Fall 2016:What’s New That Impacts You?

Susan D. Diehl, QPA, CPC, PresidentPenServ Plan Services

Ellie A. Lowder, TGPC, ConsultantTSA Consulting Services

Agenda for Today

So much to say and so little time!

• Rollovers rules change!

• Late 60-day rollovers

• SIMPLE IRAs

• Coverdell ESAs

• The all-new, pre-approved 403(b) plan documents during the first quarter of 2017!

• Allocation rules change when rolling over from employer plans!

• Treatment of adjunct professors and other “on-call” employees

• 457/409A proposed regulations

Agenda for Today

So much to say and so little time! (continued)

• Lower EPCRS fees!

• Conseco Fair Fund amounts

• COLA adjustments

• Loans and hardships to Louisiana flood victims

• Senate Finance Committee proposals for potential lame-duck session of Congress

• Will the new DOL regulations survive the change in Administration?

New Guidance for Indirect Rollovers

• IRS Revenue Procedure 2016-47, says that an extension of the 60-day window can be granted in certain circumstances with self-certification by the IRA owner

• Sample self-certification language for IRA owner use is in the notice

• Institutions can use this language to create a form for signature

Conditions for 60-Day Extension

• Financial institution made an error

• The check was misplaced (it was never cashed)

• The distribution was placed into and remained in what turned out to be an ineligible account

• The taxpayer’s principal residence was severely damaged, or a family member died or was severely ill

• The taxpayer was incarcerated

Conditions for 60-Day Extension (Continued)

• Postal error

• Restrictions were imposed by foreign company

• Delay by the distributing institution in providing information to accept rollover (despite taxpayer’s reasonable efforts to obtain the information)

Additional Rules for Late 60-Day Rollovers

• If the late rollover is being deposited into an IRA, the institution will report the transaction by an “indicator” beginning in 2017

• The certification is not a waiver of the 60 days

• The IRS can actually grant the waiver upon audit

SIMPLE – IRAs Can Now AcceptRollovers from Other Plans

• PATH Act signed on December 18, 2015

• SIMPLE-IRA Changes effective on December 18, 2015

• Before the PATH Act, no other plans could rollover into a SIMPLE plan, except for another SIMPLE

• The amendment to the SIMPLE IRA regulations permits incoming rollovers to be accepted into the SIMPLE IRA effective on enactment (December 18, 2015) from all 401(a) qualified plans (including 401(k) plans); 403(b) plans; governmental 457 plans; Federal Thrift Savings Plan (remember this is ‘treated’ as a 401(a) qualified plan); and from traditional IRAs

SIMPLE – IRAs Can Now AcceptRollovers from Other Plans (Continued)

• These rollovers are permitted only after the two-year period has been met for the SIMPLE IRA

• IRS Guidance???

• The amendments will be handled differently depending on the type of SIMPLE-IRA that you offer:

– Model 5304-SIMPLE for non-DFIs

– Model 5305-SIMPLE for DFIs

– Prototype SIMPLE IRAs

• Remember the 5305-S and 5305-SA for employees are not affected except for the disclosure information

Additional Path Act Changes

New permitted transfers (referred to as 414(z) transfers) for church plans from qualified plans to 403(b) plans and vice versa!

• No reporting

• Takes care of employers who were put on 401(k) plans inerror

Church pPlans may add auto-enrollment and not worry aboutstate laws

One Rollover Per 12 Months

• Applies to Traditional, Roth, SEP, and SIMPLE-IRAs

• Measured from the date of the distribution from the first IRA plan

• Waiting on guidance to see what the responsibility is of the financial institution who ‘knows’ that this is a second rollover

• Also applies to rollovers between Coverdell ESAs

The All-New Pre-Approved 403(b) Plans

• IRS approval letters will be coming out during the first quarter of 2017 – probably March

• RAP (Remedial Amendment Period) will then begin in April of 2017

• RAP will be either two or three years for all employers to sign a pre-approved plan

• Pay attention to the new Administrative Appendix that will be a part of the documents. This also contains the Vendor Attachment.

New Allocation Rule:Employer Plan Money Sources

Pre-tax elective deferrals

Employer match

Profit sharing

Rollovers from other plans

After-tax employee contributions

Roth elective deferrals

(Designated Roth Account “DRA”)

IRRs (In-Plan Roth Rollovers)

Review

Blue Money –

One 1099R

Proration for taxation applied on Blue Money separate from Red Money

Red Money -

Separate 1099R

Proration applies separately to Red Money

Review

In-Plan Roth Rollover Conversion

Designated Roth Account

In-Plan Roth Rollover

ER Contributions (Matching, Non-elective, Profit-

sharing, etc)

Rollovers

Pre-tax elective deferrals and earnings and

after-tax

Happens inside the retirement plan and $

moves into a designated

Roth account

Taxable event

IRS Notice 2014-54 Example

BEFORE January 1, 2015 = Pro-Rata Basis Recovery

401k = $250,000 Balance

$200,000 Pre-Tax$50,000 After-Tax

Direct Roll = $200,000 to IRA$160,000 Pre-Tax$40,000 After-Tax

Cash/QRC = $50,000$40,000 Pre-Tax$10,000 After-Tax

Note – this rule still applies to partial distributions

Review

Applies to employer plan rollovers to traditional IRA and Roth IRA effective January 1, 2015

Impacts taxable amount of rollover/conversion for ffter-tax distributions

Allows taxpayer to “cherry pick” after-tax for distribution or conversion to Roth IRA.

