Defined contribution plan

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The Department of Labor’s Employee Benefits Security Administration (EBSA), the IRS, and the Pension Benefit Guaranty Corporation (PBGC) jointly released the 2022 Form 5500, Annual Return/Report of Employee Benefit Plan, and the 2022 Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, and their respective instructions and schedules.

In an accompanying news release, EBSA reminds filers that these are informational copies of the Form 5500 series and cannot be used for filing. The news release and accompanying instructions highlight the following changes for 2022:

• For multiple-employer plans, new plan characteristic codes have been added to identify pooled employer plans, association retirement plans, PEO multiple-employer plans, and other multiple-employer plans.
• Updated instructions to reflect the cost-of-living adjustment increase of the civil filing penalty from $2,259 to $2,400.
• Revised the instructions for Schedule MB relating to multiemployer defined benefit plans and certain money purchase plan actuarial information.
• Revised Schedule R to require plans to report identifying information about any participating employer who either contributed more than five percent of the plan’s total contributions or was one of the top-ten highest contributors.
• Revised Schedule SB for single employer defined benefit plan actuarial information to require an attachment of a projection of expected benefit payments and require filers to indicate the first plan year that the extended amortization rule was applied under the American Rescue Plan Act of 2021.

The news release further explains EBSA is “modernizing” the EFAST2 website and that the existing EFAST2 user ID and password log-in process is being phased out. Beginning January 1, 2023, EFAST2 will begin using the unified Login.gov single sign-on process for U.S. government websites. Existing EFAST2 users will have until September 1, 2023, to transition their log-in.

The IRS has announced the postponement of certain tax-related deadlines for victims of severe winter storm and snowstorm in New York. The tax relief postpones various tax filing deadlines that began on November 18, 2022. Affected individuals and households who reside or have a business in Cattaraugus, Chautauqua, Erie, Genesee, Jefferson, Lewis, Niagara, Oneida, Oswego, St. Lawrence, and Wyoming counties, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after November 18, 2022, and before March 15, 2023, will have until March 15, 2023, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after November 18, 2022, and before March 15, 2023.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.

Earlier this year (and announced), the IRS issued Notice 2022-27, further extending temporary relief from the physical presence requirements for certain elections that are made by participants and beneficiaries in qualified retirement plans and other tax favored arrangements. This included signatures of those making an election ordinarily needing to be witnessed in the physical presence of a plan representative or notary public, including spousal consent and certain forms of distribution from retirement plans.

Barring further guidance from the IRS in the next few weeks, this relief ends after December 31, 2022. Participant elections, including spousal consents, after this time that are required to be witnessed by a plan representative or a notary public under Treasury Regulation § 1.401(a)-21(d)(6) will no longer be available for relief from these requirements.

The Department of Labor’s final rule titled Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, which was previously announced, has been published in the Federal Register. Today’s publication establishes a January 30, 2023, effective date. Certain provisions related to proxy voting, however, will not be applicable until December 1, 2023.

The Federal Emergency Management Agency (FEMA) has issued a disaster declaration for severe storms, flooding, landslides, and mudslides in West Virginia, for the periods of July 12, 2022 – July 13, 2022, and August 14, 2022 – August 15, 2022.

Employers with qualified retirement plans may allow participants to take hardship distributions if

• they have incurred expenses and losses because of a FEMA-declared disaster, and
• their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at irs.gov/newsroom/tax-relief-in-disaster-situations.

The Federal Emergency Management Agency (FEMA) has issued a disaster declaration for Hurricane Ian in South Carolina, beginning September 25, 2022, and ending October 4, 2022.

Employers with qualified retirement plans may allow participants to take hardship distributions if

• they have incurred expenses and losses because of a FEMA-declared disaster, and
• their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at irs.gov/newsroom/tax-relief-in-disaster-situations.

The Department of Labor (DOL) has announced the release of a final rule to remove barriers in considering environmental, social, and governance (ESG) factors in plan investments. 

The DOL emphasizes in the executive summary that the final rule does not change two longstanding principles. First, the final rule retains the core principle that the duties of prudence and loyalty require ERISA plan fiduciaries to focus on relevant risk-return factors and not subordinate the interests of participants and beneficiaries to objectives unrelated to the provision of benefits under the plan. Second, the fiduciary duty to manage plan assets that are shares of stock includes the management of shareholder rights relative to those shares, including the right to vote proxies. The final rule makes several other changes that are highlighted in the summary.

