Now that the President and Congress have temporarily dropped health care reform efforts, they are expected to focus on tax reform. In addition to providing a tax reform preview, Union Bank wants to update you on the recent Department of Labor activity with respect to the fiduciary rule/prohibited transaction exemptions, and remind you to retain hardship distribution documentation.
- Fate of DOL Fiduciary Rule/Prohibited Transaction Exemptions. As previously reported, the DOL’s expanded definition of "fiduciary" and related prohibited transaction exemptions are set to become effective on April 10. The President has directed the DOL to determine how the new rules will affect retirement plan investors and providers. As a result, the DOL is widely expected to issue a delay (of at least 60 days), allowing it to respond to the President’s directions. Because this “delay” guidance could be issued after April 10, the DOL has issued Field Assistance Bulletin 2017-01, stating it will not initiate enforcement activity if the delayed applicability date is not issued before April 10. Union Bank will continue to monitor and keep you updated on the status of the DOL guidance.
- Tax Reform Becomes Priority. With Congress preparing to tackle tax reform, House Ways & Means Committee Chair Kevin Brady (R-Texas) hopes to move a tax reform bill through his committee this spring and serve as the blueprint for the President’s tax reform plan. The goals for tax reform, from a retirement plan perspective, is to continue tax incentives while consolidating the multiple retirement savings vehicles. While it is too early to know how the current menu of 401(k), 403(b), and 457 plans may be affected, or whether contribution limits will be changed, Union Bank will let you know how tax reform efforts proceed.
- Reminder to Retain Hardship Distribution Documentation. While the IRS recently issued audit guidelines for examining whether a hardship distribution is made for a proper purpose, Union Bank reminds you of the duty to retain hardship distribution records. Specifically, plan sponsors should retain, in written or electronic form: (a) documentation relating to the participant’s hardship distribution request, and plan administrator review and approval; (b) information substantiating the participant’s immediate and heavy financial need; and (c) documentation supporting that the distribution was properly made according to the plan’s terms and the Internal Revenue Code. Union Bank retains records showing the hardship distribution was made, and reporting the distribution on Form 1099-R.
The IRS reminds plan sponsors that it is not proper to shift the record retention burden to participants. This is a plan sponsor/plan administrator duty. The thought is that if a participant terminates employment, and keeps the hardship distribution documentation, then the records will not be available to IRS auditors. Finally, plan sponsors should not allow a participant to “self-certify” the reason for the hardship distribution. The plan administrator is responsible for determining whether the hardship distribution request is for a proper purpose.
Union Bank will keep you informed of these and any other relevant matters that may affect your plan in 2017. If you have any questions, please contact your Union Bank Relationship Manager.