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On December 9, 2020, the IRS issued Notice 2020-86, which provides guidance regarding safe harbor provisions under Sections 102 and 103 of the SECURE Act. The questions and answers are intended to assist employers that sponsor safe harbor plans with compliance until comprehensive regulations are developed.

As background, qualified retirement plans are prohibited from providing contributions or benefits that discriminate in favor of highly compensated employees. Instead of satisfying the annual nondiscrimination tests with respect to elective deferrals and matching contributions, an employer can choose to make safe harbor non-elective and/or matching contributions. Additionally, as an alternative to a traditional safe harbor plan design, an employer can adopt a qualified automatic contribution arrangement (QACA), which combines safe harbor contributions with an automatic enrollment feature.

Section 102 of the SECURE Act increased the QACA elective deferral maximum percentage from 10% to 15%. The guidance explains that a QACA is not required to adopt this increase. Rather, the qualified percentage under a QACA safe harbor 401(k) plan may be any percentage of compensation specified under the plan, provided it is applied uniformly and does not exceed 10% during the initial period of participation and 15% thereafter.

However, the plan document may need to be amended if the language incorporates the 15% rate by reference (e.g., by referring to the maximum permitted rate under the Code) and the plan sponsor wishes to continue to apply the prior 10% maximum rate. In such case, the plan would need to be amended retroactive to the first day of the plan year beginning after December 31, 2019, in accordance with the timeframes referenced in IRS Notice 2020-68.

Section 103 of the SECURE Act removed the safe harbor notice requirements for traditional and QACA 401(k) plans that satisfy the automatic deferral percentage safe harbor through safe harbor non-elective contributions. The guidance confirms that safe harbor notices must still be provided for traditional safe harbor 401(m) plans in order for matching contributions not to be subject to automatic contribution percentage testing.

Additionally, plans wanting the ability to reduce or suspend safe harbor contributions mid-year and maintain safe harbor status must still provide notice before the beginning of the plan year. However, one-time relief is provided for plans that elected safe harbor status for 2021 without providing such advance notice (as allowed under Section 103). Specifically, these plans can issue a notice to eligible participants describing the potential mid-year reduction or suspension of safe harbor non-elective contributions by January 31, 2021.

The notice also addresses questions related to retroactive adoption of safe harbor status. The SECURE Act allows traditional and safe harbor 401(k) plans to attain safe harbor status by adoption of an amendment no later than 30 days before the plan year end (if providing 3% non-elective employer contributions) or by the end of the following plan year (if providing a 4% non-elective contribution). The notice explains that a 4% non-elective contribution would not be deductible for the prior year if contributed to the plan after the tax filing deadline for such year (including extensions). Additionally, guidance is provided with respect to the applicable amendment deadlines to adopt safe harbor status under the new SECURE Act provisions.

Employers who sponsor safe harbor 401(k) plans may find this guidance instructive.

IRS Notice 2020-86 »

On December 16, 2020, the DOL finalized a rule instituting standards for situations where fiduciaries exercise shareholder rights, such as voting proxies. As background, ERISA’s investment duties regulation generally requires a fiduciary to act prudently when making decisions on investments. Sometimes, that duty involves the fiduciary having to vote on matters on behalf of plan shareholders (i.e., by proxy). The proposed rule provides guidance on the factors that fiduciaries should consider when exercising shareholder rights. (We discussed the proposed rule in the September 15, 2020, edition of Compliance Corner.)

The final rules substantially alter the proposed rules in a number of ways. First, in response to the many comments they received, the DOL takes a more principles-based approach in the final rules. In the proposed rule, the DOL required fiduciaries to act solely based on the economic interests of the plan and participants, only considering factors that will affect the economic value of the plan’s investments. However, the DOL removed that requirement due to being persuaded that the complexity involved in a determination of economic versus non-economic impact could be costly. Instead, the final rule focuses on whether the fiduciary has a prudent and loyal process for proxy voting and other exercises of shareholder rights.

The final rule again confirms that fiduciaries do not always have to vote proxies or exercise every shareholder right. The rule does, however, provide a safe harbor provision that fiduciaries can use to satisfy their fiduciary obligations with respect to decisions on whether to vote proxies. Importantly, the DOL clarifies that these regulations do not apply to voting, tender and other rights that are passed through to participants in individual account plans.

As part of the final rule, the DOL removed Interpretive Bulletin 2016-01 and invalidated Field Assistance Bulletin 2018-01. The rule will become effective 30 days after the rule was published in the federal register (January 15, 2021), and it involves compliance dates in 2022. Plan fiduciaries should discuss this rule with their plan advisers to ensure that they are meeting their fiduciary obligations related to exercising shareholder rights.

Final Rule: Fiduciary Duties Regarding Proxy Voting and Shareholder Rights »

On December 15, 2020, the DOL issued the finalized prohibited transaction exemption 2020-02 for investment advice. As background, the DOL issued a final rule providing an amended fiduciary conflict of interest rule back in June 2020. At that time, the DOL also proposed this class exemption to go along with that final rule. (We discussed the final conflict of interest rule and the proposed class exemption in the July 7, 2020, edition of Compliance Corner.)

Under the class exemption, those that provide fiduciary investment advice (including rollover advice) can receive compensation for conflicted advice as long as they meet certain impartial conduct standards. This rule aligns the DOL’s rule with the SEC’s rule and provides the exemption if:

• The investment advice is in the best interest of the retirement investor at the time it is made;
• The compensation received is reasonable under ERISA 408(b)(2); and
• The advice does not place the financial or other interests of the advising fiduciary before the interests of the investor.

The final exemption makes a number of changes to the proposed version. Specifically, the final exemption:

• Narrows the recordkeeping requirements to allow only the DOL and the Department of the Treasury to obtain access to a financial institution’s records;
• Revises the disclosure requirements to require a written disclosure to retirement investors on the specific reasons that a rollover recommendation was in their best interest;
• Revises the retrospective review provision to provide that certification can be made by any senior executive officer, and not just the chief executive officer (as proposed); and
• Adds a self-correction provision; and
• Sets forth the DOL’s final interpretation of the five-part test used for determining investment advice fiduciary status.

The final prohibited transaction exemption will be effective beginning 60 days after the date of publication in the Federal Register. Plan sponsors should discuss this rule with their plan advisers.

Prohibited Transaction Exemption 2020-02, Improving Investment Advice for Workers & Retirees »

On December 8, 2020, the DOL finalized the rollover rules for qualified plan loan offset amounts. As background, when a plan loan must be paid immediately (usually due to default or termination of employment) and goes unpaid, the loan is treated as a deemed distribution or a loan offset. The deemed distribution would occur if the participant is able to take a distribution under the plan terms. An offset, or a reduction of the account balance by the unpaid portion of the loan, would occur if the participant is not yet able to take a distribution. Offsets are treated like an actual distribution for rollover purposes, meaning that the offset must generally be rolled over to a qualified retirement plan within 60 days to avoid taxation of the offset amount. (See our Compliance Corner article on the proposed rule for more information.)

The finalized rule essentially adopted the proposed rule, with one major modification. Specifically, the final rule changes the applicability date of the rule to apply to plan loan offset amounts treated as distributed on or after January 1, 2021. The proposed rule would’ve allowed for applicability immediately following the publication of the final rule. This gives employers additional time to come into compliance with the new regulations since they would first apply when employers file the 2021 Forms 1099-R in early 2022.

Employers should work with their accountant or other service providers to adequately address plan loan offsets for the 2021 year.

Rollover Rules for Qualified Plan Loan Offset Amounts (Final Rule) »

On November 12, 2020, the DOL issued the final rule on pooled plan provider registration requirements. As background, the SECURE Act allows for pooled employer plans (PEPs), which are multiple employer retirement plans that are administered by pooled plan providers (PPPs). PPPs are fiduciaries and are therefore subject to ERISA’s prohibited transaction provisions. (We discussed the proposed rule in the September 1, 2020, edition of Compliance Corner.)

Like the proposed rule, the final rule establishes a registration process for entities that want to offer PEPs. Specifically, entities that are seeking to become PPPs would have to register through an initial registration, supplemental filings in the event of specific events and a final filing after the provider’s PEP has terminated. The final rules clarify a number of requirements, including the following:

• Initial registration must still be filed at least 30 days before the PEP begins operations. However, the final rules got rid of the requirement that registration occur no earlier than 90 days before operations begin. Additionally, filings that are submitted before February 1, 2021, can be filed at any time before operations begin (vs. having to do so at least 30 days in advance).
• PPPs merely have to identify a “responsible compliance official” instead of a “primary compliance officer.” This clarification means that a PPP would not need to create a new position; instead, they could just identify a person who would answer any status or compliance questions posed by the government.
• The deadline for supplemental filings has been extended to the later of 30 days after the calendar quarter in which the reportable event occurred or 45 days after the event.
• The deadline for final filings will be the later of 30 days after the calendar quarter in which the final Form 5500 is filed or 45 days after that filing.

The final rules also highlight the newly provided Form PR and instructions, which PPPs will use for filings. The DOL provided the Form PR and Instructions on November 19, 2020.

The rule took effect on November 16, 2020, upon being published in the federal register. The electronic filing system for pooled plan providers to register became available on November 25, 2020.

Although this rule will not directly affect employer plan sponsors’ responsibilities, they should know PEPs will begin soon. Entities that are looking to operate PEPs should review this finalized rule in preparation of filing. Employers that may be interested in joining a PEP should consult their advisor for more information.

