Amendment extensions for CARES/SECURE

Most of you probably get the BenefitsLink Bulletins, but if not, see the following. I expect a huge sigh of relief from many places...

https://www.irs.gov/pub/irs-drop/n-22-33.pdf

I confess this is an innocent question from my ignorance:

Does the remedial-amendment regime require a plan sponsor to keep records of which SECURE and CARES provisions were put in operational effect (or omitted) in the years before the ensuing amendment or restatement?

33 minutes ago, Peter Gulia said:

I confess this is an innocent question from my ignorance:

Does the remedial-amendment regime require a plan sponsor to keep records of which SECURE and CARES provisions were put in operational effect (or omitted) in the years before the ensuing amendment or restatement?

In a word - "YES."  Plans have to be in operational compliance - and that means decisions should have already been made.  The amendment only records that which has already happened....

And BTW, as a service provider - we've tracked those decisions for them (at least those that responded to our inquiries).

Agreed. But having just completed restatements, the thought of another large amendment project to be completed by 12/31 was not an enjoyable prospect. That, coupled with the possibility of yet more amendments for SECURE 2.0 (or whatever is passed, if anything), makes this reprieve all the sweeter. Possible if SECURE 2.0 or something similar passes, we can roll the whole thing into one project, rather than two separate ones. Haven't considered ramifications yet, as I just found out about this at 5:00 AM...

As an aside, there are employers who don't know what they did. With all the Covid confusion in 2020 particularly, and the fact that some recordkeepers took it upon themselves to offer some of the Covid features, coupled with the fact that some clients are less than stellar about providing information to us, it is sometimes difficult to determine who did what and on what date. Might make the determination of the "best" default amendment somewhat challenging.

MoJo and Belgarath, thank you. Your descriptions are what I guessed, but it’s nice to have the pros confirm it.

19 minutes ago, Belgarath said:

Agreed. But having just completed restatements, the thought of another large amendment project to be completed by 12/31 was not an enjoyable prospect. That, coupled with the possibility of yet more amendments for SECURE 2.0 (or whatever is passed, if anything), makes this reprieve all the sweeter. Possible if SECURE 2.0 or something similar passes, we can roll the whole thing into one project, rather than two separate ones. Haven't considered ramifications yet, as I just found out about this at 5:00 AM...

As an aside, there are employers who don't know what they did. With all the Covid confusion in 2020 particularly, and the fact that some recordkeepers took it upon themselves to offer some of the Covid features, coupled with the fact that some clients are less than stellar about providing information to us, it is sometimes difficult to determine who did what and on what date. Might make the determination of the "best" default amendment somewhat challenging.

 

Well, there was a collective "sigh of relief" from our document team who almost immediately after the end of July began the process of doing about 3000 amendments....

Our approach for SECURE Act was to send our clients a set of "default" elections indicating that this is how we would administer your plan *unless* you told us otherwise.  80% or more didn't respond, so they get the default.  Certain things had to be affirmatively elected (like QBADs) so, so far the tracking is easy.  Every once in a while someone will ask for a QBAD and when informed the plan doesn't have them, our client wakes up, and implements them - among other things....

We took a similar approach with CARES Act stuff - with a little more variability (i.e the default for enhanced loans was to offer them, but only for plans that had loans already.  CRDs - for only those plans that had hardships.).  Lot of moving parts on that one....

I see recordkeepers using a method like what’s described above: “If we do not receive your instruction by {date}, you instruct us to perform our services assuming your plan adds or omits provisions as stated by this email’s defaults.”

Like MoJo, I see recordkeepers using one’s history of the off-document changes when it becomes time to compile the next restatement.

Is it a pain-in-the-neck to keep those records?

Or is the plan-documents software (or recordkeeping software) programmed to record the in-operation plan changes?

I think I got overly excited a bit too soon. I was just looking at the brief summary. When actually reading the Notice, it appears that the CARES extension applies only to Section 2203, which is the RMD piece. Doesn't apply to 2202, which is the distribution/loan provisions. So it appears that plans must still be amended by 12/31/2022 for this piece? Am I reading this correctly? Rather obnoxious if this piece isn't extended as well...

Hopefully I'm reading it wrong!

It looks like the CARES extension gives plans that didn't grant relief from CARES distributions and loans but did suspend RMDs until 2025 to adopt a conforming amendment.   For folks who need to amend by 2022 because they did offer CARES distributions and/or loan relief I imagine they will incorporate the RMD piece in the amendment.

