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Retirement Updates

IRS Updates Determination Letter and Private Letter Ruling Procedures

January 19, 2022

On January 3, 2022, the IRS released Revenue Procedure (Rev. Proc.) 2022-4, which outlines the procedures for requesting determination letters and private letter rulings from the IRS for qualified retirement plans. Rev. Proc. 2022-4 is a general update of the information provided in Rev. Proc. 2021-4. Determination letters indicate whether the IRS finds an employer’s employee benefit plan to meet the requirements necessary for the plan to be a qualified plan. Private letter rulings interpret and apply the Internal Revenue Code to a set of facts presented by a taxpayer.

This update includes some minor non-substantive changes, including changes to dates, cross references and citations to other revenue procedures. There are also several changes from the guidance that was provided in Rev. Proc. 2021-4, including:

  • The procedures for obtaining an opinion letter for Section 403(b) pre-approved plans with six-year remedial amendment cycles beginning July 1, 2021 are provided in Rev. Proc. 2021-37.
  • Procedures have been updated for submitting Form 5300, Application for Determination for Employee Benefit Plan and Form 5310, Application for Determination for Terminating Plan, including payment of the user fee. Form 5300 can be submitted electronically beginning June 1, 2022, and must be submitted electronically beginning July 1, 2022.
  • Trust documents are no longer a part of the list of documents that must be included as part of a determination letter submission.
  • Form 5307, Application for Determination for Adopters of Modified Volume Submitter Plans, should be used for determination letter requests for standardized plans that are not multiple employer plans if the employer requests a determination solely on overriding plan language added to satisfy benefit and contribution limitations and the special rules for top-heavy plans.
  • Employers adopting standardized plans do not have to file a Form 5300 to request a determination related to overriding language necessary to satisfy benefit and contribution limitations or the special rules for top-heavy plans, even if they maintain multiple plans.
  • This guidance clarifies the scope of reliance for a determination letter issued for a multiple employer plan.
  • Plan sponsors of dual-qualified plans must submit a restatement showing compliance with the Code and applicable lists when submitting a determination letter application.
  • Appendix A of the Rev. Proc. has been amended to update the user fees relating to letter ruling requests and opinions on pre-approved plans.

Retirement plan sponsors who may need to apply for a determination letter or request a private letter ruling should familiarize themselves with this updated guidance and work with their service providers to comply with the IRS’ requests.

Rev. Proc. 2022-4 »

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IRS Finalizes 2021 Form 8955-SSA Instructions

January 19, 2022

The IRS recently published the final version of the instructions for the 2021 Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits. Form 8955-SSA is used to report information about retirement plan participants who separated from service with the employer and are entitled to deferred vested benefits.

The instructions assist employers with the preparation of the 2021 Forms 8955-SSA filing. The instructions explain that the IRS does not permit form attachments. They also clarify which entry codes filers should use 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.

Although many employers outsource the preparation and filing of Form 8955-SSA, employers should familiarize themselves with the form’s requirements and work closely with service providers to collect the applicable information.

2021 Form 8955-SSA »

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PBGC Civil Penalties Adjusted

January 19, 2022

On January 14, 2022, the Pension Benefit Guaranty Corporation published revised civil penalty amounts for failure to provide certain notices or other material information, as required by ERISA. The amounts apply to penalties assessed on or after the publication date. The adjusted maximum amounts are $2,400 (up from $2,259) for Section 4071 penalties and $320 (up from $301) for Section 4302 penalties, which are related to multiemployer plan notices.

PBGC Revised Penalties »

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DOL Supplements Letter on Private Equity Investments in Defined Contribution Plans

January 04, 2022

On December 21, 2021, the DOL provided a supplemental statement on the use of private equity (PE) investments in designated investment alternatives made available to participants and beneficiaries in individual retirement account plans. The statement supplements the June 3, 2020 DOL Information Letter that addressed the role of PE investments in defined contribution plans. (See our June 3, 2020 edition of Compliance Corner for more information about that letter.)

The DOL reiterated that fiduciaries could offer a professionally managed asset allocation fund with a PE component as a designated investment alternative as long as the investment is prudent and made solely in the interest of the plan’s participants and beneficiaries. Although the letter allowed PE investments, the DOL clarified that the Information Letter did not endorse or recommend such investments due to their complexity.

