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IRS Announces New 2023 Qualified Retirement Plan Limits

The IRS recently announced cost-of-living adjustments for 2023. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2023:  Compensation limit used in calculating a participant’s benefit accruals: increased to $330,000. Elective deferrals to Code Section 401(k) and 403(b) plans: increased to $22,500. Annual additions to a defined contribution plan: increased to $66,000. Catch-up contributions for employees aged 50 and over to Code Section 401(k) and 403(b) plans: increased to $7,500. Annual benefit limit for a defined benefit plan: increased to $265,000. Compensation dollar limit for defining a “key employee” in a top heavy plan: increased to $215,000. Compensation dollar limit for defining a “highly compensated employee:” increased to $150,000.  The full list of 2023 plan limits included in Notice 2022-55 is available here. 

Tax Relief for Hurricane Fiona Victims in Puerto Rico

The IRS released Announcement 2022-161 on September 20, 2022 (available here), providing relief to victims of Hurricane Fiona in any area designated by FEMA. Those individuals and businesses that reside in the Commonwealth of Puerto Rico qualify for tax relief, postponing various tax filing and payment deadlines that occurred starting on September 17, 2022. Those individuals and businesses will now have until February 15, 2023 to file various federal individual and business tax returns and make tax payments that were originally due during that period. The February 15, 2023 extended deadline also applies to quarterly estimated income tax payments otherwise due on January 17, 2023 and the quarterly payroll and excise tax returns normally due on October 31, 2022 and January 31, 2023. Additionally, the Puerto Rico Treasury Department issued Internal Revenue Circular No. 22-13 (available here) allowing for special disaster distributions from Puerto Rico qualified plans and Puerto Rico… Continue Reading

IRS Extends Deadline for Amending Eligible Retirement Plans Under the CARES Act and Taxpayer Certainty and Disaster Relief Act

As we previously reported here, in August 2022, the IRS issued Notice 2022-33 (available here), which provided for an extension to the deadline for amendments for certain provisions of the CARES Act; however, that extension did not apply to coronavirus-related distributions and loan relief. The IRS recently issued Notice 2022-45 (available here) providing for an extension to the deadline to amend an eligible retirement plan to reflect the coronavirus-related distributions and loan relief provisions of Section 2202 of the CARES Act and Section 302 of Title III of the Taxpayer Certainty and Disaster Relief Act of 2020 (the “Relief Act”). Pursuant to Notice 2022-45, non-governmental qualified retirement plans and Section 403(b) plans will now have until December 31, 2025 to be amended to reflect the provisions of Section 2202 of the CARES Act and Section 302 of Title III of the Relief Act. Despite the fact that the amendment deadline… Continue Reading

Principal Wins ERISA Appeal in General Account Fiduciary Case

According to a recent Eighth Circuit Court of Appeals case, insurance companies that offer guaranteed interest rate products in their retirement platforms do not violate ERISA’s fiduciary standards so long as such products are provided for reasonable compensation.  Insurance companies that offer investment platforms to retirement plans in connection with their recordkeeping services generally include guaranteed interest accounts backed by their general account. In an appeal of a district court’s decision in Rozo v. Principal Life Insurance Company, certain plan participants (collectively, the “Plaintiffs”) argued that the insurance company that was providing the plan recordkeeping services, Principal Life Insurance Company (“Principal”), engaged in prohibited fiduciary self-dealing by including a fixed income option because Principal failed to establish that the revenue generated for itself from the plan related to the fixed income option was reasonable.  The Court, in rejecting the Plaintiffs’ arguments and ruling in favor of Principal, held that the… Continue Reading

Is it Time to Give Your Pension Plan a Lift-Out?

While pension plans can provide much needed retirement benefits to an employer’s workforce, the associated liabilities of defined benefit and cash balance plans also can have a number of negative impacts on the employer, including on its financial statements. One method to reduce these negative impacts is to remove some of the liabilities from the plan by using a pension “lift-out.” Essentially, a “lift-out” transfers risk and certain liabilities (usually for retirees or beneficiaries in pay status) to an annuity provider outside of the plan. For the past few years, the value of doing a lift-out has been reduced because of the high cost of the annuities. However, the recent increase in interest rates has made annuities much more affordable, which makes a lift-out a more attractive option in the current market. Plan sponsors considering a lift-out should design a plan to implement the lift-out, which should include, without limitation,… Continue Reading

