Year End Recent Developments and Other Statutory and Regulatory Guidance Potentially Impacting Qualified Plans for 2015 Background This document summarizes certain recent developments that may require amendments of tax-qualified retirement plans, including plans that will be filed with the IRS during Cycle E (February 1, 2015, through January 31, 2016). A complete list of the amendments specified in the IRS Cumulative List for most Cycle E submitters is set forth by the IRS in Notice 2014-77. This document identifies certain items in Notice 2014-77 that are most likely to impact qualified retirement plans as well as developments in federal case law and other recent regulatory changes that may impact plan provisions. Many referenced items include citations to applicable guidance. While this summary is intended to reflect our understanding of certain plan document updates that may be required or desirable, the nature, extent, and required timing of any plan amendments to reflect federal law changes can be quite specific for each qualified plan. As a result, clients may wish to use the summary to evaluate how their particular tax-qualified retirement plans are impacted in consultation with their legal or tax advisors. Any member of Aon Hewitt s Retirement Legal Consulting & Compliance practice can assist with such a review. Annual Determination Letter Guidance IRS Announcement 2015-01 Announcement 2015-01 previews certain changes set forth in Rev. Proc. 2015-6 (which relates to processing of determination letters for 2015). Incomplete Applications Procedural Requirements: A completed copy of the Procedural Requirements Checklist included in Forms 5300, 5307, 5310, and 5316 must be submitted with the determination letter request. The IRS developed a List, and, while not mandatory for Cycle E, it is recommended that the list be included in any submission. A copy of the list can be downloaded via the IRS website Lists of s in Qualification Requirements by selecting the 2014 option under Fillable reference lists. Request for Additional/Missing Information Technical Review: The IRS stated that it will not conduct a technical review of a determination letter application until it is procedurally complete. The IRS will advise applicants of the specified period within which missing information must be submitted. Risk. Reinsurance. Human Resources.
Cumulative List/Required Amendments The summary provided below considers certain 2015 changes that may need to be reflected in a plan amendment/restatement for, or otherwise relate to, an individually designed plan that is in Cycle E. Most of these changes (as well as other changes that may have been required previously during Cycle E) are summarized in the IRS 2014 Cumulative List of s in Requirements (Refer to Notice 2014-77) for determination letter filings under Cycle E. (Also, refer to Rev. Proc. 2007-44.) Certain 2015 s to Qualified Plan Requirements 1 U.S. Supreme Court (SCOTUS) Decision Code 401(a) Requirement Comment Additional Guidance/Links Same-Sex Spouses Application of Obergefell v. Hodges, June 26, 2015 Requires plan recognition (e.g., definition of spouse) of same-sex marriages validly performed in any state or foreign jurisdiction. While many plans may have addressed this issue previously, some plans may have retained certain limiting plan language before the Supreme Court s decision in Obergefell v. Hodges, 135 S. Ct. 2071 (2015). SCOTUS Decisions: Obergefell v. Hodges United States v. Windsor (June 26, 2013) Related Guidance: Rev. Rul. 2013-17 (clarified what tax laws will apply same-sex marriages) IRS Notice 2014-19 (qualified pension plans) IRS Notice 2014-37 (Mid-year plan amendment of 401(k) or 401(m) safe harbor plan) DOL Technical Release 2013-04 (interpretation of spouse and marriage ) DOL FMLA Final Rule (effective March 27, 2015) Proposed Treas. Regs. (definition of spouse and marriage ) 1 Adoption of one or more of the required/optional amendments summarized may require corresponding changes to the applicable summary plan description. LR-F-Apr-16_Plan_Amendments_for_2015 (Cycle E).docx 2
Final IRS Regulations Code 402(a) Requirement Comment Additional Guidance/Links Tax Treatment of Qualified Retirement Plan Payment of Accident or Health Insurance Premium Provides that amounts in a qualified plan used to pay accident or health insurance premiums are taxable distributions, for taxable years beginning on or after 1/1/2015, subject to certain exceptions: Code 402(l) provides a limited exclusion from gross income for distributions paid directly to insurers to purchase accident or health insurance or qualified long-term care insurance for an eligible retired public safety officer. Medical benefits for retired employees provided from a Code 401(h) account may be excluded from gross income. Regulations specify an exception for premium payments to insurance companies for contracts providing for payment of benefits to the plan if an employee is unable to continue employment with the employer due to disability and if benefit payments to the participant s account are not more than a reasonable expectation of what the participant would have received as an annual contribution during the disability period, reduced by any other contributions. Internal Revenue Bulletin 2014-22: Final IRS Regs: Qualified Plan Payment of Medical and Disability Insurance IRS Notice 2014-54 Code 402A Rollovers Permits allocation of before-tax and after-tax amounts among disbursements that are made to multiple destinations. Eases the ability of plan participants to transfer after-tax savings from their retirement plans to Roth IRAs. Applies to distributions made after 1/1/2015. IRS Notice 2014-54.pdf Prop. IRS Regs: Rollovers from Roth Accounts LR-F-Apr-16_Plan_Amendments_for_2015 (Cycle E).docx 3
