Hole in the Bottle … Protecting Against 401(k) Cybersecurity Leakage

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by Alex Smith

Both the Department of Labor (DOL) and plaintiffs’ lawyers have taken an interest in retirement plans’ cybersecurity in recent years. Last year, the DOL issued guidance on the cybersecurity considerations plan fiduciaries should be mindful of. In addition, cyber theft in recent years has led to multiple lawsuits. A specific recordkeeper involved in many of these lawsuits is currently being investigated by the DOL with respect to cybersecurity incidents that have impacted certain of its retirement plan clients. Read more

You Spin Me QPAM Baby QPAM: DOL’s Proposed QPAM Rule May Mean Changes to Collective Trust Agreements for Plan Sponsors

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by Bret F. Busacker

The DOL published on July 27, 2022 a proposed change to the QPAM Exemption (“Proposed QPAM Amendment”) that may require retirement plan sponsors to update their collective trust agreements in order to satisfy the new DOL requirements.  Collective trusts have become an increasingly common way for qualified retirement plan committees/plan sponsors to achieve lower investment expenses for some of the investment options in their plans.

These collective trusts are managed by investment managers who often engage other financial institutions to execute trades involving the pension assets held by the collective trust. These trades involving retirement plan assets may at times be executed by a financial institution that is also providing services (such as recordkeeping services) to the same retirement plan.  Absent an exemption, these sorts of related party transactions may violate the ERISA prohibited transaction rules.   Read more

Time Is On My Side: Some Retirement Plan Amendment Deadlines Pushed Back

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by Brenda Berg

The IRS has given plan sponsors more time to adopt some – but apparently not all – retirement plan amendments reflecting law changes in the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), the Bipartisan Miners Act of 2019 (Miners Act), and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Notice 2022-23, issued August 3, 2022, generally provides that the deadline to adopt these amendments is extended to December 31, 2025. This is the deadline for qualified plans regardless of the plan year, and this deadline also applies to 403(b) plans and collectively bargained plans. Governmental plans generally have until 90 days after the third regular legislative session of the body with the authority to amend the plan that begins after December 31, 2023. Read more

Take A Chance On Me? Could We Finally See Legislation Expanding Section 1042 Deferral to S Corp ESOPS?

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by Elizabeth Nedrow

One of the most popular incentives for small business owners to establish an ESOP (employee stock ownership plan) is the ability to defer tax on the gain they will receive in the sale through the Section 1042 deferral. If certain requirements are met (most notably that the ESOP must end up owning at least 30% of the company), the selling shareholders can defer tax on their gain by investing the proceeds in certain types of “qualified replacement property.” Read more

Old MacDonald Had a Farm…EIN Confusion?

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by Becky Achten

The trusts maintained to hold assets of ERISA plans are separate tax entities from the employers sponsoring the plans. Therefore, each is required to have its own federal tax ID number. Knowing when and where to use whose EIN can be confusing. Here are a few tidbits of information on that topic. This information applies to single employer plans. Multi- and multiple-employer plans may have different rules. Read more

We Just Need Your Compliance…IRS Announces Pilot Pre-Examination Program for Qualified Plans

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by Lyn Domenick

IRS Employee Plans has just announced a pilot program for pre-examination compliance checks of qualified retirement plans, beginning this month. If your plan is targeted, you will receive a letter from the IRS notifying you that your retirement plan has been selected for an upcoming IRS examination. What’s new under the pilot program is that the IRS will give you 90 days to perform your own self-compliance check and determine if the plan is in compliance with current IRS guidance, with the enticement that this self-review may avoid an IRS examination.