Registration Requirements for Pooled Plan Providers »
DOL News Release »
Form PR and Instructions »

On November 20, 2020, the IRS issued Notice 2020-83, which is the 2020 Required Amendments List (RA List) for qualified retirement plans. The yearly RA Lists provide changes in retirement plan qualification requirements that could result in disqualifying provisions and require a remedial amendment. A disqualifying provision is a required provision that isn’t listed in the plan document, a provision in the document that does not comply with the qualification requirements, or a provision that the IRS defines as such.

The RA List applies to both §401(a) and §403(b) plans and is divided into two parts: Part A and Part B. Part A lists changes in qualification requirements that will require affected plans to be amended under most circumstances. Part B lists changes that would not require amendments to most plans but might require an amendment because of an unusual plan provision in a particular plan.

Notably, there are no Part A changes this year. There are two Part B entries addressing the SECURE Act’s treatment of difficulty of care payments as compensation and the CARES Act’s expansion of the definition of “cooperative and small employer charity pension plan.”

The remedial amendment deadline for disqualifying provisions resulting from items on the 2020 RA List is December 31, 2022 (or later, for certain governmental plans). Therefore, plan sponsors should determine whether amendments are necessary for their retirement plan and work with their service providers to adopt any such amendment.

IRS Notice 2020-83 »

On October 30, 2020, the DOL finalized their “Financial Factors in Selecting Plan Investments” rule. The finalized rule comes after the DOL proposed this rule in June of 2020. (See our July 7, 2020, edition of Compliance Corner for the article on the proposed rule.) The finalized rule essentially adopts the proposed rule with some modifications that were made in response to public comments.

The finalized rule makes the following modifications to ERISA’s current investment duties rules:

• The final rule adopts the proposed rule’s restatement of ERISA’s duty of loyalty, and continues to treat the original regulations’ provisions on prudence as a safe harbor.
• The final rule confirms that ERISA fiduciaries must evaluate investments based solely on pecuniary factors — which are factors that are expected to have a material effect on the risk and return of an investment. Loyalty prohibits fiduciaries from subordinating the interests of participants to unrelated objectives.
• The final rule still requires fiduciaries to consider reasonably available alternatives to meet their duty of prudence, but they don’t have to scour the marketplace or look at an infinite number of possible alternatives to do so.
• In situations where a fiduciary will use non-pecuniary factors to choose between investments that are indistinguishable based on pecuniary factors, the fiduciary must document their analysis and evaluation. Specifically, with respect to the “tie-breaker” rule, fiduciaries must document all of the following:
  • Why pecuniary factors alone did not provide a sufficient basis to select the investment
  • How the selected investment compares to the alternative investments with regard to certain factors
  • How the chosen non-pecuniary factors are consistent with the interests of participants
• The final rule states that the duties of prudence and loyalty apply to a fiduciary’s selection of a designated investment alternative, but it does not prohibit fiduciaries from considering and including investment alternatives that support non-pecuniary goals as long as participants can choose from a broad range of investment alternatives.
• The final rule prohibits plans from designating a fund that was chosen for non-pecuniary reasons as the qualified default investment alternative (QDIA).

Notably, in response to comments received by the DOL, the final rule did not contain any specific references to environmental, social and governance (ESG) investments. Based on those comments, the DOL concluded that the lack of precise or generally accepted definitions of ESG made the use of the term inappropriate for this rule. Instead, the final rule focuses on pecuniary and non-pecuniary factors.

The final rule is effective 60 days after publication in the Federal Register. Plan fiduciaries have until April 30, 2022, to amend their plan documents and operation to reflect the rule’s requirements.

Plan sponsors should consult with their adviser on the implications of the final rules.

Financial Factors in Selecting Plan Investments Final Rule »
Fact Sheet »

On October 30, 2020, the IRS published a draft version of the instructions for 2020 Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits. As background, Form 8955-SSA is used to report information about participants who separated from service during the plan year and are entitled to deferred vested benefits under the retirement plan.

The draft instructions clarify that no attachments are permitted to be filed with the form. There is also clarification regarding which Entry Codes should be used in Part III, line 9, column (a) for the following participant scenarios:

• Entry Code A: Separated from service covered by the plan, but vested retirement benefits are not paid and were not previously reported
• Entry Code B: Were previously reported under the plan but whose information is being corrected
• Entry Code C: Were previously reported as deferred vested participants on another plan's filing if their benefits were transferred (other than in a rollover) to the plan of a new employer during the covered period
• Entry Code D: Were previously reported under the plan but have been paid out or no longer entitled to those deferred vested benefits

This draft of the instructions is only for informational purposes and may not be used for 2020 Form 8955-SSA filings, but employers should familiarize themselves with the instructions in preparation for 2020 plan year filings. While many employers outsource the preparation and filing of this form, employers should also familiarize themselves with the form’s requirements and work closely with outside vendors to collect the applicable information.

Draft Instructions for 2020 Form 8955-SSA »

On October 26, 2020, the IRS issued Notice 2020-79, which provides certain cost-of-living adjustments for a wide variety of tax-related items, including retirement plan contribution maximums and other limitations. Several key figures are highlighted below. These cost-of-living adjustments are effective January 1, 2021.

The elective deferral limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains at $19,500 in 2021. Additionally, the catch-up contribution limit for employees age 50 and over who participate in any of these plans remains at $6,500. Accordingly, participants in these plans who have attained age 50 will still be able to contribute up to $26,000 in 2021.

The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts remains at $13,500.

The annual limit for defined contribution plans under Section 415(c)(1)(A) increases to $58,000 (from $57,000). The limitation on the annual benefit for a defined benefit plan under Section 415(b)(1)(A) also remains $230,000. Additionally, the annual limit on compensation that can be taken into account for allocations and accruals increases from $285,000 to $290,000.

The threshold for determining who is a highly compensated employee under Section 414(q)(1)(B) remains at $130,000. The dollar limitation concerning the definition of a key employee in a top-heavy plan increases also remains $185,000.

Employers should review the notice for additional information. Sponsors of benefits with limits that are changing will need to determine whether their plan documents automatically apply the latest limits or must be amended to recognize the adjusted limits. Any applicable changes in limits should also be communicated to employees.

IRS Notice 2020-79 »

On October 16, 2020, the IRS released Revenue Ruling 2020-24, addressing the tax treatment and reporting of qualified retirement plan funds that are transferred to state unclaimed property funds. As background, when a designated distribution is made from a qualified retirement plan, the plan administrator must withhold the appropriate federal income taxes.

This guidance indicates that retirement funds that are transferred or escheated to state unclaimed property funds are, indeed, designated distributions. As such, the plan administrator must withhold taxes from those funds and report on the payment using Form 1099-R. Employers must comply with this guidance as soon as they are able, but in no case later than January 1, 2022.

The IRS also released Revenue Procedure 2020-46 on October 16, 2020. The revenue procedure adds distributions to a state unclaimed property fund as a reason that individuals can certify that they missed the 60-day deadline to roll over their retirement funds to an eligible retirement account.

As background, distributed retirement funds can generally be excluded from an individual’s gross income if they are transferred to another retirement account within 60 days of the distribution. The IRS can waive that 60-day rollover limitation where the individual’s failure to roll the funds over was beyond their control. An individual is able to self-certify to the IRS that they missed the 60-day deadline for a number of reasons. Rev. Proc. 2020-46 adds the fact that the distribution was transferred to a state unclaimed property fund to the list of reasons that an individual may request a waiver from the 60-day requirement.

Once the distribution to the state unclaimed property fund no longer prevents the individual from rolling the funds over (i.e. once the individual is given access to those funds), they have 30 days to roll the funds over to a qualified retirement account or IRA. If these steps are taken, the individual’s self-certification is valid unless the IRS indicates otherwise. Rev. Proc. 2020-46 also provides a sample “Certification for Late Rollover Contribution” that individuals may use to self-certify.

Employer plan sponsors who send unclaimed retirement amounts to state unclaimed property funds should be mindful of this guidance and ensure that they appropriately tax and report on these funds. They can also advise employees who may return looking for their funds to consult with an accountant or tax advisor on how to go about claiming the funds and facilitating a rollover to another retirement account.

Revenue Ruling 2020-24 »
Revenue Procedure 2020-46 »

The IRS has published the 2020 version of Form 4972, which is used by participants born before January 2, 1936, and who received a lump-sum distribution from a qualified plan in 2020. The form assists participants in calculating the tax owed on a distribution using the 20% capital gain election, the 10-year tax option or both. These are special formulas used to determine a separate tax on the distribution that may result in a smaller tax than if the amount is reported as ordinary income.

Participants should consult with their accountant for guidance.

IRS Form 4972 »

On September 18, 2020, the DOL published an interim final regulation regarding lifetime income illustrations for defined contributions plans, which include 401(k) plans. The income stream information must be provided at least annually on participant benefit statements.

As explained in our prior September 1, 2020, Compliance Corner article, this new requirement was a component of the SECURE Act. The annual income disclosure is designed to show the monthly retirement income that would be generated from a participant’s defined contribution plan account balance. The participant could then evaluate whether current contribution levels were adequate to reach desired retirement income goals.

Specifically, the disclosures must display the projected monthly amounts that the account balance would provide as a single life annuity for the life of the participant with no death benefit. The illustrations also must reflect the monthly amount in the form of a qualified joint and 100% survivor annuity that provides an equal benefit for a surviving spouse. The rule outlines the assumptions upon which these annuity benefits are to be based.

