E-Delivery Rule Brings Cost-Relief to Retirement Plan Administration

On May 27, 2020, the Federal Register published the Department of Labor’s final rule that permits employers to use electronic means to fulfill their retirement plan disclosure obligations. (Disclosures required by the Department of Labor as to health and welfare plans are not covered by this safe harbor rule.) The final rule is effective July 27, 2020, but the Department announced it will not take enforcement actions against plan administrators who rely on the safe harbor prior to that date, in light of the government’s broader response to the Covid-19 emergency.

The final rule is substantially similar to the proposed rule issued in October 2019, and briefly discussed in our article here. Long overdue, this rule should go a long way to reduce the costs and hassles of ERISA-required disclosures.

E-Delivery Rule Brings Cost-Relief to Retirement Plan Administration

Voluntary Safe Harbor

The voluntary safe harbor provided by the final rule allows employers to use either website posting or email delivery for the distribution of required communications or “covered documents” to “covered individuals” via electronic addresses. A covered individual is a participant, beneficiary or other individual entitled to covered documents who provides an electronic address. Covered documents include any disclosure required by Title I of ERISA, and include a summary plan description (SPD), a summary of material modifications (SMM) and summary annual report (SAR).  

The electronic address can be an email address or an internet-connected mobile device such as a smartphone. The final rule specifies that only an employer (not a service provider or plan administrator) can assign an electronic address has employment-related purposes other than receipt of electronic disclosures under this safe harbor. In addition, employers cannot assign electronic addresses to non-employees. Those individuals must voluntarily provide electronic addresses.

E-delivery Safe Harbor Requirements

Initial notification

Prior to relying on this safe harbor for electronic disclosure of covered documents, the plan administrator must issue a notification, on paper, to covered individuals that the way they normally receive the required disclosures is changing.  The notice must include the electronic address that will be used, and notice of the right to opt-out of electronic disclosure of covered documents in favor of paper documents. The opt-out right can be global or the plan administrator may provide the opt-out right on a per-disclosure basis.

Notifications of availability on a website

This notice can generally be provided electronically unless a covered individual has opted to receive paper notifications. The electronic notification must be provided each time a new covered document is being posted on the website, or an annual notice of multiple covered documents made available throughout the year can be provided instead. This notice must describe the covered document, describe the right to receive a paper copy, provide an address or hyperlink to the covered document, and inform the covered individual of opt-out rights.

Retention of covered documents on a website

The ERISA-required disclosure must remain on the website for no less than one year, or until superseded by a subsequent version of the covered document.

Email delivery of covered documents

A plan administrator may also deliver covered documents via email. The covered document can be in the body of the email or provided as an attachment. In this case there is no requirement for a “notification of availability” as discussed above. The email must contain the phrase “Disclosure About Your Retirement Plan” in the subject line.

Email content requirements

The email delivering the covered document must briefly describe the document, describe the right to receive a paper copy and notify the covered individual of the right to opt-out of electronic delivery,

Addressing invalid electronic addresses

Plan administrators must ensure that the electronic delivery system alerts them if an electronic address is invalid or does not work. The administrator must attempt to fix the problem, or treat the covered individual as having opted out of electronic delivery.

Termination of employment

Plan administrators must take action to ensure that a covered individual’s electronic address continues to be accurate and operable.

Paperless Communications

This voluntary safe harbor gives plan administrators the opportunity to save the cost of providing all-paper SPDs, SMMs and other ERISA-required covered documents by eliminating the cost of printing and mailing these documents. Many employees, who conduct so much of their lives through electronic media, will welcome paperless communications.

If you would like to know more about this safe harbor for e-delivery and need assistance in implementing it, please contact your Findley consultant, or Sheila Ninneman below.

Published on May 28, 2020

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Breaking Down the SECURE Act – 401(k) and Other Defined Contribution Plans

Benefits experts are still poring through the SECURE Act’s various mandated provisions, optional provisions, and effective dates, some of which may be retroactive. This series of articles will break down the implications that the Act has for existing tax-qualified retirement plans. This article will focus on the Act’s impact on 401(k) and other defined contribution plans. Related articles address required minimum distributions, which impact defined contribution plans and defined benefit plans, and future articles will discuss changes for tax-qualified defined benefit plans only; as well as other changes to the retirement plan landscape.

Remedial Amendment Period

Plan sponsors generally have until the last day of the 2022 plan year to adopt amendments that reflect the Act’s required revisions.  For calendar year plans the last day is December 31, 2022. Governmental plans have until the 2024 plan year to amend. Remember that operational compliance is still required during the period from the effective date for the Act’s required changes and the date the plan is amended.