Department of Labor Releases Spring 2022 Regulatory Agenda

The DOL recently released its Spring Regulatory Agenda, and it contains several important retirement and welfare plan initiatives for this year. Below is a summary of some of the material items that plan sponsors should be aware of, along with the DOL’s proposed schedule of rulemaking:  Final Pension Benefit Statement Lifetime Illustrations Rule (Final Rule scheduled for August 2022). Note: Under the DOL’s previously issued Interim Final Rule, the inclusion of lifetime illustrations once per year on pension benefit statements became effective in June 2022. Revised procedures for granting prohibited transaction exemptions (the DOL is currently reviewing comments from its Proposed Rule from March 2022). Amendment and restatement of the DOL’s Voluntary Fiduciary Correction Program to expand the scope of eligible transactions and to streamline correction procedures (Interim Final Rule scheduled for July 2022). Amendment of the regulatory definition of the term “fiduciary” under ERISA for those persons who render investment… Continue Reading

DOL Fiduciary Rule and Prohibited Transaction Exemption Compliance Date is Approaching

Beginning July 1, 2022, retirement investment providers that provide fiduciary rollover advice must document and disclose to the customer the specific reasons that the rollover to a plan or an individual retirement account (“IRA”) is in the “best interest” of the customer. Investment providers that make such rollover recommendations must comply with Prohibited Transaction Exemption 2020-02 (the “Exemption”) in order to retain investment related fees generated from that advice without running afoul of ERISA’s prohibited transaction rules. In general, advice is in a customer’s “best interest” if it is both prudent and loyal, and does not place the financial or other interests of the investment provider or financial institution ahead of the interests of the customer. As part of the rollover documentation and disclosure to customers, the following factors should be considered: (i) the customer’s alternatives to a rollover, including leaving the money in the plan, if permitted, and selecting… Continue Reading

IRS Introduces Pre-Examination Compliance Pilot Program

Starting this month, when the IRS selects a tax-qualified retirement plan for examination, it will notify the plan sponsor by letter and provide the sponsor a 90-day window to review the plan document and operations for compliance with all plan qualification requirements.   If the sponsor’s review reveals any operational or documentary failures that would otherwise qualify for self-correction under the IRS’s Employee Plan Compliance Resolution System (“EPCRS”), the sponsor will have the opportunity to self-correct those mistakes. If the plan sponsor’s review reveals any operational or documentary failures that, absent the examination, would require correction under the voluntary correction program (“VCP”) component of EPCRS, the sponsor can request a closing agreement, and the IRS will use the VCP fee structure to determine the sanction amount the sponsor will pay under the closing agreement.  The sponsor must notify the IRS of the errors discovered and the correction within the 90-day window. The… Continue Reading

California Meal and Rest Period Premium Payments Are Wages; How Does This Impact your Retirement Plan?

Under California law, employers who fail to provide the legally mandated meal or rest periods are required to pay nonexempt employees a meal and rest period “premium” payment equal to one hour of wages at the employee’s regular rate of pay. A number of lower court decisions in California were split as to whether such meal and rest period premium payments constituted a penalty payment or wages. In Naranjo v. Spectrum Security Services, Inc., the California Supreme Court settled the issue by holding that meal and rest period premium payments do constitute wages. As such, meal and rest period premium payments may also be covered under an employer’s retirement plan’s definition of compensation, meaning, among other things, that the meal and rest period premium payments may be subject to participant 401(k) deferrals and employer matching contributions. In light of this decision, any plan sponsor with employees in California should review… Continue Reading

It’s Time For Your Fiduciary Check-Up!

Due to the recent surge in ERISA litigation against employers and executives alleging, among other things, that they breached their fiduciary duties to plans and participants by allowing service providers to charge excessive fees, some fiduciary liability insurers have reportedly revamped their processes for evaluating applications for fiduciary liability coverage. These changes may impact an employer’s ability to obtain adequate fiduciary liability coverage, thereby increasing the exposure to plan sponsors and their executives.   Periodic fiduciary check-ups are always a good idea, but in light of these developments, it is perhaps more important than ever that plan sponsors conduct periodic internal reviews to ensure they continue to meet their fiduciary duties to their plans and participants. Among other things, responsible plan fiduciaries should:  Determine whether the committee (or committees) responsible for administering the plan and overseeing plan investments meets regularly and properly documents its meetings, including information on not just what… Continue Reading

November 2022