Final and Proposed Hybrid Plan Regulations under PPA Code 411(a)(13), 411(b)(1), and 411(b)(5) Requirement Comment Additional Guidance/Links Hybrid/Cash Balance Plans and Age Discrimination Unless the IRS or Treasury issues an extension, may require adoption of a plan amendment for: Statutory hybrid plans to reflect preservation of capital rules, three-year vesting, and plan termination requirements. Statutory hybrid plans to provide an interest crediting rate that does not exceed a market rate of return. ERISA 204(h) notice may be required when changing interest crediting rate. Cash balance and pension equity plans to eliminate whipsaw calculation comparisons with respect to accruals for plan years beginning after 12/31/2015 for the plan to remain a lump-sum based plan eligible for the age discrimination safe harbor. ERISA 204(h) notice may be required when eliminating whipsaw comparisons. Pension equity plans that previously did not pay the accumulated benefit as the lump sum to pay lump sums equal to the accumulated benefit for distributions in plan years beginning after 12/31/2015 if the plan is to remain a lump-sum based plan eligible for the age discrimination safe harbor. Final and Prop. IRS Regs: Hybrid Plans LR-F-Apr-16_Plan_Amendments_for_2015 (Cycle E).docx 4
Final Hybrid Plan Regulations under PPA Code 411(a)(13), and Revenue Procedure 2005-23 Requirement Comment Additional Guidance/Links Impermissible Forfeiture Possible Need for Suspension of Benefits Notice or Actuarial Increase in Hybrid/Cash Balance Plans Evaluate need for actuarial increase or suspension of benefits notice for hybrid plans (e.g., cash balance or pension equity) to avoid an impermissible forfeiture of benefits with respect to hybrid plan benefits suspended after normal retirement age if the accumulated benefit is not increased sufficiently after normal retirement age. This could occur, e.g., if the interest credits are too low. Hybrid plan sponsors should evaluate whether a suspension of benefits notice can be applied without violating the anti-cutback requirements of Code 411(d)(6). Central Laborers Pension Fund v. Heinz et al (02-891) 541 U.S. 739 (2004) IRS TD 9280 Section 411(d)(6) Protected Benefits.pdf Internal Revenue Bulletin 2014-41 (Additional Rules Regarding Hybrid Plans) Aon Hewitt Article: IRS Issues Final and Proposed Hybrid Plan Regulations IRS Notice 2015-53 Code 430 Mortality Tables Updates static mortality tables for defined benefit plans under Code 430(h)(3)(A) for purposes of calculating the funding target and other items for valuation dates occurring during calendar year 2016. IRS Notice 2015-53 LR-F-Apr-16_Plan_Amendments_for_2015 (Cycle E).docx 5
Other 2015 s to Qualification Requirements 2 Requirement Comment Links to Notices and Other Guidance Revenue Ruling 2014-9 Code 401(a) Rollover Contributions Addresses how a plan administrator may reasonably conclude that a potential rollover contribution is a qualified distribution and will not adversely affect the recipient plan s qualified status. Updates guidance provided under Treas. Reg. 1.401(a)(31)-1, Q&A-14(b)(2). Rev. Rul. 2014-9 IRS Notice 2014-5 Code 401(a)(4) Nondiscrimination of Closed DB Plans Provides temporary nondiscrimination relief for certain closed DB plans (plans with ongoing accruals, but closed to new entrants). IRS Notice 2014-5 IRS Notice 2014-66 Code 401(a)(4) Nondiscrimination of DC Plans with Lifetime Income through Target Date Funds Specifies special nondiscrimination rule for qualified DC plans that provide lifetime income through target date funds. IRS Notice 2014-66 Final IRS Regulations Code 401(a)(9) Required Minimum Distributions from Qualified Life Annuity Contract (QLAC) Offers limited modification of minimum distribution rules for DC plans holding QLAC contracts purchased on or after 7/2/2014. Final IRS Regs: QLACs 2 Plan sponsors evaluating the changes summarized should consider whether the described change requires a plan amendment. Adoption of one or more of the changes described here will affect plan administration, but may not require an amendment to plan provisions. LR-F-Apr-16_Plan_Amendments_for_2015 (Cycle E).docx 6
