IRS Extends Deadline for Rollovers
Effective August 24, 2016, the IRS released Rev. Proc. 2016-47, which is designed to help recipients of retirement plan distributions who miss the “60-day rollover requirement.” Prior to this rule, retirement savers had just 60 days to roll over their 401(k) or IRA accounts before the account became taxable, including a 10% penalty tax for those under age 59 1/2, even if they encountered unavoidable delays. Recipients rolling over retirement plan distributions are effectively given a second chance to receive a waiver that extends the 60-day deadline. Recipients are eligible for a waiver via a self-certification procedure as long as they have not previously been denied a waiver request and the rollover is completed as soon as practicable after the self-certification (30-day safe harbor). Recipients must provide certification of a reason for the delay, identified as one of the following: financial institution error, misplaced check, mistakenly deposited in an ineligible retirement plan, severe damage to principal residence, death of family member, serious illness, incarceration, restrictions by foreign country, postal error, levy under Code section 6331, or delay by the party making the distribution.
DOL’s New Fiduciary Rule
Multiple lawsuits have been filed in an attempt to invalidate the new fiduciary rule regulation. As expected, it is difficult to determine how the court(s) will rule; however, we do expect to see an increase in DOL fiduciary litigation prior to the effective date of April 10, 2017.
Clarifying 409A and 457 Deferred Compensation Regulations
The Treasury and the IRS have proposed clarifying rules regarding deferred compensation plans subject to IRC sections 409A and 457. As a reminder, 409A describes conditions and requirements for non-qualified deferred compensation plans and 457 defines the tax treatment for deferred compensation plans maintained by state/local governments and tax-exempt entities. The clarifications are intended to address specific minor changes to the regulations. The changes to 409A regulations are intended to provide flexibility and favorable clarification of certain specific provisions in response to comments received on the final regulations in 2007. The most significant proposed change to 457 regulations is to provide guidance on “ineligible” section 457(f) deferred compensation plans that do not qualify as section 457(b) plans. In many aspects, the proposed 457 changes parallel the current and proposed section 409A regulations. The proposed 457 regulations include the ability to add a qualified Roth option and to make tax-free distributions for qualified accident and health insurance premiums to retired public safety officers.
The significant implications to plan sponsors are: 1) most of the proposed rules for section 409A plans should not require significant changes, but plan sponsors may want to revisit any decisions made when the plan was amended to comply with 409A; and 2) the proposed changes for section 457(f) may affect plan design as it relates to vesting conditions (e.g., plans that delay vesting based on non-competes may need to be changed).
Significant Changes to Form 5500 Series
In July, in an attempt to improve and modernize the Form 5500 series, the DOL, IRS, and PBGC released proposed changes to Form 5500 and Form 5500-SF. Generally, the changes would apply for plan years after January 1, 2019. The proposal includes significant changes to Form 5500 Schedules C and H. The Schedule C changes are intended to better standardize Schedule C with the DOL’s disclosure requirements of 408b-2 regulations (i.e., reporting and disclosure requirements by service providers). The Schedule H changes are intended to increase transparency and improve reporting on hard-to-value investments.
IMPORTANT DISCLOSURES: These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—Arnerich Massena cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.