IRA

The House of Representatives has passed the Securing a Strong Retirement Act of 2022 (which lawmakers are coining SECURE 2.0) by a 414-5 vote. H.R. 2954 was first introduced by House Ways and Means Committee Chairman Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) in October 2020, and subsequently amended by the Ways and Means Committee last year. The bill now includes provisions from the Retirement Improvement and Savings Enhancement (RISE) Act that came out of the House Education and Labor Committee last November.

Several key provisions are highlighted below.

• Requires automatic enrollment of eligible employees in 401(k) and 403(b) plans with certain exceptions and grandfathering provisions
• Enhances the three-year small retirement plan start-up credit, with a maximum credit of 100 percent (vs. the current 50 percent) for employers with no more than 50 employees, and phasing out for employers that have between 51 and 100 employees
• Provides a new credit for employer contributions to defined contribution plans of up to $1,000 per employee
• Enhances the saver’s credit by replacing the three-tier formula with a single 50 percent credit percentage on contributions up to $2,000, with phase outs beginning at certain AGI thresholds
• Increases the age for required minimum distributions (RMDs) from age 72 to age 73 in 2023, then age 74 in 2030, and finally age 75 in 2033
• Increases the catch-up contribution limit for plan participants who have attained ages 62-64 to $10,000 ($5,000 for SIMPLE plans)
• Clarifies pooled employer plan (PEP) trustee duties by indicating that any fiduciary of a pooled employer plan may be responsible for collecting contributions
• Permits 403(b) plans to participate in multiple employer plan (MEP) arrangements, including PEPs
• Reduces from three years to two years the period of service requirement for long-term, part-time workers, and disregards pre-2021 service for vesting purposes
• Reduces excise tax from 50 percent to 25 percent for failures to take RMDs, and further reduces tax to 10 percent if an RMD from an IRA is corrected within a certain time frame
• Establishes a national online “lost and found” database to connect individuals with unclaimed retirement account benefits
• Increases the cash-out limit from $5,000 to $7,000
• Requires defined contribution plan sponsors to provide paper benefit statements at least once annually, unless a participant elects otherwise
• Allows employers to permit employees to elect Roth treatment of both employee and employer contributions to SIMPLE and SEP plans
• Requires catch-up contributions made to a 401(k), 403(b), or 457(b) plan to be made on a Roth basis
• Permits defined contribution plan sponsors to provide participants with the option of receiving match contributions on a Roth basis

Additional proposals include the following.

• Requires the IRS to promote the saver’s credit
• Permits 403(b) plans to invest in collective investment trusts
• Provides for indexing of IRA catch-up contributions
• Permits certain student loan repayments to qualify for employer retirement plan matching contributions
• Allows a small employer joining a MEP or PEP arrangement to potentially claim a small plan start-up credit during the first three years of the MEP/PEP arrangement’s existence
• Provides a new small employer tax credit for enhanced plan eligibility for military spouses
• Permits immediate de minimis financial incentives, in addition to a matching contribution, to individuals for contributing to a retirement plan
• Enhances options for correcting employee salary deferral errors
• Defers tax for certain sales of employer stock to an employee stock ownership plan sponsored by an S Corporation
• Expands securities treated as publicly traded in the case of employee stock ownership plans
• Removes RMD barriers for life annuities by updating applicable actuarial test
• Reforms qualifying longevity annuity contract rules by repealing 25 percent limit for premiums and addressing spousal survivor rights after a divorce
• Directs agencies to review reporting and disclosure requirements and report to Congress
• Exempts defined contribution plans from sending otherwise required notices to certain individuals who are eligible but do not participate in the plan
• Expands failures eligible for self-correction under the Employee Plans Compliance Resolution System
• Eliminates “first day of the month” deferral election requirement for governmental 457(b) plans
• Expands types of distributions that can be considered IRA qualified charitable distributions and excluded from income
• Adds private sector firefighters to those qualified public safety employees eligible for distribution penalty exception at age 50
• Excludes certain disability-related first responder retirement payments from income after retirement age
• Clarifies the statute of limitations for taxes on prohibited transactions with regard to IRAs to include the date such return would have been due
• Allows otherwise excludable employees from a defined contribution plan to be excluded from determination of whether top-heavy requirements are met
• Limits repayment of qualified birth or adoption distributions to three years
• Permits participants to self-certify that deemed hardship distribution conditions are met in certain circumstances
• Permits participants who self-certify that they have experienced domestic abuse to withdraw the lesser of $10,000 or 50 percent of their account without being subject to the 10 percent early distribution penalty tax. The funds could be repaid to the plan over three years.
• Makes changes to stock attribution rules under family attribution for coverage and nondiscrimination testing
• Permits discretionary amendments that increase benefits to participants to be adopted by the due date of the employer’s tax return
• Permits new 401(k) plans established after the end of the taxable year but before the employer’s tax filing date to receive elective deferrals up to the due date of the employee’s tax return for the initial year when they are sponsored by sole proprietors and single-member LLCs
• Limits only the portion of an IRA used in a prohibited transaction to be treated as distributed, as opposed to current rules disqualifying and treating the entire IRA as distributed
• Directs the DOL to review pension risk transfer interpretive bulletin relative to conditions for discharging defined benefit plan liabilities

