SECURE 2.0 distributions - protected benefit?

[MQS0413]

Hi there,

Does anyone know if SECURE 2.0 withdrawals are considered protected benefits?  I find conflicting information.  Some recordkeepers are enforcing it as protected benefits but I'm yet to see official guidance.  I'm wondering how others are handling and/or interpreting this?

 

[Paul I]

Generally, protected benefits are based on eligibility for the benefit, timing, and available sources. 

Looking at some of the new types of distributions, it seems reasonable to conclude that these are protected:

• QBAD - Qualified Birth or Adoption Distribution
• QDRD - Qualified Disaster Relief Distribution (note that some plans are considering provisions that constrain the availability and amounts of these distributions to specific events or to geographic areas)
• EEW - Emergency Expense Withdrawal
• DAVD - Domestic Abuse Victim Distribution

Not protected are:

• PLESA - Pension Linked Emergency Savings Accounts (the plan sponsor can amend the plan to eliminate the feature at any time)
• TIID - Terminal Illness Individual Distribution (TIID is payable if there is an in-service withdrawal available, and that in-service withdrawal would be a protected benefit, but the other features of the TIID are not protected)

Hopefully, some of our BL colleagues will offer some insight and perspective to these and any other of the new types of distributions.

[G8Rs]

I agree. The only distributions that can be eliminated are PLESAs. Hopefully Treasury will amend the regulations to allow the other distributions to be eliminated, just as they did for hardship distributions. 

[Peter Gulia]

Here’s a related point, about nondiscrimination:

If a right to claim a kind of distribution is a § 411(d)(6)-protected benefit, is it also “a benefit, right, or feature” that must be “made available in a nondiscriminatory manner”? 26 C.F.R. § 1.401(a)(4)-4 https://www.ecfr.gov/current/title-26/section-1.401(a)(4)-4.

Imagine one § 414(b)-(c)-(m)-(n)-(o) employer maintains many § 401(a)-(k) plans, each sponsored and administered by one subsidiary or affiliate (and each with a separate recordkeeper, independently chosen by only the particular plan’s named fiduciary).

That’s not a far-fetched situation; I have a client in circumstances for which the § 414 employer’s independently managed subsidiaries maintain a few dozen distinct plans. (None could be a qualified separate line of business.) Many employee-benefits lawyers have clients like that.

If some of an employer’s plans provide, for example, a domestic-abuse distribution and other plans omit it, must one test whether what’s available does not discriminate in favor of highly-compensated employees?

And if one tests this, how does one correct a failure? If, for a year that ended, a kind of distribution was disproportionately available to highly-compensated employees, is there a correction?

I ask these questions only as a curiosity. (The client I described solved nondiscrimination exposures of this kind by other means.)

[AlbanyConsultant]

On 11/5/2024 at 3:06 PM, Paul I said:

Looking at some of the new types of distributions, it seems reasonable to conclude that these are protected:

• QBAD - Qualified Birth or Adoption Distribution
• QDRD - Qualified Disaster Relief Distribution (note that some plans are considering provisions that constrain the availability and amounts of these distributions to specific events or to geographic areas)
• EEW - Emergency Expense Withdrawal
• DAVD - Domestic Abuse Victim Distribution

Not protected are:

• PLESA - Pension Linked Emergency Savings Accounts (the plan sponsor can amend the plan to eliminate the feature at any time)
• TIID - Terminal Illness Individual Distribution (TIID is payable if there is an in-service withdrawal available, and that in-service withdrawal would be a protected benefit, but the other features of the TIID are not protected)

IIRC, this was the consensus of the "Ask the Experts" panel at ASPPA Annual.

[C. B. Zeller]

Paragraph 1.401(a)(4)-11(g)(3)(vi) of the regulations provides conditions for amending a plan to correct a failure of the nondiscriminatory availability of benefits, rights, and features in a prior year.  The paragraph says:

Quote

(vi) Conditions for corrective amendment of the availability of benefits, rights, and features. A corrective amendment may not be taken into account under this paragraph (g) for purposes of satisfying § 1.401(a)(4)-4(b) for a given plan year unless-

(A) The corrective amendment is not part of a pattern of amendments being used to correct repeated failures with respect to a particular benefit, right, or feature;

(B) The relevant provisions of the plan immediately after the corrective amendment with respect to the benefit, right, or feature (including a corrective amendment eliminating the benefit, right, or feature) remain in effect until the end of the first plan year beginning after the date of the amendment; and

(C) The corrective amendment either-

(1) Expands the group of employees to whom the benefit, right, or feature is currently available so that for each plan year in which the corrective amendment is taken into account in determining whether the plan satisfies § 1.401(a)(4)-4(b), the group of employees to whom the benefit, right, or feature is currently available, after taking into account the amendment, satisfies the nondiscriminatory classification requirement of § 1.410(b)-4 (and thus the current availability requirement of § 1.401(a)(4)-4(b)) with a ratio percentage greater than or equal to the lesser of-

(i) The safe harbor percentage applicable to the plan; and

(ii) The ratio percentage of the plan; or

(2) Eliminates the benefit, right, or feature (to the extent permitted under section 411(d)(6)) on or before the last day of the plan year for which the corrective amendment is taken into account.

I have never needed to use this to correct an availability failure. It does seem a little strange to me as, if I'm reading it correctly, it only says to correct the failure effective prospectively and keep that amendment in place until the end of the next year. It doesn't seem to do anything to relieve the participants to whom the benefit, right or feature was unavailable during the prior year.

Would be curious to know if anyone has actually relied on this method in practice.

[Peter Gulia]

Corey B. Zeller, thank you for the excellent reference.

About the awkwardness you remark on, it seems the Treasury recognizes there’s no practical way to provide a distribution right to apply for a time that ended.