Compliance Newsletter May 2024

• Retirement Savings Lost & Found
  The DOL proposed a voluntary method of collecting information that is intended to help populate the online “Retirement Savings Lost and Found” database.
• RFI for Reporting & Disclosure Requirements Extension
  The comment period for the request for information (RFI) regarding reporting and disclosure requirements has been extended to May 22, 2024.
• Extension of Limited RMD Relief
  The IRS issued Notice 2024-35, extending excise tax relief for certain beneficiaries of required minimum distribution (RMD) rules.
• Final Amendment to QPAM Exemption
  The DOL released a final amendment to Class Prohibited Transaction Exemption 84-14, also known as the Qualified Professional Asset Manager (QPAM) Exemption.
• DOL Final Fiduciary Rule: Retirement Security Rule
  The DOL released the Retirement Security Rule, their final rule that redefines an investment advice fiduciary. In addition, the DOL finalized several amendments to prohibited transaction exemptions available to investment advice fiduciaries.
• Disaster Relief for Maine & Rhode Island
  The IRS and PBGC have issued disaster relief in response to severe storms and flooding in parts of Maine and Rhode Island.

Retirement Savings Lost & Found

The Department of Labor (DOL) is seeking comments on the proposed voluntary collection of data in an effort to establish a searchable database for individuals to track retirement savings.

Background

The SECURE 2.0 Act of 2022 requires the DOL to create an online searchable “Retirement Savings Lost and Found” (RSLF) database by December 29, 2024. The RSLF would allow individuals to locate contacts for retirement savings that they may have lost track of. In an effort to populate the database, the DOL recently proposed a method by which plan administrators, on a voluntary basis, can provide applicable participant and beneficiary information to the DOL.

Proposed Collection of Information

The DOL proposal requests that plan administrators (or their authorized representatives, such as recordkeepers) voluntarily provide the applicable information as an attachment to the 2023 Form 5500 series Annual Returns/Reports using the ERISA Filing Acceptance System (EFAST2). EFAST2 is used to electronically receive and display Form 5500 series Annual Returns/Reports.

Some of the information requested includes names of participants and beneficiaries with vested benefits who have separated from service, their Social Security number, contact information, and distribution information, if any.

Comments

Written comments on the proposal can be made on or before June 17, 2024, and addressed to the following:

• James Butikofer, U.S. Department of Labor, Employee Benefits Security Administration, Office of Research and Analysis, 200 Constitution Avenue NW,
  N-5718, Washington, DC, 20210, ebsa.opr@dol.gov

RFI for Reporting & Disclosure Requirements Extension

The Department of Labor, Internal Revenue Service, and Pension Benefit Guaranty Corporation (the Agencies) announced that the comment period will be extended for their request for information (RFI) issued earlier this year around reporting and disclosure requirements.

Background

On January 23, 2024, the Agencies jointly issued an RFI around reporting and disclosure requirements. This RFI is in response to Section 319 of the SECURE 2.0 Act of 2022, which requires the Agencies to complete a review and issue recommendations to Congress of current disclosure and reporting requirements by December 29, 2025.

The RFI consisted of 24 questions where the Agencies are seeking responses in an effort to reduce compliance burdens as well as ensure timely receipt and a better understanding of the information plan participants and beneficiaries need. A partial list of the questions was published in the February 2024 Compliance Newsletter.

Comment Period Extension

All comments, to be shared across the Agencies, had previously been required by April 22, 2024. However, the comment period has been extended 30 days to May 22, 2024.

Written comments must be identified by RIN 1210-AC09 and may be submitted using one of the following methods:

• Federal eRulemaking Portal at www.regulations.gov.
• Mail to Office of Regulations and Interpretations, Employee Benefits Security Administration, U.S. Department of Labor, Attention: Request for Information – SECURE 2.0 Section 319 – Effectiveness of Reporting and Disclosure Requirements, Room N-5655, U.S. Department of Labor, 200 Constitution Ave NW, Washington, DC 20210.

Extension of Limited RMD Relief

The IRS issued Notice 2024-35, which extends relief for certain beneficiaries of required minimum distribution (RMD) rules that were changed under the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE), proposed RMD regulations issued in February 2022, and the SECURE 2.0 Act of 2022.