Additionally, the disclosures must include language that explains the annuity payment calculations and emphasizes that the projected amounts are illustrations and not guarantees. Appendix A and B to Subpart F of the regulation provide model language for this purpose. Appendix A is designed for plans that do not offer an annuity form of payment and Appendix B is intended for plans that currently provide an annuity option.

The rule is effective on September 18, 2021, and shall apply to benefit statements furnished after such date. Written comments are being accepted through November 17, 2020.

Employers should be aware of the publication and work with their service providers to ensure the rule’s requirements are implemented accurately.

Interim Final Rule »

On August 31, 2020, the DOL issued a proposed rule instituting standards for situations where fiduciaries exercise shareholder rights, such as voting proxies. As background, ERISA’s investment duties regulation generally requires a fiduciary to act prudently when making decisions on investments. Sometimes, that duty involves the fiduciary having to vote on matters on behalf of plan shareholders (i.e., by proxy). The proposed rule provides guidance on the factors that fiduciaries should consider when exercising shareholder rights.

Specifically, the proposed rule requires fiduciaries who are exercising shareholder rights to carry out their duties prudently, solely in the interests of plan participants and beneficiaries, and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan. When making decisions on behalf of shareholders, fiduciaries must:

• Act solely based on economic interests of the plan and participants, only considering factors that will affect the economic value of the plan’s investment
• Consider the likely impact the decision will have on the investment performance of the plan based on various factors
• Not subordinate the interests of the participants and beneficiaries to any non-pecuniary objectives or goals unrelated to their financial interests or the purposes of the plan
• Investigate material facts that are the basis of any particular proxy vote
• Maintain records on proxy voting and other exercises of shareholder rights
• Exercise prudence and diligence in selecting and monitoring plan advisers that assist with the exercise of shareholder rights

Additionally, the guidance clarifies that fiduciaries do not always have to vote proxies; instead, the fiduciary must only vote proxies when they determine that the matter being voted upon would have an economic impact on the plan. There is also a provision outlining permitted practices which would allow fiduciaries to adopt policies on proxy voting.

The DOL will operate a comment period for 30 days after the proposed rule is published in the Federal Register. Plan fiduciaries should discuss this rule with their plan advisers to ensure that they are meeting their fiduciary obligations related to exercising shareholder rights.

Fiduciary Duties Regarding Proxy Voting and Shareholder Rights Proposed Rule »

On September 2, 2020, the IRS issued Notice 2020-68 to provide guidance regarding certain provisions of the SECURE Act affecting qualified retirement plans, 403(b) plans and IRAs. The guidance, which is in the form of questions and answers (Q&As), is intended to assist plan sponsors and IRA custodians with the implementation of this legislation.

The SECURE Act, which was enacted on December 20, 2019, introduced significant changes with respect to retirement plan eligibility, contributions and distributions, among other items. (See our January 7, 2020, edition of Compliance Corner for an article detailing the provisions of the act.) Notice 2020-68 provides needed clarification regarding specific sections of this law and the deadlines for adopting related plan amendments.

First, the notice addresses a new $500 tax credit under Section 105 of the SECURE Act that is available to small businesses (with up to 100 employees who were paid at least $5,000 a year) that newly establish an eligible automatic enrollment arrangement (EACA) to increase qualified plan participation. This one-time credit applies to the three-year period that begins when the EACA feature is first adopted. The $500 credit is available on an employer (as opposed to plan) basis; therefore, each employer participating in a multiple employer plan could be eligible to claim this amount.

Second, clarification is provided regarding Section 107 of the SECURE Act, which permitted certain changes with respect to IRA contributions and distributions beginning in 2020. Specifically, IRA owners are now allowed to make contributions after attainment of age 70.5, which was previously restricted. However, financial institutions that serve as custodian or trustee are not required to accept such post-age 70.5 contributions. Those that elect to do so must amend their IRA contracts by December 31, 2022, and notify accountholders within 30 days of the amendment adoption or effective date.

Additionally, Section 107 of the SECURE Act allows post-age 70.5 IRA owners to exclude from their gross income up to $100,000 of IRA distributions made directly to charities. The excludable amount must be reduced by any post-age 70.5 contributions, and the notice provides specific examples as to how the contribution offset would apply.

Third, the notice clarifies Section 112 of the SECURE Act, which modified 401(k) eligibility requirements to enable participation by long-term part time workers. Specifically, part-timers who have attained age 21 and completed three consecutive years each with 500 hours of service must be eligible to participate. This change is effective for plan years beginning on or after January 1, 2021. The Q&As explain that 12-month periods beginning prior to this date would not count in determining a part-time employee’s eligibility to participate, but would count towards the employee’s vesting in any employer contributions.

Fourth, significant guidance is provided with respect to qualified birth or adoption distributions, which are distributions of up to $5,000 from eligible retirement plans made within one year of the birth to or legal adoption of a child by the distributee. Under Section 113 of the SECURE Act, these distributions are taxable, but not subject to the 10% early withdrawal penalty that would normally apply to distributions prior to the age of 59.5. Additionally, the amounts are not subject to the mandatory withholding and notice requirements applicable to eligible rollover distributions, and can be recontributed to an eligible retirement plan or IRA. The Q&As explain that each parent can receive a distribution with respect to the same child and that the $5,000 maximum applies per child in the event of multiple births.

However, eligible retirement plans are not required to offer qualified birth or adoption distributions. Plans that elect to do so must be amended accordingly and must also accept recontributions of distributed amounts. The recontribution is treated by the receiving plan as if a direct trustee-to-trustee transfer of the funds; future IRS guidance will address the timing aspects. Furthermore, if a plan does not offer qualified birth or adoption distributions, an eligible participant can treat an in-service withdrawal as such and recontribute the amount to an IRA.

Other issues addressed by the notice include the optional inclusion of difficulty of care payments, which are a type of qualified foster care payment, in the determination of certain retirement contribution limitations. Guidance regarding retirement plan provisions in the Bipartisan American Miners Act of 2019 were also incorporated.

Finally, the IRS outlines the deadlines for SECURE Act plan amendments. Generally, qualified plans and 403(b) plans must adopt required amendments by the last day of the plan year beginning on or after January 1, 2022. The deadline for governmental plans and collectively bargained plans is the last day of the plan year beginning on or after January 1, 2024. The amendments must be retroactive to the effective date and the plan must operate in accordance with the amendment from such date.

Employers who sponsor retirement plans should be aware of this supplementary SECURE Act guidance. Comments can be submitted (preferably in electronic form) to the IRS through November 1, 2020, regarding the matters discussed in the notice.

Notice 2020-68 »

On September 2, 2020, the IRS released Revenue Procedure (Rev. Proc.) 2020-40, which revises the timeframe for when qualified pre-approved plans and 403(b) pre-approved plans must adopt discretionary plan amendments. Under Rev. Proc. 2016-37 for qualified pre-approved plans and Rev. Proc. 2019-39, the plan amendment deadline is the end of the plan year in which the plan amendment was operationally effective unless the IRS requires an earlier deadline under statutory provision or guidance.

Under Rev. Proc. 2020-40, the previous procedures are revised so that the timeline for discretionary amendments under pre-approved plans and 403(b) pre-approved plans is the end of the plan year following the effective date of the amendment unless the IRS provides a deadline that is either earlier or later.

The modification of the procedures is effective immediately.

Rev. Proc. 2020-40 »

On August 20, 2020, the DOL issued a notice of proposed rulemaking on pooled plan provider registration requirements. As background, the Setting Every Community Up for Retirement Enhancement (SECURE) Act allows for pooled employer plans (PEPs), which are multiple employer retirement plans that are administered by pooled plan providers. PEPs are fiduciaries, and are therefore subject to ERISA’s prohibited transaction provisions.

This proposed rule establishes a registration process for entities that want to offer PEPs. Specifically, entities that are seeking to become PEP providers would have to complete an initial registration, supplemental filings in the event of specific events, and a final filing after the provider’s PEP has terminated. The initial filing registration would be due before the PEP begins operations, and would provide identifying information about the PEP and the PEP provider. Supplemental filings would need to be made within 30 days of any change in information in the initial registration or in the event of any significant changes in the corporate structure of the PEP. A final filing would be due within 30 days of the PEP filing the final Form 5500 for the plan.

The proposed rule also requires that these filings be made electronically through EFAST2 using the Form PR. The rule also provides a mock-up of the form.

Interested stakeholders will have 30 days to comment on the proposed rule. Entities that are looking to operate PEPs should review this proposed rule to gain an understanding of the filing requirements that will likely be imposed on PEPs.

Registration Requirements for Pooled Plan Providers Proposed Rule »
DOL Fact Sheet »

On August 18, 2020, the DOL announced an interim final rule regarding lifetime income illustrations for participant benefit statements. The rule’s requirements are applicable to defined contribution plans, which would include 401(k) plans.

As background, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) amended ERISA Section 105 to require an annual income disclosure to be included as part of a participant’s benefit statement. The disclosure is intended to help a participant understand how their account balance translates into monthly income at retirement. As a result, a participant may be better able to prepare for retirement and assess whether current contributions should be increased to achieve retirement income goals.

