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Severe Winter Storm Hardship Withdrawal Relief

The safe harbor rules for hardship withdrawals from a retirement plan permit such withdrawals for expenses and losses incurred by a participant due to a natural disaster declared by the Federal Emergency Management Agency (“FEMA”) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, provided the participant’s principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance related to that disaster. FEMA issued a series of disaster declarations as a result of the February 2021 winter storms that impacted portions of Texas, Louisiana, and Oklahoma. A list of counties that have been designated by FEMA for individual assistance in those states can be found on FEMA’s website here. Those disaster declarations mean that affected participants may be eligible for hardship distributions from their 401(k) plan accounts. Plan sponsors with participants who live or work… Continue Reading

Plan Record Retention Considerations in Corporate Transactions

As we’ve previously reported here, there are a number of record retention requirements applicable to employee benefit plans. Plan sponsors should be mindful of the impact and application of these requirements in the context of corporate mergers and acquisitions, especially if assets of the target’s retirement plan are to be merged into the buyer’s plan. When acquiring a company that sponsors (or has sponsored) its own retirement plan, plan sponsors should consider: Protected Benefits. Though the buyer’s plan may be amended to protect certain benefits under the target’s plan, as required by the Internal Revenue Code, in many cases the plan sponsor will need to refer to the target’s actual plan document to fully understand the specifics of the protected benefits. Missing Participants. The DOL recently issued a memorandum outlining best practices for pension plans to avoid and resolve missing participant issues (we previously discussed this issue here). Included in… Continue Reading

DOL Issues Missing Participant Guidance

The DOL issued three pieces of guidance relating to missing participants in tax-qualified retirement plans. In response to the new guidance, described in more detail below, employers should again review their plan documents and any plan policies and procedures, to ensure they align with the DOL’s requirements and best practices for avoiding and handling missing participants. In Field Assistance Bulletin No. 2021-01, the DOL issued a temporary enforcement policy on the use of the Pension Benefit Guaranty Corporation’s (“PBGC”) Defined Contribution Missing Participants Program for terminating defined contribution plans. Under the temporary enforcement policy, the DOL will not pursue violations under ERISA’s fiduciary rules if the plan fiduciary of a terminating defined contribution plan transfers the benefits of missing participants to the PBGC under the program and otherwise follows the requirements of the DOL fiduciary safe harbor regulation at 29 CFR 2550.404a-3. In Compliance Assistance Release No. 2021-01, the DOL issued… Continue Reading

Is it Time for an Investment Committee Tune-up?

Companies sponsoring a 401(k) plan to help their employees save for retirement often form an investment committee to help select plan investments without realizing the duties that the committee assumes.  To help prevent investment committee members from unintentionally breaching their fiduciary duties, companies periodically review their investment committee compliance and should keep complete records of appointments, policies, and procedures.  The following investment committee checklist can be a starting point for this review: Review the underlying plan document to determine who it lists as the “named fiduciary”.  Most plan documents provided by third party administrators list the “plan sponsor” as the named fiduciary, which means the board of directors is the governing body responsible for acting as a fiduciary, absent a delegation of such fiduciary responsibility by the board of directors to a committee.  If your plan lists the “plan sponsor” as the named fiduciary and you have a committee selecting… Continue Reading

Federal Tax Withholding and Reporting Requirements for Distributions from a Qualified Retirement Plan to a State’s Unclaimed Property Fund

Third party administrators for employer-sponsored qualified retirement plans often recommend to employers that unclaimed account balances for mandatory cash-outs of small amounts (under $1,000) be remitted to the unclaimed property fund for the participant’s state of residence. The IRS recently clarified in Rev. Rul. 2020-24 that amounts remitted to a state’s unclaimed property fund are subject to withholding under Section 3405 of the Internal Revenue Code (the “Code”) and, in the event the amounts distributed exceed $10, reporting under Section 6047 of the Code. A plan sponsor will not be treated as failing to comply with the withholding and reporting requirements with respect to payments made before the earlier of January 1, 2022 or the date it becomes reasonably practicable for the plan sponsor to comply with such requirements. An employer that sponsors a qualified retirement plan should discuss this guidance with their plan’s third-party administrator to ensure that any… Continue Reading

