The Internal Revenue Service (IRS) recently opened a new determination letter approval program for 403(b) retirement plans—commonly used by nonprofit organizations—which allows sponsors of certain individually designed plans to apply for a favorable determination letter. Long available to 401(k) retirement plan sponsors, determination letters can provide sponsors with advance assurance from the IRS that plans are compliant with the Internal Revenue Code. Plan sponsors of eligible 403(b) programs should take advantage of this new opportunity to submit a determination letter application to the IRS. Read more here.
Yahoo! Let’s celebrate—the IRS gave us more time! On August 25, 2023, the Internal Revenue Service announced an administrative transition period that effectively delays the deadline for adding Roth catch-up contributions under the SECURE 2.0 Act until at least 2026. Specifically, the announcement provides that, until 2026, catch-up contributions will satisfy the requirements under SECURE 2.0, even if the contributions made for high-wage earners (i.e., those making more than $145,000 from their employer in the prior year) are not designated as Roth contributions. Read more here.
The Internal Revenue Service’s (IRS) Employee Plans Compliance Resolution System (EPCRS) allows employers to correct errors involving the maintenance and operation of tax-qualified retirement plans. The correction programs and options that make up EPCRS have, until now, been established exclusively in a series of IRS notices and revenue procedures dating back more than 30 years. However, as part of the SECURE 2.0 Act, Congress took it upon itself to radically expand EPCRS to allow employers to self-correct most inadvertent failures to comply with the tax-qualification rules under the Internal Revenue Code. This Special Report discusses the history behind the creation of EPCRS, outlines some of its key features, and highlights how the growth and expansion of this program continues to improve IRS enforcement of tax-qualified plan rules by encouraging plan sponsors to establish practices and procedures designed to ensure compliance, thereby avoiding the harsh...
A new bill introduced in Congress would allow 403(b) plans maintained by tax-exempt organizations to make use of collective investment trust (CIT) investments. CITs are an alternative to mutual funds that may provide significant cost savings for 403(b) plans and their participants. The SECURE 2.0 Act took the first steps along this path by making amendments to the Internal Revenue Code to permit 403(b) plans to invest in these vehicles; however, that legislation failed to include the necessary changes to securities laws. The Retirement Fairness for Charities and Educational Institutions Act of 2023 aims to take the next steps by amending the Securities Act and the Investment Company Act to allow 403(b) plans to make use of CITs. Read more here.
The Internal Revenue Service (IRS) recently issued a Chief Counsel Advice memorandum to remind sponsors of health and dependent care flexible spending arrangements (FSAs) about their responsibility to adequately substantiate claims in order to receive favorable tax treatment under Section 125 of the Internal Revenue Code (the Code). The IRS emphasizes that the standards for substantiation are stringent, and employers who fail to comply will face significant and undesirable consequences. The memorandum also provides a helpful overview of the relevant laws, illustrated through six examples of claims practices. Read more here.
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...
The US Department of Labor (DOL) recently issued guidance for the first time on the investment of retirement plan assets in cryptocurrencies. Compliance Assistance Release No. 2022-01 cautions 401(k) plan fiduciaries to “exercise extreme care” before allowing participants to invest plan assets in cryptocurrencies because cryptocurrencies “present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss.” In this Intellectual Property & Technology Law Journal article, McDermott Partners Andrea S. Kramer and Brian J. Tiemann outline what retirement plan fiduciaries need to know about cryptocurrency investments in the current market. Access the article.
Earlier this spring, McDermott Partner Erin Turley delivered a presentation about the impacts of recent Employee Retirement Income Security Act of 1974 (ERISA) litigation. Lawsuits now target both large and small employee benefit plans; plan sponsors are being sued and dragged into complex and lengthy litigation, thus changing the basic economics of the provision of fiduciary liability insurance. In response to these lawsuits, plan sponsors are looking to outsource as much of this fiduciary responsibility and potential liability and exposure as possible. Access the presentation slides.
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...
The Federal Civil Penalties Inflation Adjustment Act of 2015 directs the US Department of Labor (DOL) to make annual inflation adjustments to specified Employee Retirement Income Security Act (ERISA) violations. The increased penalties generally apply to reporting and disclosure failures if the penalty is assessed after January 15, 2022, and if the violation occurred after November 2, 2015. Access the updated DOL penalties.
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