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Compliance Corner

Retirement Updates

PBGC and IRS Provide Guidance on Multiemployer Plan Special Financial Assistance

July 20, 2021

On July 9, 2021, the Pension Benefit Guarantee Corporation (PBGC) issued interim final rules and assumptions on special financial assistance (SFA) for multiemployer pension plans, as provided by the American Rescue Plan Act (ARPA). The ARPA authorized PBGC to provide SFA to multiemployer pension plans that are in critical and declining or critical status, were approved to suspend benefits under the Multiemployer Pension Reform Act of 2014, or became insolvent after December 16, 2014, but have not been terminated.

The interim final rule discusses how the SFA amount will be calculated, the order in which plans will be permitted to file SFA applications, details on what must be included in applications, how the PBGC will go about reviewing SFA submissions, and the conditions that will apply to plans that receive the SFA.

In determining eligibility for and the amount of SFA, ERISA generally looks to the plan assumptions previously selected by the actuaries. However, the ARPA also allows plans to propose changes to those assumptions (except for the interest rate) if they are no longer reasonable. The PBGC provided guidance on acceptable assumption changes in PBGC SFA 21-02.

Simultaneously with the release of the interim final rules and assumptions guidance, the IRS released Notice 2021-38 to provide guidance to multiemployer plan sponsors that must reinstate certain previously suspended benefits as a condition of receiving SFA. The guidance also clarifies that make-up benefits paid to individuals as a result of the reinstatement of previously suspended benefits may be paid in a lump sum within three months of the receipt of SFA funds or in equal monthly installments over the five year period beginning three months after the receipt of SFA funds. Additionally, the SFA funds received are not taken into account if a multiemployer plan needs to make certain contributions to avoid funding deficiencies. Finally, the IRS guidance indicated that multiemployer plans with suspended benefits must submit an SFA application to the Department of the Treasury, but this requirement will be satisfied if they send the application to the PBGC.

Multiemployer plan sponsors that will seek to apply for SFA funds should familiarize themselves with this guidance and consult with their counsel and tax advisors in complying with the requirements.

Interim Final Rule »
Special Financial Assistance Assumptions »
IRS Notice 2021-38 »

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IRS Extends Temporary Relief from Physical Presence Requirement

July 07, 2021

On June 24, 2021, the IRS released Notice 2021-40, which extends the COVID-19 temporary relief from the physical presence requirement for certain retirement plan elections. The notice also requests comments regarding whether changes to the physical presence requirement should be adopted on a permanent basis.

Under IRS regulations, certain retirement plan participant elections (such as a spousal consent to a waiver of a qualified joint and survivor annuity) must be witnessed in the physical presence of a plan representative or a notary public. An electronic system can be used to satisfy the physical presence requirement, if the system provides the same safeguards for the elections.

Previously, the IRS issued Notice 2020-42, which provided relief in 2020 from the physical presence requirement for participant elections witnessed by a notary public of a state that permits remote electronic notarization or a plan representative, if certain conditions were satisfied. Subsequent Notice 2021-3 extended this relief through June 30, 2021. (For further details on IRS Notice 2020-42 and IRS Notice 2021-3, please see, respectively, our June 9, 2020, and January 5, 2021, Compliance Corner editions.)

Notice 2021-40 provides an additional 12-month extension of this temporary assistance, through June 30, 2022. The relief is optional; i.e., a participant is still able to have an election witnessed in the physical presence of a notary accepted by a plan.

Additionally, the IRS is seeking comments on whether relief from the physical presence requirement should be made permanent. Specifically, feedback is sought regarding whether such a change would impact costs and burdens for all parties (e.g., participants, spouses and plans) or result in fraud, spousal coercion or other abuse. The agency is also inquiring as to how participant elections are being witnessed, or are expected to be witnessed, as the COVID-19 pandemic abates. Furthermore, in the event of a permanent change, comments are requested regarding necessary procedures to safeguard participant elections and whether the procedures for witnessing by plan representatives should be different from those applicable to notaries.

Sponsors of retirement plans should be aware of the further extension of temporary relief from the physical presence requirement for participant elections. Those wishing to provide comments regarding potential permanent changes to the requirement must do so in writing by September 30, 2021.

