Caron Bletzer News

As a result of the dreaded fiscal cliff negotiations, on January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012.  One of the provisions of this bill was to expand in-plan Roth conversions.  These new provisions may appeal to individuals who expect their tax rates to increase or to wealthy individuals who want to leave their retirement accounts to heirs. 

In-plan Roth conversions were first introduced in 2010.  At the time the Small Business Jobs and Credit Act was passed to allow plan sponsors to permit 401(k), 403(b), or 457 plan participants to convert employee pre-tax accounts to Roth accounts.  However, this conversion feature was limited to amounts that were currently eligible for distribution from the plan.  Generally, this limited most active participants to only being able to do an in-plan Roth conversion if they were eligible to take a 59 ½ in-service distribution.

The American Taxpayer Relief Act greatly expands a participant’s ability to do an in-plan Roth conversion.  Instead of being limited to amounts that would be otherwise eligible for a distribution, the new legislation allows for in-plan Roth conversion of any employee contribution accounts.  Under the law any Roth conversions will be taxed in the year of the conversion.  This is a change from the prior legislation which allowed taxes from a Roth conversion to be paid over a two year period.

It is important to note that in order for a plan sponsor to allow in-plan Roth conversions their plan document must allow for Roth contributions and must be formally amended to permit in-plan Roth conversions.

Caron & Bletzer, PLLC will be sponsoring a presentation entitled “Tax Deductions on Your 1040” at the Kingston Library on Wednesday, March 20, 2013 at 12:00.  The presentation will last about 45 minutes and be led by Kelly Root, CPA and Nora Tellifson, CPA.  Refreshments will be offered.  The Kingston Library is located at 2 Library Lane, Kingston, NH.  Come join us for your lunch hour!

At long last, the IRS has released their much-anticipated updated Employee Plans Compliance Resolution System (“EPCRS”) guidance, that allows, among other things, 403(b) plans to fully participate in the correction opportunities that program provides.  Revenue Procedure 2013-12 was released late in the afternoon on New Year’s Eve.  The 148-page document provides welcome guidance to 403(b) plan sponsors that have been unable to correct errors under existing guidance with any certainty.

In general, the Rev. Proc. allows 403(b) plans to correct operational errors in the same manner as qualified plans.  It specifically allows these plans to self-correct significant operational errors within specified time frames although they do not have determination letters.  It provides a mechanism for plan sponsors who failed to timely adopt a written plan document in compliance with the 2007 regulations to do so under VCP.  The Rev. Proc. further notes that it is available to correct failures of plans to comply with section 403(b) prior to 2009, but since there was no written plan document requirement prior to that time (under the Internal Revenue Code, ERISA being another story entirely), there is no need to provide relief for failure to follow plan terms earlier than 2009.

In general this guidance is a gift to the retirement plan community, especially 403(b) plan sponsors who have been in limbo with regard to correcting errors.  The IRS will now be able to consider corrections that may involve plan document amendments.   If you think that you may benefit from voluntary correction of known errors, we suggest discussing the new guidance with ERISA counsel, and your auditors, if applicable.

The Internal Revenue Service (“IRS”) has recently relaxed 401(k) rules in order to provide relief to those adversely affected by Hurricane Sandy.  Participants in 401(k) and 403(b) plans, regardless of where of where they are live or work, may take a hardship distribution and use it to assist themselves, dependents, parents or grandparents who lived or worked in the disaster area.  Click the following link for a list of those counties (http://www.irs.gov/uac/Newsroom/Help-for-Victims-of-Hurricane-Sandy).  Further, the IRS will waive the requirement that participant contributions be suspended for six-months following a hardship distribution.  Plans are also allowed to relax any documentation requirements that they normally have in place for hardship distributions.

Under this relief plans are also able to make participant loans before the plan is formally amended to allow them.  This also applies to hardship distributions.  If the plan does not currently allow such distributions they can permit them for the above reasons and do a formal amendment later.  To qualify for this relief withdrawals must be made by February 1, 2013.  For more detailed information please see IRS Announcement 2012-44 (http://www.irs.gov/pub/irs-drop/a-12-44.pdf).

We are very pleased to announce that effective July 1, 2012, Ann T. Driscoll, CPA has joined the partnership as Principal.  Ann has been with the firm since 1999.  Prior to joining Caron & Bletzer, Ann served as Finance Manager at Healthsource Preferred, and as Audit Manager at Coopers & Lybrand (now PricewaterhouseCoopers, LLP).  While at the firm, Ann has concentrated her practice in ERISA and runs many of our most complex benefit plan engagements, including medical plan audits.  Her wealth of knowledge and experience have helped propel us to a leadership position in our niche area of employee benefit plan audits, and we are very pleased to announce her promotion.

