It’s [Not] Too Late Baby, Now It’s [Not] Too Late…for Required Minimum Distributions

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by Lyn Domenick

If you have participants in your retirement plan who are old enough to identify Carole King as the artist who released the song “It’s Too Late” some 50 years ago, this blog’s for you. Late payment of required minimum distributions (RMDs) is an ongoing source of plan sponsor headaches. What do you do when they occur?  As background, qualified plans are subject to the minimum distribution rules that generally require participants to commence payments no later than the April 1st following the year in which the participant attains age 72 (prior to January 1, 2020, age 70-1/2) unless the participant is still actively employed and is not a 5% owner. For various reasons the RMD deadline is sometimes missed and the plan administrator is faced with how to correct the late RMD error. Proper correction of missed RMDs is essential to ensure continued plan qualification. However, plan participants are also subject to stiff penalty taxes equal to 50% of the missed RMD amounts, which is a headache of a different sort.

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The Tide is High…Keep Holding On For More Retirement Plan Fee Litigation

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by Brenda Berg

The U.S. Supreme Court’s ruling this week in Hughes v. Northwestern University will do nothing to stem the rising tide of retirement plan fee litigation. But the ruling doesn’t mean fiduciary breach claims are more likely to be successful either. Instead, the Court kept its ruling very narrow: a broad investment menu with some prudent funds will not automatically mean the fiduciaries are off the hook for offering imprudent funds.

 

The plaintiffs in Hughes were participants in two 403(b) retirement plans sponsored by Northwestern University. The participants brought claims for breach of fiduciary duty against the University, the retirement plan committee, and the individuals who administered the plans. The participants alleged the fiduciaries breached their duty of prudence by: (1) allowing recordkeeping fees that were too high; (2) allowing plan investments with excessive investment fees; and (3) providing participants too many investment options (over 400!) which resulted in participant confusion and poor investment decisions. Read more

Write This Down … Participants Have to Follow the Plan’s Beneficiary Designation Procedures

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by Elizabeth Nedrow

The principles governing how ERISA plans determine a participant’s beneficiary haven’t changed much since the country singer George Strait sang “Write this down” in 1999. In short, the participant has to write it down … on the forms and following the procedures established by the plan.

Recently we’ve seen several examples of family members of deceased employees who are surprised by the plan’s record of who was designated as beneficiary. They have tried to argue that the deceased employee’s will should be allowed to designate a beneficiary, or that the plan should look to state laws regarding estates. However, the courts have clearly established that those extraneous sources do not affect the plan’s process. (Most famous are the U.S. Supreme Court’s 2001 Egelhoff decision, and its 2009 Kennedy v. DuPont decision.) Read more

Here I Go Again in the Plan…Treatment of Rehired Employees

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by Benjamin Gibbons

As a result of the current labor shortage that many employers are currently faced with, more and more companies are finding themselves rehiring former employees.  If those former employees previously participated in an employer’s 401(k) plan prior to their severance from employment, such employers should review their 401(k) plan documents to see how such rehired employees are treated under those plans. Read more

Easy Money…2022 IRS Limits Announced Today

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by Lyn Domenick

The IRS has announced the 2022 cost of living adjustments to qualified plan limits. As expected, many of the limits increased significantly compared with prior years. Below are the highlights, and our full historical chart can be found here for easy reference.

401(k), 403(b), Profit-Sharing Plans, etc.
2022 2021 2020
Annual Compensation 305,000 290,000 285,000
Elective Deferrals 20,500 19,500 19,500
Catch-up Contributions 6,500 6,500 6,500
Defined Contribution Limit 61,000 58,000 57,000
ESOP Distribution Limits 1,230,000
245,000		 1,165,000
230,000		 1,150,000
230,000
Defined Benefit Limit 245,000 230,000 230,000
HCE Threshold 135,000 130,000 130,000
Key Employee 200,000 185,000 185,000
457 Elective Deferrals 20,500 19,500 19,000
Taxable Wage Base 147,000 142,800 137,700

Oh Won’t You Stay…A Little Bit Longer…Because There’s No Need to Sign Your Distribution Form in Person

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by Elizabeth Nedrow and Becky Achten

In June 2020, the IRS issued Notice 2020-42 providing temporary relief from the physical presence requirement for certain participant distribution and beneficiary designation elections required to be witnessed by a notary public or plan representative.  This temporary relief was scheduled to expire June 30, 2021, and now has again been extended by the IRS.

As the COVID-19 pandemic continues, the IRS issued Notice 2021-40, again extending the temporary relief through the 12-month period ending June 30, 2022, as long as the prior requirements are met.  See our January 25, 2021 blog posting for a summary of the requirements. Read more

Once in a Lifetime – Make that a Year – for Lifetime Income Illustrations of 401(k) Plan Benefits

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by Brenda Berg

Plan sponsors of defined contribution plans such as 401(k) plans will soon have to provide participants with illustrations of just how much a participant’s account balance might produce on a monthly basis if converted to a single life annuity and, for married participants, a qualified joint and survivor annuity. Many plan sponsors already provide some sort of income illustration on their quarterly benefit statements to help participants with their retirement planning.

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E-P-C-R-S, find out what it means to me … new IRS Correction Guidance

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by Lyn Domenick

On July 16, 2021, the IRS released updated Employee Plans Compliance Resolution System (EPCRS) guidance for Plan corrections in the form of Rev. Proc. 2021-30. The changes affect the three programs offered by the IRS for correction of plan failures: Self-Correction Program (SCP), Voluntary Correction Program (VCP) and Audit Closing Agreement Program (Audit CAP). The principal changes outlined below are effective as of July 16, 2021, unless otherwise indicated. Read more

I Just Called to Say…I Have a Benefit Claim

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by Lyn Domenick

ERISA provides that when an individual makes a claim for benefits under an employer’s plan, they are entitled to copies of all documents, records, and other information relevant to the claimant’s claim for benefits. The Department of Labor (DOL) recently issued an information letter that concludes that an audio recording of a telephone conversation (in this case, between the claimant and a representative of the plan’s insurer) must be among the materials provided to a claimant upon request. The DOL letter was provided in response to a request from a representative of a claimant who was denied an audio recording because the plan administrator considered it to be made only for quality assurance purposes, and not “created, maintained or relied upon for claim administration purposes.” Read more

Time Has Come Today…For Form 5500 Season

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By Benjamin Gibbons

Days are getting longer, temperatures are getting warmer, plants are looking greener, schools are letting out, Brood X cicadas are emerging…it can only mean one thing…5500 season is approaching.

However, unlike the cicadas and their 17-year cycle, the Form 5500 filing requirements arise every summer for calendar year-end ERISA covered retirement plans and health and welfare plans that cover at least 100 participants.  While it may be easy enough to file an extension and hit the snooze button until October, now is great time for plan sponsors to start thinking about their 5500 obligations. Read more