September 7, 2020

Key Retirement Plan Changes in 2020

The main focus over the past six months has been COVID-19 and how individuals and businesses are managing through new challenges. The initial forced business closure and stay at home orders dealt a devastating blow to Atlanta businesses forcing many to rely on the Paycheck Protection Program (PPP) or Economic Injury Disaster Loans (EIDL) to survive. Now that less prohibitive restrictions have been implemented; many businesses are now focusing on recovery. Although good news employers should be careful not to forget about the various retirement plan regulatory changes and corresponding compliance responsibilities. The SECURE Act implemented in late 2019 and the CARES Act which passed earlier this year, outlined several changes to how retirement plans are required to operate. While adoption of certain changes is optional, others are not, requiring the plan sponsor to make plan document amendments. To help clients, prospects, and others, Wilson Lewis has provided a summary of key changes below.

SECURE Act Modifications

• Lifetime Income Disclosures – To ensure that participants understand the importance of retirement savings, plan administrators are required to provide two illustrations of a participant’s account balance converted to show the lifetime equivalent value. The disclosure must be made at least annually. The interim final rule issued by the Department of Labor (DOL) requires calculations to use specific assumptions including the date annuity begins, participants age at annuity start, interest rate, and life expectancy assumptions. It also provides model language which can be included in the disclosure.
• Plan Loans Through Credit Cards – It was discovered that various plans were issuing participant loans through credit cards. The Act strictly prohibits loans from being issued using this medium and employers are required to comply on December 20, 2019. If a loan is issued using credit cards after this date it is possible, they will be regarded as taxable distributions and trigger a plan qualification failure.
• Age Requirement for RMD – The age a participant must take Required Minimum Distributions was increased from 70 and a half to 72. The change is effective on December 31, 2019 and applies those who reach 70 and a half after that date. It is important for employers to review plan operations to ensure alignment with the change.
• New Plan Eligibility Requirements – To allow greater access to retirement plans, employers are now required to expand participation for an employee when they have reached one year of service or have worked three consecutive years with at least 500 hours and is 21 or older. Note that employer contributions are not required until plan age and service requirements are met. Atlanta businesses that have a substantial amount of part-time employees should carefully review this change to ensure compliance.
• Reduction/Suspension of Safe Harbor Contributions – To reduce the financial burden of the retirement plan on businesses, the IRS permitted the suspension/reduction of safe harbor contributions. The contributions can be changed by amending the plan between March 13, 2020, and August 31, 2020, even if the business is not operating at an economic loss. To qualify the plan must meet the following conditions:
  • A plan amendment must be adopted no later than the effective date of the reduction/suspension.
  • For safe harbor matching contribution plans, a revised safe harbor notice documenting the changes must be provided 30 days prior to the change.
  • For safe harbor nonelective contribution plans, a notice of the change must be provided to participants no later than August 31, 2020.
• Failure to File Penalties – To ensure plan sponsors meet filing deadlines the IRS has increased overall fines. For Form 5500 the penalty is increased to $250 per day, not to exceed $150,000, Registration Statements penalties increased to $10 per day not to exceed $50,000, and Withholding Notice penalties increased to $100 per day, not to exceed $50,000.

CARES Act Modifications

• Expanded Participant Loans – For qualifying individuals impacted by COVID-19, the loan amount which can be taken from a retirement plan has been increased. Specifically, the maximum loan amount can be the lesser of the vested account balance or $100,000 for loans made between March 27, 2020, and September 22, 2020.
• Coronavirus Related Distributions (CRD) – This new type of distribution can be taken by qualified individuals without incurring early distribution penalties. CRDs are any distributions (up to $100,000) taken from an eligible plan in 2020 and can be repaid over three years to reverse tax consequences.
• 2020 RMD Waiver – To give plan participants protection from taking a distribution when asset values are low, the Act provides a waiver for 2020 RMDs. It is important to note, IRS does permit the rollover of waived RMDs and extended the rollover period to August 31, 2020. These changes were permitted to be immediately implemented but do require plan documents to be amended.

Contact Us

There have been a number of changes to plan administration over the past year. For this reason, it is important to carefully review plan documents and operations to ensure the proper amendments have been made. If not, then it is essential to address open issues immediately to ensure there are no complications with your annual retirement plan audit. If you have questions about the information outlined above or need assistance with your 401k plan audit, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.