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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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

The Maximum QACA Automatic Increase Percentage is Movin’ on Up

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A Brief Summary of Recently Issued IRS Safe Harbor 401(k) Plan Guidance

By Benjamin Gibbons

For those of you who have been following along at home (literally these days), you know that the SECURE Act, which was passed only at the end of last year (though it feels like forever ago), instituted a wide range of retirement plan changes, including a number of changes with respect to safe harbor 401(k) plans. On December 9, 2020, the IRS issued guidance on these safe harbor changes in the form of Notice 2020-86.

More specifically, the SECURE Act (in part): (1) increased the maximum automatic contribution percentage for qualified automatic contribution arrangement (QACA) safe harbor 401(k) plans from 10% to 15%; (2) provided plan sponsors the ability to implement a retroactive safe harbor nonelective contribution during a plan year (generally provided the plan is amended at least 30 days before the end of the plan year); and (3) eliminated the safe harbor notice requirement for most plans with safe harbor nonelective contributions. The Notice, in Q&A format, provides additional guidance on each of these SECURE Act changes. A brief summary of the key provisions of the Notice follows. Read more

I’m Just Waiting on an… End to the Extended ERISA Deadline Periods

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by Brenda Berg

Early in the pandemic, the IRS and DOL issued a temporary rule (published May 4, 2020) extending certain deadlines applicable to retirement plans and health and welfare plans. (See Deadlines and Commitments: DOL and IRS Temporary Rule for COVID for more information about that extension.) Under that temporary rule, the deadlines were generally extended until 60 days after the announced end of the National Emergency due to COVID-19, which was referred to as the “Outbreak Period.” The deadlines are essentially “tolled” during the Outbreak Period. The National Emergency began on March 1, 2020, as declared by President Trump’s Proclamation.

The examples in the temporary rule assumed an end date of April 30, 2020 for the National Emergency, which would have extended the Outbreak Period through June 29, 2020. As we all now know, this National Emergency did not end on April 30, and in fact it is still in place. So we are still waiting for the National Emergency period to end and trigger the normal deadlines.

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Don’t You . . . Forget About Special Tax Notices

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by Leslie Thomson

The Internal Revenue Code requires plan administrators of qualified retirement plans (e.g., 401(k) plans, defined benefit plans and ESOPs), 403(b) plans, and eligible 457(b) plans maintained by a governmental employer to provide a written explanation to any recipient of an eligible rollover distribution. This notice is typically referred to as the Special Tax Notice.

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Back in the Saddle Again … How Rehired Employees Affect Partial Termination Analysis

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by Beth Nedrow

In June, we wrote about one of the multitude of issues raised by COVID-19 furloughs – the possibility of triggering vesting in the company’s qualified retirement plan under the partial plan termination rules. Recently the IRS issued new guidance that will be relevant to employers who might be rehiring employees before the end of 2020. On its website, the IRS posed this question: “Are employees who participated in a business’s qualified retirement plan, then laid off because of COVID-19 and rehired by the end of 2020, treated as having an employer-initiated severance from employment for purposes of determining whether a partial termination of the plan occurred?” The IRS then answered the question, “Generally, no.” This means that the employer may be able to continue to maintain vesting (and enforce forfeitures) in its retirement plan if enough formerly furloughed employees are brought back before the end of the year. While this answer isn’t earth-shattering or even frankly surprising, it’s welcome clarity in a time of so many uncertainties.

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Tell Me Something Good: IRS Eases Restrictions on Mid-Year Changes to Safe Harbor Contributions

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by Brenda Berg

The IRS has eased the restrictions on mid-year changes to safe harbor contributions, in response to the hardships caused by the coronavirus pandemic.

Employers are generally not allowed to reduce or suspend safe harbor matching or nonelective contributions mid-year unless either (1) the annual safe harbor notice included a statement that the employer could amend the plan mid-year to reduce or suspend the safe harbor contribution, or (2) the employer can demonstrate that it is operating at an economic loss during the plan year. Even if the employer satisfies one of these requirements, the employer must provide a 30-day advance notice before the effective date of the suspension. The suspension of the safe harbor contribution will also mean that the plan becomes subject to nondiscrimination testing for the current plan year.

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Relief . . . Just a Little Bit – IRS Notice 2020-23: Limited Extensions of Form 5500

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By Kevin Selzer and Lyn Domenick

In the midst of everything going on, we wanted to point out a few “under the radar” implications of IRS Notice 2020-23.  The Notice, issued on April 9th, provides that tax-related deadlines that fall between April 1, 2020 and July 14, 2020 (the “delay period”) are automatically extended to July 15, 2020. 

Delayed 5500s.  Most plan sponsors hoping for Form 5500 relief will have to wait for additional guidance since only a small group of plans have Form 5500 deadlines fall during the delay period.  For example, the regular Form 5500 due date for calendar year plans (July 31st) falls just outside of the delay period.  We note that the DOL has authority under the CARES Act to provide additional Form 5500 relief.

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We Interrupt this Program – What in the SECURE Act Do Retirement Plan Sponsors Need to Pay Attention to in 2020?

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by Brenda Berg

After being on the verge of enactment last spring but failing to pass, the SECURE Act is now law. The Setting Every Community Up for Retirement Enhancement Act of 2019 – the SECURE Act – was enacted on December 20, 2019 as part of the Further Consolidated Appropriations Act, 2020.

Although this legislation is considered major retirement plan legislation, it doesn’t have many immediate impacts on most employer retirement plans. Plan sponsors need to pay attention to the following items – for the most part, the other changes (such as pooled employer plan opportunities and annuity payouts) do not require immediate action.

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A Little Less Conversation, a Little More Action: Major retirement plan legislation is finally signed into law

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by Brenda Berg

After being on the verge of enactment last spring but failing to pass, the SECURE Act will become law after all. Congress included the Setting Every Community Up for Retirement Enhancement Act of 2019 (H.R. 1994) (the SECURE Act) in the year-end spending legislation needed to keep the government running. The House passed the Further Consolidated Appropriations Act, 2020 (H.R. 1865) – which included the SECURE Act provisions – on December 17, 2019. The Senate followed on December 19, 2019, and President Trump signed it on the last day possible for the spending bill – December 20, 2019.

For a summary of the major SECURE Act provisions that impact retirement plans, see our previous article. In addition to including the SECURE Act provisions, the year-end legislation adds a few other provisions impacting retirement plans and other benefits. Defined benefit plans such as cash balance plans can now allow in-service withdrawals once a participant reaches age 59-1/2, instead of age 62. The minimum age for in-service withdrawals from 457(b) plans is also lowered to 59-1/2.

For welfare benefits, the year-end legislation repeals the “Cadillac Tax” which would have otherwise taken effect in 2022. The Cadillac Tax was part of the Affordable Care Act (ACA) and would have imposed a 40% excise tax on the insurer or employer for any “high cost” employer-provided health plan coverage.

Many of the benefits provisions are effective in 2020, although some are optional. The legislation generally provides time to amend retirement plans until the last day of the plan year that begins in 2022, and some governmental plans and collectively bargained plans have later deadlines until as late as 2024.

We will be covering many of the specific changes in more detail in upcoming blog posts. Sign up to regularly receive our blog posts (which come more often and on more varied topics than our Alerts).