Monday, August 23, 2021

Missing Plan Participants – Recent Guidance

Missing Plan Participants – Recent Guidance


Charles C. Shulman, Esq.


March 31, 2021
(Revised Aug. 2021)


A common problem in plan administration is finding missing participants. Sometimes these lost participants simply cannot be located. Other times they can be located but they do not accept distribution packages with respect to their benefits.  


Field Assistance Bulletins. 

DOL Field Assistance Bulletin 2004-02 stated that certain methods of finding participants be used because they have a high degree of success and are relatively inexpensive. These methods are as follows: (i) certified mail, (ii) plan records of participants in other plans maintained by the employer, for example, a health plan, (iii) using a designated beneficiary to locate a participant, (iv) using the IRS or Social Security Administration letter-forwarding service.  However, both these letter forwarding programs were discontinued (the IRS program in 2012 and the SSA program in 2014).

DOL Field Assistance Bulletin 2014-1 sets forth the DOL’s current views on the proper fiduciary steps to follow in connection with locating missing participants. It prescribes the search steps that must be used in locating the lost participant. Routine methods of regular mail or email will suffice most of the time. However more may be necessary if there is no response or the fiduciary believes it does not have a current address. Certified mail should be used to find out if the participant can be located. FAB 2014-1 notes that the DOL model participant notice for plan termination can be used. A search of the employer records including plan records for other plans maintained by the employer such as health plans should be done. Asking designated beneficiaries of the participant for the location of the participant should be done. Use of free internet search tools such as Internet search engines, public record databases, obituaries and social media should be utilized. Possible additional searches include internet search tools that charge a fee, commercial locator services, credit reporting agencies and investigative databases. If a participant still cannot be located, the preferred method of distributing the account from the plan is to establish an IRA rollover account following the general procedure for distribution of cash-out amounts between $1,000 and $5,000. This amount would be rolled over to an IRA which would be invested in an investment designed to preserve principal and provide a reasonable rate of return. There is a strong preference for rollover distributions because if funds are otherwise distributed, there will need to be 20% mandatory withholding.  Another alternative is to furnish the funds to the state unclaimed property fund. Many states maintain funds with web internet access sites listing the names of individuals who are due funds from one source or another. Some state funds accept plan distributions on behalf of missing participants. Although the Department of Labor in Opinion 94-41A takes the position that state funds may not be automatically escheated to the state, the fiduciary may reach the conclusion that this is the proper course of action where it is necessary to distribute all funds in order to complete the termination of the plan.


DOL Best-Practices Memo. A DOL “best practices” memo – “Missing Participants – Best Practices for Pension Plans,” (January 12, 2021),, outlines how fiduciaries of defined benefit plans and defined contribution plans can handle missing participants. The Best Practices memo outlined red flags that the DOL looks for as indicators of missing participant issues, including: a significant number of participants who are nonresponsive, a significant number of terminated vested participants reaching normal retirement age who have not started receiving benefits, incomplete contact information and census data and absence of sound policies for handling returned mail and uncashed checks. The 2021 Best Practices memo also gives examples of best practices, including:

  1. Maintaining accurate census information for the plan’s participant population (including contacting participants and beneficiaries on a periodic basis to confirm or update their contact information, including contact information change requests in plan communications, flagging undeliverable mail/email and uncashed checks, requesting updates to contact information for beneficiaries, regularly auditing census information, and in the case of a change in record keepers or plan sponsor, addressing the transfer of appropriate plan participant and beneficiary information and relevant employment records);
  1. Implementing effective communication strategies (including using plain language and offering non-English assistance, encouraging employees to notify the plan of any change in contact information and encouraging information contact through plan websites and toll-free numbers, building steps into plan enrollment for new employees and exit procedures for separating employees to confirm or update contact information, communicating options about consolidating accounts from prior employer plans and marking correspondence with the original plan or sponsor name where this has changed after participants separated); 
  1. Conducting missing participant searches (including checking plan and employer records for participant, beneficiary and emergency contact information, checking with designated plan beneficiaries and emergency contacts for updated contact information, using free online search engines, public record databases, obituaries, and social media to locate individuals, using a commercial locator service or credit-reporting agency to locate individuals, mailing certified mail or mail with tracking features to the last known mailing address, attempting contact via email addresses telephones and social media, searching death Indexes, contacting colleagues of missing participants or by publishing a list of missing participants on the company’s intranet, reaching out to a union’s local offices and registering and publicizing missing participants on public and private pension registries with privacy and cyber security protections); and 
  1. Documenting procedures and actions (including putting applicable plan policies in writing, documenting key decisions and the steps taken to implement the policies, ensuring third-party record keepers are performing agreed upon services, and working with the record keeper to identify and correct shortcomings in the plan’s recordkeeping and communication practices).

PBGC Missing Participant Program for Terminating Defined Benefit and Defined Contribution Plans. Under the Pension Protection Act of 2006, the single-employer missing participant program required to be maintained by the PBGC is extended to terminating single-employer and multiemployer pension plans and defined contribution plans, and defined benefit pension plans that are not covered by the PBGC because they have no more than 25 active participants. ERISA § 4050(d). In December 2017, the PBGC finalized regulations first proposed in 2016 that expand its existing Missing Participants Program to cover terminated 401(k) and other defined contribution plans and defined benefit plans that are not currently covered by the program. PBGC Reg. §§ 4050.101 to 4050.407, 82 Fed. Reg. 60800 (Dec. 22, 2017). Under ERISA § 4050 as amended by PPA 2006, the PBGC is required to operate a missing participants program for single-employer plans and multiemployer plans covered by Title IV of ERISA. It also may maintain an optional program for defined benefit plans not covered by Title IV of ERISA and for defined contribution plans. The regulations establish missing participant programs for terminating multiemployer defined benefit plans covered by Title IV (PBGC Reg. §§ 4050.401 to 4050.407), terminating professional service employer defined benefit plans not covered by Title IV (PBGC Reg. §§ 4050.301 to 4050.307), and for terminating defined contribution plans (PBGC Reg. §§ 4050.201 to 4050.207). The regulations also make changes in the existing Missing Participants Program including providing for (i) fees to be charged for plans to participate in the Missing Participants Program; (ii) a requirement to treat as missing certain nonresponsive distributees with de minimis benefits subject to mandatory cash-outs under the Plan’s terms; (iii) stricter requirements for diligence searches, including sponsor and related plan records, free web search methods and commercial locater services; (iv) fewer benefit categories and fewer sets of actuarial assumptions for determining the amount to transfer to the PBGC; and (v) changes in the rules for paying benefits to missing participants and their beneficiaries. The program is mandatory for PBGC for single-employer plans and multiemployer plans subject to Title IV and insured by the PBGC. The insured defined benefit plans are required to either (i) transfer the benefits of missing participants to the PBGC, or (ii) purchase annuities and provide the PBGC with information about the annuity provider. PBGC Reg. §§ 4050.103 and 4050.403. Participation in the Missing Participants Program for defined contribution plans and defined benefit plans not covered by PBGC insurance is voluntary.

