The Washington Report
November 21, 2018
A Note to Washington Report Subscribers—Holiday Publication Schedule
The Washington Report will not be published on Wednesday, November 28, 2018. Publication will resume on Wednesday, December 5, 2018. Happy Thanksgiving!
IRS Requests Comments on Proposed Regulations on HRAs and Potential Approaches to Further Guidance
On November 19, 2018, the Internal Revenue Service (IRS) released Notice 2018-88, which is intended to initiate and inform the process of developing guidance under Sections 4980H and 105(h) (Shared Responsibility for Employers Regarding Health Coverage and Amounts Received Under Accident and Health Plans) that would address these issues, and requests comments on potential approaches developed by the Treasury Department and the IRS, so employers understand how to structure integrated health reimbursement arrangements (HRAs) to avoid assessable payments (Section 4980H) and potential loss of the exclusion from income for employer-provided health benefits (Section 105(h)).
Notice 2018-88 is related to a Notice of Proposed Rulemaking issued on October 23, 2018 that, in relevant part, would: (a) remove the current prohibition on integrating HRAs with individual health insurance coverage (integrated HRAs) if certain conditions are met, allowing employers to offer employees integrated HRAs in lieu of providing more traditional group health plans (the proposed integration regulations being proposed by the Departments of Treasury, Labor, and Health and Human Services); and (b) address when individuals offered coverage under an integrated HRA who are otherwise eligible for a premium tax credit (PTC) will remain eligible for the PTC (proposed PTC regulations being proposed by the Treasury Department and IRS). The proposed integration regulations and the proposed PTC regulations would raise issues concerning the application of Section 4980H (the employer shared responsibility provisions) and Section 105(h) (addressing discriminatory self-insured group health plans) to employers offering integrated HRAs and their employees. Comments on Notice 2018-88 are due by December 28, 2018.
IRS Notice 2018-88 is available here.
The October 23, 2018, proposed regulations are available here.
IRS Releases Proposed Regulations on Hardship Distributions From 401(k) Plans
On November 9, 2018, the Treasury Department and Internal Revenue Service (IRS) released proposed regulations that would amend existing rules relating to hardship distributions from Internal Revenue Code Section 401(k) plans. The proposed regulations regarding hardship distributions of elective contributions from Section 401(k) plans generally apply to Section 403(b) plans, subject to certain exceptions. The proposed regulations reflect statutory changes regarding hardship distributions from cash or deferred arrangements, including changes made by the Bipartisan Budget Act of 2018, and make certain other modifications to the existing rules. The proposed regulations, when finalized, potentially would affect participants in, beneficiaries of, employers maintaining, and administrators of plans that contain cash or deferred arrangements or provide for employee or matching contributions. Comments on the proposed regulations are due by January 14, 2019.
The proposed regulations are available here.
Proposed Exemption Sought for Auto-Portability Program
Retirement Clearinghouse, LLC (RCH) has requested a prohibited transaction exemption from the Department of Labor with respect to certain transfer fees in connection with its new auto-portability program. RCH developed the auto-portability program to help employees who may have multiple job changes over their careers consolidate small rollover IRA and retirement-related accounts. The goal of the program is to have the small balances transferred into their new employer's individual accounts or 401(k) plans. When implemented, the program is expected to improve overall asset allocation, eliminate duplicative fees for small accounts, and reduce leakage of retirement savings from the tax-deferred retirement savings system.
The application for the exemption notes that the program uses a "locate, match, and transfer" technology that performs periodic queries of cooperating recordkeeping systems to ascertain if the IRA or account owner has become a participant in an individual account plan through subsequent employment. RCH's service is designed to transfer the individual's assets into a default IRA (if distributed by reason of an eligible mandatory distribution, or by reason of a terminated defined contribution plan), and to provide for an automatic roll-in of funds from these default IRAs to an individual account plan maintained by the IRA owner's new employer (if the participant is now participating in an individual account plan of his new employer). Existing plans would need to be amended to accommodate the transfers. The exemption is intended to address RCH’s receipt of an additional fee in connection with transferring assets from a default IRA to an individual’s new plan account without the individual’s affirmative consent.