IRS Expands Reasons for Self-Certification of Eligibility for a Waiver of the 60-Day Rollover Requirements

The Internal Revenue Code provides that amounts distributed from a qualified plan or individual retirement arrangement (“IRA”) will be excluded from income if they are transferred to an eligible retirement plan within 60 days following the day of receipt. The IRS previously announced in Rev. Proc. 2016-47 (the “Prior Rev. Proc.”) that individuals who fail to rollover retirement plan distributions into a new retirement plan or IRA within 60 days may self-certify to the new plan’s administrator or the IRA’s trustee that the individual qualifies for a waiver of the 60-day rollover requirement. The Prior Rev. Proc. listed 11 reasons that support waiving the 60-day rollover requirement, which include an error committed by a financial institution, a lost or uncashed distribution check, or the death or serious illness of a family member. In Rev. Proc. 2020-46, the IRS expanded this list to include instances in which the distribution was made… Continue Reading

IRS Announces 2021 Qualified Retirement Plan Limits

The IRS recently announced cost-of-living adjustments for 2021. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2021: Compensation limit used in calculating a participant’s benefit accruals: increased to $290,000. Elective deferrals to 401(k) and 403(b) plans: remains unchanged at $19,500. Annual additions to a defined contribution plan: increased to $58,000. Catch-up contributions for employees aged 50 and over to 401(k) and 403(b) plans: remains unchanged at $6,500. Annual benefit limit for a defined benefit plan: remains unchanged at $230,000. Compensation dollar limit for defining a “key employee” in a top heavy plan: remains unchanged at $185,000. Compensation dollar limit for defining a “highly compensated employee”: remains unchanged at $130,000. View the full list of 2021 plan limits in Notice 2020-79 here.

Want to Elect to Have a Safe Harbor Plan for 2021? – The Time is Now

As we previously reported here, earlier this year, the IRS provided relief to plan sponsors of safe harbor 401(k) and 403(b) plans, allowing them to amend their plans mid-year to suspend or reduce safe harbor contributions through the end of the 2020 plan year. Many employers elected to make this change in order to reduce overall costs to help them weather the COVID-19 pandemic. Plan sponsors who want to go back to a safe harbor plan design for 2021 must (i) amend their plan documents before the end of the year to include safe harbor contributions; (ii) notify their third party administrators as soon as possible so that the third party administrator is prepared to administer the plan as a safe harbor plan; and (iii) provide the required safe harbor notice to participants at least 30 days (and not more than 90 days) before the beginning of the plan year.… Continue Reading

Hurricane Sally Hardship Withdrawal Relief

Last year, the safe harbor rules for hardship withdrawals were amended to include a new subsection which permits hardship withdrawals for expenses and losses incurred by an employee on account of a disaster declared by the Federal Emergency Management Agency (“FEMA”). Recently, FEMA issued a disaster declaration as a result of Hurricane Sally that impacted portions of Alabama and Florida on September 14, 2020. A list of areas covered by the disaster declaration can be found on FEMA’s website. This disaster declaration means that affected participants may be eligible for hardship distributions under their 401(k) plans. Plan sponsors should review their 401(k) plan’s hardship distribution provisions to ensure they contain either the updated safe harbor provisions specifically allowing hardship distributions for federally declared disasters or catch-all language allowing distributions on any permissible hardship under the Internal Revenue Code.

The DOL Issues Guidance Regarding Lifetime Income Illustrations

The DOL recently issued an interim final rule (“IFR”) pursuant to the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”) regarding the information that must be provided on pension benefit statements. ERISA requires plan administrators of defined contribution plans to provide periodic pension benefit statements to participants and certain beneficiaries. The SECURE Act requires plan administrators to provide annual statements illustrating participants’ accrued benefits as two lifetime income stream illustrations: (i) a single life annuity, and (ii) a qualified joint and survivor annuity. The IFR describes certain required assumptions plan administrators must use when converting a participant’s accrued benefit into lifetime income streams. The lifetime income stream illustrations must be accompanied by clear and understandable explanations of the assumptions underlying the illustrations. To assist plan administrators, the IFR provides model language that may be used to satisfy this explanation requirement. The IFR is effective September… Continue Reading

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