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Proposed Regs for definition of QNEC and QMAC


Kevin C
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2 hours ago, MoJo said:

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.

Respectfully, I interpret this differently.  It says it applies to taxable years beginning on or after the date of publication....

If the final Reg is published in 2017, wouldn't that make it effective for the 2017 taxable year?

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5 minutes ago, DMcGovern said:

Respectfully, I interpret this differently.  It says it applies to taxable years beginning on or after the date of publication....

If the final Reg is published in 2017, wouldn't that make it effective for the 2017 taxable year?

Yes, it says taxable years beginning on or after.  It's already to late for 2017, as even if the final regs are published this year, the start of 2017 has already past ("beginning" being the operative language).  A non-calendar year that "begins" after the final regs are published could come under that provision.

But...  We've got "retroactive" reliance so the prospective effective date is less relevant - unless the final regs are materially different from the proposed.

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1 minute ago, DMcGovern said:

Respectfully, I interpret this differently.  It says it applies to taxable years beginning on or after the date of publication....

If the final Reg is published in 2017, wouldn't that make it effective for the 2017 taxable year?

That sentence alone means that it applies to taxable years beginning on or after the publication date of the final reg.  Calendar year plans begun before the publication date of the final reg and would be out of luck until 2018.

That is why the second sentence is just as important

Quote

Taxpayers, however, may rely on these proposed regulations for periods preceding the proposed applicability date.

 You may relay on the proposed regulations for periods (plural, meaning not just 2017 when the proposed reg was published) preceding the proposed applicability date.  You could read that sentence to include 2017 for calendar year plans but since the language is plural, why should it exclude 2016?

 

 

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3 minutes ago, DMcGovern said:

Got it - thanks RBG!

 

No worries. My reading (and I believe MoJo came to the same conclusion earlier with the plural language but I can't see the post on this page) doesn't matter much if your document is written to not allow for forfeitures to fund safe harbor, or if the amendment to include it is specific as to the periods.  My provider is taking the position that 2017 is in because of the publication date but 2016 is out because the plan year ended before the proposed regs were published.  So at this point, I still can't use it because my documents are more restrictive than the proposed regs.  Im still holding out hope that FTW will change their position or give us a reasonable explanation,  like conversations with the IRS clarified the opinion or something like that.

 

 

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Just now, Tom Poje said:

I love it. one simple change to the regs and...

some say it can apply in 2016

some say 2017 (FT William says if you are doing things on a payroll basis you can deduct now)

others imply 2018 (taxable after approved, or noncalendar years that start after approval date)

And any clarification from the IRS will probably come after we have done all of our 2016 calendar year plans...

 

 

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4 hours ago, John Feldt ERPA CPC QPA said:

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?

John, I'm not suggesting an interim amendment for this can be effective retroactively, I'm asking if it can be done.  Reading through the remedial amendment rules for interim amendments gives me a headache. 

Fortunately, we use ASC's VS document that has the language described in my original post. So, while this turn in the discussion is interesting, it doesn't affect us.

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Here is SunGard's, I mean, FIS's take on this:

"It is important to note that to apply these changes, plan documents will need to be amended to remove the language that restricts the use of forfeitures to fund safe harbor contributions.  FIS Relius will be preparing good-faith amendments for this purpose in the near future. Since this change is discretionary, an amendment would need to be adopted by the last day of the plan year to which it applies. In addition, an earlier amendment might be needed to avoid violating the anti-cutback rules (IRC §411(d)(6)) depending on how forfeitures are handled under a plan sponsor’s current plan. For example, if the plan provides for the reallocation of forfeitures, then amending the plan to reduce contributions could violate the anti-cutback rules if participants have already satisfied the conditions for sharing in the reallocation of the forfeitures."

Their full explanation:

IRS Relaxes Rules on Use of Forfeitures to Fund Safe Harbor Contributions

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23 minutes ago, austin3515 said:

http://www.relius.net/News/TechnicalUpdates.aspx?T=P&1=1&ID=1103

Relius' notice that came out today.  Not 100% answering my original question about using forfeitures today for 2016 but certainly implies it will not work.

Yea.  Not actually answering the questions - except to the extent that *if* the plan needs an amendment, the amendment must be done by the plan year in which it is to be effective (so, if done by the end of 2017, then arguably it is effective only for 2017 and after).

The question is, if the doc doesn't need an amendment (ASC, possibly our major modifier Relius) then can you for 2016 rely on the retroactive reliance provisions of the proposed reg?

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1 hour ago, MoJo said:

The question is, if the doc doesn't need an amendment (ASC, possibly our major modifier Relius) then can you for 2016 rely on the retroactive reliance provisions of the proposed reg?

I would say yes.  I buy the last day of the plan year for a discretionary amendment, but I have seen no compelling argument why forfeitures cant be used for 2016 IF the document contains language that would not need to be amended.  It is no news to the people who draft these proposed regs and rules that every word and sentence matters.  Absent specific guidance from the IRS saying 2016 is out even if your document allows it, it is absolutely a good faith interpretation of the proposed rule. 

