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Recent IRS Snapshot Regarding Deemed Distributions for Participant Loans Reminds Employers of Risk of Plan Loan Errors

The IRS recently released an Issue Snapshot (the “Snapshot”) focusing on participant loans from retirement plans and when certain compliance errors could trigger deemed distributions with respect to such loans. Specifically, the Snapshot lists the following requirements, which if not satisfied, will cause a participant loan to be treated as a deemed distribution: Enforceable agreement requirement, which generally requires a participant loan to be a legally enforceable agreement (which may include more than one document) and the terms of the agreement demonstrate compliance with the applicable requirements of the Code. Maximum loan amount limit requirement, which generally limits the maximum amount of a participant loan to the amount specified under the Code. The Snapshot also noted the CARES Act allowed modifications to the loan limit for certain loans to “qualified individuals.” Repayment period requirement, which generally requires the repayment period of a loan be limited to five years, unless the loan… Continue Reading

Federal Agencies Issue Proposed Revisions to Form 5500 Return/Report

The DOL, PBGC, and IRS (the “Agencies”) recently issued a Notice of Proposed Revision (the “Notice”) to update the Form 5500 Annual Return/Report filed for employee pension and welfare benefit plans. The DOL simultaneously issued a Notice of Proposed Rulemaking to implement the revisions proposed in the Notice. These proposed revisions primarily relate to certain statutory amendments to ERISA and the Code enacted as part of the SECURE Act and include other changes intended to improve Form 5500 reporting. Specifically, the Notice describes the following proposed revisions to the Form 5500 Annual Return/Report:  Consolidation of the Form 5500 reporting requirement for defined contribution retirement plan groups by (i) adding a new type of direct filing entity called a “defined contribution group” reporting arrangement, and (ii) establishing a new reporting schedule for such arrangement; Modifications to reflect pooled employer plans as a type of multiple employer pension plan (“MEP”) and implement… Continue Reading

IRS Releases New Issue Snapshots

Periodically, the IRS will release guidance that highlights compliance issues that are either common issues found on audits or current concerns of the IRS. The IRS recently issued the following Issue Snapshots highlighting certain compliance issues for retirement and deferred compensation plans: IRC Section 457(b) Eligible Deferred Compensation Plan – Written Plan Requirements, Application of IRC Section 415(c) When a 403(b) Plan is Aggregated with a Section 401(a) Defined Contribution Plan, Church Plans, Automatic Contribution Arrangements, and the Consolidated Appropriations Act, 2016, and Preventing the Occurrence of a Nonallocation Year under Section 409(p). If your company currently sponsors an employee benefit plan that could be impacted by the issues highlighted in these snapshots, these snapshots are a good reminder to make sure your plan is in compliance.  The Issue Snapshots are available here.

As Plan Administrator, the Employer is Liable – Not the Service Provider (i.e., What Kind of Indemnification Are You Getting?)

The plan administrator of an employee benefit plan (employee welfare or retirement) has the general fiduciary responsibility under ERISA to ensure the operational and documentary compliance of the plan. Under ERISA, the sponsoring employer is the plan administrator unless another person or entity is named in the plan. This generally means the employer retains ultimate responsibility and liability for legal compliance even though the employer may rely heavily on the plan’s third-party service providers. One way to mitigate this liability is to obtain indemnification from a service provider for the service provider’s errors, for which the employer (as plan administrator) would still be legally liable. The default language in third-party service provider contracts often provides indemnification only for the service provider’s “gross negligence”, but not its “ordinary negligence”, thus leaving the employer responsible for correcting (and paying for) errors caused by the service provider that do not amount to “gross negligence” or “intentional… Continue Reading

Retirement Plan Cybersecurity—Truth, Justice, and the DOL Way

At a time when digital security and cyberattacks are key concerns for individuals and businesses alike, plan sponsors and other plan fiduciaries have a key role to play in protecting retirement plan assets and data. Otherwise known as “responsible plan fiduciaries,” these individuals and certain plan service providers have a fiduciary duty to ensure there is a robust cybersecurity program in place to keep plan assets and data secure. As we previously reported on our blog here, the DOL recently issued guidance in this arena to keep employers and plan fiduciaries compliant. The DOL is now specifically targeting employers and plan fiduciaries who fail to adequately protect employee retirement plan assets from hackers and cyberthieves, so the time to act is before the DOL issues a plan audit and before participants are victimized by cybercriminals or hackers. The DOL requires that plan fiduciaries responsible for prudently selecting and monitoring service… Continue Reading