A defined contribution plan program that participates in PBGC’s Missing Participants Program must either (i) transfer accounts of missing participants to the PBGC, or (ii) send the PBGC information about where the accounts of its missing participants were transferred. PBGC Reg. §§ 4050.203 and 4050.303. As part of the Missing Participants Program, the PBGC is creating a database that may be used to provide information about missing participants and their benefits. It would permit the public to search the database to determine whether it contained information about benefits available to a specific participant, but it would be designed in a way that would protect individuals’ privacy. A one-time fee, $35 initially, is charged for transferring a participant’s defined benefit or defined contribution benefit to the PBGC. Amounts of $250 or less could be transferred at no fee. The regulations are effective January 22, 2018, and apply to single-employer plans terminating after 2017 and to the closeout of multiemployer plans after 2017.         

DOL Field Assistance Bulletin 2021-01, “Temporary Enforcement Policy Regarding the Participation of Terminating Defined Contribution Plans in the PBGC Missing Participants Program” (January 12, 2021) provides that the DOL will not pursue violations under ERISA §404(a) against plan fiduciaries of a terminating defined contribution plan (or a qualified termination administrator of an abandoned plan) in connection with the transfer of missing participants’ account balances to the PBGC in accordance with the PBGC’s missing participant regulations (PBGC Reg. §4050.101; discussed above), rather than to an IRA, certain bank accounts or the state unclaimed property fund per DOL Reg. §2550.404a-3, if the plan fiduciary complies with the guidance in this Field Assistance Bulletin and has generally acted in accordance with a good faith reasonable interpretation of ERISA §404. (This does not preclude the DOL from pursuing violations under ERISA for a failure to diligently search for participants prior to the transfer of their account balances to the PBGC.) The plan fiduciary who participates in the PBGC Defined Contribution Missing Participants Program must otherwise comply with the requirements of the safe harbor regulation at DOL Reg. §2550.404a-3 for distributions from terminated plans. Notices to participants must state that their account balances are being transferred to the PBGC’s Defined Contribution Missing Participants Program, and include the PBGC’s website and contact telephone number. A plan fiduciary can also transfer to the PBGC the account balances of participants who elected a lump-sum distribution of the entire account under the terms of the plan if that distribution was paid by check and the check remains uncashed after the cash-by date prescribed on the check (or 45 days if longer). A plan fiduciary may pay the PBGC charge from the accounts transferred to the PBGC Defined Contribution Missing Participants Program unless the plan prohibits such payment from the plan.


If you have any questions regarding the above, contact Charles C. Shulman, Esq. at or at 201-357-0577.


Sunday, July 11, 2021

American Rescue Plan Act of 2021 – Summary of Benefit Provisions


March 15, 2021

American Rescue Plan Act of 2021 – Summary of Benefit Provisions

Charles C. Shulman, Esq.

 A.  Introduction  The American Rescue Plan Act of 2021 ("ARPA"), H.R. 1319, P.L. 117-2, signed March 11, 2021, which provides COVID-19 relief to governments, businesses and individuals, also provides relief to plan sponsors and participants of employee benefit plans, including: (i) actions to address underfunded multiemployer pension plans; (ii) extended amortization for single employer pension plans; (iii) a 100% subsidy of COBRA premiums for a six month period beginning April 1, 2021; (iv) an increase in the dependent care assistance program limit; and (v) broadening of the definition of covered employee for purposes of Internal Revenue Code § 162(m).

B.   Multiemployer Plan Provisions

      1. Delay of Designation of Multiemployer Plan Funding Status in 2020 and 2021 – Under the American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9701(a)(1) if a multiemployer defined benefit plan elects, the funding status as endangered, critical, or critical and declining status under IRC § 432 for plan years beginning on or after March 1, 2020 and, if elected, the next succeeding plan year, may generally remain the same as in the plan year beginning on or after March 1, 2019.  ARPA § 9701(a)(2) provides that where such an election is made for a plan that was in endangered or critical status, the plan is not required to update its funding improvement or rehabilitation plan and schedules under IRC § 432(c)(6) and 432(e)(3)(B) until the plan year following the plan year(s) elected.  The election (which must be made in accordance with guidance from the Secretary of the Treasury) must be included in the annual certification or made within 30 days after the annual certification.  ARPA § 9701(c)(1).  Such an election may be revoked only with the consent of the Secretary of the Treasury.  Notice must be given to participants that such an election has been made.  ARPA § 9701(c)(2).  These provisions are effective on the date of enactment, i.e., March 11, 2021.  These provisions and some of ones below are similar to those made 2008 financial crisis legislation.

      2.  Temporary Extension of Funding Improvement and Rehabilitation Periods for Multiemployer Pension Plans in Critical and Endangered Status in 2020 or 2021  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9702(a) provides that if a multiemployer defined benefit plan that is in endangered or critical status for a plan year beginning in 2020 or 2021, the plan sponsor may elect to extend the plan's otherwise applicable 10 year funding improvement period for endangered plans under IRC § 432(c) or 10 year rehabilitation period for critical plans under IRC § 432(e) by five years, from 10 to 15 years. If a multiemployer defined benefit pension plan is in seriously endangered status for a plan year beginning in 2020 or 2021, the plan sponsor may elect to extend the plan's otherwise applicable funding improvement period by five years from 15 to 20 years.  The election is to be made at such time, and in such manner and form, as the Secretary of the Treasury may prescribe in consultation with the Secretary of Labor.  ARPA § 9702(b)(1).  This provision is effective for plan years beginning on or after January 1, 2020.  ARPA § 9702(c). 

      3.  Easing of Funding Standard Account Rules for Multiemployer Plans – The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021)  § 9703 adds new IRC § 431(b)(8)(F) allowing an underfunded multiemployer pension plan that meets the solvency test under IRC § 431(b)(8)(C), to use either one or both of two special funding relief rules which apply generally for the first two plan years ending on or after March 1, 2020:

    First – Amortization of net investment losses – The plan sponsor may make changes to the plan's funding standard account to treat the portion of its experience loss attributable to the net investment losses or to any COVID-19-related losses (in the two plan years ending on or after March 1, 2020) be amortized in equal annual installments over a 30-year period instead of a 15-year period.  IRC § 431(b)(8)(F)(i) (modifying § 431(b)(8)(A)(I)(i)); ARPA § 9703.

    Second – Expanded smoothing period and asset valuation corridor – A multiemployer plan may change its asset valuation method in a manner that spreads the difference between the expected returns and actual returns for the first two plan years ending on or after March 1, 2020.  IRC § 431(b)(8)(F)(i) (modifying § 431(b)(8)(B)(I)(i)); ARPA § 9703.  In addition, the plan's asset value must be adjusted under the valuation method being used so the value of plan assets is not less than 80% of the current fair market value of the assets and not more than 130% of the current fair market value (rather than 120%). IRC § 431(b)(8)(F)(i) (modifying § 431(b)(8)(b)(I)(i)); ARPA § 9703.

