A Retirement Plan Sponsor’s End-of-the-Year “To Do List”

To say a lot has happened this year would be an understatement.  So as we near the end of 2020, now is a good time to reflect on the numerous laws passed and legal updates published over the past year that may impact your employer-sponsored retirement plan.  To help, we’ve compiled a brief sample end-of-the-year “to do list” for retirement plan sponsors to consider:

2019 Required Amendments List.  The 2019 required amendments list directs plan sponsors of individually designed plans to amend their plans by December 31, 2021, to comply with the final regulations regarding hardship distributions.

• TO DO: Amend your individually designed plan by December 31, 2021, to eliminate the 6-month suspension of employee contributions for hardship distributions made on or after January 1, 2020, and to update the administrative process required to document that the distribution is necessary to meet the heavy and immediate financial need of the participant.

SECURE Act.  The SECURE Act was passed in December 2019 and includes a number of tax-advantaged changes to retirement plans and IRAs.  (For more information on the SECURE Act, click here.) Some of the most noteworthy changes that impact retirement plans in 2020 include the following:

• Eligibility for Long-Term, Part-Time Employees. Effective January 1, 2021, “long-term, part-time employees” must be allowed to participate in the salary reduction contribution features of 401(k) plans. Long-term, part-time employees are those employees who, beginning January 1, 2021, have completed three consecutive 12-month periods of at least 500 hours of service.
• TO DO: Amend your plan to permit long-term, part-time employees to participate in salary reduction contributions, and begin counting hours of service for such long-term, part-time employees starting January 1, 2021.
• RMD Age Pushed to 72. Before January 1, 2020, required minimum distributions (“RMDs”) must have begun by April 1 of the year after the year in which the participant turned age 70½ or retired, but the SECURE Act has pushed back the RMD age to 72 (or retirement), effective for participants who die after December 31, 2019.
• TO DO: Amend your plan to permit RMDs to begin at age 72 (or upon retirement) and update any required notices to participants to reflect the new required beginning date.
• Post-Death RMDs. Effective for participants who die after December 31, 2019, post-death distributions under defined contribution plans may no longer be stretched over a beneficiary’s lifetime.  Now, retirement plan assets must be completely distributed to certain designated beneficiaries within 10 years of the death of the participant.
• TO DO: Amend your plan to require all plan assets to be distributed to certain beneficiaries who are not excepted as “eligible designated beneficiaries” (including surviving spouses, minor children, disabled individuals, chronically ill individuals, and beneficiaries not more than 10 years younger than the deceased participant) within 10 years of a participant’s death.

Coronavirus-Related Distributions and Loans.  The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was passed in March 2020 as a stimulus bill in response to COVID-19.  (For more information on the CARES Act, click here.) As one of the Act’s relief provisions, retirement plans may offer expanded distribution and loan options for certain “qualified individuals” impacted by the coronavirus, through December 30, 2020.

• TO DO: Amend your plan to permit expanded coronavirus-related distributions or plan loans for participants impacted by the virus, through December 30, 2020.

Qualified Educational Assistance Programs.  The CARES Act provides a key change to the rules for qualified educational assistance programs under Internal Revenue Code Section 127.  Through December 31, 2020, employers may pay, on a tax-free basis, for up to $5,250 of employees’ student loan payments through a qualified educational assistance program.  Without this relief, employers could only pay for up to $5,250 of employees’ qualified educational payments, such as tuition, but not for student loans.

• TO DO: Amend your qualified educational assistance program (or adopt a qualified educational assistance program) to reimbursements for employees’ student loan payments through the end of the year.

While much of the changes to retirement plans over the past year have the potential to benefit employees significantly, most of the relief requires a plan amendment.  Plan sponsors may use the foregoing “to do list” as a tool when considering what, if any, plan amendments should be adopted by the end of the year.