401(k) Plans: Part-time Long-term Workers – MANDATORY

Prior law:  An employer-sponsored 401(k) was permitted to exclude employees who did not complete a year of service, defined as the completion of 1,000 hours of service during a 12-month measurement period.

Under the SECURE Act: Part-time long-term workers must be eligible to make salary deferrals (pre-tax, Roth and catch-up, as applicable) under a 401(k) plan if they (a) obtain age 21; and (b) work at least 500 hours in three consecutive 12-month measurement periods. For purposes of vesting, a year of vesting service is a 12-month measurement period during which a participant works at least 500 hours.

Purpose: This change expands retirement savings opportunities for an employer’s long-term part-time workers.

Effective date: The new inclusion and vesting rules are effective for plan years beginning after December 31, 2020.

What to do and when: 401(k) plans sponsors should begin to track part-time workers on the first day of the plan year after December 31, 2020. For calendar year plans, that means January 1, 2021. If part-time workers under a calendar year plan provide at least 500 hours of service in plan years starting January 1, 2021, January 1, 2022 and January 1, 2023, then such part-time workers must be permitted to make deferrals under the 401(k) plan beginning January 1, 2024.

Now is the time for employers and their service providers to plan for tracking part-time employees beginning in 2021 for possible inclusion and for purposes of vesting under the 401(k) plan in 2024.

Special notes: Plans are not required to include these part-time long-term workers in matching or other employer contributions. Additionally, these workers are excluded from non-discrimination (ADP, ACP, 401(a), 410(b)), safe harbor plan and top-heavy testing. Remember that if otherwise eligible part-time employees provide 1,000 or more hours of service and meet any age requirement, they must be included in the retirement plan for all contribution purposes.

The SECURE Act has implications for 401(k) and other defined contribution plans

Safe Harbor 401(k) Plans: QACA Maximum Deferral Rate Increase – OPTIONAL

Prior law: A Qualified Automatic Contribution Arrangement (“QACA”) is an employer-sponsored retirement plan that provides for automatic enrollment. Among the strict requirements applicable to a QACA is a maximum automatic deferral rate of 10% of compensation.

Under the SECURE Act: A QACA plan can now provide a new maximum deferral rate of 15% of compensation, except for the participant’s first year, which remains 10%. The minimum thresholds of 3% to 6%, depending on the year of participation, remain in place.

Purpose: This change encourages more retirement savings by permitting higher 401(k) deferral rates for safe harbor plans which provide automatic increases.

Effective date: The new maximum deferral rate can be effective for plan years after December 31, 2019. That is January 1, 2020 for calendar year plans.

What to do and when: Plan sponsors should review the pros and cons of raising the maximum deferral rate, including its impact on matching and other employer contributions. Changing the deferral rate will also impact other plan documentation including a summary of material modifications, safe harbor notices and other employee communications.  Remember, plan sponsors must adopt an amendment to change the maximum deferral rate. If you are considering a mid-year change, service providers will need to be consulted to ensure it can be operational as intended.

Prior law: In order for a tax-qualified 401(k) plan to rely on the 3% nonelective contribution safe harbor, participants had to be provided (definitive or contingent) notice of the plan’s safe harbor status by the 30th day before the end of the plan year. In addition, the safe harbor provision had to be in the plan document.

Under the SECURE Act: A 401(k) plan can be amended as late as 30 days prior to the end of the plan year to provide for a 3% nonelective contribution safe harbor for that plan year, without any notice to participants. A plan can also be amended as late as the last day for distributing excess contributions for a plan year, which is generally the last day of the following plan year, if a plan sponsor provides for a 4% nonelective contribution.

Purpose: This change takes away one more hurdle for employers to adopt safe harbor plans that provide a minimum employer contribution that encourages retirement savings.

Effective date: The changes to safe harbor notice requirements are effective for plan years after December 31, 2019.

What to do and when: Plan sponsors must amend their tax-qualified retirement plans in order to effect these changes. Note that the permitted retroactive amendment may be of special interest to plans which experience ADP/ACP test failures.

Special notes: The Act did not eliminate the notice requirement for matching safe harbor contributions.

In-service withdrawals for birth and adoption expenses – OPTIONAL

Prior law: There were no special provisions for plan distributions related to birth or adoption expenses.

Under the SECURE Act: A defined contribution plan may permit withdrawals of up to $5,000 within one year following the birth or legal adoption of a child.  The withdrawal will not be subject to either the 10% penalty for withdrawals by participants under age 59-1/2 or the 20% mandatory withholding for federal income tax. The plan may provide for repayment of the withdrawal.

Purpose: This change provides an opportunity for families to ease some of the immediate financial burdens associated with becoming parents.

Effective date: The new in-service withdrawal opportunity is available for withdrawals after December 31, 2019.