Under IRC § 431(b)(8)(C), the "solvency test" is met only if the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period, taking into account the special funding rule changes. 

      4.   Temporary Special Financial Assistance for Financially Troubled Multiemployer Pension Plans – Under new ERISA § 4262 added the American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9704 the PBGC will provide financial assistance (without any requirement of repayment) to "eligible multiemployer plans" upon request by the plan sponsor.

            a.   Eligible Multiemployer Plan – A plan is an "eligible multiemployer plan" if: (i) it is in critical and declining status in any plan year beginning in 2020 through 2022; (ii) a suspension of benefits for the plan under the Multiemployer Pension Reform Act of 2014 has been approved as of March 11, 2021; (iii) in any plan year beginning in 2020 through 2022, the plan is in critical status, has a modified funded percentage of less than 40%, and has a ratio of active to inactive participants which is less than two to three; OR (iv) the plan became insolvent after December 16, 2014, has remained insolvent, and has not been terminated as of March 11, 2021.  IRC § 4262(b) added ARPA § 9704.

            b.   Application for special financial assistance – PBGC regulations/guidance will provide the requirements for special financial assistance applications. The PBGC may also provide in regulations or guidance that during a period no longer than the first two years following the date of enactment applications may not be filed unless (i) the plan is insolvent or is likely to become insolvent, (ii) the plan is projected by the PBGC to have a present value of financial assistance payments that exceeds $1 Billion if the financial assistance is not provided, (iii) the plan has implemented benefit suspensions as of the date of enactment or (iv) the PBGC determines it appropriate based on other similar circumstances.  New IRC § 4262(c).  Any application by a plan for special financial assistance must be submitted no later than December 31, 2025, and any revised application must be submitted no later than December 31, 2026.  .  IRC § 4262(f).

            c.   Actuarial assumptions – For purposes of eligibility for the special financial assistance, the PBGC will accept assumptions incorporated in the plan's determination that it is in critical status or critical and declining status for certifications completed before January 1, 2021, unless such assumptions are clearly erroneous. For certifications of plan status completed after December 31, 2020, a plan determines whether it is in critical or critical and declining status for purposes of eligibility for special financial assistance by using the assumptions that the plan used in its most recently completed certification of plan status before January 1, 2021, unless such assumptions are unreasonable.  IRC § 4262(e) added ARPA § 9704.

            d.   Amount and manner of payment of special financial assistance – Special financial assistance is issued by the PBGC in lump sum within one year to an eligible multiemployer plan is effective no later than 1 year after a plan's special financial assistance application is approved.  New IRC § 4262(i).

            e.   Reinstatement of suspended benefits – An eligible multiemployer plan that receives special financial assistance must reinstate any benefits that were suspended.  New IRC § 4262(k).

            f.    Required disclosure – An eligible multiemployer plan receiving special financial assistance must provide each participating employer and labor organization employer, if applicable, an estimate of the employer's share of the plan's unfunded vested benefits as of the end of each plan year ending after the date of enactment of the proposal.  This disclosure must include a statement that, due to the special financial assistance, the plan will have sufficient resources to pay 100% of the plan's benefit obligations until the last day of the plan year ending in 2051.

            g.   Appropriations – ARPA establishes an eighth fund for special financial assistance to multiemployer plans and to pay for PBGC's necessary administrative and operating expenses relating to such special financial assistance.  ERISA § 4005(i)(1) added ARPA § 9704(a).

      5.   PBGC premium rate increase to $52 for multiemployer plans in 2031 subject to future COLA adjustments  – For plan years beginning after December 31, 2030, the flat rate PBGC premium for multiemployer plans will increase to $52 per participant and will be subject to cost-of-living adjustments for plan years beginning in a calendar year after 2031 in multiples of $1, up from the flat rate of $31 per participant currently in effect.  American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9704(c) 4262(c) adding ERISA §§ 4006(a)(3)(A)(viii) & 4006(a)(3)(N).

C.   Single-Employer Plan Changes

      1.   Extended Amortization of Funding Shortfalls for Single-Employer Plans – When a single-employer plan has a funding shortfall, IRC § 430(c)(2) provides that the plan must establish a shortfall amortization base to be paid over a 7-year amortization period.  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021)  amends IRC § 430 to provide that, with respect to plan years beginning on or after January 1, 2020 (or, if so elected, on or after January 1, 2019) the shortfall amortization bases for all plan years preceding the first plan year beginning on or after January 1, 2020 (or January 1, 2019, if so elected), and all shortfall amortization installments determined with respect to such bases, are reduced to zero. IRC § 430(c)(8) added by ARPA § 9705.  In addition, the funding shortfalls, as redetermined for plan years beginning on or after January 1, 2020 (or, if elected, on or after January 1, 2019) are determined over a 15-year period, rather than a 7-year period. IRC § 430(c)(8) added by ARPA § 9705.  This is effective for plan years beginning on or after January 1, 2019.

      2.   Extension of Pension Funding Stabilization Percentages for Single Employer Plans – In connection with the 25-year pension interest rate smoothing enacted in 2012 and later legislation to alleviate high pension funding obligations, the interest rate used must be within 10% of the 25-year interest rate averages.  Also, the smoothed interest rates were scheduled to begin phasing out in 2021.  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9706 extends the pension funding stabilization percentages through 2029.  The specified percentage range for a plan year is: (i) 90 percent to 110% for 2012 through 2019, (ii) 95% to 105% for 2020 through 2025, (iii) 90% to 110% for 2026, (iv) 85% to 115% for 2027, (v) 80% to 120% for 2028, (vi) 75% to 125% for 2029, and (vii) 70% to 130% for 2030 or later. IRC § 430(h)(2)(C)(iv)(II) as amended by ARPA § 9706(a). A 5% floor is established on the 25-year interest rate averages. IRC § 430(h)(2)(C)(iv)(I) as amended by ARPA § 9706(b). This is effective for plan years beginning on or after January 1, 2020.

D.   ARPA Health Plan Changes in 2021

      1.   COBRA 100% Premium Subsidy Between 4/1/2021 and 9/30/2021 – The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9501 provides that for the period between April 1, 2021 and September 30, 2021, "assistance-eligible individuals" (as defined below) may receive a 100% subsidy (full premium payment) for any premium required for COBRA continuation coverage under a group health plan.  ARPA § 9501(a)(1).  These rules are effective March 11, 2021.

An "assistance-eligible individual" is any COBRA qualified beneficiary who, with respect to a period of coverage during the period beginning on April 1, 2021 and ending on September 30, 2021 (1) is eligible for COBRA continuation coverage due to termination of the employee (other than by reason of such employee's gross misconduct or for voluntarily quitting) or reduction of hours of employment, pursuant to IRC § 4980B(f)(3)(B), and (2) elects such coverage. ARPA § 9501(a)(3).

