individual retirement account Archives

Save It for a Rainy Day Part 2: IRS Announces Additional Plan Amendment Extensions

by Teal Trujillo, Patrick Ryan and Diane Morgenthaler | Oct 12, 2022 | Employee Benefits, Employment, Executive Compensation, Retirement Plans

On September 26, 2022, the Internal Revenue Service (IRS) extended the amendment deadline for non-governmental qualified retirement plans, plans covered under Section 403(b) of the Internal Revenue Code (Code) and individual retirement accounts (IRAs). The extensions included many of the amendment deadlines under the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), the Bipartisan American Miners Act of 2019 (Miners Act), and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). See our prior On the Subject about this earlier extension. Missing from this earlier IRS extension was a postponement of deadlines relating to certain CARES Act provisions, in particular those related to COVID-related distributions and loan relief, as well as deadlines relating to disaster-related loans or distributions under the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Disaster Act).

NEW IRS EXTENSION

IRS Notice 2022-45 provides a new extension to December 31, 2025, of the special amendment deadlines included in Section 302 of the Disaster Act and in Section 2022 of the CARES Act.

Section 2022 of the CARES Act provided for COVID-related distributions, increased loan amounts and delayed loan repayments.
Section 302 of the Disaster Act provided favorable tax treatment for certain disaster-related loans or distributions.

Previously, amendments for these CARES Act and Disaster Act provisions would have been required by the end of the 2022 plan year. The Notice also clarifies that CARES Act and Disaster Act amendments adopted before the new December 31, 2025, deadline will not cause the plan to fail to satisfy the anti-cutback requirements of Code Section 411(d)(6) or of Section 204(g) of the Employee Retirement Income Security Act of 1974 (ERISA).

The extension applies to individual retirement accounts (IRAs), to qualified plans that are not governmental plans and to Code Section 403(b) plans that are not maintained by a public school. The amendment deadlines for Code Section 403(b) plans maintained by a public school, and for governmental plans (including plans covered by Code Section 457(b)), remain slightly different.

ACTION ITEM

Most tax-qualified retirement plans and Code Section 403(b) plans that elected to offer COVID-related distributions and loan relief can now wait to adopt changes required under the CARES Act, SECURE Act, MINERS Act or Disaster Act in a single amendment no later than December 31, 2025.

Proposed Minimum Distribution Regulations Prompt Concerns

by Todd Solomon | Jun 22, 2022 | Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

Employee benefits professionals are inquiring about relief options for proposed regulations for required minimum distributions (RMDs). According to this Tax Notes article, the proposed regulations would make determining the RMDs during the plan participant’s lifetime and the designated beneficiary more challenging for plan sponsors, IRA trustees and custodians, and third-party administrators. One of the major concerns is the implementation of the 10-year distribution period for most beneficiaries of individuals who die in 2020 or later. McDermott Partner Todd Solomon said the 10-year distribution period is a “somewhat surprising development [that] is likely to leave some beneficiaries and their advisers confused and frustrated because of the added layer of complexity and the inability to stretch distributions as under prior law.”

Cryptocurrency for Employee Benefits Lawyers: What You Need to Know

by Andrew Liazos and Brian Tiemann | Apr 14, 2022 | Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

As the popularity of cryptocurrency continues to grow, what do employee benefits lawyers need to know about this emerging investment option? McDermott Partners Andrew Liazos, Andrea Kramer and Brian Tiemann recently offered their perspectives about cryptocurrencies and how they relate to Employee Retirement Income Security Act of 1974 (ERISA) plans, individual retirement accounts (IRAs) and incentive awards in an American Bar Association virtual event.

Access the slides.

Proposed IRS RMD Regulations Present Challenges, Risks for 403(b) Plans

by Teal Trujillo and Todd Solomon | Apr 12, 2022 | Employee Benefits, Employment, Fiduciary and Investment Issues, Retirement Plans

The Internal Revenue Service (IRS) is strategically working to execute the statutory changes that were outlined by the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) of 2019. However, the IRS’s efforts to streamline the required minimum distribution (RMD) requirements for Internal Revenue Code (IRC) Section 403(b) plans with Section 401(a) qualified plans, such as 401(k) plans, may have unforeseen challenges and risks.

A proposed rule was published on February 24, 2022, in the Federal Register. The preamble of the rule indicates that the IRS and US Department of the Treasury are considering changes to conform the treatment of Section 403(b) plans more closely with that of Section 401(a) qualified plans for RMDs. Section 403(b) plans are currently treated the same as individual retirement accounts (IRAs) for purposes of applying the RMD rules. As a result, RMDs are not required to be automatically made from Section 403(b) plans like they are from Section 401(a) retirement plans. The IRS’s proposed rule would require any nonprofit organized under IRC Section 501(c)(3) (i.e., hospitals, public schools and churches) with retirement plans to make RMDs going forward.