What to do and when: Plan sponsors may amend their plans now to permit these in-service withdrawals. Employers should work with their service providers to implement these new withdrawals. In light of the current lack of guidance from the Internal Revenue Service (IRS), plan sponsors should consider acting conservatively by requiring documentation and certain representations as to the birth or adoption, and setting forth clear repayment provisions. Other operational considerations include updating distribution forms, summary plan descriptions (SPDs), participant communications and reporting requirements.

Lifetime income disclosures – MANDATORY

Prior law: ERISA requires periodic employee benefit statements from defined contribution plans that detail vesting status and account investments.

Under the SECURE Act: A “lifetime income disclosure” has been added as an annual disclosure. The new disclosure must describe a monthly annuity amount that could be obtained with the balance of the participant’s account. The monthly amount will be based on assumptions specified by the Department of Labor (DOL) in interim rules to be issued by December 20, 2020, which will include a model disclosure statement. Disclosures that meet legal requirements will protect plan sponsors and other plan fiduciaries from liability based on the information provided in the statements.

Purpose: This change gives participants more information to help them assess their current retirement savings status so they can make appropriate changes for retirement readiness.

Effective date: The disclosure will be required 12 months after the latest of the DOL’s issuance of the assumptions to be used, the model disclosure and the interim final rules. The earliest date this requirement will be effective is sometime in 2021.

What to do and when: Plan sponsors should stay in contact with their service providers to timely implement this new requirement. Plan sponsors should anticipate that this requirement will increase plan expenses.

Lifetime income contract portability – OPTIONAL

Prior law: In-service distributions from defined contribution plans are subject to certain restrictions that vary by plan type.

Under the SECURE Act: 401(k) plans, 403(b) plans and governmental 457(b) tax-qualified plans can be amended to provide for the in-service distribution of in-plan annuity contracts if the plan stops offering that investment option. Portability options include direct rollover of the contract to an eligible retirement plan that will continue the investment, or distribution to the participant or beneficiary. Distribution must take place in the 90-day period prior to the investment option becoming unavailable under the plan.

Purpose: This change encourages investment in lifetime income options by expanding portability, and enhances the possibility of retirement readiness.

Effective date: The new distribution option for lifetime investments is available for plan years beginning after December 31, 2019.

What to do and when: Plan sponsors must amend their plans in order to effect this change.

403(b) plan termination and treatment of custodial accounts

Prior law: Under IRS guidance, individual annuity contracts could be distributed to participants, but the guidance did not address individual custodial accounts.

Under the SECURE Act: Individual custodial accounts may be distributed in-kind from a terminating 403(b) plan, without causing immediate taxation to the participant or beneficiary. The IRS has until June 20, 2020 to issue guidance which will include that the distributed custodial account will be maintained by the custodian on a tax-deferred basis until amounts are actually paid.

Purpose: This change conforms the treatment of annuity contracts and custodial accounts in terminating 403(b) plans, and makes it easier for employers to terminate plans with custodial accounts.

Effective date: The treatment of custodial accounts from a terminating 403(b) plan is retroactively effective for taxable years beginning after December 31, 2008. By adopting this retroactive effective date, the in-kind distributions of custodial accounts to participants or beneficiaries to complete a termination during the retroactive period will not be treated as having been taxable distributions.

What to do and when: For plan sponsors that are considering terminating a 403(b) plan with individual custodial accounts, this new flexibility may provide a deciding factor. In addition, plan sponsors should watch from new guidance from the Secretary of the Treasury regarding this change. The guidance must be issued within six months of December 20, 2019.

Questions? Please contact the Findley consultant you regularly work with or Sheila Ninneman at Sheila.Ninneman@findley.com, or 216.875.1927.

Looking for how the SECURE Act impacted Required Minimum Distributions (RMDs), see our article here.

Published March 31, 2020

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Breaking Down the Secure Act – Required Minimum Distributions

Benefits experts are still poring through the SECURE Act’s various mandated provisions, optional provisions, and effective dates, some of which may be retroactive. This series of articles will break down the implications that the Act has for existing tax-qualified retirement plans. This article will focus on the Act’s impact on required minimum distributions (RMDs) for both defined benefit and defined contribution plans. Related articles will address (1) changes that impact 401(k) and other defined contribution plans only, (2) changes for defined benefit plans only; and (3) other changes to the retirement plan landscape.

Remedial Amendment Period

Plan sponsors generally have until the last day of the 2022 plan year to adopt amendments that reflect the Act’s required revisions.  For calendar year plans the last day is December 31, 2022. Governmental plans have until the 2024 plan year to amend. Remember that operational compliance is still required during the period from the effective date for the Act’s required changes and the date the plan is amended.