After the DOL came out with the Information Letter in 2020, the Securities and Exchange Commission issued a “risk alert” highlighting compliance issues in examinations of registered investment advisers that manage PE funds. Additionally, the DOL received questions and reactions from a variety of stakeholders regarding the letter. As such, the DOL chose to issue this supplemental statement to clarify a few things.

First, the DOL admitted that the PE investment advantages that were touted by the entity that requested the information letter reflected the perspective of the PE industry and didn’t necessarily include counter-arguments. Second, the DOL chose to emphasize the expertise that plan fiduciaries would need to possess in order to satisfy ERISA duties to be prudent and monitor investments. Finally, the DOL cautioned against application of the Information Letter outside of the context of fiduciaries who offer PE investments in their defined benefit and contribution plans and are suited to analyze these investments for participant-directed accounts with the assistance of qualified fiduciary investment advisers. The DOL took it a step further and mentioned that plan-level fiduciaries of small, individual account plans are likely not suited to evaluate PE investments in designated investment alternatives in individual account plans.

Employers considering offering PE funds as an investment option in their plans should be mindful of their fiduciary duties and consult with their investment advisers for assistance.

U.S. Department of Labor Supplement Statement on Private Equity in Defined Contribution Plan Designated Investment Alternatives »

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IRS Releases 2022 Instructions for Forms 1099-R and 5498

January 04, 2022

On December 10, 2021, the IRS released the 2022 Instructions for Forms 1099-R and 5498. Form 1099-R reports distributions from retirement plans, pensions, annuities and IRAs. Form 5498 reports contributions to IRAs. The instructions provide specific guidelines for completing the forms. (We previously reported on the draft of these instructions in the November 9, 2021 edition of Compliance Corner.)

The IRS updates the form instructions annually to incorporate any recent administrative, reporting or regulatory changes. The 2022 Form 1099-R instructions include a new reporting requirement for qualified plan payments to state unclaimed property funds under escheat laws. It also announces the new Form W-4R, which will be used to report nonperiodic payments and eligible rollover distributions.

Employers who sponsor retirement plans may want to be aware of the draft release but should understand that changes may be made prior to the issuance of the final instructions.

2022 Instructions for Forms 1099-R and 5498 »

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DOL, IRS and PBGC Release Advance Copies of 2021 Forms 5500

January 04, 2022

On December 29, 2021, the DOL, IRS and PBGC (the “agencies”) published advance copies of the 2021 Form 5500 Annual Return/Report (including Form 5500-SF for small plans) and related instructions in the Federal Register. The 2021 Form 5500-EZ and instructions were also released and are available on the DOL website.

Certain updates to the form instructions were necessary to implement annual reporting changes related to SECURE Act amendments to ERISA and the code that apply to multiple-employer defined contribution pension plans, including the new pooled employer plans (PEPs). Provided certain conditions are met, PEPs allow multiple unrelated employers to participate in one plan that files one Form 5500.

The notable Form 5500 and Form 5500-SF changes include the following: 