Accordingly, the disclosure would reflect the monthly payment amounts the participant would receive if their total account balance were used to provide a single life annuity (SLA) for the participant or a qualified joint and survivor annuity (QJSA) that would also provide a benefit for a surviving spouse. As prescribed by the SECURE Act, the interim final rule sets forth the specific assumptions upon which these lifetime income payments would be based.

The first assumption is the annuity commencement date, which is the last day of the statement period. For example, if the annual disclosure was included with the fourth quarter statement, the annuity starting date would be December 31. Second, the assumed age on the annuity starting date is 67, which was chosen because it is the Social Security full retirement age of most workers. However, for participants older than age 67, their actual age must be used instead.

The third assumption focuses upon the specific characteristics of the SLA and QJSA benefits for purposes of the illustrations. The SLA benefit must reflect a single life annuity, which will pay a fixed monthly amount for the life of the participant, with no survivor benefit upon the participant’s death. The QJSA benefit assumes that all participants have a spouse of equal age and provides a 100% survivor annuity, so the same fixed monthly amount would continue for the life of the participant or surviving spouse upon the participant’s death.

Fourth, the assumed interest rate is the 10 year constant maturity Treasury rate, which was selected because it approximates the rates used by insurers for immediate annuities. Finally, the assumed life expectancies are to be based upon gender neutral mortality tables that are currently used by defined benefit pension plans to determine lump sum payments.

Explanations must also be provided to participants that describe how the illustrative payments were calculated and that emphasize the portrayed estimates are not guarantees. Model language is provided for this purpose. Plan administrators can either insert the eleven model provisions into their existing statement formats or attach one of the Model Benefit Statement Supplements as an addendum.

Significantly, the rule provides ERISA liability relief to plan sponsors and fiduciaries for providing lifetime income illustrations that conform to the specified requirements. This relief was intended to address sponsor concerns of potential participant lawsuits if their actual monthly payments at retirement were less than the statement projections.

Defined contribution plan sponsors should be aware of the interim final rule’s requirements and consult with their service providers regarding incorporation of the disclosures in participant benefit statements. The rule is effective one year from publication in the federal register and applies to benefit statements provided after such date.

Interim Final Rule »
Fact Sheet »

On August 20, 2020, the DOL issued a proposed rule on qualified plan loan offset rollovers. As background, when a plan loan must be paid immediately (usually due to default or termination of employment) and goes unpaid, the loan is treated as a deemed distribution or a loan offset. The deemed distribution would occur if the participant is able to take a distribution under the plan terms. An offset, or a reduction of the account balance by the unpaid portion of the loan, would occur if the participant is not yet able to take a distribution. Offsets are treated like an actual distribution for rollover purposes, meaning that the offset must generally be rolled over to a qualified retirement plan within 60 days to avoid taxation of the offset amount.

However, an offset that is deemed a qualified plan loan offset (QPLO) can be rolled over at any time up to the individual’s tax filing deadline for the year in which the offset occurred. QPLOs were introduced by the Tax Cuts and Jobs Act (TCJA) of 2017. In order for the offset to be a QPLO, the offset loan has to meet all the IRC requirements for rollovers, and the distribution of the loan offset must occur “solely” because the person failed to repay the loan due to termination of employment or plan participation. Unfortunately, though, the TCJA did not actually define what it means for the loan offset to occur “solely” because of the termination of the participant.

This proposed rule answers that question by indicating that an offset occurs “solely” due to the termination of employment if the plan loan offset occurs because of the failure to repay the loan and it occurs during the first year following employment termination. This can be the case even where the participant is able to make some loan payments following termination.

QPLOs will be reported using Box 7 of the Form 1099-R. The rules also indicate that plan sponsors and recordkeepers can rely on this guidance until the final rule is published.

Rollover Rules for Qualified Plan Loan Offset Amounts »

On August 6, 2020, the IRS released Notice 2020-62, providing updates to the safe harbor explanations that are provided when a participant is eligible to take a rollover distribution from their retirement plan. As background, the IRC requires plan administrators to provide terminating participants with a written explanation discussing their options for rolling over account balances to another account and the related tax consequences of doing so. Participants must receive this type of explanation within a reasonable period of time before making an eligible rollover distribution.

The notice updates the safe harbor explanations to reflect a number of changes that have been made to retirement regulations under the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act. Specifically, the explanations were updated to add the increased age for required minimum distributions and the tax treatment of birth or adoption distributions, and to clarify that a CARES Act distribution is not an eligible rollover for certain purposes.

Two updated safe harbor explanations are included as appendixes in the notice — one for payments that are from a designated Roth account and one for payments that are not from a designated Roth account. As always, plan administrators can update the samples to indicate their specific plan terms.

Notices 2020-62 »

The IRS, in consultation with the DOL and the Pension Benefit Guarantee Corporation (PBGC), recently released Publication 5411, a guide to the Retirement Plans Reporting and Disclosure Requirements under the IRC and ERISA. The guide was designed as a quick reference tool for retirement plan sponsors regarding their obligations under the IRC and provisions of ERISA administered by the IRS. This handbook was intended for use in conjunction with the DOL Reporting and Disclosure Guide for Employee Benefit Plans.

As background, retirement plan sponsors are generally required to report certain information to the IRS, DOL and/or PBGC, and provide disclosures to plan participants and other affected parties. These reporting and disclosure obligations vary based upon a plan’s type, size and particular circumstances.

Accordingly, the guide outlines the annual reports that must be provided to the regulatory agencies, the annual notices that must be furnished to participants, and other notices required due to specific plan or participant events. The information is presented in chart format. For each necessary document, the IRS provides a brief explanation of the content, purpose, required recipients and due date. As applicable, statutory references and links to other available regulatory instructions or resources are included.

For example, the annual report section explains the Form 5500 filing requirement to report on the plan’s qualification, the due date seven months after the plan year end, and the extension option. Links are provided to the Form 5500 electronic filing system, instructions and other guidance.

The annual notice section includes common notices for both defined benefit pension plans and defined contribution plans, including the various 401(k) safe harbor contribution plan notices.

Retirement plan sponsors may find the guide to be a helpful and user friendly resource. However, the guide is not meant to provide a complete overview of all possible reporting and disclosure requirements or penalties for violations.

IRS Publication 5411 »

On July 8, 2020, the IRS updated their operational compliance list (OC List) to recognize the final regulations relating to hardship distributions and to reflect all the changes made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act. As background, the OC List is provided by the IRS to help plan sponsors and practitioners achieve operational compliance by identifying changes in qualification requirements effective during a calendar year.

The updated list incorporated the most recent changes to the hardship distribution rules and describes the necessary plan amendments relating to hardship distributions. The list also highlights the plan amendments necessary to reflect the changes that were brought on by the SECURE Act. (We discussed the SECURE Act at length in the January 7, 2020 edition of Compliance Corner.)

The IRS periodically updates the OC List to reflect new legislation and guidance. As such, it is a useful tool for plan sponsors. However, the list is not intended to be a comprehensive list of every item of IRS legislation or guidance. Plan sponsors should work with their advisers to ensure their continued compliance with the retirement plan regulations.

Operational Compliance List »

On June 29, 2020, the DOL released a final rule that provides an amended fiduciary conflict of interest rule on investment advice. The DOL also released a proposed prohibited transaction class exemption. As background, the DOL finalized a fiduciary rule in 2016, and that rule broadened ERISA’s definition of the term “fiduciary” by considering more communications to be investment advice that renders the person providing that advice a fiduciary. However, in 2018, the United States Court of Appeals for the Fifth Circuit issued an order officially vacating the DOL’s fiduciary rule. After that happened, ERISA’s original fiduciary rule was reinstated, and the DOL issued a temporary enforcement policy for investment advice fiduciaries who complied with the impartial standards set out in the fiduciary rule. Additionally, the Securities and Exchange Commission (SEC), adopted the Regulation Best Interest in 2019 to provide additional conduct standards for investment advisers.

This final rule implements the Fifth Circuit’s vacatur of the 2016 fiduciary rule. This means that the prior five-part test that was used to determine if an investment adviser was a fiduciary is back in place. Specifically, the original regulations identified investment fiduciaries using a test in which the fiduciary 1) renders advice as to the value of securities, 2) does so on a regular basis, 3) renders advice pursuant to a mutual agreement, 4) gives advice that serves as the primary basis for investment decisions and 5) provides individualized advice. It also sets aside the prohibited transaction exemptions that were created by the 2016 fiduciary rule —  the Best Interest Contract Exemption and the Principal Transactions Exemption.

The DOL also introduced a proposed class exemption to go along with the finalized rule. Under the class exemption, those that provide fiduciary investment advice (including rollover advice) can receive compensation for conflicted advice as long as they meet certain impartial conduct standards. This rule aligns the DOL’s rule with the SEC’s rule and provides the exemption if the following three requirements are fulfilled:

• The investment advice is in the best interest of the retirement investor at the time it is made.
• The compensation received is reasonable under ERISA 408(b)(2).
• The advice does not place the financial or other interests of the advising fiduciary before the interests of the investor.

The exemption also requires that certain disclosures be made to the investor, that the fiduciaries create and follow written procedures to ensure compliance, and that the fiduciary conducts an annual review to determine compliance and maintains records for six years. Additionally, for rollovers, the fiduciary will need to document the specific reason that the rollover is in the best interest of the investor.

This final rule and proposed class exemption finally provide updated guidance after the Fifth Circuit’s 2018 decision. Retirement plan sponsors should discuss this rule with their advisers to determine any next steps to remain in compliance.

