The IRS recently announced cost-of-living adjustments for 2022. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2022: Compensation limit used in calculating a participant’s benefit accruals: increased to $305,000. Elective deferrals to 401(k) and 403(b) plans: increased to $20,500. Annual additions to a defined contribution plan: increased to $61,000. 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: increased to $245,000. Compensation dollar limit for defining a “key employee” in a top heavy plan: increased to $200,000. Compensation dollar limit for defining a “highly compensated employee”: increased to $135,000. The full list of 2022 plan limits included in Notice 2021-61 is available here.
As employers around the country struggle with labor shortages, many are turning to former employees who retired to fill in the gaps. The IRS recently released two FAQs on plan distributions related to concerns with the rehiring of retirees and the retention of employees who have reached their retirement age. Generally, for plans that do not permit in-service distributions, benefit distributions to an individual may only commence when the individual has a bona fide retirement. The FAQs state that rehiring an individual who already experienced a bona fide retirement will not cause such retirement to no longer be considered “bona fide” if the rehiring was due to unforeseen circumstances that do not reflect any prearrangement to rehire. Thus, if a plan’s terms permit, benefit distributions can continue after the rehire. The FAQs also state that plans may generally permit in-service distributions for employees who have reached age 59½ or the… Continue Reading
As the end of the calendar year approaches, plan sponsors are reminded to adopt certain amendments that may be required for their benefit plans to conform to regulations or reflect certain legal and/or plan design changes. Retirement Plans 2019 Required Amendments List In Notice 2019-64, the IRS published the 2019 Required Amendments List (the “List”), which lists the amendments required to be adopted by December 31, 2021. Pursuant to the List, plans offering hardship distributions must be amended in accordance with the final regulations issued under the Bipartisan Budget Act of 2018. In addition, the List provides that collectively bargained cash balance/hybrid defined benefit plans maintained pursuant to collective bargaining agreements ratified on or before November 13, 2015 must be amended to comply with the final cash balance/hybrid plan regulations. The List also includes certain periodic changes that took effect in 2019, such as adjustments to various dollar limits for… Continue Reading
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
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
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
IRS Explains Certain Plans Retroactively Adopted After the End of Plan Year Are Not Required to File a Form 5500 for 2020
The IRS recently explained in an announcement that certain retirement plans adopted after the close of the employer’s taxable year will not be required to file a Form 5500 for 2020. Specifically, under the SECURE Act, an employer may adopt a retirement plan after the close of the employer’s taxable year (by the due date, including extensions, for filing its tax return for the taxable year) and elect to treat the plan as having been adopted as of the last day of the taxable year. This provision of the SECURE Act only applies to plans adopted for taxable years beginning after December 31, 2019. In its announcement, the IRS explained that if an employer adopted a plan during the employer’s 2021 taxable year, by the specified deadline, and elected to treat the plan as having been adopted as of the last day of the employer’s 2020 taxable year, then the… Continue Reading
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
ERISA Lawsuit Alleging Worker Misclassification Is A Reminder to Employers to Monitor Their Employee Classifications
A plaintiff recently filed suit against Yum! Brands, Inc. (“Yum”), Taco Bell Corp. (“Taco Bell,” together with Yum referred to herein as, the “Employers”), and various other defendants under ERISA over the alleged misclassification of his employment status. The complaint states that common law employees were eligible to participate in certain retirement plans maintained by the Employers (collectively, the “Plans”) pursuant to the Plans’ governing documents. The plaintiff alleges he met the common law test for employee status but was classified as an independent contractor, instead of an employee, during his 25 years of employment. Specifically, the plaintiff alleges that during the relevant employment periods, the Employers controlled the work he performed and the manner and means by which he performed his work, such as by directing the specific order and sequence of his work and requiring him to attend employee-only events and meetings. The plaintiff further alleges that other… Continue Reading