Two new IRS snapshots explain certain provisions of the Protecting Americans from Tax Hikes (PATH) Act of 2015, part of the Consolidated Appropriations Act, 2016 (Div. Q of Pub. L. No. 114-113). One snapshot highlights the expanded list of retirement plans and IRAs that can make rollovers into a savings incentive match plan for employees (SIMPLE) IRA. The other snapshot addresses the enhanced flexibility to offer automatic enrollment in church plans not covered by ERISA. While the snapshots generally summarize existing guidance rather than provide new information, they may alert plan sponsors and taxpayers to the kinds of issues IRS agents review during audits.
A SIMPLE IRA plan is a retirement savings option sponsored by eligible small employers that do not sponsor another retirement plan. Before Dec. 18, 2015, a SIMPLE IRA could accept rollover contributions from another SIMPLE IRA but not from other types of retirement plans or IRAs.
The PATH Act allows a SIMPLE IRA to accept rollovers of non-Roth contributions from employer-sponsored retirement plans — including 401(k), 403(b) and 457(b) plans — as well as traditional and simplified employee pension (SEP) IRAs. For a SIMPLE IRA to accept a rollover from one of these plans or IRAs, at least two years must have passed since the employee first began participating in the SIMPLE IRA. Rollovers from another IRA into a SIMPLE IRA are still limited to one per year. IRS auditors may check a SIMPLE IRA for rollovers from other plans to determine whether the rollovers were proper.
Before the PATH Act, state payroll withholding laws prevented many nonelecting church plans — church-sponsored retirement plans that did not elect to be covered by ERISA — from automatically enrolling employees or automatically increasing their contribution levels. Although the Pension Protection Act of 2006 preempts these laws for ERISA plans, nonelecting church plans couldn’t offer automatic enrollment until the PATH Act extended similar relief effective Dec. 18, 2015.