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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

Puerto Rico to Allow Rollovers from the Government Plan for Puerto Rico Employees to Qualified Retirement Plans

On January 20, 2021, the Puerto Rico Department of Treasury released Administrative Determination No. 21-01 (?Ç£AD 21-01?Ç¥), allowing for direct and indirect rollovers of lump-sum distributions from the defined contribution government plan for Puerto Rico employees to a plan that is qualified under Section 1081.01(a) of the Puerto Rico Internal Revenue Code of 2011, as amended (the ?Ç£Code?Ç¥), maintained by a private-sector employer. Such rollovers would be considered exempt transactions and would not be subject to income tax withholding under Section 1081.01(b) of the Code. The provisions of AD 21-01 are effective immediately. AD 21-01 is available here.

The DOL Finalizes the Prohibited Transaction Exemption Covering Investment Advice Fiduciaries

The DOL recently finalized Prohibited Transaction Exemption 2020-02 ?Çô Improving Investment Advice for Workers & Retirees (?Ç£PTE 2020-02?Ç¥) for investment advice fiduciaries.?á PTE 2020-02 finalizes the proposed exemption which we previously reported on here.?á This guidance for investment advice fiduciaries completes the regulatory process that began in 2016 with the new fiduciary regulations and exemptions issued under the Obama administration, which were vacated in 2018, and the reinstatement of prior regulations and the issuance of new exemption guidance earlier this year.?á While PTE 2020-02 makes some changes to the proposed exemption, it largely retains the proposed exemption?ÇÖs protective framework, including the ?Ç£Impartial Conduct Standards?Ç¥ (under which investment advice fiduciaries must provide advice that is in the retirement investor?ÇÖs ?Ç£best interest?Ç¥), required disclosures, implementation of policies and procedures to comply with the standards and mitigate conflicts of interest, and retrospective compliance review.?á The final exemption also includes a self-correction mechanism for… Continue Reading

IRS Issues Final Regulations Regarding Timing of Qualified Plan Loan Offset Amount Rollovers

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

IRS Expands Reasons for Self-Certification of Eligibility for a Waiver of the 60-Day Rollover Requirements

The Internal Revenue Code provides that amounts distributed from a qualified plan or individual retirement arrangement (?Ç£IRA?Ç¥) will be excluded from income if they are transferred to an eligible retirement plan within 60 days following the day of receipt. The IRS previously announced in Rev. Proc. 2016-47 (the ?Ç£Prior Rev. Proc.?Ç¥) that individuals who fail to rollover retirement plan distributions into a new retirement plan or IRA within 60 days may self-certify to the new plan?ÇÖs administrator or the IRA?ÇÖs trustee that the individual qualifies for a waiver of the 60-day rollover requirement. The Prior Rev. Proc. listed 11 reasons that support waiving the 60-day rollover requirement, which include an error committed by a financial institution, a lost or uncashed distribution check, or the death or serious illness of a family member. In Rev. Proc. 2020-46, the IRS expanded this list to include instances in which the distribution was made… Continue Reading

Changes to Safe Harbor Notices for Recipients of Eligible Rollover Distributions

The IRS recently issued Notice 2020-62 (the ?Ç£Notice?Ç¥), which modifies the two safe harbor explanations set forth in Notice 2018-74 that plan administrators may use to satisfy the requirements under Code Section 402(f) that plans provide certain information regarding eligible rollover distributions to participants, beneficiaries, and alternate payees who are receiving distributions. The modifications to these explanations reflect recent legislative changes, including those made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and include a new exception to the 10% additional tax for qualified birth or adoption distributions and the increase in age for required minimum distributions to age 72 for employees born after June 30, 1949. The Notice also includes an updated (i) model safe harbor notice for distributions that are not from a designated Roth account and (ii) model safe harbor notice for distributions that are from a designated Roth account. Plan… Continue Reading

IRS Extends Deadline to Roll Over Waived RMD Distributions / Provides Model Amendment

The IRS issued Notice 2020-51 which provides additional guidance and relief relating to the required minimum distribution (?Ç£RMD?Ç¥) waiver provisions in Section 2203 of the Coronavirus Aid, Relief, and Economic Security Act (the ?Ç£CARES Act?Ç¥). The CARES Act waived the requirement to make RMDs in 2020. Distributed amounts that?Çöbut for the CARES Act waiver?Çöwould have been RMDs are instead treated as eligible rollover distributions. Generally, the deadline to roll over an eligible rollover distribution into an IRA or another qualified plan is 60 days from the distribution date. However, for those eligible rollover distributions made in 2020 that otherwise would have been RMDs and for which the 60-day rollover period expires before August 31, 2020, the IRS extended the rollover deadline to August 31, 2020. Additionally, Notice 2020-51 includes a Q&A relating to the waiver of RMDs in 2020 and a model amendment that plan sponsors can adopt to provide… Continue Reading

Retirement Plan Issues and COVID-19: Additional Relief Issued By IRS

The IRS issued Notice 2020-23 (the ?Ç£Notice?Ç¥), postponing various employee benefit related deadlines under the Internal Revenue Code. Under the Notice, the due dates of many tax payments and filings that would ordinarily fall on or after April 1, 2020 through July 14, 2020 were automatically extended to July 15, 2020. For example, Forms 990 that would have been due for calendar year filers on May 15, 2020 and Form 990-T that would have been due for calendar year filers on April 15, 2020 are now not due until July 15, 2020. Note that this relief will not apply to Forms 5500 for plans with calendar year plan years since those Forms 5500 are due July 30, 2020, which is currently outside of the relief period. The Notice also provides relief to any plan performing one of 44 time-sensitive actions that are listed under Revenue Procedure 2018-58. To the extent… Continue Reading

Employee Compensation and Benefits Changes Under the Tax Cuts and Jobs Act

The following post is a general summary of the changes to the Internal Revenue Code made by the recently enacted Tax Cuts and Jobs Act (the ?Ç£Act?Ç¥) that affect employee compensation and benefits: Executive Compensation Updates Loss of Deduction for Compensation in Excess of $1 Million Currently, Section 162(m) of the Internal Revenue Code limits the ability of publicly held corporations to deduct annual compensation paid to a ?Ç£covered employee?Ç¥ in excess of $1 million, with an exception to this limit for certain performance-based compensation. Beginning on and after January 1, 2018, the Act amends Code Section 162(m) to eliminate the exception for ?Ç£qualified performance-based compensation?Ç¥ (which includes stock options, stock appreciation rights, and compensation paid upon the attainment of pre-established performance goals) and commissions. There is limited grandfathering relief available under the Act that preserves the deductibility of existing arrangements that pay out after 2017, provided the ?Ç£written binding… Continue Reading

IRS Announces New Self-Certification of 60-Day Rollover Requirement Waiver

In Rev. Proc. 2016-47, the IRS recently announced that individuals who fail to rollover retirement plan distributions into a new retirement plan or IRA within 60 days may now self-certify to the new plan’s administrator or the IRA’s trustee that the individual qualifies for a waiver of the 60-day rollover requirement. Previously, individuals in such circumstances had to seek a private letter ruling from the IRS that they were eligible for the waiver. Under this new guidance, there are 11 reasons that support waiving the 60-day rollover requirement. The Revenue Procedure also contains a model letter individuals may use to certify they qualify for the waiver, which a plan administrator or IRA trustee may rely on, so long as they do not know the information provided by the individual is untrue. The new self-certification procedure is effective as of August 24, 2016. View Rev. Proc. 2016-47.

November 2022
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