October 18, 2019
IRS Updates Priority Regulatory Guidance Plan for 2018-2019
The U.S. Treasury Department and Internal Revenue Service (IRS) have released the 2019-2020 Priority Guidance Plan, which describes the regulatory projects that the agencies “hope to complete” during the 12-month period from July 2019 through June 2020. Notably, the plan highlights the agencies’ efforts to uphold “deregulatory policies and reforms” under current White House directives. The guidance plan does not place any deadline on completion of projects and is typically updated throughout the year.
While the IRS is not bound by its priority guidance plan, its publication does provide insight regarding the administration's goals and the amount of activity expected. The plan states that in addition to relying on public input to set its priorities, it continues to take into account Executive Order 13777, which directs agencies to eliminate two regulations for each new regulation issued and to limit costs for this fiscal year to zero, and Executive Order 13789, which directs the Secretary of the Treasury to identify and “to reduce the burden existing tax regulations impose on American taxpayers and thereby to provide tax relief and useful, simplified tax guidance.”
The plan includes 17 items addressing retirement benefits (Pages 12 and 13 of the document) and 12 items addressing executive compensation, health care and other benefits (Pages 13 and 14).
A number of these items have already been completed, as indicated in the priority plan, and many items from the agencies’ most recent semiannual agendas are included in the list alongside sub-regulatory guidance (such as notices, revenue rulings and frequently asked questions).
The following items are particularly noteworthy:
- The plan notes (Part 3, Item No. 21,under “Burden Reduction”) that the IRS issued guidance on September 9 related to closed defined benefit plans. As we reported in the August 26 Benefits Byte, Notice 2019-49 extended through 2020 relief from the imposition of certain nondiscrimination rules on defined benefit pension plans that have been closed to new hires, as requested by the American Benefits Council. The Council is pushing for a bipartisan legislative fix to the frozen plan nondiscrimination problem that would make the annual extension of this relief unnecessary, while also continuing our dialogue with Treasury and IRS to secure ongoing relief.
- New on the list is “Guidance on student loan payments and qualified retirement plans and Section 403(b) plans” (Part 6, Section A, Item No. 5). This is likely a reference to generally applicable guidance that would permit employers to provide retirement plan contributions that match employee student debt payments following the model authorized in a 2018 IRS private letter ruling. The Council is supportive of policies that remove barriers to retirement savings, as outlined in talking points on the issue.
- The IRS also intends to issue regulations on “the treatment of future interest credits and annuity conversion factors under a hybrid defined benefit plan and adjustments under a variable annuity plan for purposes of satisfying certain qualification requirements” (Part 6, Section A, Item No. 9). Hybrid retirement plans, such as cash balance and pension equity plans, are defined benefit plans but also contain features that resemble defined contribution plans. In September 2014, the IRS published final regulations addressing “market rate of return” rules for hybrid plans (i.e. the amount of interest rate credit that can be provided by a plan, followed by final transitional amendments in November 2015.
- The plan references “guidance on missing participants, including guidance on uncashed checks” (Part 6, Section A, Item No. 6), which was issued as Revenue Ruling 2019-19 on August 14. The guidance, requested by the Council, clarified that a participant’s failure to cash a distribution check from a qualified retirement plan does not alter the plan’s prevailing withholding or reporting obligations under the Internal Revenue Code. (See the August 19 Benefits Byte for more details.)
- The IRS anticipates issuing regulations under Internal Revenue Code Section 4960 (Part 1, Item No. 49), which imposes a 21 percent excise tax on certain tax-exempt entities (and certain related organizations) that pay remuneration in excess of $1 million to certain highly-paid individuals or that make certain “excess parachute payments” to these individuals. The Council has communicated with IRS officials, expressing concern that the excise tax could be applied to a for-profit organization where highly compensated individuals serve on an affiliated tax-exempt organization in a purely volunteer capacity. We have therefore urged the IRS to clarify that the tax does not apply to for-profit company executives who serve on a volunteer basis for ATEOs.
- The plan notes that “guidance on HSAs and preventive care for chronic conditions” (Part 6, Section B, Item No. 3) was released on July 17 as Notice 2019-45. As we reported in the July 17 Benefits Byte, this guidance expanded the list of preventive care benefits permitted to be covered by high-deductible health plans (HDHPs) eligible to be used with health savings accounts (HSAs) before the plan deductible is met. The Council had recommended this action as part of A 2020 Vision: Flexibility and the Future of Employee Benefits. The appendix to the notice provides a list of specified services and medications now qualified for pre-deductible coverage. Among the listed services and medications are statins, insulin and blood pressure monitors.
- Included in this year’s plan, like last year’s plan, are “regulations under Internal Revenue Code Section 4980I” (Part 6, Section B, Item No. 11), which addresses the 40 percent “Cadillac Tax” on high-cost employer-provided health coverage, which goes into effect in 2022. The Council continues to advocate for bipartisan legislation that would fully repeal the tax. This legislation has already been approved overwhelmingly by the U.S. House of Representatives but is still awaiting consideration by the U.S. Senate. Unless and until the tax is repealed, the IRS will be responsible for developing timely rules for the calculation and payment of the tax.
Other tax issues addressed elsewhere in the priority guidance plan include consolidated returns, corporations and their shareholders, excise taxes, exempt organizations, financial institutions and products, gifts, estates and trusts, insurance companies and products, international issues, partnerships, S corporations, tax accounting, tax administration, tax-exempt bonds and other general tax issues. An appendix also lists additional routine or ministerial guidance that is published each year.
For more information on regulatory activity as it applies to retirement matters, please contact Jan Jacobson, senior counsel, retirement policy. For more information on regulatory activity as it applies to health care matters, please contact Ilyse Schuman, senior vice president, health policy. Both can be reached at (202) 289-6700.