The legislation also includes minor technical corrections to the SECURE Act. One such correction clarifies that defined benefit plan participants other than 5 percent owners who retire after the year they turn 70½ are entitled to actuarial adjustment for the period in which they do not receive distributions. Plan amendments would be required by the last day of the first plan year beginning on or after January 1, 2024 (2026 for governmental and collectively bargained plans), and would extend these new deadlines to the SECURE Act, CARES Act, and the Taxpayer Certainty and Disaster Tax Relief Act.

The bill will now head to the Senate for consideration. Senator Patty Murray (D-WA) who chairs the Senate HELP committee indicated that she and ranking member Senator Burr intend to advance companion legislation later in the spring.

Representative Ann Wagner (R-MO) has introduced the Long-Term Care Affordability Act to allow distributions from retirement accounts for the payment of long-term care insurance coverage. The bill is the House companion to S.2415 introduced in the Senate by Senator Patrick Toomey (R-PA) last year.

The proposal would permit tax-free retirement saving distributions of up to $2,500 per year—indexed for inflation—that are used to purchase long-term care insurance. The arrangements to which the legislation applies would include qualified retirement plans, 403(a) and 403(b) plans, governmental 457(b) plans, and IRAs. These distributions would also be exempt from the 10 percent early distribution penalty tax. The bill would also create new distribution triggers for employee deferral amounts that have been contributed to 401(k), 403(b), and governmental 457(b) plans.

Representative Brad Wenstrup (R-OH) has introduced the Enhancing Emergency and Retirement Savings Act of 2022 to provide flexibility and access for those who experience unexpected emergencies. The bill is the House companion to S. 1870, introduced by Senator James Lankford (R-OK) and Senator Michael Bennet (D-CO) last year.

The legislation would provide a penalty-free “emergency personal expense distribution” option from employer-sponsored retirement plans and IRAs. The proposal would allow for one emergency distribution per calendar year of up to $1,000 from the individual’s total nonforfeitable accrued benefit under the plan. The bill requires that the withdrawn funds be paid back to the plan before an additional emergency distribution from that same plan is allowed. The amount can be recontributed within a three-year period to any eligible plan to which a rollover contribution can be made.

An emergency personal expense distribution is defined as a distribution for purposes of meeting unforeseeable or immediate financial need relating to necessary personal or family emergency expenses. The plan sponsor of an employer-sponsored retirement plan may rely on an employee’s certification that the conditions are satisfied in determining whether the distribution is an emergency distribution.

The Internal Revenue Service (IRS) has issued Announcement 2022-6, providing that effective March 14, 2022, and until further notice, the IRS will not accept applications for opinion letters on prototype IRAs (Traditional, Roth, and SIMPLE IRAs), SEP plans (including salary reduction SEPs (SAR-SEPs)), and SIMPLE IRA plans. Adopters of these arrangements may rely on a previously received favorable opinion letter, and can use existing model forms to maintain or establish plans and accounts.

The temporary suspension will allow the IRS to update the prototype IRA opinion letter program, issue revised model forms and Listings of Required Modifications (LRMs), and issue published guidance to reflect recent legislation. This is essentially the first step in a larger process requiring document updates for these arrangements pursuant to the Setting Every Community Up for Retirement Enhancement (SECURE) Act, details of which will be provided in future guidance.

