Leaderboard

RatherBeGolfing, I have seen this issue come up from time to time, often in professional firms where there are two DC plans, e.g. one for partners and staff in a law firm, one for associates. But in that case, the plan sponsor is the same, not just similar in ownership. I think the issue comes down to facts and circumstances. In the situation you describe, the historical pricing, assuming that the fiduciaries of each separate plan had done an adequate job negotiating the fees for the separate plan, would be a favorable fact and circumstance. However, if the recordkeeper is open to a reduction in fees in this circumstance (which it might not be, since you have two different entities as plan sponsors), the reduction would of course need to be shared pro rata. Other issues, such as payroll consolidation, etc., would come into play. Plan size, I think, would be an issue. Presumably you could get a lower fee if the plans were combined, but I don't think that that changes the decision whether to combine or not from settlor to fiduciary. Presumably Plan ABC has smaller accounts and possibly smaller total dollars, so that would also drive pricing.

Listen we can sort this out too, but when you talk about sorting this out for 1,000+ clients it gets to be a bit ridiculous. And no one (aside from billion dollar plans perhaps) wants to spend a dime (let alone 5 minutes) discussing what these new rules mean for the plans. Granted my employers are generally smaller, but even my larger clietns really haven't got much interest in what could easily be called "excruciating minutiae"

Very impressive analysis of course, but omg. This is for hardship distributions. This is turning out to be the most complex policy change I can think of recent memory. It occured to me that for the daily val plans, this is going to be 100% driven by whatever policies the recordkeepers implement. Has anyone heard from them?

SMMs. Some advisors may reasonably conclude that an interim SMM (i.e., a "pretend" SMM if you prefer) may (or should) be distributed in advance of the amendment to describe the intended interim operation of the plan pending the eventual adoption of an amendment, and then a revised SMM can be distributed (if need be) after the actual amendment is adopted (if the amendment modified the content of the interim SMM). That is why employers are currently struggling with how to draft safe harbor notices that reflect how the plan will be operated in 2019 (if such notices have, until now, referred to the suspension of deferrals upon a hardship distribution). DEADLINE FOR AMENDMENT. I agree that the reference to the Required Amendment List is not applicable to all plans. The proposed regulation is merely presenting an example: "For example, with respect to an individually designed plan that is not a governmental plan, the deadline for amending the plan to reflect a change in qualification requirements is the end of the second calendar year that begins after the issuance of the Required Amendments List described in section 9 of Rev. Proc. 2016-37 that includes the change." That deadline is consistent with Revenue Procedure 2016-37's general procedures for NON-preapproved plans, i.e., "individually designed plans" that are not governmental plans. I disagree that preapproved plans can wait until the end of the six-year cycle, as that would render Section 15.04(1) of the new Procedure meaningless. Preapproved Plans. Section 15.04(1) of IRS Revenue Procedure 2016-37 provides the deadline for required interim amendments for preapproved plans as being the time described by Regulation 1.401(b)-1(b)(3) (i.e., generally the time of the tax filing deadline following the plan year of implementation). (As an aside, my cites to Procedure 2016-37 include the leading zero after the period, e.g., Section 15.04, as does the text of that Revenue Procedure. I observe, however, that the IRS (oddly) fails to use the leading zero at the start of each numbered subsection, i.e., ".4" rather than ".04" as would was typically used in the past. I am, however, looking at an advance copy, so maybe that was changed in the final copy. Whatever.) Revenue Procedure 2016-37 follows the general template established by Revenue Procedure 2007-44. Why else would the new Procedure still contain the same language of the prior Procedure that "[the extension of the remedial amendment period applies to a good-faith amendment] if the amendment was adopted timely and in good faith with the intent of maintaining the qualified status of the plan. It goes on to say "The Service will make the final determination in all cases as to whether a new plan or an amendment was adopted with the good faith intention of being qualified or maintaining qualified status." If we had until the end of the six-year cycle to adopt every amendment, why bother adopting an amendment at all. Just restate. There would be no "good faith interim" amendments as described by Sections 15.03(1). Sections 15.03(1) and 15.03(2) set forth the general rules that have been with us since IRS Revenue Procedure 2007-44, i.e., that perfecting amendments (usually restatements) are required by the end of the six-year remedial amendment period, at which time any restatement will reflect (or otherwise incorporate) the employer's intent expressed in all the interim good-faith amendments that were timely adopted during six-year remedial amendment period. The language of IRS Revenue Procedure 2007-44 did