On January 18, 2017, the IRS issued proposed regulations allowing amounts held as forfeitures in a 401(k) plan to be used to fund qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs). This sounds really technical (and it is), but it’s also really helpful. Some plan sponsors of 401(k) plans use additional contributions QNECs and/or QMACs to satisfy nondiscrimination testing. Before these proposed rules, they could not use forfeitures to fund these contributions because the rules required that QNECs and QMACs be nonforfeitable when made (and also subject to the same distribution restrictions as 401(k) contributions). If you have money sitting in a forfeiture account, then by definition it was forfeitable when made, so that money couldn’t possibly have been used to fund a QNEC or QMAC.
The proposed regulations provide that amounts used to make these contributions must satisfy the vesting requirements and distribution requirements applicable to 401(k) contributions when they are allocated to participants’ accounts rather than when they are contributed to the plan. The regulations are only proposed, but the IRS has said taxpayers may rely on them. If the final regulations turn out to be more restrictive, then those restrictions will only apply after the regulations are finalized.
Going forward, plan sponsors wishing to apply amounts held in forfeiture accounts to fund QNECs and QMACs under the 401(k) plan should review their plan document provisions. The plan should at a minimum allow forfeitures to be used to make employer contributions and not prohibit their use to fund QNECs and QMACs. Plan sponsors may wish to amend the document to clarify that “employer contributions” will include allocations made as QNECs and QMACs.
It has been an eventful 10 days in the courts and in Congress for halting impending regulations and setting the stage to roll-back new rules implemented by the Obama Administration. Employers can expect a repeal of recently passed regulations is […]
If statistics are any guide, by now a significant number of you have already broken your New Year’s resolutions. However, there’s still plenty of time to make new ones that you can break, er, keep. If you sponsor or work […]
Rise of Minimum Wage as of January 1st 2017: As of January 1st 2017 the statutory Minimum Wage in Germany rises from € 8.50 to € 8.84 gross per hour. It is the first increase, since the Minimum Wage Act (Mindestlohngesetz – […]
In the latest round of FAQs on ACA implementation (now up to 35 if you’re keeping track), the DOL, HHS and Treasury Department addressed questions regarding HIPAA special enrollment rights, ACA coverage for preventive services, and HRA-like arrangements under the […]
It might be tempting to conclude that the recent Department of Labor regulations on disability claims procedures is limited to disability plans. However, as those familiar with the claims procedures know, it applies to all plans that provide benefits based […]
From time to time, we share items of interest from related areas. To that end, Illinois employers should be aware of four new leave laws that may require revisions to leave policies and procedures: Illinois Employee Sick Leave Act: Effective […]
Earlier this year, an employer was sued in a class action in Federal District Court for the Southern District of Florida for violating the notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) with respect to its […]
Last month, Institutional Shareholder Services (ISS) published updates to its proxy voting guidelines effective for meetings on or after February 1, 2017. Key compensation-related changes include the following: Non-Employee Director Compensation Programs In the case of management proposals seeking shareholder […]
On Friday, IRS and the Department of Treasury issued Notice 2016-70 granting an automatic 30-day extension for furnishing 2016 Forms 1095-B, Health Coverage, and 1095-C, Employer-Provided Health Insurance Offer and Coverage, to individuals for employers and other providers of minimum […]