Compliance November 1, 2013

Firms Comment on Money Market Funds Reform

November 1, 2013 (PLANSPONSOR.com) – A number of firms that manage money market mutual funds have made comments to the Securities and Exchange Commission (SEC) about proposed reforms of such funds.
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BlackRock, Inc., Fidelity Investments, Invesco Ltd., Legg Mason and Company, Western Asset Management Company, T. Rowe Price Associates, Inc., Vanguard and Wells Fargo Funds Management all signed a letter sent to the SEC. They began with support for SEC’s goal to preserve money market mutual funds for retails investors who have “found it to be convenient and beneficial,” citing a portion of the SEC proposed regulations that would create an exemption for retail money market funds from a floating NAV (net asset value) requirement.

In addition, the letter addressed a daily redemption limit proposed by the SEC, which the firms feel would “be burdensome to implement for both funds and third-party intermediaries, resulting in significant costs and operational complexity.” As an alternative, the letter recommended that the SEC use a definition, derived from the Investment Company Act of 1940, for retail money market mutual funds that reads, “Retail fund means a fund that limits beneficial ownership interest to natural persons.” This definition would include people investing in money market mutual funds through individual accounts, retirement accounts, college savings plans, health savings plans and ordinary trusts.

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The letter elaborated that this definition offered multiple advantages. First, it would preserve such funds for investors whose redemption activity did not threaten a fund’s liquidity or stability. Second, the definition would provide a front-end qualifying test and eliminate the need for costly programming and ongoing monitoring by a fund adviser or other intermediary. Third, it would allow the use of data that fund advisers and intermediaries already collect.

The full text of the letter to the SEC can be found here.

Compliance November 1, 2013

Treasury Permits Carryover of FSA Amounts

November 1, 2013 (PLANSPONSOR.com) – The Treasury Department and the Internal Revenue Service (IRS) announced a new rule for flexible spending accounts (FSAs) and a new limit for the small employer health insurance tax credit.
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In IRS Notice 2013-71, regulators have modified the FSA use-it-or-lose-it rule to allow up to $500 of unused amounts remaining at the end of a plan year in a health FSA to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year, provided that the plan does not also incorporate the grace period rule. Under current law, plan sponsors have the option of allowing employees a grace period permitting them to use amounts remaining unused at the end of a year to pay qualified FSA expenses incurred for up to two and a half months following year-end.

Some plan sponsors may be eligible to take advantage of the option to adopt a carryover provision as early as plan year 2013.

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“Across the administration, we are always looking for ways to provide added flexibility and common sense solutions to how people pay for their health care,” said Treasury Secretary Jacob J. Lew. “Today’s announcement is a step forward for hardworking Americans who wisely plan for health care expenses for the coming year.”

In Revenue Procedure 2013-35, the IRS announced the annual dollar limit on employee contributions to employer-sponsored health care FSAs remains unchanged at $2,500.

In addition, the small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

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