The Employee Plans Compliance Resolution System (“EPCRS”), as set forth in Revenue Procedure 2021-30, allows plan sponsors to correct “Qualification Failures,” which are defined as any plan document, operational, demographic or employer eligibility failures. Failure to follow the terms of a plan constitutes an operational failure.
Operational Failures can be corrected without IRS supervision under the Self-Correction Program (“SCP”) of EPCRS without paying a fee or sanction in two circumstances: (1) insignificant operational defects can be corrected at any time, even if the plan is under an IRS audit; and (2) significant operational defects can be corrected by the end of the third plan year following the plan year in which the defect arose. EPCRS summarizes the factors a plan sponsor may use to determine if a failure is insignificant or not. Moreover, SCP is only available if the plan sponsor has established practices and procedures reasonably designed to promote and facilitate overall compliance with applicable Internal Revenue Code requirements, and the failure occurred through an oversight or mistake in applying the procedures or because the procedures were not sufficient to prevent the occurrence of the failure. Read more
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00Leslie Thomsonhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngLeslie Thomson2024-02-21 16:40:122024-02-21 16:40:12You Live, You Learn… Correcting “Qualification Failures” under the Self-Correction Program
Join us in-person to hear updates on retirement plan audits, Mental Health Parity requirements and risks, ERISA fiduciary developments, SECURE 2.0 eligibility rules, benefits in mergers and acquisitions, service provider contracts, and more.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2024-02-13 10:47:222024-02-13 10:47:22Join Us for the Employee Benefits Symposium 2024
Deferred compensation options for executives of tax-exempt entities are often misunderstood by those organizations who have not previously delved into them. Traditional tax-exempt organizations – think charities and non-profits – are subject not only to the deferred compensation rules of Section 409A of the tax code, but also Section 457 (though note that Section 457 does not apply to deferred compensation arrangements of churches). Section 457-subject organizations without deferred compensation experience are often under the impression that they are able to establish deferred compensation arrangements that are similar to those of for-profit entities, in that the right to deferred compensation can vest now and be taxed at a later date. When such organizations begin moving forward to put a deferred compensation arrangement place, they are often surprised to learn that Section 457 generally limits their ability do so.
The most analogous deferred compensation arrangement for tax-exempt executives compared to a traditional for-profit deferred compensation plan is what’s generally known as a Section 457(f) plan. While there are a number of differences between a Section 457(f) plan and a for-profit deferred compensation plan, the biggest is the timing of the taxation of the deferred compensation. A for-profit deferred compensation plan can be designed so that once the right to deferred compensation vests, it can be taxed (for income tax purposes) on the date that it is paid, which can be many years in the future. With a Section 457(f) plan, once the deferred compensation vests, it becomes immediately taxable, even if the plan provides for payment of the deferred compensation in a future year. Read more
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00Benjamin Gibbonshttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngBenjamin Gibbons2024-02-05 09:48:222024-02-05 09:48:22Deferred Compensation Arrangements for Non-Profits: What I’ve Felt, What I’ve Known, Is Not Consistent with the Code
Disputes between plan sponsors and plan service providers are not new. As with any contractual relationship, things don’t always go according to “plan” or at least, as the sponsor expects. When that happens, one of the first things sponsors (and their attorneys) will do is review the provider’s contract. Some sponsors will be surprised to find some very provider-friendly provisions, such as:
a provision specifying that the provider is permitted by the contract to act negligently (as long as the conduct does not rise to gross negligence or intentional misconduct), or
a provision indicating that the sponsor has contractually waived its right to participate in a class against the provider.
Unfortunately for sponsors, a provider’s willingness to fix an error often comes down to how much the provider wants to continue working with the sponsor on a go forward basis. Read more
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00Kevin Selzerhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngKevin Selzer2024-01-26 10:33:202024-01-26 10:33:20Take the Power Back . . . Negotiating Provider Contracts for Benefit Plans
Inevitably, an employee will wake up from their holiday food coma and realize that they made a mistake in open enrollment. “But I didn’t mean to elect family coverage! My spouse is covering the kids this year!” Employers are allowed to set enrollment rules for their self-funded medical plans. One response to the employee is the hard line that the door was closed at the end of the enrollment period. But what if you want to be more flexible?
If the employee catches their mistake before the ball drops on New Year’s Eve, the IRS won’t care. But if the question comes up in January, it’s likely too late. The IRS’s rules on cafeteria plan elections don’t make any exception for mistake. Elections can only be changed if the employee has a change in status event like a divorce or new dependent. Read more
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00Beth Nedrowhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngBeth Nedrow2024-01-12 10:45:212024-01-12 10:45:21A Change Would Do You Good, But Do The Section 125 Cafeteria Plan Rules Permit It?
