Retirement Plans Archives | Page 6 of 71

IRS Announces 2023 Employee Benefit Plan Limits

by Jeffrey Holdvogt and Jacob Mattinson | Oct 21, 2022 | Employee Benefits, Employment, Fiduciary and Investment Issues, Retirement Plans

The Internal Revenue Service (IRS) and the Social Security Administration announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans and the Social Security wage base for 2023. The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2022 and 2023.*

RETIREMENT PLAN LIMITS (guidance link) 2022 Δ 2023 Annual compensation limit $305,000 ↑ $330,000 401(k), 403(b) & 457(b) before-tax contributions $20,500 ↑ $22,500 Catch-up contributions (if age 50 or older) $6,500 ↑ $7,500 Highly compensated employee threshold $135,000 ↑ $150,000 Key employee officer compensation threshold $200,000 ↑ $215,000 Defined benefit plan annual benefit and accrual limit $245,000 ↑ $265,000 Defined contribution plan annual contribution limit $61,000 ↑ $66,000 Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period $245,000 ↑ $265,000 ESOP limit for determining the maximum account balance subject to the general five-year distribution period $1,230,000 ↑ $1,330,000 HEALTH AND WELFARE PLAN LIMITS (guidance links here and here) 2022 Δ 2023 Health Flexible Spending Accounts Maximum salary reduction limit $2,850 ↑ $3,050 Health FSA Carryover Limit $570 ↑ $610 Dependent Care Flexible Spending Accounts± If employee is married and filing a joint return or if the employee is a single parent $5,000 = $5,000 In employee is married but filing separately $2,500 = $2,500 Excepted Benefit Health Reimbursement Arrangements (EBHRAs) $1,800 ↑ $1,950± Qualified Transportation Fringe Benefit and Qualified Parking (monthly limit) $280 ↑ $300 High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA) HDHP – Maximum annual out-of-pocket limit (excluding premiums): Self-only coverage $7,050 ↑ $7,500 Family coverage $14,100 ↑ $15,000 HDHP – Minimum annual deductible: Self-only coverage $1,400 ↑ $1,500 Family coverage $2,800 ↑ $3,000 HSA – Annual contribution limit: Self-only coverage $3,650 ↑ $3,850 Family coverage $7,300 ↑ $7,750 Catch-up contributions (age 55 or older)± $1,000 ═ $1,000 SOCIAL SECURITY WAGE BASE (guidance link) 2022 Δ 2023 Social Security Maximum Taxable Earnings $147,000 ↑ $160,200

Plan sponsors should update payroll and plan administration systems for the 2023 cost-of-living adjustments and should incorporate the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions.

For further information about applying the new employee benefit plan limits for 2023, contact your regular McDermott lawyer.

* The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year, or limitation-year basis.

± Not indexed for cost-of-living adjustments, with the exception of limited guidance issued for certain years.

Save It for a Rainy Day Part 2: IRS Announces Additional Plan Amendment Extensions

by Teal Trujillo, Patrick Ryan and Diane Morgenthaler | Oct 12, 2022 | Employee Benefits, Employment, Executive Compensation, Retirement Plans

On September 26, 2022, the Internal Revenue Service (IRS) extended the amendment deadline for non-governmental qualified retirement plans, plans covered under Section 403(b) of the Internal Revenue Code (Code) and individual retirement accounts (IRAs). The extensions included many of the amendment deadlines under the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), the Bipartisan American Miners Act of 2019 (Miners Act), and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). See our prior On the Subject about this earlier extension. Missing from this earlier IRS extension was a postponement of deadlines relating to certain CARES Act provisions, in particular those related to COVID-related distributions and loan relief, as well as deadlines relating to disaster-related loans or distributions under the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Disaster Act).

NEW IRS EXTENSION

IRS Notice 2022-45 provides a new extension to December 31, 2025, of the special amendment deadlines included in Section 302 of the Disaster Act and in Section 2022 of the CARES Act.

Section 2022 of the CARES Act provided for COVID-related distributions, increased loan amounts and delayed loan repayments.
Section 302 of the Disaster Act provided favorable tax treatment for certain disaster-related loans or distributions.

Previously, amendments for these CARES Act and Disaster Act provisions would have been required by the end of the 2022 plan year. The Notice also clarifies that CARES Act and Disaster Act amendments adopted before the new December 31, 2025, deadline will not cause the plan to fail to satisfy the anti-cutback requirements of Code Section 411(d)(6) or of Section 204(g) of the Employee Retirement Income Security Act of 1974 (ERISA).