Conflict of Interest Rule – Retirement Investment Advice: Notice of Court Vacatur »
Improving Investment Advice for Workers and Retirees Proposed Class Exemption »

On June 30, 2020, the DOL proposed a new rule – “Financial Factors in Selecting Plan Investments” – that provides guidance for fiduciaries considering environmental, social and governance (ESG) investments or other economically targeted investments (ETIs). As background, ERISA requires fiduciaries to meet duties of prudence and loyalty, which require that fiduciary decisions are made for the exclusive benefit of plan participants and beneficiaries. For years, industry insiders have asked for guidance on how those ERISA duties apply as it pertains to ESG investments. The DOL did provide some guidance on ETIs, holding that they could be offered in a way that complied with ERISA as long as the expected rate of return was commensurate with the rates of return of other investments with similar risk characteristics and the investment was appropriate for the plan.

This proposed rule builds upon that prior guidance by codifying it as an investment duties rules. The rule would essentially impose three new fiduciary requirements as it pertains to investments. The rule would require fiduciaries:

• To evaluate investments solely on pecuniary factors, meaning the investment would be evaluated based on the financial risks or returns
• Not to subordinate the retirement income interests of participants and beneficiaries by choosing investments based on objectives or goals that are unrelated to the financial interest of the participants
• Not to subordinate the interests of the participants and beneficiaries to the fiduciary’s interests

The rule also specifically requires that ESG investments be evaluated in terms of generally accepted investment theories on economic risks and opportunities. So even if the factors by which a fiduciary chooses ESG investments are pecuniary factors, the fiduciary will still need to weigh the ESG investments against other alternative investments. Additionally, defined contribution plans can only allow for ESG investments if the fiduciary uses an objective risk-return criteria in selecting and monitoring the investments and as long as the ESG is not the qualified default investment alternative.

The DOL is inviting comments on this proposed rule, and they are due by July 30, 2020. Plan sponsors that are considering allowing ESGs or other ETIs as investment options should consult with their adviser on the implications of these rules.

Financial Factors in Selecting Plan Investments »
Notice of Proposed Rulemaking on Financial Factors in Selecting Plan Investments Amending “Investment Duties” »

On June 19, 2020, the IRS released Notice 2020-50, which provides guidance regarding the CARES Act retirement plan loan and distribution provisions. The notice addresses the expanded eligibility requirements, administrative aspects and tax reporting for these special loans and distributions. Practical illustrative examples are also included.

As background, the CARES Act provided enhanced access and favorable tax treatment with respect to retirement plan loans and distributions for certain participants (termed “qualified individuals”), who had been negatively affected by the COVID-19 pandemic. This relief impacted IRAs, §401(a) qualified plans (such as 401(k) plans), §403(a) annuity plans, §403(b) plans and governmental §457(b) plans.

A qualified individual includes any participant who has been diagnosed with or whose spouse or dependent has been diagnosed with COVID-19. As expanded by Notice 2020-50, a qualified individual also includes a participant who has experienced adverse financial consequences as a result of the participant, the participant's spouse or a member of the participant's household being quarantined, furloughed or laid off, having work hours or pay reduced, a business closed, or a job offer rescinded or postponed due to COVID-19.

The CARES Act allows these qualified individuals to treat up to $100,000 in retirement plan distributions made between January 1 and December 30, 2020, as COVID-19-related distributions. As a result, these distributions would not be subject to the 10% additional tax that otherwise generally applies to distributions made before age 59.5. The qualified individual would also have the option to include the distribution in income in equal installments over a three-year period, as well as to repay all or a portion of the amount within such period to undo the tax consequences. (Normally, the distribution amounts are taxable in the year of receipt and rollover transactions must be completed within 60 days.)

In addition, the CARES Act permits retirement plans to increase the normally permitted maximum loan amount for qualified individuals. Specifically, the dollar limit on loans made between March 27 and September 22, 2020, can be raised from $50,000 to $100,000. Furthermore, plans can suspend loan repayments that would normally be due for this period for up to one year. The loan repayments would then need to be re-amortized (taking into account interest) for the period following the suspension. The guidance provides a safe harbor for implementing the loan suspension provisions.

The notice explains that employers may, but are not required to, offer these enhanced distribution and loan options. If a retirement plan chooses to treat distributions as COVID-19 related, the employer is not required to provide a rollover notice or direct rollover option and mandatory federal withholding would not apply. Even if an employer does not elect to apply the CARES Act relief, a qualified individual can still benefit from the favorable tax treatment afforded to plan distributions through their individual income tax filings.

For administrative purposes, an employer choosing to adopt the special distribution or loan can rely on an individual's certification of eligibility as a qualified individual, absent the employer’s actual knowledge to the contrary. The notice includes a sample certification for this purpose.

Retirement plan sponsors and participants interested in taking advantage of the CARES Act relief provisions may find this guidance, including the practical examples, to be very helpful.

IRS Notice 2020-50 »

On July 23, 2020, the IRS released Notice 2020-51, which provides guidance regarding the CARES Act waiver of 2020 required minimum distributions (RMDs). The notice allows for an extended rollover period for waived RMDs, addresses related questions and provides sample retirement plan waiver amendments. Transitional relief is also provided to plan administrators with respect to the implementation of the updated required beginning date for RMDs following the passage of the SECURE Act in December 2019.

As background, the CARES Act permitted taxpayers to forego a 2020 RMD that would otherwise be required from a defined contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA. The waiver extends to 2020 RMDs (including first-time RMDs distributed in 2021 for 2020) and 2019 first-time RMDs distributed in 2020.

As modified by the SECURE Act, an individual is currently required to commence RMDs by April 1 of the year following the year in which they attain age 72. Under prior regulations, the required beginning date for RMDS was April 1 of the year following the year in which the individual attained age 70.5. This previous rule remains in effect for any individual who attained age 70.5 in 2019 or prior.

Prior to the passage of the CARES Act on March 27, 2020, some individuals had already received distributions in 2020. In certain cases, the payments were made to individuals who would be attaining age 70.5 in 2020 and had scheduled the payment prior to the SECURE Act change in the required beginning date. As a result, these distributions were no longer required. The notice addresses these situations by providing transitional relief to plan administrators who improperly characterized the amounts as RMDs.

To enable these and other affected individuals to take advantage of the CARES Act RMD waiver, the notice permits the distributed amounts originally intended as RMDs to be returned (rolled over) to a retirement account. For this purpose, the standard 60-day rollover period is extended to August 31, 2020.

Under the CARES Act, plans must be amended to reflect the RMD waiver and rollover provisions no later than the last day of the first plan year beginning in 2022 (or in the case of a governmental plan, 2024). To assist with this requirement, the guidance provides a sample plan amendment with two default options for an employer to select in the absence of a participant or beneficiary’s actual 2020 RMD election. The first option requires the plan to pay out distributions that include 2020 RMDS and the second option requires the plan to suspend such distributions. Additionally, the model amendment provides three options with respect to the availability of direct rollovers (custodian to custodian transfers) of eligible distributions. Plans are not required to amend their standard direct rollover provisions, but are permitted to do so in accordance with this guidance.

The notice also addresses a variety of practical questions regarding the RMD waiver. For example, the guidance clarifies that 2020 RMDS are permitted to be rolled back to the distributing plan, provided such plan accepts rollovers. Additionally, 2020, RMD amounts would not be subject to the mandatory 20% withholding tax normally applicable to eligible rollover distributions.

Employers who sponsor defined contribution plans may find the notice instructive in addressing the administrative aspects of the 2020 RMD waivers.

IRS Notice 2020-51 »

On June 29, 2020, the IRS issued Notice 2020-52, which provides guidance regarding midyear changes to safe harbor 401(k) or 401(m) plans. The notice includes temporary COVID-19-related relief from certain requirements that would otherwise apply to midyear amendments that reduce or suspend safe harbor contributions.

As background, qualified retirement plans are prohibited from providing contributions or benefits that discriminate in favor of highly compensated employees. As an alternative to satisfying the annual nondiscrimination tests with respect to elective deferrals and matching contributions, an employer can instead choose to make safe harbor nonelective or matching contributions.

IRS regulations generally require a plan’s safe harbor provisions to be adopted before the first day of the plan year and to remain in effect for the entire 12-month plan year. Midyear amendments, including those to reduce or suspend the safe harbor contributions, are normally restricted. However, exceptions exist if the employer is operating at an economic loss or if the plan’s safe harbor notice explained that the plan may be amended midyear to suspend or reduce safe harbor contributions upon 30 days’ notice to participants.

Notice 2020-52 recognizes that many plan sponsors are having unexpected financial difficulties as a result of the COVID-19 pandemic, and may need to reduce or suspend safe harbor contributions in order to cover operating costs. Accordingly, the guidance explains that an employer could reduce contributions made only on behalf of highly compensated employees without violating the safe harbor provisions; however, an updated safe harbor notice must be provided to such employees.

Additionally, the notice provides that an amendment to reduce or suspend safe harbor nonelective or matching contributions will be deemed to have satisfied the threshold for “operating at an economic loss” or the safe harbor notice midyear suspension content requirements, provided it is adopted between March 13, 2020, and August 31, 2020.

Furthermore, plans may be amended during this specified period to reduce or suspend safe harbor nonelective contributions without providing a supplemental notice to participants at least 30 days prior, so long as notice is provided by August 31, 2020, and the amendment is not retroactive. Delayed notices are not permitted for plans reducing or suspending safe harbor matching contributions, because those contributions affect employees’ contribution decisions.

