Washington Reports


IRS Issues Proposed Regulations on Relaxed Rules for 401(k) Hardship Distributions

Topics: 401(k), Qualified Plans

The 2018 Budget Act changes to the hardship distributions rules will make it easier for participants to take these distributions. The changes, as described in the Proposed Regulations, include (1) expanding the contributions and earnings that are eligible to be received in a hardship distribution (including post-1988 earnings on 401(k) deferrals), (2) expanding the permitted…

“Top Hat” Plans — What are They and How Do You Know If You Have One

Topics: ERISA, NQDC

Nonqualified deferred compensation plans (NQDC), such as 401(k) restoration plans, other elective deferral plans, and supplemental retirement plans (SERPs), must limit their eligibility to a “top hat” group to avoid significant problems under ERISA and the Internal Revenue Code (IRC). ERISA defines this group as a “select group of management or highly compensated employees.” Department…

Protecting Your Charitable Deduction – The IRS Issues Final Guidance.

Topics: Charitable giving, Estate planning, Trusts

To support and encourage charitable giving, the Internal Revenue Code (“Code”) provides an income tax deduction for contributions to qualified charities. After the Tax Cuts and Jobs Act of 2017 (“Tax Act”), this is one of the only substantial deductions left to wealthier taxpayers. However, the substantiation rules for claiming this income tax deduction are…

IRS Issues New 162(m) Rules Related to Grandfathered Benefits under Deferred Compensation Plans.

Topics: 162(m), COLI/BOLI, Congress, NQDC, Tax reform

Changes to 162(m) made by the Tax Act expand the $1 million deduction limit for covered employees at public companies. NQDC amounts accrued as of November 2, 2017 can escape these expanded deduction limits if the NQDC amounts meet certain grandfather requirements to remain covered by the pre-Tax Act 162(m) rules (“old 162(m)”). The Notice…

Recent Trends in Litigation over Director Compensation Highlight Risks and Suggest Actions to Mitigate those Risks

Topics: COLI/BOLI, Congress, NQDC, Tax reform

Decisions about levels of director compensation often do not receive the protection of the business judgment rule because directors are usually interested in decisions about their own compensation levels. Under Delaware case law, however, stockholders face significant legal barriers in challenging these director compensation decisions if the stockholders previously approved the director compensation levels. These…

Warning Will Robinson: Tax Reimbursement Clauses May Cause Problems.

Topics: Grantor trusts

As creators (“grantors”) of irrevocable grantor trusts must pay the trusts’ annual income taxes without receiving any trust benefits, advisors typically suggest incorporating a tax reimbursement power that gives the trust flexibility to reimburse the grantor for the tax payment. Despite their prevalence, however, tax reimbursement powers must be crafted and used with care, not…

Outlook Not So Good:  Tax Court Speaks to Possible Estate Tax Treatment of Generational Split Dollar (GSD).

Topics: Estate planning, Irrevocable trusts, Split-dollar, Trusts

For the first time, two very recent Tax Court opinions (Est. of Cahill v. Commissioner and Est. of Morrissette v. Commissioner) have discussed the court’s view of the estate taxation of economic benefit GSDs. These arrangements generally involve a parent who enters into a private split-dollar agreement with a life insurance trust agreeing to pay…

New DOL Rules on Disability Claims May Impact Retirement and Deferred Compensation Plans.

Topics: DOL, Qualified Plans, Regulation

New DOL rules became effective on April 1, 2018 regarding claims procedures for disability benefits offered in employee benefit plans. The rules apply not only to long-term and short-term disability plans, but may also apply to 401(k) and other qualified retirement plans, as well as non-qualified deferred compensation plans and SERPs. The new rules provide…