From the Executive Director
Karen, Kurt and I wrapped up an American Retirement Association Government Affairs Committee (GAC) meeting June 14 with visits with staff of the committees of jurisdiction on Capitol Hill. Presidents and Presidents-Elect of ARA and other membership divisions were also in the Hill contingent. (For an in-depth report on the visit, click here — Ed.)
John Markley (ACOPA’s ASPPA GAC Executive Committee co-chair) and Tom Finnegan (ACOPA GAC chair) were also here for meetings with ASPPA and ARA GAC leadership June 11-12, and visits to PBGC and IRS on June 13. Joe Nichols was also at the meetings as ASPPA’s current President. In other words, ACOPA was very well represented, and I think we all felt it was worthwhile – I know I did.
No big news items to share as a result of those meetings, but there were some items discussed with PBGC that I wanted to bring to your attention. The first is in regard to PBGC coverage determinations for businesses that have never had more than 25 active participants in the plan and may or may not be a “professional service employer.” This rose to the top of our agenda because it was raised as a deduction issue in a recent IRS audit. IRS said the employer was not covered. The employer thought they were, but when PBGC was asked to make a determination, PBGC agreed with IRS. This employer had contributed more than would be allowed under IRC §404(a)(7) without the (iv) exception, so now there is a problem.
ERISA §4021(c)(2)(B) says professionals include, but are not limited to, physicians, dentists, chiropractors, osteopaths, optometrists, other practitioners of the healing arts, attorneys at law, public accountants, public engineers, architects, draftsmen, actuaries, psychologists, social or physical scientists, and performing artists. Importantly, §4021(c)(2)(A) makes it clear the involvement of a professional is not enough – the principal business of the employer must be the performance of the professional services. This leads to some gray areas. What if the profession is not on the list – an investment adviser? A realtor? What if the owner is a physician, but the business is selling medical equipment? If you think the answer is “No, not a professional service employer,” and the employer wants to take advantage of the IRC §404(a)(7)(C)(iv) exception to the combined DB/DC deduction limit, you may want to ask PBGC for a coverage determination, and have a letter to put in the file in case IRS raises the issue on audit.
The professional involved in the audit mentioned above is an investment adviser. PBGC has determined an investment adviser’s business was covered in at least one other case, so there is an apparent inconsistency. However, when we discussed this with PBGC, we were told that if it isn’t clear cut (listed professional with the principal business being the practice of that profession, for example) it will be reviewed on a case-by-case basis, and there is no magic (my word) set of criteria to lay out to assure the result will go one way or the other. PBGC is not, of course, eager to receive a lot more coverage determination requests and indicated they will have an internal discussion of what, if anything, they can do to make this coverage determination less of a black box. But in the meantime, ask for a determination if there is any uncertainty and the IRC §404(a)(7)(C)(iv) exception matters to the plan sponsor.
PBGC also mentioned a few concerns, including:
- Two problems are resulting in late premium payments where filings are timely made. First, the address changed about a year ago, but some premiums are being sent to the old address. By the time they get forwarded, they are late. Second, if the payment is being made electronically, and the account from which the premium is being paid has an “ACH Debit Block,” the PBGC Company ID 1601000603 must be provided to your financial institution before you submit your payment so they may authorize PBGC to debit your account. Failure to provide the PBGC ID can result in failure to make the payment. Check out the payment instructions on PBGC’s website if you have had any problems with payments submitted timely not being received timely.
- The new reportable events rules simply exempt plans with fewer than 100 participants from reporting missed quarterlies with no requirement to file any statement with PBGC. However, PBGC is still receiving the Technical Update 13-1 notices for plans with 25-99 participants. If you or your client are still sending them the notice saying the missed quarterly is not due to financial difficulty, please stop now.
We appreciate PBGC’s willingness to sit down and have an open and friendly discussion of issues we are encountering. Though nothing specific came out of it, the IRS meeting also felt productive. These annual GAC gatherings are very helpful for all involved. A big thank you to Karen, Kurt, John and Tom for giving up a huge chunk of time to represent ACOPA’s interests here in DC.
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