Delay of Lifetime RMDs – MANDATORY

Prior law: Distributions from an eligible employer retirement plan must be made by April 1 of the calendar year following: (a) the calendar year in which the participant turns age 70-1/2, or (b) for a participant who is not a 5% owner, the calendar year in which he or she terminates employment after age 70-1/2.

Under the Act: The required age for RMDs is raised from 70-1/2 to 72. Participants who are not 5% owners and who work beyond the required age for RMDS, under the Act still don’t trigger RMDs until the calendar year in which they retire. The Act did not change the way in which 5% owners are determined. In addition, post-death distributions to a participant’s surviving spouse are not required to begin before the calendar year in which the participant would have obtained age 72 (formerly 70-1/2). 

Effective date: The new age applies to employees who turn age 70-1/2 after December 31, 2019; that is, for those born after June 30, 1949. For those born on or before June 30, 1949 (already obtained age 70-1/2 prior to January 1, 2020), the prior law applies.

What to do and when: Plan sponsors should work with their service providers to track two populations: those born on and before June 30, 1949 (for whom age 70-1/2 is the RMD trigger date), and those born after that date (for whom age 72 is the RMD trigger date). Distributions of RMDs for the latter population therefore need not begin until April 1 of the calendar year following the year they attain age 72.

This change to tax-qualified retirement plans will necessitate updates to distribution forms, SPDs, 402(f) notices, and participant communications.

Post-Death RMDs are accelerated – MANDATORY

Prior law: In general, distributions are permitted to be paid annually over the beneficiary’s life expectancy. In general, if the participant died before RMDs began, distributions could be made at various times, provided the entire account was distributed by the end of the fifth year following the participant’s year of death.

Under the Act:  Following the death of the participant, distributions must generally be made by the end of the 10th calendar year following the year of death. The determination of the 10-year period is presumably calculated in the same way that the 5-year period was calculated. Payments can be made over the beneficiary’s life expectancy provided the beneficiary is an “eligible designated beneficiary”, which can be the surviving spouse, a disabled/chronically ill individual, a minor child of the participant or a beneficiary no more than 10 years younger. Prior rules still apply to a beneficiary that is not a “designated beneficiary”.

Effective date: The rule regarding the acceleration of post-death RMDs is effective for deaths that occur after December 31, 2019. Special delayed effective dates apply to collectively bargained and governmental retirement plans. 

What to do and when: Sponsors of tax-qualified retirement plans should be working with their service providers to implement these rules now.

This change will impact beneficiary designation forms, distribution forms, SPDs and other participant/beneficiary communications.

Special Note for Defined Benefit Pension Plans

The Act does not change actuarial increases required by Internal Revenue Code 401(a)(9)(C).  For individuals who continue working and choose to retire late, a defined benefit plan must provide actuarial increases beginning at age 70-1/2.  

General Thoughts

Commentators anticipate IRS guidance to provide self-correction relief for plans that fail to implement the new rules correctly during the remedial amendment period and clarify the Act’s impact on current regulations. Tax-qualified plan sponsors considering an amendment prior to the remedial amendment deadline, for the sake of clarity for itself and its service providers, may want to wait to see how further guidance may affect that amendment.

Questions? Please contact the Findley consultant you regularly work with or Sheila Ninneman at Sheila.Ninneman@findley.com, or 216.875.1927.

To learn more about the passage of the Secure Act and changes to retirement plans, click here

Published March 19, 2020

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Year-End Spending Bill includes the SECURE Act and other Retirement Plan Changes


With the passage of the 2020 federal government spending bill less than a week before Christmas, Congress has gifted us with the most significant piece of retirement legislation in over a decade. This newly enacted legislation incorporates the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) that was overwhelmingly passed by the House of Representatives earlier this year but never considered by the Senate. The spending bill even has a few additional retirement-related tidbits that were not part of the SECURE Act.

Here are some of the key changes:

Frozen Defined Benefit Plan Nondiscrimination Testing

Currently- Defined benefit plans that were frozen to new hires in the past and operate with a grandfathered group of employees continuing to accrue benefits have ultimately run into problems trying to pass nondiscrimination or minimum participation requirements as the group of benefiting employees became smaller and normally higher paid. This problem for frozen defined benefit plans has been around for a while and the IRS has been providing stop-gap measures to deal with it every year.

Effective as of the date of enactment of this legislation and available going back to 2013 – plans may permit the grandfathered group of employees to continue to accrue benefits without running afoul of nondiscrimination or minimum participation rules so long as the plan is not modified in a discriminatory manner after the plan is closed to new hires. This special nondiscrimination testing relief also extends to:

  • defined benefit plans that close certain plan features to new hires,
  • defined contribution plans that provide make-up contributions to participants who had benefits in a defined benefit plan that were frozen.

