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Review Required Minimum Distribution Compliance in Light of Deadline Changes

The SECURE Act changed the deadline for commencing required minimum distributions (“RMDs”) from a tax-qualified retirement plan. Following the change, a retired individual who reached age 70½ before January 1, 2020, must begin receiving RMDs by no later than April 1st of the year after turning 70½, whereas a retired individual who reaches age 70½ on or after January 1, 2020, must begin receiving RMDs by no later than April 1st of the year after reaching age 72. This change means that retired individuals who reached age 70½ in 2019 (i.e., who had a 70th birthday from July 1, 2018 through June 30, 2019) were required to take their first RMD by April 1, 2020 and then take subsequent RMDs on December 31st of each year.  However, as we previously reported here, the CARES Act suspended the requirement to make RMDs in 2020, including initial distributions on April 1, 2020.… Continue Reading

Deadline to Provide Initial Lifetime Income Illustrations is Approaching

As discussed in our prior blog post here, the SECURE Act requires plan administrators to provide annual statements illustrating participants’ accrued benefits in two lifetime income stream illustrations: (i) a single life annuity, and (ii) a qualified joint and survivor annuity. The statements must include a clear and understandable explanation of the assumptions underlying the illustrations.    Participant-directed individual account plans that furnish quarterly benefit statements to participants must include a participant’s lifetime income illustrations on at least one statement in any 12-month period. The initial lifetime income illustrations must be included on the quarterly statement for the second calendar quarter of 2022 if the illustrations were not included on an earlier statement.  A DOL fact sheet on Lifetime Income Illustrations is available here. A list of FAQs implementing the DOL interim final rule is available here.  

Proposed Required Minimum Distribution Regulations Clarify Application of Ten-Year Rule for Designated Beneficiaries

The IRS recently issued proposed regulations interpreting the changes in the required minimum distribution requirements resulting from enactment of the SECURE Act. Under the ten-year rule, a distribution of the participant’s entire interest must be made to a designated beneficiary who is not an eligible designated beneficiary within ten years after the death of the participant, regardless of whether the owner died before reaching his or her required beginning date. Among the proposed regulations, the IRS clarified that if a participant dies following his or her required beginning date, in addition to satisfying the ten-year rule, the participant’s benefit must also continue to be distributed to the beneficiary at least as rapidly as it was being distributed when the participant died.  The IRS Proposed Regulations are available here.

New Proposed Regulations May Signal Administration Shift in Focus to Benefit Plans

Whenever a new president from a different political party is elected, it’s not unusual for plan sponsors to expect changes in policy resulting in new laws and regulations impacting benefit plans. Though President Biden’s administration primarily focused on the pandemic and other areas of foreign and domestic policy in its first year, it recently has turned its attention to benefit plans with the issuance of two new proposed regulations, as described below.   Proposed Regulations on Required Minimum Distributions – On February 24, 2022, the IRS released proposed regulations that update the required minimum distribution requirements to reflect changes made by the SECURE Act and contain additional guidance regarding required minimum distribution requirements. The IRS is currently taking comments on the proposed regulations until May 25, 2022.  Proposed Regulations on Prohibited Transaction Exemption Filing Procedures – The DOL recently announced proposed amendments to the procedures governing the filing and processing of… Continue Reading

IRS Issues Updated Guidance Regarding Substantially Equal Periodic Payments

The IRS recently issued Notice 2022-6 (the “Notice”), which provides guidance regarding how to determine whether a series of payments from a qualified retirement plan is considered a series of substantially equal periodic payments and is thus exempt from the 10% excise tax under Code Section 72(t). Payments are exempt from that excise tax if they are made in accordance with one of the following methods: (i) the required minimum distribution method, (ii) the fixed amortization method, or (iii) the fixed annuitization method. The Notice provides an updated life expectancy table that can be used to determine distribution periods for the required minimum distribution method and the fixed amortization method. In addition, the Notice modifies the existing minimum interest rate that may be used to apply the fixed amortization method and the fixed annuitization method (which is 120% of the federal mid-term rate) to add a 5% floor. The guidance… Continue Reading

New Plan Audit Standards Shift Burdens to Plan Fiduciaries

In an effort to address shortcomings in auditing procedures and reporting raised by the DOL, in July 2019, the Auditing Standards Board of the American Institute of Certified Public Accountants issued a revised Statement on Auditing Standards No. 136 entitled, “Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA” (“SAS 136”). SAS 136 applies to plan financial statement periods ending on or after December 15, 2021. The updated audit standards imposed by SAS 136 add new audit procedures and significantly shift the burden for producing many plan-related documents to the plan sponsor. The new requirements will make it essential for plan sponsors to be able to produce quality, error-free records that demonstrate compliance in areas like compensation, deferrals, distributions, and vendors’ fees. Even before these new standards went into effect, it was often difficult for plan sponsors to produce such documentation, particularly when it… Continue Reading

Required Minimum Distributions Resume December 31st

The IRS recently issued a news release reminding retirement plan participants that required minimum distributions (“RMDs”) must be made by December 31st. RMDs are minimum amounts that must be distributed to a retirement plan participant each year beginning with the year in which such participant attains age 72 (age 70½ if the participant attained 70½ before January 1, 2020) or, if later, the year in which the participant retires. If the participant is a 5% owner of the employer sponsoring the retirement plan, RMDs must begin once the participant attains age 72 (or 70½ if the participant attained age 70½ before January 1, 2020), regardless of retirement status. The CARES Act waived the RMD requirement for 2020, including the RMD that was payable on or before April 1, 2021, for a participant with a required beginning date of April 1, 2021. A participant who attained age 70½ in 2019 (the… 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

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

Postponed Deadline for Reporting and Payment of Excise Taxes

The IRS recently released Announcement 2020-17 (the ?Ç£Announcement?Ç¥) postponing the due dates for reporting and paying excise taxes related to certain delayed minimum required contributions to single employer defined benefit plans. The Announcement only applies to excise taxes under Internal Revenue Code Sections 4971(a)(1) (failure to meet minimum funding standards) and 4971(f)(1) (failure to pay liquidity shortfall). Generally, these taxes must be reported and paid by the last day of the seventh month after the end of the employer?ÇÖs tax year or eight and one-half months after the last day of the plan year that ends with or within the filer?ÇÖs tax year. However, because the CARES Act postpones the deadline to make minimum required contributions that are otherwise due in 2020 until January 1, 2021, the Department of Treasury and the IRS are extending the deadline to report and pay the excise taxes under Sections 4971(a)(1) and 4971(f)(1) with… Continue Reading

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