The American Retirement Association on June 20 filed a comment letter with recommendations on items to be included in the 2017-2018 IRS guidance plan. The letter was in response to IRS Notice 2017-28.
While it believes that every item in the plan could provide “clarity and guidance to sponsors of retirement plans and the professionals who assist them,” the ARA said that it recognizes that the IRS and Treasury have limited resources and that it is necessary to prioritize them. In its letter, the ARA lists the items it considers to be important to ARA members. In order of importance, those 13 items are:
1. Mid-Year Changes to Safe Harbor Plans
The ARA recommends that the IRS address issues related to mid-year changes to safe harbor plans and that the IRS also address the items noted in the ARA’s June 8, 2017 letter.
2. Guidance Regarding the Aggregation Rules for Affiliated Service Groups Under Code Section 414(m)
The ARA notes that this item was included in the 2016-2017 plan and recommends that the IRS keep it in the new one. Specifically, it recommends that the IRS:
- provide guidance on the determination of ASGs and management groups;
- provide guidance on the impact of overlapping controlled groups and ASGs; and
- provide a method to obtain a ruling on ASG status by reopening the determination letter process for this purpose.
“This guidance is particularly important because these provisions impact the compliance of not only of retirement plans, but also of health plans under the Affordable Care Act,” writes the ARA. It notes that the rules need to be updated. Proposed regulations were published in 1983 and “are extremely out of date” and this guidance “will significantly reduce issues relevant to many retirement plan sponsors and practitioners and will promote sound tax administration in both the retirement plan and health plan contexts,” says the ARA.
3. Determination Letter Program
The ARA recommends that the IRS address issues related to the changes to the determination letter program for individually designed plans. Specifically, ARA recommends that hybrid DB plans not on a pre-approved plan that did not receive a hybrid plan determination in the last cycle should be allowed to apply for a determination letter on the hybrid regulations.
4. Update and Expand EPCRS
The ARA notes that this notes that this item was included in the 2016-2017 plan, and recommends that the IRS keep it in the new one and update and expand Revenue Procedure 2016-51. It further recommends that the IRS continue to improve and expand the program, particularly for overpayments, plan loan and certain 403(b) plan issues.
5. Lifetime Income and Qualifying Longevity Annuity Contract Guidance
This item was also included in the 2016-2017 plan; the ARA recommends that the IRS keep it in the new one in order to provide general guidance that helps address certain open tax issues such as nondiscrimination testing and the application of the QJSA/QPSA requirements to lifetime income products, to put them on an equal footing with other types of investment products.
6. Pre-Approved Plans for Cash Balance Plans and ESOPs
In order to continue the reduction of the IRS’ burden related to the number of plans submitted for determination letters, the ARA recommends that the IRS finalize the expansion of the pre-approved plan document program as indicated in IRS Announcement 2014-41 to permit pre-approved cash balance plan and ESOP documents.
7. Expenses Included in Target Normal Cost
The ARA recommends that the IRS provide guidance on pension plan expenses that are and are not to be included in the Target Normal Cost.
8. Top 25 Nondiscrimination
The ARA recommends that the IRS provide guidance under the High 25 rule, particularly when the plan covers only highly compensated employees (HCEs), to coordinate the use of certain terms under that rule with terms used in Code Section 430 and to review the restrictions under that rule in light of the Code Section 436 benefit restrictions.
9. Governmental Plans
The ARA notes that this item was included in the last priority plan and recommends that the IRS publish long-awaited guidance on the definition of a governmental plan under Code Section 414(d).
10. Update Revenue Procedure 2000-40
The ARA recommends that the IRS give priority to:
- guidance on approval of a change in valuation date;
- a change in method from fair market value to an asset averaging method; and
- a change from one set of segment rates to another or between segment rates and the full yield curve.
11. Retirement Plan Deadlines
The ARA recommends that the IRS provide guidance on which retirement plan deadlines are extended when a deadline falls on a weekend or holiday.
12. Merger and Acquisition Issues
The ARA recommends that the IRS address issues that result from mergers and acquisitions affecting 401(k) and 403(b) plans (including the treatment of safe harbor plans), the determination of HCEs and the determination of years of service credit. In light of the PATH Act changes in 2015, this should also include guidance on the mergers and transfers between 401(a) plans and 403(b) plans.
13. Reduce Regulatory Burdens
The ARA recommends that the IRS revise existing regulations in order to support innovation and reduce administrative burdens on the retirement plan system, with a focus on simplifying and creating uniform rules for electronic disclosure under ERISA and the Internal Revenue Code and permitting plan sponsors to choose electronic communications as the “default” method for required disclosures.
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