Increasing the 10% Limit on Safe Harbor Auto Escalation

Currently – a safe harbor 401(k) Plan with automatic enrollment provisions cannot automatically enroll or escalate a participant’s contribution rate above 10%.

Effective for Plan Years beginning after Dec. 31, 2019 – the 10% cap would remain in place in the year the participant is enrolled but the rate can increase to 15% in a subsequent year.

Simplifying the Rules for Safe Harbor Nonelective 401(k) Plans

Currently – All safe harbor plans must provide an annual notice prior to the beginning of the year that provides plan details and notifies employees of their rights under the plan. Also, any plan sponsors that want to consider implementing a safe harbor plan generally must adopt the safe harbor plan provisions prior to the beginning of the plan year.

Effective for Plan Years beginning after Dec. 31, 2019 – the notice requirement for plans that satisfy the safe harbor through a nonelective contribution has been eliminated. Also, sponsors can amend their plan to become a nonelective safe harbor 401(k) plan any time up until 30 days prior to year-end. The safe harbor election can even be made as late as the end of the next year if the plan sponsor provides for at least a 4% nonelective contribution.

Open Multiple Employer Plans (Open MEPs)

CurrentlyMultiple employer plans (MEPs) are legal and actually quite common, but a couple of limitations have stunted the development of a concept called open MEPs. An open MEP is a situation where the employers within the MEP are not tied together through a trade association or some common business relationship. In 2012 the DOL issued an Advisory Opinion provided that a MEP made up of unrelated employers that did not have “common nexus” must operate as a separate plan for each of these unrelated employers and not as a single common plan. This advisory opinion took away much of the perceived advantages of operating an open MEP. Additionally, the IRS has followed a policy that provides if one employer within the MEP makes a mistake, that the error can impact the qualified status of the entire plan; this is known as the “one bad apple” rule, this policy is clearly a negative selling point for any plan sponsor that might consider signing up to participate in a MEP.

Effective for Plan Years beginning after Dec. 31, 2020 – the “common nexus” requirement and the “one bad apple” rule are eliminated. The new open MEP rules provide for a designated “pooled plan provider” that would operate as the MEPs named fiduciary and the ERISA 3(16) plan administrator. The open MEP will be required to file a 5500 with aggregate account balances attributable to each employer. These changes are expected to create a market for pooled plans that will offer efficient retirement plan solutions to smaller plan sponsors.

Required Minimum Distribution Age Now 72

Currently Required Minimum Distribution from a qualified plan or IRA must begin in the year the participant turns 70 ½.

Effective for Distributions after 2019, with respect to individuals who attain 70 ½ after 2019. – This is a simple change to age 72 for computation purposes, but note the effective date means that if the participant is already subject to RMD rules in 2019 they remain subject to RMDs for 2020 even though the person may not be 72 yet. Also, plan sponsors should be aware that distributions made in 2020 to someone that will turn 70 ½ in 2020 will not be subject to RMD rules and therefore would be eligible for rollover and subject to the mandatory 20% withholding rules.

Increase Retirement Savings Access to Long-Term Part-Time Workers

Currently– Plans can exclude employees that do not meet the 1,000 hours of service requirement

Effective for Plan Years beginning after Dec. 31, 2020 – Plans will need to be amended to permit long-term part-time employees who work at least 500 hours over a 3 year period to enter the plan for the purpose of making retirement savings contributions. The employer may elect to exclude these employees from employer contributions, nondiscrimination, and top-heavy testing.

Stretch IRAs are Eliminated

Currently– If Retirement plan or IRA proceeds are passed upon death to a non-spouse beneficiary; the beneficiary can set up an inherited IRA and “stretch” out payments based upon the beneficiary’s life expectancy. Depending upon the age of the beneficiary and the size of the IRA this strategy potentially provided significant tax advantages.

Effective for distributions that occur as a result of deaths after 2019 – Distributions from the IRA or plan are generally going to need to be made within 10 years. There are exceptions if the beneficiary is (1) the surviving spouse, (2) disabled, (3) chronically ill, (4) not more than 10 years younger than the IRA owner or plan participant, or (5) for a child that has not reached the age of majority, the ten year rule would be delayed until the child became of age.