One of the many benefits-related provisions in the Consolidated Appropriations Act of 2021 prohibits the use of “gag clauses” in group health plan agreements. Before this law, medical plan service agreements would often include provisions preventing the employer from sharing data like pricing and health plan outcomes available to another party. Hopefully employers have worked to make sure that there are no such clauses in their agreements. But there’s one more step on the compliance ladder. Beginning in 2023, plans must annually attest to their compliance with the gag clause prohibition. Read more
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00Becky Achtenhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngBecky Achten2023-12-04 09:52:122023-12-04 10:33:19Signed, Sealed, Delivered … Have You Completed Your Plan’s “No Gag Clauses” Attestation?
If you ever want to see a benefits lawyer get nervous, start talking about corporate intent. Yes, the company intended to grant options at an earlier and lower exercise price, and yes it may have made promises to the individuals who would receive the awards; everybody seems to be in agreement. But there may be inadequate documentation, or worse, none at all, and the tax implications have to be considered. The foundation for any equity grant will be corporate action, and the experienced perspective is that if there is doubt about the corporate action, it will be hard to defend.
The Incentive Stock Option (“ISO”) regulations and the Code Section 409A regulations (“Section 409A”) both provide guidance on when an equity grant is actually made for the purposes of those Code Sections. For ISOs, the “date or time when the granting corporation completes the corporate action” constituting an offer under the terms of a statutory option which is not considered complete until the maximum number of shares and the minimum price are fixed or determinable. For Section 409A, the date when the “granting corporation completes the corporate action” necessary to create a legally binding right to the option which is not complete until the date on which the maximum number of shares and the minimum exercise price are fixed or determinable, and the class of underlying stock and the identity of the service provider are designated. Obviously, the regulations have similarities, but the common and essential element is the requirement for a corporate action. Read more
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00John Ludlumhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngJohn Ludlum2023-11-10 10:46:052023-11-10 10:46:05I’ve Been Trying to Get Down to the Heart of the Matter – the Board Action
You Live, You Learn… Correcting “Qualification Failures” under the Self-Correction Program
/in 401(k) Plans, IRS, Retirement Plansby Leslie Thomson
The Employee Plans Compliance Resolution System (“EPCRS”), as set forth in Revenue Procedure 2021-30, allows plan sponsors to correct “Qualification Failures,” which are defined as any plan document, operational, demographic or employer eligibility failures. Failure to follow the terms of a plan constitutes an operational failure.
Operational Failures can be corrected without IRS supervision under the Self-Correction Program (“SCP”) of EPCRS without paying a fee or sanction in two circumstances: (1) insignificant operational defects can be corrected at any time, even if the plan is under an IRS audit; and (2) significant operational defects can be corrected by the end of the third plan year following the plan year in which the defect arose. EPCRS summarizes the factors a plan sponsor may use to determine if a failure is insignificant or not. Moreover, SCP is only available if the plan sponsor has established practices and procedures reasonably designed to promote and facilitate overall compliance with applicable Internal Revenue Code requirements, and the failure occurred through an oversight or mistake in applying the procedures or because the procedures were not sufficient to prevent the occurrence of the failure. Read more
Join Us for the Employee Benefits Symposium 2024
/in UncategorizedJoin us in-person to hear updates on retirement plan audits, Mental Health Parity requirements and risks, ERISA fiduciary developments, SECURE 2.0 eligibility rules, benefits in mergers and acquisitions, service provider contracts, and more.
Reserve your seat by registering (click here to register). This event is in-person only, so please attend the symposium at one of our Holland & Hart offices: Billings, MT | Boise, ID | Denver, CO | Salt Lake City, UT.
For more information, please view our full agenda here.
Tuesday, February 27, 2024
8:30 AM – 12:00 PM MST
CLE/CPE Credits: 3.0 CLE and CPE credits pending for Colorado, Idaho, Montana, and Utah.
PREREQUISITES: None
COST: None
Questions: Please contact Lisa Adelberg.
