In October 2020, the IRS issued two pieces of guidance addressing (1) the tax withholding and reporting of distributions from qualified retirement plans to state unclaimed property funds, and (2) the ability of taxpayers to roll over funds that were previously escheated to a state unclaimed property fund.
Continue reading “IRS Issues Guidance on Missing Participants and State Unclaimed Property Funds”
In July 2020, the Government Accountability Office (GAO) prepared a report for the Ranking Member of the Senate Committee on Health, Education, Labor and Pensions about Qualified Domestic Relations Orders (QDROs). QDROs are court-issued orders that allow a divorced spouse (or in rare cases a child) to receive a portion of a participant’s qualified retirement plan benefit. A QDRO is one of the few ways in which a participant’s qualified retirement benefit can be assigned or alienated.
An Illinois district court issued a split decision in a case involving the cybertheft of retirement plan assets, allowing the plan administrator and plan sponsor to be dismissed, but requiring the recordkeeper to defend allegations that it breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA). Bartnett v. Abbott Laboratories, et. al. (N.D. Illinois, Case No. 1:20-cv-02127) is one of several recent lawsuits filed against plan sponsors and recordkeepers for allowing cyber-thieves to pilfer large distributions from participants’ retirement plan accounts.
Heide Bartnett, a former employee of Abbott Laboratories (Abbott) and participant in Abbott’s 401(k) plan, alleges that a hacker accessed her 401(k) account online, changed the password, added a new bank account and requested a $245,000 distribution from the 401(k) plan’s recordkeeper, Alight Solutions LLC (Alight) to be deposited into the newly added account. The imposter also called Alight several times to ask questions about the distribution.
The Department of Labor (DOL) recently issued guidance in the form of an Information Letter describing the process that plan fiduciaries should undertake in determining whether an investment fund having a private equity component satisfies ERISA fiduciary standards. Specifically, the DOL emphasized that there are factors unique to such investment funds that should be considered as part of a prudent process.
Continue reading “DOL Issues Guidance on Private Equity Investments in 401(k) Plans”
Each year, retirement plans’ fiduciaries have a lot of responsibilities as they prepare for year-end. This year, fiduciaries and plan sponsors have a few extra “to do’s” on their list, with the passage of the CARES and SECURE Acts within the past year. Join Summer Conley, partner at Faegre Drinker, and Bonnie Treichel, co-founder and COO of ZUNA, on Thursday, October 22, 2020, at 1:00 p.m. ET for an actionable audiocast that will cover the tasks that are most critical to preparing for a successful year-end and start to 2021.
Continue reading “Audiocast: Year-End Checklist for Your Retirement Plan: 2020”
In our May 2020 client alert, we addressed the possibility that COVID-19 layoffs could inadvertently cause a partial termination of a company’s qualified retirement plan. Recently issued IRS guidance provides that if participating employees whose employment was terminated due to COVID-19 are rehired by the end of 2020, the IRS generally will not deem a partial plan termination to have occurred. However, rehiring employees by the end of 2020 will not guarantee that employers will avoid a partial plan termination.
Continue reading “Rehiring Employees by End of 2020 Could Prevent Partial Plan Terminations”
The Setting Every Community Up for Retirement Enhancement (SECURE) Act included several provisions related to lifetime income strategies under retirement plans, including a requirement that pension benefit statements for defined contribution plans disclose the “lifetime income stream equivalent” of each participant’s current account balance – both as a single life annuity (SLA) and as a qualified joint and survivor annuity (QJSA). On August 18, 2020, the Department of Labor (Department) issued an interim final rule implementing this requirement that includes a model disclosure and assumptions for converting benefits (the Rule), and a fact sheet.
As background, under ERISA, administrators of defined contribution plans (such as 401(k) and 403(b) plans) are required to provide pension benefit statements quarterly if the plan allows participant-directed investment, otherwise annually. Among other requirements, the benefit statements must include the participant’s current account balance.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 changed a number of requirements for retirement plans in 2020 and beyond.
Certain changes under the SECURE Act already are in effect in 2020, including changes to the required minimum distribution rules for participants and beneficiaries, and changes to qualified automatic contribution arrangements under defined contribution plans, as discussed in more detail in our prior alert.
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.
On June 29, 2020, the IRS issued Notice 2020-52 addressing mid-year reductions and suspensions of contributions to Safe Harbor 401(k) and 403(b) plans. In response to the COVID-19 pandemic, the Notice provides some temporary relief for plan sponsors that wish to reduce or eliminate safe harbor contributions mid-year.
