New Tax Notices
Participants in qualified retirement plans are entitled to receive a tax notice when making a distribution election. Internal Revenue Code Section 402(f) requires that the notice include an explanation of rollover options, the tax consequences of not making the rollover including mandatory tax withholding, and other related information. IRS provides “safe harbor” tax notices for use by plan sponsors and their service providers.
The IRS recently issued Notice 2014-74, which includes revised tax notices. There are two versions – one for use with designated Roth accounts in a distributing plan and the other for non-Roth accounts. Participant who have both Roth and non-Roth accounts in a plan should receive both notices when electing distribution.
Plan sponsors who create and mail their own distribution forms should begin using the new notices. Notice 2014-74 is found at http://www.irs.gov/pub/irs-drop/n-14-74.pdf.
Restatements and Determination Letters
Employers with tax identification numbers ending in 4 or 9 are Cycle D filers for the purpose of submitting an IRS determination letter application for their ESOPs or other individually-designed plans. The deadline for submission is February 2, 2015. (The normal January 31 deadline was extended by two days.)
The deadline for complete restatement of a plan that uses a pre-approved plan format (prototype or volume submitter) is April 30, 2016. If Blue Ridge ESOP Associates provides plan document and administration services for a company’s 401(k) or profit sharing plan, we will complete the plan restatement unless the plan sponsor has delegated that duty to legal counsel.
Looking at 2015
At some point in2015, the Department of Labor (DOL) should:
- Release proposed regulations that would revise the definition of a fiduciary. The DOL has stated that the proposed regulations – now known as the “conflicted advice” proposal - would be issued in January 2015, but we expect delays in the actual issuance.
- Release proposed regulations that would revise reporting requirements for participant benefit statements. The proposal is due out in January 2015. It could include a revision of the rules for electronic delivery of statements. It could include rules for converting a participant’s balance into an estimated annuity payment beginning at normal retirement age. Hopefully, the latter requirements would pertain specifically to permit participant - directed investment accounts.
- Modernize Form 5500 and related schedules.
Will we see DOL propose regulations on the use of brokerage windows in plans with participant – directed investment? DOL recently closed a request for information period on brokerage windows. Next steps are unclear.
The IRS has published its list of guidance priorities for 2015. Their priority items are numerous and include:
- Additional guidance on how to correct plan operational errors including inadvertent participant loan violations and automatic enrollment and safe harbor 401(k) violations.
- Regulations on exceptions for early withdrawal penalties.
- Guidance for tax withholding on distributions made to payees with non-U.S. addresses.
- Contribution deduction guidance.
- Additional guidance on mid-year changes and amendments to safe harbor 401(k) plans.