Federal Legislative Update Indiana Benefits Conference Lindsay Knowles, Ice Miller LLP September 11, 2018

Tax Cuts and Jobs Act 2018 Loan Repayments Prior Law: When a participant terminates employment, outstanding loans generally must either be repaid to the plan or rolled over within 60 days to avoid immediate taxation. New Law: Upon severance from employment, a loan will not be taxed as a distribution if repaid or rolled over by the due date for filing tax returns for that year (with extensions). For additional details see our handout dedicated to this Code provision.

Tax Cuts and Jobs Act 2018 (cont’d) Disaster Relief Tax relief is available to some participants who lived in disaster areas in 2016 and took distributions from qualified retirement plans, 403(b) plans, governmental 457(b) plans, or IRAs. It applies to distributions between 1/1/16 and 12/31/17. (This is similar to the relief provided to victims of Hurricanes Harvey, Irma, and Maria in 2017.)

The Bipartisan Budget Act of 2018 (“The Budget Act") Similar to the tax relief provided for those who lived in hurricane-affected areas, tax relief is available to some participants who lived in certain areas affected by the California wildfires.

Tax and Pension Reform Issues raised during lead-up to passage of Tax and Job Act “Rothification” and “Normalization” Making all employee contributions after-tax Eliminating tax-deferral for public employee DB contributions (“Pick-ups”) Combining 457/403(b)/401(k) plans

Tax and Pension Reform (cont’d) Removing “special rules” for governmental plans: Additional catch-ups contributions for 457/403(b) plans Exemption from 10% early distribution penalty for 457 plans Exclusion from Unrelated Business Income Tax (UBIT) on public plan investments Lowering permissible in-service distributions from age 62 to 59½ for all plans

Unrelated Business Income Tax (UBIT) A proposed new tax of approximately 39% (trust fund rate) on certain public pension earnings; was contained in the House-passed tax bill but not in the Senate version. Would reverse a 1977 determination by the IRS that UBIT will not be applied to public pensions. Generally would apply to income derived from either (1) an “unrelated trade or business” carried on either directly by the organization or by any partnership in which it is a partner; or (2) “debt-financed” property owned by the organization or any partnership in which it is a partner. Could reappear as a way to pay for costs of other legislation

IRS Determination Letters Effective January 1, 2017, the staggered 5-year determination letter cycles for individually designed plans was eliminated. The scope of the determination letter program for individually designed plans is now limited to initial plan qualification and qualification upon plan termination. The vast majority of governmental plans now cannot secure IRS review of plan amendments. In April 2018, the IRS issued Notice 2018-24, concerning the potential expansion of the scope of the determination letter program for individually designed plans. Comments were due in June.

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