Internal Revenue Service (IRS) Archives

IRS Says Keep Those Class Exclusions Classy Under Long-Term, Part-Time Employee Rules

by Sarah L. Engle, Brian Tiemann, Haley Dow and Scott Kenkel | Jan 3, 2024 | Employee Benefits, Retirement Plans

Beginning in 2024, employers and plan sponsors will need to implement new minimum eligibility rules, enacted by the SECURE and SECURE 2.0 Acts, that significantly expand eligibility for long-term, part-time employees to participate in employer-sponsored retirement plans.

The new rules require that employers who maintain such plans provide employees who work at least 500 hours for three consecutive years (reduced to two in 2025), and are at least age 21, the opportunity to make elective deferrals under their 401(k) plans beginning in 2024 and their 403(b) plans beginning in 2025. This change has generated numerous questions about what employers need to do to comply.

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.

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

by Teal Trujillo, Allison Wilkerson and Diane Morgenthaler | Sep 21, 2022 | Executive Compensation, Fiduciary and Investment Issues, Retirement Plans

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.

Responsible Financial Innovation Act: Proposed Tax and Reporting for Digital Assets

by John Lutz, William R. Pomierski, Andrew Granek and McDermott Will & Emery | Sep 8, 2022 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Retirement Plans

On June 7, 2022, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced the highly anticipated Responsible Financial Innovation Act (the bill), which sets out to create the first complete regulatory and bipartisan framework for digital assets. The bill is intended to establish some legal clarity for regulators and the industry and to protect consumers by providing a range of disclosures and clarifying settlement conditions and rights over digital ownership. The bill would also treat all digital assets that are not treated as securities as commodities regulated by the Commodity Futures Trading Commission. This article discusses key tax considerations raised by the bill concerning taxation and reporting requirements for participants in the digital asset industry.

New Hurricane Legislation Grants Additional Distribution, Withdrawal and Loan Relief for Certain Retirement Plan Participants

by Alan D. Nesburg, PC, Diane Morgenthaler, Ruth Wimer and Stephen Pavlick | Nov 9, 2017 | Employee Benefits, Retirement Plans

The new Disaster Tax Relief and Airport and Airway Extension Act of 2017 provides additional relief and flexibility for retirement plan participants impacted by recent hurricanes, including relaxed rules for plan distributions, withdrawals and loans.

IRS Issues Updated Mortality Tables for 2018 – Impact on Pension Plan Sponsors

by Jeffrey Holdvogt and McDermott Will & Emery | Oct 24, 2017 | Employee Benefits, Employment, Retirement Plans

The IRS recently issued new mortality tables for 2018, which will likely increase pension funding liabilities for many plan sponsors. Plan sponsors should consider options to delay the use of the new mortality tables for funding purposes, while large plan sponsors should consider the option to utilize plan-specific mortality tables instead.

Are Your Employee Communications Up to Snuff? — ERISA Disclosure Practices

by McDermott Will & Emery and Allison Wilkerson | Oct 12, 2017 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Health and Welfare Plans, Retirement Plans

Mary Samsa and Allison Wilkerson discussed that the majority of ERISA disclosures are in fact employee communications – many of which are viewed as “routine” by employers. As such, plan sponsors are continually balancing the best way in which to relay complex benefit plan information in a manner to best be understood by employees but equally satisfy the applicable regimented disclosure requirements. Some key takeaways from their presentation included not only the compliance and content requirements, but methods for delivering communications to employees, traps for the unwary (i.e., inconsistent information communicated, the advantage of having these communications reviewed by legal counsel, and oversight of third parties who assist in preparing communications) and some common sense approaches for routine reviews of communications and continuing education to participants so that periodic communications are not always monumental tasks.

View the full presentation.

McDermott Announces Determination Letter Replacement Program, Addressing the Gap in Retirement Plan Compliance

by Brian Tiemann, Diane Morgenthaler, Jeffrey Holdvogt, Jacob Mattinson, Joseph K. Urwitz, Kay Kemp, Lisa Loesel, Maggie McTigue , Mary K. Samsa, Sarah L. Engle, Allison Wilkerson, Alan D. Nesburg, PC, Andrew Liazos, McDermott Will & Emery and Todd Solomon | Oct 10, 2017 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Retirement Plans

Since the announcement by the Internal Revenue Service (IRS) that sponsors of individually designed retirement plans may no longer receive a periodic determination letter, plan sponsors have faced uncertainty about how to demonstrate compliance for their retirement plans. Our McDermott Retirement Plan Compliance Program, a new opinion letter and operational review program for individually designed 401(a) and 403(b) retirement plans, will allow plan sponsors to document their plans’ compliance with tax code requirements in response to the curtailment of the IRS’ determination letter program.

View From McDermott: Hurricane Survival Guide for Employee Benefit Plans and Employers

by Diane Morgenthaler | Oct 5, 2017 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Employment, Health and Welfare Plans, Retirement Plans

According to U.S. News & World Report, estimates for the cost of Hurricane Harvey’s damage have come in as high as $190 billion, and damage estimates for Hurricane Irma are still rolling in but range up to $100 billion. To assist taxpayers affected by these devastating storms, the Internal Revenue Service, Department of Labor, and Pension Benefit Guaranty Corporation have granted multiple forms of relief to taxpayers impacted by Hurricane Harvey, Hurricane Irma, and other disasters enumerated by the Federal Emergency Management Agency.

Extension of Nondiscrimination Relief to Certain Closed Defined Benefit Plans

by Diane Morgenthaler and Kay Kemp | Oct 3, 2017 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Retirement Plans

The Internal Revenue Service (IRS) recently extended the temporary nondiscrimination relief for closed defined benefit plans. This extended relief is intended to enable closed pension plans (defined as pension plans that have been closed to new participants but continue to provide ongoing benefit accruals for certain participants) to more easily satisfy certain nondiscrimination testing requirements. In most cases where the relief applies, the closed defined benefit plan is aggregated with a defined contribution plan to satisfy the nondiscrimination testing requirements, and the relief assists the aggregated plan in passing nondiscrimination requirements that apply to accrued benefits and to certain rights and features relating to those benefits.

The original nondiscrimination testing relief for closed pension plans was provided several years ago in an earlier IRS Notice. This relief was already extended on two prior occasions, and the recent IRS Notice further extends the relief until the end of plan years that begin before 2019, as long as the conditions of the original IRS Notice continue to be satisfied. In 2018, the IRS also intends to issue final regulations under Section 401(a)(4) of the tax code that address the nondiscrimination requirements for closed pension plans. Until then, the IRS indicated that plan sponsors can still rely on the proposed 2016 IRS regulations under Section 401(a)(4) for plan years that begin before 2019.

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