not excuse the absence of timely adopted required interim amendments in 2007, and the same language appears in the new Procedure, so I infer that the new Procedure does not excuse the absence of timely adopting required good faith amendments throughout the six-year cycle. If the content of such amendments represent a good faith attempt to comply with a change in law, but fail on some technicality, then such amendment itself be retroactively amended for such technicalities discovered by the end of that cycle (during the restatement window). Such technicalities are usually resolved by the document provider when negotiating preapproved language for the then-current cycle (which will be Cycle 4 for these changes, not Cycle 3 - the Cycle 3 documents will reflect only the changes published in the 2017 Cumulative List). As in the past, employers that do not adopt a timely interim amendment must be able assert a good reason for not doing so, otherwise it would be unnecessary for Section 15.03(2) of the current procedure to say (as the IRS stated in Revenue Procedure 2007-44) that "...if an employer makes such a determination [that no amendment was required] and the IRS finds that an amendment is required, the plan would still be eligible for the six-year remedial amendment cycle to correct the disqualifying provisions described in section 15.02. The IRS will make the final determination in all cases as to whether the determination that no interim amendment was required was reasonable and in good faith." Query: Can employers and advisors reasonably and in good faith determine that no timely adopted interim amendment is required under Section 15.03(2) for a change the statutory and regulatory changes to the hardship distribution rules? If not, then the amendment is either "required" (go to Section 15.04(1) for the deadline) or the amendment is "discretionary" (go to Section 15.04(2) for the deadline). If we choose to characterize this amendment as a discretionary amendment under 15.04(2) rather than a required amendment under Section 15.04(1), then we can say with certainty that the earliest possible deadline is the end of the plan year of implementation (12/31/2019 at the earliest). Thus, no one can go wrong by waiting to adopt the amendment until the second half of 2019 for an amendment, and employers with preapproved plans should therefore target the second half of the 2019 plan year for evaluating such an amendment's content. Some providers have a "draft" version available for inspection and feedback. The IRS can also choose to extend the deadline for a particular set of changes in the law, but has not done so, to date, for this set of changes. TAXPAYER RELIANCE. I also observe that the proposed regulations do not appear to me to contain, as they often do, a statement of "taxpayer reliance." That means Treasury reserves the right to back-track on its guidance. When a proposed regulation comes with reliance, Treasury explicitly promises, within the proposed regulation, that no retroactive subsequent amendment will be required because of a change in the guidance, i.e., taxpayers "may rely" on the proposed regulation, and that "any more restrictive provision in the final regulation will not be retroactively effective." Since I can find no such statement to that effect in this regulation, I think that should give everyone pause. I offer below a potential reason why the IRS (i.e., Treasury) might choose not to commit itself to what it stated in the proposed regulation, though perhaps it is not a good example because the potential change I have in mind would be a liberalization of the regulation. The IRS is perhaps waiting to observe any push-back on one of the provisions of the proposed amendment, as follows. Controversy. Recall that the proposed regulation states that employers will NOT have the option of continuing to suspend deferrals after 2019, which is a BIG issue for some employers and advisors that want to continue having that requirement in the plan as a permanent provision. Maybe that's why Treasury didn't offer reliance on the proposed regulations - it is still thinking about issues like that. And just the thought of Treasury still thinking about these issues is sufficient reason for document providers to hesitate providing "the amendment." Suppose, for example, document providers follow the proposed amendment and say that no suspension of deferrals may be imposed for hardship distributions made on or after 1/1/20, and then Treasury changes its mind, and lots of employers want to keep the suspension provision, and thus will need to amend the earlier-adopted amendment (and SMM) that document providers rushed to market. I would prefer to wait and make sure that's the final rule about the permanent impermissibility of suspensions before giving employers an ultimatum, in the form of a signed amendment, that the suspension provisions cannot be continued for hardship distributions after 2019, only to turn around and issue a subsequent amendment (and SMM) saying that they are permitted after 2019 (under my imaginary scenario that Treasury reconsiders this issue and changes its mind). PESKY NEWSLETTERS. Just because a zillion law firms are trying to rustle up document business via a newsletter doesn't mean it's a good idea. Some firms even issued newsletters (can you imagine?) suggesting all the great things an employer can do after one employer in this country received a very narrow and technical