Tax laws have long required that qualified retirement plans timely adopt written plan documents and amendments. But what evidence must a plan sponsor provide to an IRS auditor to prove that they have timely adopted a written plan document and required amendments? The IRS recently addressed this question in Chief Counsel Memorandum 2019‑002 (the CCM), which advises that absent extraordinary circumstances, “. . . it is appropriate for IRS exam agents and others to pursue plan disqualification if a signed plan document cannot be produced by the taxpayer.”

The primary question addressed in the CCM was whether a taxpayer can argue that, based on Val Lanes Recreation Center Corp. v. Commissioner, T.C. Memo 2018-92, it meets its burden to have an executed plan document by producing an unsigned plan and evidence of a pattern and practice of signing plan documents. The IRS’s answer as outlined in the CCM is: No, at least not in the absence of extraordinary circumstances.

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On December 20, 2019, President Donald Trump signed into law the Further Consolidated Appropriations Act, 2020 (Act). After years of delayed effective dates, the Act finally repeals the 40% excise tax on high-cost health coverage, often referred to as the “Cadillac tax.” Furthermore, the Act extends the Patient-Centered Outcomes Research Institute (PCORI) fee scheduled to originally sunset at the end of 2019.

Sponsors of single‑employer defined benefit (DB) pension plans could be subject to higher-than-usual minimum funding contribution requirements over the next several years, for at least two reasons. First, the interest rates that many plan sponsors use to calculate such contributions (referred to as “MAP‑21” interest rates due to the 2012 legislation that originally provided interest rate stabilization for minimum funding purposes) may decline starting in 2020. Second, an economic recession and corresponding stock market decline is increasingly possible. In anticipation of potential minimum contribution increases, DB plan sponsors should consider whether they may be able to defer their minimum funding obligations at some point in the near future by obtaining a minimum funding waiver from the Internal Revenue Service (IRS).

In the much anticipated decision State of Texas v. United States of America, et al., the US Court of Appeals for the Fifth Circuit upheld a district court ruling that the individual mandate under the Affordable Care Act (ACA) is unconstitutional. Because the Tax Cuts and Jobs Act of 2017 zeroed out the federal tax penalty under the individual mandate, effective January 1, 2019, the Fifth Circuit concluded that since there is no longer a penalty or tax resulting from the individual mandate, the mandate can no longer be sustained constitutionally under Congress’s taxing power.

Despite its definitive ruling on the constitutionality of the individual mandate, the Fifth Circuit was not prepared to rule on the most anticipated issue of the case: whether the rest of the ACA is inseverable from the individual mandate, which could result in a holding that the ACA is unconstitutional. Instead, the Fifth Circuit remanded the case to the district court for a ruling on this issue. In doing so, the Fifth Circuit directed the district court to conduct a “finer-toothed comb” inquiry into the issue of severability.

There is no immediate action that group health plan sponsors need to take as a result of the Fifth Circuit’s decision. The ACA wars continue, and for the next episode, patiently wait we must.

In recent years, there has been an upward trend of regulators focusing on the issue of retirement plan participants not collecting retirement benefits upon reaching retirement age (and we have previously covered the final rule on the missing participants program on this blog). Although there are many reasons why individuals delay collection, in some cases, the individuals are not starting their benefit payments because they are “missing”—meaning the administrators of their retirement plans cannot locate them or the plans lack critical identifying information to locate them.

The Internal Revenue Service (IRS) has released IRS Notice 2019-63, which provides a 30-day automatic extension to furnish to employees/covered individuals the 2019 IRS Forms 1095-B (Health Coverage) and 1095-C (Employer-Provided Health Insurance Offer and Coverage) from January 31, 2020 to March 2, 2020. This extension is similar to the extension issued in earlier years and does not impact the deadline to furnish transmittal Forms 1094-C and 1094-B and copies of the individual forms to the IRS. The deadline to file these forms remains February 28, 2020 (March 31, 2020, if filing electronically). 

Morgan Lewis associate Samantha Kapnek co-authored this article.

On December 4, the Internal Revenue Service (IRS) issued Notice 2019-64, which contains the 2019 Required Amendments List for individually designed tax-qualified retirement plans. As background, the IRS issues its Required Amendments List each year to identify statutory and administrative changes to the tax qualification rules that may require sponsors of individually designed retirement plans to amend their plans to comply with the changes. In general, the deadline for adopting any required amendments on the list is the end of the second calendar year after the list is issued.

The 2019 list identifies the following changes that may require amendments to an individually designed retirement plan:

As concerns continue regarding the possibility of an economic downturn, plan sponsors should be aware of the effects that two potential downturn events could have on their qualified plans.

Substantial Cessation of Operations (Section 4062(e) Event)

Where there is a substantial cessation of operations at a facility, an employer maintaining a qualified defined benefit plan may be subject to certain notice requirements and termination liability rules. A substantial cessation of operations occurs when a permanent cessation of operations at a facility results in the loss of employment by employees at the facility who constitute more than 15% of all employees who are eligible under the plan.

The outsourcing of retirement plan recordkeeping and other administrative responsibilities has increased in recent years for both defined contribution and defined benefit plans. Although there is no overarching privacy law governing retirement plans, fiduciaries must adhere to the “prudent expert” standard of care in fulfilling their duties, and be continuously diligent and attentive to the privacy and security of participant data.

This diligence extends to the structuring of outsourcing agreements for administrative responsibilities. Read this post from our Tech & Sourcing @ Morgan Lewis blog for more data security considerations in plan administration outsourcing agreements.