Though the proposed rule presents the opportunity to simplify and align the treatment of Section 403(b) plans and Section 401(a) qualified plans, it poses administrative difficulties and potential conflicts with state law. Section 403(b) plans can be invested in a variety of funds, including annuity contracts—group and individual contracts—with insurance companies, custodial accounts or retirement income accounts for certain church workers. For individual annuity contracts, this could create a contractual issue. Employers are not a party to individual contracts between plan participants and investment firms, which would limit the ability of employers to compel RMDs. (Note that distributions could still be forced from group annuity contracts between employers and investment firms.) Regardless of the type of annuity contract, every contract will have to be reviewed to ensure it can comply with the proposed rule. To the extent any changes need to be made to these contracts, state-level approval may be required as insurance companies are governed by state law requirements.

In addition, the proposed rule does not take into consideration the effect of the prospective changes on Section 403(b) plans that are exempt from ERISA because of the safe harbor offered by the US Department of Labor (DOL) in 1979 (29 C.F.R. § 2510.3-2(f)). One of the conditions for meeting the safe harbor is that the employer involvement be limited to certain specific activities. If an employer is required to actively negotiate with insurance providers or choose a provider to administer the RMD requirement for participants, it might be violating this restriction and inadvertently subject its program to ERISA. The IRS and DOL will need to coordinate on the impact of this rule in such cases.

The IRS is taking this proposed rule under review and has asked for feedback specifically related to administrative concerns, notable differences in the structure or administration of Section 403(b) plans compared to qualified plans that might affect RMDs, and [...]

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Cryptocurrency for Employee Benefits Lawyers: What You Need to Know

by Andrew Liazos and Brian Tiemann | Feb 3, 2022 | Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

As cryptocurrencies gain popularity, employers are considering how they can be used as part of compensation arrangements and benefit plans to attract and retain talent. McDermott Partners Andrew Liazos, Andrea Kramer and Brian Tiemann recently offered their perspectives about cryptocurrency, Internal Revenue Service (IRS) taxation guidance of convertible virtual currencies and other cryptocurrency-related compensation issues in an American Bar Association virtual event.

Access the event’s slides here.

Department of Labor Exemption Impacts Investment Advice Fiduciaries

by Jennifer Hill, Todd Solomon and Brian Tiemann | Jul 21, 2021 | Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

The US Department of Labor (DOL) recently issued guidance concerning a new exemption under the prohibited transaction provisions of the Employee Retirement Income Security Act of 1974 (ERISA) in connection with the provision of investment advice. PTE 2020-02, Improving Investment Advice for Workers & Retirees (the Exemption), became effective on February 16, 2021. On April 13, 2021, the DOL issued additional guidance, in FAQ format, to further explain the Exemption.

In this article, McDermott’s Jennifer D. Hill, Todd A. Solomon and Brian J. Tiemann explain the significance of this new guidance.

Access the article.

Tax Reform Results in Only Minor Changes for Retirement Plans

by Jeffrey Holdvogt and Sarah L. Engle | Jan 4, 2018 | Employee Benefits, Retirement Plans

The Tax Cuts and Jobs Act made significant changes to the tax code and will have a significant impact on businesses and individual taxpayers. However, although initial proposals included potentially significant changes to employer-sponsored retirement plans, the impact of the final bill on employer sponsored retirement plans will be relatively minor.

Congressional Tax Reform Efforts May Impact Retirement Plan Sponsors

by Alan D. Nesburg, PC, Sarah L. Engle and Stephen Pavlick | Dec 12, 2017 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Retirement Plans

On Saturday, the Senate passed its version of the Tax Cuts and Jobs Act. The process of reconciling the House and Senate versions of the bill has already begun in earnest. Currently, the retirement-plan-related changes included in each version of the bill still differ in many respects, and it is unclear which (if any) changes will be included in the final bill. As a result, with only a few weeks left until the holiday recess, a clear picture of the potential impact of tax reform on retirement plan sponsors has yet to emerge.

Employee Benefits Innovators Roundtable: Fiduciary Update and the DOL Fiduciary Rule

by McDermott Will & Emery | Jul 7, 2016 | Fiduciary and Investment Issues, Labor, Retirement Plans

The US Department of Labor’s new fiduciary rule is aimed at financial advisors, including brokers, who provide retirement plan services. However, the new rule will impact compliance obligations and potentially, costs for plan sponsors, as highlighted in the following presentation.

View presentation slides.

DOL Releases Final Regulations to Expand ERISA ‘Fiduciary’ Definition

by McDermott Will & Emery, Brian Tiemann and Joseph K. Urwitz | May 10, 2016 | Labor, Retirement Plans

After more than five years of development and revision, the US Department of Labor (DOL) released final regulations to redefine a “fiduciary” under the Employee Retirement Income Security Act of 1974, as amended (ERISA) and the Internal Revenue Code of 1986, as amended (the Code).

Read the full article.

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