Month: October 2003

Yesterday, I attended the Mid-Atlantic Pension Liaison Group meeting in Philadelphia. In attendance were IRS officials, Robert P. Bell, EP Determinations Manager, Gary Runge, Quality Assurance Staff Manager, and Cathy Jones, EP MA Area Manager, as well as a large group of employee benefits practitioners. Some key points of the meeting:

(1) The IRS EP Determinations Division has reorganized again, into 2 Area Managers and Group Managers which are now located in Cincinnati, Ohio, El Monte, California, Atlanta, Georgia, Baltimore, Maryland, Chicago, Illinois, and Brooklyn, New York.

(2) Since the GUST amendment process is winding down, the IRS focus is shifting to examinations (i.e. audits). According to Ms. Jones, examination focus will include 403(b)’s, 457 plans (specifically mentioned were plans of public schools, municipalities, and colleges), collectively bargained plans, multiple employer plans, 401(k)’s, and SARSEPs. They will work on making referrals to EBSA where appropriate, and will assign a group of examiners to focus on large cases (greater than 10,000 employees). Ms. Jones warned that there will be a “learning curve” for examiners in the field since many have previously been assigned to the determination letter process and have never had experience in the examination area.

(3) There is now a second draft of the determination letter white paper (you can access it here). Mr. Bell stated that the focus on the determination letter program now seems to be reduced to three options:

• Maintaining the status quo with certain changes
• Changing to a “staggered remedial amendment period” approach
• A combination of these two approaches, with continuing the present program for master/ prototype and volume submitter plans, but changing to the staggered approach for individually designed plans.

(Mr. Bell stated that the M & P folks like the status quo and the individually designed folks like the staggered approach.) Since Paul Schultz is apparently scheduled to leave the IRS in March, it is unknown whether or not the project will be finished before he leaves.

(4) Mr. Runge was kind enough to admit to the group that of all favorable determination letters issued, 24% of them will have “errors” of some kind. They are working on trying to iron out these problems. In the meantime, all practitioners (who are not doing this already) would be advised to: CAREFULLY READ ALL FAVORABLE DETERMINATION LETTERS ISSUED AND CONTACT THE AGENT IF THERE ARE ERRORS. (A determination letter with the wrong date in it could cause all sorts of thorny problems which I do not have the time to write about here.)

(5) George Brim surprised us all by revealing the following chart (which will soon be published in a Revenue Procedure) and which details what sanctions the IRS will impose if a plan sponsor makes a favorable determination letter application and, in the process, it is discovered that certain amendments are missing. These sanctions are separate and distinct from the compliance fees imposed under EPCRS (as prescribed by Revenue Procedure 2003-44) and are also limited to the determination letter application process. If the missing amendments are discovered in an audit, the IRS stated that the fees would likely be higher. Here is the fee schedule which was given to practitioners:

Please note: These figures were taken from a visual which was hard to read and from my notes which are also hard to read, so there may be some errors. Also, the IRS has not officially published these figures.

Additional note: You do not add together the fees if the plan has missed several amendments. For instance, in a plan with 20 employees or less which has never been amended for ERISA or any subsequent changes in the law, the maximum fee would be $5,000.

“EGTRRA” = the Economic Growth and Tax Relief Reconciliation Act of 2001.
“GUST” = the Uruguay Round Agreements Act (GATT), the Uniformed Services Employment and Reemployment Rights Act (USERRA), the Small Business Job Protection Act (SBJPA), the Taxpayer Relief Act of 1997 (TRA ’97), the IRS Restructuring and Reform Act of 1998 (IRRA ’98) and the Community Renewal Tax Relief Act of 2000 (CRA).
“UCA/OBRA” = the Unemployment Compensation Act of 1992 (UCA) and the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93).
“TRA ’86” = the Tax Reform Act of 1986.
“T/D/R” = the Tax Equity and Fiscal Responsibility Act of 1982, the Deficit Reduction Act of 1983, and the Retirement Equity Act of 1984.
“ERISA” = the Employee Retirement Income Security Act of 1974.

