Retirement Plans Newsletter

January 12, 2021

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[Official Guidance]

Text of PBGC Final Regs: Adjustment of Civil Penalties for Inflation

"On December 23, 2020, the Office of Management and Budget issued memorandum M-21-10 on implementation of the 2021 annual inflation adjustment pursuant to the 2015 Act.3The memorandum provides agencies with the cost-of-living adjustment multiplier for 2021, which is based on the Consumer Price Index (CPI-U) for the month of October 2020, not seasonally adjusted. The multiplier for 2021 is 1.01182. The adjusted maximum amounts are $2,259 for section 4071 penalties and $301 for section 4302 penalties." Icon to read more

Pension Benefit Guaranty Corporation [PBGC]

[Guidance Overview]

Exceptional Usefulness and Quality iconQuick Guide to 403(b) Plan Amendments for Hardship Withdrawals

"A 403(b) plan of either a public school or 501(c)(3) organization will need to adopt a plan amendment by the end of 2021 if the 403(b) plan allows hardship withdrawals. The [SECURE Act] ... provided additional opportunities for a participant to access their retirement account while employed. The [CARES Act] permitted 403(b) plans to offer a coronavirus-related distribution (CRD) and loan relief to 'qualified individuals.' All 403(b) plans of public schools must adopt the SECURE and CARES amendments by the end of 2024 ... All plans for 501(c)(3) organizations with 403(b) plans will have until the end of the 2022 to adopt SECURE and CARES amendments[.]" Icon to read more

Voya

[Guidance Overview]

Exceptional Usefulness and Quality iconThe Emerging Patchwork of Fiduciary Investment Advice Regulation

"As anticipated, a number of fiduciary and best interest investment advice regulations advanced at both the federal and state levels last year. As we begin 2021, firms subject to these regulations face challenges in dealing with rules that impose a host of new obligations, and that at times overlap and conflict with one another. This chart is intended to help firms take stock of the evolving framework and aid firms in putting the pieces together." Icon to read more

Eversheds Sutherland

[Guidance Overview]

IRS Provides Guidance on SECURE Act Changes Affecting Safe Harbor Plans

"While [Notice 2020-86] mainly confirms widely held understandings of the SECURE Act changes, the Notice also highlights how certain provisions of the SECURE Act (particularly the elimination of certain safe-harbor notice requirements) are complicated to apply and may not provide as much relief as originally anticipated." Icon to read more

Morgan Lewis

[Guidance Overview]

The Nonamender's Lament -- But, I Swear I Signed It!

"How Do You Fix a Nonamender Failure? Here is where there is both good news and bad news. The good news is that EPCRS (currently embodied in Revenue Procedure 2019-19) provides for the ability to correct a nonamender failure through self-correction.... The catch is that such a failure is considered to be a significant failure, which means that we have to correct by not later than the last day of the second plan year following the plan year for which the failure occurred." Icon to read more

Ferenczy Benefits Law Center

Is It Time to Amend Your Plan Documents for Class Action Waiver and/or Mandatory Arbitration Clauses?

"[A] 'no class action' provision requires participants to litigate fiduciary breach claims on an individual basis, and generally limits damage claims to just the plaintiff-participants' individual accounts or claims. Mandatory arbitration clauses are exactly that -- prohibit participants from filing lawsuits in court, and rather require arbitration, such as with the AAA. Most agreements couple these provisions together, but it is not necessary. A plan can provide for one or the other, or both.... [M]uch of the litigation in 2020 instead focused on whether these provisions were enforceable following a plan amendment." Icon to read more

Krieg DeVault

401(k) Plan Administrator Sues VALIC Over Surrender Fees Charged to Plan

"The insurer is [alleged to have been] engaging in a prohibited transaction under ERISA when the fees were charged during a move to a new provider, as well as with self-dealing." [Markham v. VALIC, No. 21-007 (E.D. Cal. complaint filed Jan. 4, 2021)] Icon to read more

planadviser

Do 401(k) MEP/PEPs Really Reduce Fiduciary Liability for Member Companies?

"With PEPs, member companies can relax knowing that those investment selections are under the domain of the PEP plan sponsor. But that doesn't mean they're totally out of the water when it comes to fiduciary liability.... It depends on any number of factors, so companies interested in becoming a member of a PEP can't just jump in. Due diligence is required." Icon to read more

Fiduciary News; free registration required

The Role of IRAs in Us Households' Saving for Retirement, 2020 (PDF)

"In mid-2020, 37 percent of US households owned individual retirement accounts (IRAs).... In mid-2020, nearly 29 percent of US households owned traditional IRAs.... In mid-2020, about six in 10 traditional IRA-owning households indicated that their IRAs contained rollovers from employer-sponsored retirement plans.... The three most common primary reasons for rolling over were not wanting to leave assets behind at the former employer, wanting to preserve the tax treatment of the savings, and wanting to consolidate assets[.]" Icon to read more

Investment Company Institute [ICI]