Private Letter Ruling dealing with an unusual plan design whereby nonelective distribution that was disguised as a self-enrolled matching contribution was available, but only if the participant was a member of a certain group, and otherwise the participant received only the ordinary but "real" matching contribution. So because the "no contingent benefit" rule was determined by the IRS as not having been violated for that employer, now every employer in the country wants to try to do the same thing with a PPA preapproved plan. Nowhere in that Ruling was there a determination as to whether such a design could be used by a preapproved plan (the senior IRS document policy staff determine what's permitted and what isn't), nor for that matter, did the Ruling even opine on the qualified status of the plan at issue (since a PLR is not a determination letter). Providers were flooded with calls as to how to set up such a miracle plan. What percentage of those newsletters went into detail regarding all the testing, document, and potential administrative issues associated with such a complex design? How many newsletters suggested alternative and more conventional ways to assist with student debt relief? Any newsletter that omitted the gory details and potential alternatives was not useful. How many "hardship" newsletters detail all the administrative and unresolved compliance issues associated with the cessation of the suspension of deferrals upon a safe harbor hardship distribution? Or is their focus on the need for an "immediate" amendment? If the latter, what is their rationale for an immediate amendment in the absence of final guidance that offers "reliance"? WHAT WE HAVE HERE. Let's give Treasury some credit. Treasury wanted to, and did, issue sufficient information for employers to determine how plans should begin transitioning in operation, which is why many provisions of the proposed regulations apply to distributions beginning in 2020. More importantly, the regulations provided guidance on how to handle the cessation of the suspension of deferrals, e.g., employers will not need to stop suspending (i.e., the potential need to resume) deferrals at the stroke of midnight on New Year's Eve (this coming January 1st) simply because that is the effective date of the new law (depending on a plan's exact language (or an administrative procedure's exact language) as to what occurs at the end of a suspension period). That had been an open question prior to the proposed regulation. Now we can all enjoy our New Year's Eve and not look for all the plans that automatically restart deferrals at the end of a suspension period (which, until this guidance was issue, could reasonably be presumed to be January 1, 2019), i.e., plans that had suspension periods that had started in the second half of 2018 but that also automatically reinstate deferrals when the suspension period ends - or, in this case, might have potentially been required to end the suspension on 1/1/19 because of a change in the statute having an effective date of the first day of the 2019 plan year). Last, but not least, we now know that plans will be able to continue offering hardship distributions for casualty losses as defined prior to this most recent change to the personal tax deduction section of the Code for casualty losses (for those plans that referred to that Section of the Code). WHAT'S THE RUSH? Preapproved plan document providers should not be in a hurry to get an amendment out for the sake of getting an amendment out. Employers should not be in a hurry to get a comprehensive amendment adopted for the sake of getting an amendment adopted. The only rush is trying to determine what employers want to do in response to what we know are the most likely options, and that is not an easy task. Suppose one document provider has one set of default provisions (thinking most employers want those provisions), and another document provider has another set of default provisions (with the same thought). That will be fun. Document providers have been known to talk to each other, so maybe there will be some informal consensus on what defaults to use. When it is clear how the plan will be operated, e.g., whether employers will or will not acquiesce to the default provisions of document providers' "blanket" (prototype sponsor) amendments, then there should be a movement toward updating the language of the plan via an amendment. Or, if the employer is ready to do so now - then draft an amendment. Just don't expect providers to rush to market on this set of regulatory changes. The expansion of source accounts available for hardship distributions is relatively straightforward. If that were the only design issue involved, I suspect amendments would already start to be offered by providers and adopted by employers. But the suspension of deferrals (or the timing of the cessation thereof), and the need to amend the technical definition of a casualty loss, and other changes mentioned in this column, represent a can of worms for those who need to adjust all the moving parts under the hood, both for the document and for the administrator. The devil, as always, is in the details, including but not limited to (in this context) what the payroll service providers can do sooner rather than later. There's no point in adopting an amendment regarding deferrals until you are sure the payroll service provider can and will comply with the employer's (or provider's) amendment(s).

