Category Archives: Profit Sharing Plan

Online VCP Filing System Up and Running

The IRS Voluntary Correction Program, or VCP, generally must be used by plan sponsors who need to fix certain errors in their retirement plans, including document errors such as missed amendments, and “significant” errors in operation of the plan going back more than two years. VCP is a component program of the Employee Plans Compliance Resolution System, the terms of which are outlined in a Revenue Procedure that the IRS updates every few years.  As previously reported, the most recent update, set forth in Revenue Procedure 2018-52, mandates online filing of VCP submissions starting April 1, 2019. The IRS opened the online filing system for voluntary use starting January 1 of this year.  Paper filing is optional through March 31, 2019.  This post reports on first experiences with the online filing system.

  • First, you file online at www.pay.gov, which is also how the applicable VCP user fee is paid electronically. You must have an account established in order to file. The online filing portal at pay.gov is titled “Application for Voluntary Correction Program.” Note that there is a different link at pay.gov called “Additional Payment for Open Application for Voluntary Correction Program” that should not be used for an initial filing. This link is only to be used to make an additional user fee payment for an existing VCP case, which generally would only be at the instruction of an IRS employee.   Plan sponsors and preparers should exercise caution because, when you enter “Voluntary Correction Program” into the pay.gov search engine, this alternative link for the additional payment tends to pop up before the correct link for an initial filing.
  • Form 8950, Application for Voluntary Correction Program, is completed online at www.pay.gov. This version of the form dates to January 2019. Note that the prior version of Form 8950 from November 2017 should not be used as part of the online submission. It can continue to be filed in hard copy through March 31, 2019. Preparers should be careful to follow the Instructions for whatever version of Form 8950 they are working with, as there are differences between them.
  • Any attachments to Form 8950, such as the statement required of Section 403(b) plans, should be part of a single PDF file that contains all portions of the submission (other than Form 8950) that formerly were filed in hard copy (e.g., Form 2848 Power of Attorney, Form 14568 Model VCP Compliance Statement, Schedules thereto, sample corrective calculations, relevant portions of the plan document). The application link at www.pay.gov lists the proper order in which items should go (as does Section 11.11 of Revenue Procedure 2018-52).
  • Items unique to the online filing process that must be included in the PDF file include a signed and dated Penalty of Perjury Statement from an authorized representative of the plan sponsor (formerly this was part of Form 8950), and an optional cover letter to the IRS.
  • Complications ensue when the PDF file exceeds 15 MB. If that is the case, you are to file online and upload as much of your application as fits within 15 MB limit. You and your Power of Attorney then will receive email confirmation of filing from pay.gov. Locate the Tracking ID number that is listed on the confirmation. You then need to prepare one or more fax transmittals that bear the Tracking ID number on the fax coversheet, as well as the EIN, applicant name, and plan name, and fax in the balance of your application to the IRS at (855) 203-6996. Note that the fax (or multiple faxes, if necessary), must be 25MB or smaller to go through the IRS system. Larger files will fail to transmit and no notice of failure will be provided.
  • Either the preparer can provide the PDF to the plan sponsor to upload at www.pay.gov (together with online completion of Form 8950 and payment of the VCP user fee), or the preparer can obtain written authorization from the plan sponsor to use the plan sponsor’s credit card to pay the VCP user fee online, and upload the submission itself. (Hat tip to Alison J. Cohen of Ferenczy Benefits Law Center for input on this latter method, and for other assistance with this post).

This is just a very brief overview of the filing process. More details are found in the January 2019 instructions to Form 8950, and at the online filing portal at http://www.pay.gov

Other than the unfortunate need to separately fax portions of larger VCP applications, the online system operates smoothly and is fairly user-friendly. Time will tell as to whether online filing allows the IRS to process the VCP applications more swiftly than has been possible with paper filings.

 

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Filed under 401(k) Plans, 403(b) Plans, EPCRS, ERISA, Profit Sharing Plan, Voluntary Correction Program

2019 COLA Adjustments: Let’s Do the Numbers

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On November 1, 2019, the IRS announced 2019 cost-of-living adjustments for annual contribution and other dollar limits affecting 401(k) and other retirement plans.   Salary deferral limits to 401(k) and 403(b) plans increased $500 to $19,000, and a number of other dollar limits increased.  Citations below are to the Internal Revenue Code.

In a separate announcement, the Social Security Taxable Wage Base for 2019 increased to $132,900, from $128,400 in 2018.

