Category Archives: Retirement Plan Benefits

2017 Cost-of-Living Adjusted Amounts for Employee Benefit Plans

On October 27, 2016, the Internal Revenue Service announced the 2017 cost-of-living adjusted amounts for certain retirement plan and fringe benefit limitations. Earlier in 2016, the Internal Revenue Service announced the 2017 cost-of-living adjustments affecting health savings accounts and high deductible health plans, and on October 18, 2016, the Social Security Administration announced the 2017 cost-of-living adjustments related to Social Security benefits.

A list of the cost-of-living adjusted amounts that most commonly affect employer-sponsored benefit plans is available here.

2016 Cost-of-Living Adjusted Amounts for Employee Benefit Plans

On October 21, 2015, the Internal Revenue Service announced the 2016 cost-of-living adjusted amounts for certain retirement plan and fringe benefit limitations. Earlier in 2015, the Internal Revenue Service announced the 2016 cost-of-living adjustments affecting health savings accounts and high deductible health plans, and on October 15, 2015, the Social Security Administration announced the 2016 cost-of-living adjustments related to Social Security benefits.

A list of the cost-of-living adjusted amounts that most commonly affect employer-sponsored benefit plans is available here.

Significant Changes To IRS Determination Letter Program

 On July 21, 2015, the Internal Revenue Service announced significant changes to the determination letter program for qualified retirement plans.  The IRS, in Announcement 2015-19, made it official that it will be ending its long-standing practice of issuing determination letters for individually-designed qualified plans, except in the case of a plan’s initial determination letter, or upon a plan termination.

This change is effective immediately with respect to “off-cycle” determination letter applications, and is effective January 1, 2017 for all other determination letter applications.  In other words, the IRS will still issue determination letters for individually-designed plans that are in “Cycle E” (plans sponsored by employers whose EIN ends in 0 or 5), provided the application is submitted no later than January 31, 2016, and for individually-designed plans that are in “Cycle A” (plans sponsored by employers whose EIN ends in 1 or 6), provided the application is submitted no earlier than February 1, 2016 and no later than December 31, 2016.  In addition, the IRS will continue to issue determination letters for individually-designed plans upon their initial qualification, or upon their termination.

Prior to this announcement, in order to rely on the protections afforded by a favorable determination letter, individually-designed qualified plans generally were required to be restated and submitted to the IRS for a new determination letter every five years, based on changes made to the determination letter program back in 2007.  However, that program of 5-year remedial amendment cycles will be essentially ended as a result of the most recent announcement.  It should be noted, however, that this announcement does not make any direct changes to the determination letter program with respect to qualified plans that are in the form of a pre-approved plan.  Those plans still are subject to the rules under Revenue Procedure 2007-44.  As such, those plans are generally required to be restated according to a 6-year cycle, with the current 6-year cycle running from May 1, 2014 – April 30, 2016.

There are a number of outstanding issues that still need to be addressed by the IRS regarding this announcement.  Chief among them is how to determine the remedial amendment period for individually-designed plans after December 31, 2016, and how these changes affect the rules under other IRS programs, including the Employee Plans Compliance Resolution Program.  The IRS is requesting comments on these issues and will issue further guidance at a later date.

Takeaway:  As a result of the changes announced by the IRS to its determination letter program, plan sponsors should no longer submit an application for a determination letter for an individually-designed plan, unless it is for the plan’s initial qualification, the plan’s termination, or the “on-cycle” submission for a Cycle E or Cycle A plan.  In addition, sponsors of individually-designed plans may want to consider moving the plan to a pre-approved plan, especially since the IRS recently began allowing certain defined benefit pension plans and employee stock ownership plans to be adopted in the form of a pre-approved plan.

2015 Cost-of-Living Adjusted Amounts for Employee Benefit Plans

On October 23, 2014, the Internal Revenue Service announced the 2015 cost-of-living adjusted amounts for certain retirement plan limitations. Earlier in 2014, the Internal Revenue Service announced the 2015 cost-of-living adjustments affecting health savings accounts and high deductible health plans, and on October 22, 2014, the Social Security Administration announced the 2015 cost-of-living adjustments related to Social Security benefits.

A list of the most significant of these cost-of-living adjusted amounts is available here.

