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The October 7, 2024 comment letter sent to the IRS by SPARK (and posted on today's BenefitsLink news) asks the IRS to provide guidance on this issue. "Issue: Under Code section 411(d)(6), in general, a plan may not decrease a participant’s accrued benefits by a plan amendment, including by eliminating an optional form of benefit.3 In some cases, however, the Code explicitly provides that the termination of an optional benefit does not violate this anti-cutback rule. In the case of sections 115 and 314 of SECURE 2.0, the Code does not specify whether a plan that offers such distributions will violate the anti-cutback rule if the plan then eliminates those benefits. This is also the case for other types of in-service distributions created by the SECURE Act of 2019 (“SECURE 1.0”) and SECURE 2.0, including qualified disaster recovery distributions (SECURE 2.0 section 331), qualified long-term care distributions (SECURE 2.0 section 334), and qualified birth or adoption distributions (“QBADs”) (SECURE 1.0 section 113). Request: Reiterating a prior guidance request, the SPARK Institute requests guidance providing that any plan making available the in-service distribution rights for emergency personal expense distributions and domestic abuse victim distributions will not violate Code section 411(d)(6) by prospectively eliminating, modifying, or restricting such benefits. For consistency, we believe it would also be appropriate to extend this relief to all of the new in-service distribution rights created by SECURE 1.0 and SECURE 2.0, as described above."

The 2024 Instructions for Form 1099-R just came out and page 16 provided the following guidance regarding the Box 7 distribution code for the various new SECURE 1.0 and SECURE 2.0 distribution types (QBAD; EPED; TIID and DAV): ".....use Code 1 even if the distribution is made for .....a qualified birth or adoption distribution, an emergency personal expense distribution, a terminally ill individual distribution, or an eligible distribution to a domestic abuse victim under section 72(t)(2)(B), (D), (E), (F), (G), (H), (I), (K), or (L)." However, I didn't see any guidance on which code should be used for qualified disaster recovery distributions under Section 331 of SECURE 2.0 / IRC 72(t)(11). Did I miss it? Should we use Code 1 or 2 for qualified disaster recovery distributions?

Just curious whether anyone knows whether large recordkeepers are moving to self-certification of hardship withdrawals as permitted by SECURE Section 312? Is this a choice by each plan sponsor, or are the recordkeepers mandating a specific service model?

Pursuant to Section 603 of the SECURE Act and starting with the 2024 calendar year, if FICA wages in the previous calendar year (2023) exceeded $145,000, the catch-up contributions under IRC 414(v) must be made to a designated Roth account under the Plan. If a participant elected pre-tax 401(k) contributions in 2024 and the participant reaches the dollar amount permitted under IRC 402(g) in the middle of 2024 (i.e.- September, 2024), is it possible for the plan to be designed to withhold Roth 401(k) catch-up contributions for the remainder of the 2024 year (i.e., September-December, 2024) up to the IRC 414(v) limit (i.e., $7,500)? The SPARK Institute's Comment Letter to the IRS (April 10, 2023) requests IRS guidance that permits this automatic spillover: The SPARK Institute requests confirmation that employers and plan administrators can rely on negative consent to switch employee elections from pre-tax elective deferrals to designated Roth contributions in order to prevent any existing election from violating SECURE 2.0’s requirement for Roth catch-up contributions. I was just checking to see if recordkeepers and/or payroll companies have considered this automatic spillover as a feature that they are planning to build, support and administer in their SECURE 2.0 projects.

An employee made a 5% deferral rate election effective January 1, 2020; however, due to a mistake in plan operation, this 5% deferral rate was never implemented. This would likely be classified as the "failure to implement an employee's election" for an entire plan year as described in Appendix A.05(5)(a) of Revenue Procedure 2021-30. The Rev Proc states that: "...the Plan Sponsor must make a QNEC to the plan on behalf of the employee to replace the “missed deferral opportunity.” The missed deferral opportunity is equal to 50 percent of the employee’s “missed deferral.” The missed deferral is determined by multiplying the employee’s elected deferral percentage by the employee’s compensation." The plan sponsor normally allows employees to make 401(k) contributions on compensation in excess of the 401(a)(17) compensation limit of $285,000 for the 2020 year (as permitted by IRS Employee Plan News Issue 2012-1). The employee's compensation for the 2020 plan year was $340,000. My question is....is the "compensation" used in calculating the missed deferral $285,000 or $340,000? As best as I can tell, the Rev Proc does not say that compensation under the corrections in Appendix A or B must limited to the 401(a)(17) limit, and quite frankly, if the plan had been operated correctly, the participant would have had the 5% deferral rate applied to the full $340,000 of compensation. Thoughts?

