The Washington Report
August 29, 2018
IRS Releases Initial Guidance on Executive Compensation Grandfather Rule Related to Tax Cuts and Jobs Act of 2017
On August 21, 2018, the Internal Revenue Service (IRS) released Notice 2018-68, which provides initial guidance on applying Section 162(m) transition rules as amended by the Tax Cuts and Jobs Act of 2017 - P.L. 115-97 (Section 13601). Section 162(m)(1) generally limits the allowable deduction for a taxable year for remuneration paid by any publicly held corporation with respect to a covered employee. Section 13601 of the new tax law made significant amendments to Section 162(m) and provided a transition rule (commonly referred to as the grandfather rule) applicable to certain outstanding arrangements that were subject to a written binding contract in effect on November 2, 2017.
Briefly, the Notice uses numerous examples to provide guidance that primarily addresses three specific areas:
- Identification of “covered employees” (with particular attention to the three most highly compensated individuals);
- Operation of the grandfather rule; and
- Determining when a material modification of a written binding contract occurs (resulting in a loss of the grandfather rule).
The IRS anticipates the guidance in the Notice will be incorporated in future regulations that will also address other aspects of Section 162(m), and it has requested comments (by November 9, 2018) on certain additional issues outside the immediate scope of the Notice.
IRS Notice 2018-68 is available here.
IRS Issues Notice Extending Temporary Nondiscrimination Relief for Closed Defined Benefit Plans Through 2019
On August 24, 2018, the Internal Revenue Service (IRS) issued Notice 2018-69, which extends by another year the temporary nondiscrimination testing relief for closed defined benefit plans that was originally provided in Notice 2014-5 and extended by Notices 2015-28, 2016-57, and 2017-45. The extended relief is now available through plan years beginning before January 1, 2020, rather than January 1, 2019. This temporary relief is limited to defined benefit and defined contribution gateway tests. All other required nondiscrimination testing continues to apply.
IRS Notice 2018-69 is available here.
DOL Releases ERISA Guidance on Association Health Plans
The U.S. Department of Labor (DOL) has released guidance on the application of ERISA to an Association Health Plan (AHP), a specific type of ERISA-covered group health plan that is sponsored by a group or association of employers, instead of a single employer, to provide health coverage to the employees of the AHP’s employer members. Under ERISA, an AHP is both a group health plan and a multiple employer welfare arrangement.
The Aon bulletin, which covers both the ERISA provisions and additional DOL guidance applicable to AHPs, can be found here.
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