If your qualified pension plan does not provide for in-service distributions and has commenced benefit distributions to a retiree who experienced a bona fide retirement, the IRS says your plan may be able to rehire that retiree and let him or her continue to receive benefit payments upon rehire. Read more
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.
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
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
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
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 |
By Kevin Selzer
With the exception of certain small businesses, being an employer generally means offering an array of benefits to remain competitive in the worker marketplace. As the employer grows, typically so does the list of employee benefit plans being offered. This naturally translates into more service providers, and for good reason. Employers typically don’t possess the knowledge and skillset to offer these benefits in-house, and ERISA, which applies to most employee benefit arrangements, requires the plans to be administered in accordance with some of the highest standards of care under law. As a result, employers are frequently hiring and replacing service providers.
Today’s post focuses on some tips for employers in a sometimes-overlooked aspect of the process of hiring a service provider – the contract between the employer and the provider. In concept, the service provider agreement is relatively simple – it needs to set out each party’s role and responsibility in delivering the employee benefit. As always though, the devil is in the details. Below are some tips for employers:
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
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.
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