Employers who sponsor safe harbor defined contribution plans and have been financially impacted by the COVID-19 pandemic should be aware of the additional temporary amendment flexibility provided by this notice.

IRS Notice 2020-52 »

On June 18, 2020, the DOL published a request for information (RFI) on pooled employer plans (PEPs). As background, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in December 2019. (See our January 7, 2020, edition of Compliance Corner for more information on the SECURE Act.) The SECURE Act allows for PEPs, which are multiple employer retirement plans that are administered by pooled plan providers. PEP providers are fiduciaries, and are therefore subject to ERISA’s prohibited transaction provisions.

The DOL is requesting information on possible parties, business models and conflicts of interest that parties anticipate will be involved in the formation and operation of PEPs (including those sponsored by employer groups, associations or PEOs). The comment period ends on July 20, 2020.

Interested parties should consider filing a response. Consult with your adviser on any questions pertaining to the SECURE Act.

Request for Information »
Press Release »

On June 3, 2020, the IRS released Notice 2020-42, providing temporary relief for participant elections required to be witnessed by a plan representative or a notary public, including a required spousal consent. This relief is in response to the social distancing prompted by the COVID-19 public health emergency and applies from January 1, 2020, through December 31, 2020.

As background, when spousal consent is required for distribution payments or a plan loan, it is required that such consent be physically witnessed by a notary public or plan representative. However, Notice 2020-42 now provides that if certain rules are satisfied, there is temporary relief from the physical presence requirement for any participant election witnessed by a notary public or plan representative.

More specifically, the physical presence requirement for a participant election witnessed by a notary public is satisfied for an electronic system that uses remote notarization if executed via live audio-video technology (that otherwise satisfies the requirements of participant elections and adheres with state laws applicable to the notary public). Further, the physical presence requirement for a participant election witnessed by a plan representative is satisfied for an electronic system if executed via live audio-video technology that meets the following criteria:

• The individual signing presents a valid photo ID during the live audio-video conference.
• The live audio-video conference must allow for direct interaction between the individual and plan representative.
• The individual must transmit (via fax or electronic means) a copy of the signed document directly to the plan representative on the same date it was executed.
• The plan representative must acknowledge the signature has been witnessed by the plan representative in accordance with these requirements and must send the executed document (and acknowledgement) back to the individual via a system satisfying certain requirements for electronic notice.

Although intended to assist in providing distribution payments and plan loans related to COVID-19 (as expanded by the CARES Act), this temporary relief applies to any participant election requiring an individual’s signature to be witnessed in the physical presence of a plan representative or notary.

Employers should be aware of the temporary relief provided by Notice 2020-42 and confirm that any procedures are administered in accordance with this new guidance.

IRS Notice 2020-42 »

On May 28, 2020, the IRS issued Notice 2020-35, which extends even more tax deadlines due to the COVID-19 emergency. The extensions apply to deadlines falling within the time period starting on March 30, 2020, and ending on July 15, 2020, which the notice calls “the relief period.” The following requirements and related rules are disregarded during the relief period:

• Funding provisions for defined benefit pension plans. Typically, plans (other than multiemployer plans) must meet minimum funding standards or file a waiver in the event of a temporary substantial business hardship. The waiver application is normally due no later than the 15th day of the third month beginning after the close of the plan year.
• Form 5330, Return of Excise Taxes Related to Employee Benefit Plans
• Initial remedial amendment period for Section 403(b) plans. Eligible employers typically have until March 31 to retroactively correct form defects in their written Section 403(b) plan by timely adopting a pre-approved plan or by otherwise amending its individually designed plan.
• The end of the second six-year remedial amendment cycle for pre-approved defined benefit plans initially was scheduled to end on April 30, 2020.
• Deadlines for voluntary correction under the Employee Plans Compliance Resolution System (EPCRS). The EPCRS correction programs are available for sponsors of retirement plans (complying with Sections 401(a), 403(a), 403(b), 408(k) or 408(p)) to correct certain failures in order to continue providing employees with tax favored retirement benefits. The EPCRS programs are the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP).
• Form 5498, IRA Contribution Information; Form 5498-ESA, Coverdell ESA Contribution Information; and the Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information are now due August 31, 2020.

Employers should work with their benefit plan providers and tax advisors to understand and comply with the new extensions.

IRS Notice 2020-35 »

On June 3, 2020, the DOL issued an information letter concerning the role of private equity funds in defined contribution plans governed by ERISA, such as 401(k) plans. Specifically, the letter addresses the use of private equity investments as designated investment alternatives made available to participants and beneficiaries in individual account plans.

The DOL writes that plan fiduciaries of an individual account plan may offer an asset allocation to private equity as an option under the plan without violating the fiduciary duties under Section 403 and 404 of ERISA. However, due to private equity’s complexity, long-term nature and generally higher fees, the fiduciary must engage in a careful and thorough analysis of the allocation fund with a private equity component in order to make a prudent decision concerning whether to offer it. In order to determine that the option is a prudent one, the DOL suggests that fiduciaries should consider:

• Whether adding the particular asset allocation fund with a private equity component would offer plan participants the opportunity to invest their accounts among more diversified investment options within an appropriate range of expected returns net of fees (including management fees, performance compensation, or other fees or costs that would impact the returns received) and diversification of risks over a multi-year period
• Whether the asset allocation fund is overseen by plan fiduciaries (using third-party investment experts as necessary) or managed by investment professionals that have the capabilities, experience and stability to manage an asset allocation fund that includes private equity investments effectively given the nature, size and complexity of the private equity activity
• Whether the asset allocation fund has limited the allocation of investments to private equity in a way that is designed to address the unique characteristics associated with such an investment, including cost, complexity, disclosures and liquidity, and has adopted features related to liquidity and valuation designed to permit the asset allocation fund to provide liquidity for participants to take benefits and direct exchanges among the plan’s investment lineup consistent with the plan’s terms

Plan administrators who would like to offer private equity in their defined contribution lineup should familiarize themselves with this guidance and consult with their advisor concerning any potential investments.

DOL Information Letter »

On June 1, 2020, the Supreme Court of the United States (SCOTUS) held that the plaintiffs in Thole v. U.S. Bank, N.A. lacked standing to bring a case for fiduciary breach. As background, the plaintiffs in the case alleged that the plan fiduciaries of the U.S. Bank defined benefit plan had violated ERISA’s duties of loyalty and prudence. Specifically, they alleged that the fiduciaries had mismanaged the plan’s assets, resulting in the loss of roughly $750 million dollars in potential plan gains. As the case proceeded through the lower courts, U.S. Bank contributed roughly $300 million dollars to overfund the defined benefit plan. As such, the district court dismissed the case, and the Court of Appeals for the Eighth Circuit affirmed that decision.

SCOTUS agreed with the lower courts, finding that the plaintiffs did not have standing to sue under ERISA because they were essentially unharmed. Because the plan is a defined benefit plan, the plaintiffs stood to be paid their specific benefit during their retirement, regardless of whether the plan fiduciaries made prudent investments. So since they had received all of their benefits to date and would do so in the future, they would be in the same position whether they won or lost this case. In holding this way, the court specifically rejected arguments implicating trust law and found that the plaintiffs could not represent the plan without having a concrete stake in the outcome of the case.

While this case was based on a complaint against a defined benefit plan, it is possible that this decision will have implications for defined contribution plan fiduciaries. Specifically, it could mean that any participant who seeks to bring a suit claiming that a fiduciary chose to invest plan assets in a particular fund would have to prove that they were actually harmed by that investment. In other words, they could not bring a case on behalf of other plan participants; they would have to show that their funds were actually contributed to the alleged imprudent investment. This could result in fewer fee and expense cases being brought.

Plan sponsors should always seek to act prudently with plan assets, but this case does provide some relief to plans that are properly funding their defined benefit plan. It could have some implications for defined contribution plan sponsors, too. It remains to be seen how this case will be relied upon as precedent in future fiduciary breach claims. Plan sponsors should consult with their adviser on any questions concerning plan investments.

Thole v. U.S. Bank, N.A. »

On June 1, 2020, the US Court of Appeals for the Sixth Circuit ruled that a debtor in Chapter 13 bankruptcy proceedings may exclude 401(k) plan contributions from disposable income payable to creditors. The decision involved the statutory interpretation of specific provisions of the Bankruptcy Code and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

As background, a debtor's Chapter 13 bankruptcy plan must provide for payment of all projected disposable income to unsecured creditors. Disposable income is the debtor’s current monthly income minus amounts reasonably necessary for the debtor’s maintenance or support. In certain situations, the current monthly income may be adjusted for known changes that will occur during the commitment period (i.e., payment period to creditors of typically five years). After the passage of the BAPCPA, it was unclear whether employee salary deferrals to a 401(k) plan could be considered part of the debtor’s maintenance or alternatively, whether such amounts were required to be included in disposable income payable to creditors.

In this case, the debtor filed for Chapter 13 bankruptcy and submitted a payment plan to the bankruptcy court for approval. Under the proposal, she claimed her monthly contributions of $220.66 to her employer sponsored 401(k) plan as an allowable maintenance expense. Her intention was to continue these deferrals, which had commenced prior to the bankruptcy filing, during the commitment period.

