- 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).
With SECURE Act 1.0 (officially titled “Setting Every Community Up for Retirement Enhancement Act”) still being implemented by many plan sponsors, Congress is now considering a new package of laws designed to help close the nation’s retirement savings gap, referred to as SECURE Act 2.0 (officially titled “Securing a Strong Retirement Act”).
While the House of Representatives’ Ways and Means Committee unanimously approved SECURE Act 2.0, it has still not been voted on by the full House, and certain representatives may want changes implemented. And it has likewise not been approved by the Senate. Thus while SECURE Act 2.0 appears to have bi-partisan support, passage in its current form is not a sure thing.
The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act made a number of changes designed to increase the availability of lifetime income options in defined contribution retirement plans, such as 401(k) plans. Among those changes was a new fiduciary safe harbor for choosing an annuity provider, including an “in-plan” annuity-type product. Although this provision may not have received as much attention due to the COVID-19 pandemic, plan sponsors and committees should be aware of the new safe harbor option, particularly in light of the upcoming requirement to provide lifetime income disclosures to participants, which is set to become effective later this year (discussed here).
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.
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.
After a delay of several months, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, clearing the way for one of the most substantial pieces of retirement plan legislation in years to become law.
The House of Representatives initially passed the SECURE Act in May by an overwhelming 417−3 vote. Although the Act was set for easy bipartisan passage, it foundered in the Senate. The bill found new life at the eleventh hour of the 2019 legislative session as an attachment to the must-pass $1.4 trillion spending bill, which passed by significant margins.
The DOL’s newly released final regulation on “Association Retirement Plans” (ARPs) will make it easier for groups and associations of employers to jointly sponsor a combined 401(k) or other defined contribution plan. (These plans are also referred to as multiple employer plans or “MEPs.”) In recent years, there has been a push to permit service providers to create “Open MEPs,” which are plans of unrelated employers having no business connection, or what the DOL refers to as “commonality” (i.e., a relationship unrelated to employee benefits). The hope is that these plans will provide small businesses with a cost-efficient and minimally burdensome avenue for offering retirement savings opportunities to workers.