The extension applies to individual retirement accounts (IRAs), to qualified plans that are not governmental plans and to Code Section 403(b) plans that are not maintained by a public school. The amendment deadlines for Code Section 403(b) plans maintained by a public school, and for governmental plans (including plans covered by Code Section 457(b)), remain slightly different.

ACTION ITEM

Most tax-qualified retirement plans and Code Section 403(b) plans that elected to offer COVID-related distributions and loan relief can now wait to adopt changes required under the CARES Act, SECURE Act, MINERS Act or Disaster Act in a single amendment no later than December 31, 2025.

A Light in the Dark: Seventh Circuit Helps Clarify New Pleading Standards for 401(k) Fee Cases

by William Hameline, J. Christian Nemeth and Diane Morgenthaler | Sep 29, 2022 | Benefit Controversies, Employee Benefits, Executive Compensation, Fiduciary and Investment Issues, Retirement Plans

A recent US Court of Appeals for the Seventh Circuit case supplies answers to many questions left open in 401(k) fee litigation cases after the US Supreme Court’s ruling earlier this year in Hughes v. Northwestern University. Specifically, to survive a motion to dismiss in the Seventh Circuit, the recent ruling in Albert v. Oshkosh Corp. reiterated that plaintiffs must allege both high fees and substandard services or performance in comparison to other similar 401(k) plans.

Read more here.

Save It for a Rainy Day: Recent Amendment Extensions for Qualified Retirement Plans, 403(b) Plans and Individual Retirement Accounts

by Teal Trujillo, Allison Wilkerson and Diane Morgenthaler | Sep 21, 2022 | Executive Compensation, Fiduciary and Investment Issues, Retirement Plans

The Internal Revenue Service (IRS) recently issued needed relief to extend some amendment deadlines for non-governmental qualified retirement plans and 403(b) plans, and for individual retirement accounts (IRAs) under the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), the Bipartisan American Miners Act of 2019 (Miners Act), and certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) until December 31, 2025. However, the IRS did not provide relief for all required amendments for the 2022 plan year. Plan sponsors that elected to offer COVID-related distributions or loan relief (or utilized disaster-related relief for loans or distributions under the Taxpayer Certainty and Disaster Tax Relief Act of 2020) still need to amend their plans by the end of 2022 plan year.

Read more here.

SEC Adopts Final Pay Versus Performance Rules

by Thomas P. Conaghan, Andrew Liazos, Eric Orsic, Heidi J. Steele and Brian Tratner | Sep 15, 2022 | Executive Compensation, Fiduciary and Investment Issues, Retirement Plans

On August 25, 2022, the US Securities and Exchange Commission (SEC) adopted final rules to implement the pay versus performance disclosure requirement mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Dodd-Frank Act added Section 14(i) to the Securities Exchange Act of 1934, which directs the SEC to adopt rules that require registrants to clearly disclose the relationship between executive compensation actually paid and the registrant’s financial performance. More than 12 years after US Congress passed the Dodd-Frank Act, the SEC has adopted Item 402(v) of Regulation S-K to put these disclosure requirements into effect in time for the 2023 proxy season.

Read more here.

Responsible Financial Innovation Act: Proposed Tax and Reporting for Digital Assets

by John Lutz, William R. Pomierski, Andrew Granek and McDermott Will & Schulte | Sep 8, 2022 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Retirement Plans

On June 7, 2022, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced the highly anticipated Responsible Financial Innovation Act (the bill), which sets out to create the first complete regulatory and bipartisan framework for digital assets. The bill is intended to establish some legal clarity for regulators and the industry and to protect consumers by providing a range of disclosures and clarifying settlement conditions and rights over digital ownership. The bill would also treat all digital assets that are not treated as securities as commodities regulated by the Commodity Futures Trading Commission. This article discusses key tax considerations raised by the bill concerning taxation and reporting requirements for participants in the digital asset industry.

Read more here.

ESOP Litigation: Latest Trends and Questions

by J. Christian Nemeth | Jul 6, 2022 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Retirement Plans

On May 6, 2022, McDermott Partner Chris Nemeth delivered a presentation during the 2022 TEA National Conference titled “ESOP Litigation: Latest Trends and Open Questions.” His presentation focused on recent significant employee stock ownership plan (ESOP) court decisions and emerging litigation trends in the ESOP industry. Chris and his co-presenter touched on the enforceability of arbitration clauses in the Employee Retirement Income Security Act of 1974 (ERISA) litigation, post-transaction debt forgiveness, and pleading and standing requirements.