Increased Penalties for Failure to File Retirement Plan Returns and Other Notices

Current Penalty Structure:

Failure to file Form 5500$25 per day maximum of $15,000
Failure to report participant on Form 8955-SSA$1 per participant, per day maximum of $5,000
Failure to provide Special Tax Notice$10 per failure up to a maximum of $5,000

New penalty structure:

Failure to file Form 5500$250 per day maximum of $150,000
Failure to report participant on Form 8955-SSA$10 per participant, per day maximum of $50,000
Failure to provide Special Tax Notice$100 per failure up to a maximum of $50,000

Other Retirement Plan Changes Effective for Years Beginning After December 31, 2019

  • Phased retirement changes – defined Benefit Plans can be amended to provide voluntary in-service distributions begin at age 59 ½, down from the current age 62 requirement.
  • Start-up credits – the cap on tax credits that small employers (up to 100 employees) can get for starting up a new retirement plan has gone up from $500 to $5,000.
  • Auto-Enroll credits for small employers – small employers can get an additional $500 tax credit for adopting an automatic enrollment provision.
  • More time to adopt a plan – currently a qualified plan must be adopted by the end of the employer’s tax year to be effective for that year. The new rule will permit a plan to be adopted as late as the due date of the employer’s tax return for the year.
  • Plan annuity provisions – in recognition that defined contribution plans typically do not offer lifetime income streams two changes have been added to encourage in-plan annuity options.
    • A fiduciary safe harbor standard that if followed, would protect plan sponsors from potential liability relating to the selection of an annuity provider.
    • Plans may permit tax-advantaged portability of lifetime income annuity options from one plan to another.
  • 403(b) changes include providing a mechanism for the termination of a 403(b) custodial account and clarification that non-qualified church controlled organizations (e.g. hospitals and schools) can participate in Section 403(b)(9) retirement income accounts.
  • Penalty free distribution for birth or adoption expenses – up to $5,000 could be distributed from a defined contribution or 403(b) plan to cover costs relating to birth or adoption of a child.
  • Special tax penalty relief and income tax treatment for distributions for qualified disaster distributions from qualified plans up to $100,000.  Additionally, plan sponsors can permit the $50,000 participant loan limit to be increased to $100,000 with increased repayment periods for participants that suffered losses in a qualified disaster area.

Other Changes with a Delayed Effective Date

  • Lifetime income disclosure – this provision will require a defined contribution plan to provide all participants with an annual statement that discloses the projected lifetime income stream equivalent of the participant’s account balance.  This requirement will become effective for benefit statements furnished one year after applicable DOL guidance has been issued that will be necessary to provide the prescribed assumptions and explanations that will be used to create this disclosure.
  • Combining 5500 – IRS and DOL have been directed to permit a consolidation of Form 5500 reporting for similar plans. Defined contribution plans with the same trustee, same-named fiduciary and same plan administrator using the same plan year and same plan investments may be combined into one 5500 filing. This is scheduled to begin no later than January 1, 2022, for 2021 calendar plan year filings.

What to Do Now

Obviously the SECURE Act is bringing a lot of changes to retirement plans. Many of the operational aspects to this new retirement legislation will need to be implemented immediately, in particular, tax withholding related items that will change in 2020 will necessitate plan sponsors and their recordkeepers act immediately to review tax withholding and distribution processes. Plans do have until the end of the 2022 plan year to adopt conforming amendments to their documents. The amendment deadline is the 2024 plan year for governmental plans.

If you have any questions about the SECURE Act and this new retirement plan legislation we encourage you to contact the Findley consultant you normally work with, or contact John Lucas at 615.665.5329 or John.Lucas@findley.com.

Published December 23, 2019

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Is it Time to Restate Your Defined Benefit Pension Plan?

If you sponsor a frozen defined benefit pension plan, a mostly “vanilla” individually designed defined pension plan or a defined benefit pension plan already on a pre-approved format, you will want to think about restating your plan now in the most recent IRS pre-approved format. The restatement satisfies the need to update the plan for the Pension Protection Act of 2006 (“PPA”). This is true for traditional defined benefit plans, as well as cash balance plans. The deadline for the PPA pre-approved plan restatement is April 30, 2020.

Here are some reasons to consider restating your defined benefit plans using the IRS pre-approved PPA plan document formats:

Simplicity in Form

Because pre-approved plans are submitted for IRS approval prior to their adoption by a particular employer, they are set in form to a certain extent. Nevertheless, they still allow for provisions unique to each employer’s plan. A pre-approved plan provider will electronically input the unique provisions of your plan, and software systems generate the documents required for the plan. In this case, either the Adoption Agreement that is paired with a Base Plan Document (common for 401(k) plans) or pre-approved format that looks like an individually designed plan. The software generally also creates a summary plan description (SPD) and resolutions for the restated plan’s approval and adoption. As a reminder, SPDs must be amended and distributed every five years if the plan has been amended since the most recently issued SPD, and every ten years even if there have been no amendments.

