the jennings report February 2015 Issue A publication of Jennings Law Firm, Ltd.

Transcription

1 Page 1 of 5 the jennings report February 2015 Issue A publication of Jennings Law Firm, Ltd. In This Issue GENDER-SPECIFIC EDUCATION ONE-IRA-ROLLOVER-PER- YEAR: AN UPDATE FAILURE TO TIMELY GIVE THE ANNUAL SAFE HARBOR NOTICE TARGET DATE FUNDS - ARE THEY A GOOD PLAN INVESTMENT? 2015 RETIREMENT PLAN LIMITS & UPDATED 401(K) CONTRIBUTION FORMS SOME INDUSTRY TRENDS ABOUT THE FIRMS Jennings Law Firm, Ltd. and Retirement, LLC were established to provide employers with a single source of comprehensive legal and consulting services relating to retirement plan and employee benefit matters. GENDER-SPECIFIC EDUCATION We reported in an earlier edition of our newsletter that women are taking a greater role in household finances. A study conducted by Ameriprise Financial called "Women and Financial Power" shows that more than 40% of surveyed women are making financial decisions alone and more than 42% characterized themselves as the "primary financial decision maker" in their households. What this should suggest to those who advise retirement plan participants is the need for more gender-specific financial education. According to Employee Benefit News, companies sponsoring retirement plans have a critical role to play in helping women save for retirement, and research suggests women are open to receiving this kind of information from their employers and more likely to take advantage of investment tools, programs and education when it is offered. Ms. Liz Davidson, founder of Financial Finesse, a workplace financial education program provider, states that just 9% of women under age 45 making less than $50,000 annually are on track to have sufficient retirement savings. Charles Schwab indicates female-specific financial planning and investing workshops have filled a need for their own employees. Ms. Cathy Campbell, managing director of diversity and inclusion at Chas Schwab, indicates their research confirms other surveys (see AmeriPrise study above) that more and more "women run their household finances..." She also confirms that women are more comfortable learning about investing with other women. We have posted an article on our website under the Advisor Tab called Gender-Specific Retirement Education by the Employee Benefits News. If you know someone who would like to receive the jennings report, click the link below. ONE-IRA-ROLLOVER-PER-YEAR: AN UPDATE We reported in an earlier issue that the IRS changed its position during 2014 on the rule that limits an individual to one IRA-to-IRA rollover in any 12-month period. The IRS's position (as set out in their Treasury regulations and Publication 590) used to be that the one rollover per year rule applied on a separate IRA-by-IRA basis. So if an individual had

2 Page 2 of 5 separate IRAs at three different financial institutions, he/she could do a separate rollover from each IRA in any 12-month period without running afoul of the rule. However the Tax Court reversed that rule in Bobrow v CIR, TC Memo , in 2014 and held that the one rollover per year applies on an aggregate basis. The IRS announced last year that it would adopt the Bobrow rule but not until See Announcement Just recently the IRS issued additional guidance to supplement the earlier Announcement. Under the new rule an individual receiving a distribution from an IRA cannot roll over any portion of the distribution if during the preceding 12-month period the individual received a distribution that was rolled over. The IRS granted a transition rule that any distribution occurring in 2014 will be ignored for purposes of any 2015 distribution from the same IRA. For example, a distribution received during 2014 can be rolled over during 2015 (within 60 days) without preventing a subsequent 2015 distribution from a different IRA from being rolled over. Important: The 12-month clock starts on the distribution from the IRA; NOT the date it is rolled over. So if an individual takes a distribution on January 1 and rolls it over on February 28 (within 60 days of January 1), the 12-month clock starts on January 1; not February 28. Some other points to keep in mind: 1. This new rule does not apply to direct transfers between IRAs. For example, if you direct Vanguard (where you have an IRA) to go and get money directly from your Fidelity IRA, that is not an IRA-to-IRA rollover. You can complete as many direct transfers between your IRAs as you like during any 12-month period. Comment: The latest IRS guidance (see Announcement ) makes clear that the IRS views a check issued by an IRA custodian, made payable to a receiving IRA, and delivered to the individual will be treated as a direct transfer between IRAs. So in the above example, if Fidelity mails you a check made payable to your Vanguard IRA and you deliver or mail the check to Vanguard, that is treated as a direct transfer. 2. A rollover from a traditional IRA to a Roth IRA (a "conversion") is not subject to the rule and such a rollover is disregarded in applying the one-rollover-peryear rule to other rollovers. However, a rollover between Roth IRAs is subject to the rule and therefore precludes any other rollover (including between traditional IRAs) for 12 months. 3. For purposes of the new rules, a SEP-IRA and a SIMPLE IRA count are traditional IRAs. Thus, rollovers between these IRAs count, as well any rollover between a SEP or SIMPLE and a traditional IRA.

