Industry & Regulatory News
Industry & Regulatory NewsLegislation to Encourage 529 Plan Savings Introduced
May 3, 2022 - Senators Maggie Hassan (D-NH) and Susan Collins (R-ME) have introduced S. 4103, the Helping Parents Save for College Act. The bill would provide low- and middle-income parents with a tax credit for contributions to 529 education savings accounts by expanding the Saver’s Credit. The credit would be worth up to 50 percent of 529 account contributions, with a maximum credit of $2,000 for low-and-middle income families.
Additionally, the proposal would allow plan beneficiaries to move excess funds from the 529 account to a Roth IRA without penalty, so long as the account was maintained for a 10-year period at the time of the distribution. This would alleviate concerns of adverse tax consequences if funds are not used for college. The amount eligible for rollover to a Roth IRA is limited to the lesser of the annual Roth contribution limit or the aggregate amount contributed to the program before the five-year period ending on the date of the distribution.
Industry & Regulatory NewsProposed Lump-Sum Buyout Disclosure Legislation Reintroduced
Senators Patty Murray (D-WA), Tina Smith (D-MN), and Tammy Baldwin (D-WI) reintroduced the Information Needed for Financial Options Risk Mitigation (INFORM) Act of 2022. The proposal would require pension plan sponsors to provide retirees and participants with certain information when being offered a lump-sum buyout from their defined benefit plan.
Industry & Regulatory NewsIRS Releases Revised 2021 Publication 590-B
April 29, 2022 - The IRS has issued a revised 2021 Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). The updated publication appears to correct several errors in the life expectancy tables found in Appendix B. The 2021 tax year publication reflects new life expectancy and distribution period tables that are applicable to distribution calendar years beginning on or after January 1, 2022.
Industry & Regulatory NewsWashington Pulse: IRS Issues Proposed MEP Rule
Employers of all types have expressed interest in learning more about multiple employer plans (MEPs). But the unified plan rule, sometimes known as the “one bad apple rule,” has discouraged some employers from pursuing MEP participation.
Industry & Regulatory NewsDOL Launches Roundtable Discussions on Retirement
The Department of Labor (DOL) has kicked off what is to be a series of roundtable discussions on how to improve retirement security for workers. Labor Secretary Marty Walsh and Kathleen Kennedy Townsend, the Secretary’s representative for pensions and retirement, joined several state officials, trade group representatives, educators, and others in New York City to review current retirement security policies.
In the coming months, Kennedy Townsend will host similar discussions around the country to promote retirement security reform and open a dialogue between various stakeholders. Topics of focus will include encouraging automatic enrollment, improving portability of benefits as workers move from job to job, and leveraging affordable lifetime income options.
Industry & Regulatory NewsIRA Bankruptcy Exemption Increases
Effective April 1, 2022, the maximum aggregate bankruptcy exemption amount for IRAs increased from $1,362,800 to $1,512,350. This exemption amount is subject to cost-of-living adjustments (COLAs), having risen from an initial exemption limit of $1,000,000 as enacted within the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Public Law 109-8. The limitation is reviewed every three years and increased if COLA measures warrant. There is no maximum exemption for assets accumulated in employer-sponsored retirement plans.
Industry & Regulatory NewsIRS Issues Yield Curves and Segment Rates for DB Plan Calculations
The IRS has issued Notice 2022-16, which contains updated guidance on factors used in certain defined benefit (DB) pension plan minimum funding and present value calculations. Updates include the corporate bond monthly yield curve, the corresponding spot segment rates for April used under Internal Revenue Code Section (IRC Sec.) 417(e)(3), and the 24-month average segment rates under IRC Sec. 430(h)(2). IRC Sec. 417 contains definitions and special rules for minimum survivor annuity requirements in DB plans. IRC Sec. 430 addresses minimum funding standards for single-employer DB plans.
Industry & Regulatory NewsIRS Announces Applicable Federal Rates for May 2022
The IRS has issued Revenue Ruling 2022-9, which contains the applicable federal rates (AFR) for May 2022. These rates are used for such purposes as calculating distributions from retirement savings arrangements that meet the requirements for substantially equal periodic payments (a 10 percent early distribution penalty tax exception), also referred to as “72(t) payments.”
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.