Benefits Monthly Minute
The January Benefits Monthly Minute digs into IRS updates aligning eligible rollover distribution notices with SECURE 2.0, a win for Meijer in a 401(k) forfeiture suit, and a reminder to update health plan Notice of Privacy Practices to conform to federal privacy regulations.
Eligible Rollover Distribution Notices Under SECURE 2.0 - IRS Updates
In IRS Notice 2026-13, the IRS provided two safe harbor explanations that plan administrators may use to satisfy the eligible rollover distribution notice requirement under IRC Section 402(f). An eligible rollover distribution notice generally provides a written explanation to any recipient, before receiving an eligible rollover distribution, regarding direct rollover rules, mandatory income tax withholding, tax treatment of distributions not rolled over, and when distributions may be subject to different restrictions and tax consequences after being rolled over. In the new IRS Notice, one safe harbor explanation applies to traditional/non-Roth distributions, and the other applies to distributions from a designated Roth account.
The new safe harbor explanations address certain legislative changes made by SECURE 2.0. Specifically, the safe harbor explanations modify the prior safe harbor explanations (from Notice 2020-62) to reflect:
- changes relating to the exceptions under section 72(t)(2) to the 10% additional tax,
- changes relating to the required minimum distribution rules for surviving spouses,
- the increased age for determining required beginning dates for required minimum distributions,
- the elimination of required minimum distributions with respect to a plan’s designated Roth accounts,
- the increased dollar thresholds related to small lump-sum distributions,
- changes to the rules relating to distributions from governmental plans for health and long-term care insurance, and
- rules relating to pension-linked emergency savings account (PLESA) distributions.
Two updated safe harbor explanations are appended to the notice which also include a paragraph setting forth the options generally available to plan participants receiving eligible rollover distributions. Plan administrators are encouraged to customize a safe harbor explanation by omitting any information that does not apply.
KMK Comment: The updated safe harbor explanations will not satisfy section 402(f) to the extent the explanations are no longer accurate because of changes in the law occurring after January 15, 2026. However, the IRS anticipates updating the safe harbor explanations to reflect such future changes, including with respect to Section 103 of SECURE 2.0 which provides for Saver’s Match contributions and Section 309 which provides for the exclusion from income of certain disability-related qualified first responder retirement payments. The KMK Benefits Group is able to assist with any queries regarding this important tax notice.
Michigan Court Hands Meijer a Win in Forfeitures Case
A federal court in Michigan recently dismissed a class action that alleged Meijer, Inc. improperly used its retirement plan forfeitures account to reduce its contribution obligations. In dismissing the claim, the court explained that the plan provided Meijer with discretion to use forfeitures to either pay administrative costs or reduce employer contributions. Accordingly, plaintiffs failed to state a claim for breach of fiduciary duty based on Meijer's use of forfeitures to reduce employer contributions. In response to plaintiffs' contention that Meijer's use of forfeitures to reduce employer contributions constituted a prohibited transaction, the court reasoned that because Meijer could have implemented an amendment requiring forfeitures to go toward employer contributions, it could also achieve that same result by acting as a fiduciary without violating ERISA.
Plaintiffs also argued that Meijer violated its fiduciary duty of prudence by failing to use forfeitures within the calendar year that they accumulated. However, the plan stated that Meijer had until the following year to use forfeitures, and IRS guidance only requires allocation by year's end, rather than actual use. The court also recognized that 2023 IRS guidance proposed a new rule "require[ing] that plan administrators use forfeitures no later than 12 months after the close of the plan year in which the forfeitures are incurred[.]" The court described this recent guidance as acknowledging the impracticality of immediately using forfeitures, and noted that although there may be circumstances when a delay is unreasonable, plaintiffs failed to allege sufficient facts to suggest as much in this case.
KMK Comment: This decision stands in contrast to an earlier California district court case that allowed claims against Clorox alleging wrongful use of its 401(k) plan forfeiture account to proceed (as reported in the March 2025 Benefits Monthly Minute). This Michigan district court decision underscores that when plan documents clearly grant an employer discretion over the use of forfeitures, plaintiffs may face an uphill battle in framing such decisions as fiduciary breaches. By aligning its reasoning with existing IRS guidance and the plan’s terms, the court applied a pragmatic approach to forfeiture review, absent specific allegations of unreasonable delay or misuse.
ALERT: February 16, 2026 Deadline to Update Notice of Privacy Practices
As a reminder, group health plans are generally required to update their Notice of Privacy Practices (“NPP”) by February 16, 2026, to incorporate federal confidentiality protections for substance use disorder treatment records under 42 C.F.R. Part 2. In addition, because the (new) HIPAA reproductive health rule no longer applies, HIPAA documentation changes previously made to address that rule may need to be revisited and, where appropriate, modified for consistency with current requirements.
KMK Comment: Covered entities, including group health plans and medical service providers, should carefully review their Notice of Privacy Practices for compliance with these new rules. The deadline is fast-approaching and KMK is available to assist with NPP review and revision.
The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.
Lisa Wintersheimer Michel
513.579.6462
lmichel@kmklaw.com
John F. Meisenhelder
513.579.6914
jmeisenhelder@kmklaw.com
Antoinette L. Schindel
513.579.6473
aschindel@kmklaw.com
Kelly E. MacDonald
513.579.6409
kmacdonald@kmklaw.com
Rachel M. Pappenfus
513.579.6492
rpappenfus@kmklaw.com
KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.
