Industry & Regulatory NewsAdditional 403(b) Plan Document Guidance Released
The IRS has released a revised Section 403(b) Pre-Approved Plans Listing of Required Modifications and Information Package (April 2022), which includes sample plan provisions to assist drafters of 403(b) pre-approved plan documents in satisfying the requirements of Internal Revenue Code Section 403(b) and associated regulations. This revised information package consists of five sections with sample provisions related to 1) all 403(b) plans and elective deferral only arrangements, 2) contributions other than elective deferrals, 3) standardized plan provisions, 4) nonstandardized plan provisions, and 5) retirement income accounts. This guidance has been updated to accommodate the 2022 Cumulative List of Changes in Section 403(b) Requirements for Section 403(b) Pre-approved Plans in Notice 2022-8, which was previously announced.
Industry & Regulatory NewsHouse Passes Retirement Reform Proposal
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.
Industry & Regulatory NewsWashington Pulse: U.S. House Passes Significant Retirement Bill
The U.S. House of Representatives passed the Securing a Strong Retirement Act of 2022 (SSRA) by a 414-5 vote on March 29, 2022. H.R. 2954 (also commonly referred to as “SECURE 2.0”) contains over 50 retirement plan provisions—nearly double the number as the original Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The U.S. Senate is expected to take up a similar bipartisan bill later this year, which could result in the need for a conference committee to reconcile differences between the two bills.
Industry & Regulatory NewsPenalty-Free Distributions for Domestic Abuse Victims Proposed in Senate
Senators Catherine Cortez Masto (D-NV) and John Cornyn (R-TX) have introduced the Savings Access for Escaping and Rebuilding Act of 2022 (SAFER Act). The bill would provide for penalty-free distributions up to the lesser of $10,000 or 50 percent of the nonforfeitable account balance from tax-exempt retirement plans for survivors of domestic abuse. Eligible distributions can be made within a one-year period of the domestic abuse and can be self-certified by the plan participant. The withdrawn funds could be replaced over a three-year period from the date the distribution was received.
Industry & Regulatory NewsHealth Savings for Seniors Act Reintroduced in House
Representatives Ami Bera (D-CA) and Jason Smith (R-MO) have reintroduced the “Health Savings for Seniors Act” (H.R. 3796) to permit those enrolled in Medicare to contribute to a health savings account (HSA). Pursuant to the Internal Revenue Code (the Code), an individual is eligible to contribute to an HSA if, among other things, the individual is not a participant in Medicare. The Act would amend the Code to remove this restriction if the individual is enrolled in a Medicare plan that has an annual deductible of $1,000 for self-only coverage and $2,000 for family coverage and the annual deductible plus the annual out-of-pocket expenses does not exceed $5,000 for self-only coverage and $10,000 for family coverage. The Act would also amend the Code to prohibit use of HSA funds to pay for Medicare premiums and any Medicare enrollee would be allowed to spend HSA funds only on medical expenses. Currently, individuals with an HSA account are able to spend the HSA contributions for any purpose, including medical expenses, once the individual turns 65, regardless of Medicare enrollment.
Industry & Regulatory NewsComment Period for Prohibited Transaction Exemption Guidance Extended
The Department of Labor’s Employee Benefit Security Administration has announced the extension of the public comment period for proposed amendments to procedures governing the filing and processing of prohibited transaction exemption applications. The comment period was initially set to expire on April 14, 2022, but has been extended an additional 45 days through May 29, 2022.
The agency has received multiple requests from interested parties to grant additional time to develop and submit comments. Details of the proposal were previously announced and can be found here.
Industry & Regulatory NewsProtecting America’s Retirement Security Act Approved by Committee
The House Committee on Education and Labor approved by a 29-21 party line vote to release the Protecting America’s Retirement Security Act without amendments to the House floor for consideration. The bill contains the following retirement plan proposals.
- Requires the Department of Labor, within two years of enactment, to explore how disclosure requirements for participant directed individual account plans can be improved to enhance participants’ understanding of fees and expenses and their cumulative effect on savings over time
- Amends the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code to require spousal consent and notarization for all distributions, with certain exceptions
- Amends ERISA and the Internal Revenue Code to require eligible employees who are not participating in the plan to be re-enrolled at least every 3 years for any automatic contribution arrangement that becomes effective after December 31, 2024
Industry & Regulatory NewsHouse Passes Affordable Insulin Now Act
The House has passed the Affordable Insulin Now Act (the “Act”) to limit the cost of insulin to either $35 or 25 percent of the plan’s negotiated price, whichever is less. Group health plans or health insurance issuers of group or individual insurance would be required to implement the coverage of insulin products beginning January 1, 2023. In addition, the Act caps the cost-sharing limit under Medicare to $35 in 2023, even if the individual has reached the annual out-of-pocket limit and to $35 in 2024 for those who have not yet reached their annual out-of-pocket limit. The legislation must still pass the Senate before it is enacted.
Industry & Regulatory NewsIRS Issues Deadline Relief for Puerto Rico for Severe Storms
The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of severe storms, flooding, and landslides in Puerto Rico. The tax relief postpones various tax filing deadlines that began February 4, 2022. Affected individuals and households who reside or have a business in municipalities of Cataño, Dorado, Toa Baja, Vega Alta, and Vega Baja 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 February 4, 2022, and before June 15, 2022, will have until June 15, 2022, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after February 4, 2022, and before June 15, 2022.
"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.
Industry & Regulatory NewsProtecting America’s Retirement Security Act Introduced in House
Representative Lucy McBath (D-GA) and five other Democratic co-sponsors have introduced the Protecting America’s Retirement Security Act in the House of Representatives. The bill proposes fee disclosure improvements, increasing spousal protections, and automatic reenrollment for defined contributions plans. Additionally, the bill would direct the creation of a personal finance education portal as well as a rainy-day refund savings program that would allow taxpayers to elect deferment of 20 percent of their tax refund to an interest-bearing account that would be available for distribution at a later date.