I attended the Mid-Atlantic Pension Liaison Group meeting yesterday. In attendance were IRS officials, Robert P. Bell, EP Determinations Manager, Gary Runge, Quality Assurance Staff Manager, and Cathy Jones, EP MA Area Manager, as well as a great group of employee benefits practitioners. Some key points of the meeting:

(1) The IRS EP Determinations Division has reorganized again, into 2 Area Mangers and Group Managers which are now located in Cincinnati, Ohio, El Monte, California, Atlanta, Georgia, Baltimore, Maryland, Chicago, Illinois, and Brooklyn, New York.

(2) Since the GUST amendment process is winding down, the IRS focus is shifting to examinations (i.e. audits). According to Ms. Jones, examination focus will include 403(b)’s, 457 plans (specifically mentioned were plans of public schools, municipalities, and colleges), collectively bargained plans, multiple employer plans, 401(k)’s, and SARSEPs. They will work on making referrals to EBSA where appropriate, and will assign a group of examiners to focus on large cases (greater than 10,000 employees). Ms. Jones warned that there will be a “learning curve” for examiners in the field since many have previously been assigned to the determination letter process and have never had experience in the examination area.

(3) There is now a second draft of the determination letter white paper (you can access it here). Mr. Bell stated that the focus on the determination letter program now seems to be reduced to three options:

• Maintaining the status quo with certain changes
• Changing to a “staggered remedial amendment period” approach
• A combination of these two approaches, with continuing the present program for master/ prototype and volume submitter plans, but changing to the staggered approach for individually designed plans.

(Mr. Bell stated that the M & P folks like the status quo and the individually designed folks like the staggered approach). Since Paul Schultz is apparently scheduled to leave the IRS in March, it is unknown whether or not the project will be finished before he leaves.

(4) Mr. Runge was kind enough to admit to the group that of all favorable determination letters issued, 24% of them will have “errors” of some kind. They are working on trying to iron out these problems. In the meantime, all practitioners (who are not doing this already) would be advised to: CAREFULLY READ ALL FAVORABLE DETERMINATION LETTERS ISSUED AND CONTACT THE AGENT IF THERE ARE ERRORS. (A determination letter with the wrong date in it could cause all sorts of thorny problems which I do not have the time to write about here.)

(5) George Brim surprised us all by revealing the following chart (which will soon be published in a Revenue Procedure) and which details what sanctions the IRS will impose if a plan sponsor makes a favorable determination letter application and, in the process, it is discovered that the following amendments are missing. These sanctions are separate and distinct from the penalties imposed under EPCRS and are also limited to the determination letter application process. If the missing amendments are discovered in an audit, the IRS stated that the fees would likely be higher. Here is the fee schedule which was given to practitioners:

Please note: these figures were taken from a visual which was hard to read and from my notes which are also hard to read, so there may be some errors. Also, the IRS has not officially published these figures.

“EGTRRA” = the Economic Growth and Tax Relief Reconciliation Act of 2001.
“GUST” = the Uruguay Round Agreements Act (GATT), the Uniformed Services Employment and Reemployment Rights Act (USERRA), the Small Business Job Protection Act (SBJPA), the Taxpayer Relief Act of 1997 (TRA ’97), the IRS Restructuring and Reform Act of 1998 (IRRA ’98) and the Community Renewal Tax Relief Act of 2000 (CRA).
“UCA/OBRA” = the Unemployment Compensation Act of 1992 (UCA) and the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93).
“TRA ’86” = the Tax Reform Act of 1986.
“T/D/R” = the Tax Equity and Fiscal Responsibility Act of 1982, the Deficit Reduction Act of 1983, and the Retirement Equity Act of 1984.
“ERISA” = the Employee Retirement Income Security Act of 1974.