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Filed under 401(k) Plans, 403(b) Plans, Benefit Plan Design, COLA Increases, ERISA, Nondiscrimination Testing for Qualified Retirement Plans, Profit Sharing Plan, Section 457(b) Plans

California Wildfires: Congress Grants Expanded Access to Retirement Savings

The recently-signed Bipartisan Budget Act of 2018 (the “Act”) expands access to 401(k) and other retirement plan savings for those impacted by the California wildfires that occurred late last year in federally-declared disaster areas including Santa Barbara and Ventura counties. The expanded access is available to individuals whose principal residence is or was located in the “California wildfire disaster area” at any time between October 8, 2017 to December 31, 2017 and who sustained an economic loss – whether personal or business – as a result of the wildfires, and whose employer agrees to amend their plan by December 31, 2019 to include the special rules (retroactive to 2018).   Those taking IRA withdrawals should check with their IRA custodians or trustees re: availability of the new measures.

As to whether the relief extends to those affected by flooding, mudflows, and debris flows directly related to the wildfires, there is some uncertainty in the wording of the Act. As mentioned above, eligible individuals are determined based on their residence on or before December 31, 2017, a date which preceded the January 9, 2018 flooding, mud and debris flow.  However, the Act defines “California wildfire disaster area” as the area subject to Presidential disaster declarations made between January 1, 2017 through January 18, 2018.  The original California wildfire disaster declaration was made January 2, 2018, and was amended on January 10 and 15 to incorporate damage from flooding, mudslides and debris flow directly related to the wildfires, which would suggest that those related types of damage would come within the scope of the relief. More guidance from the government would be helpful on this point.

There are three main types of expanded access:

  • Special withdrawal rules

-Eligible individuals may take plan or IRA withdrawals of up to $100,000 without application of the 10% penalty tax that ordinarily applies before age 59 ½.  Although California’s Franchise Tax Board generally follows federal disaster relief, a California early withdrawal penalty of 2.5% may apply, so check with your CPA.  The withdrawal must take place between October 8, 2017 and December 31, 2018.  The tax impact of the withdrawal may be spread over up to 3 years from the date of the withdrawal, or tax may be avoided entirely by repaying the full amount to the plan, or an IRA, within the same 3 year period.

  • Retirement plan loan relief

– An extension of up to one year applies to repayments due on a plan loan that was outstanding on or after October 8, 2017.  The one year extension does not cause the loan to exceed the maximum five-year repayment period.  Interest continues to accrue during the extension.

– New plan loans may be taken out on or after Feb. 9, 2018, through Dec. 31, 2018 in an amount up to the lesser of $100,000, or 100% of the vested retirement plan account (increased from $50,000 or 50%).   The limit is reduced by an amount equal to the highest outstanding balance of all loans during the prior twelve months.

  • Repayment of amounts taken out to buy or build a home in the disaster area

  –Persons who took hardship withdrawals from their plans after March 31, 2017 and before January 15, 2018 in order to buy or build a personal residence can re-deposit their withdrawals, or roll them to an IRA, by June 30, 2018, if the purchase or construction could not go forward as a result of the wildfires. The same relief is available to first-time homebuyer IRA withdrawals made during this time.

In earlier guidance, the IRS extended the filing deadline for personal and business income taxes by two weeks for those affected by the California wildfires, and California’s Franchise Tax Board granted equivalent relief for state returns. The new deadline for personal returns is April 30, 2018.

Note:  a version of this post was published in the Pacific Coast Business Times on February 23, 2018.

 

 

 

 

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Filed under 401(k) Plans, 403(b) Plans, Disaster Relief, ERISA, IRA Issues, Profit Sharing Plan

New Year Brings New, (Sometimes) Lower VCP User Fees

Effective January 2, 2018, the IRS has materially lowered the user fees required to be paid in order to participate in the Voluntary Compliance Program (VCP) under the Employee Plans Compliance Resolution System or EPCRS.  VCP is a way for sponsors of qualified retirement plans to get IRS approval of voluntary correction of operational errors and other plan errors that jeopardize the plan’s tax-qualified status.  Under old user fees, which were based on the number of plan participants as of the last day of a plan year, most applicants fell within the 100 – 1,000 participant range, which in 2017 carried a fee of $5,000.  The new fees, set forth in Appendix A to IRS Revenue Procedure 2018-1, are based on plan assets as of the last day of the plan year and are as follows:

User Fee               Plan Assets

$1,500                   $500,000 or less

$3,000                   Over $500,000 to $10,000,000

$3,500                   Over $10,000,000

As many if not most plan sponsors will fall in the over $500,000 to $10,000,000 range, this will result in a $2,000 reduction in the applicable user fee.