  • The instructions have been revised to require multiple-employer defined contribution pension plans to report aggregate account balance information by employer on the existing Form 5500/Form 5500-SF attachment for reporting participating employer information. (Prior to SECURE Act changes, employers were only required to report estimates of the percentage of total contributions made by participating employers during the plan year.)
  • As a result of the SECURE Act authorization for PEPs to begin operating in 2021, the Form 5500 instructions have been amended to make clear that a PEP is a multiple-employer plan that files a single Form 5500 Annual Return/Report. PEPs are required to check the multiple-employer plan box in Part A of Form 5500 and include the attachment for reporting participating employer information. These plans must also indicate whether the pooled plan provider (PPP) administering the plan has complied with the Form PR (Pooled Plan Provider Registration) filing requirements. If so, the AckID acknowledgement code number for the PPP’s latest Form PR filing must be referenced. Form 5500-SF was also updated to indicate that PEPs must file Form 5500 and cannot file Form 5500-SF.
  • A new checkbox is added to Part I of Form 5500 and Form 5500-SF for a plan sponsor who adopted the pension benefit plan in the 2021 plan year and treated the plan as being adopted and effective in the 2020 plan year pursuant to SECURE Act Section 201. For defined benefit plans in this category, the 2021 instructions provide information about how to report data regarding 2020 funding requirements (i.e., Schedule SB data).
  • The form instructions were updated to reflect an increase in the maximum civil penalty amount assessable under ERISA section 502(c)(2), which applies to a failure to file a Form 5500.
  • A new line 3(d) was added to Schedule MB to require a multiemployer defined benefit plan to report the amount of withdrawal liability payments included in line 3(b) employer contributions. Line 6c, mortality table, was revised to add new mortality tables released by the Society of Actuaries and to simplify reporting of older mortality tables. Line 7, New Amortization Bases Established, has been revised, reflecting changes made by the ARPA for Code 8 to be used for net investment losses and other losses related to COVID-19 incurred in either or both of the first two plan years ending after February 29, 2020.
  • Schedule SB, Line 6, target normal cost, was broken down into new lines 6a, 6b and 6c. Line 6a requires the plan to report the present value of current plan year accruals decreased by any mandatory employee contributions. Line 6b requires the plan to report expected plan-related expenses included in the target normal cost, and line 6c requires it to report the total target normal cost (i.e., the sum of lines 6a and 6b). The table in the instructions for line 27 contains an additional code (Code 9) for community newspapers as described in the SECURE Act.

These advance copies are for informational purposes only and cannot be used to file a 2021 Form 5500 or schedule. Employers must wait until the agencies publish the final versions. However, employers may want to familiarize themselves with the updated forms and instructions.

News Release »
Form 5500 Series Informational Forms »

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PBGC Releases Regulatory Agenda for Fall 2021

December 21, 2021

The Pension Benefit Guarantee Corporation (PBGC) recently released a list of the rules it plans on promulgating during the fall of 2021. These rules are part of the agency’s efforts to fulfill the mandate under the American Rescue Plan Act (ARPA) to provide special financial assistance in the form of make-up payments of suspended benefits for participants and beneficiaries who are in pay status because their retirement plans adopted a benefit suspension under the Multiemployer Pension Reform Act of 2014 (MPRA), as well as certain insolvent plans that suspended benefits upon insolvency. The agency is also tasked with providing prospective reinstatement of suspended benefits for all participants and beneficiaries. In addition, PBGC plans to publish rules that prescribe actuarial assumptions that a multiemployer plan actuary may use to determine an employer’s withdrawal liability and provide guidance on determining the monthly amount of multiemployer plan benefits guaranteed by the agency.

The rules are listed below:

Proposed Rules

  • Valuation Assumptions and Methods: Interest and Mortality Assumptions for Asset Allocation in Single-Employer Plans and Mass Withdrawal Liability Determination in Multiemployer Plans
  • Multiemployer Plan Guaranteed Benefits
  • Improvements to Rules on Recoupment of Benefit Overpayments
  • Penalties for Failure to Provide Certain Notices or Other Material Information
  • Actuarial Assumptions for Determining an Employer's Withdrawal Liability

Final Rules

  • Benefit Payments and Allocation of Assets
  • Examination and Copying of PBGC Records
  • Adjustment of Civil Penalties
  • Special Financial Assistance by PBGC

Employers who provide single-employer defined benefit pension plans or are part of multiemployer defined benefit pension plans should be aware of these pending developments.

Agency Rule List - Fall 2021 »
Statement of Regulatory and Deregulatory Priorities »

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PBGC Releases Interest Rate Assumptions for Valuing Benefits

December 21, 2021

On December 14, 2021, the PBGC issued a final rule that amends the regulation on the allocation of assets in single-employer plans. The guidance, which is effective January 1, 2022, provides interest assumptions for plans with valuation dates in the first quarter of 2022.

These interest assumptions are used for valuing benefits under terminating single-employer plans, amongst other purposes. Specifically, the PBGC uses the interest assumptions to determine the present value of annuities in an involuntary or distress termination of a single-employer plan under the asset allocation regulation. The assumptions are also used to determine the value of multiemployer plan benefits and certain assets when a plan terminates by mass withdrawal in accordance with PBGC’s regulation on Duties of Plan Sponsor Following Mass Withdrawal.