Deferred Compensation Arrangements for Non-Profits: What I’ve Felt, What I’ve Known, Is Not Consistent with the Code
/in 457(b) plans, 457(f) plans, Executive Compensation, IRSby Benjamin Gibbons
Deferred compensation options for executives of tax-exempt entities are often misunderstood by those organizations who have not previously delved into them. Traditional tax-exempt organizations – think charities and non-profits – are subject not only to the deferred compensation rules of Section 409A of the tax code, but also Section 457 (though note that Section 457 does not apply to deferred compensation arrangements of churches). Section 457-subject organizations without deferred compensation experience are often under the impression that they are able to establish deferred compensation arrangements that are similar to those of for-profit entities, in that the right to deferred compensation can vest now and be taxed at a later date. When such organizations begin moving forward to put a deferred compensation arrangement place, they are often surprised to learn that Section 457 generally limits their ability do so.
The most analogous deferred compensation arrangement for tax-exempt executives compared to a traditional for-profit deferred compensation plan is what’s generally known as a Section 457(f) plan. While there are a number of differences between a Section 457(f) plan and a for-profit deferred compensation plan, the biggest is the timing of the taxation of the deferred compensation. A for-profit deferred compensation plan can be designed so that once the right to deferred compensation vests, it can be taxed (for income tax purposes) on the date that it is paid, which can be many years in the future. With a Section 457(f) plan, once the deferred compensation vests, it becomes immediately taxable, even if the plan provides for payment of the deferred compensation in a future year. Read more
Take the Power Back . . . Negotiating Provider Contracts for Benefit Plans
/in Benefits Plan Creation, ERISA, Health & Welfare Plans, Retirement PlansBy Kevin Selzer
Disputes between plan sponsors and plan service providers are not new. As with any contractual relationship, things don’t always go according to “plan” or at least, as the sponsor expects. When that happens, one of the first things sponsors (and their attorneys) will do is review the provider’s contract. Some sponsors will be surprised to find some very provider-friendly provisions, such as:
Unfortunately for sponsors, a provider’s willingness to fix an error often comes down to how much the provider wants to continue working with the sponsor on a go forward basis. Read more
A Change Would Do You Good, But Do The Section 125 Cafeteria Plan Rules Permit It?
/in Cafeteria Plans, Fiduciary Duties, Health & Welfare Plans, IRSby Elizabeth Nedrow
Inevitably, an employee will wake up from their holiday food coma and realize that they made a mistake in open enrollment. “But I didn’t mean to elect family coverage! My spouse is covering the kids this year!” Employers are allowed to set enrollment rules for their self-funded medical plans. One response to the employee is the hard line that the door was closed at the end of the enrollment period. But what if you want to be more flexible?
If the employee catches their mistake before the ball drops on New Year’s Eve, the IRS won’t care. But if the question comes up in January, it’s likely too late. The IRS’s rules on cafeteria plan elections don’t make any exception for mistake. Elections can only be changed if the employee has a change in status event like a divorce or new dependent. Read more
Signed, Sealed, Delivered … Have You Completed Your Plan’s “No Gag Clauses” Attestation?
/in Health & Welfare Plansby Becky Achten
One of the many benefits-related provisions in the Consolidated Appropriations Act of 2021 prohibits the use of “gag clauses” in group health plan agreements. Before this law, medical plan service agreements would often include provisions preventing the employer from sharing data like pricing and health plan outcomes available to another party. Hopefully employers have worked to make sure that there are no such clauses in their agreements. But there’s one more step on the compliance ladder. Beginning in 2023, plans must annually attest to their compliance with the gag clause prohibition. Read more
I’ve Been Trying to Get Down to the Heart of the Matter – the Board Action
/in Corporate Governance in Benefits, Equity Compensation, Executive Compensationby John Ludlum
If you ever want to see a benefits lawyer get nervous, start talking about corporate intent. Yes, the company intended to grant options at an earlier and lower exercise price, and yes it may have made promises to the individuals who would receive the awards; everybody seems to be in agreement. But there may be inadequate documentation, or worse, none at all, and the tax implications have to be considered. The foundation for any equity grant will be corporate action, and the experienced perspective is that if there is doubt about the corporate action, it will be hard to defend.
The Incentive Stock Option (“ISO”) regulations and the Code Section 409A regulations (“Section 409A”) both provide guidance on when an equity grant is actually made for the purposes of those Code Sections. For ISOs, the “date or time when the granting corporation completes the corporate action” constituting an offer under the terms of a statutory option which is not considered complete until the maximum number of shares and the minimum price are fixed or determinable. For Section 409A, the date when the “granting corporation completes the corporate action” necessary to create a legally binding right to the option which is not complete until the date on which the maximum number of shares and the minimum exercise price are fixed or determinable, and the class of underlying stock and the identity of the service provider are designated. Obviously, the regulations have similarities, but the common and essential element is the requirement for a corporate action. Read more