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Proposed Regs for definition of QNEC and QMAC


Kevin C
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Since you can make comments, I went out and asked

"if plan is amended to allow use of forfeitures as permitted under the proposed regs, can the forfeitures be used for plan year's ending 2016"

(I did not add "Because Austin Powers will get mad otherwise"

or

RatherBeGolfing 'wants to know", but maybe that would have helped)

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anytime there are proposed regs there is a blurb such as

 

Comments and requests for a public hearing must be received by April 18, 2017.

 

ADDRESSES:

Send submissions to CC:PA:LPD:PR (REG-131643-15) Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-131643-15), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC 20224, or sent electronically via the Federal eRulemaking Portal at Start Printed Page 5478www.regulations.gov (IRS REG-131643-15).

 

so I clicked on the link, entered the IRS Reg-131643-15

and entered a comment.

by the way, for name you can enter 'anymous'

 

it can't hurt to ask, though usually I forget about being able to do that!

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1 hour ago, RatherBeGolfing said:

LOL if so can I dislike my own post?  Im not sure I agree with FTWs interpretation as to applicable plan years

Agreed!  I'll be very interested in FTW's communication and [likely] amendment for this.  I don't always agree with the person responding to my question through customer support and have to seek out assistance elsewhere within FTW.

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Don't know how other document providers are handling;

FT William did send out a nice list of Q and As on this issue

basically, yes you need to amend, no client doesn't need to sign, no SMM needed, they are shooting for start of second quarter to have the amendment available.

their list did indicate

Q3:  Do these regulations allow us to use forfeitures to offset 2016 QNECs and QMACs?

A3:  No, these regulations were published in 2017, and they did not contain a retroactive applicability date, so they are not applicable for 2016.  Forfeitures can only be used to offset QNECs and QMACs allocated for plans years 2017 and later.  For example, if you are making safe harbor contributions on a per payroll basis, you can start using forfeitures to offset these contributions now. 

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I learned a long time ago, If a man is alone in a forest and he speaks, is he still wrong? that the answer was YES (and I'm not even married).

so it doesn't matter what I think. I hadn't even thought about the implications until someone raised the point, and at least the bell went off in the head that said take the trouble to ask the IRS before everything gets finalized. it could very well be the way things are written now it is true you can only use going forward rather than 'even though the allocation is for 2016, since it was actually allocated to the participants account in 2017 that is ok, and so maybe they will change things.

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4 minutes ago, DMcGovern said:

The proposed regs say it is effective for taxable years after the publication of the final regs.  I'm guessing it is the taxable year for the plan?  So for calendar year plans, 1/1/17, right?  Non-calendar year plans?

The proposed regs also say (my emphasis in italics)

Quote

These regulations are proposed to apply to taxable years beginning on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. Taxpayers, however, may rely on these proposed regulations for periods preceding the proposed applicability date. If, and to the extent, the final regulations are more restrictive than the rules in these proposed regulations, those provisions of the final regulations will be applied without retroactive effect.

 

 

 

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I have to wonder if FT W is reading the same proposed Regs we are.  For calendar year plans, the proposed effective date will be no earlier than 1/1/2018.  However, it clearly says the proposed regs can be relied on for prior periods.  

 

Proposed Effective/Applicability Date

 

 

These regulations are proposed to apply to taxable years beginning on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. Taxpayers, however, may rely on these proposed regulations for periods preceding the proposed applicability date. If, and to the extent, the final regulations are more restrictive than the rules in these proposed regulations, those provisions of the final regulations will be applied without retroactive effect.

 

 

 

 

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3 minutes ago, Kevin C said:

 

I have to wonder if FT W is reading the same proposed Regs we are.  For calendar year plans, the proposed effective date will be no earlier than 1/1/2018.  However, it clearly says the proposed regs can be relied on for prior periods.  

 

Yep that is my issue with  the FTW interpretation as well but they have been very firm on it both in my correspondence with them and the technical update. Unfortunately most of the 2016 work will be done by the time the IRS will issue an answer to the comments so we are kinda stuck it seems...

 

 

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I believe FT William stance is: something like

the regs are eventually going to be approved in 2017.

but even though they aren't approved yet, you can rely on them for 2017.

those are the prior periods referred to rather than any prior period including those before 1/1/2017.

I assume the FT document folks are ERISA Attorneys!

....................

I suspect the evil Austin has probably gone out to the IRS website and suggested they scrap the whole thing since we can't agree on an interpretation.

