PLANSPONSOR - June/July 2021 - 4

RULES & REGULATIONS
Plan Qualification Requirements
F
or plan sponsors possibly distracted
by COVID-19 and its repercussions,
the IRS has a reminder
of important rules that should, or will,
be in effect next year. Changes made by
the Setting Every Community Up for
Retirement Enhancement (SECURE)
Act, passed in December 2019, and the
Coronavirus Aid, Relief and Economic
Security (CARES) Act, passed last
March, are included on the IRS' updated
operational compliance (OC) list.
The list identifies changes in requirements
for retirement plan qualification
and for compliance with Internal Revenue
Code (IRC) Section 403(b).
Many provisions of the SECURE Act
went into effect last year. For example,
Section 102 increased the 10% cap to 15%
for the automatic enrollment safe harbor
after the first plan year, while retaining
the 10% limit for the first plan year in
which an employee defers.
Section 103 removed the requirement
to provide an annual safe harbor notice
for nonelective safe harbor IRC Section
401(k) plans. This section also permits
plan sponsors to adopt such a plan with
nonelective contributions at any time
before the 30th day before the close of the
plan year. Sponsors that make nonelective
safe harbor contributions of at least 4% of
compensation for a plan year may adopt
this safe harbor design.
SECURE Act Section 109 provides
that qualified 401(k) and 403(b) plans may
permit certain transfers and distributions
of lifetime income investment options
when these may no longer be held as an
investment option under the plan.
The act also provides for individuals
to make penalty-free withdrawals from
their retirement plan in case of birth or
adoption and increases the age for required
minimum distributions (RMDs) from 70.5
to 72. Section 205 of the act changed the
nondiscrimination testing requirements-
generally relating to testing contributions
or benefits and compliance with
the minimum participation rules-for a
4 PLANSPONSOR.COM June - July 2021 Art by Nikko de Leon
grandfathered group of employees enrolled
in a closed defined benefit (DB) plan; the
act provides alternative nondiscrimination
testing methods that the sponsor may use.
For 2021, a sponsor must allow longterm
employees working 500 to 1,000
hours a year to participate in its plan.
This section of the SECURE Act applies
to plan years beginning after December
31, 2020; 12-month periods beginning
prior to that do not count toward determining
a long-term, part-time employee's
eligibility to participate. That is, plan
sponsors must start counting hours for
these part-timers this year.
For distribution calendar years
beginning on or after January 1, 2022,
the IRS has issued final regulations
updating the life expectancy and distribution
period tables used to calculate
RMDs taken from qualified retirement
plans, individual retirement accounts
(IRAs), annuities and certain other taxfavored
employer-provided retirement
arrangements. -Rebecca Moore
http://www.PLANSPONSOR.COM
PLANSPONSOR - June/July 2021

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