Notice 2021-40 »

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IRS Updates Funding Deficiencies Strategy

June 22, 2021

On June 11, 2021, the IRS updated the Funding Deficiencies Strategy section of their Employee Plans Compliance Unit (EPCU) webpage. Funding deficiencies generally occur when a defined benefit plan has failed to make the minimum required contributions to sustain the solvency of the plan. The EPCU conducts compliance checks and performs data analysis, focusing on areas of potential noncompliance (such as funding).

The Funding Deficiencies Strategy section of the webpage explains EPCU’s procedure when a funding deficiency is reported on a filed return, such as a Form 5500. When addressing that deficiency, the EPCU contacts fiduciaries to determine whether the funding deficiency was corrected, the required excise tax returns were filed, and appropriate taxes paid. If the minimum required contributions have actually been made, then the EPCU can also assist the fiduciary in identifying and correcting errors in their forms.

This guidance does not provide any new compliance requirements; the EPCU simply indicates their process for addressing issues so that plan fiduciaries are aware of the steps that may be taken to ensure compliance. Any employer who receives a letter from the EPCU should work with their service providers to fully cooperate with the request.

Employee Plans Compliance Unit »

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IRS Updates Operational Compliance List for 2021 and 2022

June 08, 2021

On June 3, 2020, the IRS updated their operational compliance list (“OC List”) to recognize the final regulations relating to required minimum distributions and eligibility for long-time part-time workers, further reflecting all the changes made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The OC List is provided by the IRS to help plan sponsors and practitioners achieve operational compliance by identifying changes in qualification requirements effective during a calendar year.

Specifically, the updated list incorporated the final regulations relating to the updated life expectancy and distribution period tables used for determining required minimum distributions. It also incorporated Notice 2020-68, which provides a question and answer related to long-term part-time employees under the SECURE Act. (We discussed the SECURE Act at length in the January 7, 2020, edition of Compliance Corner.) Finally, the changes effective in 2021 include an extension of the temporary relief from the requirement for spousal consents to take place in person.

The IRS periodically updates the OC List to reflect new legislation and guidance. As such, it is a useful tool for plan sponsors. However, the list is not intended to be a comprehensive list of every item of IRS legislation or guidance. Plan sponsors should work with their advisors to ensure their continued compliance with the retirement plan regulations.

Operational Compliance List »

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Ninth Circuit Holds California Mandatory IRA Not Preempted by ERISA

May 25, 2021

On May 6, 2021, the US Court of Appeals for the Ninth Circuit (appellate court) affirmed a lower court's ruling in Howard Jarvis Taxpayers Ass’n v. Cal. Secure Choice Ret. Sav. Program, 2021 WL 1805758 (9th Cir. 2021) that the CalSavers Retirement Savings Program is not preempted by ERISA. Specifically, the appellate court does not consider the program to be an ERISA plan, nor does it place additional requirements on an employer. Under the program, only employers who have chosen not to adopt an ERISA plan would be required to participate.

Beginning June 30, 2020, California employers with more than 100 employees must offer employees a qualified retirement plan (such as a 401(k)) or participate in the state-run retirement savings program known as CalSavers. The requirement applies to employers with 51 to 100 employees on June 30, 2021, and to employers with five or more employees on June 30, 2022. For these purposes, employer size is based on the number of California-based employees reported on the Employment Development Department quarterly report.

Before the applicable deadline, employers must sponsor a qualified retirement plan or register with CalSavers. Under CalSavers, an employer must automatically enroll eligible employees in the retirement program with a contribution of at least 3% of earnings. New employees must be enrolled within 30 days of employment. Employees may choose to opt out of the program.

If an employer fails to comply for up to 90 days, a penalty of $250 per employee could be assessed against the employer. If noncompliance continues, the per-employee penalty could increase to $500.

Employers with five or more employees in California should continue compliance efforts in either maintaining an employer sponsored retirement plan or registering with CalSavers, based on size and applicable effective date.

The ruling will also be of interest to all employers as more than half of the states have either adopted similar programs or have established Task Forces to research the issue. The cities of New York and Seattle have also adopted a similar government-run autoenrollment savings program.

The appellate court’s decision indicates that such plans may not be preempted by ERISA, clearing the way for states to impose these requirements.