The Notice of Proposed Exemption is available here
IRS Publishes Guidance on Treatment of Leave-Based Donation Programs to Aid Victims of Hurricane Michael
On November 19, 2018, the Internal Revenue Service (IRS) published Notice 2018-89, which provides guidance on the treatment of leave-based donation payments for victims of Hurricane Michael. The IRS states that in response to the extreme need for charitable relief for victims of Hurricane Michael, employers may have adopted or may be considering adopting leave-based donation programs. Under leave-based donation programs, employees can elect to forgo vacation, sick, or personal leave in exchange for cash payments that the employer makes to charitable organizations described in Section 170(c) of the Internal Revenue Code (Section 170(c) organizations). Notice 2018-89 provides guidance for income and employment tax purposes on the treatment of cash payments made by employers under leave-based donation programs for the relief of victims of Hurricane Michael.
IRS Notice 2018-89 is available here
IRS Provides Tax Inflation Adjustments for 2019
On November 15, 2018, the IRS announced in Revenue Procedure 2018-57 the tax year 2019 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2018-57 provides details about all these annual adjustments. Items that may be of interest to employers are provided below. Please refer to the actual Revenue Procedure for all tax information.
- Qualified Transportation Fringe Benefit: For tax year 2019, the monthly limitation for the qualified transportation fringe benefit is $265, as is the monthly limitation for qualified parking, up from $260 for tax year 2018.
- Minimum Essential Health Coverage Penalty: For calendar year 2019, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $0, per the Tax Cuts and Jobs Act; for 2018, the amount was $695.
- Health Flexible Spending Arrangements: For the taxable years beginning in 2019, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,700, up $50 from the limit for 2018.
- Medical Savings Accounts: For tax year 2019, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,350, an increase of $50 from tax year 2018; but not more than $3,500, an increase of $50 from tax year 2018. For self-only coverage, the maximum out-of-pocket expense amount is $4,650, up $100 from 2018. For tax year 2019, participants with family coverage, the floor for the annual deductible is $4,650, up from $4,550 in 2018; however, the deductible cannot be more than $7,000, up $150 from the limit for tax year 2018. For family coverage, the out-of-pocket expense limit is $8,550 for tax year 2019, an increase of $150 from tax year 2018.
- Qualified Adoption Expenses: The maximum credit allowed for adoptions is the amount of qualified adoption expenses up to $14,080 for taxable years beginning in 2019, up from $13,810 for 2018.
Information Release 2018-222 is available here.
IRS Revenue Procedure 2018-57 is available here.
IRS Advisory Council Releases 2018 Annual Report
On November 15, 2018, the Internal Revenue Service Advisory Council (IRSAC) issued its 2018 annual report, including recommendations to the IRS on new and continuing issues in tax administration. The IRSAC is a federal advisory committee that provides an organized public forum for discussion of relevant tax administration issues between IRS officials and representatives of the public. The 2018 Annual Report covers a broad range of topics and concerns, including the IRS budget.
The 2018 IRSAC Annual Report is available here.
Year-End Update—Recent Developments and Other Guidance Potentially Affecting Qualified Plans for 2018 and 2019
Aon’s Year-End Update includes a summary of plan amendments that may be required for 2018 and 2019. This summary identifies amendments that may be required for an individually designed tax-qualified retirement plan. Additionally, this publication suggests several additional amendments that plan sponsors may want to consider that reflect recent statutory, regulatory, or other administrative updates that may prove helpful to plan sponsors. The Update also includes possible amendments to consider when terminating a defined benefit plan and information regarding filing deadlines for pre-approved plans.
The full text of the Year-End Update can be found here.
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