Articles

Retirement Plan Update: What Plan Sponsors Are Seeing and What is Coming

Date: December 13, 2021
If your association or organization sponsors one or more retirement plans, you should be on the lookout for outreach from your recordkeepers or plan document providers.  Please note that many times the outreach comes through the providers’ employer portal with a corresponding email to the contact of record.  You should verify that the designated contact person is correct.  Failure to adopt the amendments described below in a timely manner may result in assessment of penalties by the Internal Revenue Service or disqualification of the retirement plans.   

Plan Amendments

The United States Congress has been relatively quiet over the last decade with respect to the passage of legislation impacting qualified retirement plans.  The days of retirement plan sponsors having to adopt amendments for required changes to retirement plans each year appeared to be behind us.  However, recent activity will necessitate upcoming amendments to retirement plans.  You can expect outreach from your recordkeepers or document providers on amendments for the following:
             
  • Permanent change in “required beginning date”:  For individuals who reach age 70-1/2 after December 31, 2019, the new required beginning date for minimum distributions required to be taken from retirement plans and individual retirement accounts is now April 1 of the calendar year following the year in which the individual reaches age 72. 
  • Temporary suspension of minimum distribution for 2020:  In response to the COVID-19 pandemic and the resulting negative impact on the stock market, Congress voted to suspend the requirement for employees or IRA owners to withdraw minimum required distributions from defined contribution plans, 403(b) plans, and individual retirement accounts.  Even though the waiver applies for 2020, a plan amendment is not required to be adopted until 2022.
  • Accelerated distributions after death:  Retirement plan accounts must be distributed in full within ten years following a participant’s or IRA owner’s death unless the beneficiary is the participant or IRA owner’s surviving spouse or disabled child.  The previous rule was distribution in full within five years unless an election was made to utilize a payout over life expectancy.  Note:  this change may also have estate planning implications for plan participants.           
  • Coronavirus-related distributions and loans:  Employers who elected to have the special “coronavirus distributions,” increased loan limits, and temporary suspension of loan repayments apply for their retirement plans will be presented with amendments to tailor the plan’s provisions to those elections. 

Plan Restatements

Organizations that utilize a prototype or volume submitter document for their retirement plans –- most plan sponsors – are now being presented with restatements of those documents, even if the organization has made no changes to its retirement plans.  You may be questioning whether these restatements are necessary, whether the document provider is just generating fees, and why you need to go through this exercise.  Answer is that the Internal Revenue Service requires these types of plans to be restated every six years even if the plans have not been amended since the last restatement. 

More bad news.  Due to the timing of the preparation of the restatements and the providers’ submission to the IRS for opinion letters, the amendments described above are not included in the restatements, so separate amendments will be sent even though the organization recently adopted new plan documents. 
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.