Background

SECURE extended the RMD’s 5-year rule to 10 years for certain beneficiaries of a defined contribution plan or individual retirement arrangement (IRA). As a result, and with some exceptions, once the participant or IRA owner (referred to collectively as the employee) dies, the remaining account balance must generally be distributed within 10 years to the designated beneficiary.

SECURE also established the definition of an eligible designated beneficiary (EDB), which includes the employee’s surviving spouse, the employee’s children under the age of 21, a disabled or chronically ill beneficiary, or an individual no more than 10 years younger than the employee. EDBs may receive RMDs for their lifetime; however, at their death, the designated beneficiary of the EDB must receive the remaining account balance generally by the end of the 10th year following the EDB’s death.

Proposed regulations issued on February 24, 2022, clarified that if the employee dies on or after the employee’s required beginning date, the beneficiary must continue to receive annual RMDs at least as rapidly each year, with full distribution made no later than the 10th calendar year following the employee’s death. This is also true for payments to a beneficiary of an EDB following the EDB’s death.

IRS Notice 2022-53 provided excise tax relief for certain beneficiaries that should have received RMDs from a retirement plan or IRA under the 10-year rule. Notice 2023-54 (issued last year) and Notice 2024-35 has extended such relief.

10-year Rule Relief

In response to comments to the proposed RMD regulations, the IRS is extending the waiver of the excise tax that a beneficiary may ordinarily be subject to if certain RMD payments were not made.

The excise tax waiver applies if the following are true for a beneficiary of an employee:

• The employee died in 2020, 2021, 2022 or 2023,
• The employee died after their required beginning date, and
• The beneficiary is not taking a lifetime or life expectancy payment of the RMD (available to EDBs only)

The beneficiary of an EDB may also be subject to an excise tax waiver if the following is true:

• The EDB died in 2020, 2021, 2022 or 2023 and
• The EDB was taking a lifetime or life expectancy payment.

Additionally, a defined contribution plan that failed to make either of the RMDs outlined above will not be treated as having failed to satisfy the Internal Revenue Code merely because that distribution was not made in 2020, 2021, 2022, or 2023.

Final RMD Regulations

Notice 2024-35 also included an announcement that final RMD regulations, when released, will apply for purposes of determining RMDs for calendar years beginning on or after January 1, 2025. We will continue to monitor all developments and provide additional updates as new information becomes available.

Final Amendment to QPAM Exemption

The Department of Labor (DOL) released a final amendment to Class Prohibited Transaction Exemption 84-14, also known as the Qualified Professional Asset Manager (QPAM) Exemption.

Background

ERISA plan fiduciaries are prohibited from causing a retirement plan to engage in a variety of transactions with certain related parties who may be in a position to exercise improper influence. Statutory exemptions exist for certain transactions, among which includes the commonly relied upon QPAM Exemption (established in 1984). The QPAM Exemption provides broad relief for employee benefit plan and IRA transactions if requirements are met that otherwise would be prohibited by ERISA and the Internal Revenue Code, if the transactions involve a "qualified professional asset manager".

Final Amendment Highlights

As described by the DOL, the final amendment ensures that the exemption continues to protect plans and their participants and beneficiaries and IRA owners by doing the following:

• Addressing perceived ambiguity by clarifying that foreign convictions are included in the scope of the exemption’s ineligibility provision for a period of 10 years.
• Expanding the ineligibility provision to include additional types of serious misconduct.
• Requiring a QPAM to notify the DOL within 30 days of being ineligible for the exemption as well as written notice to impacted employee benefit plan and IRA customers.
• Adding a one-year transition period that focuses on mitigating potential costs and disruption to plans and IRA owners when a QPAM becomes ineligible due to a conviction or participates in other serious misconduct.
• Updating asset management and equity thresholds in the QPAM definition, which will be adjusted annually through 2030.
• Clarifying the requisite independence and control a QPAM must have with respect to investment decisions and transactions.
• Adding a standard recordkeeping requirement, with records required to be available to federal and state regulators along with any fiduciary of a plan, contributing employer or an employer organization or participants covered by the plan.

