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COVID-19 — Tax Planning Opportunity for Defined Benefit Participants?

Much has been written about the new CARES Act distribution that allows impacted COVID-19 participants to access up to $100,000 in their tax-qualified defined contribution plan penalty-free and with income taxes spread over three years. However, the CARES Act legislation applies to all “eligible retirement plans” as defined in Code Section 402. So technically the CARES Act also applies to defined benefit plans.

Consider, the following examples.

  • A cash balance plan permits lump sum distributions to terminated participants. If this cash balance plan decides to add CARES Act distributions, and if its record keeper will administer the provisions, terminated participants who meet the CARES Act conditions can access their funds penalty-free and spread the income tax consequences over three years.
  • In addition, if a plan will offer a lump sum window during 2020, then participants who qualify under the CARES Act distribution rules could elect a lump sum and use the favorable tax treatment for the applicable portion of the distribution, up to $100,000.

Note that the $100,000 limit applies across all plans, so a participant in both a defined contribution plan and a defined benefit plan will need to ensure that the limit is applied to all plans in which he or she participates.

Given all the difficulties that both employees and retirees are experiencing with COVID-19, a plan sponsor may want to explore all available COVID-19 distributions under the CARES Act, including options for its defined benefit plan with its actuaries, record keepers, and attorneys.

Supplemental Benefit Planning for Tax-Exempt Employers

Tax-exempt employers face a matrix of tax and disclosure issues in designing an appropriate supplement retirement program. This resource intends to examine the income tax, payroll tax and Form 990 reporting aspects of the major plans currently available to tax-exempt employers, and review those major plans from the reference point of several major design considerations.

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Worldwide Employee Benefits Network Program – New Developments for Roth 401(k)

Wednesday, March 26, 2014
Chicago, Illinois

Studies show that over 40% of large employers now include a Roth 401(k) feature in their defined contribution plan. New legislation in early 2013, and new IRS guidance issued late in December of 2013, expand the availability of in-plan Roth conversions. While 401(k) record keepers gear up to implement this new feature, now is a good time to take stock of Roth 401(k) and understand whether this is a good feature that should be added to your plan or whether the new expanded in-plan Roth conversions make sense as a next step for your plan.

Panelists will cover Roth 401(k) basics and the new guidance as well as discuss the successful utilization of the Roth feature in one employer’s plan that has a 99% employee participation rate. In addition, the experts will also provide helpful tips on how to successfully communicate the confusing Roth concepts to your plan’s participants.

Event speakers include:

Nancy Gerrie, Partner, Employee Benefits Practice Group, McDermott Will & Emery
Kathleen Davis, Benefits Manager, Sargent & Lundy

For more information or to register, please click here.