Form 8822-B: What is it and Who Needs to File it?

To maintain correct ownership details, curb abusive tax schemes, and ensure that the correct individual is contacted regarding tax matters, the IRS has mandated new requirements to report a change in the identity of a "responsible party" for entities that have an employer identification number ("EIN").  Effective as of January 1, 2014, an entity (e.g.,a plan sponsor, plan administrator or plan trust) must report a change in its "responsible party" by completing and filing IRS Form 8822-B with the IRS within 60 days of the change.  Background.  As a general rule, every entity must obtain an EIN for tax filing and reporting purposes. To obtain an EIN, the IRS requires an entity to complete Form SS-4, "Application for Employer Identification Number." Before January 2010, the name and identifying number (i.e., social security number) of the principal officer, general partner, grantor, owner or settlor was reported on Form SS-4.  Effective January 2010, the IRS revised Form SS-4 to instead report the name and social security number of the entity's "responsible party."  IRS, however, believed that, in many circumstances, the individual originally reported on Form SS-4 was either acting on behalf of the entity or no longer in that position.    Who is a "Responsible Party"?  Form 8822-B instructions define "responsible party" as the "person who has a level of control over, or entitlement to, the funds or assets in the entity that as a practical matter, enables the individual, directly or indirectly, to control, manage or direct the entity and the disposition of its funds and assets."    In the context of retirement plans, the IRS has published guidance as to whom is a "responsible party."  (See Issue 2013-8 of Employee Plans News.)  According to the IRS, a responsible party for retirement plans "is the person who has a level of control, directly or indirectly, over the funds or assets in the retirement plan."  For benefit plans where the entity that serves as the plan administrator is not the plan sponsor, such entity will have its own EIN.  Consequently, in cases where the plan administrator's "responsible party" has changed, a separate Form 8822-B must be filed.               Penalty for Failing to File Form 8822-B.  Currently, there is no penalty for failing to file a Form 8822-B.  However, entities that fail to provide the IRS with a current mailing address or the identity of its responsible party run the risk of not receiving a notice of deficiency or a notice of demand for tax, meaning that penalties and interest will continue to accrue on any tax deficiency.    Action Steps.  Going forward, plan sponsors and plan administrators are advised to report changes in their "responsible party" by filing Form 8822-B with the IRS within 60 of such change.  Currently, Form 8822-B cannot be e-filed.

Society of Actuaries Releases New Mortality Tables

Defined benefit pension plan sponsors use mortality tables for a variety of purposes, including calculating lump sum distributions and minimum contribution requirements.  The IRS mandates the mortality tables that plan sponsors must use when calculating lump sum distributions and minimum contributions obligations. 

Currently, plan sponsors must use the RP-2000 mortality table to determine present value lump sum conversions and minimum contributions.  The Society of Actuaries (the "SOA") published RP-2000, and it is based on data from over 20 years ago.  Given that the RP-2000 data is stale and that the Pension Protection Act of 2006 mandated a review of IRS-required mortality tables every ten years, the SOA, in 2009, began a study to update underlying mortality assumptions.

In February 2014, the SOA released "exposure drafts" of a new mortality table, RP-2014, and a new mortality improvement scale.  RP-2014 contained a new table for disabled life mortality, and separate tables for white collar and blue collar participants.  As expected, RP-2014 reflects longer life expectancies.  The SOA has asked the actuarial community to submit comments on RP-2014 on or before May 31, 2014.  After reviewing these comments, the SOA will issue a final report containing the RP-2014 and the new mortality improvement scale.  

IRS Notice 2013-49 contains the mortality tables that plan sponsors must use for the 2014 and 2015 valuation years.  These tables are predicated on RP-2000.  IRS is expected to require plan sponsors to begin using RP-2014 for the 2016 valuation year.  For accounting purposes, however, plan sponsors may elect to adopt RP-2014 earlier to determine pension liabilities.

While the final content of RP-2014 is unknown,the following is certain: in application, RP-2014, which reflects longer life expectancies, will produce larger pension liabilities and increase the cost of lump sum distributions and plan contribution obligations.  RP-2014 will also affect defined contribution plans, as annuities purchased with account balances will cost more and provide lower monthly benefits. 

In view of the imminent release of RP-2014, plan sponsors are advised to consult with their ERISA counsel and actuaries to formulate strategies to manage the increased pension plan liabilities and contribution obligations that will result.