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JOIN US: SECURE 2.0 Takes Second Bite at Retirement Security

Join partners from McDermott’s Employee Benefits team on Wednesday, January 25, 2023, as they discuss the impact of the recently passed SECURE 2.0 Act of 2022. With over 90 changes to retirement plans and individual retirement accounts (IRAs), this webinar will highlight the key changes for 401(k) and 403(b) plans and defined benefit plans, as well as changes in the Consolidated Appropriations Act, 2023 impacting health and welfare plans.

Topics Include:

  1. Automatic Plan Enrollment and Escalation
  2. Allowance of Matching Contribution for Elective Deferred Student Loan Repayments
  3. Emergency Savings Option
  4. Expansion of Roth Account Contributions
  5. Automatic Cashout, Hardship and Disaster Changes
  6. Penalty-Free Distributions
  7. Changes to Required Minimum Distributions

To learn more, read the full On the Subject here.

REGISTER FOR THE WEBINAR HERE.




Prescription Drug Data Reporting: What the “Good Faith Compliance” Extension Really Means for Self-Funded Group Health Plans

We recently reported on an FAQ issued December 23, 2022 (FAQ About Affordable Care Act and Consolidated Appropriations Act, 2021 Implementation Part 56) by the US Departments of Labor, Health and Human Services and the Treasury (collectively, the Departments). The FAQ provides limited, albeit welcome, relief by extending the time for reporting information under the prescription drug data collection (RxDC) rules, which were enacted by Section 204 of Title II of Division BB of the Consolidated Appropriations Act, 2021.

Under the statute, the first RxDC reports for the 2020 calendar (or reference) year, were due to be filed by December 27, 2021. However, in response to concerns expressed by stakeholders, enforcement was pushed back a full year to December 27, 2022, at which time the reports for both the 2020 and 2021 reference years were due. The RxDC reporting process required the submission of one or more “plan lists,” a series of eight data files (files D1 through D8) and an accompanying narrative response. (The contents of the plan lists, data files and narrative responses are comprehensively explained here (the Instructions).)

Access the full article.




DOL Proposes Significant Changes to VFCP Program

On November 21, 2022, the US Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) released a proposed amendment and restatement of the Voluntary Fiduciary Correction Program (VFCP), along with a proposed amendment to the Prohibited Transaction Exemption (PTE) 2002-51.

The VFCP allows plan sponsors to voluntarily correct certain fiduciary breaches to avoid civil enforcement actions and civil penalties imposed under the Employee Retirement Income Security Act of 1974 (ERISA) and its accompanying regulations. The most relevant components of the proposed changes for plan sponsors relate to delinquent contributions of participant deferrals and loan repayments as these tend to occur more frequently than other issues corrected through the VFCP. Importantly, the proposed amended and restated VFCP would add a new self-correction feature, clarify existing transactions currently eligible for correction and simplify certain administrative or procedural requirements for participation in and correction of transactions under the VFCP. This would be the first time the DOL has allowed self-correction under VFCP. The proposed changes are intended to encourage greater VFCP participation by providing for more efficient and less costly corrections.

Access the full article.




Reminder: New Tax Forms for Retirement Plan Payment Withholding Effective January 1, 2023

Retirement plan sponsors need to utilize updated Form W-4P (for periodic pension and annuity payments) and new Form W-4R (for nonperiodic payments and eligible rollover distributions) for income tax withholding elections beginning January 1, 2023. As we near the end of 2022, plan sponsors should ensure that their retirement plan systems and vendors are on track to implement the new federal tax withholding election forms no later than January 1, 2023.

As background, in 2017, changes made by the Tax Cuts and Jobs Act (TCJA) required the Internal Revenue Service (IRS) to revise the withholding tables and develop new forms to use to withhold taxes from periodic payments. These forms are used by qualified and non-qualified retirement plans for participants to request withholding on benefit payments that commence in 2023 or later. In 2021, the IRS revised the Form W-4P into the two forms noted above: revised Form W-4P, which is now used only to request withholding on periodic pension and annuity payments, and new Form W-4R, which is used to request additional withholding on nonperiodic payments and eligible rollover distributions. The US Department of the Treasury and the IRS received numerous questions on the new forms, which caused the IRS to delay the implementation until January 1, 2023.

Recipients of periodic retirement payments can give payers a Form W-4P to make or change a withholding election or to elect not to have withholding apply. A Form W-4P stays in effect until the payment recipient changes or revokes it. Form W-4R is required for all nonperiodic retirement payments, such as a lump sum payment, if the recipient wants to increase or decrease withholding from the applicable default withholding percentage.

The revised Form W-4P has a few changes. The significant changes include updates to the marital category, modifications to the reporting of other sources of income, replacement of allowances with dependent credits and addition of a calculation to report a new withholding amount. The new Form W-4R allows a payee to choose a different rate of withholding by entering a rate between 0% and 100%. However, if no amount is selected, plan sponsors must withhold at a flat 10% rate (or 20% if eligible) from nonperiodic payments.

For more information on these tax and employment benefits issues, please contact your McDermott lawyer or the authors listed below.