The addition of 401(k)(14) to the Code by the Bipartisan Budget Act of 2018, which broadens the potential sources of hardship distributions to include QNECs, QMACs, and earnings, and permits a hardship distribution without the requirement that a participant take an available loan, are effective by statute for plan years beginning on or after 1/1/2019. There is no special effective date provision for these changes in the proposed regs, but of course the Code does not mandate that an employer permit hardship distributions or make the maximum permissible amount available for them , so an employer has discretion whether, and if so when and to what degree, to implement these changes. In addition to the broadening of the source for hardship distributions, there is also the change that plans can no longer require a suspension of deferrals for six months (i.e., they can no longer suspend at all). Because this was not a change made to the Code by BPA, but rather a directive from Congress to the IRS to change the regs, the IRS was able to provide flexibility with respect to it. Under the proposed regs, you can optionally make the change effective for hardships after 12/31/2018 or for hardships before 1/1/2019 for the portion of the 6-month period that would extend beyond 12/31/2018. You can also keep the suspension for hardship distributions made all the way through 12/31/2019, but under the proposed regs it's not optional at all for hardship distributions after 12/31/2019. So regardless of whether you've amended by then for this change (and you almost certainly will not have been required to amend for it by 12/31/2019, as explained below), you need to stop suspending for post-2019 hardship distributions. There is also the change to the casualty loss hardship. TCJA narrowed casualty losses for Section 165 deductibility purposes from 2019 through 2025 to only those suffered in federally declared disaster areas. Because the resulting "glitch" for 401(k) hardship distributions was merely an indirect result of a TCJA change to a portion of the Code that was incorporated by reference into the IRS's hardship regs, the IRS did not have to follow it, and the proposed regs would eliminate the requirement that an otherwise good Section 165 casualty loss occur in a federally declared disaster area in order to be a good "hardship" for 401(k) hardship distribution purposes. Some well-informed plans presumably took TCJA and the existing 401(k) regs at their word and did not permit casualty loss hardships outside of federally declared disaster areas after 12/31/2017, while some, oblivious to the change, or counting on relief from IRS, may have continued to permit casualty loss hardships outside federally declared disaster areas after 12/31/2017. Again, since these issues arose primarily under the regs, and not as a result of direct statutory changes, the IRS had leeway to provide flexibility on the effective date, and the proposed regs would bless both approaches (i.e., requiring that the casualty loss be in a federally declared disaster area, or not) through 12/31/2018. Because the proposed regs liberally treat all of these changes (and the adding of FEMA-declared disasters to the safe harbor) as "integrally related" to changed qualification requirements, under Rev. Proc. 2016-37, plans will not be required for qualification purposes to be amended for any of these changes for a long time. For an individually designed plan, the employer has until the date that will eventually be specified in the Required Amendments List. The 2018 RAL was published today, and it does not include these new rules. In fact, there are no RAs on the 2018 RAL. So again, it will be awhile, probably at least a few years. Preapproved plans will not be required to be amended until the end of the next 6-year cycle. So in a sense, there is a lot of freedom as to when to implement these changes. The only change that is mandatory is no longer suspending the ability to make elective deferrals if the participant takes a hardship distribution, which must be implemented in operation no later than for hardships made in plan years beginning on and after 1/1/2020, although no amendment to the plan document will probably be required until well after that date. However, the provisions of the eventual plan amendment will need to "walk back" and include exactly what the employer did in implementing any or all these changes, and when they did it, so it probably would be unwise to begin to implement any of them until the employer has something in writing (whether a draft amendment, a memorandum explaining what the employer intends to include in its amendment, an SMM, or an IRS model amendment) that both describes what changes it intends to implement and when it will implement them, in detail. And once the employer has done that, it will need of course to inform its employees of the change in some way. However, an SMM is not required until 210 days after the end of the plan year in which the change is implemented, so before that date a less formal communication could be considered. So in brief, employers need to figure out, likely with the assistance of counsel and/or their consultant, which of the changes they want to make and think through all of the details. They should not, and need not, implement any of the changes until they have done that and have some sort of detailed writing specifying what they're going to do. Once they have that, they might as well implement the changes they have decided on, and of course that requires communicating those changes to participants. Under Rev. Proc. 2016-37, which did away with "good faith interim amdnements," no formal amendment will be required for quite a while. In the case of plans using preapproved documents, presumably, in order to save on costs, the employer will want to hold off on any implementation (other than stopping suspensions of elective deferrals after 2019) until the preapproved plan vendor has come up with some sort of written implementation package, which will likely include an amendment. I would suspect those will be available in the next few weeks or months.

An HRA can reimburse qualified medical expenses as defined in Publication 502. There is no restriction defined for foreign insurance premiums or medical expenses, except for specific minor restriction on prescription medications. You can include the cost of a prescribed drug you purchase and consume in another country if the drug is legal in both the other country and the United States. Under what basis do you think foreign government insurance premiums should be specifically disallowed, when Medicare premiums are specifically allowed.