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Compliance Newsletter September 2023

DOL Request for Information

The Employee Benefits Security Administration of the U.S. Department of Labor (DOL) published a request for information (RFI) to help determine rulemaking regarding some of the SECURE 2.0 provisions the impact reporting and disclosure requirements under ERISA.

RFI Highlights

There are 31 numbered questions included in the RFI. Below is a summary of just a few. For complete details, refer to the RFI published August 11, 2023, at federalregister.gov.

  • Electronic statements: Should the safe harbor be modified so that electronic statements are only available if plan administrators can confirm whether an individual accessed or downloaded the statement? Can plan administrators reliably and accurately determine if individuals have electronically accessed statements?
  • Employee notice consolidation: What are the benefits and drawbacks to plans and plan participants if notices are consolidated? What guidance is needed to consolidate notices? Here is a list of the notices that plan administrators may, but are not required to consolidate:
    1. Qualified default investment alternative notice;
    2. Notice for preemption of automatic contribution arrangements (ACA);
    3. Notice for alternative methods of meeting nondiscrimination requirements;
    4. Notice for alternative methods of meeting nondiscrimination requirements for ACA;
    5. Notice for special rules for certain withdrawals from eligible ACA.
  • Unenrolled participant disclosures: Unenrolled participants may be excluded from receiving certain disclosures and notices. Are there additional criteria the DOL and Treasury should consider for the definition of an unenrolled participant outside of what is already defined in SECURE 2.0? Would a model notice be helpful for the annual notice that is required for unenrolled participants?
  • Fee Disclosure: Are current fee disclosures adequate in helping participants make informed decisions? Are there additional or different characteristics such as content, design, or formatting that could enhance understanding and effectiveness?
  • Pension-linked emergency savings account (PLESA): What guidance as well as what priority do plan administrators request to effectively implement PLESAs?
  • Defined benefit (DB) lump sum window notifications: How should the model notices for single-employer DB plans be modified to reflect the amendments to ERISA as well as for general improvements?
  • DOL Report on Pooled Employer Plans (PEP): The DOL must periodically study various aspects of the PEP and report to Congress every five years. What are potential data sources and methods the DOL could use in conducting their study?
  • Directed trustees serving as trustees of a PEP: The DOL intends to update the Form PR and its instructions to reflect that directed trustees may serve as fiduciaries. What guidance, if any, is needed to implement this provision?

Comments

Commenters are not required to answer every question from the RFI but are encouraged to identify the question number that aligns with their comments. Comments must be received by October 10, 2023, using one of the following methods:

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

Transitional Relief for Catch-Up Contributions

In response to feedback that the Roth catch-up rule included in the SECURE 2.0 Act of 2022 (SECURE 2.0) will be difficult to implement when it takes effect in 2024, the IRS has issued Notice 2023-62 (the Notice), which provides for an "administrative transition period." In the same notice, the IRS has also issued clarification on a few technical issues from SECURE 2.0 and is seeking additional comments related to catch-up contributions.

Background

Retirement plans may allow participants who are age 50 or older to defer catch up contributions that exceed the normal deferral limit allowed for retirement plans. For 2023, the normal deferral limit is $22,500 and the catch-up limit is $7,500. Under SECURE 2.0, effective January 1, 2024, catch-up contributions made by employees with wages in excess of $145,000 for the prior year must be made on a Roth basis for plans qualified under sections 401(a), 401(k), 403(b), and 457(b).

Transitional Relief

The Notice allows for a two-year administrative transition period. As a result, during the 2024 and 2025 tax years, catch up contributions made by individuals who will be turning 50 years old or older and with wages in excess of $145,000 will be automatically satisfying the new rule, even if they're not made on a Roth basis of if the plan does not allow for Roth contributions.

Additional Clarification

  • There is an interpretation of SECURE 2.0 that prohibits all catch-up contributions for 401(k) the availability of catch-up contributions.
  • There is also an interpretation of SECURE 2.0 that requires all employees participating in a governmental 457(b) plan to make catch-up contributions on a Roth basis, regardless of their wages. The Notice appears to correct this; however, additional guidance may be needed.
  • The Notice confirms that SECURE 2.0 did not change prior law and employees who contribute to two or more unrelated plans must aggregate their contributions across all plans to determine whether they have met the individual deferral limit.

Public Comments

The U.S. Department of Treasury (Treasury) and the IRS intend to issue further guidance that is expected to include the following matters, but are seeking additional comments:

  1. Guidance clarifying that individuals who are self-employed or have no FICA wages are not subject to the $145,000 Roth threshold.
  2. The plan administrator would be permitted to treat a participant election to make catch-up contributions on a pre-tax basis as an election to make Roth catch-up if the participant is required to make catch-up contributions on a Roth basis.
  3. Retirement plans maintained by more than one employer (including a multiemployer plan), may treat each participating employer separately regarding the $145,000 FICA wages. In other words, if a participant under two participating plans earned less than $145,000 FICA wages in each plan, then the Roth catch-up is not required even if the total FICA wages aggregated under all plans exceed $145,000. Also, if a participant earned more than $145,000 under one plan, but not under another, the participant is only required to make Roth catch-up under the plan where they earned greater than $145,000.

Comments can be submitted on or before October 24, 2023, using one of the following methods:

  • Federal eRulemaking Portal at www.regulations.gov
  • By mail to: Internal Revenue Service, Attn: CC:PA:LPD:PR (Notice 2023-62), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044

Disaster Relief for Mississippi, Illinois, Hawaii, Alaska, and Florida

In response to the various disaster events across the United States in the past months, the Internal Revenue Service extended various deadlines for impacted businesses and taxpayers. 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 who reside or have a business in any of the following areas may be eligible for deadline relief.

  • Mississippi-certain deadlines occurring between June 14, 2023 and October 16, 2023 are extended to October 16, 2023Claiborne, Copiah, Covington, Jackson, Jasper, Jefferson, Jeferson Davis, Lawrence, Leake, Neshoba, Newton, Rankin, Scott, Simpson, Smith, and Wayne Counties
  • Illinois-certain deadlines occurring between June 29, 2023 and October 31, 2023 are extended to October 31, 2023 Cook County
  • Hawaii-certain deadlines occurring between August 8, 2023 and February 15, 2024 are now extended to February 15, 2024Maui and Hawaii counties
  • Alaska-certain deadlines occurring between May 12, 2023 and October 31, 2023 are extended to October 31, 2023 Bering Strait, Copper River, Kuspuk, Lower Kuskokwim, Lower Yukon, and Yukon Flats regional educational attendance areas
  • Florida-certain deadlines occurring between August 27, 2023 and February 15,2024 are now extended to February 15, 2024Alachua, Baker, Bay, Bradford, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Hardee, Hernando, Hillsborough, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Nassau, Pasco, Pinellas, Polk, Putnam, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor Union, Volusia, and Wakulla 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 120thday 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.

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.

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