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401(k) Plans

Key Provisions of SECURE 2.0

Congress recently approved some of the most sweeping changes to retirement plans in decades. The Consolidated Appropriations Act of 2023 includes the SECURE 2.0 Act of 2022. SECURE 2.0 makes numerous changes to qualified retirement plans, 403(b) plans, 457(b) plans, individual retirement accounts, and other employee benefits. The changes are designed to enhance access to retirement savings, preserve income, and lessen administrative burdens.

Employers will need to modify certain aspects of plan administration and make decisions about which optional plan provisions to adopt. This post provides an overview of the most relevant provisions of SECURE 2.0 and their effective dates. We will provide more detailed discussion of SECURE 2.0 and its implications in subsequent posts.

Coming Soon: Retirement Plan Changes Under SECURE 2.0

Legislation included in the huge omnibus spending bill approved by Congress in the waning days of 2022 will require employers to reevaluate and revise the 401(k) and 403(b) retirement plans they sponsor. Now officially known as the SECURE Act 2.0 of 2022, the legislation combines provisions of three separate bills that enjoyed bipartisan support throughout 2022. However, much like its predecessor, the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in late 2019, SECURE 2.0’s fate was not known until it was included in must-pass legislation at year’s end.

Happy Holidays! A Gift from the DOL

‘Tis the season for giving – and the Department of Labor just gave plan sponsors a gift. The Department of Labor’s Employee Benefits Security Administration (EBSA) recently announced its intent to update its Voluntary Fiduciary Correction Program (VFCP) to create a new self-correction process for correcting late remittances of participant deferrals and loan repayments to defined contribution plans.

Retirement Plan Sponsors Should Prepare For the New IRS Pre-Examination Pilot Program

In June 2022, the IRS launched a pre-examination pilot program for retirement plans that could help employers avoid costly penalties. The program aims to reduce the burden of, and time spent on, retirement plan audits, which are typically a time consuming endeavor for plan sponsors. The program ultimately should be good news for plan sponsors in terms of both financial penalties and, presumably, a more efficient audit process.

New in ’22 for 401(K) Plans – Lifetime Income Disclosures

The SECURE Act added a new disclosure requirement for sponsors of defined contribution plans that becomes effective this year.   Plan sponsors of ERISA-covered defined contribution plans must provide participants with a lifetime income disclosure (at least annually) which estimates the monthly income that a participant’s account balance could produce if paid in the form of a qualified joint and survivor annuity or single life annuity stream of payments, rather than a lump-sum.

For participant-directed plans, the initial lifetime income disclosures must be incorporated into benefit statements no later than June 30, 2022.  For plans under which participants do not direct the investment of their account, the disclosures must be on the statement for the first plan year ending on or after September 19, 2021.  For most plans, this will be October 15, 2022.

DOL Issues Cybersecurity Guidance

On April 14, 2021, the Department of Labor’s Employee Benefits Security Administration (“EBSA”) issued cybersecurity guidance for retirement plan fiduciaries and service providers, as well as plan participants.  In the guidance, the EBSA states that ERISA fiduciaries are required to take appropriate steps to mitigate internal and external cybersecurity threats to plan participants and retirement plan assets.   To assist fiduciaries  and service providers in fulfilling this obligation, the EBSA issued two documents that describe cybersecurity best practices – Cybersecurity Program Best Practices and Tips for Hiring a Service Provider.  The EBSA also issued some basic rules – Online Security Tips – to help participants reduce the risk of fraud and loss to their retirement accounts.

Major Employee Benefit Reforms Included in COVID-19 Stimulus Package

In addition to $600 checks for most Americans, the year-end COVID-19 stimulus package signed by the President on December 27, 2020, includes a new round of changes that employers will need to track for their employee benefit plans.  The Consolidated Appropriations Act, 2021 (H.R. 133) (the “Act”) is the fourth major legislative attempt to provide relief to businesses and individuals facing economic hardship due to the COVID-19 pandemic.   Although lacking a catchy acronym (like the “CARES” and “SECURE” Acts), this legislation makes the most significant changes to health plans since the Affordable Care Act, offers employers and employees additional flexibility for cafeteria plan benefits, and provides additional retirement plan relief.

Plan Administration – A SECURE and CARES Act Reminder

The SECURE and CARES Acts provide a broad spectrum of required and optional changes that employers must evaluate with respect to retirement plan administration.  One impending change is the SECURE Act’s broader eligibility requirement for part-time employees in 401(k) plans, which becomes effective on January 1, 2021.  In addition, employers may be surprised to learn that some CARES Act distribution options were added to their plans automatically by their record keepers through a “default” process.   Thus, employers should review their plan’s administrative procedures to determine if (and how) changes under the SECURE Act and CARES Act were (and are being) implemented to ensure administrative compliance with the plan document.

 

IRS Creates New “Window” to Suspend 401(k) Safe-Harbor Contributions for 2020

The IRS has granted additional, albeit temporary, COVID-19-related relief for sponsors of “safe-harbor” 401(k) and 403(b) plans (i.e., plans that are exempt from one or both of the ADP and ACP nondiscrimination tests).  Notice 2020-52, which was issued on June 29, 2020, provides temporary relief from the current requirements for mid-year amendments to such plans, and provides additional clarification regarding mid-year amendments to safe-harbor plans that only affect highly compensated employees.   This guidance is welcome relief for plan sponsors who feel the financial need to reduce or suspend employer contributions under these plans, but who may not be able to satisfy the current regulatory requirements for mid-year amendments.

DOL Finalizes Electronic Disclosure Safe Harbor for Retirement Plans

The Department of Labor (DOL) has now finalized its October 2019 proposal (described in our previous blog) to create a new “safe harbor” for the electronic distribution of ERISA-required notices and disclosures.  The final regulation establishes a new, voluntary safe harbor for retirement plan administrators who want to use electronic media, as a default, to furnish covered documents to participants and beneficiaries, rather than providing paper documents through mail or hand delivery.  The new safe harbor permits electronic delivery by either (i) posting covered documents on the plan sponsor’s website, if appropriate notification of internet availability is furnished to the participant’s electronic address, or (ii) sending the documents directly to the participant’s electronic address, with the covered document either in the body of the e-mail or as an attachment thereto.  Although the final rule is not effective until 60 days after its publication in the Federal Register, the DOL has indicated that it will not take any enforcement action against a plan administrator that relies on the safe harbor before that date.

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