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Under Revenue Procedure 2019-20, sponsors of individually designed statutory hybrid plans, including cash balance plans, have a short window of opportunity to file determination letter applications with the IRS by August 31, 2020.  In addition, sponsors of merged plans have an ongoing opportunity to file determination letter applications within certain periods of time after the corporate transaction and plan merger. Plan sponsors should strongly consider taking advantage of these opportunities, since other opportunities for filing determination letter applications are limited.  This post discusses key highlights of the expansion of the determination letter application program under this Revenue Procedure.

Continue Reading Don’t Miss Your Window: Upcoming Deadlines for Determination Letter Applications

On September 3, 2019, the IRS issued Revenue Ruling 2019-19, which discusses participants’ and beneficiaries’ inclusion of income and qualified retirement plans’ withholding and reporting obligations for uncashed distribution checks.  Although the Revenue Ruling describes only a qualified retirement plan under Code section 401(a), the same reasoning would most likely also apply to a Code section 403(b) plan.  Under the facts of this Revenue Ruling, a qualified retirement plan must make a distribution of $900 to a participant in 2019.  The participant receives the check from the plan but chooses not to cash it in 2019.  The IRS ruled that the participant’s failure to cash the check did not relieve her of the obligation to include the amount of the distribution in her gross income in 2019.  Similarly, the employer, as plan administrator, was obligated to withhold tax on the distribution that was required to be withheld under Code section 3405.  Finally, the employer was required to report the distribution amount on Form 1099‑R, and the participant’s failure to cash the distribution check did not affect this obligation.

These rulings are unsurprising based on existing law, particularly the doctrine of constructive receipt that is codified at Code section 451.  The IRS already ruled on a similar factual situation in Revenue Ruling 68-126, for example.  In that Revenue Ruling, a taxpayer could have received a retirement benefit check in one taxable year by appearing in person and claiming it but instead waited for the check to arrive in the mail in the following taxable year.  The IRS held that “the income is constructively received in the year preceding the year of actual receipt,” and that the retiree therefore had to include the amount of the check in income in the earlier year.  A rule that a participant could choose to delay inclusion in income of a distribution until a later year by simply failing to cash a distribution check in the year the plan issued it would also undermine the requirements to take required minimum distributions under Code section 401(a)(9).


Continue Reading IRS Issues Ruling on Uncashed Distribution Checks from Qualified Plans

The most recent decision in the ongoing Sun Capital saga provides no relief from pension withdrawal liability for private equity funds.  The federal district court for the District of Massachusetts recently reaffirmed its 2016 ruling that two private equity funds were responsible for the unfunded pension liabilities of a bankrupt portfolio company.  Consequently, private equity funds should continue to carefully evaluate investments in companies with pension liabilities.

Continue Reading Court Reaffirms that Private Investment Funds Are Responsible for Portfolio Company’s Pension Liability