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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?ÇÖs 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 ?Ç£key employee?Ç¥ in a top heavy plan: remains unchanged at $185,000. Compensation dollar limit for defining a ?Ç£highly compensated employee?Ç¥: 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? ?Çô 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

IRS Issues Guidance on Deadline for Discretionary Amendment to Pre-Approved Plans

Revenue Procedures 2016-37 and 2019-3 provide that the general deadline to adopt a discretionary amendment to a pre-approved qualified plan or pre-approved 403(b) plan is the end of the plan year in which the plan amendment is operationally put into effect. Each Revenue Procedure also contains an exception, which provides in part that the general deadline does not apply when a statute or IRS guidance sets forth an earlier deadline. In Revenue Procedure 2020-40, the IRS recently modified this exception to provide that the general year-end deadline does not apply when a statute or IRS guidance sets forth an earlier or later deadline. Importantly, this change only applies to pre-approved plans that are tax qualified and not to individually designed plans. Revenue Procedure 2020-40 is available here.

IRS Provides Pandemic Relief to Safe Harbor Plans

Notice 2020-52 (the ?Ç£Notice?Ç¥) provides temporary relief allowing sponsors of ?Ç£safe harbor?Ç¥ 401(k) and 403(b) plans to amend their plans mid-plan year to suspend or reduce safe harbor contributions through the end of the plan year regardless of whether the employer (i) is suffering an economic loss, or (ii) included a statement in its annual safe harbor notice that safe harbor contributions could be reduced or suspended during the plan year. Plans that adopt an amendment to reduce or suspend safe harbor non-elective contributions in accordance with this Notice will not be treated as failing to satisfy the 30 day notice requirement in the regulations, provided that a supplemental notice is provided to the eligible employees no later than August 31, 2020, and the plan amendment that reduces or suspends the non-elective contributions is adopted no later than the effective date of the reduction or suspension. Plans that adopt an… Continue Reading

Deadlines Extended for 403(b) Plans and Pre-Approved Defined Benefit Plans

The IRS announced it is extending the deadline for plan sponsors to update their pre-approved and individually designed 403(b) plan documents as well as certain upcoming deadlines applicable to pre-approved defined benefit plans. The IRS’s announcement is available here.

March 31st Deadline to Adopt Compliant 403(b) Plan

Tax-exempt organizations that sponsor individually-designed 403(b) plans that have not received favorable determination letters and which may contain one or more form defects, and plan sponsors that have not timely adopted amendments to reflect changes in the law or regulations, generally have until March 31, 2020 to cure any defects by either (i) amending and restating their plan on an up-to-date pre-approved plan document or (ii) correcting any form defects retroactively to January 1, 2010 (or the plan?ÇÖs original effective date, if later). After the March 31, 2020 deadline, generally, the only way to cure form defects in a 403(b) plan that arose prior to March 31, 2020 will be through the IRS?ÇÖs voluntary correction program.

IRS Issues Guidance on Remedial Amendment Periods for 403(b) Plans

In Revenue Procedure 2013-22, as modified by Revenue Procedure 2017-18, the IRS previously established an initial remedial amendment period for correcting form defects in a 403(b) plan that ends on March 31, 2020. In Revenue Procedure 2019-39, the IRS has now established a system of ongoing remedial amendment periods for correcting form defects in 403(b) plans that occur after March 31, 2020, as well as extending the deadline for certain defects that occur before March 31, 2020. In addition, to assist plan sponsors, the IRS will begin including changes to 403(b) plan requirements on its Required Amendments List and Operational Compliance List. The IRS also introduced a cycle program for pre-approved plans during which Section 403(b) prototype plans and volume submitter plans can request to receive a pre-approved plan letter from the IRS. Under this new guidance, the remedial amendment period for non-governmental Section 403(b) individually-designed plans will end on… Continue Reading

IRS Releases Memo Addressing Hardship Withdrawal Substantiation Requirements for 403(b) Plans

The IRS recently released a memorandum (the “403(b) Memo“) directed to its Employee Plan Examinations agents regarding the documentation they should obtain from plan administrators in order to determine whether distributions from 403(b) plans were made on account of an immediate and heavy financial need. The 403(b) Memo follows a similar memorandum that was recently released by the IRS that related to hardship substantiation requirements for 401(k) plans (the “401(k) Memo“). The 403(b) Memo states that since hardship distributions from a 403(b) plan are subject to the same rules that apply to such distributions from a 401(k) plan, 403(b) plan administrators and recordkeepers should follow the same steps as outlined in the 401(k) Memo to substantiate a participant’s claimed hardship, namely the plan administrator or recordkeeper should, prior to making the distribution, (1) obtain source documents from the employee substantiating the hardship or (2) obtain a summary of the information… Continue Reading

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