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DISCLAIMER: This blog is published for general information only - it is not intended to constitute legal advice and cannot be relied upon by any person as legal advice.  U.S. Treasury Regulations require us to notify you that any tax-related material in this blog (including links and attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties, and may not be referred to in any marketing or promotional materials.  While we welcome you to contact our authors, the submission of a comment or question does not create an attorney-client relationship between the Firm and you. 


Fifth Circuit Vacates DOL Conflict of Interest Fiduciary Rule

The Fifth Circuit vacated the Department of Labor’s long-suffering conflict of interest rule (commonly referred to as the “fiduciary rule”), holding that the rule exceeds the scope of DOL’s regulatory authority. The decision means that the expanded definition of fiduciary, the elevated standards of conduct for certain investment advisors, and the accompanying prohibited transaction exemptions are not enforceable in the Fifth Circuit, at least for the time being.

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Time is Running Out – New Disability Claims Procedures Take Effect April 2, 2018

It has been a long time coming, but the Department of Labor’s final rule regarding disability benefit claims procedures (the “Final Rule”) will finally take effect on April 2, 2018.  Employers need to determine which of their ERISA plans will be subject to the Final Rule and implement the changes necessary to comply by April 2, 2018.  Any benefit plan that is subject to ERISA and allows a claims administrator to exercise discretion in determining whether a participant is disabled (rather than relying on an independent determination from the Social Security Administration for example) must take steps to comply with the Final Rule. 

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IRS Reduces 2018 HSA Family Contribution Limit

The IRS has lowered the dollar limit on deductible contributions to health savings accounts (HSAs) for individuals with family coverage under a high deductible health plan.  The new limit for 2018 is $6,850, down from the $6,900 limit announced last fall.

Rev. Proc. 2018-18, issued on March 5, 2018, adjusted the limit to account for changes resulting from the tax reform bill passed in December.  The limit for individuals with self-only coverage remains $3,450.  There is no change to deductible and out-of-pocket expense limits for a plan to qualify as an HDHP.

Employers who have already contributed the maximum amount to employees’ HSAs for 2018 based on the higher limit should correct the contribution as necessary, and employers offering HDHPs may wish to notify employees that may be affected by the change.

Rev. Proc. 2018-18 announces inflation adjustments and modifies a variety of tax-related limitations, including limits on excludable amounts under adoption assistance programs.  The limit for benefits that may be excluded from income under an adoption assistance program is now $13,810, down from $13,840 as previously announced.  The income phase-out for this exclusion now begins at $207,140 and fully phases out at $247,140, down from $207,580 and $247,580.


Controlled Group Rules for Tax Exempt Organizations: A Brief Review

Corporate entities under common control are generally treated as a single employer for purposes of applying the core rules that govern employee benefit plans and executive compensation arrangements.  For that reason, a complete and accurate controlled group analysis can be critical in determining and monitoring the legal compliance status of a benefit plan.  For example, subject to a couple of exceptions, nondiscrimination testing typically must be performed on a controlled group basis.  A controlled group analysis is needed to determine whether a retirement plan covering more than one employer is a single employer plan or a multiple employer, and whether a group health plan that covers more than one employer is a single employer plan or a multiple employer welfare arrangement (or MEWA).  A controlled group analysis is also critical to identify which members of a group of related entities can be held jointly and severally liable for pension plan underfunding liabilities. 

The controlled group rules should be considered any time there have been (or are expected to be) changes in the composition of the group, particularly if a new member organization is added.  The rules that govern the determination of control relationships among organizations exempt from tax under Code Section 501(a) – “tax-exempt organizations” – are found in Treasury Regulations Section 1.414(c)-5.  Given the pace of change in the tax-exempt world, particularly among local and regional health systems, we think these rules worth revisiting. 

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Budget Agreement Contains Changes to 401(k) Plan Hardship Distribution Rules

The budget agreement approved by Congress and signed into law on February 9, 2018 includes several changes to the rules governing hardship distributions from 401(k) plans.  These changes — which were included in the House version of the tax reform bill, but removed during the reconciliation process — may make hardship distributions more readily available to plan participants.  All of the changes are optional and will apply to plan years beginning after December 31, 2018.

First, the budget law directs the IRS to modify the regulatory safe harbor for determining that a distribution is necessary to satisfy a participant’s “immediate and heavy financial need.”  Specifically, the regulation will no longer require a six-month suspension of the participant’s contributions following a hardship withdrawal.

Second, the budget law creates a new statutory provision governing hardship withdrawals.  New Code Section 401(k)(14) authorizes hardship distributions of qualified nonelective employer contributions, qualified matching contributions, and earnings on either of them, in addition to hardship distributions from elective deferrals plus earnings.  It also provides that a distribution will not fail to be made due to hardship solely because the participant does not take any available plan loan.  (Obtaining all currently available nontaxable plan loans remains a condition of the regulatory safe harbor that included the six-month suspension rule.)

These changes are almost certainly intended to apply to 403(b) plans that offer hardship distributions.  However, due to what appears to be a technical glitch, application of the second set of changes to 403(b) plans may require further IRS guidance.