I know I had several plans that suspended RMDs but did not offer distributions or loans so this would apply to them but fortunately for me the CARES amendments have all been completed.

The SECURE Act relief is nice, since that's something I haven't actually gotten to yet.

4 hours ago, Belgarath said:

I think I got overly excited a bit too soon. I was just looking at the brief summary. When actually reading the Notice, it appears that the CARES extension applies only to Section 2203, which is the RMD piece. Doesn't apply to 2202, which is the distribution/loan provisions. So it appears that plans must still be amended by 12/31/2022 for this piece? Am I reading this correctly? Rather obnoxious if this piece isn't extended as well...

Hopefully I'm reading it wrong!

Unfortunately, that's how I read it as well. 

Yeah, Peter, we also saw some of this, or something similar. “If we do not receive your instruction by {date}, you instruct us to perform our services assuming your plan adds or omits provisions as stated by this email’s defaults.”

Question for discussion: Suppose a default amendment for CARES is done at the document sponsor level allowing pretty much everything, but suspending RMD's unless requested. But in fact, let's say loan payment suspensions weren't allowed, or perhaps the plan doesn't even allow loans. Or Coronavirus distributions were never allowed, in spite of what the default amendment says.

What are the ramifications? The participants were never notified of these supposedly available provisions (that the amendment says were available) - is the entire amendment (including the RMD suspension) negated? Are there specific penalties? There's no nondiscrimination/BRF issues, since these provisions were not available for HCE's or anyone else. Operational error with plan not operating according to its terms?

I'm certainly not advocating such an approach! Just curious. It would not surprise me to see some very strange things with these amendments.

11 minutes ago, Belgarath said:

Question for discussion: Suppose a default amendment for CARES is done at the document sponsor level allowing pretty much everything, but suspending RMD's unless requested. But in fact, let's say loan payment suspensions weren't allowed, or perhaps the plan doesn't even allow loans. Or Coronavirus distributions were never allowed, in spite of what the default amendment says.

What are the ramifications? The participants were never notified of these supposedly available provisions (that the amendment says were available) - is the entire amendment (including the RMD suspension) negated? Are there specific penalties? There's no nondiscrimination/BRF issues, since these provisions were not available for HCE's or anyone else. Operational error with plan not operating according to its terms?

 

Clearly, an operational error in not complying with the terms of the plan.  I would suggest that prior to doing the amendment, a verification process occurs.  In most case, we - as the recordkeeper - already know if the loans/CRDs were issued when the "record" indicate the client did not select to allow them (as simply the loan/CRD would not have been processed until the client said to do it - and we changed the "records" to so indicate) but we wouldn't no - necessarily - if the client said yes to loans/CRDs (our default was to allow COVID loans if the plan already had loans, and to allow CRDs if the plan had hardships, but not if they didn't unless affirmatively elected) - but then didn't actually allow participants to get them.

It's interesting. We had a lot of clients who basically said, "If someone asks us to do it, we'll allow it" (amend plan as necessary) but very, very few participants actually requested the employer to allow Covid distribution/loan options. We had to amend a few plans to even allow loans at all, and then no one took a Covid loan.

No matter how you slice it, it'll be a PIA, but it is a big help not to also have to worry about SECURE amendment right now just for sheer volume, although truthfully, it seems like the SECURE "defaults" will be probably easier and more standardized. However, SECURE 2.0 or whatever, if passed, will likely be a %$$# show.

From everything I'm hearing from others Belgarath's noticing of the (stupid) split was accurate. We've been telling people as we went through the C3 restatement that another amendment would be needed by the end of the year. I may get overruled, but I would rather just go ahead and get it all done. 

We have a handful of clients that were put on C3 before our move to our current document provider. I was going to use this opportunity to just restate them as well so everything is on the same system. I also don't want to maintain "operational" decisions any longer than necessary.

Finally, to Peter's question, the RKs that bugged me the most were the ones that said "we're doing X unless you tell us no" when they weren't the document providers and it was different than the defaults we were using for clients.

7 minutes ago, Bill Presson said:

Finally, to Peter's question, the RKs that bugged me the most were the ones that said "we're doing X unless you tell us no" when they weren't the document providers and it was different than the defaults we were using for clients.

Amen to that!!

I'm not sure I follow the logic on the split timing of the CARES Act either. 

