Legislative updates

Congress is expected to vote this week on the Consolidated Appropriations Act of 2023 (CAA 2023), which would serve to fund the federal government for a full year. Included in the bill is a two-year extension that would allow high deductible health plans (HDHPs) to waive the deductible for telehealth and other remote care services without causing plan participants to lose the ability to contribute to a health savings account (HSA). 

Senate Appropriations Committee Chairman Patrick Leahy (D-VT) has released HR  2617, the Consolidated Appropriations Act of 2023, a $1.7 trillion fiscal year 2023 omnibus appropriations bill, whose provisions will fund government operations for the fiscal year. Included in this legislation, as has been anticipated by many, is the SECURE 2.0 Act of 2022.

The Securing a Strong Retirement Act of 2022 was passed by the House of Representatives earlier this year. The Senate HELP committee approved the RISE & SHINE Act and the Senate Finance committee likewise approved the EARN Act. The House and Senate worked together to combine these bills into the SECURE 2.0 Act that has now been included in the Consolidated Appropriations Act.

Inclusion in the Consolidated Appropriations Act was considered the last opportunity for passage of this retirement legislation in the current Congress. The Consolidated Appropriations Act must now be approved by the House and Senate and signed by the President, for it—and the SECURE 2.0 Act—to become law.

Among the 90 provisions in the SECURE 2.0 Act, some of the significant items include the following.

• Allowing workers to participate in employer plans after 2 consecutive 12-month periods of 500 hours of service, beginning in 2025
• Increasing the catch-up contribution limit for select age groups
• Requiring catch-up contributions to be made on a Roth basis for those earning more than $145,000, except for SIMPLE plans
• Permitting employer contributions to be made on a pre-tax or Roth basis
• Increasing the RMD age to 73 in 2023, and age 75 in 2033
• Expanding automatic enrollment in retirement plans
• Creating a Retirement Savings Lost and Found
• Creating new emergency savings accounts linked to individual account plans
• Allowing student loan payments to be treated as elective deferrals for purposes of matching contributions
• Modifying the existing saver’s credit to provide for a matching contribution to the individual’s retirement savings vehicle
• Creating a “starter 401(k) plan” with reduced contribution limits and nondiscrimination safe harbors
• Increasing the small employer startup credit to 100% for certain employers
• Increasing the age of disability onset for qualified ABLE programs to age 46
• Allowing certain rollovers to Roth IRAs from 529 college savings accounts

Additional details on the SECURE 2.0 Act will continue to be provided. Visit ascensus.com for the latest information.

The IRS has announced the postponement of certain tax-related deadlines for victims of Hurricane Nicole in Florida. The tax relief postpones various tax filing deadlines that began on November 7, 2022. Affected individuals and households who reside or have a business in Brevard, Duval, Flagler, Indian River, Lake, Martin, Nassau, Palm Beach, Putnam, St. Johns, St. Lucie, and Volusia 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 7, 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 7, 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.

Representative Carol Miller (R-WV) has introduced HR 9514, the Working Families Childcare Access Act. According to a press release, the bill allows certain additional expenses in a dependent care flexible spending arrangement—specifically qualified sports, tutoring, and music or art expenses. Additionally, the bill would support families by:

• Increasing annual contribution limits to $15,000 from the current $5,000 limit
• Eliminating the “use-or-lose” rule by allowing the rollover of saved unused dependent care FSA funds into the following year
• Expanding qualified expenses by providing parents with the flexibility to use their dependent care FSA funds for adoption expenses, tutoring, sports, art, and music programs
• Raising the allowable age limit for dependent care expenses for children and dependents to age 15

Currently, these tax-advantaged accounts are limited to $5,000, and any funds not used by the end of the year are forfeited.

Senators John Hickenlooper (D-CO) and Tom Tillis (R-NC), and Representatives Terri Sewell (D-AL) and Lloyd Smucker (R-PA) introduced the Retirement Savings for Americans Act. A press release from Sen. Hickenlooper explains that the bill would establish a new government program providing a portable, tax-advantaged retirement savings account for eligible workers and give federal matching contributions to low and middle-income workers.

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.

On December 1, 2022, the U.S. Court of Appeals for the Second Circuit has overturned a lower court decision to certify a class action complaint against Teachers
Insurance and Annuity Association of America (TIAA) asserting that it engaged in prohibited transactions and facilitated fiduciary breaches by servicing collateralized plan loans to participants for approximately 8,000 qualified retirement plans. The plaintiffs argue that TIAA improperly receives certain earnings on the investment of the collateral assets.

The lower court had previously certified participants who received approximately 500,000 loans. The Second Circuit ruled that the lower court had not properly evaluated whether the transactions were too individualized to be combined into a class action case. The case was remanded to the lower court for a ruling on this issue.

Industry observers are closely watching this case as it presents a new approach to retirement plan litigation.

Senator Mark Kelly (D-AZ) and co-sponsor Senator Bill Cassidy (R-LA) have introduced S. 5125 the Family Attribution Modernization Act. The proposal would modify controlled group rules under IRC 414(b) pertaining to family attribution as follows:

• Community property laws shall be disregarded for purposes of determining ownership
• Stock owned by minor children of the spouse under IRC 1563(e)(6) is not attributed when the exception to spousal attribution also applies under IRC 1563(e)(5). This generally occurs if the spouse – 1) does not directly own stock, 2) is not a director or employee, 3) no more than 50% of company earnings are derived from royalties, rent, dividends, etc., and 4) spousal rights to dispose of stock are not restricted or run in favor of minor children
• Stock owned in different corporations that is attributed to a child under section 1563(e)(6)(A) from each parent, and is not attributed to such parents as spouses under section 1563(e)(5), shall not by itself result in the corporations being a controlled group

To the extent these proposed changes result in a change in controlled group status, the transition rules under IRC 410(b)(6)(C) would apply. The disregarding of community property laws would apply under IRC 414(m) for affiliated service groups as well.

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 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.