Suspension of Required Minimum Distribution Requirement
One of the many provisions in the Worker, Retiree, and Employer Recovery Act, which was signed into effect in December 2008 by then President Bush, provided for a one-year suspension of the required minimum distribution ("RMD") payments for certain retirement plan accounts.
Under current law, the RMD rules provide that participants in "qualified plans" and individual retirement arrangements ("IRAs") are generally required to begin taking distributions of their accounts no later than April 1 of the year after they attain age 70 ½. However, where an individual is still actively employed and is not a five-percent owner of the employer maintaining the retirement plan, commencement of the distribution of the RMD is delayed to April 1 of the year subsequent to the individual’s retirement.
As a result of the suspension, RMDs that would otherwise have been made for the 2009 plan year are no longer required. This relief applies to 2009 RMD payments only. Any 2008 RMD payments for participants who attained age 70 ½ in 2008 and deferred payment until April 1, 2009, are not excluded.
Final Rule on Investment Advice Exemption for 401(k) Plans and IRAs
The DOL published a final rule in January 2009 to make investment advice more accessible for participants in 401(k) plans and IRAs. The rule includes a regulation that implements the new statutory exemption for investment advice added to ERISA by the Pension Protection Act of 2006 ("PPA"). The PPA amended ERISA by adding a new prohibited transaction exemption that allows greater flexibility for investment advisors to give advice to participants of 401(k) plans and IRAs.
Automatic Contribution Arrangements
In February 2009, the Treasury Department published final rules related to the automatic contribution arrangements. The final rules clarified the effects of mid-year increases in the default contribution percentage under qualified automatic contribution arrangements ("QACA"). An eligible automatic contribution arrangement ("EACA") is a feature in a 401(k) plan that provides for automatic enrollment of a uniform default percentage for all covered employees who do not have an affirmative deferral election in effect. Originally, it was to be applied uniformly to all employees. These final regulations allow employers to specify in the plan document the employees that will and will not be covered by the EACA. It permits multiple EACAs with different default deferral percentages. A participant in an EACA must request withdrawal within 90 days of the first pay date upon which the deferrals were withheld. Under the PPA the QACA is effective for plan years beginning in 2008 or later and EACA on or after January 1, 2010.
Suspension of Safe Harbor Non-elective Contributions
In May 2009, proposed regulations issued by the Internal Revenue Service ("IRS") permit plan sponsors of 401(k) safe harbor retirement plans to suspend or reduce safe harbor non-elective contributions mid-plan-year when they experience a substantial business hardship. These proposed regulations do not allow for the suspension of safe harbor matching contributions. Previously, plans were only permitted to cease safe harbor non-elective contributions upon termination of the plan for specified situations. The proposed regulations are effective for amendments adopted after May 18, 2009 and, according to the IRS, may be relied upon for guidance pending the issuance of final regulations.
2009 Form 5500
Plans and service providers will be required to comply with the changes to the 2009 Form 5500 and the electronic filing of the Form 5500 on the due date for the Plan’s 2009 Form 5500.
Among the changes to the 2009 Form 5500 are:
- A new simplified annual reporting form for small plans with easy to value investments;
- Expanded reporting by large plans of compensation received by plan service providers (See Fee Disclosures article on page 4);
- Realignment of the reporting rules for Internal Revenue Code section 403(b) pension plans subject to Title I of ERISA to make them on par with 401(k) plans; and
- Annual reporting changes required by the PPA for defined benefit pension plans and multiemployer plans.
The DOL, IRS and the Pension Benefit Guaranty Corporation ("PBGC") created the ERISA Filing Acceptance System
("EFAST") to streamline the Form 5500 and the method by which it is filed and processed. The EFAST system is being replaced. The new filing system, EFAST2, will receive only electronic filing submissions (including the independent auditors’ report in pdf format) and will not accept paper filings. Any such paper filings will not be processed and will be returned to the filer.
To assist plan sponsors and service providers in preparing for the changes to the Form 5500 and the electronic filing requirement, the DOL has scheduled a series of webcasts and other educational outreach programs throughout 2009. The 2009 Form 5500 package and the related Federal Register notices are available on the DOL’s EBSA EFAST web site at www.efast.dol.gov.
Information Courtesy of BDO.
For more information on employee benefit plan audits, please leave a comment below, or contact Dani Gisondo at 440-449-6800.