Improving the Measurement of Retirement Income of the Aged Population

"[F]or the population aged 65 or older, supplementing the CPS ASEC with IRS and Social Security administrative data results in a higher estimate of pension income's share of aggregate income, less estimated reliance on Social Security, and a lower estimated rate of poverty.... [The authors] find that the [2016 Health and Retirement Study (HRS)] provides better estimates of the income of the aged population than the public-use [2016 Current Population Survey (CPS)] data." Icon to read more

Office of Retirement and Disability Policy, Social Security Administration [SSA]

Benefits in General

[Official Guidance]

Text of IRS Proposed Regs: Mandatory 60-Day Postponement of Certain Tax-Related Deadlines by Reason of a Federally Declared Disaster

27 pages. "This document contains proposed regulations relating to the new mandatory 60-day postponement of certain time-sensitive tax-related deadlines by reason of a Federally declared disaster. This document also contains proposed regulations clarifying the definition of 'Federally declared disaster.' These proposed regulations affect individuals who reside in or were killed or injured in a disaster area, businesses that have a principal place of business in a disaster area, relief workers who provide assistance in a disaster area, or any taxpayer whose tax records necessary to meet a tax deadline are located in a disaster area. This document invites comments from the public regarding these proposed regulations." Icon to read more

Internal Revenue Service [IRS]

[Guidance Overview]

2021 Appropriations Bill Includes New and Expanded Relief for Employee Benefit Plans

"Flexible Spending Account carryovers and grace period extensions permitted for plan years ending in 2020 and 2021.... Health care FSA reimbursements for terminated participants.... Carry-forward opportunity for aged-out dependents.... Surprise medical billing.... Safe harbor to avoid a partial plan termination.... Coronavirus related distributions permitted from money purchase pension plans.... Non-COVID related disaster distributions." Icon to read more

Hunton Andrews Kurth LLP

Executive Compensation
and Nonqualified Plans

[Official Guidance]

Text of IRS Final Regs under Section 4960: Tax on Excess Tax-Exempt Organization Executive Compensation (PDF)

176 pages. "This document sets forth final regulations under section 4960 of the Internal Revenue Code, which imposes an excise tax on remuneration in excess of $1,000,000 and any excess parachute payment paid by an applicable tax-exempt organization to any covered employee.... After consideration of the relevant comments received, the proposed regulations under section 4960 are adopted as final regulations as modified by this Treasury Decision. The major areas of comment and the revisions to the proposed regulations are discussed in the Summary of Comments and Explanation of Revisions." Icon to read more

Internal Revenue Service [IRS]

[Guidance Overview]

IRS Issues Final Regs under Section 162(m) Regarding Certain Employee Remuneration in Excess of $1 Million

"The New Section 162(m) Rules, which generally retain the basic approach and structure of the Proposed New Section 162(m) Rules with certain revisions (including revised examples), are generally effective for tax years beginning on or after December 30, 2020 ... however, there are certain exceptions to this general effective date, ... and taxpayers may choose to apply the New Section 162(m) Rules to a tax year beginning after December 31, 2017, as long as they apply them in their entirety and in a consistent manner to that tax year and all subsequent tax years." Icon to read more

Akin Gump

Selected Discussions
on the BenefitsLink Message Boards

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Mid-Year Amendment of Safe Harbor Plan to Change Definition of Compensation

"Can I amend a 3% Safe Harbor Plan to exclude different items of compensation prospectively mid-year? I cant find anything on point but it feels like a back door reduction in the SHNEC, the consequence of which of course is to blow my safe harbor for the year." Icon to read more

BenefitsLink Message Boards

COVID-Related Distribution Requested by 12/31 But Not Paid Until January 2021

"I know the cut-off date for relief for Coronavirus related distributions under CARES is 12/31/20. My client's particular situation is that a participant requested the distribution before that date (instructions were received on 12/29), but it was not actually processed until January. Could this qualify as a CRD?" Icon to read more

BenefitsLink Message Boards

Compensation for Purposes of First (Short) Plan Year: Determination of Key Employees

"A plan is effective for the first time on 8/1/2020. When determining Key status for Officers and greater than 1% owners for the initial plan year, what compensation is used? 1/1/2020 through 12/31/2020, or 8/1/2020 through 12/31/2020?" Icon to read more

BenefitsLink Message Boards

Formation of Controlled Group; Coverage Transition Question

"Company A sponsors a 401(k) plan and purchases unrelated Company B in 2017, forming a controlled group. In 2018 Company B adopts its own 401(k) plan. The entire time through 2020 the controlled group has been relying on the coverage transition rules. It seems to me that Company A would have reliance, but Company B should not have had reliance since the Plan started after the transaction and during the transition period. If that is correct, and assuming the two plans could not satisfy coverage separately, would the correction be to retest both plans together starting with the 2018 plan year?" Icon to read more

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BenefitsLink Retirement Plans Newsletter, ISSN no. 1536-9587. Copyright 2021 BenefitsLink.com, Inc. All materials contained in this newsletter are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of BenefitsLink.com, Inc., or in the case of third party materials, the owner of those materials. You may not alter or remove any trademark, copyright or other notices from copies of the content.

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