Tax Relief Extension Includes Provisions on Multiemployer Pension Plans, Transportation Benefits and PEOs | Practical Law

Tax Relief Extension Includes Provisions on Multiemployer Pension Plans, Transportation Benefits and PEOs | Practical Law

The Tax Increase Prevention Act of 2014 (TIPA) extends for one year funding relief for multiemployer pension plans and tax benefits for employer-provided transportation benefits that expired in 2014. Among other benefits-related provisions, TIPA clarifies that health plans can provide for "qualified reservist distributions" under the Heroes Earnings Assistance and Relief Tax Act of 2008. TIPA also establishes employment tax rules for professional employer organizations (PEOs), as well as rules for becoming a certified PEO and provisions that must be included in a PEO services agreement.

Tax Relief Extension Includes Provisions on Multiemployer Pension Plans, Transportation Benefits and PEOs

by Practical Law Employee Benefits & Executive Compensation and Practical Law Labor & Employment
Published on 22 Dec 2014 • USA (National/Federal)
The Tax Increase Prevention Act of 2014 (TIPA) extends for one year funding relief for multiemployer pension plans and tax benefits for employer-provided transportation benefits that expired in 2014. Among other benefits-related provisions, TIPA clarifies that health plans can provide for "qualified reservist distributions" under the Heroes Earnings Assistance and Relief Tax Act of 2008. TIPA also establishes employment tax rules for professional employer organizations (PEOs), as well as rules for becoming a certified PEO and provisions that must be included in a PEO services agreement.
On December 19, 2014, President Obama signed into law the Tax Increase Prevention Act of 2014 (TIPA), which:
  • Extends through 2015 several funding provisions applying to multiemployer pension plans, including:
    • the automatic extension of amortization periods;
    • the shortfall funding method; and
    • the funding rules for plans in endangered status or critical status.
  • Extends through 2014 the maximum monthly exclusion amount for certain transportation-related fringe benefits.
  • Amends the key employee concentration test for cafeteria plans.
  • Establishes employment tax rules for professional employer organizations (PEOs).

Extensions Relating to Multiemployer Pension Plan Funding

TIPA extends through December 31, 2015 several IRC and ERISA provisions applying to multiemployer pension plan funding, including:
  • An extension of the automatic extension of amortization periods under Section 431(d)(1)(A) of the Internal Revenue Code (IRC) and ERISA Section 304(d)(1)(C). This will extend through 2015 the ability of multiemployer pension plans to take an additional five years to amortize funding shortfalls. The five-year amortization extension option was included in the Pension Protection Act of 2006 (PPA) but was scheduled to expire at the end of 2014.
  • An extension of the shortfall funding method, which is included in the PPA. The shortfall funding method allows plans facing financial difficulty to amortize shortfalls on a different basis than a number of years, such as units of production, which could result in a longer amortization period. Before the PPA, plans were generally required to obtain Treasury Department approval to start or stop using the shortfall funding method. The PPA allowed multiemployer plans to generally start or stop using the shortfall funding method without obtaining approval from the Treasury, and TIPA extends this permission through 2015.
  • An extension of the funding rules for multiemployer pension plans in endangered status or critical status, which are also included in the PPA. Multiemployer pension plans in "endangered" or "critical" status have additional funding rules that require improvement of the plan's funded status over a 10 to 15 year period (for more information on these rules, see Practice Note, Multiemployer Pension Plans: Additional Funding Rules for Multiemployer Pension Plans in Endangered Status or Critical Status). The endangered and critical rules were scheduled to sunset at the end of 2014.

Extension of Parity for Employer-provided Mass Transit and Parking Benefits

TIPA retroactively extends the maximum monthly exclusion amount for transit passes and van pool benefits from $130 to $250 through 2014 so that the limit matches the limit for qualified parking benefits under IRC Section 132(f) (see Practice Note, Fringe Benefits under IRC Section 132: Limits for Transit Pass/Commuter Highway Vehicles and Qualified Parking Benefits). TIPA does not affect the 2015 transit benefit limit ($130).

Cafeteria Plans

Definition of Key Employee

TIPA amends the definition of key employee in IRC Section 125(b)(2) by replacing the term "statutory nontaxable benefits" (each place it appears) with the term "qualified benefits" (see Practice Note, Cafeteria Plans: Key Employee Nondiscrimination Test).

Provisions Affecting PEOs

Section 206 of TIPA amends the Internal Revenue Code to give the IRS the authority to recognize "certified professional employer organizations" (certified PEOs or CPEOs). A PEO may voluntarily apply to become a certified PEO by:
  • Meeting tax status, background and audit requirements established by the Secretary of the Treasury.
  • Agreeing to:
    • satisfy bonding and independent financial review requirements;
    • satisfy reporting obligations imposed by the Secretary;
    • use an accrual method of accounting to compute taxable income (absent another method approved by the Secretary);
    • verify ongoing compliance with the requirements; and
    • notify the Secretary of any changes that affect the accuracy of previous agreements or information provided.
TIPA provides that certified PEOs will be treated as the employer of "work site employees" for federal employment tax purposes. Certified PEOs will be solely responsible for paying work site employees and collecting and remitting federal employment taxes. Certified PEO customers will be allowed to claim tax credits for the work site employees if certain conditions are met.
Certified PEOs will be required to use written service contracts with employers that give the PEO responsibility for wage payments, taxes and employee benefits for work site employees. The service contracts also require that the certified PEO:
  • Assumes responsibility for:
    • wage payment to the worker, regardless of the customer’s payment for the services;
    • reporting, withholding and paying the taxes concerning the worker, regardless of the customer’s payment for the services;
    • employee benefits which the service contract requires the certified PEO to provide, regardless of the customer’s payment for the benefits; and
    • recruiting, hiring and firing workers in addition to the customer’s responsibility for the same.
  • Maintain employee records regarding workers.
  • Agree to be treated as a certified PEO for purposes of this section, concerning the worker.
The PEO provisions will take effect on January 1, 2016. The IRS must issue regulations regarding the PEO certification program by July 1, 2015.

Practical Impact

From an employee benefits perspective, employers should be mindful of how TIPA could affect them:
  • Sponsors of multiemployer pension plans that are facing funding difficulties will have another year to take advantage of certain funding provisions included in the PPA.
  • TIPA provides rules on the tax responsibilities of PEOs and the employers that contract with them.