Defined contribution plan

Industry & Regulatory News

DOL Issues Proposed Rule on Prohibited Transaction Exemption Procedures

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.

March 18 2022

Industry & Regulatory News

DOL Final Rule on SECURE Act Group of Plan Reporting at OMB

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.

March 18 2022

Industry & Regulatory News

DOL Releases Proposed Rule Updating Davis-Bacon Regulations

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.

March 14 2022

Industry & Regulatory News

Washington Pulse: IRS Releases Proposed Required Minimum Distribution Regulations

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.

March 09 2022

Industry & Regulatory News

IRS Issues User Fee Guidance for EAs and ERPAs

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.

March 01 2022

Industry & Regulatory News

Proposed RMD Regulations Initial Highlights

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.

March 01 2022

Industry & Regulatory News

IRS Priority Guidance Plan Includes Retirement Items

The IRS has issued its 2021-2022 2nd 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.
February 28 2022

Industry & Regulatory News

Legislation Proposed to Promote Retirement Plan Lifetime Income Options

Legislation to promote retirement plan lifetime income options has been reintroduced by Representatives Donald Norcross (D-NJ) and Tim Walberg (R-MI). The Lifetime Income For Employees (LIFE) Act of 2022 would modify the qualified default investment arrangement rules under ERISA to allow annuity investments as part of a default in employer-provided 401(k) plans. The proposal is intended to provide employees with a steady guaranteed income during retirement and allow greater peace of mind that their income will last throughout retirement.

February 25 2022

Industry & Regulatory News

PBGC Updates Selection Criteria for Standard Termination Audits

The Pension Benefit Guarantee Corporation (PBGC) has updated the “What’s New for Employers & Practitioners” page of its website to indicate that the audit selection methodology has been revised. The PBGC’s Standard Terminations Q&A states that plans with a participant count of more than 1,050 are selected for audit. Plans with less than 1,050 participants may be randomly selected for audit. Further, plans may be selected for audit if the PBGC has reason to believe that there is a problem or if all plan assets were distributed without filing a Standard Termination Notice (PBGC Form 500) in accordance with the standard termination regulations.

February 17 2022

Industry & Regulatory News

DOL Requests Comments on Actions Needed to Protect Retirement Savings from Climate Change Risks

The Department of Labor has published a Request for Information (RFI) seeking what actions, if any, the department should take to protect retirement savings from risks associated with climate change. According to a DOL news release, the RFI follows President Biden’s Executive Order on Climate-Related Financial Risk, which directs the department to identify actions it can take under ERISA and other relevant laws to safeguard the life savings and pensions of U.S. workers and families from threats of climate-related financial risk. The DOL previously issued a proposed rule “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights”, however the RFI deals with a broader set of questions than the proposed rule and is a different initiative. The RFI’s comment period will run for 90 days after publication in the Federal Register.

February 14 2022