Employee Benefits & Executive Compensation Monthly Minute
Determination Letter Program Expanded
In a recent Revenue Procedure (Rev. Proc. 2019-20), the IRS announced the limited expansion of the determination letter program for individually designed plans. The program is limited to (1) certain cash balance plans and (2) retirement plans that merge as the result of a corporate transaction. The window for determination letter submissions for eligible cash balance plans will run from September 1, 2019 to August 31, 2020. Submissions for merged plans will begin on September 1, 2019 and will be ongoing.
This opportunity is especially important for cash balance plans since the IRS did not consider the final regulations during the last remedial amendment cycle for determination letter reviews. These plans now have a limited opportunity to request an updated determination letter that would take into account all of the regulatory changes and required amendments through 2018. The plans submitted for review will also be exempt from any sanction for missing amendments related to the final regulations subject to a good faith compliance effort.
Self-Correction Program Also Expanded
In another recent Revenue Procedure (Rev. Proc. 2019-19), the Employee Plans Compliance Resolution System (“EPCRS”) program was expanded to permit the correction of certain additional failures through the Self-Correction Program (“SCP”). Before this new ruling, the ability to use SCP was more limited The expanded EPCRS provides the following:
- Plan sponsors can now self-correct certain loan defaults without having to report the failure as a deemed taxable distribution to the participant. A correction may be made by either reamortizing the outstanding loan balance or making a single catch-up payment.
- In cases where spousal consent is required for a loan, the failure to obtain spousal consent can now be self-corrected by obtaining spousal consent retroactively.
- If an error occurred allowing more loans to a participant than permitted by the plan terms, SCP can be used to adopt a retroactive amendment for the permissible number of loans.
- SCP may be used for the retroactive amendment to a plan for the untimely adoption of compliance amendments.
Operational errors that result in plan participants receiving benefits, rights or features that were in excess of that provided by the plan can also now be corrected through a retroactive amendment. The retroactive amendment must provide the increased benefit, right or feature for all eligible employees, it must not violate any other plan qualification requirement and the correction must “satisfy the corrections principles” of the EPCRS.
Two Retirement Bills Under Consideration
On May 23, 2019, the House approved the “Setting Every Community Up for Retirement Enhancement (“SECURE Act”) by a vote of 417-3. The SECURE Act generally provides for an increase in retirement savings and improves portability of lifetime income options between plans (Summary). More specifically, the SECURE Act includes provisions that:
- Require 401(k) plans to offer participation to part-time employees who work at least 500 hours in three consecutive years;
- Simplify the 401(k) safe harbor rules relating to the notice requirement and limits on plan amendments;
- Increase the maximum for safe harbor automatic enrollment contributions from 10% to 15%;
- Create a new tax credit for employers to defray startup costs for adding an automatic enrollment feature to an existing Section 401(k) plan;
- Require defined contribution plans to provide participants with an estimate of the monthly annuity equivalent of their plan balance;
- Increase the required age for minimum required distributions from 70-1/2 to 72;
- Permit unrelated employers to participate in a “Pooled Employer Plan” that would be treated as single plan for ERISA purposes;
- Provide nondiscrimination testing flexibility for certain defined benefit plans that have been closed to new participants to permit existing participants to continue to accrue benefits.
The Senate Committee on Finance has approved the “Retirement Enhancement and Savings Act” (“RESA”) which is similar to the SECURE Act. We will continue to monitor this.
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.
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