• Rule change, NOT correction

• Distribution forms should have changed

Review

For example, let’s say that one of your clients has a balance under their 403(b) with $100,000 made up of the following assets at the point of the request to distribute based on his or her separation from service:

$75,000 in contributions (employer and pre-tax deferrals)

$10,000 in after-tax contributions

$15,000 in earnings (remember this will change from day to day!)

Review

• Today, your client can request $10,000 to be converted to a Roth IRA and

• The balance to be rolled over to a Traditional IRA

(Balance = $75,000 + $15,000 + or – gains /losses)

• Can’t use percentages, that won’t give the proper taxation split

• Can’t use dollar amounts, that won’t give proper taxation split

• The one thing you know is that the non-taxable portion in the account is exactly $10,000.

• Effective January 1, 2016 same rule change for Designated Roth Accounts

Distribution Forms Should Read…

Adjunct Professors

• Challenging endeavor for years

• Affects all retirement plans, not just 403(b) plans

• Can affect eligibility and vesting

• A “part-time” professor hired on a contractual basis

• FACT – they are employees of the school!

• This also applies to other “on-call” employees, i.e., “PRN” employees at a hospital

Adjunct Professors (Continued)

• Cannot exclude by class

• Violation of Universal Availability Rule

• Affordable Care Act and ACA regulations and preamble

• Counting hours can be any ‘reasonable’ method

• May not be added to plan document

• Should be added to internal procedures

Adjunct Professors (Continued)

One reasonable method that is acceptable under IRS audit is an employer would credit hours as follows:

• 2.25 hours per week for each hour of teaching or classroom time

PLUS

• One hour of service per week for each additional hour of service outside the classroom performing required duties (e.g., office hours, departmental meetings)

Adjunct Professor Example

The university maintains a 403(b) Plan that excludes employees that normally do not work 20 hours per week

Adjunct professor has eight hours per week of scheduled classroom time and he is also is required to be in his office at least five hours per week

Under this method, he would have 18 hours for the week (8 x 2.25 = 18) PLUS five, or a total of 23 hours per week

Therefore this particular adjunct professor would be eligible for the 403(b) Plan

Proposed 457/409A Regulations

New proposed regulations (finally) for 457(b) and 457(f); and 409A – Will require some form of amendments for at least the 457(f) – Can rely on these until final– Will become effective for the calendar year following the year of the issuance

of final regulations– Waiting since 2007!

Major Changes:– Income-inclusion rules– Post-death payments– Beneficiary payment events: disability, death, and unforeseeable emergencies– Termination of plan– Substantial risk of forfeiture

Employers should begin reviewing regulations and highlight areas that they may want to take advantage of in 2018!

New (Lower) EPCRS Fees Apply February 1, 2016!

:

Number of

Participants

Fee Prior to

2/1/2016

Fee on and after

2/1/2016

20 or fewer $ 750 $ 500

21 to 50 $ 1,000 $ 750

51 to 100 $ 2,500 $ 1,500

101 to 500 $ 5,000 $ 5,000

501 to 1,000 $ 8,000 $ 5,000

1,001 to 5,000 $ 15,000 $ 10,000

5,001 to 10,000 $ 20,000 $ 10,000

Over 10,000 $ 25,000 $ 15,000

Special Fees Did Not Change!

:

Special Provision/Plan Fee

SEP and SIMPLE-IRAs $ 250

RMDs (<150 affected) $ 500

RMDs (151- 300 affected) $ 1,500

RMDs (Over 300 affected) General Fee

Participant Loans

13 or fewer $ 300

14 to 51 $ 600

51 to100 $ 1,000

101 to 150 $ 2,000

Over 150 $ 3,000

Conseco Fair Fund Amounts

• Part of the August 2004 settlement• Investors that are entitled to at least $50 receive payment• Typically goes to the plan sponsor of the 403(b) or qualified plan

affected or the custodian of the IRA• How to handle depends on whether the employee is active,

terminated with or without an account • Conseco Fair Fund administrator has forms to ‘reissue’ checks if the

accounts are closed• http://consecofairfund.com/Distribution/Reissue_Documents.aspx -

has forms for reissue and sending the money back to the Conseco administrator

• Or call 1-800-378-3615

:

COLA Adjustments

:

COLA Adjustments (Continued)

:

COLA Adjustments (Continued)

:

Loans/Hardships to Louisiana Flood Victims

• IRS Announcement 2016-30• Streamlined loan procedures and liberalized hardship distribution

rules• Hardship withdrawals must be made by January 17, 2017• Relaxed documentation procedures can apply• Six-month suspension of contributions does not apply• Statutory limits still apply to loans (i.e., cannot exceed $50,000)• Loans/hardship withdrawals can be taken before plan is amended• Ignore reasons – food and shelter are acceptable reasons!• Ten percent penalty still applies• Loan payment rules still apply

:

Tax Reform?Retirement Enhancement and Savings Act of 2016 – Slated for consideration in the lame duck session of Congress!

• Permits Multiple Employer Plans! Renames them PEPs (Pooled Employer Plans) offered by a PPP (Pooled Plan Provider)

• IRA may be a shareholder in an S Corporation that is a “bank”• RMD – repeals the ‘stretch IRA’ but only for those that have

assets is excess of $450,000 and only applies to the excess• Hardship distributions – earnings could be part of request• Increased penalties for 5500 non-filings• Termination of 403(b) plans would be permitted• Religious organizations

:

Will the New DOL Regulations Survive the Administration Change?

• The DOL regulations are scheduled to take effect in April 2017 (applicable to ERISA plans and IRA rollovers and transfers)

• Most will continue to prepare to comply with them; cannot rely on being over turned; certainly not by the effective date

• Check with your provider’s compliance staff on upcoming changes

Questions?