However, the bankruptcy trustee objected to the debtor’s proposed plan on the grounds that the future 401(k) deferrals were disposable income payable to creditors. The debtor then filed an amended bankruptcy plan that included her monthly 401(k) contributions in her disposable income, objected to the amended plan (which was confirmed by the bankruptcy court) and appealed to the Sixth Circuit.

Accordingly, the question before the Sixth Circuit was whether the Bankruptcy Code and BAPCPA permitted the exclusion of a debtor’s prospective 401(k) deferrals from disposable income payable to creditors. The Sixth Circuit reviewed the historical legal landscape, the statutory language and context, and legislative intent. The majority also observed that the debtor had made the monthly 401(k) deferrals for at least six months prior to her bankruptcy filing.

In a narrow ruling, the Sixth Circuit held that the debtor, and one in like circumstances, may deduct monthly 401(k) plan contributions from disposable income payable to creditors. However, the opinion notes that the decision is not intended to limit the good faith analysis applied by a bankruptcy court to any proposed payment plan in order to minimize abuse by debtors.

The case involves an interesting intersection of employee benefit plans and the federal bankruptcy laws. The ruling primarily impacts employees making 401(k) deferrals who file for Chapter 13 bankruptcy within the Sixth Circuit. (The Sixth Circuit handles federal appeals arising from Kentucky, Ohio, Michigan and Tennessee.) Employers may also want to be aware of this development.

Camille T. Davis V. Lauren A. Helbling, Chapter 13 Trustee »

On May 21, 2020, the DOL finalized the electronic distribution safe harbor rule, which expands the options for electronic delivery of required retirement plan disclosures. As background, on October 23, 2019, the DOL proposed this rule, following Executive Order 13847, which instructed the DOL to determine whether regulatory actions could be taken to improve the effectiveness of participant disclosures and reduce their cost to employers. After review and consultation with other regulatory agencies, the DOL set forth a new “notice and access” safe harbor under which ERISA retirement plan disclosures could be made available on a website following specified notice. We wrote about the proposed rule in the October 29, 2019 edition of Compliance Corner.           

As proposed, the new safe harbor permits required disclosures for retirement plans (including multi-employer plans) to be posted online following notice to covered individuals, who can then access the documents continuously using an internet-connected device. Covered individuals are participants, beneficiaries and any other individuals entitled to documents who have provided the plan administrator (or designee) with an electronic address, such as email address or smartphone number.

The DOL received many comments on the proposed rule. However, the finalized rule mainly adopts the provisions of the proposed rule, with minor changes. Among other changes, those minor changes include the following:

• While an employer can provide notices through the use of phone numbers, the employer will have to take steps to confirm with participants and beneficiaries that the phone is a smartphone or other mobile phone that will allow the individual to receive and inspect written messages.
• While employers can continue to use an electronic address provided by the employer, the electronic address can no longer be assigned only for the purpose of providing covered documents. Instead, the employer-provided electronic address has to have an employment-related purpose other than just complying with this safe harbor. Also, employers cannot assign electronic addresses for nonemployee spouses or other beneficiaries.
• The IRS clarified the covered documents to include all disclosures required under Title 1 of ERISA, with the exception of documents that must be furnished only upon request (such as the plan document).
• A brief description of the covered document is only required in addition to the name of the document when the name would not reasonably convey the nature of the covered document.
• The Notice of Internet Availability (NOIA) can utilize hyperlinks instead of just website addresses.
• Employers are only required to keep documents available online for a year from posting. Because of this, the NOIA must include a warning or reminder that covered documents may not always be available online.
• The NOIA must be written in a manner calculated to be understood by the average plan participant, but plan administrators may look to the DOL’s SPD regulations for guidance on the meaning of “written in a manner calculated to be understood by the average plan participant” instead of having to comply with the additional guidelines that were mentioned in the proposed rule.
• The term “website,” which dictates where the employer must post the covered documents, can include a mobile app as long as covered individuals have been provided reasonable access.
• If participants or beneficiaries want a paper copy of certain covered documents, only one copy of a specific document must be provided free of charge.
• While participants and beneficiaries must be given the opportunity to opt-out of receiving documents electronically, the employer can require a global opt-out. This means the employer can (but does not have to) require an all-or-nothing opt-out, instead of allowing participants and beneficiaries to opt-out document-by-document.

Notably, the DOL still declined to extend the final rule to welfare benefit plans. However, they did indicate an intention to review whether a similar rule should be provided for welfare benefit plans.

Employers who are seeking an alternative electronic delivery method for retirement plan disclosures may choose to adopt this safe harbor. Although it is officially effective as of 60 days after the publishing of this final rule in the Federal Register, the rule made it clear that the DOL will not seek enforcement against any employer that adopts the rule before the effective date.

Default Electronic Disclosure by Employee Pension Plans under ERISA Final Rule »

On May 4, 2020, the IRS released a set of questions and answers discussing the retirement plan provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). As background, the CARES Act was enacted on March 27, 2020, and included a number of provisions affecting retirement plan and IRA rules. We discussed those provisions in an article in the March 31, 2020, edition of Compliance Corner.

The questions and answers simply confirm the availability of expanded hardship distribution and loan options available to individuals that are effected by the COVID-19 crisis. Notably, the IRS indicates that they anticipate releasing guidance on the CARES Act retirement provisions. But until that guidance is issued, they acknowledge that it will be similar to the guidance that was applied to victims of Hurricane Katrina (via IRS Notice 2005-92).

The questions and answers go on to address the tax treatment of COVID-19-related hardship distributions, confirming that individuals will be able to pay the taxes on any such distribution ratably over a three-year period. Individuals can also choose to repay their COVID-19-related distribution within three years of receiving the distribution. If this is done, the distribution will be treated as if it were a trustee-to-trustee transfer and the individual will not owe federal income tax on the distribution. Depending on when the distribution is repaid, this could require the individual to amend previous tax returns (if for example the individual repays the distribution in 2022, but previously paid taxes for the 2020 and 2021 year). Further, the guidance points out that retirement plans are encouraged but not required to accept repayment of distributions.

The IRS also reiterates the provisions affecting plan loans. Specifically, certain loan repayments can be delayed for up to one year. Additionally, the CARES Act increased the maximum loan amount.

The questions and answers also address a number of administration and reporting issues. Namely, plan sponsors are not required to adopt the hardship distribution and loan rules found in the CARES Act. If they do, plan administrators may rely on an individual’s certification that they are eligible to receive the COVID-19-related distribution or loan. Individuals that take a COVID-19-related distribution will report this on their federal income tax return, and plan administrators will also provide Forms 1099-R (as they do with any other hardship distribution).

Employers that will amend their plans to allow for these COVID-19-related changes will want to familiarize themselves with this guidance. We will continue to monitor this issue and share additional guidance as the IRS provides it.

Coronavirus-Related Relief for Retirement Plans and IRAs Questions and Answers »

On April 30, 2020, the IRS released Revenue Procedure 2020-29. The notice allows for the electronic submission of requests for letter rulings, closing agreements, determination letters and information letters. As background, taxpayers can request advice from the IRS on a number of issues. Additionally, the IRS provides determination letters that indicate whether a company’s employee benefits plan meets the requirements to be a qualified plan.

This revenue procedure allows for taxpayers to make these requests electronically by facsimile or compressed and encrypted email. It also allows for electronic signatures as long as the prescribed procedures are followed.

The revenue procedure is effective as of April 30, 2020, and continues until it is modified or superseded. Plan sponsors that are seeking letter rulings or determination letters should consider whether they would like to file the requests electronically.

Revenue Procedure 2020-29 »

On March 6, 2020, the IRS and the Treasury Department released a second quarter update to the 2019-2020 priority guidance plan (Plan). As background, the IRS and Treasury Department use this Plan to prioritize certain tax issues, some of which impact retirement benefits. Important to maintaining compliance, this guidance helps to clarify ambiguous areas of the tax law.

The 2019-2020 Plan introduced guidance projects for the fiscal year (July 1, 2019, through June 30, 2019). This update provides that 40 (of the 203) projects have been published or released during the second quarter – October 1, 2019, through December 31, 2019 – and includes employee retirement benefit items.

Some of the completed projects during the second quarter impacting employee retirement benefits include final regulations updating life expectancy and distribution period tables for required minimum distributions, as well as guidance on the timing of amendments to §403(b) plans, among other additional projects.

Employers should reference the Plan’s updates as it relates to administering retirement benefits.

2019-2020 Priority Guidance Plan – Second Quarter Update »

On February 26, 2020, the Supreme Court of the United States clarified the meaning of "actual knowledge" in Intel Corp. Inv. Policy Comm. V. Sulyma (U.S., No. 18-1116). As background, Sulyma brought the case against Intel’s investment committee, alleging that the committee had breached their fiduciary duty by failing to make participants aware of the risks, fees and expenses associated with the plan’s investment in various hedge fund and private equity investments.

Intel moved for summary judgment based on the fact that Sulyma’s claim came more than three years after the company had provided various disclosures to Sulyma about the investment. ERISA imposes a three year statute of limitations based on when the individual had "actual knowledge" of a claim’s underlying facts. As such, Intel reasoned that the statute of limitations had passed because Sulyma had access to numerous disclosures about the investments more than three years before the filing. However, Sulyma alleged that although he had access to the disclosures, he never actually read or remembered reading them.