Howard Jarvis Taxpayers Ass’n v. Cal. Secure Choice Ret. Sav. Program »
CalSavers, Employer Registration and Resources »

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IRS Provides Q&A on Partial Plan Termination Relief

May 11, 2021

On April 27, 2021, the IRS updated a set of questions and answers concerning coronavirus-related retirement plan relief by adding five questions clarifying the partial plan termination relief provided through the Consolidated Appropriations Act of 2021 (CAA).

The CAA provided relief from the requirement that employees be 100% vested in employer contributions should a partial plan termination occur. Under those rules, an employer terminating 20% or more of its workforce would trigger a partial plan termination (which would require the employer to vest their employees at 100%). The CAA stated that a company would not trigger a partial plan termination during the period beginning March 13, 2020, and ending March 31, 2021, if on the latter date the plan had at least 80% of the active participants that were enrolled on the former date.

The Q&As clarify a few concepts concerning this relief. Q&A two addresses how employers should determine who is an active participant in the plan by indicating that employers should apply a reasonable, good-faith interpretation of that term and apply it consistently.

Q&A three discusses how the CAA relief would apply when only a portion of the plan year falls between March 31, 2020, and March 31, 2021. When that occurs, the CAA relief applies to any partial termination determination for the entire plan year. The IRS then provided an example:

If a plan has a calendar year plan year, the 80% partial termination test in Section 209 of the Relief Act applies to both the January 1 to December 31, 2020, plan year and the January 1 to December 31, 2021, plan year, because both plan years include a part of the statutory determination period of March 13, 2020, to March 31, 2021.

Q&A four makes it clear that employers do not have to have the exact same employees covered by the plan by March 31, 2021, to benefit from this relief. Instead, for purposes of determining whether at least 80% of the active participants covered by the plan on March 13, 2020, were also covered by the plan on March 31, 2021, active participants include all individuals actively participating on March 31, 2021, regardless of whether those same individuals were participants in March 2020.

Finally, Q&A five indicates that the relief under the CAA does not solely apply to reductions in the number of participants that occurred due to the COVID-19 national emergency. The reductions could have occurred for any reason.

Employers who are seeking to receive relief under the CAA’s partial plan termination provision should familiarize themselves with these Q&As and work with their service providers to ensure compliance.

Partial Termination of a Qualified Retirement Plan Under Section 209 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 »

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IRS Publishes Guide on Retirement Plan Options for Tax-Exempt Employers

April 27, 2021

The IRS published a revised Publication 4484, Choose a Retirement Plan for Employees of Tax-Exempt and Government Entities. In this edition of the publication, the IRS reviews eight types of retirement plans available to employees of tax-exempt entities such as churches or charities. The publication provides the latest tax laws specific to each retirement plan and has been revised to reflect 2021 annual limitations.

The publication also provides basic information about each plan's benefits in the form of a summary table, which helps tax-exempt entities find the plans that best fit them and their employees. It allows users to click on the plan tabs to view and compare the complete details on each plan. It also provides a list of other IRS publications that may provide helpful information and resources for establishing retirement plans.

The publication's goal is to show tax exempt and government entities that offering a retirement plan helps employees save for the future and may also help an organization attract and retain qualified employees.

IRS Publication 4484 »

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IRS Releases Final Form 5310 Instructions

April 27, 2021

On April 22, 2021, the IRS released the final instructions for Form 5310, Application for Determination for Terminating Plan. The instructions are updated periodically to reflect any regulatory or reporting changes.

A plan sponsor of a terminating retirement plan has the option of filing Form 5310 to request an IRS determination on the plan’s qualification status at the time of termination. The issuance of a favorable letter provides assurance that eligible participant distributions can be rolled over to another qualified plan or individual retirement account.

The instructions delineate how the form should be completed and describe the necessary supporting documentation. The form and instructions were updated for completion on (As of August 1, 2021, the Form 5310 must be completed electronically on the government website. From April 16, 2021, through July 31, 2021, submissions may be made on paper or electronically.)

Employers that sponsor retirement plans may want to be aware of the updated form instructions.