Ok, pretend I am a 4th grader....what is the mathematical formula, and the factors used?

On July 30th, the Internal Revenue Service updated the retirement plan COVID Q&A on their website to clarify that an individual terminated and rehired in 2020 due to COVID is not considered to have an employer initiated severance from employment. It is unclear to me whether this guidance is only applicable for for COVID related severance and rehire in 2020, or is this the ongoing general interpretation for future years and other terminations/rehires (ie - due to sale of a business; closing of a plant; etc)? Q15. 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? (added July 30, 2020) A15. Generally, no. Subject to the facts and circumstances of each case, participating employees generally are not treated as having an employer-initiated severance from employment for purposes of calculating the turnover rate used to help determine whether a partial termination has occurred during an applicable period, if they’re rehired by the end of that period. That means participating employees terminated due to the COVID-19 pandemic and rehired by the end of 2020 generally would not be treated as having an employer-initiated severance from employment for purposes of determining whether a partial termination of the retirement plan occurred during the 2020 plan year. See Revenue Ruling 2007-43 for more information on partial terminations, including vesting rules, how to calculate the turnover rate for employer-initiated severances, the presumption that a turnover rate of at least 20 percent during an applicable period results in a partial termination, and how to determine the applicable period. https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers#:~:text=In general%2C section 2202 of,to qualified individuals%2C as well

FWIW...someone had recently published n a non-Benefitslink site a different opinion. Regarding the question on terminated employees who are later rehired, any new employer contributions to the plan after rehire would be subject to the plan’s vesting schedule. The IRC and regulations merely require full vesting for the amount in the plan as of the date of the partial plan termination. Consequently, if a terminated employee leaves behind his or her plan balance and is later rehired, the plan would have to apply two vesting schedules.

Treasury Regulation 1.402A-1, Q&A-5(a) states that distributions attributable to designated Roth contributions that include amounts that would not be taxable if they were distributed to the participant must be made via direct rollover if rolled to a designated Roth account of qualified Plan. Essentially, this Treasury Regulation requires that designated Roth rollovers between qualified plans be facilitated via direct trustee-to-trustee rollover, not via the indirect 60-day rollover process. IRS Notice 2020-51, Q&A-8 states that RMD distributions from a plan may be rolled back into the same plan, provided the plan permits rollovers and the rollover satisfies the requirements of IRC 402(c). If a participant receives an RMD from a qualified plan in January, 2020, and such RMD includes designated Roth contributions that would not be taxable, can this individual make an indirect rollover back into the qualified plan from which it was distributed, notwithstanding Treasury Regulation 1.402A-1, Q&A-5 which generally requires Roth accounts to be rolled over via direct rollover? IRS Notice 2020-51 did not address this Roth rollover issue - - in fact, the word Roth never appears in Notice 2020-51.

Thanks Larry. Let me change the fact pattern. Let's say that the individual receiving RMD's is an actively-employed 5% owner. Further, lets assume that a portion of the RMD is attributable to designated Roth contributions, and that such RMD distribution would be considered a Qualified Roth Distribution. Treasury Regulation 1.402A-1, Q&A-5 states that distributions attributable to designated Roth contributions that includes amounts that would not be taxable if they were distributed to the participant must be made via direct rollover, if rolled to a designated Roth account of qualified Plan. Given that this rollover of the Roth RMD would be an indirect rollover, can this rollover be accepted by the plan?

A participant received a 2020 RMD on March 1, 2020 (the individual is a terminated, non-5% owner who reached required beginning date many years ago). The CARES Act later waived the RMD for the 2020 year and the participant wishes to repay/roll this RMD back into the qualified plan from which it was distributed within 60 days (or by July 15th pursuant to IRS Notice 2020-23). However, the terms of the qualified plan document only permit incoming rollover by "employees." Since this individual is no longer an "employee," can the individual actually roll over such amount back into the plan as an indirect rollover?

It appears that most (but certainly not all) industry groups and recordkeepers are coalescing around two interpretations for the CARES Act loan provisions: 1) Loan payments from 4/1/2020-12/31/2020 (9 months) are suspended, and payments resume on 1/1/2021 under a reamortized loan amount. 2) The term of the loan is extended by 9 months (thus interpreting the "period" referred to in 2202(b)(2)(C) to be the 3/27/2020-12/31/2020 suspension period) Assuming that to be true, then the participant has no "due dates delayed for 1 year" which is part of the statutory text. How do you explain to participants and plan sponsor that even though the statutory text contains a 1 year delay, in operation, nothing is being delayed for 1 year? The two interpretations above act as if the 1 year verbiage is not even in the statutory text.