The above COBRA premium assistance is excludible from the gross income of the individual under IRC § 139l added by ARPA.  COBRA continuation coverage that qualifies for premium assistance also includes continuation coverage offered by a State program that provides comparable continuation coverage. ARPA Committee Report JCX-2-21.

A group health plan may provide for special plan enrollment options (pursuant to a Section 125 cafeteria plan) to assistance-eligible individuals allowing them to change coverage options under the plan in conjunction with electing COBRA continuation coverage within 90 days of the date of notice of the enrollment option.  ARPA § 9501(a)(1)(B).  Eligibility for coverage under another group health plan does not terminate eligibility for premium assistance if the other group health plan coverage consists only of excepted benefits under IRC § 9382(c)(2), is a qualified small employer HRA or is a flexible spending arrangement.  ARPA § 9501(a)(1)(B)(ii)(IV).

Under ARPA there is a special COBRA election period (for at least 60 days after notice is given) for a qualified beneficiary who either (1) does not have an election of COBRA continuation coverage in effect on April 1, 2021 but who would be an assistance-eligible individual were such an election in effect, or (2) elected COBRA continuation coverage and discontinued from such coverage before April 1, 2021.

Under ARPA the employer to whom continuation coverage premiums are payable is allowed a credit for each calendar quarter against Medicare tax due by the employer under IRC § 3111(b) in an amount equal to the premiums not paid by assistance-eligible individuals for COBRA coverage by reason of the subsidy during such quarter.  New IRC § 6432 added by ARPA § 9501(b)(1).

The COBRA notice that a plan administrator is required to provide with respect to a qualifying event during the period of April 1, 2021 to September 30, 2021 must contain certain additional information regarding the right to the premium assistance under ARPA.  ARPA § 9501(a)(5).

IRS Notice 2021-31 provides Q&As regarding the ARPA COBRA premium assistance provisions.

      2.   Temporary Increase for 2021 of Dependent Care Assistance Program Limit  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9631 expands the child and dependent care tax credit available to taxpayers for tax year 2021.  Also, IRC § 129(a)(2)(D) as amended by ARPA § 9632(a) expands the annual limit for dependent care FSAs for 2021 only from $5,000 to $10,500 and from $2,500 to $5,250 for a married person filing separately.  This is effective for tax years beginning in 2021.  Any plan amendment must be made by the last day of the plan year in which the plan amendment.  ARPA § 9632(c).  Note that the nondiscrimination testing rules of IRC § 129(d) for dependent care assistant programs must still be met.

      3.   COVID-Related Paid Sick Leave and Family Leave Credit  The Families First Coronavirus Response Act of 2020 required certain employers to provide qualified paid sick leave and family leave to employees who are unable to work due to COVID-19.  The costs were offset in part by refundable tax credits for qualified leave payments from April 1, 2020 through December 31, 2020, and this was extended to March 31, 2021 by the Consolidated Appropriations Act, 2021.  The American Rescue Plan Act of 2021 ("ARPA") § 9641 extends the emergency paid sick time and paid family leave credits from April 1, 2021 through September 30, 2021.

      4.   Extension of Refundable Premium Tax Credit for 2021 and 2022 – A refundable premium tax credit is available on a sliding-scale basis for individuals and families with household income between 100% and 400% of the federal poverty line who are enrolled in an Exchange-purchased qualified health plan, and who are not eligible for other qualifying coverage.  The American Rescue Plan Act of 2021 § 9661 increases the premium tax credit for 2021 and 2021 and also makes the premium tax credit available to taxpayers whose income exceed 400% of the federal poverty line.  ARPA § 9662 provides that taxpayers do not have to repay certain excess advance premium tax credit payments for 2020.  ARPA § 9663 provides for increased premium tax credit for taxpayers receiving unemployment compensation in 2021.

E.   Expanded Class of Covered Employees under IRC § 162(m)

      IRC §162(m) disallows a deduction by a publicly-held corporation for compensation in excess of $1 million per year paid to a "covered employee." "Covered employee," as amended by the Tax Cuts and Jobs Act of 2018, is an individual serving as CEO, CFO and the next three highest compensated officers who are required to be reported under the executive compensation disclosure rules of the Securities Exchange Act of 1934.  IRC §162(m)(3).  In addition, as amended in 2018, if an employee is a covered employee for any prior tax year, the employee's compensation remains subject to the deduction limit in subsequent tax years, even if the employee is no longer a covered employee. Id.

The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9708 provides that for taxable years beginning after December 31, 2026, "covered employee" will also includes five other employees who are among the five highest compensated employees (in addition to the top five executives described above). IRC §162(m)(3)(C) as amended by ARPA § 9708.  However, for these other five highest compensated employees, they will not be considered covered employees for taxable years when they are no longer among the top five highest compensated employees. IRC §162(m)(3)(D) as amended by ARPA § 9708.  

Charles C. Shulman, Esq.

Wednesday, February 10, 2021

Taxpayer Certainty and Disaster Tax Relief Act of 2020 – Employee Benefit Provisions


Taxpayer Certainty and Disaster Tax Relief Act of 2020 – Employee Benefit Provisions

The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted as part of the Further Consolidated Appropriations Act, 2021, enacted December 27, 2020 (TCDTRA), provides for the following: 

Special Rules for Health and Dependent Care FSAs. Under the Taxpayer Certainty and Disaster Tax Relief Act § 214, with respect to health and dependent care flexible spending arrangements:  (i) the health and dependent care FSAs may provide for carryovers of unused account balances from the 2020 plan year to 2021 and from the 2021 plan year to 2022) and where the 2-1/2 month grace period is used the plan can extend the grace period in 2020 and 2021 to 12 months instead of 2-1/2 months; (ii) health FSA participants terminated in the middle of 2020 or 2021 can continue to receive reimbursements from unused amounts through the end of the year;  (iii) the maximum age for dependent care FSAs is extended by one year (age 13 instead of age 12) for dependents who age out during the pandemic; and (iv) a prospective mid-year election changes for health and dependent care FSAs is allowed in 2021.

Partial Terminations.  Under § 209 of the Taxpayer Certainty and Disaster Relief Act, a plan will not be treated as having a partial termination during any plan year that includes the period from March 13, 2020 to March 31, 2021 if the number of active participants covered by the plan on March 31, 2021 is at least 80% of the number of active participants covered by the plan on March 13, 2020.

Coronovirus-Related Distributions Extended to June 25, 2021. The Coronavirus Aid, Relief and Economic Security Act of 2020 (CARES Act) allowed individuals to take penalty free in-service coronavirus-related distributions of up to $100,000 from their retirement accounts between January 1, 2020 and December 31, 2020. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 ("TCDTRA") § 302 extends the period for in-service coronavirus-related distributions of up to $100,000 (in total) through June 25, 2021.

