cooperatives and charitable organizations

IRS and DOL Issue Deadline Relief Following Iowa, Nebraska, and Alabama Disasters

The IRS has issued two news releases that announce extensions of time for taxpayers to complete certain time-sensitive tax-related acts following severe storms and flooding in Iowa and Nebraska. In addition, the Department of Labor (DOL) issued guidance to employee benefit plans, and to those plans’ participants and beneficiaries, affected by the Iowa and Nebraska events, or by severe storms in Alabama.

The IRS news releases specifically note that these extensions apply to IRA contributions, as well as to the numerous time-sensitive acts described 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.

Iowa Deadline Relief
IRS news release IA-2019-02 defines the relief granted for the Iowa counties of Fremont, Harrison, Mills, Monona and Woodbury. Qualifying tax-related acts with deadlines falling on or after March 12, 2019, and on or before July 31, 2019, are extended to July 31, 2019.

Nebraska Deadline Relief
News release NE-2019-02 identifies the Nebraska counties of Butler, Cass, Colfax, Dodge, Douglas, Nemaha, Sarpy, Saunders and Washington as covered under this relief. Qualifying tax-related acts with deadlines falling on or after March 9, 2019, and on or before July 31, 2019, are extended to July 31, 2019.

This relief applies specifically to residents of an identified disaster 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 a covered disaster area are required to call the IRS disaster hotline at 866-562-5227 to request relief.

DOL Relief for Iowa, Nebraska and Alabama
The DOL has issued a fact sheet (not yet available at the DOL website) for sponsors of employee benefit plans—including employer-sponsored retirement plans—and a document containing frequently-asked questions (FAQs) directed to such plans’ participants and beneficiaries. These DOL documents address the special deadline relief for these states that is available from this agency, which has oversight over ERISA-governed employee benefit plans.