Most plan documents are hard-wired with an April 15 deadline to distribute excess elective deferrals. Will this extension under IRS Notice 2020-23 until July 15 override the terms of the plan document which require distribution by April 15?

Assuming that the plan sponsor has authorized SECURE Act qualified birth or adoption distributions under the plan, may a terminated employee who maintains an account balance in a plan receive a qualified birth or adoption distribution? I think Yes - - I could not find anything in the statutory text (or the Joint Committee on Taxation Report) that limits qualified birth or adoption distributions to active employees. But wanted to see if others read feel different.

A participant has an Employee (Voluntary) After Tax Account in a qualified 401(k) retirement plan of $100,000, which represents $10,000 of Post-1986 after-tax contributions (basis) and $90,000 of investment earnings. This $100,000 After-Tax Account was attributable to After-Tax Contributions he made to the Plan in the 1990's and he has not made any After-Tax Contributions since then. Generally, if he takes a distribution of a portion of this $100,000 After-Tax Account, it is my understanding that 90% of such distribution will be taxable under the basis recovery rules of IRC 72(e)(8). He makes $500 of new After-Tax Contributions on January 15, 2019 which he intends on converting to a Roth Account inside the plan pursuant to the In Plan Roth Rollover provisions of IRC 402A(c)(4). Assuming he makes the election on January 16, 2019 to convert $500 of his After-Tax Account to a Roth Account under the Plan, what is the taxable amount (if any) of the conversion? In other words, can he elect to convert just the $500 of After-Tax Contributions deposited into the plan the day before, or must the In Plan Roth Rollover take into account his entire (previous) After-Tax Account, in which case about 90% of the $500 converted would be taxable? My understanding is that the after-tax "contract" under 72(d)(2) applies to all amounts under the Plan (the sum of the old After-Tax Contributions from the 1990's and new After-Tax Contributions made in 2019) and thus he would not be able to designate just the new $500 After-Tax Contribution as the portion subject to the In Plan Roth Rollover (and thus approximately 90% of the $500 converted would be taxable). I hope I am wrong, though....

It seems that with the recent Abbott Labs Private Letter Ruling (201833012), as well as announcements from large recordkeepers (Empower and Fidelity), there is a lot of noise about integrating a student loan repayment program with a retirement plan. Now, we can argue whether it makes sense to do such integration, but nevertheless, HR managers are seeing the headlines and are asking questions. Suppose a company provides student loan repayment program under which the company will reimburse (ie - make a payment directly to the employee's creditor) dollar for dollar of the employee's student loan repayments of up to $1,200 each year. The employer would develop procedures to substantiate the student loan repayments made by the employee. Further, I assume that the $1,200 reimbursement would be taxable to the employee. Further also suppose that this company offers a 401(k) retirement plan that provides a 50% up to 6% non-safe harbor matching contribution. So for an employee with compensation of $40,000 and a 6% deferral rate, the employee would receive a $1,200 matching contribution. The company wants to manage employee benefit costs, so the employer would not want an employee to receive both the $1, 200 student loan repayment AND a $1,200 matching contribution under the retirement plan. Could the plan document be written to exclude "Employees Participating in a Student Loan Repayment Program" from being eligible to receive non-safe harbor matching contributions? Assuming that the plan's matching coverage is greater than 70%, are there any other problems with this approach?

Is a plan using the "facts & circumstances" method of determining immediate and heavy financial need under Treasury Regulation 1.401(k)-1(d)(3)(iii)(A) permitted to impose a 401(k) contributions suspension period under the Proposed Hardship Regulations? I realize that the preamble to the proposed hardship regulations state "the proposed regulations do not permit a plan to provide for a suspension of elective contributions or employee contributions as a condition of obtaining a hardship distribution." However, I couldn't tell if that applied solely to plans using the deemed safe harbor reason, or to both deemed safe harbor and "facts & circumstances" method.

