Many business owners offer a retirement benefit plan to their employees. Over the past year, new legislation has created some new rules for such plans, and there are some key deadlines approaching. What follows is a summary of these changes and deadlines. If you have additional questions about your employee benefit plan, please don’t hesitate to reach out to Michele Shockley at email@example.com or 727-888-9200.
To Plan Sponsors:
As 2021 comes to a close, we wanted to make Plan Sponsors aware of certain amendment deadlines and considerations related to retirement plans.
The Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”) included a provision that requires long-time part-time employees to be given the opportunity to make salary deferrals to a 401(k) plan, starting in 2024. Part-time employees are eligible based on working at least 500 hours per year during three consecutive 12-month periods starting with 2021. Employers should have started tracking hours for these part-time employees in January 2021. Employers are not required to make matching or profit-sharing contributions for these part-time employees.
Employers must make this amendment by the last day of the plan year beginning on or after January 1, 2022 (i.e. December 31, 2022 for calendar year plans).
Hardship Distribution Amendments
Sponsors of 401(k) or 403(b) plans that permit hardship distributions must adopt interim amendments by December 31, 2021. Changes include the removal of the six-month suspension of an employee’s contributions following a hardship distribution, elimination of the requirement to take a loan first, the expansion of the 401(k) plan sources available for hardship distributions and permitting employees to certify regarding their need for a hardship distribution.
Plans that implemented discretionary changes in 2021 need to amend the plan document for such changes by year-end.
Retirement plan amendments for SECURE Act and CARES Act changes and the disaster relief provisions of the Consolidated Appropriations Act, 2021 (“CAA”) are not required to be adopted until the end of the 2022 plan year. Some of these other changes include:
- Required minimum distributions (RMDs) –the age of the first RMD increased to 72 from 70 ½ .
- Qualified birth or adoption distributions – Plans that adopted penalty free distributions for the birth or adoption of a child must amend the plan for this distribution type.
- COVID-19 related amendments – for plans that implemented the optional relief provisions such as COVID-19 distributions, increased loan limits, etc, the plan must be amended to adopt these provisions.
The IRS requires plan sponsors using pre-approved defined contribution plan documents to formally restate the plan documents every six years. The deadline to restate is July 31, 2022.
Correction Procedure Changes
The IRS issued an updated version of the Employee Plans Compliance Resolution System (EPCRS) on July 15, 2021. The new edition of EPCRS resulted in several changes including, expanded guidance on the recoupment of overpayments in order to ease the burden on fulfilling overpayment obligations, elimination of the anonymous submission procedure under the Voluntary Correction Program (VCP) and is now through a VCP pre-submission conference, and extended the correction period for significant failures under the Self-Correction Program (SCP) to three years.
We suggest you meet with your third party administrator as soon as possible to review your plan and to make sure any required amendments are done timely. If you have any questions, please reach out to Michele Shockley at firstname.lastname@example.org or 727-888-9200.