by Audra J. Ferguson-Allen, Robert L. Gauss, Lisa Erb Harrison, Tara Schulstad Sciscoe, Christopher S. Sears, Lindsay Knowles, and Amy Dygert
Ice Miller LLP is an IMA Member
On October 17, 2018, the Trump administration published its Unified Agenda of Regulatory and Deregulatory Actions, which details the actions and priorities of administrative agencies for the coming months in pursuit of the following overarching regulatory priorities:
- Advancing regulatory reform;
- Public notice of regulatory development;
- Transparency; and
- Consistent practice across federal government.
Typically published twice a year, the Unified Agenda of Regulatory and Deregulatory Actions includes two sections, the Regulatory Plan and the Unified Agenda. To see our review of the Spring 2018 Regulatory Plan and the Unified Agenda, click here.
Within the Department of the Treasury’s Statement of Regulatory Priorities (available here), the Internal Revenue Service (“IRS”) has identified four priorities:
- To provide guidance regarding the initial implementation of key provisions in the Tax Cuts and Jobs Act (Note: the proposed regulations providing this guidance that may be particularly important for governmental plans are described in the Unified Agenda section below);
- To continue deregulatory actions to eliminate or reduce the burdens imposed on taxpayers;
- To consider proposing or revising regulations or guidance to increase the usability of health reimbursement arrangements and implementing the President’s Executive Order on Promoting Health care Choice and Competition Across the United States; and
- To publish regulations necessary to implement the new centralized partnership audit regime enacted under § 1101 of the Bipartisan Budget Act of 2015.
The Unified Agenda provides information about regulations the government is considering or reviewing. The activities included in the Agenda are, in general, those that will have a regulatory action within the next 12 months. Each entry in the Agenda is associated with one of five rulemaking stages: (1) pre-rule stage; (2) proposed rule stage; (3) final rule stage; (4) long-term actions; and (5) completed actions. Proposed rules are those for which agencies plan to publish a Notice of Proposed Rulemaking as the next step in the rulemaking process or for which the closing date of the comment period is the next step. Final stage rules are those for which agencies plan to publish a final rule or take another final action as the next step.
Among the rules the IRS lists has planned for the next year, those particularly relevant for government plans include:
- Definition of “affiliated service group” (pre-rule stage) – The IRS anticipates providing regulations that further define an “affiliated service group” under Internal Revenue Code (“Code”) § 414(m). While the Advance Notice of Proposed Rulemaking has not yet been released, it is expected to describe the guidance being considered and to solicit public comment on: (1) rules for determining whether two or more separate service entities constitute an affiliated service group under Code § 414(m), and (2) whether two unrelated organizations are in a management-type affiliated service group under Code § 414(m)(5).
- Determination of Governmental Plan Status (proposed rule) – In November 2011, the IRS announced its intention to issue regulations defining the term “governmental plan” under Code § 414(d). As we noted in our spring 2018 agenda review, there has not been direct action following the end of the comment period in 2012. The 2011 Advance Notice of Proposed Rulemaking provides definitions for key terms found in Code § 414(d), including: (1) “established and maintained”; (2) “United States”; (3) “agency or instrumentality of the United States”; (4) “state”; (5) “political subdivision of a state”; and (6) “agency or instrumentality of a state or political subdivision of a state.” The rule also outlines a six-factor test to be used to determine whether a plan is a “governmental plan.” These factors include:
- Whether the organization is used for a governmental purpose and performs a governmental function;
- Whether performance of its function is on behalf of one or more states or political subdivisions;
- Whether there are any private interests involved, or whether the states or political subdivisions involved have the powers and interests of an owner;
- Whether control and supervision of the organization is vested in public authority or authorities;
- Whether express or implied statutory authority or other authority is necessary for the creation and/or use of such an instrumentality, and whether such authority exists; and
- The degree of the organization’s financial autonomy and the source of its operating expenses.
- Guidance on Code § 72(t) 10% additional tax on early distributions (proposed rule) – The Advance Notice of Proposed Rulemaking for these regulations is not yet available. The IRS anticipates the regulations will provide guidance to the public on the Code § 72(t) early distribution tax penalty (10%) on distributions from any qualified retirement plan (as defined in Code § 4974(c)) before reaching age 59½ (subject to certain exceptions). As such, the IRS expects the regulations will impact any individual who receives an early distribution from a qualified plan.
- Withholding on Certain Retirement Plan Distributions Under Code § 3405(a) and (b) (proposed rule) – Similarly included in the spring 2018 agenda, there are proposed regulations regarding withholding on certain retirement plan distributions. Although details of this proposal remain unclear, and there appear to have been no definite developments on these regulations since February, the proposed regulations may relate to distributions made to payees with an address outside the United States. When the IRS released the 2017-2018 priority guidance plan, it included certain projects that have been identified as “burden reducing” and that the IRS believe can be completed in the months remaining in the year. Included in that list is “[g]uidance under [Code §] 3405 regarding distributions made to payees, including military and diplomatic payees, with an address outside the United States.” There have not been updates on the regulations since they were identified on the 2017-2018 priority guidance plan.
- De Minimis Error Exception to Penalties for Failure to File Correct Information Returns or Furnish Correct Payee Statements (proposed rule) – Similarly included in the spring 2018 agenda, the proposed regulations contain safe harbor rules that treat as correct a payee statement or corresponding information return containing one or more de minimis errors relating to an incorrect dollar amount. They prescribe the time and manner in which a recipient of a payee statement may elect not to have the safe harbor rules apply. They also contain updated penalty amounts and updated references to information reporting obligations. The safe harbor was created by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and addressed by the IRS in IRS Notice 2017-9. The proposed regulations will replace the temporary regulations, which were put in place to address the PATH Act when it was passed in 2015. There have not yet been updates on the regulations during 2018.
- Definition of a Church Plan (proposed rule) – These proposed regulations would update existing final regulations on the definition of a church plan under Code § 414(e). The Advanced Notice of Proposed Rulemaking for these regulations is not yet available.
- MEPs and the Unified Plan Rule (proposed rule) – Proposed regulations on multiple employer plans (“MEP”) aim to ease the risk for employers participating in a defined contribution MEP by providing relief to the MEP in the event one of the employers fails to meet IRC qualification requirements. MEPs are established under IRC 413(c) and have been the subject of proposed legislation as well as regulation. In September, House Bill H.R. 6757, the Family Savings Act of 2018, included a section that similarly protects MEPs in the event of a participating employer’s plan failure. This bill was passed by the House of Representatives on September 27, 2018, but has not yet been considered by the Senate.
- Deferred Compensation Plans of State and Local Governments and Tax-Exempt Entities (final rule) – Similarly included in the spring 2018 agenda, the proposed regulations would provide guidance relating to the definitions of a “bona fide severance pay plan” under Code § 457(e)(11) and “substantial risk of forfeiture” under Code § 457(f)(1)(B). The IRS anticipates the regulations will affect plan sponsors, administrators, participants, and beneficiaries of nonqualified deferred compensation plans of state and local governments and tax-exempt entities. This is the final phase of the developments on normal retirement age, though there have been no substantive updates on the regulations during 2018.
- Application of Normal Retirement Age Regulations Governmental Plans (final rule) – Similarly included in the spring agenda, these regulations would apply the normal retirement age regulations to governmental plans. This is the final phase of the developments on normal retirement age. There have not yet been updates on the regulations during 2018.
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