After a two year wait, we have guidance regarding certain changes brought about by the SECURE Act. On February 23, 2022, the IRS released proposed regulations that revise the existing required minimum distribution (RMD) regulations and other related regulations.

As announced on February 23, 2022, the Internal Revenue Service (IRS) has released proposed regulations related to required minimum distributions (RMDs). The IRS released the proposed regulations due in large part to changes made by the SECURE Act, including increasing the RMD age from age 70½ to age 72 and eliminating the life expectancy options for many beneficiaries. While review of these substantial regulations is ongoing and additional details will be provided, a few initial highlights are worth noting.

• If an account owner dies after the required beginning date, the proposal would require that the 10-year rule include annual payments. Although the SECURE Act is silent regarding the applicability of annual distributions under the 10-year rule, the IRS is contending that the old “at least as rapidly” rule applies in conjunction with the new 10-year rule.
• Spousal beneficiaries would need to elect to treat a decedent’s IRA as their own by the later of December 31 in the year following the year of the account owner’s death, or age 72.
• The proposed regulations clarify that the age of majority for minor eligible designated beneficiaries is age 21.
• An exception has been added that allows an automatic waiver of the 50 percent excess accumulation penalty tax if a year-of-death RMD was missed and the beneficiary removes the required amount by his tax return due date, plus extensions for the year that the RMD should have been taken.
• If an account owner has multiple beneficiaries and one or more of the beneficiaries is not an eligible designated beneficiary, then the account owner is generally treated as having no eligible designated beneficiaries. Exceptions apply to children of the account owner and to multi-beneficiary trusts.

The regulations are proposed to become effective in 2022 for 2022 calendar distribution years. But because written comments are being accepted until May 25, 2022, and a public hearing is scheduled for June 15, 2022, the anticipated timing of the final rule is likely to be late summer or fall—at the earliest. For 2021, the existing regulations must be applied, along with a good faith application of the increased RMD age and the change in beneficiary options. Application of the proposed regulations for 2021 will result in compliance with the good faith requirement.

The IRS has issued its 2021-2022 2^nd Quarter guidance plan update, in which it describes guidance projects in the current fiscal year. Many items in the plan have appeared in prior years’ Priority Guidance Plans. A number of the guidance items deal with retirement savings arrangements, including the following.

• Regulations and guidance relating to the 10 percent early distribution tax
• Comprehensive IRA regulations
• Regulations and guidance updating electronic delivery rules for providing applicable notices and making participant elections
• Regulations relating to SECURE Act modifications to certain rules governing 401(k) plans
• Guidance on student loan payments and their interplay with qualified retirement plans and 403(b) plans
• Regulations on the exception to the unified plan rule for Internal Revenue Code Section 413(e) multiple employer plans (proposed regulations issued in July 2019)
• Regulations on the definition of "governmental plan"
• Final regulations updating minimum-present-value requirements for defined benefit pension plans (proposed regulations issued in November 2016)
• Regulations on mortality tables to determine present value for single-employer defined benefit pension plans
• Final regulations for withholding on distributions when payments are made to a non-U.S. address (proposed regulations issued in May 2019)
• Regulations relating to the Section 6057 reporting requirements (proposed regulations issued in June 2012)
• Guidance updating electronic filing requirements for employee plans to reflect changes made by the Taxpayer First Act.

The Internal Revenue Service (IRS) has released proposed regulations relating to required minimum distributions from qualified plans, section 403(b) annuity contracts and custodial accounts, individual retirement accounts and annuities (IRAs), and eligible deferred compensation plans under Internal Revenue Code Section 457.

The proposed regulations are being updated in part to accommodate changes made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). Comments on the proposal can be made up to 90 days after publication in the Federal Register.

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of severe storms, straight-line winds, and tornadoes in Tennessee. The tax relief postpones various tax filing deadlines that began December 10, 2021. Affected individuals and households who reside or have a business in Cheatham, Davidson, Dickson, Gibson, Henderson, Henry, Lake, Obion, Stewart, Sumner, Weakley, and Wilson counties, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

The IRS has issued Notice 2022-06, providing guidance on whether periodic payments from an individual account under a qualified retirement plan are considered a series of substantially equal periodic payments (SEPPs). Notice 2022-6 modifies and supersedes Revenue Ruling 2002-62.