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
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
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.
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
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
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
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
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
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