2014 Cost-of-Living Adjusted Amounts for Employee Benefit Plans

On October 31, 2013, the Internal Revenue Service announced the 2014 cost-of-living adjusted amounts for certain retirement plan limitations and limitations affecting certain fringe benefits.  On May 2, 2013, the Internal Revenue Service announced the 2014 cost-of-living adjustments affecting health savings accounts, and on October 31, 2013, the Social Security Administration announced the 2014 cost-of-living adjustments related to Social Security benefits.

A list of the most significant of these cost-of-living adjusted amounts is available here.

IRA and Employee Benefit Provisions in “Fiscal Cliff” Legislation

On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 into law, avoiding the automatic tax increases and spending cuts that had been referred to as the “fiscal cliff.”  The new law primarily affects individual income tax rates, expiring estate tax provisions, and various taxes paid by businesses and investors.  However, the new law also makes significant changes to Individual Retirement Accounts (IRAs) and certain employee benefit plans.  A summary of the key provisions of the new law, including the provisions relating to IRAs and employee benefit plans, is available here.

Takeaway:  IRA owners and employers should familiarize themselves with the new law and consider whether amendments should be made to their employee benefit plan documents or participant communications.  Employers will also need to begin using new payroll tax withholding tables as a result of the new law.

ERISA Plan Sponsors and Changes of Address

A recent case illustrates how following reasonable administrative procedures can help protect ERISA plan sponsors and fiduciaries from liability.  In Foster v. PPG Industries (10th Cir. 2012), Mr. Foster, a former employee of PPG Industries (“PPG”), maintained an account in PPG’s 401(k) plan.  Mr. Foster and his spouse divorced.  Mr. Foster moved out of the marital residence, but did not inform PPG of his change of address until approximately fourteen months later.  During this time period, PPG mailed information to the marital residence about how to establish a new user ID and password to gain electronic access to Mr. Foster’s account.  The communication was labeled, “To Be Opened by Addressee Only.”

Mr. Foster’s ex-spouse received this letter and took the steps necessary to gain access to Mr. Foster’s account.  Over the course of several months, she withdrew all of the funds in Mr. Foster’s account. 

Mr. Foster brought suit against PPG and the plan under ERISA.  Mr. Foster alleged, in part, that his benefits had been improperly forfeited.  The Court concluded that the defendants had taken no steps to forfeit Mr. Foster’s account.  Instead the responsibility rested with Mr. Foster for failing to inform the defendant of his new address.

Takeaways:

  • Plan sponsors and plan fiduciaries that follow reasonable administrative procedures will not be responsible if a third party commits fraud against a plan participant.
  • Plan participants can protect themselves against someone taking over their identity if they timely inform the plan sponsor of an address change.

2013 Cost-of-Living Adjustment (COLA) Amounts for Employee Benefit Plans

On October 18, 2012, the Internal Revenue Service announced the 2012 cost-of-living adjusted amounts for certain retirement plan limitations.  On April 27, 2012, the Internal Revenue Service announced the 2012 cost-of-living adjustments affecting health savings accounts, and on October 16, 2012, the Social Security Administration announced the 2012 cost-of-living adjustments related to Social Security benefits.

A list of the most significant of these cost-of-living adjusted amounts is available here.

The IRS Letter-Forwarding Services for Missing Plan Participants Has Ended – Now What?

A recurring challenge for employers is trying to locate plan participants that have long since terminated employment, but that are just now entitled to start receiving their retirement plan benefits.  Since 1994, the Internal Revenue Service has made available to plan sponsors a letter forwarding service to help locate missing plan participants.  The program was fairly simple to use, and was free of charge.  It was also reasonably effective in locating missing plan participants.

However, the IRS recently updated its letter-forwarding program, and under the updated program, which went into effect on August 31, 2012, the IRS no longer allows employers to use the service as a means to locate participants entitled to benefits under their retirement plans.  While the service has been a helpful tool for retirement plan administrators since 1994, the IRS now reserves this program only for emergency situations.

As a result of this change, employers utilizing this service for locating missing plan participants should evaluate their administrative procedures and determine what alternative methods will be used.  The Social Security Administration letter forwarding service, the use of internet search tools, commercial locator services, and credit reporting agencies are examples of acceptable, alternative methods of locating missing plan participants.

Keep in mind, expenses incurred to locate a missing individual may be charged to the participant’s account as long as the amount of the expenses allocated to the account are reasonable and the method of allocation is consistent with the terms of the plan and the plan fiduciary’s duties under ERISA.  If the cost of using participant location services will be charged to the missing individual’s account, plan administrators need to consider the size of the participant’s account balance in relation to the cost of the services when deciding whether or not to use the service.