The SECURE 2.0 Act made sweeping changes to Internal Revenue Code (Code) and ERISA provisions governing employee benefit plans. In a recent letter to the Department of the Treasury and the Internal Revenue Service, the Chairmen and Ranking Members of the House Ways and Means Committee and the Senate Finance Committee addressed a number of ambiguities and technical errors in the SECURE 2.0 Act and signaled their intent to introduce technical correction legislation. (Exactly which errors will be fixed in such legislation remain to be seen.)
The letter pinpointed the following four provisions of the SECURE 2.0 Act and asked the IRS to implement the legislative provisions in a way that would “ensure that Congressional intent is carried out:”
Continue reading “Congressional Leaders Address SECURE 2.0 Act Glitches”
SECURE 2.0 introduced several new distribution options and tax reporting rules for defined contribution plan sponsors. Below is an overview of the new provisions and their potential implementation dates. (For an overview of SECURE 2.0 for defined contribution plan sponsors, click here.)
Here is a quick summary of the new distribution changes in SECURE 2.0.
Continue reading “SECURE 2.0 Adds New Distribution Options for Defined Contribution Plans”
The Internal Revenue Service (IRS) has announced that beginning June 1, 2023, it will accept determination letter applications for individually designed 403(b) retirement plans. As background, 403(b) plans are a distinct type of retirement plan for employees of 501(c)(3) tax-exempt organizations and public schools (including colleges and universities). Despite the formal distinction, though, in many respects modern 403(b) plans often resemble 401(k) plans.
Continue reading “New Kids on the Block: IRS Creates Determination Letter Program for Individually Designed 403(b) Plans”
Internal Revenue Code Section 280G (280G) (commonly referred to as the golden parachute provision) is intended to discourage the payment of excessive compensation to certain shareholders, officers and highly compensated service providers of companies undergoing a change in control. In general, when transaction-related payments or benefits to a covered individual equal or exceed three times the individual’s average compensation for the previous five years, the individual may be subject to a 20% excise tax, and the company’s deduction for such payments or benefits may be disallowed (in each case, with respect to amounts in excess of the average compensation).
280G commonly applies when a C-corporation undergoes a corporate transaction. However, in certain circumstances, 280G can also apply when the only entity being sold is an LLC. Note: Although this post focuses on the applicability of 280G to LLCs, 280G can also apply to the sale of a partnership in the circumstance described in #2 below.
Continue reading “Selling an LLC? Don’t Forget About 280G!”
As 2021 winds down, retirement plan sponsors should confirm that their plan documents are amended by December 31, 2021, to comply with certain plan changes:
- Hardship Distributions. 401(k) plans and 403(b) plans must be amended, as applicable, to comply with the final regulations updating the hardship distribution rules. For hardship distributions made on or after January 1, 2020, plans must be amended by December 31, 2021, to: (i) eliminate the suspension of elective deferrals following a hardship distribution; and (ii) require employees requesting hardship distributions to represent that they have insufficient cash or other liquid assets reasonably available to satisfy the need.Additionally, plans that made changes to their hardship distribution provisions that were (i) permitted under the regulations, and/or (ii) took effect on or before January 1, 2020 (such as eliminating the requirement to exhaust all available loans before taking a hardship distribution, or permitting amounts contributed as qualified nonelective contributions (QNECs) or qualified matching contributions (QMACs) and earnings to be made available for hardship distributions), must adopt such changes by December 31, 2021.
- PBGC Rates. Defined benefit plans that refer to the Pension Benefit Guaranty Corporation (PBGC) immediate rate may need to be amended to reflect that the PBGC stopped publishing monthly rates at the end of 2020. Such amendment would need to be effective January 1, 2021 (which, for calendar year plans, would require adoption of an amendment by December 31, 2021).
- Collectively Bargained Cash Balance/Hybrid Defined Benefit Plans. Cash balance/hybrid defined benefit plans maintained pursuant to a collective bargaining agreement ratified on or before November 13, 2015 must be amended by December 31, 2021, to comply with requirements regarding market rate of return and other cash balance/hybrid plan requirements that first applied to such plans generally on or after January 1, 2017.
- Discretionary Amendments. If a retirement plan implements discretionary changes during the 2021 plan year, retirement plan sponsors must adopt an amendment to that effect by the last day of the 2021 plan year (December 31, 2021, for a calendar year plan).
Continue reading “Last Call: Don’t Forget Your Retirement Plan’s Required Year-End Amendments for 2021”
On July 26, 2021, the Department of Labor (Department) issued frequently asked questions (FAQs) regarding the interim final rule (IFR) on lifetime income illustrations (LIIs) that must be included in participants’ pension benefit statements for defined contribution plans on an annual basis. The IFR on LIIs, which we previously discussed in a client alert, will become effective on September 18, 2021. The FAQs respond to comments received in response to the IFR regarding the applicability date of the rules and method for furnishing benefit statements.
- Continue reading “New DOL FAQs Provide Guidance Regarding Lifetime Income Illustrations for Defined Contribution Plans”
On May 21, 2021, the terms of the proposed ERISA class action settlement in Cates v. The Trustees of Columbia University in the City of New York were announced. The settlement, which includes a $13 million payment and many non-monetary terms, serves as a reminder for fiduciaries/committees to review their processes for selecting and retaining investment options — and to examine the fees and services of plan providers.
Continue reading “ERISA Litigation Roundup: Columbia University Settlement: A Reminder of ERISA Litigation Risk”
On February 26, 2021, the Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury collectively issued new frequently asked questions (FAQs) regarding the implementation of the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and other health coverage issues related to COVID-19. Previous blogs posts reviewed the FAQs on COVID-19 group health plan coverage implementation and preventative care mandates. The FAQs expand upon prior guidance related to the requirement under the FFCRA that group health plans and health insurance issuers (health plans) cover COVID-19 diagnostic testing and vaccinations, and certain related issues.
Continue reading “New Guidance Requires Free COVID-19 Testing and Vaccines”
Being asked to draft (or review) an executive employment agreement is a common occurrence for attorneys specializing in many practice areas (e.g., corporate, employment, healthcare, etc.). This presentation identifies compensation features in an executive employment agreement that should be reviewed by an Executive Compensation attorney. Failure to consider IRS rules when drafting employment agreements with these compensation features can lead to headaches down the road. The COVID-19 pandemic has given us all enough headaches. Do not let an employment agreement create another one – call your friendly Executive Compensation attorney when drafting or reviewing executive employment agreements.
The IRS deadline to file for a determination letter for an individually designed statutory hybrid plan is August 31, 2020. Statutory hybrid plans include cash balance plans, pension equity plans and certain other variable annuity plans. This deadline has not been extended under any recent IRS pandemic-related guidance.
Beginning in 2017, the IRS suspended the cyclic determination letter program for individually designed retirement plans. However, subsequent IRS guidance established a limited window for statutory hybrid plans to apply for a new determination letter.
Continue reading “Summer To-Do List: Determination Letter Filing for Cash Balance Plans and Pension Equity Plans”