The Internal Revenue Service’s (IRS) Employee Plans Compliance Resolution System (EPCRS) allows employers to correct errors involving the maintenance and operation of tax-qualified retirement plans. The correction programs and options that make up EPCRS have, until now, been established exclusively in a series of IRS notices and revenue procedures dating back more than 30 years. However, as part of the SECURE 2.0 Act, Congress took it upon itself to radically expand EPCRS to allow employers to self-correct most inadvertent failures to comply with the tax-qualification rules under the Internal Revenue Code.
This Special Report discusses the history behind the creation of EPCRS, outlines some of its key features, and highlights how the growth and expansion of this program continues to improve IRS enforcement of tax-qualified plan rules by encouraging plan sponsors to establish practices and procedures designed to ensure compliance, thereby avoiding the harsh tax penalties of plan disqualification.
The SECURE 2.0 Act requires participants who earned more than $145,000 in FICA wages in the prior year from their current employer to make all catch-up contributions on a Roth basis beginning in 2024. For many employers, the primary concern is how to integrate the new rule with how payroll deductions for catch-up contributions are processed and then transmitted to plan recordkeepers.
Retirement plans often apply (and in some cases are required to use) multiple definitions of wages or compensation for various plan purposes. Given this complexity, failures to follow a plan’s definition of compensation are one of the most common issues experienced by retirement plan sponsors. Unfortunately, as drafted, the SECURE 2.0 Act only adds to that complexity.
Beginning after December 31, 2023, the SECURE 2.0 Act indicates that any plan that permits catch-up contributions must require certain employees to make their catch-up contributions on a Roth basis. Employers have expressed significant concerns regarding their ability to implement the necessary system changes—specifically to payroll and recordkeeping systems—by year-end.
In response, employers have begun to explore alternatives that might simplify implementation (or avoid the need to do it altogether). This has produced several questions about what employers can and cannot do.
Beginning after December 31, 2023, the SECURE 2.0 Act indicates that any plan that permits catch-up contributions must require certain employees—i.e., those whose wages from their employer exceed $145,000 in the prior calendar year—to make their catch-up contributions on a Roth basis. This change raises a host of questions about how the rule is intended to apply in practice and even more concerns about the operational obstacles employers will face in attempting to implement the change by year-end.
In this series of articles, we will explore the implications of SECURE 2.0’s changes to catch-up contributions and how employers should respond.
A new bill introduced in Congress would allow 403(b) plans maintained by tax-exempt organizations to make use of collective investment trust (CIT) investments. CITs are an alternative to mutual funds that may provide significant cost savings for 403(b) plans and their participants. The SECURE 2.0 Act took the first steps along this path by making amendments to the Internal Revenue Code to permit 403(b) plans to invest in these vehicles; however, that legislation failed to include the necessary changes to securities laws. The Retirement Fairness for Charities and Educational Institutions Act of 2023 aims to take the next steps by amending the Securities Act and the Investment Company Act to allow 403(b) plans to make use of CITs.
A Massachusetts federal judge recently gave a major win to Schneider Electric in an employee benefits lawsuit brought by former workers. According to this Law360 article, seven former Schneider Electric employees accused the company and its investment manager of running afoul of the Employee Retirement Income Security Act of 1974 when they replaced well-performing funds with those of the investment manager. McDermott Partners Sarah E. Walters, Jennifer B. Routh and Margaret H. Warner represented Schneider Electric.
What do retirement plan professionals and participants need to know about the recently passed SECURE 2.0 Act of 2022? In this webinar replay, McDermott’s Employee Benefits team discusses the many changes to retirement plans and individual retirement accounts, including the key changes for 401(k), 403(b) and defined benefit plans as well as other changes impacting health and welfare plans. Discussion topics include the following:
Automatic plan enrollment and escalation
Allowance of matching contributions for elective deferred student loan repayments
Join partners from McDermott’s Employee Benefits team on Wednesday, January 25, 2023, as they discuss the impact of the recently passed SECURE 2.0 Act of 2022. With over 90 changes to retirement plans and individual retirement accounts (IRAs), this webinar will highlight the key changes for 401(k) and 403(b) plans and defined benefit plans, as well as changes in the Consolidated Appropriations Act, 2023 impacting health and welfare plans.
Topics Include:
Automatic Plan Enrollment and Escalation
Allowance of Matching Contribution for Elective Deferred Student Loan Repayments
We recently reported on an FAQ issued December 23, 2022 (FAQ About Affordable Care Act and Consolidated Appropriations Act, 2021 Implementation Part 56) by the US Departments of Labor, Health and Human Services and the Treasury (collectively, the Departments). The FAQ provides limited, albeit welcome, relief by extending the time for reporting information under the prescription drug data collection (RxDC) rules, which were enacted by Section 204 of Title II of Division BB of the Consolidated Appropriations Act, 2021.
Under the statute, the first RxDC reports for the 2020 calendar (or reference) year, were due to be filed by December 27, 2021. However, in response to concerns expressed by stakeholders, enforcement was pushed back a full year to December 27, 2022, at which time the reports for both the 2020 and 2021 reference years were due. The RxDC reporting process required the submission of one or more “plan lists,” a series of eight data files (files D1 through D8) and an accompanying narrative response. (The contents of the plan lists, data files and narrative responses are comprehensively explained here (the Instructions).)
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