Qualified Retirement Plan Guidance Updates

Plan sponsors should consider a few items of guidance issued recently by the Internal Revenue Service (IRS) and the Department of Labor (DOL) in their employee benefits planning for the end of 2018 and for 2019. For information on the proposed regulations recently issued by the IRS relating to Hardship Distributions from 401(k) and 403(b) plans, please see our Alert. Additional items to consider include:

Updated IRS Retirement Plan Correction Procedures

The IRS released a new Revenue Procedure 2018-52 (Rev. Proc. 2018-52) to replace Revenue Procedure 2016-51, modifying the Employee Plans Compliance Resolution System (EPCRS). Rev. Proc. 2018-52 significantly changes the process for making submissions to the IRS for the Voluntary Correction Program (VCP) and makes several other modifications.

As of April 1, 2019, all VCP submissions must be made electronically via www.pay.gov (including payment of the user fee). Paper submissions mailed to the IRS on or after April 1, 2019, will not be processed. When submitting a VCP application electronically, the documents that are part of the application must be converted into a single PDF file that does not exceed 15 MB. If any required documents cannot be included in the PDF file, these documents may be faxed to the IRS provided that the faxed materials meet certain requirements. In addition, a plan sponsor may authorize a representative to submit a VCP application on its behalf on www.pay.gov by including a penalty of perjury statement and Form 2848 as part of the PDF file.

From January 1, 2019, to March 31, 2019, applicants may choose to file VCP submissions by either: (i) submitting and paying electronically via www.pay.gov, or (ii) making a paper submission. Applicants that file paper submissions during this period must follow the procedures in Revenue Procedure 2016-51, using the November 2017 version of Form 8950 and September 2016 version of Form 8951, and must include a paper check for the application fee. Applicants who file submissions through www.pay.gov during this period should note that there is a new January 2019 revision of Form 8950.

In addition to the changes that were announced in Rev. Proc. 2018-52, the IRS indicated that further changes to EPCRS are still under consideration, including (i) changes to the rules regarding correction of overpayments and (ii) expansion of the Self-Correction Program.

IRS Limits

IRS limits will increase in 2019 for the following:

Plan sponsors should confirm with their recordkeepers that all systems have been updated to reflect the 2019 limits.

Revised Model Rollover Notices Issued

The IRS issued revised model rollover notices to reflect legislative and IRS guidance changes made after December 2014 (when the model notices were last updated). Most of the changes in the revised rollover notices related to defined contribution plans (401(k) and 403(b)), but the updated rollover notices may be used for rollover distributions from any type of qualified retirement plan.

The revised model rollover notices include clarifying changes to reflect the following:

• Under certain circumstances, a participant may claim eligibility for a waiver of the 60-day rollover deadline by making a self-certification.
• A participant has until the due date (with extensions) for filing the participant’s federal income tax return to rollover a plan loan offset amount resulting solely from the participant’s termination of employment or the termination of the plan. (A plan loan offset is a foreclosure on a participant’s account that occurs when the participant defaults on a plan loan and the participant experiences a distributable event.)
• Participants affected by federally declared disasters may have an extended deadline for making rollovers.

See IRS Notice 2018-74 here for a copy of the revised notices and a full explanation of the changes.

Proposed Association Retirement Plan Regulations issued by the DOL

The DOL issued proposed regulations to clarify that unrelated employer groups, associations and professional employer organizations (PEOs) can, if certain criteria are satisfied, constitute a single employer within the meaning of ERISA §3(5) for the purpose of establishing or maintaining a multiple employer defined contribution retirement plan (MEP). The proposed regulations are available here.

ERISA §3(5) defines “employer” as “any person acting directly as an employer, or any person acting indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.” The proposed regulations define a bona fide group or association of employers and a bona fide PEO, each of which are deemed to be able to act in the interest of an employer within the meaning of §3(5) for MEP purposes, by satisfying the criteria set forth in the regulations. For example, among other things, a bona fide group or association of employers must meet certain criteria to demonstrate a commonality of interest and a bona fide PEO must meet certain criteria to demonstrate substantial employment functions.

These proposed rules are similar to the final association health plan rules issued by the DOL, which describe the criteria under ERISA §3(5) for determining when an unrelated group or association of employers will be treated as a single employer of a group health plan. The final regulations on association health plans are available here.

End of the Year Amendments to Qualified Retirement Plans

In the case of an individually designed plan, the end of the remedial amendment period to adopt a plan amendment for a change in qualification requirements is the end of the second calendar year after the IRS includes the change on its list of required amendments. The 2016 required amendments list (IRS Notice 2016-80, available here) covered qualification changes that need to be adopted by December 31, 2018 – the only item on the 2016 required amendments list relates to the restrictions in Internal Revenue Code §436 on accelerated distributions from an underfunded single-employer plan when the employer is in bankruptcy.

Plan sponsors should also be aware that there are certain amendments related to legal changes that are not qualification requirements (and therefore are not reflected on the required amendments list), which may need to be adopted by the end of the 2018 plan year:

• If a qualified retirement (or other ERISA) plan includes a disability benefit and the determination of disability is made under the plan, an amendment to comply with the revised disability claims procedures issued by the DOL must generally be adopted by the end of the plan year that includes April 2, 2018 (December 31, 2018, for calendar year plans).
• Any necessary amendment regarding the relief provided by the IRS for victims of certain 2016 disasters, like the Louisiana floods and Hurricane Matthew, must generally be adopted by the end of the 2018 plan year.