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FTW's responses to my questions regarding the effective date:

1. Is that the plan’s taxable year, or the employer’s?
ANSWER:  The Plan
2. For calendar taxable years, that would be 1/1/17? (So, a sponsor could use forfeitures toward the full 2017 safe harbor contributions.)
ANSWER:  Yes
3. What about non-calendar taxable years?
ANSWER:  It would be the tax year that starts in 2017.


Since the proposed Regs state they are effective for taxable years on or after the date they are published, that would include 2017, right?

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Quote

I suspect the evil Austin has probably gone out to the IRS website and suggested they scrap the whole thing since we can't agree on an interpretation.

Are you kidding, I am just thrilled with what they have done.  Hats off to the IRS!

But the point here is that an amendment is not required.  The document already says that contributions required to be nonforfeitable when made cannot be used.  One could easily argue that sentence simply means something different today than it did last week.  That would be one argument.  The other to me clearly is just that I used the forfeitures in 2017.

Austin Powers, CPA, QPA, ERPA

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I wasn't implying that the FTW document folks were not ERISA attorneys.  We have their opinion.  I was asking if any of the ERISA attorneys on this site would care to comment.

 

The phrase " for periods preceding the proposed applicability date" can also be interpreted to mean including years back to 2006 when the ridiculous language of "when deposited" became effective.  While the controversy didn't start until about 2011, our plan provisions were not following the regulations from 2006 through the PPA restatements.  I read the proposed reg as correcting this issue back to 2006. Others obviously have a different opinion.  

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23 minutes ago, DMcGovern said:


Since the proposed Regs state they are effective for taxable years on or after the date they are published, that would include 2017, right?

You left out a word.  They are proposed to be effective for taxable years beginning on or after the date the final regs are published.  For calendar year taxable years, that won't be before 2018.

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I can understand it either way, but then that is why it was important to ask the IRS. usually when the final regs are released in the preamble there will be a note "Some commentators asked if these regs apply only plan years beginning 2017" or something similar to that and they will answer the question.

so feel free to go out and ask for a clarification as well!

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Someone mentioned the obvious point which is we need to choose a course of action today.  The official answer in October is as useless as a $3 bill.  I hope Relius comes out with a more reasonable interpretation than FT, or at least says something like " some practioners might take the position that..." which to me is saying (albeit with a wink and a nod) that they think it is strong enough to be reasonable even if they don't want to be responsible for defending it.

Austin Powers, CPA, QPA, ERPA

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Always best to go to the source.  The explanation of the proposed regs say (verbatim) in the Proposed Effective/Applicability Date" section:  

These regulations are proposed to apply to taxable years beginning on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. Taxpayers, however, may rely on these proposed regulations for periods preceding the proposed applicability date. If, and to the extent, the final regulations are more restrictive than the rules in these proposed regulations, those provisions of the final regulations will be applied without retroactive effect.

First, I read the first part of that to say that WHEN FINAL, the regulations will apply only to taxable years beginning after publication.  So, if they are finalized in 2017, that would be 1/1/18.  Simple enough.

The part after the "however" says we can rely on these "proposed regulations" (without subsequent consequences if the final regs differ from the proposed) for "periods preceding" (emphasis added) the proposed effective date.

Now, words have meanings and "legal" interpretation says you use the ordinary meaning of words when interpreting them (unless the context requires otherwise).  The proposal talks about "periods" preceding the effective date (i.e. it uses the plural) and it does not restrict those "periods" to only those occurring coincident with (2017) or after publication of the proposed regs.  In other words, literally read, it could apply to any periods all the way back to the big bang.

I'm not advocating any position here - we are still evaluating how this applies (or how we want it to apply) to our book of business, but an argument certainly can be made that you can rely on the proposed regulations for periods in the past - such as a 2016 contribution that has not yet been funded (to the extent there isn't some other prohibition against the underlying act of funding a contribution to the past period).

I consider myself a "recovering" ERISA attorney (I work in-house with a service provider and not as part of the corporate legal department).

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This would be an optional interim amendment - discretionary, not mandatory. The IRS can argue that plans could retain their existing restrictions on forfeitures if they wanted (crazy, I know).

But are we suggesting that later this year an optional interim amendment can be adopted, and that amendment could have a retroactive effective date of January 1, 2016? That would allow sponsors to ignore the current written language in the document that existed in the plan as of 12/31/2016 for the 2016 plan year. Do you believe this also allows a plan sponsor to ignore the rule that requires discretionary amendments to be adopted by the last day of the plan year?

Is there regulatory precedence?

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