von Briesen Health Law Blog

Retirement Plans Subject to ERISA Vesting Standards Must File Form 8955-SSA by January 17, 2012

Section 6057(a) of the Internal Revenue Code (the “Code”) requires plan administrators of retirement plans subject to the vesting standards under the Employee Retirement Income Security Act of 1974 (“ERISA”) to report information regarding separated participants with deferred vested benefits that have not commenced. Plan administrators previously met this requirement by filing Schedule SSA as an attachment to the plan’s Form 5500 annual return/report.  The Department of Labor (“DOL”) removed Schedule SSA from Form 5500 for plan years beginning on or after January 1, 2009.

The IRS, in coordination with the Social Security Administration, developed Form 8955-SSA as a stand-alone form that is to be used to comply with Code Section 6057(a) for plan years beginning on or after January 1, 2009. Plan administrators of plans, including 403(b) plans, subject to the ERISA vesting standards must file Form 8955-SSA. In addition, plan administrators of government, church, and other plans that are not subject to ERISA’s vesting standards may elect to voluntarily file the Form 8955-SSA.

Generally, the due date for filing a Form 8955-SSA is the last day of the seventh month following the end of the plan year (the same as the due date for a Form 5500). Plans required to file Form 8955-SSA for the 2009 and/or 2010 plan years, however, have until the later of January 17, 2012 or the due date for filing the Form 8955-SSA for the 2010 plan year to do so. A plan sponsor may not obtain an extension of the January 17, 2012 due date. For subsequent plan years, plan administrators may file Form 5558 to obtain a 2-1/2 month extension of the time to file a Form 8955-SSA.

Read more…

Two recent developments under Wisconsin law eliminate disparities with federal law and may simplify health plan administration for Wisconsin employers. First, the Wisconsin insurance law requirement that dependent child coverage be offered to the adult children of covered employees has been amended to conform to the federal adult child coverage requirement. Second, Senate Bill 203, which recently passed both houses of the Wisconsin Legislature and is awaiting Governor Scott Walker’s signature, would amend Wisconsin tax law to conform the state income tax exclusion for coverage provided to an employee’s adult child to the federal income tax exclusion.

Read more…

The Internal Revenue Service (“IRS”) has announced the cost of living adjustments for the 2012 tax year, which affect various dollar limitations for retirement plans.  The IRS increased many of these limitations for the first time since 2009.  Some limitations remain unchanged.  The following chart highlights many of the noteworthy limitations for the 2012 tax year.

Read more…

The area of establishing and overseeing executive compensation is the biggest area of noncompliance—and IRS audit concentration—for tax-exempt organizations, according to the Internal Revenue Service (“IRS”) director of exempt organizations.  Generally, a tax-exempt organization’s net profits may not inure to the benefit of any private shareholder or individual.  However, an individual who provides services for an exempt organization may receive compensation for his or her efforts as long as the compensation is both reasonable and not excessive.  Problems with excessive compensation commonly arise in the area of executive compensation.  If an executive receives excessive compensation, the IRS may assess intermediate sanctions against the exempt organization, the executive and the board members who improperly set the executive’s compensation.  Board members could face personal liability, jointly and severally, up to $10,000 for each excess compensation transaction.

Executive Compensation

Whether an executive’s compensation is reasonable depends on the particular employment situation, including the executive’s duties, training, and position.  The exempt organization’s board of directors is responsible for setting an executive’s compensation and ensuring that he or she does not receive excess compensation.  If the board of directors creates a committee to set and review executive compensation, the committee should present compensation packages to the board for review and the board should analyze the compensation package carefully.  An IRS representative has noted that if a board of directors makes an uninformed decision regarding executive compensation and the executive compensation is unreasonable, such board members may also face adverse tax consequences.

Fringe Benefits

In calculating whether executive compensation is reasonable, the board of directors must take into account all compensation, including fringe benefits.  Peter Lorenzetti, the IRS tax-exempt manager for the Northeast, recently stated that fringe benefits are the most common area in which exempt organizations receive intermediate sanctions because such organizations often fail to include fringe benefits in the calculation of the executive’s total compensation.  According to Lorenzetti, if an exempt organization fails to treat fringe benefits as compensation to an executive, such failure will be considered an automatic excess benefit, which triggers an automatic imposition of taxes.

In addition, the IRS is currently engaged in the National Research Program, a comprehensive audit of 6,000 U.S. companies, including tax-exempt organizations, that focuses on uncollected employment taxes.  Such audits are specifically focused on fringe benefits, according to the chief of employment tax operations at the IRS.  The IRS Fringe Benefits Audit Techniques Guide lists the following as a few of the most common fringe benefits provided to executives:

• Qualified Employee Discounts
• Spousal/Dependent Life Insurance
• Transportation (including Chauffeurs, Employer-paid Parking and Non-commercial Air Travel)
• Relocation Expenses
• Wealth Management (including Qualified Retirement Planning)
• Payment of the Employee’s Share of Employment Taxes
• Athletic Skyboxes/Cultural Entertainment Suites

To ensure compliance with executive compensation rules, the board of directors of an exempt organization should regularly review executive compensation packages. The board should also maintain active involvement in and oversight of all executive compensation.

The Patient Protection and Affordable Care Act (“PPACA”) revised the standards that all non-grandfathered group health care plans must meet regarding their claims and appeals procedures.  In July 2010, the Departments of Health and Human Services, Treasury, and Labor issued Interim Final Rules explaining PPACA’s revised standards.  The Interim Final Rules modified, clarified and expanded the internal claims and appeals procedures that were already applicable to health plans that are covered by the Employee Retirement Income Security Act (“ERISA”).

The new standards set forth in PPACA and the Interim Final Rules technically became effective on September 23, 2010.  However, in order to give plans time to implement the more burdensome new standards, the Department of Labor (“DOL”) created an enforcement grace period with regard to some (but not all) of the new claims and appeals procedures.  Under the original enforcement grace period, the DOL said it would not enforce these new standards until July 1, 2011, as long as plans work in good faith to implement them.

On March 18, 2011, the DOL announced that it intends to modify the standards covered by the original enforcement grace period based on feedback received regarding the Interim Final Rules.  Thus, rather than enforce rules that will most likely change, the DOL extended the enforcement grace period, as shown in the table below.  In addition, the DOL removed the requirement that plans work in good faith to implement the standards covered by the grace period.

The chart on the following page summarizes the new internal claims and appeals standards required by PPACA, as well as the dates by which group health plans must comply with such standards.

Read more…

The Internal Revenue Service (the “IRS”) recently issued a list of retirement plan items that employers should review this year. This Update briefly highlights those items and provides you with useful resources for proper operation of your retirement plan.

Is Your Retirement Plan Right for Your Business?
An employer should review its retirement plan periodically to determine whether that plan remains suitable given the employer’s objectives.

Employers sometimes adopt retirement plans that prove to be overly complicated given the employer’s budget, the nature of the employer’s workforce, etc. For example, we recently helped a small non-profit organization unwind its defined benefit retirement plan. Given the organization’s objectives and budget and the nature of the organization’s workforce, the plan was too complex and costly to administer. The organization replaced that plan with a new defined contribution plan that (i) is much easier for employees to understand, (ii) is much less costly to administer, and (iii) provides the organization with needed funding flexibility.

Read more…