The District Court ruled in favor of Intel, arguing that having access to the disclosures was enough to meet the "actual knowledge" standard. The Court of Appeals for the Ninth Circuit disagreed and remanded the case, finding that if Sulyma never looked at the documents, then he didn’t have actual knowledge. Looking to the plain meaning of the words "actual knowledge", the Supreme Court agreed with the Ninth Circuit and remanded the case.

Specifically, the Court made it clear that simply having access to the disclosures did not actually mean that Sulyma viewed the disclosures. Instead, having actual knowledge of information means that the person did, in fact, become aware of that information. Further, the court argued that accepting the idea that simply having access to disclosures is enough to be considered actual knowledge is more of a "constructive knowledge" standard — and that’s not what ERISA requires. The Court ultimately found that ERISA’s language was not ambiguous or unclear; "actual knowledge" means just that.

While this ruling makes it more difficult for employers to prove that they provided effective notice to participants, it is possible for employers to take steps to prove that their disclosures were actually viewed by employees. They may just want to have employees indicate, in writing, that they read the disclosures. Likewise, employers should work with their adviser to analyze their investment strategy and fund line-up.

Intel Corp. Inv. Policy Comm. v. Sulyma »

On February 14, 2020, the IRS released the 2020 Instructions for Forms 1099-R and 5498. The Form 1099-R reports distributions from pensions, annuities, IRAs and other retirement vehicles. The Form 5498 reports contributions to IRAs. The instructions provide specific guidelines for completing the forms.

As background, the IRS updates the form instructions annually to incorporate any recent administrative, reporting or regulatory changes. The 2020 updates to the Form 1099-R include a new section for qualified birth and adoption distributions. This addition was necessitated by a provision of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), which permits such a retirement plan distribution of up to $5,000 that is exempt from the 10% early distribution tax and can be repaid.

Correspondingly, the Form 5498 updates include a new code to report the repayment of a qualified birth and adoption distribution. Additionally, this form reflects the SECURE Act increase in the required minimum distribution age from 70.5 to 72 for taxpayers turning 70.5 after December 31, 2019.

Employers should be aware of the availability of the updated publication and most recent updates to encompass the SECURE Act provisions. For further details, employers can access the 2020 Instructions for Forms 1099-R and 5498 at the following link:

Instructions for Forms 1099-R and 5498 »

On January 17, 2020, the IRS published the finalized version of the instructions for 2019 Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits. As background, Form 8955-SSA is used to report information about participants who separated from service during the plan year and are entitled to deferred vested benefits under the retirement plan. The finalized version of the form may be used for 2019 Form 8955-SSA filings, and employers should familiarize themselves with the instructions in preparation for 2019 plan year filings.

The IRS does not appear to have made any changes to this year’s instructions. While many employers outsource the preparation and filing of this form, employers should also familiarize themselves with the form’s requirements and work closely with outside vendors to collect the applicable information.

2019 Form 8955-SSA Instructions »

On January 16, 2020, the IRS issued instructions for FORM 5500-EZ, a form used by one-participant plans that are not subject to the requirements of IRC section 104(a) of ERISA.

The IRS updated the instructions with penalty changes. If a plan fails to file a return, then the penalties are now $250 per day, up to a maximum of $150,000 per plan year. Returns required to be filed after December 31, 2019, are subject to these increased penalties.

Business owners covered by these plans should be aware of the increased penalties that could be imposed if they fail to file.

Instructions for Form 5500-EZ »

On January 2, 2020, the IRS released Revenue Procedure (Rev. Proc.) 2020-04, which explains the IRS procedures for issuing determination letters for employee benefit plans and transactions.

Among other changes, Rev. Proc. 2020-04 supersedes Rev. Proc. 2019-4 and updates those procedures by adding a list of those documents that should be included in applications for determination letters, updating mailing addresses, and including recent changes to the Voluntary Correction Program. It adds a category of determination requests submitted by an adopting employer (or a controlling member of a multiple employer plan, if applicable) of a pre-approved plan regarding the third (and subsequent) remedial amendment cycles; provides that the IRS will accept determination letter applications for certain individually designed merged plans on an ongoing basis; sets forth procedures for an adopting employer of a pre-approved plan (or the controlling member, in the case of a multiple employer plan) to submit an application for a determination letter; and provides procedures for an adopting employer of a pre-approved plan to submit a Form 5307 to request a determination letter with respect to the second and the third six-year remedial amendment cycles.

Employers that may need to request a determination letter should review this guidance and work with their service providers to submit any necessary applications.

Rev. Proc. 2020-04 »

The IRS recently released the 2019 Form 5500-EZ. As background, Form 5500-EZ is an annual filing requirement for retirement plans that are either a one-participant plan or a foreign plan. Specifically, Form 5500-EZ is used by one-participant plans that are not subject to the requirements of IRC Section 104(a) and that are not eligible or choose not to electronically file Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, to satisfy certain annual reporting and filing obligations imposed by the Code.

The IRS does not appear to have made any significant changes to this year’s form or instructions. While many employers outsource the preparation and filing of this form, employers should also familiarize themselves with the form’s requirements and work closely with outside vendors to collect the necessary information.

Applicable plan sponsors must file a Form 5500-EZ on or before the last day of the seventh month after their plan year ends. As a result, calendar-year plans generally must file by July 31 of this year (reporting for the 2019 plan year). Plans may request a two-and-a-half month filing extension by submitting a Form 5558, Application for Extension of Time to File Certain Employee Plan Returns, by the plan’s original due date.

2019 Form 5500-EZ »

On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act of 2020 (HR 1865) into law. The main purpose of this legislation is to continue funding certain government operations. However, the bill also adopts the Setting Every Community Up for Retirement Enhancement (SECURE) Act relating to retirement plans.

The SECURE Act is the most comprehensive retirement legislation passed since the Pension Protection Act of 2006. The law includes sweeping changes that will affect how retirement plans are offered.

As background, the SECURE Act comes after multiple bills attempted to include similar provisions. Specifically, the Retirement Enhancement and Savings Act (RESA) was approved by the Senate Finance Committee and the Family Savings Act was passed by the House in 2018, respectively. The SECURE Act was passed by the House of Representatives in May 2019 and included provisions found in both of those previous bills and added some new provisions.

The SECURE Act (as passed in the appropriations bill) is broken up into four titles, and some of the major provisions are summarized as such:

• Title I: Expanding and Preserving Retirement Savings
  • Allows open multiple employer plans, meaning that unrelated employers can band together to offer retirement benefits to their employees
  • Increases auto enrollment safe harbor cap to 15%
  • Simplifies 401(k) safe harbor, notably eliminating the notice requirement
  • Increases tax credit for small employer plan start ups
  • Provides credit for small employers that start plans that include automatic enrollment
  • Prohibits plan loan distribution through credit cards
  • Allows portability of lifetime income investments for defined contribution, 403(b), and governmental plans
  • Requires employers to offer 401(k) plan participation to long-term part-time workers
  • Provides penalty-free withdrawals for qualified births and adoptions
  • Increases the age for required minimum distributions from age 70.5 to age 72
  • Allows individuals to continue making IRA contributions after attaining age 70.5
• Title II: Administrative Improvements
  • Permits plans adopted by the employer’s tax return due date to be treated as in effect as of the close of the plan year
  • Requires annual benefit statements to include a lifetime income disclosure
  • Provides safe harbor for fiduciaries that select lifetime income provider
• Title III: Other Benefits
  • Expands Section 529 plans to cover additional educational costs, notably including student loan repayment
• Title IV: Revenue Provisions
  • Modifies required minimum distribution rules relating to death of the account owner
  • Increases penalties for the failure to file a Form 5500

As noted, this legislation will result in an overhaul of many of the retirement regulations that have been in place for decades. Some provisions of the bill are effective immediately, some effective beginning in the plan year after December 31, 2019, while others will become effective at later dates. Retirement plan sponsors should work with their plan advisors, recordkeepers, and other service providers to amend their plan as necessary.

Further Consolidated Appropriations Act of 2020 (SECURE Act begins on page 1532)  »

On December 9, 2019, the IRS published a Generic Legal Advice Memorandum that reiterates the requirement to timely adopt plans (and plan amendments). In other words, a plan sponsor must retain a validly executed plan document, as an unexecuted copy does not meet the IRC’s requirements. As background, legal advice memorandums are provided by the IRS Office of Chief Counsel to IRS personnel.

The memorandum is a result of an issue raised in Val Lanes Recreation Center v. Commissioner, T.C. Memo 2018-92, and that is whether a plan sponsor must retain a validly executed plan document. The Tax Court in Val Lanes confirmed that in order for a qualified plan to be validly adopted, the plan document needs to be signed by the employer – or someone authorized by the employer. Further, should an employer fail to retain an executed plan, the employer has the burden to prove that such executed plan document existed. In the case referenced, the employer was not able to produce an executed plan document. However, the employer met its burden of proof by providing creditable explanation regarding the lack of an executed copy.

Importantly, the IRS clarifies that the facts in Val Lanes are unusual, and reiterates that a plan is only considered adopted if proof of adoption of the plan is provided. The IRS further stresses that it is unlikely for a plan sponsor to meet its burden of proof without providing an actual signed plan document.

Per the memorandum, it is appropriate for an IRS exam agent to disqualify the plan upon failure to produce a signed plan document. This memorandum serves as an important reminder to employers that a signed copy of the plan document needs to be maintained, as an unexecuted copy is not considered validly adopted.

IRS Memorandum »