On October 18, 2012, the IRS announced the new limits for 2013 and for a second year in a row some of the limits are increasing.

The elective deferral (employee contribution) limit increases from $17,000 to $17,500 for 401(k), 403(b) and most 457 plans, however the “catch-up” contribution limit for participants over age 50 in those plans remains unchanged at $5,500.

The §415(c)(1)(A) limit on total contributions to a defined contribution plan was raised from $50,000 to $51,000.

The §415(b)(1)(A) limitation on the annual benefit under a defined benefit pension plan increased from $200,000 to $205,000.

The dollar threshold for determining “highly compensated employee” status remains at $115,000, and the annual compensation limit under §401(a)(17) that governs the amount of compensation that may be considered in a defined contribution plan increased from $250,000 to $255,000.

Additionally, the taxable wage base for social security increased from $110,100 to $113,700.  For a full listing of changes, please see COLA Table.

The Department of Labor has finally released the final 408(b)(2) fee disclosure regulations.  As had been hoped for, the fee disclosure reporting deadline for vendors to plan sponsors, discussed previously in our blog, has been extended from April 12, 2012 to July 1, 2012.

The final regulation can be viewed here: http://www.dol.gov/ebsa/pdf/2012-02262-PI1.pdf

Finally, cost of living adjustment (COLA) figures have moved enough to cause retirement plan contribution limits to rise after remaining the same for three years in a row.  On October 20, 2011, the IRS announced the new limits for 2012.  The elective deferral (employee contribution) limit increases from $16,500 to $17,000 for 401(k), 403(b) and most 457 plans, and the “catch-up” contribution limit for participants over age 50 in those plans remains unchanged at $5,500.

The §415(c)(1)(A) limit on total contributions to a defined contribution plan was raised from $49,000 to $50,000.

The §415(b)(1)(A) limitation on the annual benefit under a defined benefit pension plan increased from $195,000 to $200,000. 

The dollar threshold for determining “highly compensated employee” status also increased from $110,000 to $115,000, and the annual compensation limit under §401(a)(17) that governs the amount of compensation that may be considered in a defined contribution plan increased from $245,000 to $250,000.

Additionally, phase-out ranges relating to IRA contributions moved somewhat, and the taxable wage base for social security increased from $106,800 to $110,100.  For a full listing of changes, please see COLA Table.

There are two sets of fee disclosure regulations that were issued by the U.S. Department of Labor Employee Benefits Security Administration (EBSA) in 2010.  This fact, and the movement of compliance deadlines for both sets, has contributed mightily to confusion amongst plan sponsors.  There are new requirements for disclosures to plan sponsors from covered service providers, and requirements for disclosures from plan sponsors to plan participants.  The overarching goal of the new disclosures is to improve transparency, ensure that the fees charged by service providers are reasonable (and thus don’t give rise to prohibited transactions and violations of fiduciary duty) and to provide participants that direct their own investments with the information necessary to make those decisions.

The disclosure requirements are somewhat extensive and won’t be detailed here, but it is worth noting that the extended deadlines are fast approaching.  Plan sponsors will need to obtain the required fee disclosures from covered service providers no later than April 1, 2012.  After that date, the disclosures must be received in advance of entering into new contracts with providers.

Disclosures to defined contribution plan participants will also begin in 2012.  Initial disclosures for new participants joining a plan, and for all participants as implementation phases in, must be ready by May 31, 2012 for a calendar year-end plan.  Quarterly disclosures to participants, which will show expenses paid from their accounts, need to be available by August 1, 2012. 

As this is uncharted territory for many, if not most, plan sponsors, we recommend that you be speaking to your service providers now about the information they are going to provide to you, and the assistance that they will offer in providing appropriate disclosures to participants.  You should come away from these conversations with a clear conviction that the service provider understands the new regulations and is prepared to adequately address them, and assist you in doing so.  As a fiduciary, you will have responsibility to receive and evaluate fee information, and make adequate disclosures to participants.  You will want to be sure that you are getting all the information you need to meet these fiduciary responsibilities.

Links to DOL Regulations:

DOL Reg. 2550.408b-2 – Disclosures to Plan Sponsors

DOL Reg. 2550.405a-5 – Fee Disclosures to Participants

For the third year in a row, retirement plan contribution limits tied to cost of living adjustment (COLA) figures remain unchanged, the IRS has announced.  This means the maximum employee deferral contribution limit for 401(k) and 403(b) plans stays at $16,500 for 2011, with “catch-up” contributions for employees over age 50 remaining at $5,500.  Other figures, including the annual additions limitations, compensation limits for purposes of determining highly compensated or key employee status, and the social security wage base also remain unchanged.