• Amends the current regulation to delete the “pecuniary/non-pecuniary” terminology based on concerns that the terminology causes confusion and a chilling effect to financially beneficial choices.
• Confirms that a fiduciary may include as part of a risk and return analysis the economic effects of ESG on a particular investment determination or course of action.
• Amends the current regulation to remove the stricter rules for QDIAs, such that, under the final rule, the same standards apply to QDIAs as to investments in general.
• Amends the current regulation’s “tiebreaker” test to provide that when a fiduciary concludes prudently that competing investments, or competing investment courses of action, equally serve the financial interests of the plan over the appropriate time horizon—the fiduciary is not prohibited from selecting the investment or investment course of action based on collateral benefits other than investment returns.
• Adds a new provision clarifying that fiduciaries do not violate their duty of loyalty solely because they take participants’ preferences into account when constructing a menu of prudent investment options for participant-directed individual account plans.
• Eliminates the statement in paragraph (e)(2)(ii) of the current regulation that “the fiduciary duty to manage shareholder rights appurtenant to shares of stock does not require the voting of every proxy or the exercise of every shareholder right”, as it may be misread as suggesting that plan fiduciaries should be indifferent to the exercise of their rights as shareholders, even if the cost is minimal.
• Removes two “safe harbor” examples for proxy voting policies permissible under paragraphs (e)(3)(i)(A) and (B) of the current regulation. The DOL believed that these examples encouraged abstention as the normal course and failed to recognize the importance that prudent management of shareholder rights can have in enhancing the value of plan assets or protecting plan assets from risk.
• Modifies requirements in order to more generally cover monitoring obligations, and address concerns that could be read as requiring obligations above and beyond the statutory duties of prudence and loyalty that generally apply to monitoring the work of service provider.
• Amends to eliminate from paragraph (e)(2)(ii)(E) of the current regulation a specific requirement on maintaining records on proxy voting activities and other exercises of shareholder rights, due to perception of treating proxy voting and other exercises of shareholder rights as carrying a greater fiduciary obligation than other fiduciary activities.

The final rule is effective 60 days after publication in the federal register.

The Office of Management and Budget has received a final rule from the Department of Labor titled “Implement SECURE Act and Related Revisions to Employee Benefit Plan Annual Reporting on the Form 5500.”

According to a description of the rule, it is likely to include guidance on the implementation of group of plans reporting pursuant to Section 202 of the SECURE Act. The DOL released certain form revisions earlier in the year but indicated that it was evaluating public comments on elements of the September 2021 proposal related to 1) DCG reporting under the SECURE Act and related audit issues, 2) Schedule MEP reporting requirements, 3) financial improvements to the Schedule H, 4) changes in participant counts related to plan audit requirements, 5) reporting for multiple employer welfare arrangements (MEWAs) that file Form M-1, and 6) questions on pension plan compliance.

The Department of Labor (DOL) has released a proposed amendment to its Voluntary Fiduciary Protection Program (VFCP), along with a proposed amendment to Prohibited Transaction Exemption (PTE) 2002-51, to permit certain transactions identified in the VFCP transaction exemption.

The VFCP allows plan officials to avoid potential civil enforcement actions and civil penalties under ERISA if eligible transactions are voluntarily corrected in a manner that meets the program’s requirements. Correction of these transactions under the current Voluntary Fiduciary Correction Program requires plan officials to submit an application to EBSA for review and approval. According to a DOL press release, EBSA’s proposed changes will do the following:

• Clarify some existing transactions that are eligible for correction under the program.
• Expand the scope of other transactions currently eligible for correction and simplify administrative or procedural requirements under the program.
• Amend the associated prohibited transaction class exemption, known as PTE 2002-51.

Most notable among the proposed changes is the addition of a self-correction component. This feature will enable employers and other plan officials to notify EBSA electronically that they have self-corrected certain failures to send participant contributions and loan repayments to pension plans on time. The proposed self-correction component can be used only if the following conditions are met:

• Participant contributions or loan repayments to the plan must be remitted no more than 180 calendar days from the date of withholding or receipt.
• Lost earnings must not exceed $1,000 calculated from date of withholding or receipt.
• The plan or self-corrector must not be under investigation as defined in the program.
• Self-correctors must use the program’s online calculator to calculate lost earnings and an online web tool to complete and file the self-correction component notice. Self-correctors must also complete and retain the self-correction retention record checklist.

Comments on the proposed changes can be made within 60 days of publication in the Federal Register. The proposals will be reviewed, and additional details provided.