PLANSPONSOR - August/September 2020 - 46

ERISA EXAMINATION
Plans Are a-Changin'
Eight areas to consider for potential plan amendments
G
enerally speaking, our columns focus on the fiduciary
rules of the Employee Retirement Income Security Act
(ERISA) and how plan committees can comply with
their fiduciary responsibilities. But committees often have other
plan duties that should not be ignored. For example, in many
cases, the committee has plan amendment authority-or at least
amendment authority for legally required or limited cost changes.
Between regulatory changes, the Setting Every Community
Up for Retirement Enhancement (SECURE) Act, and the
Coronavirus Aid, Relief and Economic Security (CARES) Act, any
committee with amendment authority should be considering what
changes it might want to adopt for its retirement plan. What follows
is an overview of some of the possibilities. We urge committees
considering plan changes to work with benefits counsel to ensure
the full requirements and implementation nuances are satisfied.
Coronavirus distributions. Plans may permit eligible
COVID-19-affected individuals to take a distribution of up to
$100,000. This is generally available even if the employee is
in-service and hasn't reached age 59.5. Special timing rules apply
to pension plans. These distributions may be recontributed to the
plan within three years and receive favorable tax treatment but
must be taken by this December 31.
Coronavirus loans. Plans may increase loan limits for loans
taken by COVID-19-affected individuals on or after this past
March 27 and before September 23. Further, plans may allow
such individuals to delay loan payments due between this past
March 27 and December 31. In connection with adopting either of
these changes, the committee may also want to consider increasing
the plan's maximum number of outstanding loans.
Required minimum distributions (RMDs). Under the
CARES Act, defined contribution (DC) plans may waive RMDs
for this year. Additionally, under the SECURE Act, the required
distribution age may be raised from 70.5 to 72. Additionally, the
period of distribution for certain beneficiaries may need to be
modified to track SECURE Act requirements.
Matching contributions. For economic reasons, many
employers have reduced or eliminated matching contributions.
While the plan amendments permitted under the various
pieces of legislation may be adopted retroactively, reductions
in matching contributions generally must be adopted prospectively.
Committees with a safe harbor 401(k) should consider
carefully whether they can suspend or terminate the matching
46 PLANSPONSOR.COM August - September 2020
contribution, taking into account the recent IRS guidance that
eases the requirements, at least for a limited window.
Qualified birth or adoption distributions. Beginning this
year, plans may permit participants to take a qualified birth or
adoption in-service distribution of up to $5,000 within one year
of the event. The distribution is exempt from the 10% early withdrawal
penalty and may be taken before the person reaches 59.5.
While this is an optional change, if offered, it will require a plan
amendment. There are still some open questions that could use agency
guidance, so many sponsors are holding off on this one for now.
Pension plan distributions. Pension plans may lower the age
for in-service withdrawals from 62 to 59.5 for plan years beginning
after December 31, 2019. While many plans don't allow in-service
distributions, this may be desirable for money purchase plans or
money purchase plan accounts within 401(k) plans.
Safe harbor plan designs. Plans relying on the qualified
automatic contribution arrangement (QACA) safe harbor may
increase the maximum automatic deferral rate limit. Additionally,
the deadline for electing to adopt a nonelective contribution safe
harbor plan design has been extended, giving committees some
flexibility if it appears their plan will fail discrimination testing.
Hardship distributions. Way back a year ago in September
(seems like a lifetime ago, right?), the IRS issued final regulations
modifying the rules for hardship distributions. Under
these, some changes have been required-e.g., that the participant's
representation as to his reason for the request should be
deemed sufficient and the six-month suspension should be eliminated.
Others are optional-e.g., elimination of the necessity to
first take plan loans. Committees should review their hardship
distribution provisions for any needed or desired changes.
We regularly advise committees to review and understand
their plan documents to confirm the plan is being administered in
accordance with its terms. However, it is also important to review
the plan for optional or required changes that must be implemented.
These include newly available or required plan provisions
under changes in the law, as well as changes to ease administration
or provide additional or different features that benefit plan
participants or the sponsor.
Summer Conley is a partner in the Los Angeles office of Faegre
Drinker Biddle & Reath LLP. Michael Rosenbaum is a partner
in the firm's Chicago office.
Art by Joseph Ciardiello
http://www.PLANSPONSOR.COM
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