Plan Loan Repayments Tolled for up to the later of One Year and June 25, 2021. Similar to provisions in the CARES Act, the Taxpayer Certainty and Disaster Tax Relief Act § 302(c)(3) increases the maximum dollar limit allowed for plan loans to "eligible employees" up to $100,000 and 100% of the vested account balance for loans initiated between December 27, 2020 and June 25, 2021. Repayments for existing plan loans with payment dates between December 27, 2020 and June 25, 2021 may be delayed to the later of June 25, 2021 or one year, with subsequent loan payments to be appropriately adjusted to reflect the extension and any interest accruing during the extension. With respect to existing plan loans with payment dates is between December 27, 2020 and June 25, 2021 repayments may be delayed to the later of June 25, 2021 or one year, with the repayment period tolled for the duration of the one-year period and subsequent loan payments to be appropriately adjusted to reflect the extension and any interest accruing during the extension.

Recontribution of Hardship Distribution for Home Purchase not used because of Disaster. Under the Taxpayer Certainty and Disaster Tax Relief Act § 302(b), where an individual received a hardship distribution from a 401(k) or 403(b) plan that was used to purchase or construct a principal residence in a qualified disaster area during the period beginning 180 days before the first day of the qualified disaster period and ending 30 days after the qualified disaster period and which was not used because of the disaster, may be returned to the plan at any time within the period which begins at any time within the first day of the period of withdrawal and ends June 25, 2021 (180 days after the date of enactment).

Reduced Minimum Age for Pension Plan In-Service Distributions for Employees in the Building and Construction Industries. The SECURE Act amended Code § 401(a)(36) which allows in-service distributions from defined benefit plans at age 59-1/2 rather than age 62. The Taxpayer Certainty and Disaster Tax Relief Act amended Code § 401(a)(36) to provide that pension plans may allow certain employees in the building and construction industries who are not separated from employment to begin taking distributions at age 55.

Amendment Deadlines. The Taxpayer Certainty and Disaster Tax Relief Act changes that are effective in 2020 would require to be reflected in plan amendments by 12/31/2021, and TCDTRA changes that are effective in 2021 would require to be reflected in plan amendments by 12/31/2022.

Monday, January 25, 2021

Coronavirus Aid, Relief and Economic Security Act (the CARES Act) of 2020


Coronavirus Aid, Relief and Economic Security Act (the "CARES Act")

 The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), enacted March 27, 2020, provides, with respect to employees and families impacted by the coronavirus outbreak, for in-service plan distributions up to $100,00 and increased plan loans to $100,000 (the coronavirus-related distribution ("CRD") and otherwise broadens the qualified plan loan rules for affected employees.  The CARES Act also waives required minimum distributions ("RMDs") from defined contribution plans and IRAs for 2020.

1.      Coronavirus-Related Expansion of Plan Loan Rules.  The CARES Act allows plans to increase the maximum dollar limit allowed for "eligible employees" under the IRC from $50,000 to $100,000 between March 27, 2020 and 180 days later, i.e., September 23, 2020.  CARES Act §  2202(b)(1)(A).  In addition, the CARES Act allows an individual to take a plan loan up to 100% of such individual's vested accrued benefit, whereas previously this was limited to 50%.  CARES Act §  2202(b)(1)(B). 

In addition, "eligible employees" with existing plan loans from a qualified employer plan that's due date is between March 27, 2020 and December 31, 2020, may be provided with a one year extension with the existing mandatory repayment period tolled for the duration of the one-year period, and with subsequent loan payments to be appropriately adjusted to reflect the one-year extension and any interest accruing during the one-year extension.  CARES Act §  2202(b)(2).

An "eligible employee" for this purpose is an individual: (a) who is diagnosed with coronavirus; (b) whose spouse or dependent is diagnosed with coronavirus; or (c) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off, having reduced hours, being unable to work due to lack of child care, closing or reduced hours of a business owned or operated by the participant or other factors determined by the Secretary of the Treasury.  CARES Act §§  2202(b)(3) & 2202(a)(4)(ii).

2.    Coronavirus-Related Distributions Made in 2020.  In an effort to provide liquidity to individuals during the COVID-19 pandemic, the CARES Act allows individuals to take penalty free in-service coronavirus-related distributions from their retirement accounts (including 401(k) and Roth deferrals) between January 1, 2020 and December 31, 2020, subject to the limitations discussed below.  CARES Act § 2202(a).  Under normal circumstances, such distributions prior to age 59 ½ would be subject to an early withdrawal penalty under IRC § 72(t) in addition to regular income withholding taxes.  Distributions from IRAs are also eligible for the coronavirus-related distribution.

A coronavirus-related distribution for this purpose is a distribution from eligible retirement plans (qualified plans, 403(b) plans, eligible 457(b) plans or IRAs) up to $100,000 made between January 1, 2020 and December 31, 2020 to an individual: (a) diagnosed with coronavirus, (b) whose spouse or dependent is diagnosed with coronavirus or (c) who experiences adverse financial consequences as a result of being quarantined, furloughed or laid off, having reduced hours, unable to work due to child care, closing or reduced hours of a business owned or operated by the individual or other factors determined by the Secretary of the Treasury.  CARES Act § 2202(a)(4)(A). 

A plan administrator may rely on an individual's certification that the individual meets the eligibility requirements for a coronavirus-related distribution unless the administrator has actual knowledge to the contrary.  CARES Act § 2202(a)(4)(B) and IRS Q&As on Coronavirus-Related Relief for Retirement Plans and IRAs (May 4, 2020) Q&A 11.   

The CARES Act allows for the inclusion of the amount in income to be spread over three taxable years.  CARES Act § 2202(a)(5).   A coronavirus-related distribution is not subject to the IRC § 72(t) 10% additional tax on early distributions.  CARES Act § 2202(a)(1). Coronavirus-related distributions are also exempt from the 20% tax withholding on eligible rollover distributions, but they would be subject to a 10% nonperiodic payment withholding.   CARES Act § 2202(a)(6).

An individual who receives a coronavirus-related distribution from an eligible retirement plan (including an IRA) may repay the amount to an eligible retirement plan (or IRA) within three years of receiving the distribution (assuming the plan accepts rollover distributions).  Such individual could make installments or a lump sum repayments, but the amount cannot exceed the amount distributed.  CARES Act § 2202(a)(3).  This provides the individual with the opportunity to rebuild their retirement accounts.

The CARES Act rules for distributions are optional, and plan sponsors can choose not to adopt them.  However, IRS guidance provides that even if an employer does not treat plan distributions as a coronavirus-related distribution, a "qualified individual" may treat a 2020 distribution that meets the requirements to be a coronavirus-related distribution as coronavirus-related on the individual's federal income tax return.  IRS Q&As on Coronavirus-Related Relief for Retirement Plans and IRAs, Q&A 9. 