Marchan Clark, a law clerk in the Washington, DC, office, also contributed to this article.

Access original article.




Employer Group Urges Justices To Hear Seattle Benefits Row

An employer group says the federal government erred in arguing that a Seattle benefits mandate for hotel workers doesn’t conflict with federal law. According to this Law360 article, the ERISA Industry Committee (ERIC) asked the US Supreme Court to review a US Court of Appeals for the Ninth Circuit decision that backed the Seattle ordinance despite arguments from the US Department of Labor that the law doesn’t contradict the Employee Retirement Income Security Act. McDermott’s Michael B. Kimberly, Sarah P. Hogarth and Andrew C. Liazos represent ERIC.

Access the article.




The Silver Tsunami Is Coming – Here’s How ESOPs Can Help

How can employee stock ownership plans (ESOPs) help business owners ensure their businesses remain locally owned? In this article published in The Gazette, McDermott Partner Ted Becker provides insight into this popular type of employee benefit plan.

“The most important thing to do is to get an adviser who understands ESOPs,” Becker said.

Access the article (pg.7). 




IRS Announces 2023 Employee Benefit Plan Limits

The Internal Revenue Service (IRS) and the Social Security Administration announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans and the Social Security wage base for 2023. The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2022 and 2023.*

RETIREMENT PLAN LIMITS (guidance link) 2022 Δ 2023 Annual compensation limit $305,000 ↑ $330,000 401(k), 403(b) & 457(b) before-tax contributions $20,500 ↑ $22,500 Catch-up contributions (if age 50 or older) $6,500 ↑ $7,500 Highly compensated employee threshold $135,000 ↑ $150,000 Key employee officer compensation threshold $200,000 ↑ $215,000 Defined benefit plan annual benefit and accrual limit $245,000 ↑ $265,000 Defined contribution plan annual contribution limit $61,000 ↑ $66,000 Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period $245,000 ↑ $265,000 ESOP limit for determining the maximum account balance subject to the general five-year distribution period $1,230,000 ↑ $1,330,000 HEALTH AND WELFARE PLAN LIMITS (guidance links here and here) 2022 Δ 2023 Health Flexible Spending Accounts Maximum salary reduction limit $2,850 ↑ $3,050 Health FSA Carryover Limit $570 ↑ $610 Dependent Care Flexible Spending Accounts± If employee is married and filing a joint return or if the employee is a single parent $5,000 = $5,000 In employee is married but filing separately $2,500 = $2,500 Excepted Benefit Health Reimbursement Arrangements (EBHRAs) $1,800 ↑ $1,950± Qualified Transportation Fringe Benefit and Qualified Parking (monthly limit) $280 ↑ $300 High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA) HDHP – Maximum annual out-of-pocket limit (excluding premiums): Self-only coverage $7,050 ↑ $7,500 Family coverage $14,100 ↑ $15,000 HDHP – Minimum annual deductible: Self-only coverage $1,400 ↑ $1,500 Family coverage $2,800 ↑ $3,000 HSA – Annual contribution limit: Self-only coverage $3,650 ↑ $3,850 Family coverage $7,300 ↑ $7,750 Catch-up contributions (age 55 or older)± $1,000 ═ $1,000 SOCIAL SECURITY WAGE BASE (guidance link) 2022 Δ 2023 Social Security Maximum Taxable Earnings $147,000 ↑ $160,200

 

Plan sponsors should update payroll and plan administration systems for the 2023 cost-of-living adjustments and should incorporate the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions.

For further information about applying the new employee benefit plan limits for 2023, contact your regular McDermott lawyer.

* The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year, or limitation-year basis.

± Not indexed for cost-of-living adjustments, with the exception of limited guidance issued for certain years.




A Light in the Dark: Seventh Circuit Helps Clarify New Pleading Standards for 401(k) Fee Cases

A recent US Court of Appeals for the Seventh Circuit case supplies answers to many questions left open in 401(k) fee litigation cases after the US Supreme Court’s ruling earlier this year in Hughes v. Northwestern University. Specifically, to survive a motion to dismiss in the Seventh Circuit, the recent ruling in Albert v. Oshkosh Corp. reiterated that plaintiffs must allege both high fees and substandard services or performance in comparison to other similar 401(k) plans.

Read more here.




Save It for a Rainy Day: Recent Amendment Extensions for Qualified Retirement Plans, 403(b) Plans and Individual Retirement Accounts

The Internal Revenue Service (IRS) recently issued needed relief to extend some amendment deadlines for non-governmental qualified retirement plans and 403(b) plans, and for individual retirement accounts (IRAs) under the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), the Bipartisan American Miners Act of 2019 (Miners Act), and certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) until December 31, 2025. However, the IRS did not provide relief for all required amendments for the 2022 plan year. Plan sponsors that elected to offer COVID-related distributions or loan relief (or utilized disaster-related relief for loans or distributions under the Taxpayer Certainty and Disaster Tax Relief Act of 2020) still need to amend their plans by the end of 2022 plan year.

Read more here.




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