Each year, retirement plan sponsors are faced with a number of year-end deadlines related to new regulations or requirements impacting those plans in the coming year.
As we approach the end of 2021, it’s time once again to review plan documents and operations to ensure compliance with increasingly complex qualification requirements.
A recent “Workplace Law Update” brief from Laner Muchin, Ltd., titled, “Employee Benefit Issues for Employers to Consider at the Year End and for the Coming New Year,” provides a brief summary of benefits-related issues, including those specifically directed at 401k plans.
As a reminder of what needs to be taken care of, here’s a look at the retirement plan considerations from that brief:
• Hardship Distribution Amendment Deadline: The Bipartisan Budget Act of 2018changed the hardship distribution provisions of 401k plans by eliminating the suspension of employee elective deferrals as a result of a hardship withdrawal and requiring participants to certify that they have insufficient assets to satisfy the financial need. These plans must be amended by December 31, 2021, to implement these changes.
• Pre-approved 401k and Other Defined Contribution Plans—Restatement Deadline: Employers who sponsor pre-approved prototype or volume submitter plans have until July 31, 2022, to restate their plans as part of the “remedial amendment cycle.” It is likely that the retirement plan document providers have already contacted the sponsoring employers about this deadline. Nevertheless, employers who sponsor pre-approved plans should contact those responsible for maintaining their plan documents to confirm they are scheduled for a timely restatement.
• Cybersecurity Compliance: Since issuing best practice guidelines for retirement plan administrators in early 2021, the Department of Labor has initiated fiduciary investigations of cybersecurity compliance. Plan administrators and fiduciaries should review their own practices to determine compliance with the new guidance and inquire of their vendor’s compliance as well.
• SECURE Act and related changes due in 2022: Many newly required and optional changes to retirement plans were introduced by the SECURE Act, the CARES Act, and the CAA over the past couple of years which must be adopted by plan amendment by December 31, 2022.
The required changes include (i) delaying the required beginning date for required minimum distributions from April 1 following the calendar year in which the participant reaches age 70½ to April 1 following the calendar year in which the participant reaches age 72; (ii) changing the distribution rules for benefits payable upon the death of a participant. The new rule under the SECURE Act generally applies to participants who die on or after January 1, 2020, and requires distributions within 10 years after the participant’s death unless the beneficiary is the participant’s spouse or a member of a specific list of other “eligible designated beneficiaries;” and (iii) allowing part-time employees to be eligible to make elective deferrals if they work at least 500 hours for three consecutive years beginning for plan years that start on or after January 1, 2021.
• ESG Investments: The DOL released a final rule in October 2020 to clarify the fiduciary standards for selecting and monitoring investments which significantly limited plan fiduciaries from considering policy goals such as environment, social, or governance (ESG) factors that may not achieve the highest possible return for the plan.
A year later (and following a new administration), the DOL issued a proposed rule in October 2021 that seeks to define the extent to which a plan fiduciary may take into account ESG factors in investing plan assets. Plan fiduciaries considering ESG investments should consider this new DOL guidance when implanting any investment policy changes.
• Lifetime Income Disclosures: The DOL requires defined contribution retirement plans to provide participants with new annual lifetime income disclosures to help workers understand how their savings under the plan translates to retirement income. The purpose of the disclosure is to illustrate how much money participants would receive each month if their total account balance were annuitized. This rule applies to all ERISA-covered defined contribution plans even if the plan offers annuities or lifetime income investment options.
The first lifetime income disclosures must be issued no later than the participant statement for the second quarter of 2022 for participant-directed individual account plans. Non-participant directed plans have until the deadline for the annual statement for the first plan year ending on or after September 19, 2021 (for a calendar year plan, this would be October 15, 2022).
The update is not intended to be comprehensive, but rather a general summary of year-end issues related to retirement plans. Click here to check out the entire brief from Chicago-based law firm Laner Muchin, Ltd.
SEE ALSO:
• DOL Releases Cybersecurity Guidance for 401k Plans
• Clock About to Start Ticking on Lifetime Income Illustrations
• Cycle 3 Restatement Deadline for 401k Plan Documents Approaching
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