Effective Date

The final amendment was published on April 3, 2024, and is effective on June 17, 2024. For questions about the Final QPAM Amendment, contact EBSA's Office of Exemption Determinations at (202) 693-8540.

DOL Final Fiduciary Rule: Retirement Security Rule

On April 23, 2024, the U.S. Department of Labor (DOL) released the Retirement Security Rule, their final rule that redefines an investment advice fiduciary. The rule details when investment advice providers are acting in a fiduciary role. In addition, the DOL finalized several amendments to class prohibited transaction exemptions (PTEs) available to investment advice fiduciaries. Below is a broad summary of the Retirement Security Rule and related PTE amendments.

Background

The Employee Retirement Income Security Act (ERISA) imposes certain requirements on fiduciaries of retirement plans and similar standards apply to individual retirement accounts (IRAs) under the Internal Revenue Code. Under these laws, fiduciaries have a duty to be prudent and loyal to investors and their beneficiaries as well as avoid conflicts of interest.

In 1975, the DOL provided a five-part test to determine whether someone was providing fiduciary investment advice to retirement savers. Under the five-part test, a person is considered a fiduciary if the investment advice is:

1. Recommending the purchase, sale, or value of securities or investment property for a fee,
2. Given on a regular basis,
3. Pursuant to a mutual agreement or understanding,
4. The primary basis for the investment decision, and
5. Individualized to the needs of the retirement saver.

When a fiduciary advisor gives investment advice, typically, the advisor must comply with a PTE for the advisor or their organization to receive compensation for the advice.

Investment Advice Fiduciary Defines

The Retirement Security Rule redefines an investment advice fiduciary as someone who receives compensation to make an investment recommendation to a retirement investor. A retirement investor includes a plan, plan fiduciary, plan participant or beneficiary, IRA, IRA owner or beneficiary, or IRA fiduciary. A retirement investor does not include financial professionals who make an investment recommendation to the retirement investor yet have no discretionary authority for investment decisions. To be considered investment advice, the recommendation needs to be given in one of the following contexts:

• The person has discretionary authority or control to purchase or sell securities or other investment property for the retirement investor;
• The person makes professional investment recommendations on a regular basis as part of their business, directly or through an affiliate, and the recommendation:
  • would indicate to a reasonable investor that the recommendation is based on the review of the retirement investor’s needs or individual circumstances,
  • reflects the application of professional or expert judgment to the investor’s needs or individual circumstances, and
  • may be relied upon by the retirement investor as in their best interest; or
• The person represents or acknowledges that they are acting as a fiduciary when making investment recommendations.

Fiduciary status is determined on a transactional basis. Written statements disclaiming any fiduciary relationship will not apply if they are inconsistent with the person’s oral communications, marketing, or other interactions with the retirement investor.

Entities can offer a menu of investment options to fiduciaries for selection by participant-directed plans that are not customized or tailored to the retirement investor without the menu considered a recommendation. In addition, investment information or education, without a recommendation and indirect or direct compensation, is not advice under the rule.

PTE Amendments

The DOL finalized amendments to several existing PTEs that are applicable to investment advice fiduciaries. These changes are highlighted below:

PTE 2020-02

• New required disclosures:
  • Written statement of the duties of care and loyalty owed by the investment professional and their financial institution to the retirement investor.
  • All material facts relating to the scope and terms of the relationship with the retirement investor, including material fees and costs.
• Conflicts of Interest: Fiduciary advisors must update their policies and procedures to address incentives that might displace the retirement investor’s best interests.
• Expanded availability to use this exemption for:
  • Recommendations of any investment product, regardless of whether the product is sold on a principal or agency basis.
  • Robo advice.
  • Pooled Plan Providers (PPP) providing investment advice to Pooled Employer Plans (PEP); however, a PPP’s decision to hire an affiliated or related party as an advice provider is excluded.