IRS Approval

Under the revised determination letter program, a plan sponsor of a an individually designed defined benefit pension plan can no longer get IRS assurances on the qualified status of the plan document between its inception and termination, except under very limited circumstances. However, a pre-approved plan provider gets an IRS opinion letter on the pre-approved plan, and the adopting employer can generally rely on this letter. Moreover, the plan provider will get a new letter on the pre-approved plan every six years, the pre-approved plan restatement cycle, to reflect changes in the plan and changes in applicable statutes, regulations, and other guidance. If your plan is headed for termination, restatement on the IRS pre-approved plan format should reduce the time the IRS takes to review the document during the plan termination process.

Streamlined Services

If the plan provider you choose also administers your defined benefit pension plan and/or provides actuarial services, the pre-approved PPA defined benefit plan document will be very familiar to it. The plan provider will be able to point a plan administrator to applicable plan provisions for their consideration more quickly and more cost-effectively when the plan sponsor is looking for answers to its questions about plan administration.


Every six years or so the IRS will require restatement of the pre-approved defined benefit pension plan document and will issue a new opinion letter upon which an adopting employer can rely. This cycle’s amendment and restatement is generally referred to as the PPA restatement. The subsequent restatements on the revised pre-approved documents will be more cost-effective than drafting amendments to each individually designed plan for each required change since the provider will be inputting virtually the same information to generate the new restated documents. This is especially true for frozen defined benefit plans that will have little change.

Required Interim Amendments

If the IRS requires amendments to the pre-approved PPA defined plan documents that don’t require employer elections, they will be adopted by your plan provider for all adopting employers, and the adopting employer will be given a copy. Otherwise, the provider will issue a pre-approved amendment, with elections, that the adopting employer will complete and execute.

Not every defined benefit pension plan is going to fit into an IRS pre-approved PPA plan document format. The provider of your choice will need to look at your current plan documents to determine if this kind of restatement is possible. With the holidays between now and April 30, 2020, the time to consult with your trusted advisors is now. For those of you who sponsor defined contribution plans, the next pre-approved defined contribution plan restatement cycle is expected to be announced by the IRS at some point in 2020.

Questions? Please contact the Findley consultant you regularly work with, Sheila Ninneman at Sheila.Ninneman@findley.com, 216.875.1927.

Published November 14, 2019

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Proposed E-Delivery Safe Harbor Recognizes Online Reality

On October 22, 2019, the DOL announced new guidance that should go a long way toward bringing the delivery of ERISA-required disclosures and notices into the 21st Century. It should also provide significant cost savings for plan sponsors. This e-delivery safe harbor will be in addition to the safe harbor issued by the Employee Benefits Security Administration in 2002.

The new safe harbor e-delivery option will permit plan administrators to notify participants electronically that information is available online. The notice must include:

  • a brief description of the document being posted online,
  • instructions on how to access the information,
  • information on how to receive paper versions of the information,
  • how to affirmatively opt out of electronic delivery, and
  • a telephone number to contact the plan administrator or other designated plan representative.

The proposed safe harbor includes standards for the website where disclosures will be posted and outlines system checks for invalid electronic addresses.

This safe harbor option eliminates the 2002 safe harbor requirement that participants must opt in to receive disclosures electronically outside of work email. The notice from the plan sponsor under the new guidance could be issued via work email, a plan sponsor-issued smartphone or a personal email address as supplied by the participant.

The DOL guidance seeks input on additional changes to the content, design, and delivery of ERISA-required disclosures.  Comments are due by November 22, 2019. A fact sheet on the proposed e-delivery safe harbor option is available here.

Questions? Please contact the Findley consultant you regularly work with, or Sheila Ninneman at Sheila.Ninneman@findley.com, 216.875.1927.

Published November 7, 2019

© 2019 Findley. All Rights Reserved.

Is Your Voluntary Benefits Program Really Exempt from ERISA?

Employers have a lot to think about when it comes to their employee benefit programs and legal compliance. ERISA’s safe harbor exemption for a certain group or group-type insurance programs allows employees to access all kinds of benefits without their employers having to deal with ERISA compliance. Insurance programs that can fall into this exemption may provide benefits such as medical, surgical, hospital, vacation or prepaid legal services. Often referred to as “voluntary insurance plans,” these plans are characterized by employee-only paid premiums and limited employer involvement.

Most employers want their “voluntary insurance plans” to steer clear of an “ERISA Plan” designation, because exempt voluntary insurance plans are not subject to the ERISA’s extensive reporting, disclosure, and fiduciary duty requirements.

