Megan Hladilek, Mark Rosenfeld, Author at Spotlight on Benefits

Correcting Automatic Enrollment Errors

The SECURE 2.0 Act made it easier for retirement plan sponsors to correct automatic enrollment errors. As a policy matter, Congress strongly supports automatic enrollment provisions in retirement plans, and making it easier to correct errors should (hopefully) encourage retirement plan sponsors to add such features to their plans. This post focuses on the automatic enrollment correction provisions of the SECURE 2.0 Act. (For an overview of the SECURE 2.0 Act for defined contribution plan sponsors, click here.)

Correcting Automatic Enrollment Errors

Section 350 of the SECURE 2.0 Act codified a safe harbor correction for automatic enrollment errors into the Internal Revenue Code. Prior to the SECURE 2.0 Act, automatic enrollment errors were eligible for correction under EPCRS (Employee Plans Compliance Resolution System) but were often subject to a sunset provision by the IRS (although that sunset provision had been extended previously).

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Trends in Optional Features Available Under Secure Act 2.0

During our October 30, 2024 webinar, “It’s 2024 and … It’s Decision Time in the Retirement Plan World!” we polled our audience on their interest in adding optional features available under Secure Act 2.0 (discussed in our prior blog post). The results are in!

Based on the responses to our polls:

There is very little interest in adding Pension-Linked Emergency Savings Accounts with 60 percent of respondents selecting “Strong No” and an additional 13 percent responding “Lean No,” for a total negative response rate of 73 percent.
Similarly, a strong response against adding Emergency Personal Expense Distribution with a collective 65 percent of respondents selecting “Strong No” or “Lean No.”
Student Loan Matching Contributions were not given a passing grade with a collective 56 percent of respondents selecting “Strong No” or “Lean No.”
In contract, there was more interest in adding Qualified Birth or Adoption Distribution (a collective 40 percent “Strong Yes” or “Lean Yes”) and Domestic Abuse Victim Distribution (a collective 39 percent “Strong Yes” or “Lean Yes”).
The Disaster Recovery Distribution was in the middle, with 43 percent responding “Maybe,” 29 percent not interested in adding these to their plan and 15 percent planning to add this option to their plan.

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Retirement Philosophy

As qualified retirement plan sponsors evaluate the various new distribution options available under SECURE 2.0 (read our overview here), it is worth asking: What is your company’s retirement philosophy? The answer to this question will help guide plan sponsors (including, where applicable, the benefits committee) in determining what changes, if any, they’d like to make to their plans.

As we’ve been advising and discussing the new SECURE 2.0 distribution options with our clients, there are three different philosophies we’ve seen:

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New Stats on Employer Retirement Plans

On June 8, 2022, the Congressional Research Service published “Private-Sector Defined Contribution Pension Plans: An Introduction.” We reviewed the report and wanted to highlight a few key data points. Defined contribution plans include 401(k), 403(b), and profit-sharing plans. The report does not include government employer plans.

Takeaways

Congress continues to introduce bills related to retirement security (see our Blog Post on Secure Act 2.0 and the Employee and Retiree Access to Justice Act). These new bills continue to focus on increasing access to part-time workers, easing the implementation of retirement plans for smaller employers, and encouraging plans to implement automatic enrollment features. Based on the results in this Congressional Research Service report, we can expect continued emphasis on those features. If you’d like to discuss design changes to your defined contribution plan, please contact a Faegre Drinker benefits attorney for assistance.

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Upcoming Webinar | Checking the Lost & Found for Missing Participants: What Plan Sponsors Need to Be Doing!

In response to ongoing requests by plan sponsors, service providers and industry associations alike, the Department of Labor (DOL) issued informal, legally nonbinding guidance earlier this year to help address issues surrounding missing retirement plan participants. Join members of Faegre Drinker’s benefits and executive compensation group on April 14 from 11:00 – Noon CT, as we explore best practices for plan sponsors to identify missing and nonresponsive plan participants, as well as potential approaches to facilitate compliance and mitigate risk of penalties.

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CARES Act Brings Much-Needed Relief (and New Obligations) for Benefit Plans

As people across the country react to the quickly changing COVID-19 pandemic, Congress passed another piece of legislation providing guidance and relief on a variety of issues — the Coronavirus Aid Relief and Economic Security (CARES) Act, signed into law on March 27, 2020. This article includes brief summaries of what employers should know about key benefits-related components of the CARES Act. Plan sponsors should review their plans to assess the impact of these changes and take appropriate steps to implement the changes (some of which are required).

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Benefit Plan FAQs on COVID-19 Part 5

Hardship Distributions During the COVID-19 Outbreak

As the COVID-19 outbreak continues, retirement plan sponsors will likely receive questions from employees about ways in which they can access funds in their retirement plan accounts. While we wait for any potential Congressional action to ease access to retirement plan accounts, we look to the hardship distribution rules that apply now regardless of Congressional relief. Hardship distributions are one way an employee can receive an in-service distribution of elective deferral contributions (and, depending on the plan provisions, other types of contributions) from their accounts, provided the employee has an immediate and heavy financial need and the distribution is necessary to meet that need.

The IRS’s recently issued final regulations added a new type of safe harbor hardship distribution event, for losses related to a federally-declared disaster. Under the final regulations, an employee may be deemed to have an immediate and heavy financial need when the employee incurs expenses and losses (including loss of income) as a result of a disaster declared by the Federal Emergency Management Agency (“FEMA”), provided the employee’s principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance with respect to the particular disaster. Historically, the IRS announced similar relief on a piecemeal basis (for example, allowing certain hardship distributions for Hurricane Maria and the California wildfires in 2017).

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Benefit Plan FAQs on COVID-19

IRS Guidance Related to Coronavirus Testing/Treatment for HDHPs/HSAs

Last week, the IRS issued guidance confirming that high-deductible health plans with health savings accounts can provide coronavirus testing and treatment at no cost to participants without affecting eligibility for health savings accounts. Without this guidance, any non-preventive services provided to such participants before meeting their plan deductible would have disqualified the participants from health savings account eligibility. This guidance is welcome, as employers attempt to remove obstacles to testing and treatment for coronavirus.

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