Retirement Plans Face New Challenges to Demonstrating Compliance

Posted: Updated:

January 1, 2017, marked the close of an era for qualified retirement plans and compliance collaboration with the Internal Revenue Service. The IRS largely ended its determination letter program for individually designed qualified retirement plans. The determination letter program provided assurance to plan sponsors that their retirement plan documents—whether the plans were defined benefit, money purchase, cash balance, profit sharing, ESOP or 401(k)—met the Internal Revenue Code's qualification requirements.

Plan qualification is essential for a number of reasons. Private sector employers may deduct employer contributions to qualified plans from their taxes. Contributions and earnings to qualified plans avoid taxation until they are distributed to plan participants. Employees can make pre-tax contributions to qualified 401(k) plans and tax-free rollover distributions to individual retirement accounts and other eligible retirement plans. These advantages make qualified plan status very attractive to both employers and employees.

IRS determination letters have been critical in providing assurance to plan auditors, investment managers, lenders, third-party administrators, unions and buyers of companies that a retirement plan meets the Internal Revenue Code's qualification standards. Determination letters have allowed auditing, collective bargaining agreement negotiations, plan administration, initial public offerings, lending transactions, plan investments and mergers and acquisitions to proceed with confidence about a plan's tax-qualified status. Without a determination letter program or some other way to demonstrate a plan's tax-qualified status, plan sponsors and retirement plan participants may face a number of challenges and additional costs in undertaking these activities.

Operational compliance is also critical for retirement plans. If the IRS discovers an operational failure during an audit, the qualified plan will be subject to sanctions based on the facts and circumstances of the particular failure or failures. Factors considered in determining the amount of a sanction include the steps taken by the plan sponsor to prevent failures, the steps taken by the plan sponsor to identify failures that may have occurred and the extent to which correction of a failure has progressed before the IRS began its examination of the plan. Early identification and correction of any operational failures will also be evidence of the plan sponsor's reasonable efforts to comply with the Internal Revenue Code in actual plan operation.

In recognition of the ongoing uncertainty and risk created by the termination of the determination letter program, Ice Miller LLP has introduced its Qualified Plan Comply Now Program. Comply Now is designed to assist employers with their continued retirement plan compliance needs through a comprehensive review of the plan in form and, upon request, plan operation. Any required amendments needed for continued qualification will be identified, and if timely adopted, Ice Miller will issue a letter stating the plan document complies with all applicable IRS requirements for plan qualification in form. While a letter issued under Comply Now is not binding on the IRS or other third parties, it will serve a critical role in demonstrating good faith efforts by a plan sponsor to maintain its plan's tax-advantaged status in both form and operation. Employers can visit icemiller.com/comply-now/ for more information about Comply Now.

Tara Schulstad Sciscoe is a partner in the Employee Benefits Group of Ice Miller LLP. She advises employers, plans and trusts with respect to the design and compliance of their employee benefit programs, including their retirement plans, deferred compensation plans, health and welfare plans, severance plans, early retirement programs, executive compensation programs, tuition remission and fringe benefit plans, and phased retirement programs. She may be contacted at tara.sciscoe@icemiller.com or 317-236-5888.

This publication is intended for general information purposes and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstance. Ice Miller will not provide services under Comply Now unless specifically requested by the reader to do so. The actual terms of any engagement under Comply Now will be set forth in a separate writing.

  • Perspectives

    • Seven Steps to Overcome Your Fear of Writing

      "I hate to write!" While that phrase is music to my ears, because it ensures my income will persist, it also saddens me. Far too many people dislike writing, largely because they’re intimidated by the process of knitting words into sentences and sentences into paragraphs. Nearly everyone needs to write from time to time, and the ability to assemble words in a coherent way can impact your success. Whether you have to write reports, proposals, memos, or even emails...
    More

Subscribe

Name:
Company Name:
Email:
Confirm Email:
HTML
INside Edge
Morning Briefing
BigWigs & New Gigs
Life Sciences Indiana
Indiana Connections
INPower
Subscribe
Unsubscribe

Events



  • Most Popular Stories

    • Indiana Liquor Group to Buy Save-On Liquor Chain

      Indiana Liquor Group LLC will work with the Indiana Alcohol & Tobacco Commission this week for final approval of its purchase of Save-On Liquor stores. Our partners at The Herald Bulletin report Phillip E. Miller agreed to sell the 31-location package store chain to ILG last month. 

    • Books & Brews Acquires Flat12 Bierwerks

      Indianapolis-based Books & Brews has announced its acquisition of Flat12 Bierwerks, also based in Indy. Financial terms of the deal are not being disclosed, however Books & Brews says it will continue to operate Flat12 under the same brand name. The acquisition is a continuation of an existing partnership between the two entities. Books & Brews says Flat12 has been a brewery partner for the past two years, brewing all of B&B's flagship and seasonal beers.

    • New Tourism Director Has Plans For Growth

      The new director of the Indiana Office of Tourism Development says she hopes to create a strategic plan to continue the growth of tourism in the state. Misty Weisensteiner began her new role earlier this month after being appointed by Lieutenant Governor Suzanne Crouch in December. The former executive director of the Orange County Economic Development Partnership says tourism and economic development go hand-in-hand and there needs to be a greater focus on that relationship.

    • Loeb Stadium Project in Final Design Phase

      The $17 million overhaul of Loeb Stadium in Lafayette is in its final planning stages. The Journal & Courier says the overall design of the project is complete, which includes flipping the field, an additional suite and a new entrance designed to be a more visible landmark. Lafayette Mayor Tony Roswarski unveiled plans for the reimagining of the more than 75-year-old stadium in 2017. The city council earlier this month approved a $17 million bond to fund the project.

    • BMWC Constructors Announce Leadership Changes

      Indianapolis-based BMWC Constructors, Inc. continues their strategic growth with leadership changes. Chairman of the Board Jim Davis retired after eight years in the role and after 30 years with the company.  President and Chief Executive Officer Brian Acton will move into the role of Chairman of the Board, while remaining CEO.