3 Page 3 of 5 4. These new rules do not apply to any rollovers between IRAs and qualified retirement plans (or between qualified retirement plans). Comment: It is imperative that IRA owners keep detailed records of their rollovers, if for no other reason so they do not forget when their last distribution occurred. FAILURE TO TIMELY GIVE THE ANNUAL SAFE HARBOR NOTICE Many 401(k) plans include safe harbor contribution features to enable the plan to automatically pass the applicable discrimination tests on 401(k) and matching contributions. One of the requirements to obtain safe harbor treatment, however, is that an annual notice must be furnished to participants before the beginning of the plan year. Failure to give the notice can obviate safe harbor treatment, even though the contribution would still have to be made. The IRS website contains an article called "Fixing Common Plan Mistakes - Failure to Provide a Safe Harbor 401(k) Plan Notice. " In the article, the IRS states that where an employer fails to timely give the notice, the appropriate correction "depends on the impact on individual participants." The IRS gives several examples and describes what corrective action would be required. One of the examples provides that if employees were otherwise fully informed of the plan's features and the method for making deferrals, the failure to give the safe harbor notice may be treated as an administrative error that would be corrected by revising the procedures to ensure that future notices were timely given. Comment: This sounds like a "Get Out Of Jail Free" card that employers should keep in mind. Where an employer does fail to timely give a notice, the employer should document its procedures for giving the notice and what changes would be appropriate to prevent future failures. Based on the IRS's article, on audit this should provide a basis to prevent the agent from disallowing safe harbor protection for the plan year. We would also recommend that the employer actually give the notice - even if late - as part of its correction. PARTIAL TERMINATIONS Under the rules governing qualified retirement plans, all participants who are affected by a partial termination become fully vested. In a lawsuit spanning two decades, the Court of Appeals for the Seventh Circuit reaffirmed its commitment to the 20% presumption it established more than ten years ago. This presumption says eliminations of 20% or

4 Page 4 of 5 more of the plan's participants are presumed to be partial terminations, with a conclusive presumption for reductions of more than 40%. Eliminations of less than 20% are presumed not to be partial terminations, with a conclusive presumption of less than 10%. The court's decision is Matz v. Household Int'l Tax Reduction Inv. Plan (2014 BL , 12/24/2014). The court also held that corporate actions that spanned more than one year could be aggregated for purposes of determining whether a partial termination occurred but only if those actions constituted a "single corporate event." Our Comment: As a matter of law, the court's decision is binding only in the Seventh Circuit, which covers Illinois, Wisconsin and Indiana (coincidentally where most of our clients reside). The IRS's bias is always to find a partial termination has occurred and, in the Seventh Circuit at least, the court's decision will add considerable more certainty to a plan administrator attempting to determine if a partial termination has occurred RETIREMENT PLAN LIMITS AND UPDATED 401(K) CONTRIBUTION FORMS Just a reminder to our readers that we have posted the 2015 COLI limits on our website ( under the Education Center tab and a downloadable 2015 Salary Reduction Contribution form under the Client Services tab. You can download the form you need (there is one with and without Roth features), enter your plan's name and save it on your own computer. You can then furnish it to your employees who wish to change their current contribution elections. If you have any problems downloading the form, please call Ms. Cathy Karsznia at (312) (K) HELP CENTER We devote this newsletter to issues relating to retirement plan matters we believe are of interest to our readers. We read a fair number of publications, as well as official government documents and publications, in our search for content. Unfortunately we cannot read everything and even if we did, there is insufficient room here to report on all of it. We often locate articles and other written pieces we like and post those on our website (with attribution, of course) for visitors to our website. We often, but not always, cite those articles and other pieces in this newsletter. For that reason, we recommend our readers periodically visit our website ( to look for content beyond just what is here in the newsletter. For our readers who cannot get enough good information from reading just our newsletter

5 Page 5 of 5 and visiting our website, we can also recommend a website called This is a great source of information about important retirement plan matters. Forward this This em ailw as sent to djennings@ retirem entllc.com by djennings@ retirem entllc.com Update Profile/Em ailaddress Rap id rem ovalw ith SafeUnsubscribe Privacy Policy. Jennings Law Firm, Ltd. & Retirem ent LLC 3400 D undee Road N orthbrook IL 60062