Instructions for Form 5310 (Rev. April 2021) »

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DOL Issues FAQs and Additional Guidance on Fiduciary Investment Advice

April 27, 2021

On April 13, 2021, the DOL issued guidance on fiduciary investment advice for retirement investors, employee benefit plans and investment advice providers. As a reminder, the DOL adopted prohibited transaction exemption (PTE) 2020-02, Improving Investment Advice for Workers & Retirees, in December of 2020. The DOL announced on February 12, 2021, that the prohibited transaction exemption for investment advice fiduciaries would go into effect as scheduled on February 16, 2021. (See our article in the February 17, 2021, edition of Compliance Corner for more information.)

The issued FAQs address PTE 2020-02 and provide information about the DOL’s next steps in its regulation of investment advice. The major sections of the FAQs address the PTE’s background, compliance dates, definition of fiduciary investment advice and compliance with the PTE generally. Importantly, Question #3 indicates that Field Assistance Bulletin 2018 (which outlined the DOL’s temporary enforcement policy) will remain in place until December 20, 2021. Question #5 also mentions that the DOL is reviewing issues of fact, law, and policy related to the PTE, and anticipates taking further regulatory action as appropriate. Questions 10 – 20 outline what investment advisors must do to comply with the PTE, specifically verifying the impartial conduct standards that must be met. Question #21 describes how the DOL will enforce compliance with the PTE.

The DOL also provided a set of FAQs that explains how individuals should go about selecting an investment adviser. The FAQs recommend that individuals ask if their financial advisers are fiduciaries and whether they are in compliance with PTE 2020-02. It also suggests questions concerning fees that will be charged and potential conflicts of interest.

Ultimately, employers should work with their service providers to ensure compliance with PTE 2020-02. They can also point participants to the FAQs concerning choosing an investment adviser.

News Release »
PTE 2020-02 FAQS »
Choosing the Right Person to Give You Investment Advice »

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DOL Provides Guidance on Cybersecurity Best Practices

April 27, 2021

On April 14, 2021, the DOL’s Employee Benefits Security Administration provided guidance to plan sponsors, fiduciaries, record keepers and plan participants on cybersecurity best practices. This was done in an effort to protect American workers’ retirement benefits. This novel guidance was provided through three documents: 1) Tips for Hiring a Service Provider; 2) Cybersecurity Program Best Practices; and 3) Online Security Tips.

Tips for Hiring a Service Provider. This document assists plan sponsors and fiduciaries in selecting a service provider with strong cybersecurity practices. ERISA requires plan fiduciaries to monitor service providers to ensure that they are maintaining plan records and keeping participant data confidential and plan accounts secure. The DOL suggests several tips that plan sponsors can follow in ascertaining a service provider’s cybersecurity practices.

Cybersecurity Program Best Practices. This document provides a list of best practices for use by recordkeepers and other service providers responsible for plan-related IT systems and data. Plans’ service providers should:

  • Have a formal, well documented cybersecurity program
  • Conduct prudent annual risk assessments
  • Have a reliable annual third-party audit of security controls
  • Clearly define and assign information security roles and responsibilities
  • Have strong access control procedures
  • Ensure that any assets or data stored in a cloud or managed by a third-party service provider are subject to appropriate security reviews and independent security assessments
  • Conduct periodic cybersecurity awareness training
  • Implement and manage a secure system development life cycle program
  • Have an effective business resiliency program addressing business continuity, disaster recovery and incident response
  • Encrypt sensitive data, stored and in transit
  • Implement strong technical controls in accordance with best security practices
  • Appropriately respond to any past cybersecurity incidents

Online Security Tips. This document is geared towards plan participants and beneficiaries and provides tips on reducing the risk of fraud and loss when accessing their retirement accounts online. The document encourages individuals to:

  • Register, set up and routinely monitor their online account
  • Use strong and unique passwords
  • Keep personal contact information current
  • Close or delete unused accounts
  • Be wary of free Wi-Fi
  • Beware of phishing attacks
  • Use antivirus software and keep apps and software current
  • Know how to report identity theft and cybersecurity incident

Employers should familiarize themselves with the DOL’s suggestions pertaining to cybersecurity. The guidance indicates that the DOL considers this an element of plan sponsors’ fiduciary duties, so employers should work to minimize the risk of cybersecurity breaches.

News Release »
Tips for Hiring a Service Provider »
Cybersecurity Program Best Practices »
Online Security Tips »

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