Prior to the effective date of the tax bill recently signed by the President, Section 164 of the Internal Revenue Code permitted individuals who itemized deductions to deduct state and local income and other designated taxes (SALT) in calculating their Federal taxable income. Congress amended Section 164 for years beginning after 2017 and prior to 2026 to limit SALT deductions to $10,000 per year and, as a practical matter, to sharply reduce the number of taxpayers who will be itemizing deductions and thus able to take advantage of even this limited deduction. By contrast, the new tax legislation does not restrict the ability of employers to deduct payroll taxes to which they are subject.
In April of this year, the Department of Labor issued a suite of rules (i) expanding the class of persons and entities who are fiduciaries for purposes of ERISA and the Internal Revenue Code; (ii) providing two new prohibited transaction exemptions (or PTEs); and (iii) amending a handful of existing PTEs to conform to the new regulatory regime. (For a list of, and links to, the suite of final rules, please see our post of April 11, 2016.) The fiduciary definition, exemptions and amendments, and their respective preambles, occupy in total almost 1,000 pages of the Federal Register. Collectively, these items enact a sea-change in the regulation of investment advice provided to ERISA-covered retirement plans and Individual Retirement Accounts (IRAs). When the Department promulgated these rules, it promised to provide subsequent guidance—including Frequently Asked Questions (FAQs)—in response to questions that would inevitably arise.
Speaking at a trade association meeting in Boston at the end of October, a senior Department of Labor official reported that the Department was hard at work on its first set of FAQs. He said that the FAQs would reinforce some of the rule’s basic concepts that questioners seemed to struggle with and add some gloss to particular aspects of the rule that the Department felt needed additional attention. His predictions proved accurate. In this post we provide a sampling of some of the highlights of the recently issued FAQs. We have chosen three topics that fall under the heading of “basic concepts,” and three topics that elucidate particular aspects of these rules. There is, of course, a measure of editorial discretion at work in our selection to topics. Other practitioners might choose differently based on their particular needs and interests. For anyone who works with or needs to comply with these rules, we recommend reading the FAQs in their entirety.
This post highlights the significant impact the proposed regulations may have on advisers to mid-sized and small 401(k) retirement plans if adopted. Previously, Part 1, Part 2 and Part 3 of this series described the Department of Labor’s recently proposed regulations governing fiduciary status under ERISA, an important accompanying exemption, and the rule’s impact on large retirement plans (i.e., plans with more than 100 participants or more than $100 million in assets).
In Part 1 of this series, we reported on recently proposed regulations issued by the U.S. Department of Labor amending the definition of the term “fiduciary” under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (the “Code”). Part 2 of the series covered a key feature of the Department’s proposed regulatory scheme—the “Best Interest Contract” Exemption—that allows advisers to small retirement plans and IRA investors to receive commission-based compensation without triggering a fiduciary breach or incurring excise tax exposure under rules governing prohibited transactions. This post focuses on the proposal’s impact on large plans, i.e., plans with more than 100 participants or more than $100 million in assets.
In Part 1 of this series, we reported on recently proposed regulations issued by the U.S. Department of Labor amending the definition of the term “fiduciary” under the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “Code”). This post will examine a key feature of the Department’s proposed regulatory scheme—the “Best Interest Contract” exemption—that allows advisers to small retirement plans and IRA investors to receive commission-based compensation without triggering a fiduciary breach or incurring excise tax exposure under rules governing prohibited transactions.
The U.S. Department of Labor recently issued proposed regulations that make sweeping changes to the definition of the term “fiduciary” under the Employee Retirement Income Security Act (ERISA). To call this proposal controversial is an understatement. The proposed regulations pit the Department of Labor’s mission to protect retirement income again long-standing and entrenched compensation practices of the behemoth U.S. financial services industry, practices that will be largely uprooted with respect to retirement plans and IRAs if the proposed regulations becomes law. Caught in the middle are retirement plan participants and Individual Retirement Account (IRA) investors who seek nothing more than reliable advice in an effort to save for a secure retirement.
Section 162(m) of the Internal Revenue Code precludes the deduction by public companies for compensation paid to certain covered employees in excess of $1,000,000 in any taxable year. This limitation on deduction does not apply to performance-based compensation. Such performance-based compensation is deductible so long as the following requirements are met:
Written by Alden J. Bianchi
As applicable large employers grapple with the Affordable Care Act’s (ACA) employer shared responsibility (pay-or-play) rules, two questions arise with notable frequency:
- Do I have to offer the same group health insurance coverage on the same terms to all my full-time employees?
- Do I have to offer pre-tax treatment of premiums to all my employees?
These questions—which arise under Internal Revenue Code §§ 105(h) and 125, and Public Health Service Act § 2716—are important as employers endeavor to navigate the penalty provisions of Code § 4980H. They are particularly relevant in the case of employers that previously did not offer coverage to a large group of employees (e.g., in industries such as staffing, restaurants, retail, hospitality and franchising, among others). As we explain below, what makes these questions challenging is that theory varies widely from practice for various reasons. The present issues are ripe for regulatory attention, and it is entirely likely that today’s answers will not be tomorrow’s answers.
Written by Alden J. Bianchi
While my entries have focused principally on the employer shared responsibility rules of the Affordable Care Act (ACA), every once in a while an item comes along that nevertheless grabs my attention. The treatment of wellness plans at the hands of the Equal Employment Opportunity Commission (EEOC) is such an item.