Left Navigator - Web Content Viewer (JSR 286)
Web Content Viewer

Compliance Newsletter July 2022

IRS Pre-Examination Pilot

The Internal Revenue Service (IRS) announced that it will begin piloting a pre-examination retirement plan compliance program beginning June 2022. The goal is ultimately to reduce taxpayer burden and the amount of time spent on retirement plan examinations.

Notification and Timing

The IRS will notify a plan sponsor by letter if their retirement plan is selected for an upcoming examination. Plan sponsors will have 90 days to review and confirm that their retirement plan document and operations are compliant with current tax law requirements.

If the plan sponsor does not respond within 90 days, then the IRS will schedule an exam.

Next Steps if Issues

If the plan sponsor finds issues in the plan document or operations, then the IRS offers the following alternatives:

  • Possible self-correction using the Employee Plans Compliance Resolution System (EPCRS) guidance published within Revenue Procedure 2021-30.
  • If the issues are not eligible for self-correction, the plan sponsor may request a closing agreement. The IRS will use the Voluntary Correction Program fee structure to determine the sanction amount to pay. These fees vary based on plan asset size ranging from $1,500 for assets $500,000 or less to up to $3,500 for plan assets over $10 million.

IRS Review

The IRS will review plan sponsor documentation and self-correction, if any. If the IRS agrees, they will issue a closing letter or may conduct a limited or full scope examination.

The IRS did not indicate a time period for this pilot but did say that they will evaluate its effectiveness and determine if it should continue as part of their overall compliance strategy.

IRS Ceases Letter Rulings for Certain Reversions

The Internal Revenue Service (IRS) announced that it will no longer issue letter rulings on whether a reversion has occurred when a plan has excess assets after a spinoff and plan termination event.

Background

Generally, in an effort to reduce the size of a defined benefit (DB) retirement plan, plan sponsors may spin off a portion of an existing DB plan into a different plan, then terminate one of the plans. If there is a surplus in the terminating plan after all liabilities and expenses have been paid, then employers may receive the surplus assets, also known as a reversion. The reversion is subject to up to a 50% excise tax.

No IRS Ruling

The IRS announced that all ruling requests pending or received on or after June 21, 2022, will no longer be subject to a letter ruling on whether a DB plan termination results in a reversion under the following conditions:

  • Less than 100 percent of the assets of a DB plan are spun off to another DB plan under the same employer;
  • The DB plan receiving the assets terminates "within a short period of time after receiving those assets;" and
  • Assets remain in the terminated DB plan trust after benefits are distributed to plan participants and their beneficiaries.

The IRS noted that any pending requests will be closed and receive a refund of the full user fee.

Regulatory Agenda Update

Regulatory agencies with oversight of employee benefit policies have updated their semi-annual agendas for Spring to provide awareness of key issues expected to be the subject of formal guidance within the up-coming year. Although there is no requirement to act upon any of the items included in each agency's agenda, this provides insight into the priorities and activities expected in the coming months. Highlighted below are agenda items with retirement impacts.

Pension Benefit Guaranty Corporation (PBGC)

There are no changes from the Fall 2021 Agenda. Highlighted below is a reminder of what is included.

Proposed Rule stage:

  • Update in the interest, mortality, and expense load assumptions used to determine the present value of benefits for defined benefit single-employer plans as well as mass withdrawal liability payments for multiemployer plans.
  • PBGC rule improvements to recover overpayments.
  • Codification of PBGC policy for assessing and waiving penalties for failure to provide certain notices.

Final Rule stage:

  • Clarify PBGC benefit payments and valuation regulations.
  • Annual civil penalty adjustments.
  • Special financial assistance under the American Rescue Plan Act (ARPA) of 2021 for multiemployer plans

Treasury and Internal Revenue Service

Proposed Rule Stage:

  • Update rules and guidance around the following areas from the Securing a Strong Retirement (SECURE) Act of 2019 including, but not limited to:
    • 401(k) safe harbor rules
    • Long-term part-time employee eligibility requirements
  • Guidance on the use or allocation of forfeitures in qualified retirement plans.
  • Clarify the definition of church and governmental plan status.
  • Nondiscrimination relief for closed defined benefit plans.
  • Reporting and notice requirements for deferred vested benefits.

Final Rule Stage:

  • Update to minimum present value requirements for defined benefit plans. This will modify the minimum present value requirements to align with changes made by the Pension Protection Act of 2006.
  • Required minimum distribution guidance.
  • Multiple employer plans (MEPs) and the Unified Plan Rule.

Department of Labor and Employee Benefits Security Administration

Proposed Rule Stage:

  • Implement Form 5500 reporting changes enacted by the SECURE Act.
  • Update fiduciary definition to more appropriately define when a person who renders investment advice for a fee to employee benefit plans and IRAs is considered a fiduciary. EBSA will also evaluate prohibited transaction exemptions and consider proposing changes or new exemptions.

Final Rule Stage:

  • Prudence and loyalty in selecting retirement plan investments and exercising shareholder rights.
  • Amend and restate the Voluntary Fiduciary Correction Program (VFCP) to expand scope and streamline corrections for certain violations. The VFCP is designed to encourage voluntary correction of fiduciary violations.
  • Update lifetime income illustrations on ERISA pension benefit statements as outlined within the SECURE Act.
  • Finalize abandoned plan program since the proposed rule was issued on December 12, 2012.

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.

Principal Life Insurance Company, Des Moines, Iowa 50392-0001, www.principal.com, Principal®, Principal Financial Group® and the Principal logo design are registered trademarks of Principal Financial Services, Inc., a Principal Financial Group company, in the United States and are trademarks and service marks of Principal Financial Services, Inc., in various countries around the world.

© 2022 Principal Financial Services, Inc.

PQ11297JUL22

Small Banner Web Content Viewer