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Compliance Newsletter January 2024

Disaster Relief for Tennessee

In response to severe storms and tornadoes that began December 9, 2023, the Internal Revenue Service extended various deadlines for impacted businesses and taxpayers in Tennessee. Pension Benefit Guaranty Corporation (PBGC) also offers deadline relief according to a one-time announcement published in the Federal Register on July 2, 2018.

Impacted Areas and Dates

Individuals or businesses in the following counties are subject to relief: Davidson, Dickson, Montgomery, and Sumner. Certain deadlines for individuals and businesses in those impacted counties that fall from December 9, 2023, through June 16, 2024, are extended until June 17, 2024.

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 5498 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.

Limited SECURE 2.0 Guidance

The Internal Revenue Service (IRS) released guidance on twelve sections of the SECURE 2.0 Act of 2022 (SECURE 2.0). Noted below is a brief summary of the sections from SECURE 2.0 with corresponding highlights from this latest IRS guidance.

Summary of Guidance

  • Section 101 - Expanding Automatic Enrollment in Retirement Plans
    For plan years beginning on or after January 1, 2025, auto enrollment is required for newly established 401(k) and 403(b) plans with some exceptions.
    • For 401(k) plans, the date established is determined by the date plan provisions are initially adopted, even if the effective date is later.
    • For 403(b) plans, auto enrollment is not required for plans established before December 29, 2022.
    • For mergers, if two single employer plans that were not newly established are merged, the ongoing plan for this purpose will continue to be considered a plan that is not newly established. Additional rules apply when more than one employer maintains the plan.
    • For spin-offs, if the original plan was not newly established, then the spun off plan generally maintains that status. Additional rules apply when more than one employer maintains the plan.
  • Section 113 - Small Immediate Financial Incentives for Contributing to a Plan
    For plan years beginning on or after December 30, 2022, plan sponsors may offer de minimis financial incentives, such as low-dollar gift cards, to boost employee participation. These incentives may not be paid from plan assets.
    • The incentive may be paid in a single lump sum or in installments; however, the total paid may not exceed $250.
    • Only available to individuals where no election to defer is already in effect.
    • Matching contributions are not deemed a de minimis financial incentive.
    • Financial incentives are includible in the employee’s gross income and wages and are subject to withholding and reporting requirements unless another exception applies.
  • Section 326 - Exception to the Additional Tax on Early Distributions from Qualified Plans for Individuals with Terminal Illness
    After December 29, 2022, certain terminally ill individuals were exempted from the 10% additional income tax.
    • There is no waiver to in-service withdrawal restrictions already in place.
    • Qualified retirement plans and Individual Retirement Accounts (IRAs) may, but are not required to, recognize distributions for terminally ill individuals. There is no required dollar limit an individual may receive as such distribution.
    • If distributions to terminally ill individual are not recognized by the plan or IRA, the individual may treat a distribution that is allowed by the plan as a terminally ill distribution and claim the 10% additional income tax exemption when they file their federal income tax return.
    • A plan would need to be amended to recognize other permissible distributions as a terminally ill distribution.
    • Plan sponsors may not rely on self-certification from the individual and must receive a certification from a licensed doctor of medicine or osteopathy.
    • The physician’s certification must include the following:
      • The physician’s name and contact information.
      • The dates the physician examined the individual (or reviewed evidence the individual provided) and signed the certification.
      • A statement that the individual’s illness or physical condition can be reasonably expected to result in death in 84 months or less after the date of certification.
      • A narrative description of the evidence used to support their statement.
      • The physician’s signature along with an attestation that the physician provided the narrative and completed the examination (or reviewed the evidence).
  • Section 350 - Safe Harbor for Correction of Employee Elective Deferral Failures
    Effective for errors with a required correction date on or after January 1, 2024, the IRS will allow plan sponsors 9 ½ months after the end of the plan year in which the mistake was made (may be earlier if employee notified the plan sponsor of the error) to correct reasonable administrative errors in implementing automatic enrollment and automatic escalation features (or an affirmative election made by an eligible employee covered by such a feature). This correction method also applies to eligible employees who were unable to make an affirmative election because they were improperly excluded from the plan.
    • Corrective allocations for missed matching contributions (adjusted for earnings) must be made within a reasonable period. If made by the last day of the sixth month following the month in which correct elective deferrals begin, the corrective allocation will be treated as being made within a reasonable period.
    • Plan sponsors may follow EPCRS Safe Harbor Correction Method, including the notice requirements. The notice provided to a terminated employee, though, is not required to include:
      • A statement that appropriate amounts have begun to be deducted from compensation or
      • The individual may elect an increased deferral percentage to make up for the missed deferral opportunity.
  • Section 501 - Provisions Relating to Plan Amendments
    Generally, SECURE 2.0 amendment deadlines were through the last day of the first plan year that begins on or after January 1, 2025 (2027 for governmental and applicable collectively bargained plans).
    • Deadlines are generally extended for retirement plans and IRAs until December 31, 2026.
    • Applicable collectively bargained plans are extended to December 31, 2028.
    • Governmental plans within the meaning of Code section 414(d) are extended until December 31, 2029.
    • Governmental 457(b) plans are the later of December 31, 2029, or the first day of the first plan year beginning more than 180 days after the date the Secretary of the Treasury notifies that the plan was administered in a manner inconsistent with the requirements of 457(b).
  • Section 604 - Optional Treatment of Employer Contributions or Nonelective Contributions as Roth Contributions
    Effective for 401(a), 403(b), and governmental 457(b) plan contributions made after December 29, 2022, the plan may allow employees to designate vested employer matching or nonelective contributions as Roth contributions.

    Subsequent IRS guidance found in Notice 2024-2 confirms that this is an optional plan provision. Roth matching and Roth nonelective contributions:

    • are excluded from wages for purposes of Code section 3401(a), so are not subject to wage withholding.
    • are not treated as wages for purpose of FICA or FUTA1.
    • are includible in an employee’s gross income in the taxable year in which the contribution is allocated to their account, even if the contribution is deemed to have been made on the last day of the prior tax year.
    • must be reported on Form 1099-R. The gross contribution amount must be reported in box 1 (gross distribution) and in box 2a (taxable amount) and use distribution code “G” in box 7 (direct rollover and direct payment).

1Roth nonelective contributions to a governmental 457(b) plan may be subject to FICA and FUTA.

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 or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

Insurance products and plan administrative services provided through Principal Life Insurance Company®, a member of the Principal Financial Group®, Des Moines, IA 50392.

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