Our Benefits and Executive Compensation group reminds plan sponsors to prepare for the IRS 2021 year-end changes and offers year-end measures.
- Qualified modifications
- Changes under the SECURE Act, CARES Act and hardship regulations
- Considerations for Safe Haven Plans
This notice reminds sponsors of eligible pension plans of the upcoming deadlines for amending eligible pension plans and highlights other measures to be taken by plan sponsors.
Modifications eligible for the plan
Amendments for changes in law
December 31, 2021 is the deadline for difficulty changes
Final regulations issued under the 2019 bipartite budget law require calendar year plans to be amended no later than December 31, 2021. These rules affected the rules regarding hardship withdrawals from defined contribution plans, including the following :
- Eliminate the suspension of optional employee deferrals following an employee’s hardship withdrawal.
- Require participants to certify that they have sufficient cash or liquid assets reasonably available to meet their financial needs.
- Optional removal of the requirement for participants to obtain a loan before receiving a hardship withdrawal.
- Optional increase in sources available for proof withdrawal.
- Added a new category of difficulties related to federally declared disaster areas.
Plans were needed to implement mandatory provisions operationally by January 1, 2020, and many plans also implemented optional provisions operationally. For calendar year plans, it is essential to ensure that all arrangements implemented during the 2019, 2020 and 2021 plan years are documented in a formal amendment no later than December 31, 2021. an amendment formal in the plan year in which they are added. Plan sponsors should consult with their registrars and legal counsel to ensure that the required changes have been made. Note that pre-approved plans may have already been changed by the plan provider, so if you are sponsoring a pre-approved plan, be sure to confirm with your provider if action is required.
December 31, 2022 is the deadline for adopting changes under other recent laws
The SECURE Law, the CARES Law and the Consolidated Appropriations Law of 2021 included several additional optional and mandatory provisions. The deadline for adopting changes reflecting these provisions is generally December 31, 2022. Below is a list of several of these changes; consult your legal advisor to determine if your plan needs to be changed as a result of these changes or any other changes in recent legislation.
- Obligatory: Delay the start date required for the minimum distributions required from April 1 following the calendar year in which the participant turns 70 and a half to April 1 following the calendar year in which the participant reaches the age of 72. This change only applies to participants born after June 30, 1949.
- Obligatory: Modification of the rules for the distribution of benefits payable on the death of a participant. The new rule under the SECURE Act generally applies to participants who die on or after January 1, 2020 and requires distributions within 10 years of the participant’s death, unless the beneficiary is the participant’s spouse or a member. a specific list of other “eligible designated beneficiaries.”
- Obligatory: Allow part-time employees to be eligible for optional deferrals if they work at least 500 hours for three consecutive years beginning for plan years that begin on or after January 1, 2021.
- Optional: Addition of special distributions for deliveries or adoptions.
- Optional: Distributions during employment of a pension plan from the age of 59 and a half.
- Optional: Increase the maximum percentage of automatic deferral under a qualifying automatic deferral arrangement from 10% to 15% of compensation. Note that the 10% maximum still applies for the first year of participation.
- Optional: Helping participants affected by the coronavirus pandemic, including coronavirus-related distributions, suspension of loan repayments and increasing loan amounts during parts of 2020.
- Optional: Disaster assistance under the Consolidated Appropriations Act of 2021, including $ 100,000 in eligible disaster distributions, increased loan amounts, and the ability to withhold repayments for those whose primary residence is in a qualified disaster area or suffering economic loss due to a qualified disaster.
In addition, the CARES Act suspended the minimum distributions required for 2020. We recommend that plan sponsors discuss how this has been implemented with their registrars and legal advisors and consider whether the actions taken should. be reflected in an amendment.
Plan sponsors who have made discretionary changes to their qualifying pension plans or who may have added optional operational features other than those discussed above during 2021 (for example, a plan loan feature) should ensure that the associated “discretionary” changes are signed by December 31st at the latest. , 2021 (for calendar year plans). If you have made discretionary changes to your qualifying pension plan, you should take the time to ensure they have been formally adopted by the end of the year.
Other action items
Considerations for Safe Haven Plans
In response to the coronavirus pandemic, many companies sponsoring safe harbor plans have chosen to reduce or suspend employer contributions to their eligible pension plans, including in some cases a reduction or suspension of contributions. safe harbor. Pension plans that may have already met Safe Harbor requirements may be required to perform non-discrimination testing for the 2021 plan year due to the reduction or suspension of employer contributions. If your qualifying pension plan has reduced or suspended employer contributions, and you plan to resume employer contributions, including safe-haven contributions, for the 2022 plan year, you may need to take actions before the end of 2021. For qualifying pension plans aimed at meeting Safe Harbor requirements, the steps required may vary depending on whether the plan uses matching contributions or non-voluntary contributions to meet the requirements of the Safe Harbor. safe harbor.
For qualifying pension plans that will use matching contributions to meet safe harbor requirements for the 2022 plan year, the plan will need to be amended by December 31, 2021. In addition, plan members must receive their plan. annual Safe Harbor notice no later than December 1. , 2021. We recommend that the Safe Harbor Notice outline the plan sponsor ‘s ability to reduce or suspend Safe Harbor contributions in the future in the event that adjustments need to be made in 2022.
For qualifying pension plans that will use non-voluntary contributions to meet the Safe Harbor requirements for 2021, the Safe Harbor Notice is generally no longer required. Additionally, the plan may not need to be changed until 30 days before the end of 2022 to reflect the retirement plan’s safe haven status, or even later if the non-elective contribution is 4% or more. compensation. However, we recommend that you discuss the specific requirements with your legal advisor to determine whether communication with participants may be desired and to ensure that the requirements necessary to qualify for Safe Harbor status are met.
Considerations from recent DOL guidelines
The Ministry of Labor recently released several guidance documents covering a number of topics, including advice on what constitutes fiduciary advice and recommendations for cybersecurity best practices. The end of the year provides an opportunity for the plan trustees to discuss these matters with the registrars and to determine whether further improvements are appropriate.
Other things to consider
As you review your plan document, you may consider whether it is appropriate to add any of the following provisions to your pension plan:
- Internal limitation period for filing complaints
- Forum selection clause
- Mandatory arbitration provision
We recommend that all plan sponsors review these features and discuss them with your legal advisor, but be aware that these features are not legally required and may not be suitable for all qualified pension plans or sponsors. of diets.
Additionally, remember that IRS and DOL guidelines starting in 2020 suspended certain deadlines for participants to appeal claims until the earlier of the following dates: (1) the end of the emergency national based on the coronavirus epidemic; or (2) one year. As this is an individual limit, until the official end of the national emergency period, this will require individual monitoring of appeal deadlines. We recommend that you ensure that your plan administrator continues to settle claims and answer calls as required by your plan.
The end of the year offers plan sponsors the opportunity to review their eligible pension plans and determine if their pension plans have any legally required changes and if they wish to add any of the features described above beforehand. even a legally required deadline. Please feel free to contact your Alston & Bird attorney to discuss any of these plan changes or further action to take.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.