News

"[T]he SECURE 2.0 rule adjustment does not alter a plan sponsor's obligation to comply with the SECURE Act LTPTE rules for 2024. Consequently, the SECURE Act 'three year' rule will apply for 2024. However, effective for 2025 and into the future, the SECURE 2.0 'two year' rule will apply."

"There are still unanswered questions surrounding this guidance, including ... [1] Will designated beneficiaries and successor beneficiaries who do not take their 2021, 2022, or 2023 life expectancy payments be required to take those payments in the future? ... [2] Are amounts that would have been distributed to satisfy a 2021, 2022, 2023, or 2024 life expectancy payment still considered an RMD for other purposes (e.g., rollovers)?"

9 pages. "This notice provides guidance relating to certain specified required minimum distributions (RMDs) for 2024. In addition, this notice announces that the final regulations that the Department of the Treasury and the [IRS]  intend to issue related to RMDs will apply for purposes of determining RMDs for calendar years beginning on or after January 1, 2025....

"A defined contribution plan that failed to make a specified RMD will not be treated as having failed to satisfy Section 401(a)(9) merely because it did not make that distribution. ...

"To the extent a taxpayer did not take a specified RMD, the IRS will not assert that an excise tax is due under Section 4974....

"For purposes of this notice, a specified RMD is any distribution that, under the interpretation included in the proposed regulations, would be required to be made pursuant to Section 401(a)(9) in 2024 under a defined contribution plan or IRA that is subject to the rules of Section 401(a)(9)(H) for the year in which the employee (or designated beneficiary) died if that payment would be required to be made to:

• a designated beneficiary of an employee under the plan (or IRA owner) if: (1) the employee (or IRA owner) died in 2020, 2021, 2022, or 2023, and on or after the employee's (or IRA owner's) required beginning date, and (2) the designated beneficiary is not using the lifetime or life expectancy payments exception under Section 401(a)(9)(B)(iii); or
• a beneficiary of an eligible designated beneficiary (including a designated beneficiary who is treated as an eligible designated beneficiary pursuant to Section 401(b)(5) of the SECURE Act) if: [1] the eligible designated beneficiary died in 2020, 2021, 2022, or 2023, and [2] that eligible designated beneficiary was using the lifetime or life expectancy payments exception under Section 401(a)(9)(B)(iii) of the Code."

"The [SECURE Act] enacted at the end of 2019 established new retirement plan types, including Pooled Employer Plans (PEPs) and Defined Contribution Group of Plans (GoPs). It also ratified the existence of 'open' Multiple Employer Plans (MEPs), which had been used by many service providers without formalized reporting requirements.... [T]he Form 5500 series was updated to accommodate reporting requirements for plans maintained by more than one employer."

"Even though written plan amendments do not have to be made until the end of the 2026 plan year, plan sponsors are required to operate their plans in compliance with these LTPT employee requirements starting with the 2024 plan year. Section 403(b) plans must implement these provisions for plan years beginning in 2025."

[P]eriods beginning before January 1, 2021, are not taken into account; the preamble to the regulations explains that this a mandatory requirement, and plan sponsors may not voluntarily credit additional service to employees for purposes of an LTPT employee determination.... ... If a plan sponsor mistakenly did not provide LTPT employees eligible as of Jan. 1, 2024, the opportunity to defer on that date, the plan sponsor may need to take corrective action under [EPCRS]. "

"While safe harbor 401(k) plans are explicitly called out as requiring amendments to reflect the exclusion of LTPEs from eligibility for those contributions, as well as their exclusion from testing, non-safe harbor plans also appear to be subject to this requirement. The preamble to the proposed regulations requires a plan to contain 'enabling' language to permit the exclusion.... [A] non-safe harbor plan, out of an abundance of caution, should be amended in the same manner as a safe harbor plan regarding LTPE eligibility for employer contributions and exclusion from testing."

"What is the deadline for adopting a new safe harbor 401(k) plan? ... What is the deadline for adopting a new traditional 401(k) plan? ... What is the deadline for converting a traditional 401(k) into a safe harbor plan? ... How soon can I replace a SIMPLE IRA with a 401(k) plan? ... What are the major 401(k) adoption deadlines for 2024 and 2025 [listed in a chart]?"

Jan. 26, 2024. "The SECURE Act made changes to when an employee is eligible to make deferrals to a 401(k) plan.... This new requirement generally applies to all 401(k) plans and all employees, other than certain employees covered by a collective bargaining agreement. For a 401(k) plan that uses the calendar year as its plan year, this change could require enrollment of long-term part-time employees as of January 1, 2024."