Lowering the price barrier to participation in VCP is a positive for plan sponsors.  Obtaining a compliance statement from IRS through the program is the equivalent of insurance against penalties and interest that would be assessed if the plan problems were discovered on audit.  The VCP compliance statement is also crucial in the event the plan sponsor sells its business or merges with another entity, as plan problems must be disclosed in the pre-deal due diligence stage, and unresolved plan problems can slow down or even derail a sale or merger transaction.  Speaking of insurance, some fiduciary liability insurance carriers will cover, and provide reimbursement for, the VCP user fee and professional services used in preparing the application (although generally amounts that are owed to the plan are not covered).

There is a downside to this new fee schedule, namely in the loss of reduced fees (as low as $300) for submissions that were limited to participant loan errors, failures to make required minimum distributions, and SEP and SIMPLE plan submissions.

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Filed under 401(k) Plans, 403(b) Plans, EPCRS, ERISA, Profit Sharing Plan, VCP

IRS Announces New Benefit Limits for 2018

olga-delawrence-386839On October 19, 2017 the IRS announced 2018 cost-of-living adjustments for annual contribution and other dollar limits affecting 401(k) and other retirement plans.   Salary deferral limits to 401(k) and 403(b) plans increased $500 to $18,500, but other dollar limits remained unchanged, including the compensation threshold for highly compensated employee status. Specifically, an employee will be a highly compensated employee (HCE) in 2018 on the basis of compensation if he or she earned more than $120,000 in 2017.  Citations below are to the Internal Revenue Code.

In a separate announcement, the Social Security Taxable Wage Base for 2018 increased to $128,400 from $127,200.

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Filed under 401(k) Plans, 403(b) Plans, COLA Increases, ERISA, IRA Issues, Nondiscrimination Testing for Qualified Retirement Plans, Profit Sharing Plan, Section 457(b) Plans

IRS Announces New Benefit Limits for 2017

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On October 28, 2017 the IRS announced 2017 cost-of-living adjustments for annual contribution and other dollar limits affecting 401(k) and other retirement plans.   Salary deferral limits to 401(k) and 403(b) plans remained unchanged for the second year in a row, but other dollar limit adjustments were made. Citations below are to the Internal Revenue Code.

Limits That Remain the Same for 2017 Are As Follows:

–The annual Salary Deferral Limit for 401(k), 403(b), and most 457 plans, currently $18,000, stays the same.

–The age 50 and up catch-up deferral limit, currently $6,000, also remains the same. For 2017 as in this year, the maximum salary deferral an individual age 50 or older may make is $24,000.

–The compensation threshold for determining a “highly compensated employee” remains unchanged at $120,000.

–Traditional and Roth IRA contributions and catch-up amounts remain unchanged at $5,500 and $1,000, respectively.

–The compensation threshold for SEP participation remained the same at $600.

–The SIMPLE 401(k) and IRA contribution limit remained the same at $12,500.

Limits That Changed for 2017 Are As Follows:

–The maximum total annual contribution to a 401(k) or other “defined contribution” plan under 415(c) increased from $53,000 ($59,000 for employees aged 50 and older) to $54,000 ($60,000 for employees aged 50 and olded).

–The maximum annual benefit under a defined benefit plan increased from $210,000 to $215,000.

–The maximum amount of compensation on which contributions may be based under 401(a)(17) increased from $265,000 to $270,000.

-The compensation dollar limit used to determine key employees in a top-heavy plan increased from $170,000 to $175,000.

In a separate announcement, the Social Security Taxable Wage Base for 2017 increased from $118,500 to $127,200.  

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Webinar: Dept. of Labor 401(k) Audits – How Not to Get Selected (and How to Survive if You Do) UPDATED

 Y01VDYAX63Please join Christine Roberts and former DOL investigator David Kahn for a free, one-hour webinar on Wednesday, Aug 24, 2016 at 10:00 AM PDT which will provide tips on how to reduce the risk of audit, and how to survive an audit if one occurs. We will cover investigation triggers and issues that the DOL targets once an audit is underway. This no-charge webinar qualifies for continuing education credits for California CPAs and ASPPA. Join us for a webinar. Register now! https://lnkd.in/b-58niA

For those of you who missed the event, the PowerPoint and audio file are found here.

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Filed under 401(k) Plans, DOL Audit, Fiduciary and Fee Issues, Fiduciary Issues, Plan Reporting and Disclosure Duties, Profit Sharing Plan