Unless I'm missing something, I believe we have all the information/decisions/guidance on the 2020 RMD waiver that will be needed to amend the plan. In other words, I don't know what other information we would get between 2023-2025 that would alter the plan document amendment for the CARES Act's 2020 waiver. In my mind, it makes the most sense to amend for CARES (all provisions) at once, especially for pre-approved plans where the amendments will likely be packaged as separate documents from the provider. 

Maybe the reasoning was that--given all the SECURE and possibly other upcoming RMD amendments--plans may find it easier to amend all the RMD provisions at the same time, but again I'm not sure that makes much sense given the standalone nature of the 2020 RMD waiver that doesn't really interact with the other RMD revisions. 

Or maybe there is further guidance pending (but not yet published) that would impact the 2020 RMD waiver or its later consequences, but not the other provisions of CARES?

I was wondering - not that it matters, 'cause I only really care about results in all of this, not the "why" - but trying to give the IRS the benefit of the doubt - maybe something in the statute doesn't allow their regulatory authority to extend those 2202 provision amendment deadlines? That's a legal question above my pay grade. Otherwise, however, it certainly seems an odd decision.

10 minutes ago, Belgarath said:

I was wondering - not that it matters, 'cause I only really care about results in all of this, not the "why" - but trying to give the IRS the benefit of the doubt - maybe something in the statute doesn't allow their regulatory authority to extend those 2202 provision amendment deadlines? That's a legal question above my pay grade. Otherwise, however, it certainly seems an odd decision.

Interestingly, it's almost the exact opposite. The amendment deadline in the SECURE Act allows the Secretary of the Treasury to prescribe a later date (for all sections of the SECURE Act). The amendment deadline in the CARES Act section addressing CRDs and loans allows the Secretary to prescribe a later date (which it isn't doing). The amendment deadline in the CARES Act for the 2020 RMD waiver is the only one of those three that fixes 2022 as the amendment deadline and does not allow Treasury to prescribe a later date. 

The notice relies on the general discretionary authority under 1.401(b)-1(f) (and not the CARES Act itself) to extend the RMD waiver deadline. 

Fascinating. 

I assumed this is in part because there still aren't final regulations for the SECURE Act RBD changes. How are plans supposed to operate in compliance with something the IRS hasn't even interpreted yet?  In particular, I have not been convinced that plans are prohibited from keeping an age 70 1/2 RBD trigger.  Several approved DB plans I work with have an earlier RBD than the Code RBD before the SECURE Act (e.g. month after age 70 1/2 rather than April 1st after).  I do not see how the SECURE Act changes the ability to do that, but it is not clear to me what position the IRS is taking. Hoping it will be addressed in the final regulations but if it is mandatory to change to a later RBD, it seems like a stretch to have expected plans to comply with that without guidance.   

Bill Presson, I see your frustration about a recordkeeper that seeks its customer’s service instructions and proposes defaults (for a sponsor/administrator that does not respond) that could be inconsistent with the plan’s actual or presumed provisions.

I’d like to learn your thoughts about ways a recordkeeper might avoid such an inconsistency (assuming the recordkeeper’s profile on its customer shows that the customer does not get its plan-documents service from the recordkeeper).

Should the recordkeeper’s email to its customer:

suggest one communicate promptly with its plan-documents provider before one responds to the recordkeeper’s request?

include a mark-the-box choice (and a fill-in line to name the TPA’s or other provider’s contact) for the customer to ask the recordkeeper to request the other provider’s instructions, and rely on those?

propose defaults different than those the recordkeeper sets for customers that use the recordkeeper’s plan-documents service? For example, might the circumstances suggest being less quick to presume the customer wants a new provision or other change?

Something else that would help an inattentive sponsor/administrator avoid its unintended instructions?

Peter, I'm not sure there's a good answer, but at least communicating with the document provider ahead of the announcement would have been nice. We're all in tough situations trying to make our businesses as efficient as possible while remaining responsive to the clients needs. We deal with a lot of RKs (and brokers) and they can't all use the exact same defaults that we would prefer.

Just mainly wasn't happy that there didn't seem to be any concern for the work that might be caused for us (not all RKs but a handful). 

And now it has been formally extended to the same date as the RMD extension. 

Not sure - we'll probably end up proceeding with the 12/31/22 deadline to get it out of our hair (not that I have much after a lifetime in this business...). Certainly don't want to wait until 2025! But nice to know there are options for something that gets missed, or on takeovers, etc.

https://www.irs.gov/pub/irs-drop/n-22-45.pdf