As we approach the end of 2018, qualified retirement plan sponsors should consider reviewing the various changes brought on by recent legislation, regulations and agency guidance to determine whether any plan amendments or administrative updates are needed. This advisory provides a brief summary of some of the notable changes affecting qualified retirement plans.

Hardship Relief As mentioned in our February 2018 client advisory, for plan years commencing after December 31, 2018, the Bipartisan Budget Act of 2018 (“Budget Act”) eases hardship withdrawal requirements by:

  • Not requiring a plan loan to be taken before a hardship withdrawal is made.
  • Allowing hardship withdrawals to include qualified matching contributions (“QMACs”), qualified non-elective contributions (“QNECs”), and earnings from all eligible sources.
  • Deleting the six-month suspension on deferrals following a hardship withdrawal.
Pursuant to recent IRS proposed regulations implementing the above legislative changes, plan sponsors may adopt any or all of the above changes for 2019. Plan amendments implementing the changes, however, need not be adopted until the end of the second calendar year that begins after the issuance of the IRS Required Amendment List that includes such changes. Employers seeking to put these hardship relief changes into effect for 2019 should, however, contact their third party administrators now to ensure appropriate administrative changes are in place for a January 1, 2019 effective date.

Disaster Relief

In response to disasters occurring in 2016 and 2017, Congress and the IRS made it easier for affected individuals to access funds in qualified retirement plans. Some forms of disaster relief require plan amendments which must be adopted on or before December 31, 2018 (for calendar year plans). This includes disaster relief for individuals impacted by Hurricanes Harvey, Irma and Maria, as well as for individuals impacted by major disasters in 2016, including Hurricane Matthew.

Additional forms of disaster relief for individuals impacted by 2017 disasters require plan amendments to be adopted on or before December 31, 2019 (for calendar year plans). This includes relief provided under the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (“Disaster Relief Act”). Pursuant to the Disaster Relief Act, individuals in affected areas are allowed to, among other things:

  • access up to $100,000 in retirement funds through penalty-free “qualified hurricane distributions,”
  • repay qualified hurricane distributions within 3 years, or spread out any income inclusion over 3 years,
  • borrow up to the lesser of $100,000 or 100% of their vested account,
  • repay plan loans over a longer period of time, and
  • recontribute qualified distributions that were taken for the purchase or construction of a home.
The Budget Act provides individuals impacted by the California wildfires with similar relief.

Disability Claim Procedures

As we communicated in our client advisories from February 2017 and February 2018, available here and here, the U.S. Department of Labor has issued new Disability Claims Procedures rules, which became effective April 1, 2018.

The new rules apply not just to disability plans. They also apply to any retirement plans, medical plans, and other welfare plans where a participant’s disability has an impact under the plan. To the extent a disability is based on an independent party’s determination, for example, where an employee’s disabled status references a disability determination by the Social Security Administration or under another employee benefit plan (like a long-term disability plan) the new rules do not apply.

Plan sponsors and administrators of ERISA plans that have a disability feature under any plan(s) should analyze their plan documents, including summary plan descriptions, administrative practices and procedures, and participant notices, to determine the applicability and impact of these new rules and what documentary and procedural changes are needed to ensure compliance with the new rules.

Plan Loan-Offset Rollovers

Prior to the Tax Act, a terminated participant who defaulted on a plan loan was deemed to have taken a taxable distribution for the outstanding loan balance unless that amount was contributed to another qualified plan or IRA within 60 days of termination. The Tax Act extends the 60-day period to the due date (including extensions) for filing the participant’s tax return for the year the loan default occurs. Because this extension only applies to plan loan default amounts resulting from a participant’s termination or plan termination, there is uncertainty as to whether the extension would be available where a plan provides for a post-termination loan repayment period. IRS guidance on this point would be welcome, but in any event, a plan amendment eliminating a post-termination loan repayment period would generally need to be in place by the end of the plan year in which the amendment is put into effect.

Use of Forfeitures for QMACs and QNECs

Employers may make certain types of contributions, referred to as QMACs and QNECs, to correct plan discrimination issues and satisfy discrimination testing safe harbors. Effective for plan years beginning on or after July 20, 2018, new regulations issued by the IRS and Treasury Department allow for forfeitures to be used to fund QMACs and QNECs. Employers seeking to make use of forfeitures for these purposes will need to amend their plans as needed by the end of the plan year in which the amendment is put into effect.