I attended the Mid-Atlantic Pension Liaison Group meeting yesterday. In attendance were IRS officials, Robert P. Bell, EP Determinations Manager, Gary Runge, Quality Assurance Staff Manager, and Cathy Jones, EP MA Area Manager, as well as a great group of employee benefits practitioners. Some key points of the meeting:

(1) The IRS EP Determinations Division has reorganized again, into 2 Area Managers and Group Managers which are now located in Cincinnati, Ohio, El Monte, California, Atlanta, Georgia, Baltimore, Maryland, Chicago, Illinois, and Brooklyn, New York.

(2) Since the GUST amendment process is winding down, the IRS focus is shifting to examinations (i.e. audits). According to Ms. Jones, examination focus will include 403(b)’s, 457 plans (specifically mentioned were plans of public schools, municipalities, and colleges), collectively bargained plans, multiple employer plans, 401(k)’s, and SARSEPs. They will work on making referrals to EBSA where appropriate, and will assign a group of examiners to focus on large cases (greater than 10,000 employees). Ms. Jones warned that there will be a “learning curve” for examiners in the field since many have previously been assigned to the determination letter process and have never had experience in the examination area.

(3) There is now a second draft of the determination letter white paper (you can access it here). Mr. Bell stated that the focus on the determination letter program now seems to be reduced to three options:

• Maintaining the status quo with certain changes
• Changing to a “staggered remedial amendment period” approach
• A combination of these two approaches, with continuing the present program for master/ prototype and volume submitter plans, but changing to the staggered approach for individually designed plans.

(Mr. Bell stated that the M & P folks like the status quo and the individually designed folks like the staggered approach). Since Paul Schultz is apparently scheduled to leave the IRS in March, it is unknown whether or not the project will be finished before he leaves.

(4) Mr. Runge was kind enough to admit to the group that of all favorable determination letters issued, 24% of them will have “errors” of some kind. They are working on trying to iron out these problems. In the meantime, all practitioners (who are not doing this already) would be advised to: CAREFULLY READ ALL FAVORABLE DETERMINATION LETTERS ISSUED AND CONTACT THE AGENT IF THERE ARE ERRORS. (A determination letter with the wrong date in it could cause all sorts of thorny problems which I do not have the time to write about here.)

(5) George Brim suprised us all by revealing the following chart (which will soon be published in a Revenue Procedure) and which details what sanctions the IRS will impose if a plan sponsor makes a favorable determination letter application and, in the process, it is discovered that the following amendments are missing. These sanctions are separate and distinct from the penalties imposed under EPCRS and are also limited to the determination letter application process. If the missing amendments are discovered in an audit, the IRS stated that the fees would likely be higher. Here is the fee schedule which was given to practitioners:

Please note: these figures were taken from a visual which was hard to read and from my notes which are also hard to read, so there may be some errors. Also, the IRS has not officially published these figures.

“EGTRRA” = the Economic Growth and Tax Relief Reconciliation Act of 2001.
“GUST” = the Uruguay Round Agreements Act (GATT), the Uniformed Services Employment and Reemployment Rights Act (USERRA), the Small Business Job Protection Act (SBJPA), the Taxpayer Relief Act of 1997 (TRA ’97), the IRS Restructuring and Reform Act of 1998 (IRRA ’98) and the Community Renewal Tax Relief Act of 2000 (CRA).
“UCA/OBRA” = the Unemployment Compensation Act of 1992 (UCA) and the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93).
“TRA ’86” = the Tax Reform Act of 1986.
“T/D/R” = the Tax Equityand Fiscal Responsibility Act of 1982, the Deficit Reduction Act of 1983, and the Retirement Equity Act of 1984.
“ERISA” = the Employee Retirement Income Security Act of 1974.

“Hiring a Pro to Pick Your Funds: Professional Management Is Latest Option In Some 401(k) Plans, but Fees Can Be Steep“: the Wall Street Journal reports. The article notes how a “growing number of employers are giving workers the option of having a professional mutual-fund picker manage their retirement accounts.” The services offer to tailor a plan for each employee, monitor it and make changes based on market conditions, an employee’s age, risk tolerance and financial goals. The article provides a table comparing the fee structures of the following companies who offer a 401(k) managed account option: Fidelity, Ibbotson, Morningstar, Financial Engines, and ProManage.