"While many of the rules in the Proposed Regulation are straightforward and well-explained, there are certain complexities that may require a longer implementation period.... [ERIC asks] for a good faith compliance standard with respect to plan years that began January 1, 2024."

"The recently proposed regulations issued by the [IRS] answer the question of who is a long-term, part-time employee in some detail.... [An] employee who might otherwise qualify as a long-term, part-time employee by meeting the minimum service requirements will not be considered one if the employee enters the plan after first satisfying other minimum eligibility criteria."

"[G]iven the added complexity around hours counting and tracking, some employers may want to explore design changes that would help reduce the administrative burden associated with complying with the new rules . This might include eliminating eligibility waiting periods for making elective deferrals or eliminating waiting periods altogether, even those that can still be applied to receipt of employer contributions."

"The recently proposed regulations issued by the [IRS] confirm that employees who enter a plan as long-term, part-time employees may be excluded from coverage testing, ... However, ... employers cannot choose to exclude long-term, part-time employees from some types of testing but not others (or to exclude some long-time, part-time employees from testing but not the rest). It's all or nothing."

"[T]he new rule has generated questions about whether all employers will now be required to track the actual hours all employees work to ensure compliance with this rule. The recently proposed regulations released by the [IRS] confirm, in what should be a relief to many employers, that the answer is no."

"[T]he new rule raises numerous questions about how the new service requirement should be tracked.... [R]ecently proposed regulations  ... [clarify] that employers can use one of two eligibility computation periods."

"[ Proposed regulations ] provide that employees who enter the plan as long-term, part-time employees must continue to be credited with vesting service for completing 500 hours of service in the designated 12-month measurement period, even if they later stop being considered long-term, part-time employees."

"[I]tems specific to 401(k) plans include: [1] changes made to the hardship distribution rules under the Bipartisan Budget Act of 2018, [2] final hardship distribution regulations issued in 2019, [3] the establishment of starter 401(k) plans under the SECURE 2.0 Act, [4] changes to rules relating to long-term, part-time employees made by the SECURE Act, the SECURE 2.0 Act, and proposed regulations upon which taxpayers may rely, and [5] changes to the rules for SIMPLE 401(k) plans made by the SECURE 2.0 Act."

"Plans that may want to avoid the LTPT rules by allowing all employees to make elective contributions immediately may find that, if they don't act quickly, some of their employees are already LTPT employees.... [U]nder the proposed regulations ... the plan will have to continue treating them as LTPT employees and vest after 500 hours even though other employees will not be credited with years of service for vesting purposes until they attain 1,000 hours."

"[1] Plan administration changes are required now -- but plan amendments can wait.... [2] How to identify LTPT employees.... [3] Catch-up and Roth deferrals.... [4] No requirement to provide LTPT employees with employer contributions.... [5] Special vesting rules for employer contributions allocated to LTPT employees.... [6] Exclusion of LTPT employees from nondiscrimination testing.... [7] Elapsed time plans.... 8. 403(b) Plans."

"[E]mployers should consider the pros and cons of amending their plan's eligibility requirements to avoid the application of the LTPT employee rules.... [T]he proposed regulations provide that employers may change their eligibility requirements in operation and generally need not formally amend their plans for such changes until the end of the 2025 plan year, when other amendments for SECURE 2.0 are required."

"[T]he proposed regulations: [1] Define the term 'LTPT employee.' [2] Clarify when LTPT employees must be permitted to make salary deferrals to a 401(k) plan ... [3] Provide special vesting rules for employer contributions made on behalf of LTPT employees. [4] Describe special rules for 'former LTPT employees.' [5] Specify the available nondiscrimination testing and coverage elections."

"LTPT employees may be excluded from non-discrimination and top-heavy testing for all employer contributions, but to do so, this language must be included in the plan document. Employers may still exclude LTPT employees from employer matching contributions, employer non-elective contributions, catch-up contributions, and Roth contributions."

"The proposed regulations provide that an LTPTE is eligible to make catch-up contributions for a taxable year, so long as the employee attains 50 before the end of the employer's taxable year. The proposed regulations also clarify that a plan may permit LTPTEs to make designated Roth contributions."

12-page chart details provisions of the proposed regulations, along with plan document requirements and cautionary notes.

"The proposed regulations provide a number of helpful answers that may reduce the implementation burdens for some employers. But there are also a number of nuances that are likely to be challenging to implement by the January 1, 2024 statutory effective date of SECURE 1.0, and the January 1, 2025 effective date of SECURE 2.0."