PTE 84-24

The DOL amended PTE 84-24 to change the availability of the exemption and adds an additional section for independent insurance agents providing investment advice. This exemption is:

• no longer available for investment advice fiduciaries who are not independent insurance agents and fiduciaries who have discretionary management of plan assets (they would generally have to use PTE 2020-02).
• not available for specific investment advice involving ERISA plans transactions where the insurance agent, insurer, or any affiliate is the employer of the employees covered by the plan, or the plan’s named fiduciary or administrator.
• available to independent insurance agents authorized to sell annuities that are not securities from two or more unrelated insurers to provide investment advice for annuity products (including rollovers); however, they must:
  • Fully disclose their compensation,
  • Comply with impartial conduct standards (like PTE 2020-02),
  • Provide written statements of the DOL’s duties of care and loyalty, and
  • Like PTE 2020-02's disclosure requirements regarding fiduciary status, fees, services, conflicts of interest, and a description of products they are licensed and authorized to sell, along with limitations.

PTEs 75-1, 77-4, 80-83, 83-1, and 86-128

In general, these PTEs are amended so that investment advice to ERISA plans or IRAs are excluded (they would generally need to use PTE 2020-02 or PTE 84-24). A high-level summary of each PTE is noted below:

• PTE 75-1: Covers a variety of brokerage transactions, mutual fund purchases, underwriting transactions, and extensions of credit.
• PTE 77-4: Covers a retirement plan or IRA’s purchase of an open-end mutual fund, discretionary transactions, and can be used to provide advice to a plan or IRA owner to purchase a proprietary mutual fund.
• PTE 80-83: Allows security purchase when the proceeds may be used to retire or reduce a debt to the fiduciary.
• PTE 83-1: Provides relief for the purchase of mortgage pool interests.
• PTE 86-128: Covers brokerage transactions where a plan pays a fee for executing securities transactions.

Effective Date

The Retirement Security Rule and corresponding PTE amendments were published in the Federal Register on April 25, 2024, and are effective September 23, 2024, including the impartial conduct standards and fiduciary acknowledgement for the amended PTEs.

The new disclosure, policies, supervision, and retrospective review changes to PTE 2020-02 and PTE 84-24 have a one-year transition period from the effective date.

Disaster Relief for Maine & Rhode Island

In response to severe storms and flooding in parts of Maine and Rhode Island, the Internal Revenue Service (IRS) and Pension Benefit Guaranty Corporation (PBGC) extended certain deadlines for individuals and businesses impacted by such events.

Impacted Areas and Dates

Individuals who reside or have a business in any of the following areas may be eligible for deadline relief:

• Maine – certain deadlines occurring between January 9, 2024, and July 15, 2024, are extended to July 15, 2024, in Cumberland, Hancock, Knox, Lincoln, Sagadahoc, Waldo, Washington, and York counties.
• Rhode Island – certain deadlines occurring between December 17, 2023, and July 15, 2024, are extended to July 15, 2024, in Kent, Providence, and Washington counties.

Impacted Deadlines

Below is a partial list of retirement-impact tax filing and payment deadlines that may be extended:

• Retirement plan loan repayments under Internal Revenue Code section 72(p)(2)
• Required minimum distributions under Internal Revenue Code section 401(a)(9)
• The 10% additional income tax continues to not apply even if the following is missed during the relief period:
  • Substantially equal payments made over the participant’s life or joint lives of the participant and designated beneficiary
  • Deadline for using a distribution from an IRA for a first-time home purchase by the close of the 120th day after the distribution is received
• Prior tax year contribution deadlines for retirement plans
• Indirect rollover distribution deadlines
  • 60-day rollovers
  • Rollover of qualified loan offsets
• Refunds as a result of
  • Excess deferrals
  • ADP/ACP non-discrimination testing
  • Eligible automatic contribution arrangement (EACA) withdrawals
  • Excess IRA contributions
• Deadline for recontributing qualified reservist distributions
• Form 5500 and Form 8955-SSA filing Form 5948 for IRAs
• PBGC premium payments
• PBGC deadlines that are based on the Form 5500 deadline
• Single Employer Plan Termination Forms 500 and 501

Additional Resources

For any questions related to IRS deadlines and other disaster-related issues, the IRS has a toll-free number at 1-866-562-5227. For PBGC disaster-related questions, call 1-800-736-2444 ext. 4136

The subject matter in this communication is educational only and provided with the understanding that Principal^® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

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