“Effect of the Tax Cuts and Jobs Act of 2017 on Nonprofits and Governments,” PowerPoint now available
(Posted on February 15, 2018 by )


The Tax Cuts and Jobs Act of 2017 made a number of changes affecting the compensation and benefits that governmental, church, and other tax-exempt organizations can provide to their employees. Given the short time between introduction and passage of the Act, it is not surprising that many of the new provisions are unclear in their application. Moreover, some of them may produce unintended consequences for these organizations.

As part of a symposium on “Recent Developments in Benefits/Executive Compensation Affecting Tax Exempt Organizations,” Carol V. Calhoun gave a presentation on the ways in which the Tax Cuts and Jobs Act of 2017 will affect the compensation and benefits of such organizations. A copy of the PowerPoint for her speech can be found at this link.
 
 
 
 
 
 
 
 

Recent Developments in Benefits/Executive Compensation Affecting Tax Exempt Organizations
(Posted on February 15, 2018 by )


The Tax Cuts and Jobs Act of 2017 made a number of changes affecting the compensation and benefits that governmental, church, and other tax-exempt organizations can provide to their employees. Given the short time between introduction and passage of the Act, it is not surprising that many of the new provisions are unclear in their application. Moreover, some of them may produce unintended consequences for these organizations.

The PowerPoint slides for the portion of the presentation dealing with the Tax Cuts and Jobs Act of 2017 are below.

Nonprofits and Governments Face Compensation and Benefits Issues under the New Tax Law
(Posted on January 11, 2018 by )


The recently passed tax bill imposes a 21% excise tax on excess compensation and excess severance benefits of certain executives of nonprofit and governmental employers. The provision has a substantial impact on the compensation and benefits that such organizations can provide for their executives. Moreover, the determination of which employers, and which executives, are covered includes several traps for the unwary.

Read more.

New chart: Pre-approved Plan Eligibility Checklist
(Posted on January 5, 2018 by )


Lexis Practice AdvisorThe IRS maintains pre-approved plan programs (1) for retirement plans described in I.R.C. § 401(a) (qualified plans), and (2) for annuity contracts or custodial accounts described in I.R.C. § 403(b) (403(b) plans). A new chart shows what types of plans are and are not eligible to use the pre-approved plan program.

Read more.

Pre-approved Plan Eligibility Checklist
(Posted on January 2, 2018 by )


Use this checklist to determine which retirement plans can use pre-approved plan documents to satisfy the requirements for preferential tax treatment under the Internal Revenue Code (I.R.C.). The IRS maintains pre-approved plan programs (1) pursuant to Rev. Proc. 2017-41, 2017–29 I.R.B. 92, for retirement plans described in I.R.C. § 401(a) (qualified plans), and (2) pursuant to Rev. Proc. 2013–22, 2013–18 I.R.B. 985, as modified by Rev. Proc. 2014–28, 2014–16 I.R.B. 944, for annuity contracts or custodial accounts described in I.R.C. § 403(b) (403(b) plans). The programs available for pre-approved plans are different depending on the type of plan and the type of employer. Read more.

Navigating Pension and Annuity Payments: General Rule and Taxation Guidelines
(Posted on December 18, 2017 by )


Employers and those involved in administering retirement plans often do not understand the rules for navigating distributions from such plan. For example, how do the rules for when an employee can take a distribution interrelate with the rules for when an employee is subject to tax penalties on a distribution? Can an employee take a distribution of nontaxable amounts from a plan without also taking amounts subject to tax? How is a distribution initiated by the employer to solve a discrimination issue taxed? Who is taxed, and in what amount, if a distribution is made pursuant to a domestic relations order? What are the tax consequences if a loan is not repaid when due? What is the difference between a rollover of a distribution and a plan-to-plan transfer? For an employee who has a hardship, is it better to take a hardship distribution or a plan loan? Under what circumstances is withholding required, and in what amount? How are distributions reported to an employee? How does the employee report a distribution on his or her income tax return? This live webinar helps those responsible for retirement plans master both withholding and income tax aspects of a wide variety of distribution situations.

The PowerPoint presentation for the webinar is below.

IRS Issues Self-Assessment Forms for Federal, State, and Local Government Employers
(Posted on July 10, 2017 by )


Internal Revenue ServiceThe IRS has now issued a series of forms to enable federal, state, and local governments to assess their compliance with federal tax statutes, and has set forth some common errors found in examining such employers. Several of the forms relate to employee benefits issues, and may be of assistance to governments trying to ensure that they comply with all legal requirements.

The forms are as follows:

For use by Federal, State and Local Government Entities

For use by State and Local Government Entities Only

Read more.

Outlook on Employee Benefits
(Posted on April 24, 2017 by )


Carol V. Calhoun spoke at the 2017 Stable Value Investment Association (SVIA) Spring Seminar on “Outlook on Employee Benefits.” The Meeting Booklet, and outlines of each of the topics covered, are below:

MEETING BOOKLET

Copy of the meeting booklet

HANDOUT

A Trump Presidency: What Does It Mean for Employee Benefits?”