Quote of Note: “Federal regulators have also helped clear the way for companies to pick investments for employees. Regulators had long worried about potential conflicts-of-interest. Why wouldn’t Fidelity, say, favor its own offerings? But in a 2001 U.S. Labor Department ruling, the government cleared the way for an investment firm to give individual advice through an independent, third-party expert.” You can access the DOL Advisory Opinion referred to here.

The Mercury News also reports on the subject: “Firms offer 401(k) hand-holding: Reluctant Investors Get Advice.” The article quotes David Wray, president of the Profit Sharing/401(k) Council of America, as indicating “that 50 percent to 70 percent of newly hired employees are signing up for managed accounts where it’s offered.” Mr. Wray notes that the numbers are “huge” and “very significant.”

Today’s Wall Street Journal reports: “IBM Workers Seek Payments In Cash-Balance Pension Suit.” According to the article, the employees are asking that the company recalculate participants’ benefits and make additional payments for accrued benefit increases going back to 1995. Back in July, Judge Murphy ruled in favor of employees in Cooper et al. v. IBM et al., holding that the IBM cash balance plan violated ERISA, but “left unresolved the question of what the workers should receive in damages, and directed parties in the case to propose what relief the court should order to address the violations.” The article notes that if “the court approves the payment request, retired workers would get remedial payments if earlier benefits amounted to less than they would have been under the new formula, and some current employees would see benefits bumped up, according to Doug Sprong, a benefits lawyer at Korein Tillery in Belleville, Ill., who represented the plaintiffs.” IBM has yet to file its response to the proposed damages.

“Solving The Health Care Insurance Mess“: Forbes.com reports. The article notes that Towers Perrin’s 2004 Health Care Survey indicates that employers will face a 14% increase in health care costs in 2004, which amounts to a $742 increase per employee from 2003. Quote of Note: “In the face of such dire predictions, companies are bracing themselves. So far, most have stuck with traditional strategies: 57% of the 402 fastest-growing companies of the past five years have raised deductibles since 2000, while 54% have changed carriers and 19% have reduced or eliminated coverage, according to a PricewaterhouseCooper study. But with the cost increases showing no sign of letting up, they are now investigating new approaches like prevention and employee education as additional ways to stem health care expenses.”

The Wizard of Id‘s solution to the health care mess at the Tax Guru-Ker$tetter Letter.

USA Today reports: “Medical-privacy law creates wide confusion.” The article points out the life-threatening chaos going on in the medical field over HIPAA privacy and quotes Richard Campanelli of the U.S. Department of Health and Human Services as making the following points about HIPAA misconceptions:

• HIPAA does not prevent doctors or hospitals from sharing information with other doctors or hospitals in order to treat their patients;
• HIPAA allows hospitals or doctors to share information with the patient’s spouse, family members, friends or anyone the patient identifies is involved in their care;
• HIPAA does not prevent hospitals from disclosing names to clergy or from keeping patient directories. It does not require patients to sign up to be included in the directory, but it does allow patients to “opt out” and not be listed; and
• HIPAA does not apply to most police or fire departments; they may release names and information about accident victims, homicides and other incidents. HIPAA does limit the information that emergency medics may disclose.

For those who do not know, the U.S. Department of Health and Human Services provides a great deal of helpful information at this site and answers to frequently asked questions here. You can access Mr. Campanelli’s chat on “Medical Privacy” at USAToday.com here.

“Health care rules change will be cost“: MSNBC reports. The article reports that “[d]espite the 12-month delay implementing the standard transaction rules, only an estimated 50 percent of health care carriers and providers were fully prepared to handle the new transactions mandated” according to Lee Barrett, director of client services for PricewaterhouseCoopers of Hartford, Conn., and an adviser to the U.S. Department of Heath and Human Services for HIPAA policy. Other estimates showed only 20 to 25 percent of small to mid-sized health care providers were ready to submit HIPAA-compliant claims to insurance companies by Oct. 16.

For more information on HIPAA: HIPAA Advisory News and HIPAA Blog.