Defined contribution plan

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 The bill requires that the withdrawn funds be paid back to the plan before an additional emergency distribution from that same plan is allowed.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 SEC has issued a proposed rule that would require publicly traded companies to include certain climate-related disclosures in their registration statements and periodic reports, such as the annual Form 10-K.

The proposed rule would in part require disclosure about the following.

• The registrant’s governance of climate-related risks and relevant risk management processes.
• How any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements.
• How any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook.
• The impact of climate-related events (such as severe weather and other natural conditions) and transition activities on the line items of a registrant’s financial statements and estimates used in financial statements.

The rule would also require disclosures about direct greenhouse gas admissions and indirect emissions from purchased electricity or other forms of energy, as well as disclosure of greenhouse gas emissions from upstream and downstream activities in its value chain if material or if the registrant has set an emissions target. Accelerated filers would be required to include an attestation report from an independent attestation service provider covering emission disclosures.

A fact sheet provides an overview of requirements and the applicable phase-in period—depending on the type of registrant and type of emission disclosure required. The comment period will remain open for the longer of 1) 30 days after publication in the Federal Register, or 2) 60 days after the date of issuance and publication on sec.gov.

The Department of Labor (DOL) has released a proposal that would supersede the Department’s existing procedure governing applications for exemptions from the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. The Secretary of Labor is authorized to grant such exemptions and provide procedures for relief. Highlights of the proposal suggest substantially stricter standards and additional criteria for obtaining prohibited transaction relief, if implemented.

The DOL emphasizes that it will apply a high level of scrutiny to any retroactive exemption—including ensuring that no participants were harmed—and suggests contacting the agency before engaging in the transaction. Any information provided to the Office of Exemption Determinations, including during the pre-submission process, becomes part of an administrative record that is open for public inspection.

The DOL states that a previously issued exemption is not determinative of whether a future exemption would be approved under the same fact pattern. The DOL also proposes additional requirements in the application for exemption, several of which are highlighted below.

• The reason(s) for engaging in the exemption transaction
• Any material benefit that a party involved in the exemption transaction may receive because of the transaction
• The costs and benefits of the exemption transaction to the affected plan(s), participants, and beneficiaries—including quantification of those costs and benefits, if possible
• A detailed statement that describes possible alternatives to the exemption transaction and why the applicant did not pursue those alternatives
• A description of each conflict of interest or potential instance of self-dealing that would be permitted if the exemption is granted
• A statement that the transaction will be in the best interest of the plan and its participants and beneficiaries
• A statement that all compensation received, directly or indirectly, by a party involved in the exemption transaction will not exceed reasonable compensation within the meaning of ERISA and the Internal Revenue Code
• All statements made to the DOL, the plan, or, if applicable, the qualified independent fiduciary or qualified independent appraiser cannot be materially misleading at the time the statements are made
• A statement whether any prior transactions have occurred between the plan or plan sponsor and a party involved in the exemption transaction

The proposal modifies the definition of a qualified independent appraiser. It also addresses contractual obligations, prohibits indemnifications, and requires detailed information regarding relationships with any party or its affiliates (including past engagements) in an effort to determine independence. Similarly, the proposal expands requirements of qualified independent fiduciaries by prohibiting indemnifications, requiring fiduciary liability insurance sufficient to cover damages resulting by a breach of the independent fiduciary, and certifying that the exemption transaction complies with impartial conduct standards and the independent fiduciary has no conflicts of interest that could affect their judgement.

Under the proposal, applicants would have a duty to promptly notify the DOL of any material changes to representations made during the application process or after approval of the exemption, including disclosing whether a participating party in the exemption is the subject of an investigation or enforcement action. The changes would apply 90 days following receipt of a final rule in the Federal Register. Comments on the proposed rule must be submitted to the DOL by April 14, 2022.

Final regulations entitled, Implement SECURE Act and Related Revisions to Employee Benefit Plan Annual Reporting on the Form 5500, issued by the Department of Labor’s Employee Benefits Security Administration (EBSA), have been received by the federal Office of Management and Budget (OMB). The OMB’s Office of Information and Regulatory Affairs (OIRA) provides final review of regulatory guidance before its official release.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act included a provision that would allow employers sponsoring defined contribution plans that have the same trustee, administrator, fiduciaries, plan year, and investment options, to file one common Form 5500 beginning in 2022. Proposed guidance was issued last fall under a larger guidance package, with details shared in a Washington Pulse.

The Department of Labor’s (DOL’s) Wage and Hour Division has released a proposed rule Updating the Davis-Bacon and Related Acts Regulations. The DOL indicates that the proposal is the most comprehensive review of the Davis-Bacon Act regulations in 40 years.

The Davis-Bacon Act generally requires payment of locally prevailing wages under direct federal contracts and for covered contractors and their subcontractors. The employer’s obligation can be met by paying the applicable prevailing wage entirely as cash wages or by a combination of cash wages and employer-provided bona fide fringe benefits—including pension and health benefits.

All comments must be received within 60 days of the rule being posted in the Federal Register. While the Wage and Hour Division solicits comments from across the construction industry, it encourages all stakeholders to participate in the process.

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.

The IRS has issued a proposed rule to increase the renewal fee for Enrolled Agents (EA) and Enrolled Retirement Plan Agents (ERPA) from $67 to $140. Public comments will be accepted within 71 days of publication in the federal register.

Additionally, final regulations increase user fees related to the special enrollment examination for enrolled agents (EA SEE). That fee has been increased from $81 (plus an amount payable to a third-party contractor), to $99 (plus an amount payable to a third-party contractor). The final regulations removed the user fee for the special enrollment examination for enrolled retirement plan agents (ERPA SEE), because the IRS no longer offers the ERPA SEE or new enrollment as an enrolled retirement plan agent.

The new fees are to be effective 30 days after publication of the final rule(s) in the federal register.

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.