DOL FIDUCIARY RULES

  • Issue: protecting plan participants and retirement investors from receiving advice that is in the interest of the adviser rather than the participant
  • Monitoring of formal advice programs has been in place before the fiduciary rule. See DOL Advisory Opinion Letter 2007-01A, which said, “If Subsidiary B is a fiduciary by virtue of rendering investment advice within the meaning of 29 CFR 2510.3-21(c), the provision of such investment advice involving self-dealing will subject the fiduciary adviser to liability under section 406(b) of ERISA.”
  • The DOL issued proposed regulations in 2010 and 2015. Each iteration of the rules has attempted to balance more carefully a desire to promote participant education with a desire to prohibit advisors from operating in their own self-interest.
  • New rule covers more ground, including rollover distribution conversations and retirement readiness tools.
  • Plan sponsors will need to be aware of circumstances in which there has been a “recommendation” made regarding the investment, distribution or account management of a retirement account.

FIDUCIARY BEST PRACTICES: ORGANIZATION OF COMMITTEES

  • Determine the structure of the committee including appropriate size, membership, designated responsibilities, and frequency of meetings.
  • Clear appointment process (name or function, but not both)
  • Both selection and training designed to ensure expertise
  • Ongoing monitoring, e.g., regular reports to the company’s board of directors
  • Document all committee actions and decisions.

IMPACT OF UNCERTAINLY ON THE REGULATORY FRONT

  • Affordable Care Act
    • MacArthur Amendment
      • Would generally preserve ban on preexisting conditions exclusions, coverage up to age 26, and essential health benefits
      • Would increase age-related spread on premiums from 3:1 to 5:1.
      • Would allow applications for waivers from essential health benefits and from community rating rules (except gender). Waiver of health status rules would need to be accompanied by participation in federal or state high risk pools.
    • Alternative: Try to get the ACA to implode by not appropriating funds to cover cost-sharing reductions.
      • For people less than 250% of the federal poverty line, insurance companies may not charge deductibles, but are supposed to be reimbursed by the federal government
      • Not clear whether this is to be funded by special appropriation (which Congress has failed to pass).
      • Obama administration funded it out of general appropriation, was sued by the House.
  • Changes to HSAs
    • Ryan would like to increase the HSA limit to the maximum out-of-pocket cost.
    • Can act almost as a retirement account, but targeted to medical costs.
    • Downside is that they are available only with a high deductible health plan.
  • Hostility to socially responsible investing/economically targeted investments
    • Interpretive Bulletin 94-01, 29 C.F.R. 2509.94–1: “if the above requirements are met, the selection of an ETI, or the engaging in an investment course of action intended to result in the selection of ETIs, will not violate section 404(a)(1)(A) and (B) and the exclusive purpose requirements of section 403.”
    • Interpretive Bulletin 08-01, 29 C.F.R. 2509.08-1: “In light of the rigorous requirements established by ERISA, the Department believes that fiduciaries who rely on factors outside the economic interests of the plan in making investment choices and subsequently find their decision challenged will rarely be able to demonstrate compliance with ERISA absent a written record demonstrating that a contemporaneous economic analysis showed that the investment alternatives were of equal value.”
    • Interpretive Bulletin 2015-01 withdrew Interpretive Bulletin 08-01, and returned to the guidance of Interpretive Bulletin 94-01.
    • Will we go back to Interpretive Bulletin 08-01?
  • Diminished enforcement of protections for LGBT employees.
    • Federal employment
      • Retained Executive Order 13672, which prohibited contractors from discriminating on the basis of sexual orientation or gender identity.
      • Eliminated Executive Order 13673, which required companies wishing to contract with the federal government to show that they had complied with various federal laws and other executive orders.
    • Other employment
      • EEOC’s Strategic Enforcement Plan (SEP): treat discrimination based on sexual orientation or gender identity as sex discrimination under Title VII
      • Several cases won, mostly on transgender issues
      • In U.S. EEOC v. Scott Medical Health Center, District Court for the Western District of Pennsylvania denied a motion to dismiss case on discrimination against a gay employee.
      • Will this administration continue this policy? And if not, what is the prospect for participant lawsuits?

KEY CONCERNS OF PLAN SPONSORS, PARTICIPANTS, AND THOUGHTS ON HOW BEST TO NAVIGATE?

  • Executive Order of April 21: Secretary of the Treasury to identify in an interim report to the President all significant tax regulations issued by the Department of the Treasury on or after January 1, 2016 that:
    • impose an undue financial burden on United States taxpayers;
    • add undue complexity to the Federal tax laws; or
    • exceed the statutory authority of the Internal Revenue Service.
    • Identification within 60 days, report on mitigation within 150 days.

  • Decline in both regulations and agency staffing means that plan sponsors and participants will be looking less to the federal government for guidance.
  • States likely to become more involved, meaning you need to look at 50 state laws instead of one federal law. See, e.g., state proposals to require employer participation in IRAs.
  • Lack of regulations means fewer defenses to participant lawsuits.