 

 

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Another ERISA attorney's opinion came out today in Sal's eRISA Update,Winter 2016/2017, Issue #57.

He says

Pre-approved plans that prohibit the use of forfeitures towards SH, QNEC or QMAC will need to adopt an interim amendment under Rev. Proc 2016-37.  He also says that while the IRS did not address operational compliance prior to an amendment, it would appear that as long as you don't violate 411(d)(6), operational compliance should be permissible.  He does not specifically mention 2016 years, although he does say you should be able to rely on the proposed regulations for periods prior to their 1/18/2017 publication date.

That's not as clear as some would like, but not a restrictive as the other known opinions. I'm sure there will be more to follow.

 

 

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1 hour ago, austin3515 said:

Why is it that we all agree this is a very important question and no one seems to be answering it? I honestly think they intentionally omit the stuff they don't know just so they don't have to admit they don't know.

Well, answered or not, we've determined our ASC document needs no amendment and forfeitures can be used to fund SH contribution for 2016 but not yet paid.  We've concluded that in good faith our Relius document needs no amendment (although Relius says they will be drafting one) and that forfeitures can be used to fund SH contributions for 2016 but not yet paid.  Relius, being BUT ONE SOURCE of expertise, disagrees, and we considered that, but we have more "ERISA" attorney's on staff than they do.

 

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1 hour ago, MoJo said:

 Relius, being BUT ONE SOURCE of expertise, disagrees, and we considered that, but we have more "ERISA" attorney's on staff than they do.

Good for you!

Unfortunately for me the FTW document leaves no room for interpretation or I would be tempted to do the same as I think the language of the proposed rule gives the green light for 2016 (and we certainly do NOT have more ERISA attorneys on staff than, well, anyone)

 

 

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13 hours ago, austin3515 said:

MoJo, are you using their standard volume submitter or did you modify that language?  And can you share the rationale supporting the conclusion? 

Austin:  We are a major modifier of the Relius document, but I don't think we modified this section.  Here's the analysis:

It’s 4.3(e) of the BPD, which provides in pertinent part:

 

Notwithstanding above, effective for Plan Years beginning after the Plan Year in which this Plan document is adopted, Forfeitures may not be used to reduce any Employer contributions which are required pursuant to the Code to be fully Vested when contributed to the Plan (such as QMACs, QNECs and "ADP test safe harbor contributions" other than QACA "ADP test safe harbor contributions.")

 

The first part of that, by way of limitation, prohibits the use of forfeitures as an offset to contributions which must be fully vested at the time of contribution (which until the IRS proposed changes included QNECs & QMACs – which are the types of contributions used to satisfy safe harbor requirements.  Since the proposed regulation (and given that it explicitly allows retroactive reliance) QMACs and QNECs are no longer required to be fully vested, when made, so the limitation in that plan provisions (can’t use forfeitures to offset contribution required to be fully vested when contributed) is still an effective limitation – it just no longer applies to QMACs and QNECEs (hence, no amendment necessary).

 

The parenthetical that provides “such as QMACs, QNECs…” is explanatory, and not a limitation, so this change makes that language superfluous and of no effect.

 

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8 minutes ago, MoJo said:

The first part of that, by way of limitation, prohibits the use of forfeitures as an offset to contributions which must be fully vested at the time of contribution (which until the IRS proposed changes included QNECs & QMACs – which are the types of contributions used to satisfy safe harbor requirements.  Since the proposed regulation (and given that it explicitly allows retroactive reliance) QMACs and QNECs are no longer required to be fully vested, when made, so the limitation in that plan provisions (can’t use forfeitures to offset contribution required to be fully vested when contributed) is still an effective limitation – it just no longer applies to QMACs and QNECEs (hence, no amendment necessary).

This is precisely the thought process I had when I opined that the FIS language seems to permit the change without an amendment. When I queried FIS, of course they opined differently. I suspect (and I can't blame them, really) that unless the IRS makes some additional public statements/guidance, FIS will pursue the extremely safe and conservative interpretation. You certainly can't get in trouble using that approach. They have a gazillion plans using their documents, so I can understand them wanting to cover their tails. And, one could also reasonably adopt their interpretation, even if it isn't a CYA situation.

Funny - I can't remember another issue generating this much discussion in such a short time.

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15 minutes ago, Belgarath said:

You certainly can't get in trouble using that approach. They have a gazillion plans using their documents, so I can understand them wanting to cover their tails. And, one could also reasonably adopt their interpretation, even if it isn't a CYA situation.

Funny - I can't remember another issue generating this much discussion in such a short time.

Yea.  I agree FIS is being "conservative" - but we have a business to run and clients who have heard about this and want to use forfeitures NOW.  So, we make business decisions, and frankly, no one has poked holes in the analysis, yet....

I agree - I can't remember another issue generating this much conversation - BUT this one is one people have been scratching their heads over the IRS' position for a long time - so the change generated excitement ... and then questions....

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