A "qualified individual" for this purpose means an individual: (i) who is diagnosed with the coronavirus by a test approved by the Centers for Disease Control and Prevention (CDC); (ii) whose spouse or dependent is diagnosed with the coronavirus by a test approved by the CDC; (iii) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to the coronavirus; (iv) who experience adverse financial consequences as a result of being unable to work due to lack of child care due to the coronavirus; or (v) who experiences adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to the coronavirus. 

3.    Waiver of Required Minimum Distributions in 2020.   The CARES Act temporarily waives the required minimum distributions for defined contribution plans or IRAs for those who turned 70½ on or prior to December 31, 2019: (i) if 2019 is the first year of attaining age 70-1/2 then for the April 1, 2020 distribution, and (ii) for the annual minimum distributions due by December 31, 2020.  IRC §401(a)(9)(I) as added by CARES Act of 2020 § 2023. Any amounts distributed in 2020 would not be eligible for a rollover distribution.  However, they can be recontributed to the plan or IRA. Such relief is similar to the relief provided in 2009.  The provision applies for calendar years beginning after December 31, 2019.  

4.    Funding Relief. The Coronavirus Aid, Relief, and Economic Security Act of 2020 gives single employer plan sponsors more time to meet their funding obligations by delaying the due date for any minimum required contributions including quarterly contributions otherwise due during the 2020 calendar year (e.g., contributions due April 15, 2020, July 15, 2020, and October 15, 2020) to January 1, 2021, but with interest accruing from the original due dates.  CARES Act § 3608.

5.    Plan Amendment Deadline for Coronavirus-Related Rules.  The deadline that CARES Act amendments can be made is the end of the first plan year beginning on or after January 1, 2022 or such later date as the Secretary of the Treasury sets.  CARES Act § 2202(c).