It is important to note however that employers often find themselves at odds with an insurer that concluded it to be in their best interest to argue the safe harbor exemption does not apply.  Here’s why:

The voluntary plan safe harbor issue often arises in a lawsuit brought by a covered employee against the insurer. In most cases, the insurer wants to avoid the employee’s state-law claims, which may expose the insurer to higher potential damages and penalties. To avoid the state law claim, the insurer must argue that the safe harbor does not apply, subjecting the plan to ERISA, which limits remedies.

Knowing when ERISA applies is therefore an important part of developing a robust risk and compliance strategy; knowing where the ERISA line lies is crucial to understanding how best to limit your role so that you do not inadvertently convert your non-ERISA plan into an ERISA plan.  The safe harbor exemption requirements are detailed below.

Voluntary Insurance Plan Exemption

Voluntary insurance plans must meet four exemption requirements. In order to qualify for the safe harbor, an employee welfare benefit plan has the following features:

  • No contributions are made by an employer;
  • Participation in the program is completely voluntary for employees;
  • The sole functions of the employer are, without endorsing the program, to permit the insurer to publicize the program to employees, to collect premiums through payroll deductions and to remit the premiums to the insurer; and
  • The employer receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit for administrative services actually rendered in connection with payroll deductions.

Employer Contributions

Any contribution made by an employer towards insurance coverage will take the plan outside the voluntary plan safe harbor. Additionally, reimbursement of employee premium expenses is considered a “contribution,” which includes payments under tax-advantaged reimbursement arrangements like HRAs (health reimbursement accounts). In some cases, special premium group discounts negotiated by an employer may be considered contributions.

Employers should hesitate before running payroll deductions through a 125 cafeteria plan for voluntary insurance plan purposes—lest the employer will run afoul of ERISA exemption requirements. The general consensus is that this course of action is not a good idea. Several courts have concluded that pre-tax employee contributions paid under a section 125 cafeteria plan are employer contributions (and are considered to be an endorsement). Given the current legal landscape, it makes sense to require employee contributions to be paid on an after-tax basis.

Voluntary Participation

The voluntariness prong requires that employee participation be completely voluntary. A plan is not voluntary if coverage is automatic and paid by the employer. Likewise, employers run afoul of this requirement if they require employees to make a decision as to coverage or tie coverage to a high level of participation. In addition, requiring attendance by employees at information meetings may be viewed as undermining the voluntariness of employee participation.

Employer’s Functions Spelled Out

An employer must limit its roles with respect to the program to those described below.

Permit the insurer to publicize the program to employees

Permitting an insurer to publicize the voluntary plans may take the form of a presentation in the workplace, providing employees with the insurance agent’s business card, or telling employees of the program’s availability and directing them to the insurer for details.

Collect premiums through payroll deductions and remit them to the insurer

The voluntary plan safe harbor permits an employer to collect premiums through payroll deductions. Upon collection of premiums, employers may remit the premiums to the insurer, including forwarding the premiums by corporate check.

Functions ancillary to the enumerated ones

While certain ancillary functions have been approved by some courts in litigation, there is some risk of losing a benefit plan’s voluntary status if performed by the employer, depending on the jurisdiction. Nevertheless, examples of such approved functions include:

  • Selecting the effective date of the policy;
  • Verifying the full-time employment status of employees to the insurer;
  • Maintaining a list of covered employees or tracking employee eligibility status;
  • Providing employee information and coverage change forms to the insurance company;
  • Maintaining a file on the voluntary plan policy;
    Issuing certificates to enrolled employees confirming the commencement of coverage; and
    Selecting certain plan options in completing insurance application (e.g., requiring that employees that work for 30 days before reaching eligibility).

Employer “Endorsement”

The requirement that an employer not endorse a voluntary insurance plan is the most difficult to comply with, and is the most litigated of the exemption’s requirements. Determining what employer acts constitute endorsement is highly fact-specific. Employers should avoid the following activities that have been found to be an endorsement:

  • Selecting the insurer
  • Negotiating plan terms/design
  • Linking coverage to employee status
  • Using the employer’s name or logo in connection with the plan or associating the plan with other employer plans
  • Recommending the plan to an employee
  • Stating that ERISA applies
  • Doing more than permitted payroll deductions, such as accepting liability for premiums during grace periods or issuing premium notices
  • Permitting payment of premiums with pre-tax dollars through a cafeteria plan
  • Assisting employees with claims or disputes

If you now think the insurance program you thought was exempt from ERISA may not be, consult with your trusted advisors at your earliest opportunity. If you’re considering giving your employees access to these voluntary benefits, work with your advisor to ensure you know where ERISA’s safe harbor exemption lies.

Questions? Please contact the Findley consultant you regularly work with, John Lucas at John.Lucas@findley.com, 615.665.5329, or Scott Williamson at Scott.Williamson@findley.com, 615.665.5317.

Published November 4, 2019

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