For questions about employee benefits matters, please contact Chris or McDermott’s employee benefits practice team.

Mature ESOPs: Remodeling the House You Own

by Allison Wilkerson | Jun 23, 2022 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Retirement Plans

On May 5, 2022, McDermott Partner Allison Wilkerson delivered a presentation during the 2022 TEA National Conference titled “Mature ESOPs: Remodeling the House You Own.” Her presentation focused on the traits of a sustainable employee stock ownership plan (ESOP), common concerns of a mature ESOP and other ESOP-specific investment issues. Allison and her co-presenters also discussed redemption, re-leveraging and the hot acquisition market.

The presentation concluded with the following suggestions:

There are options available no matter where you are in the ESOP life cycle.
Gauge your employee-owners.
Respond with changes that make the ESOP more relevant.
Reach out for help—the ESOP community is vested in your company’s success.

For questions about employee benefits matters, please contact Allison or McDermott’s employee benefits practice team.

Proposed Minimum Distribution Regulations Prompt Concerns

by Todd Solomon | Jun 22, 2022 | Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

Employee benefits professionals are inquiring about relief options for proposed regulations for required minimum distributions (RMDs). According to this Tax Notes article, the proposed regulations would make determining the RMDs during the plan participant’s lifetime and the designated beneficiary more challenging for plan sponsors, IRA trustees and custodians, and third-party administrators. One of the major concerns is the implementation of the 10-year distribution period for most beneficiaries of individuals who die in 2020 or later. McDermott Partner Todd Solomon said the 10-year distribution period is a “somewhat surprising development [that] is likely to leave some beneficiaries and their advisers confused and frustrated because of the added layer of complexity and the inability to stretch distributions as under prior law.”

Read more here.

Homework and Deadlines Matter: New IRS Pre-Audit Compliance Program for Retirement Plans

by Marchan Clark, Jeffrey Holdvogt and Diane Morgenthaler | Jun 16, 2022 | Employee Benefits, Fiduciary and Investment Issues, Retirement Plans

Retirement plan sponsors should be aware of a new Internal Revenue Service (IRS) pilot program, which permits plan sponsors to conduct a pre-examination “check-up” of retirement plan administration before the IRS begins a plan examination. As part of the program, the IRS will send a letter notifying a plan sponsor that its retirement plan has been selected for an upcoming examination and give the plan sponsor 90 days to identify and voluntarily correct any compliance issues that may be self-corrected. Failure to respond by the 90-day deadline will result in an examination. Retirement plan sponsors who receive a pre-examination notice should immediately begin working with their lawyers and other advisors to determine the best way to respond to the IRS notice.

PRE-EXAMINATION PILOT PROGRAM

The IRS pre-examination compliance pilot program gives plan sponsors a chance to correct certain errors before an examination begins. If a plan sponsor identifies errors, then the plan sponsor may be able to self-correct using the procedures set forth in the IRS Employee Plans Compliance Resolution System (EPCRS) program, and the plan sponsor may notify the IRS of its corrective actions. If mistakes are not eligible for self-correction, the plan sponsor may request a closing agreement. With a closing agreement under the pilot program, the IRS will apply the Voluntary Correction Program (VCP) fee structure to determine the sanctions amount rather than the Audit CAP Program fees, which are unpredictable and typically higher. The IRS will review the plan sponsor’s corrective actions and determine whether it agrees that the plan sponsor appropriately corrected the mistakes. The IRS will then determine whether to issue a closing letter or to conduct a limited or full scope audit. The pilot program begins in June 2022.

It’s not clear what factors the IRS will consider when determining whether to conduct a limited or full scope audit following a plan sponsor’s response. However, it stands to reason that a plan sponsor’s efforts at good faith compliance with the correction requirements may serve to limit the scope because typically the IRS wishes to promote self-correction efforts. It’s also not clear whether the 90-day pre-examination period will apply to all retirement plan audits or only to those randomly selected to be part of the pilot program.

NEXT STEPS FOR PLAN SPONSORS

Plan sponsors who receive a pre-examination notice should immediately begin working with their lawyers and other advisors to determine the best ways to respond to the IRS notice. If you receive an initial letter or have questions about the IRS compliance and correction programs, please contact your McDermott lawyer or the authors listed below.

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