Each year, our Technical Services Committee creates a Regulatory Update covering the legislative, regulatory, and litigation developments affecting retirement plans. This year, we had a lot of material to cover with the SECURE Act, the CARES Act, developments in ESG guidance, plus much more. This year brought several regulatory changes from the Internal Revenue Service (IRS). Here is a snip-it of the material we cover in this year's Update.
CARES Act Guidance
The IRS came out with several Notices in 2020 that provided new guidance and confirmed certain aspects of the CARES Act.
The IRS released Notice 2020-50 which provides guidance on CRDs and loans under the CARES Act.
The most notable aspect of this Notice was the expansion of the definition of who can be a ‘qualified individual’ to receive a distribution. As presented in the DOL section earlier, a CRD is defined as a distribution taken in the 2020 calendar year by an individual or the individual's spouse diagnosed with COVID-19. It also includes a very broad provision for anyone experiencing adverse financial consequences as a result of coronavirus. These could include but are not limited to individuals who experienced:
- A furlough or layoff
- Reduction in work hours
- Inability to work due to childcare
- Closure or reduction in hours of a business
- Other factors as determined by the Secretary of the Treasury
This original definition was generally thought to extend to spouses and household members impacted by COVID-19, but that was not explicit in the Act. Notice 2020-50 expands the definition of ‘qualified individual’ to also include an individual who has experienced adverse financial consequences as a result of:
- A reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19.
- The individual’s spouse or a member of the individual’s household, as a result of the coronavirus:
- Being quarantined, furloughed or laid off, or having work hours reduced
- Being unable to work due to lack of childcare
- Having a reduction in pay (or self-employment income) due to coronavirus
- Having a job offer rescinded or start date delayed
- The closing or reduction of hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to coronavirus
In addition, the Notice confirmed and expanded on other CARES Act provisions:
- Clarifies the types of distributions that can and cannot qualify for CRDs. A few examples of distributions that cannot qualify include corrective distributions, the return of excess Section 415 violations, excess deferrals under Section 402(g), and excess contributions under 401(m).
- Indicates the amount of a CRD does not need to relate to the extent of need or financial hardship of the person taking the distribution.
- Explained how CRDs can be recontributed to a retirement plan and provided several tax reporting scenarios for individuals who are able to recontribute their CRD.
- Confirmed that employers are not required to offer CRDs.
- Confirmed that employers can rely on an individual’s certification for a CRD and provided a sample certification letter.
- Provided guidance and examples for employers on suspending loan payments for qualified individuals.
This Notice provides guidance on the CARES Act provision that allowed for a waiver of 2020 RMDs. The Notice permits rollovers of waived RMDs and extends the 60-day rollover period to Aug. 31, 2020. It also answers several questions related to the RMD waiver and provides a sample amendment that affords participants a choice as to whether or not they want to receive waived RMDs in 2020.
This Notice clarifies certain rules related to safe harbor plans:
- A mid-year change reducing contributions for highly-compensated employees will not be considered a reduction or suspension of safe harbor contributions. However, an updated safe harbor notice and an opportunity to change elections must be provided to impacted employees.
- Allowed a safe harbor plan to reduce or suspend safe harbor contributions, between March 13 and Aug. 31, 2020 without regard to the requirements that generally apply which are:
- The employer is operating at an economic loss
- The employer’s safe harbor notice indicates that the plan may be amended, and the change will not be effective until at least 30 days after impacted employees are notified.
This Notice also provided relief to the supplemental notice requirements related to plan amendments that reduce or suspend safe harbor non-elective contributions. The supplemental notice does not need to be provided 30 days before the reduction or suspension of non-elective contributions. The notice had to be provided by Aug. 31, 2020, and the plan amendment must be adopted no later than the effective date of the reduction or suspension of the contributions.
To read our full 2020 Regulatory Update, click the button below.
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