During the 90 days, you would complete a compliance review of your plan and, if you do not find any errors, you would assert to the IRS that the plan meets current tax law requirements. Or, if you discover some matters that need correction, you may correct mistakes using the self-correction principles or the voluntary compliance program (VCP) under the IRS correction program, EPCRS. If the errors are eligible for self-correction under EPCRS, it appears that no penalty will apply. If the errors are eligible for VCP but not self-correction, the IRS may issue a closing agreement and assess a fee based on the VCP fee that would otherwise have been charged if the plan had filed a VCP application under EPCRS before this process had begun. If the IRS disagrees with the correction–or if you fail to respond to the IRS within the 90-day period–the IRS will likely schedule a limited or full-scope examination. Read more

Every Little Thing … Considerations Before Adding Crypto to a 401(k) Plan

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by Alex Smith

Fidelity Investments recently announced that it will offer its 401(k) plan clients the opportunity to offer bitcoin as a 401(k) plan investment option later this year.  While this may sound intriguing to some plan fiduciaries and participants, plan fiduciaries should proceed with extreme caution.

Based on the Department of Labor’s (DOL) public pronouncements, it appears the DOL has serious doubts about whether 401(k) plan fiduciaries who include cryptocurrency among their 401(k) plan’s investment options comply with their ERISA fiduciary duties.  In March, the DOL issued Compliance Assistance Release No. 2022-01, in which it expressed “serious concerns” about the prudence of 401(k) plan fiduciaries including cryptocurrency as a 401(k) plan investment option and announced it plans to conduct an investigative program related to cryptocurrency investments by 401(k) plans.  For more information on Compliance Assistance Release No. 2022-01, please see our prior blog post Can’t Touch This … DOL Discourages Plans From Investing in Cryptocurrency.  Following Fidelity’s announcement, a DOL official expressed “grave concerns” about the offering and indicated that the DOL intends to meet with Fidelity to discuss its concerns in comments to the Wall Street Journal. Read more

How Much is that (Investment) in the Window…A Higher Level of Fiduciary Oversight Could be Required for 401(k) Plan Brokerage Windows

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by Brenda Berg

Fiduciaries of 401(k) plans and other retirement plans know that they must prudently monitor the investment options available to participants in the plan, but are they monitoring participants’ investments made through a plan’s brokerage window? Recent commentary from the Department of Labor (DOL) on cryptocurrency investments suggests maybe fiduciaries should be – and that the DOL may check in on that soon.[i]

A “brokerage window” or “self-directed brokerage account” can allow participants access to a broad array of investments beyond the regular investment menu under the plan. Most plan fiduciaries have not paid much attention to the actual brokerage window investments. This is not surprising given the DOL’s relative lack of focus on the matter. The DOL had issued guidance in 2012 that the investment disclosure portion of the fee disclosure rules could apply to brokerage window investments in certain cases but after pushback due to the administrative burdens, the DOL withdrew that guidance. In 2014 the DOL issued a Request for Information about brokerage window practices but no further guidance was issued. Read more

Can’t Touch This … DOL Discourages Plans From Investing in Cryptocurrency

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by Becky Achten

Among the many phrases of ERISA, one that is familiar to investment fiduciaries is the requirement to choose investments with the care, skill, prudence, and diligence that a prudent person who is familiar with such matters would use. Recently the Department of Labor (DOL) issued guidance on how this prudence standard applies to fiduciaries who offer cryptocurrency investment alternatives to participants.

In Compliance Assistance Release 2022-01, the DOL reminds fiduciaries of their important role in selecting investments for participant direction. Plan fiduciaries must evaluate each investment option made available to participants to ensure they are prudent. Failure to remove an imprudent investment is a breach of duty. Read more

What Doesn’t Kill You Makes You Stronger… New Audit Requirements for Retirement Plans

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by Bret F. Busacker

For many retirement plan sponsors, Form 5500 preparation season is underway.  Plan sponsors should be aware that things have changed with the Form 5500 audit requirements and procedures.  These changes push more responsibility to plan sponsors and require plan sponsors to better understand the representations they are making to the auditors as part of the 2021 plan audit (and beyond). So what has changed?

Read more