A Plan became an Eligible Automatic Contribution Arrangement (EACA) under IRC 414(w) effective January 1, 2015. The plan document states that only employees hired after January 1, 2015 are covered employees under the EACA. Several years later, the plan sponsor determines that they now want to amend the plan document effective October 1, 2018 to change the covered employees under the EACA to be all employees that do not have an affirmative deferral rate election. This is sometimes referred to as a lookback or sweepback. As a result of the lookback, employees that were hired prior to January 1, 2015 and who have never made an affirmative deferral rate election will now become covered employees and enrolled at the plan's default deferral rate. It does not appear that Treasury Regulation 1.414(w)-1(b)(3)(iii)(A) directly addresses the EACA notice requirement for the those who will receive their initial EACA notice as a result of the lookback . When must employees impacted by the October 1, 2018 lookback receive their initial EACA Notice? 1) Within a reasonable period of time prior to the beginning of the 2018 plan year (ie - in November, 2017). If this is the correct interpretation, it virtually eliminates mid-year lookbacks to EACA's as the decision by the plan sponsor to implement a lookback won't be made by that time. OR 2) Within a reasonable period of time prior to the date that the employees with no affirmative deferral rate election become a covered employee under the EACA (ie - within a reasonable period of time prior to October 1, 2018).

Treasury Regulation 1.401(k)-1(d)(3)(iii)(B) permits Participants to take a “safe harbor” hardship distribution if they incur expenses for the repair of damage to the employee’s principal residence that would qualify for the casualty deduction under IRC §165 (determined without regard to whether the loss exceeds 10% of adjusted gross income). However, the Tax Cut and Jobs Act seems to amend IRC 165 (effective after December 31, 2017) to state that casualty losses are only deductible to the extent it is attributable to a federally declared disaster. This would mean that participants would only be able to take a hardship distribution for a casualty loss situation if they live in a federally declared disaster area, which would appear to dramatically reduce the number of participants that could take hardship distributions due to a repair of principal residence. So, in 2018, if my house burned down due to an accident (and was not covered by insurance) and it is unrelated to a federally declared disaster, I can't take a hardship distribution anymore? Is that right?

Thanks RatherBeGolfing, I am aware that Georgia has now qualified for for the 7508A relief. However, I am curious about the special retirement plan relief under Announcement 2017-13, not the 7508A relief, for Georgia individuals. Any thoughts on that?

Announcement 2017-13 states provides certain loan and distribution relief for "employees or former employees whose principal residence on September 4, 2017 was located in one of the Florida counties identified for individual assistance" by FEMA caused by Hurricane Irma. However, FEMA announced on September 15, 2017 that 3 counties in Georgia (Camden, Chatham and Glynn) are now areas designated by FEMA for individual assistance. Should we assume that employees in these 3 Georgia counties are now eligible for the Announcement 2017-13 relief even though the literal reading of Announcement 2017-13 states it the relief is for employees in "Florida" counties? My gut is telling me the 3 Georgia counties are now permissible, and that the IRS just rushed to get Announcement 2017-13 out the door and incorrectly put in Florida counties. Other thoughts? It should be noted that the above sentence is the only sentence in Announcement 2017-13 that mentions "Florida" counties.

A participant should have been automatically enrolled at 3% effective January 1, 2015, but due to an error, was not automatically enrolled. The participant terminated employment on June 30, 2015 with the participant never having any 401(k) deductions. The error is discovered in November, 2015. Is the error eligible for the new "safe harbor correction method for failures related to automatic contribution features in 401(k) plans" as added by Revenue Procedure 2015-28 such that there is no corrective contribution for the missed deferral opportunity? Or because "correct deferrals" never began, is the plan required to correct under the Elective Deferral failure that requires the 50% missed deferral opportunity? I would think that the fact that the participant terminated employment should not disqualify the plan from fixing under the new (more favorable) guidance of Revenue Procedure 2015-28, but I am not sure that the guidance addresses this type of situation.

A plan has a 6-month service requirement for 401(k) purposes and a 1-Year service requirement for matching contribution purposes. The plan is considering adding automatic enrollment of 5% for newly hired employees only. Further, the Plan wants to be considered an Eligible Automatic Contribution Arrangement (EACA). Can the 5% default contributions be delayed until the participant is eligible for the match (1 Year) or must the 5% automatic enrollment be applied once employees become eligible for the 401(k) (6-Months)? In other words, would waiting to automatically enroll participants until 1-Year of Service violate the uniformity requirement of Treas Reg 1.414(w)-1(b)(2)(i)?

If participants who are "affected" by a partial plan termination in a DC plan have already taken a distribution from the plan and the amount the participant previously forfeited needs to be reinstated to their account, should the amount reinstated be adjusted for investment earnings? I don't consider this to be a "mistake" that necessitates investment earnings, but perhaps the IRS would disagree.

The employer feels that the failure to withhold loan payments was their fault, and that is why the employer is looking to do the VCP. And no, the participant is not an owner/key employee. However, I am just trying to find out if the employer is even eligible to submit the VCP under this fact pattern (after the loan has been deemed distributed). Further, the financial institution may not be that willing to cancel the previously issued Form 1099-R.