Hey, Retirement Plan Sponsors: Want a Happy New Year? Use Your 2020 ‘Downtime’ to Do a Retirement Plan ‘Checkup’

23 November 2020 Labor & Employment Law Perspectives Blog
Author(s): Belinda S. Morgan

Every year about this time, when the holiday season is just beginning and the new year is around the corner, all good qualified retirement plan sponsors (and plan administrators) ask: “Have we adopted all the IRS-required plan amendments for this year yet?” Given everything that's happened so far in 2020,1 you can be excused for being a bit anxious about what the last few weeks might bring.

Fortunately, you can relax (just a little – it's still 2020, after all). Although you may have implemented some of the defined contribution plan changes under the SECURE Act and CARES Act in 2020, employers aren’t required to adopt the needed plan amendments this year. Instead, they have until December 31, 2022, to do that (for calendar-year plans).

Since you have some breathing room, you should consider conducting a plan “checkup” during your “downtime.” 

Recap: SECURE Act and CARES Act Deadlines

As a quick reminder, the following SECURE Act changes were required to be implemented in 2020 (with plan amendments adopted by the end of 2022:

  • Required minimum distributions (RMDs) must begin on April 1 following the year an individual reaches age 72 (up from age 70 ½); and
  • New payment distribution rules for non-spouse beneficiaries.

In addition, if you implemented any of the optional retirement plan changes in the SECURE Act (such as qualified birth and adoption distributions) or the COVID-19-related relief provided by the CARES Act’s distribution and loan provisions or its 2020 RMD waiver, the required amendments for those changes are also due by December 31, 2022.2

Since you have until the end of 2022 to adopt these changes, you may want to take a “wait-and-see” approach, for at least a little while, before making any plan changes. The IRS continues to issue SECURE Act and CARES Act guidance, and may eventually issue model amendments for the Acts’ retirement plan provisions.  Biding your time on preparing plan amendments now could pay off later (possibly saving you from the need to reamend your plans).

Caveat:  While plan amendments for SECURE Act and CARES Act changes aren’t due until the end of 2022, if you made discretionary changes to your qualified retirement plan in 2020, plan amendments documenting those changes must be adopted by December 31, 2020 (for calendar-year plans).  

Conduct a Checkup of Your Plan's Terms and Administration

Retirement plan sponsors have a fiduciary duty to ensure that the terms of their plans comply with the requirements of the Internal Revenue Code (Code), and also that those plans are administered in accordance with their terms and all applicable laws (including ERISA). Periodic reviews of the basic plan compliance requirements can help plan sponsors catch glitches before they become serious problems that must be corrected.

The IRS has created checklists for various types of retirement plans, including Code §§401(k) and 403(b) plans, for this purpose. The checklists feature a handful of yes/no questions prompting plan sponsors to consider the language in their plan’s documents, as well as the manner in which the plan is being administered. If a plan sponsor answers “no” to any of the questions, the checklists link to an IRS “Fix-It Guide” intended to help the sponsor correct the issue.

The IRS’ checklists are short – just one page each – and are intended to help plan sponsors catch the most common plan documentation and administrative errors. If plan sponsors want to examine the administration of their retirement plans in greater detail, they can, with the help of counsel, prepare their own administrative checklists, starting with the questions raised by the IRS checklists, then expanding on them. 

By completing a retirement plan administration checklist (whether using the IRS’ checklist or its own customized checklist) on an annual basis, a plan sponsor can ensure its retirement plans are being administered in compliance with the Code and ERISA. The sponsor should retain the completed checklist in the plan’s records, as evidence it is fulfilling its fiduciary duty to monitor the plan’s compliance and administration.

*             *             *

As 2020 comes to a close (finally!), you may find that you have a little extra time on your hands, since there are no required year-end amendments to prepare and adopt. If so, consider conducting a checkup of your qualified defined contribution retirement plans to make sure they’re operating in accordance with their terms and required law. Then, once you’ve passed your checkup, sit back and enjoy that glass of wine/beer/beverage of your choice – you’ve earned it!

1              See, e.g., the COVID-19 pandemic; wildfires on the West Coast; the stock market crash; deadly earthquakes; volcano eruptions; a record-setting hurricane season; murder hornets (!), etc., etc., etc.

2            Certain changes to hardship withdrawal requirements – eliminating the six-month suspension on elective deferrals and requiring participants to certify that they lacked the liquid assets necessary to alleviate a financial hardship – were also required to be implemented in 2020. Amendments for those changes must be adopted by December 31, 2021 (for calendar-year plans).

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services