The IRS and DOL have made certain changes that will impact the qualification and administration of qualified retirement and/or welfare benefit plans.
1. Law changes form 5500 filing extension to 3 ½ months
The Internal Revenue Service (IRS), Department of Labor (DOL), and Pension Benefit Guaranty Corporation jointly developed the Form 5500-series returns for employee benefit plans to satisfy annual reporting requirements under ERISA and the Internal Revenue Code. Plan sponsors must generally file the return on the last day of the seventh month after their plan year ends.
Under current law, when plan sponsors submit Form 5558, Application for Extension of Time To File Certain Employee Plan Returns, they may request an extension for filing the Form 5500 of up to 2 ½ months.
The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 was signed into law on July 31, 2015 as Public Law No: 114-41. For plan years beginning after December 31, 2015, the law authorizes the Secretary of the Treasury to modify regulations to provide for a maximum extension for the returns of employee benefit plans filing Form 5500 (for plans filing the Form 5558) to be an automatic 3 1⁄2-month period. Calendar year employee benefit plans will first be able to extend the due date of the 5500 filing for the 2016 plan year from July 31, 2017 to November 15, 2017.
There is controversy with this legislated extension. Because the Form 5500 series enjoys the joint purview of both the IRS and DOL, the law requiring the extension is only directed to the IRS (under the Secretary of the Treasury), and the Form 5500s are filed with the DOL, technical corrections and clarifications are likely to happen before the impact of the enhanced extension can be realized in 2017.
2. Revisions to the employee plans determination letter program
The IRS recently published Announcement 2015-19. In this announcement, the IRS eliminated the staggered 5-year determination letter remedial amendment cycle for individually designed plans, effective January 1, 2017. The IRS will be limiting the scope of the determination letter program for individually designed plans to a) initial plan qualification and b) qualification upon plan termination.
Additionally, effective July 21, 2015, the determination letter program is modified for non-individually designed qualified retirement plans such that the IRS will no longer accept determination letter applications that are submitted off-cycle except for start-up plans and terminating plans. The staggered 5-year determination letter remedial amendment cycles for such plans remains in effect.
3. Change to lump sum payments options for retirees under defined benefit pension plans
The IRS recently published Notice 2015-49. In this notice, the Treasury Department and the IRS announced the intention to amend the required minimum distribution regulations under §401(a)(9) to provide that plan sponsors of qualified defined benefit plans are not permitted to allow retired participant elections to replace joint and survivor, single life, or other annuities that are currently in pay status with a lump sum payment or other accelerated form of distribution. While plan sponsors will still be able to give lump-sum alternative choices to terminated vested and retiring participants before they commence benefits, once the decision has been made and the benefit payments have begun, no participant will be allowed to elect changes in the form of the annuity payments to a lump sum form of benefit. The amendments to this regulation will apply as of July 9, 2015, except for certain accelerations of annuity payments described within the notice as eligible under a “pre-notice acceleration”.
4. Independent contractor definition changed
On July 15, 2015, the DOL issued Administrator’s Interpretation No. 2015-01, “The Application of the Fair Labor Standards Act’s ‘Suffer or Permit’ Standard in the Identification of Employees Who Are Misclassified as Independent Contractors.” Independent contractors that are ultimately determined to be employees are likely entitled to a broad spectrum of employee benefits as well as employer-paid Social Security and Medicare benefits.
To make the determination whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FSLA), the DOL notes that courts use the multi-factorial “economic realities” test, which focuses on whether the worker is economically dependent on a) the employer or b) in business for him or herself. A worker who is economically dependent on an employer is defined as being permitted to work by the employer. According to the DOL, in applying the economic realities test in view of the expansive definition of “employ” under the FSLA, most workers are employees and not independent contractors.
Determining whether a worker is an employee or independent contractor, the DOL acknowledges that the scope of the employment relationship is complex and broad. The Administrator’s Interpretation puts forth six primary and guiding factors to assist employers in determining the independent contractor status noting that all of the factors must be considered in each case, and no one factor (particularly the control factor) is determinative of whether a worker is an employee.
5. IRS will no longer answer employee plan technical questions via email
The IRS currently has in place an e-mail response procedure where technical employee benefit plan questions can be answered through e-mail. Effective October 1, 2015, this service will end. The Employee Plans division of the IRS no longer has the resources to do research and provide answers for legal topics. Answers through the IRS’ live operators will still be available for limited types of employee plan questions.