IRS Publishes Updated Operational Compliance Checklist

The IRS recently updated its Operational Compliance Checklist (the ?Ç£Checklist?Ç¥) to include qualification requirements that will become effective during the 2021 and 2022 calendar years. Examples of items added to the Checklist for 2021 and 2022 include, among other things: Final regulations relating to updated life expectancy and distribution tables used for determining minimum required distributions; The SECURE Act requirement that qualified cash or deferred arrangements must allow long-term employees (i.e., employees who work at least 500 but less than 1,000 hours per year for three consecutive 12-month periods beginning on or after January 1, 2021) to participate; and Temporary relief from the physical presence requirement for spousal consents under qualified retirement plans. The Checklist is only available online and is updated periodically to reflect new legislation and IRS guidance. The Checklist does not, however, include routine, periodic changes, such as cost-of-living increases, spot segment rates, and applicable mortality tables,… Continue Reading

Guidance on Benefit Plan Cybersecurity Best Practices

Plan participants now enroll, change elections, review benefits, apply for plan loans and hardship distributions, and access account information through websites and cellphone apps. As electronic access to plan information has increased, so has the interest of hackers in obtaining the wealth of information stored electronically. Recently, the DOL?ÇÖs Employee Benefits Security Administration (the ?Ç£EBSA?Ç¥) issued the following cybersecurity guidance documents to help plan sponsors comply with their duties to protect plan information: Tips for Hiring a Service Provider with Strong Cybersecurity Practices: These tips are intended to help plan sponsors and plan fiduciaries meet their duties under ERISA to prudently select and monitor service providers. They include a list of questions to ask and considerations to make when evaluating potential service providers. Cybersecurity Program Best Practices: This guidance provides a list of 12 best practices intended to help plan fiduciaries mitigate cybersecurity risks and make prudent decisions when selecting… Continue Reading

Voluntary Correction Program Applications ?Çô Best Practices

The IRS recently issued a list of the top errors it finds in Voluntary Correction Program (?Ç£VCP?Ç¥) submissions, which is available here. The errors listed generally relate to issues associated with the submission of files in the correct PDF format, failing to pay the correct user fee, or the incorrect submission of the Form 8950. Filing a VCP application can be a useful method for plan sponsors to correct operational issues that have spanned numerous years or?á other issues for which self-correction is unavailable. Errors in the submission can delay resolution of the application or, in some cases, cause a rejection of the application. In addition to the common errors outlined by the IRS, plan sponsors should also use care to avoid the following additional common issues: Failure to Submit a Comprehensive Filing ?Çô If one operational error is found, plan sponsors should conduct a self-audit prior to filing a… Continue Reading

Required Minimum Distributions: A Tragedy in Three Acts

The SECURE Act and CARES Act made significant changes to required minimum distributions (?Ç£RMDs?Ç¥). What should you be doing to ensure your retirement plans are administered correctly? The first step is to understand your options. SECURE Act Shifts the Start Before the SECURE Act, RMDs had to begin by April 1st of the calendar year following the later of (i) the calendar year during which the participant retires or (ii) the calendar year in which the participant turns age 70??.?á Following the passage of the SECURE Act, the age cutoff in that rule changed from age 70?? to age 72, but only for individuals who turned age 70?? on or after January 1, 2020 (i.e., individuals born on or after July 1, 1949). In short, those terminated vested participants born before July 1, 1949 had to start their RMDs by April 1 of the year after turning 70??, while those… Continue Reading

Plan Record Retention Considerations in Corporate Transactions

As we?ÇÖve 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?ÇÖs retirement plan are to be merged into the buyer?ÇÖs plan. When acquiring a company that sponsors (or has sponsored) its own retirement plan, plan sponsors should consider: Protected Benefits. Though the buyer?ÇÖs plan may be amended to protect certain benefits under the target?ÇÖs plan, as required by the Internal Revenue Code, in many cases the plan sponsor will need to refer to the target?ÇÖs 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

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