2020 Impact on Retirement Plans
2020 impact on retirement plans and what needs to be handled today
Along with adjusting to the new reality of virtual teams, online learning and social distancing, schools need to be aware of several legislative acts that have impact on their retirement plans now. The Budget Act of 2018, SECURE Act of 2019 and CARES Act of 2020 all in one way or another impacted retirement plans this year. Some of the changes require action now, others, like the early withdrawal distributions available under the CARES Act, won’t require document amendments until 2022.
One aspect of retirement plans that has not changed is plan compliance which continues on and as of right now, deadlines for the most part have not changed. 5500/8955s must be prepared and filed, annual plan notices distributed, plan documents maintained/updated and nondiscrimination testing performed.
Form 5500s:
For fiscal-year plans whose Form 5500 deadline falls within the specified date range of April 1 to July 14, 2020, IRS Notice 2020-23 provides some relief with an extended deadline of July 15, 2020. Otherwise the filing schedule remains unchanged at this time.
Plan documents:
- For 403(b) plan sponsors adopting a pre-approved plan document, the IRS’ remedial amendment period (RAP) original deadline for executing the new plan document was March 31, 2020. The deadline has been extended to June 30, 2020.
- The CARES Act of 2020 – If you wish to adopt the CARES Act’s early withdrawal provisions in your school’s plan, all you need to do now is confirm with your record keeper that the provisions have been made available. Most of the larger vendors such as Fidelity, TIAA, Vanguard, etc. are assuming plan sponsors will adopt the early withdrawal provisions and have opted plans in.
While the provisions can be made available immediately, the plan document does not need to be amended until on or before the last day of the first plan year beginning on or after January 1, 2022. At this time, a participant communication is optional.
Along with other pre-approved plan document sponsors, we are awaiting guidance from the regulators regarding the amendment language. Once direction is provided, plan document sponsors will draft and provide an amendment and Summary of Material Modifications (SMM) to all adopters of their sponsored document. The SMM will need to be distributed to all plan participants.
Not using a pre-approved plan document yet? Then you are responsible for preparing and adopting the required amendments.
- Given these uncertain financial times, if a plan sponsor must suspend or terminate Employer Contributions, a board resolution needs to be executed prior to ceasing contributions. As a best practice, 403(b) plans should communicate the contribution change to plan participants prior to the plan change effective date.
Once the resolution is passed, notify the plan’s record keeper that contributions will be stopped. If you are using a pre-approved plan document, contact the document sponsor, usually your record keeper, request a plan amendment and SMM. Again, if your plan document is not using a pre-approved plan document, you are responsible for the plan amendment and SMM.
Prior to suspending or terminating Employer contributions, we recommend discussing with your plan consultant, especially if the plan is considered a safe-harbor contribution or mandatory plan, as the suspension will likely impact annual nondiscrimination testing.
- If the plan allows for employee elective deferrals, employees will need to complete a salary reduction agreement. While you are pulling that agreement out, take a look and make sure it’s current.
David Mauger has over 10 years of experience working in the financial industry. He oversees a number of different operations at New Pinnacle Consulting Group including: nondiscrimination testing, verifying compliance with contribution limits, performing analysis for plan redesigns, and analyzing RFP responses for clients considering several retirement providers.
David graduated cum laude from Brigham Young University with a bachelor’s degree in Business Management with an emphasis in finance and a minor in history. He completed his MBA through the University of Colorado at Denver in 2006. David also has his Certified Treasury Professional (CTP) designation.