Tuesday, February 18, 2020

SECURE Act Summary

SECURE Act Summary
On December 20, 2019 the "SECURE Act" (Setting Every Community Up for Retirement Enhancement Act of 2019) was enacted part of the Further Consolidated Appropriations Act, 2020, P.L. 116-94, H.R. 1865 (with basically the same provisions of H.R. 1994, originally passed by the House on May 23, 2019).  The SECURE Act makes significant changes to retirement savings law.  This legislation is the first significant retirement benefit legislation in more than a decade.
The following is a brief summary of the key provisions in the SECURE Act:
1.              Authorizing Multiple Employer Defined Contribution Plans
The SECURE Act expands the use of multiple employer plans ("MEPs") by allowing totally unrelated companies to use a single shared defined contribution MEP provided the third-party plan administrator is a pooled plan provider registered with the IRS and acknowledges that it is a named fiduciary of the plan.  (SECURE Act § 101 adding IRC § 413(e) and ERISA §§ 3(43) and 3(44))   The Committee Report 116-65 on an earlier version of the SECURE Act (which was substantially the same as the version passed) (May 16, 2019) (the "Committee Report") notes that this change will make MEPs more attractive by eliminating barriers to the use of MEPs and improving the quality of MEP service providers.  Under prior guidance, an open MEP used by unrelated employers even without commonality of interests or not in same industry or locality would run afoul of Department of Labor guidance.  Under the SECURE Act and IRC § 413(e)(4), the Treasury is directed to issue guidance as to how to spin of assets of a non-compliant employer into a separate plan (so as to avoid the one bad apple issue).  The new rules are effective for plan years beginning after December 31, 2020. 
2.              Increasing the Auto Enrollment Safe Harbor Cap after First Year of Enrollment
Existing rules provided that for automatic enrollment safe harbor 401(k) plans, there is a cap on the default contribution rate to 10% of an employee’s compensation.  The SECURE Act increases the automatic enrollment limit for salary deferrals under the automatic enrollment safe harbor from 10% to 15% of compensation for any year after the first year of participation. (SECURE Act § 102 amending IRC § 401(k)(13)(C)(iii))  This is effective for plan years beginning after December 31, 2019.
3.              Simplification of Safe Harbor 401(k) Rules.
The SECURE Act, with respect to non-elective safe harbor plans, i.e., 401(k) plans that provide employer contributions of 3% of each employee’s compensation regardless of whether the employees make deferrals, provides for               elimination of the annual safe harbor notice requirement, although participants must still receive an annual notice to make or change elections which is required for all 401(k) plans. However, employers that make safe harbor matching contributions will still need to give the advance notice. This change is effective for plan years beginning after December 31, 2019.  SECURE Act § 103 amending IRC § 401(k)(12).  
The SECURE Act also provides with respect to non-elective safe harbor plans an allowance of a retroactive amendment to a plan to become a non-elective safe harbor 401(k) plan at any time before the 30th day preceding the close of the plan year, and allowance of an amendment after that time if it provides for a nonelective contribution of at least 4% of compensation (rather than 3%) for all eligible employees for that plan year, if the amendment is made no later than the last day for distributing excess contributions for the plan year, that is, by the close of following plan year. SECURE Act § 103 amending IRC § 401(k)(13).  This relief does not apply to safe harbor matching contribution plans. These provisions are effective for plan years beginning after December 31, 2019. 
4.              Small Employer Credits   
Increased Credit for Small Employer Pension Plan Start-Up Costs The SECURE Act increases the credit for small employer pension plan startups by changing the calculation of the flat dollar amount limit on the credit to the greater of (a) $500 or (b) the lesser of (i) $250 multiplied by the number of non-highly compensated employees of the employer who are eligible to participate in the plan or (ii) $5,000. The credit applies for up to three years.  (SECURE Act § 104 amending IRC § 45E)  
5.         Small Employer Automatic Enrollment Credit (up to 3 years) - The SECURE Act creates a new tax credit of up to $500 per year (up to 3 years) to employers of small businesses (100 or less employees) to defray startup costs for new section 401(k) plans and SIMPLE IRA plans that include automatic enrollment.  (SECURE Act § 105, adding IRC § 45T) 
6.              Repeal Prohibition on Contributions to Traditional IRAs After Age 70-1/2 Maximum Age for Traditional IRA Contributions
The SECURE Act repeals the prohibition on contributions to traditional IRAs by individuals who have attained age 70-1/2.  (SECURE Act § 107 striking IRC § 219(d)(1))  The Committee Report notes that as Americans live longer, an increasing number continue employment beyond traditional retirement age.  This is effective for contributions made on or after January 1, 2020.
7.              Plan Participant Loans through Credit Cards Not Allowed
The SECURE Act prohibits plans from making plan loans accessible to participants through credit cards or any other similar arrangement.  (SECURE Act § 108 adding IRC § 72(p)(2)(D))  The Committee Report notes that the change will ensure that plan loans are not used for routine or small purchases, which would deplete retirement savings.  This rule is effective for loans made after December 20, 2019.  
8.              Portability of Lifetime (Annuity) Income Options
In order to encourage the use of annuity options in retirement plans, the SECURE Act permits tax-qualified defined contribution plans, section 403(b) plans, and eligible 457(b) plans to be amended to provide for (i) direct rollovers to other employer-sponsored retirement plans or IRAs of a lifetime annuity income investment or (ii) distributions of an annuity income investment in the form of a qualified distribution, if the annuity income distribution option is no longer authorized to be held as an investment option under the existing plan.  (SECURE Act § 109, amending IRC §§ 401(a)(38), 401(k)(2)(B)(i)(VI), 401(k)(2)(B)(iii), 403(b)(11)(D), 403(b)(7)(A), 457(d)(1)(A)(iv) and 457(d)(1)(D))  The Committee Report notes that this change will permit participants to preserve annuity their income investments and avoid surrender charges and fees.  This is effective for plan years beginning after December 31, 2019.
9.              Fiduciary Safe Harbor for Selection of Lifetime Income Provider
The SECURE Act provides that fiduciaries (i) have an optional safe harbor to satisfy the prudence requirement with respect to the selection of insurers for guaranteed retirement income contract (annuity options) and (ii) are protected from liability for any losses that may result to the participant or beneficiary due to an insurer's inability in the future to satisfy its financial obligations under the terms of the contract. The safe harbor requires that fiduciary (i) engages in an objective and thorough search to identify the insurer, (ii) considers the financial capability of such insurer to satisfy its obligations under the guaranteed retirement income contract and (iii) considers the cost (including fees and commissions) of the guaranteed retirement income contract; and on the basis of such consideration, (i) the fiduciary concludes that at the time of selection the insurer is financially capable of satisfying its obligations under the guaranteed contract, and  (ii) the relative cost of the selected guaranteed contract is reasonable.  The fiduciary must obtains written representations from the insurer that (i) the insurer is licensed to offer guaranteed retirement income contracts, (ii) the insurer, at the time of selection and for each of the immediately preceding seven plan years operates under a certificate of authority from the insurance commissioner of its State, has filed audited financial statements in accordance with state law, maintains reserves which satisfies all the state statutory requirements and is not operating under an order of supervision, rehabilitation, or liquidation.  In addition, the insurer must undergo at least every five years a financial examination (under state law) domiciliary State (or representative, designee, or other party approved by such commissioner) by the insurance commissioner or its designee, and the insurer must notify the fiduciary of any change its representation.  The statute provides that nothing in this provision shall be construed to require a fiduciary to select the lowest cost contract. A fiduciary may consider the value of a contract, the insurer’s financial strength and the cost of the contract. (SECURE Act § 204 adding ERISA § 404(e)) These provisions are effective December 20, 2019.
10.              Treatment of Custodial Accounts on Termination of Section 403(b) Plans
The SECURE Act provides that, not later than six months after the date of enactment, the Treasury shall issue guidance under which if an employer terminates a 403(b) custodial account, the final distribution to participants needed to effectuate the plan termination may be the distribution of an individual custodial account in kind to the participant. The individual custodial account will be maintained on a tax-deferred basis as a 403(b) custodial account until paid out, subject to the 403(b) rules in effect at the time that the individual custodial account is distributed. The Treasury guidance is to be retroactively effective for taxable years beginning after December 31, 2008.  (SECURE Act § 110)
11.           Clarification of Retirement Income Account Rules Relating to Church-Controlled Organizations
The SECURE Act of 2019 amends IRC § 403(b)(9) to clarify that individuals who may be covered by retirement income accounts maintained by church-controlled organizations may include not only duly ordained or licensed ministers but also employees of tax-exempt church-controlled organizations that are controlled by or associated with a church or a convention or association of churches (e.g., church-affiliated hospitals and universities). (SECURE Act § 111 amending IRC § 403(b)(9).) This is effective for years beginning on or after December 20, 2019.
12.           Allowing Part-time Workers Who Have Been Working for 3 Years to Participate in 401(k) Plans
Long term part-time employees who work less than 1,000 hours per year can under current law be excluded from participating in a qualified retirement plan.  The SECURE Act will require employers to maintain a 401(k) plan to have a dual eligibility requirement of (i) completing 1,000 hours of service or (ii) having three consecutive years of service where the employee completes at least 500 hours of service in each.  (SECURE Act § 112 amending IRC § 401(k)(2)(D))  This rule will not apply to collectively bargained plans.  With respect to long-term part-time employees who are eligible under the above provisions matching or other employer contributions are not required, relief is provided from the nondiscrimination and top-heavy rules for such coverage.  New IRC § 401(k)(15).  The effective date is for plan years beginning after December 31, 2020.  
