The IRS updated its Operational Compliance List for retirement plans for the first time since June 2020. The Operational Compliance List can assist qualified retirement and 403(b) plan sponsors by identifying changes in legal requirements and guidance that affect plan operations. Although the requirements may take effect during a calendar year, conforming amendments may not be due until later.
Most of the changes in the update pertain to operational requirements for the 2020 plan year, arising from clarifications found in IRS Notices 2020-68 (which clarifies certain changes found in the SECURE Act and the Bipartisan American Miners Act of 2019) and 2020-86 (which offers guidance on SECURE Act changes with respect to safe harbor plans), as well as changes found in the CARES Act and the CAA. The IRS also included two changes effective in 2021 and one in 2022. Plan sponsors should be aware of the following changes:
- SECURE Act provisions, including:
- Clarification regarding qualified birth and adoption distributions.
- Foster care difficulty-of-care payments treated as Section 415 compensation.
- Reduction in the minimum age for in-service distributions from qualified pension and governmental 457(a) plans from 62 to 59 ½.
- Participation of long-time, part-time employees in 401(k) plans (effective in 2021).
- Changes to safe harbor plans, including:
- Increased maximum permissible automatic deferral rate under a qualified automatic contribution arrangement from 10% to 15% after the first full plan year of participation.
- Relaxed rules for safe harbor nonelective contributions.
- CARES Act changes affecting qualified retirement plans, most
- For certain individuals affected by COVID-19, plans were permitted to provide for (a) "coronavirus-related distributions" during the 2020 calendar year, with favorable tax treatment and recontribution options, (b) plan loans of up to $100,000 for the period beginning March 27, 2020 and ending September 22, 2020, and (c) suspension of repayments of existing plan loans for the period beginning March 27, 2020 and ending December 31, 2020. If any of these special rules were implemented, any necessary retroactive amendment must be adopted on or before the last day of the first plan year beginning on or after January 1, 2022 (or January 1, 2024 for governmental plans). IRS Notice 2020-50 provided further guidance on coronavirus-related distributions and loans.
- Required minimum distribution ("RMD) requirements that were waived for 2020. Plan amendments for the RMD waiver must be adopted on or before the last day of the first plan year beginning on or after January 1, 2022 (or January 1, 2024 for governmental plans). IRS Notice 2020-51 provided further guidance on RMD waivers.
In addition to the changes above, the Operational Compliance List noted two more changes plan sponsors should be aware of:
- Temporary relief from physical-presence requirements for spousal consents and certain other retirement plan elections (originally provided for in 2020 by IRS Notice 2020-42, and extended through June 30, 2021 by IRS Notice 2021-03)
- Updates to the life expectancy and distribution periods used to calculate RMDs, effective for distributions in calendar years beginning on or after January 1, 2022.
The Operational Compliance List is a good resource for plan sponsors to stay apprised of recent changes to qualified retirement plan requirements, as well as optional amendments they may wish to implement. Plan sponsors should remember that the Operational Compliance List does not include all new guidance or legislation pertaining to qualified retirement plans, but it can serve as an effective starting point to ensure such plans remain in compliance with IRS rules.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.