The IRS recently issued final regulations relating to amendments made to Code Section 402(c) by the Tax Cuts and Jobs Act of 2017 (the ?Ç£TCJA?Ç¥).?á The TCJA provides an extended rollover period for plan loan offset amounts that are treated as distributed from a qualified plan due to (i) termination of the plan or (ii) failure to repay the loan due to the participant?ÇÖs severance from employment, each a ?Ç£qualified plan loan offset?Ç¥ (?Ç£QPLO?Ç¥).?á Although most of the general rules relating to plan loan offsets apply to QPLO amounts, the permissible rollover period is extended.?á Generally, a participant has only 60 days to contribute the loan offset amount in a tax-free rollover to another qualified retirement plan.?á However, a participant may roll over QPLO amounts into another qualified retirement plan until the due date for his or her personal income tax return for the year in which the QPLO occurred.… Continue Reading
The IRS recently issued Notice 2020-86 (the ?Ç£Notice?Ç¥), which provides guidance through a series of questions and answers with respect to Sections 102 and 103 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (the ?Ç£SECURE Act?Ç¥). Section 102 of the SECURE Act increases the maximum automatic elective deferral percentage for automatic enrollment safe harbor plans from 10% to 15% (provided, however, that the maximum automatic deferral rate remains 10% during the initial period of automatic elective contributions). Notably, the Notice clarifies that a QACA safe harbor 401(k) plan is not required to increase the maximum percentage, so long as the percentage is (i) applied uniformly, (ii) does not exceed 15% (or 10% during the initial period of automatic elective contributions), and (iii) satisfies certain other minimum percentage requirements as described in Code Section 401(k)(13)(C)(iii). The Notice also clarifies that, if a plan incorporates the maximum qualified… Continue Reading
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.?á 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.?á 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 ?Ç£named fiduciary?Ç¥.?á Most plan documents provided by third party administrators list the ?Ç£plan sponsor?Ç¥ 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.?á If your plan lists the ?Ç£plan sponsor?Ç¥ 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?ÇÖs 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?ÇÖs state of residence. The IRS recently clarified in Rev. Rul. 2020-24 that amounts remitted to a state?ÇÖs unclaimed property fund are subject to withholding under Section 3405 of the Internal Revenue Code (the ?Ç£Code?Ç¥) 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?ÇÖs third-party administrator to ensure that any… Continue Reading
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
Generally, when determining the value of a defined benefit plan?ÇÖs assets for purposes of calculating PBGC variable-rate premiums (?Ç£VRP?Ç¥), prior year contributions are included only if received by the plan by the date the premium is filed. The premium filing deadline for a calendar year plan is October 15th. The CARES Act, together with IRS Notice 2020-61, extended the deadline for minimum required contributions and contributions in excess of the minimum during calendar year 2020 until January 1, 2021. On September 23, 2020, the PBGC issued Technical Update 20-2 permitting contributions made in accordance with these extensions to be included for purposes of calculating the VRP. Specifically, for premium filings due on or after March 1, 2020 and before January 1, 2021 (including those due on October 15, 2020 for calendar year plans), contributions received by the plan by January 1, 2021 can be included in plan assets for determining… Continue Reading
The IRS recently issued Notice 2020-68 (the ?Ç£Notice?Ç¥), which contains several sets of questions and answers that provide helpful guidance regarding various provisions in the Setting Every Community Up for Retirement Enhancement Act of 2019 (the ?Ç£SECURE Act?Ç¥) and Section 104 of the Bipartisan American Miners Act of 2019 (the ?Ç£Miners Act?Ç¥). Specifically, the Notice addresses certain issues concerning the following provisions of the SECURE Act: The small employer automatic enrollment credit; The repeal of the maximum age for traditional IRA contributions; Participation of long-term, part-time employees in 401(k) plans; Qualified birth or adoption distributions; and Permitting excluded ?Ç£difficulty of care payments?Ç¥ to be taken into account as compensation for purposes of determining certain retirement contribution limits. The Notice also provides guidance with respect to the reduction in minimum age for in-service distributions as provided in the Miners Act. In addition, the Notice sets forth the deadlines to amend retirement… Continue Reading
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.
Sponsors of retirement plans that use a statutory hybrid benefit formula (e.g., cash balance plans) have until August 31, 2020 to submit such plans to the IRS for a favorable determination letter. However, because ?Ç£interested parties?Ç¥ must be notified of the filing at least ten days in advance of the submission, the decision on whether to file must be made sooner (within the next week or so). Among other things, under this special determination letter cycle for cash balance plans, the IRS will review plan provisions implementing the final cash balance plan regulations. This is true even if the plan?ÇÖs cash balance formula was in place when the plan received a prior favorable determination letter. The guidance allowing for the special cycle for cash balance plans is available here.
The IRS recently published an updated Operational Compliance Checklist (the ?Ç£Checklist?Ç¥), which lists changes in qualification requirements that became effective during the 2016 through 2020 calendar years. Examples of items added to the Checklist for 2020 include, among other things: Final regulations relating to hardship distributions; Temporary nondiscrimination relief for closed defined benefit pension plans; Penalty-free withdrawals from retirement plans for individuals in cases of birth or adoption; and Increase in age for required beginning date for mandatory distributions. The Checklist is only available online and is updated periodically to reflect new legislation and IRS guidance.?á The Checklist does not, however, include routine, periodic changes, such as cost-of-living increases, spot segment rates, and applicable mortality tables, which can instead be found on the IRS?ÇÖs Recently Published Guidance webpage here. The Checklist is available here.