13.           Withdrawals from Retirement Plans for Birth or Adoption
The SECURE Act provides for withdrawals from retirement plans of up to $5,000, even before 59-1/2 and without the IRC § 72(t) 10% early distribution penalty in the year following the birth or adoption of a child.  (SECURE Act § 113 adding IRC § 72(t)(2)(H))  This is effective for distributions made after December 31, 2019. 
14.           Age for Required Minimum Distributions
Prior to 2020, minimum distributions would generally be taken from retirement plans or IRAs beginning with the year in which the employee or IRA owner attains age 70-1/2 (or April 1 following the first year in which this occurs).  The SECURE Act of 2019 changes the required beginning date on which the required minimum distributions must begin from the calendar year in which the participant attains age 70-1/2 to the calendar year in which the participant attains age 72.  (SECURE Act § 114 amending IRC §§ 401(a)(9)( C)(i)(I), 401(a)(9)(B)(iv)(I) and 401(a)(9)( C)(ii)(I), last sentence of § 408(b) and § 457(d)(1)(A)(i))  According to the Committee Report, although the policy behind the required minimum distribution rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes, nevertheless, age 70-1/2 was first applied in the early 1960s and has never been adjusted to take into account increases in life expectancy. This applies for distributions made after December 31, 2019 for individuals who attain age 70½ after such date.  
15.           Community Newspapers Pension Funding Relief
Community newspapers are generally family-owned, non-publicly traded, independent newspapers. The SECURE Act provides pension funding relief for community newspaper plan sponsors by increasing the interest rate to calculate those funding obligations to 8%. Additionally, the SECURE Act provides for a longer amortization period of 30 years from 7 years. (SECURE Act § 115 adding IRC § 430(m))  These two changes would reduce the annual amount struggling community newspaper employers would be required to contribute to their pension plan.  This is effective for plan years ending after December 31, 2017.
16.           Treating Excluded Difficulty of Care Payments as Compensation for Determining Retirement Contribution Limitations
Many home healthcare workers do not have a taxable income because their only compensation comes from "difficulty of care" payments exempt from taxation under IRC § 131.  Because such workers do not have taxable income, they cannot save for retirement in a defined contribution plan or IRA. The SECURE Act allows home healthcare workers to contribute to a plan or IRA by amending IRC sections 415(c) and 408(o) to provide that tax exempt difficulty of care payments are treated as compensation for purposes of calculating the contribution limits to defined contribution plans and IRAs.  (SECURE Act § 116 adding §§ 408(o)(5) & 415(c)(8))  This is effective for plan years beginning after December 31, 2015 and for IRA contributions made after December 31, 2019.   
17.           Plans Adopted by Filing Due Date for Year
The SECURE Act amends IRC § 401(b) to provide that a qualified retirement plan is adopted before the due date (including extensions) of the tax return for the taxable year may be treated as having been adopted as of the last day of the taxable year.  (SECURE Act § 201 amending IRC § 401(b))  The Committee Report notes that this additional time to establish a plan provides flexibility for employers considering adopting a plan and the opportunity for employees to receive contributions for that earlier year and begin to accumulate retirement savings.  This is effective for plans adopted for tax years beginning after December 31, 2019.  See also below regarding SECURE Act § 601 relating to provisions relating to Plan amendments needed for implementing SECURE Act.   
18.           Combined Annual Reports for Group of Plan
The SECURE Act directs the IRS and DOL to provide for the filing of a consolidated Form 5500 for similar plans. Plans eligible for consolidated filing would be defined contribution plans with the same trustee, the same named fiduciary under ERISA, and the same administrator, using the same plan year, and providing the same investments or investment options to participants and beneficiaries.  (SECURE Act § 202)  The Committee Report notes that the change will reduce aggregate administrative costs, making it easier for small employers to sponsor a retirement plan.  This is effective for plan years beginning after December 31, 2021.
19.           Disclosure Regarding Lifetime Annuity Income
SECURE Act amends ERISA to require that benefit statements provided to defined contribution plan participants must include a "lifetime income disclosure" at least once every 12-months. The lifetime income disclosure would show the monthly payments the participant would receive if the total account balance were provided as lifetime income streams, including a qualified joint and survivor annuity for the participant and the participant's surviving spouse and a single life annuity. The DOL is directed to develop a model disclosure. Disclosure in terms of monthly payments will allow participants to correlate the funds in their defined contribution plan to lifetime income. Plan fiduciaries, plan sponsors, or other persons will have no liability under ERISA solely by providing annuity income stream equivalents that are derived in accordance with permitted assumptions and guidance and that include the explanations contained in the model disclosure.  (SECURE Act § 203 adding ERISA §§ 105(a)(2)(B)(iii) and 105(a)(2)(D))  This applies to benefit statements furnished more than 12 months after the latest to occur of the DOL issuing (i) interim final rules, (ii) the model disclosure or (iii) the assumptions that may be used in the disclosure.   
20.           Modification of Nondiscrimination Rules for Closed Defined Benefit Plans
The SECURE Act provides relief from nondiscrimination, minimum coverage and minimum participation rules for defined benefit plans that are closed to new participants but allow existing participants to continue to accrue benefits. This relief is subject to the plan satisfying certain requirements, including that the plan’s benefits were nondiscriminatory during the year in which the plan was closed and the two following years.  The modification will protect the benefits for older, longer-service employees as they near retirement.  This is generally effective on the date of enactment – December 20, 2019, although plan sponsors can elect an earlier effective date.  
21.           Modification of PBGC Premiums for CSEC Plans
In 2014, different funding rules were adopted for three types of pension plans: single-employer, multiemployer and cooperative and small employer charity (CSEC) plans. The SECURE Act provides flat-rate premiums of $19 per participant, and variable rate premiums of $9 for each $1,000 of unfunded vested benefits for CSEC plans.  (SECURE Act § 206 adding ERISA §§ 4006(a)(3)(A) & 4006(a)(3)(E)(v))  This is effective presumably on the date of enactment – December 20, 2019.  
22.           Expansion of Section 529 Plans
The SECURE Act expands 529 education savings accounts to cover costs associated with registered apprenticeships, homeschooling, up to $10,000 of qualified student loan repayments (including those for siblings) and private elementary, secondary, or religious schools.  (SECURE Act § 302 adding IRC §§ 529(c)(8) and 529(c)(9))  This is effective for distributions made after December 31, 2018.   
23.           Modifications to Required Minimum Distribution Rules
The SECURE Act modifies the required minimum distribution rules with respect to defined contribution plan and IRA balances upon the death of the employee or account owner. Under the SECURE Act, distributions to individuals are generally required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner's death; provided, however, that this 10-year requirement will not apply to the surviving spouse of the employee (or IRA owner), to disabled or chronically ill individuals, to individuals who are not more than 10 years younger than the employee (or IRA owner), or to children of the employee (or IRA owner) who have not reached the age of majority.  (SECURE Act § 401 amending IRC § 410(a)(9)(E) and adding § 401(a)(9)(H))  This is generally effective for distributions with respect to employees who die after December 31, 2019.  However, for collectively bargained plans, this applies with respect to employees who die in calendar years after the earlier of (i) the later of the date of termination of the collective bargaining agreement or December 31, 2019 or (ii) December 31, 2021.  
24.           Reduced Minimum Age for Pension Plan In-Service Distributions (from Division M)
The SECURE Act in a different section (to offset certain expenses arising in that section) allows in-service distributions under a defined benefit, money purchase plans or governmental section 457(b) plan at age 59 ½ (rather than age 62 that was permitted for pension plans or age 70 ½  that was permitted for 457(b) plans).  This is effective for plan years beginning after December 31, 2019.  (SECURE ACT Division M § 104).   
25.           Increase in Penalty for Failure to File Tax Return
In general tax provision, the SECURE Act increases the penalty for failure to file a tax return to the lesser of $435 or 100% of the amount of the tax due. (SECURE Act § 402 amending IRC § 6652)  According to the Committee Report, increasing the penalties will encourage the filing of timely and accurate returns which will improve overall tax administration.  This is effective for tax returns for which the due date with extension is after December 31, 2019.  
26.           Increased Penalties for Failure to File Retirement Plan Returns
The SECURE Act increases the failure to file penalties for retirement plan returns. The Form 5500 penalty would be increased from $25 to $250 per day, not to exceed $150,000 (up from $15,000).  Failure to file a registration statement would incur a penalty of $10 per participant per day (up from $1), not to exceed $10,000 (up from $1,000).  Failure to provide a required withholding notice would result in a penalty of $100 for each failure (up from $10), not to exceed $50,000 for all failures during any calendar year (up from $5,000). (SECURE Act § 403 amending IRC §6651))  This is effective for returns, statements and notifications required to be provided/filed after December 31, 2019.  
27.           Information Sharing
The SECURE Act allows the IRS to share returns with the U.S. Customs and Border Protection for purposes of administering the heavy vehicle use tax.  (SECURE Act § 404 adding IRC § 6103(o)(3))  This is effective presumably on the date of enactment – December 20, 2019.
28.           Plan Amendment Deadline
Tax-qualified retirement plans will need to be formally amended to reflect the requirements of the SECURE Act. The deadline for such amendments is the end of the first plan year beginning on or after January 1, 2022 (January 1, 2024 for collectively bargained and governmental plans). However, tax-qualified plans must be operated in accordance with the new law as of the respective effective dates.