August 15, 2014
- DOL Guidance on Finding Lost Participants for Terminating DC Plans
- IRS to Rebroadcast Webcast on Reporting of Health Care Coverage under Tax Code Section 6056
- Puerto Rico Issues Guidance on Tax Prepayment Window for Retirement Plans
DOL Guidance on Finding Lost Participants for Terminating DC Plans
Field Assistance Bulletin 2014-01 (FAB 2014-01) issued August 14 by the Department of Labor (DOL) provides new guidance on reasonable steps fiduciaries must take to find missing participants when a defined contribution plan is being terminated.
The guidance replaces FAB 2004-02 that required use of one of two government agency letter-forwarding services that have since been discontinued. FAB 2014-01 requires fiduciaries to take a number of required steps to locate the missing participants before rolling funds into Individual Retirement Accounts (IRAs). The Council had urged the DOL to issue new guidance.
Under the Internal Revenue Code (IRC), plan administrators must distribute plan assets as soon as administratively feasible after plan termination. Participants who fail to respond to notices from a plan administrator on how to distribute the participant’s account balances (or mail sent to their addresses is returned), create a practical dilemma for the plan administrator who has a fiduciary obligation to search for missing participants and distribute their benefits.
FAB 2014-01 outlines that at a minimum, fiduciaries should take the following steps (in no particular order) to attempt to locate a missing participant:
- Use certified mail.
- Check related plan and employer records.
- Check with the participant’s designated beneficiary.
- Use free electronic search tools.
Depending on the size of a participant’s account balance and the cost of further search efforts, the fiduciary must consider whether additional search steps are appropriate. The additional steps may vary based on the facts and circumstances but could include Internet search tools, commercial locator services, credit reporting agencies, information brokers, investigation databases and analogous services. The DOL stated that since “Internet search technologies have expanded and improved,” these tools may also be used, but the DOL concedes that if a fiduciary is still unsuccessful in finding a missing participant, they “will have no choice but to select an appropriate distribution option to complete the plan's termination.”
While rolling the participant’s funds into an IRA is the preferred option, two other options are outlined in the FAB 2014-01 if the fiduciary is unable to find an IRA provider willing to take the rollover funds: opening an interest-bearing federally insured bank account or transferring the account balance to a state unclaimed property fund. The DOL stated that using 100% income tax withholding is not an option.
For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.
IRS to Rebroadcast Webcast on Reporting of Health Care Coverage under Tax Code Section 6056
The Internal Revenue Service (IRS) will rebroadcast the August 14 webcast on Thursday, August 21 at 12:00 p.m. Eastern Time due to the technical difficulties experienced on August 14. The webcast is to describe how applicable large employers should report health care coverage under Internal Revenue Code Section 6056, as established by the Patient Protection and Affordable Care Act (PPACA).
Code Section 6056 requires every applicable large employer (generally, an employer that employed on average at least 50 full-time employees or equivalents) to file a return with the IRS that reports the terms and conditions of the health care coverage provided to the employer's full-time employees during the year. Form 1095-C is to be used to satisfy this requirement. Form 1094-C is to be used to transmit these returns.
On March 5, the Internal Revenue Service (IRS) issued final regulations on Section 6056 reporting, followed by the release of draft forms on June 23. Official instructions for completing the forms have not yet been released. These reporting requirements will not be effective until 2015 (first reporting is due in early 2016).
The August 21 IRS webcast will cover:
- Internal Revenue Code Section 6056
- Who is required to report
- What elements are required to be reported
- When Applicable Large Employers must report
- How do government entities designate reporting
Speakers for the webcast will include Tennille Francis, Tax Law Specialist, IRS office of Federal State & Local Governments; Stephen Tackney, Deputy Division Counsel/Deputy Associate Chief Counsel, IRS office of Chief Counsel; and Ligeia Donis, Senior Technician Reviewer, Employment Tax Branch, IRS office of Chief Counsel. Tackney and Donis have both appeared on the Council’s P4P … Preparing for PPACA webcast series on implementation topics.
Interested employers can register for the IRS webcast here. Please note, this is not a Council webinar. For more information on PPACA employer reporting, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.
Puerto Rico Issues Guidance on Tax Prepayment Window for Retirement Plans
The Puerto Rico Treasury Department has issued Administrative Determination No. 14-16 (AD 14-16) which provides guidance on the pre-payment of Puerto Rico income taxes on account balances and accrued benefits under qualified and non-qualified retirement plans as amended by the Tax System Adjustment Act.
The Tax System Adjustment Act amended the Puerto Rico Internal Revenue Code (PR Code) to permit a participant to voluntarily pre-pay the Puerto Rico income taxes during the period of July 1 to October 31, 2014. The statute had left open a number of questions that are clarified in the guidance. A memorandum prepared by Groom Law Group provides greater detail regarding AD 14-16. The pre-payment window applies to Puerto Rico plan participants in either a Puerto Rico-only qualified plan or a so called “dual-qualified plan” (i.e., qualified both under the PR Code and the United States Internal Revenue Code) but only with respect to the participant’s Puerto Rico income tax liability.
In addition to this development, it is worth noting that an ad-hoc committee named by the Governor of Puerto Rico is currently working on a proposal for reform of the complete Puerto Rico tax system (the “Committee”). The Committee is chaired by the Puerto Rico Secretary of Treasury. The meetings of the Committee are not open to the public, but proposed reform may ultimately bring proposals for change to the full range of current taxes. It is unclear what, if any, changes would be recommended with respect to the qualification, operation, withholding and reporting rules applicable to Puerto Rico tax qualified retirement plans. However, the Puerto Rico Treasury Department has placed a hold on the issuance of regulations under the 2011 PR Code regarding qualified retirement plans until it is determined whether the proposed tax reform will impact the current qualified retirement plans regime.
For more information, contact Lynn Dudley, senior vice president, global retirement & compensation policy, at (202) 289-6700.