Over the 2019 calendar year, the IRS, in conjunction with the Department of Labor (DOL), issued guidance on retirement plans that was largely focused on self-correction, determination letters, hardship distributions, and multiple employer retirement plans (MEPs). The following provides an overview of retirement plan governmental guidance during 2019:
- Self-Correction for Loan Failures: Guidance from April 2019 regarding the Employee Plans Compliance Resolution System (EPCRS) identifies a variety of failures such as plan document problems and process issues that can be voluntarily addressed and corrected by plan sponsors. This provides increased flexibility in the practical handling of a limited scope of plan issues. The corrections the EPCRS system addresses include changes in reporting on “deemed distributions” for previous years, loan failures where participants fail to repay, spousal consent, and retroactive amendments to address problems such as the number of loans a plan participant can take.
- IRS Determination Letter Program: May saw a limited expansion to the IRS determination letter program for tax-qualified retirement plans. Plan sponsors can continue to apply for initial retirement plan qualification as well as for individually designed statutory hybrid pension plans and individually designed merged plans until August of 2020. Review of merged plans will be based on a Required Amendments List, and plan sponsors are encouraged to evaluate their plan documentation to determine the best options for retirement plan paperwork in the coming years.
- Final Guidance on Hardship Distributions: As a result of the Bipartisan Budget Act of 2018, safe harbor requirements for hardship distributions were edited to make retirement accounts more accessible when plan participants needed them. This included removing the requirement for contributions to stop for six months after a distribution is made, the requirement to take all available loans before accessing plan funds, allowing distributions on the funds from a number of different sources including earnings, and expanding the list of safe harbor expenses and losses that qualify as immediate and heavy financial need.
- Remedial Amendment Periods: Section 403(b) plans now have a set period for remedial amendments to correct plan defects. The timeline depends on the plan and type of defect that needs correcting. The IRS also stated that additional guidance is forthcoming before plans are next required to submit for review.
- Association Multiple Employer Retirement Plans (MEPs): MEPs received a lot of press during 2019, and final regulations were issued at the end of July. These regulations expand the circumstances by which employers can adopt a MEP and provides administrative guidance for this process. The final rule defines a “bona fide” group of employers as eligible to sponsor or adopt a MEP if the group has a formal organization, is controlled by its members, has a business purpose other than providing benefits, and plan participants are limited to the employees and former employees of the association members.
- MEP Transition Relief: The DOL released final rules in conjunction with the IRS rules on MEPs to provide temporary relief for plans that failed to comply with Form 5500 reporting requirements. A MEP must now include a list of participating employers and a good faith estimate of the percentage of total contributions made by each employer as part of its reporting.