Requirement Comment Links to Notices and Other Guidance IRS Notice 2015-49 Code 401(a)(9) Retiree Lump-Sum Windows Advises that regulations will be issued generally to prohibit lump-sum windows for retirees in pay status unless the window was adopted, otherwise authorized, covered by a private letter ruling or determination letter, or communicated to participants, or was adopted pursuant to a collective bargaining agreement prior to 7/9/2015. IRS Notice 2015-49 Discretionary Amendments 3 Topic Comments Pertinent Litigation/Other Guidance Annuity Purchase for Accrued Benefits (Ongoing Plan) Duty to Monitor Prudence of Designated Investments While the Lee v. Verizon litigation resolved in favor of the plan sponsor various allegations raised by plaintiffs regarding disclosures made in the SPD, litigation (or at least certain claims) may have been avoided if the plan sponsor had updated the SPD prior to the annuity purchase 4 to specifically remind participants of the ability of the plan sponsor (settlor) to purchase an annuity from a qualifying insurance company for some or all of the underlying vested accrued benefits. Plan sponsors evaluating Supreme Court decision in Tibble v. Edison Int l may wish to amend plan document to provide additional detail and clarity around the ongoing (continuous) fiduciary responsibilities of the plan s designated investment fiduciary, including possible coordination with (or adoption of) a formal investment policy statement. Lee v. Verizon Communs., Inc., 2015 U.S. App. (5 th Cir. Tex. Aug. 17, 2015) Tibble v. Edison Int'l, No. 13-550, SCOTUS, 135 S. Ct. 1823; 191 L. Ed. 2d 795 3 To the extent one or more of the following discretionary amendments is reflected in a plan amendment, consideration should also be given as to whether the applicable summary plan description should also be updated. 4 At a point in time far earlier than as required by applicable ERISA regulations. LR-F-Apr-16_Plan_Amendments_for_2015 (Cycle E).docx 7
Other IRS Guidance The IRS has updated certain publications to assist plan sponsors and specialists identify major problems in employee benefit plans that might threaten their tax-qualified status. The worksheets, attached to each publication, are provided by the IRS as examples to help identify issues and deficiencies. It is important to note that there may be issues not mentioned in the worksheets that could affect a plan s qualification. The following provides the links to each publication. Publication No. Description Publication 4962 Explanation 2A, Minimum Vesting Standards, Defined Benefit Plans Code 411 Publication 4964 Explanation 5B, Permitted Disparity Code 401(l) Publication 4965 Safe Harbor Nondiscrimination Requirements Defined Benefit Plans Treas. Regs. 1.401(a)(4)-3(b)(3); Code 414(s) Publication 5139 Explanation Number 14 - Section 436 Limitations Defined Benefit Plans Code 436 (plans subject to minimum funding requirements of 412) Publication 6388 Explanation No. 1, Minimum Participation Standards Code 410(a) Publication 6389 Explanation No. 2, Minimum Vesting Standards (DC Plans) Code 411 Publication 6391 Explanation No. 3, Joint and Survivor Determination of Qualification Code 401(a)(11) and 417 Publication 6392 Explanation No. 4, Miscellaneous Provisions Various sections of the Code and Regulations Publication 6393 Explanation No. 5, Coverage and Nondiscrimination Requirements, Defined Contribution Plans Publication 7001 Explanation No. 6, Limitations on Contributions and Benefits Code 415 Publication 7002 Explanation No. 7, Top-Heavy Requirements Code 416 Publication 7003 Explanation No. 8, Employee Leasing Code 414(n) Treas. Regs. 1.401(a)(4)-2(b); Code 414(s) Publication 7004 Explanation No. 9, Required Distributions Code 401(a)(9) For plan years prior to 2003, see Rev. Proc. 2002-29 LR-F-Apr-16_Plan_Amendments_for_2015 (Cycle E).docx 8
Publication No. Description Publication 7005 Explanation No. 10, Affiliated Service Group Code 414(m); also 401(a), 408(k), 408(p), 410, 411, 415, and 416 Publication 7334 Explanation No. 11, Employee and Matching Contributions Code 401(m) Publication 7335 Explanation No. 12, Section 401(k) Requirements Code 401(k), 402(e)(3), 402A; Treas. Regs. 1.401(k)-1(a)(4) Publication 11433 Explanation No. 13, Section 401(h) and Section 420 Determination of Qualification Code 401(h) and 420 LR-F-Apr-16_Plan_Amendments_for_2015 (Cycle E).docx 9
About Aon Hewitt Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design, and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability, and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information, please visit aonhewitt.com. Aon plc 2015. All rights reserved. The information contained herein and the comments expressed are of a general nature and are not intended to address the circumstances of any particular employer or plan. Although we endeavor to provide information and use sources that we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Aon Hewitt does not engage in the practice of law. The information contained in this document is not intended to be legal or tax advice. The recipient should discuss any and all relevant legal issues with its legal counsel and tax issues with its tax advisors. LR-F-Apr-16_Plan_Amendments_for_2015 (Cycle E).docx 10