The first quarter 2022 interest assumptions will be 2.37 percent for the first 20 years following the valuation date (the initial period) and 2.03 percent (the final rate) thereafter. As compared to the interest assumptions in effect for the fourth quarter of 2021, these updated assumptions reflect a decrease of 0.03 percent in the initial rate and a decrease of 0.08 percent in the final rate.

Employers who sponsor defined benefit pension plans may want to be aware of the updated guidance.

Allocation of Assets in Single-Employer Plans; Interest Assumptions for Valuing Benefits »

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IRS Issues Interest Rate Guidance for Defined Benefit Pension Plans

December 07, 2021

On November 18, 2021, the IRS released Notice 2021-62, which updates interest rates for defined benefit pension plan minimum funding purposes. Specifically, the notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates and the 24-month average segment rates applicable to single-employer defined benefit pension plans. Additionally, the notice provides the 30-year Treasury weighted average rate used by multiemployer plans to determine current liability.

With respect to single-employer defined benefit pension plans, the Internal Revenue Code specifies the minimum funding requirements and interest rates that must be used to determine a plan’s target normal cost and funding target. The target normal cost is the present value of benefits earned (or expected to be earned) during the year. The funding target is the present value of benefits accrued on the first day of the plan year.

For this purpose, the present value is normally determined using three 24-month average corporate bond interest rates (known as “segment rates”), each of which is used to discount benefits payable during specified periods. These segment rates are adjusted by the applicable percentage of the 25-year average segment rates for the period ending September 30 of the year preceding the calendar year in which the plan year begins. Alternatively, a plan can elect to use the monthly corporate bond yield curve in place of the segment rates.

The notice includes a table (Table 2021-10) with the monthly corporate bond yield curve based upon October 2021 data. It specifies the spot first, second, and third segment rates for the month of October 2021 as, respectively, 0.87, 2.74 and 3.16.

According to the notice, the 24-month average corporate bond segment rates applicable for November 2021 (without adjustment for the 25-year average segment rate limits) for the first, second and third segments are, respectively, 0.96, 2.64 and 3.32.

The notice further explains that the American Rescue Plan Act of 2021 (ARPA) provided interest rate relief by changing the 25-year average segment rates and the applicable minimum and maximum percentages used to adjust the 24-month average segment rates. The following are the adjusted 24-month average segment rates taking into account the ARPA amendments:

For Plan Years Beginning In Applicable Month First Segment Second Segment Third Segment
2020 November 2021 4.75 5.50 6.27
2021 November 2021 4.75 5.36 6.11
2022 November 2021 4.75 5.18 5.92

However, the ARPA permitted a plan sponsor to elect not to have these changes apply to any plan year beginning before January 1, 2022. For a plan year for which such an election applies, the adjusted 24-month average segment rates are as follows:

For Plan Years Beginning In Applicable Month First Segment Second Segment Third Segment
2020 November 2021 3.64 5.21 5.94
2021 November 2021 3.32 4.79 5.47

With respect to minimum funding requirements for multiemployer plans, the notice provides the interest rate for calculating the plan’s current liability. This interest rate must be no more than five percent above and no more than 10 percent below the weighted average interest rates on 30-year Treasury securities during the four-year period ending on the last day before the beginning of the plan year. The notice provides that for plan years beginning in November 2021, the 30-year Treasury weighted average rate was 2.16%, which results in a permissible interest rate range of 1.94% to 2.26% to calculate a plan’s current liability.

Sponsors of defined benefit plans should be aware of the guidance and may want to consult with their counsel or actuaries for further information.

Notice 2021-61 »

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IRS Releases Required Amendment List for Retirement Plans

December 07, 2021

On November 30, 2021, the IRS issued Notice 2021-64, which is the 2021 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 doesn’t 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 generally will require affected plans to be amended. Part B lists changes that would likely not require amendments to most plans but might require an amendment because of an unusual plan provision in a particular plan.

This year, there is one Part A entry addressing the special financial assistance program for financially troubled multiemployer plans, which was provided through the American Rescue Plan Act of 2021. Notably, there are no Part B changes this year.

The remedial amendment deadline for disqualifying provisions resulting from items on the 2021 RA List is December 31, 2023 (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 2021-64 »

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