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good morning everyone uh i'm jeff gray i'm one of the employee benefit lawyers here at miller johnson uh thanks for joining me early this morning for a brief webinar uh to cover a recent to cover recent changes in the law that affect retirement plans we have a few topics to topics to cover today including changes that were made by the most recent federal stimulus bill and some recent guidance from the irs and the department of labor uh the first item to talk about is one of the most recent changes under the consolidated appropriations act of 2021 this of course is the most recent federal stimulus bill that was signed by the president there at the very end of last year on december 27th this bill i think thankfully does not have a tremendous impact on retirement plans really there are only a few i would say relatively minor provisions that affect retirement plans but one of the most uh one of the most important though of the of the handful that affect retirement plans is this um this sort of pause on the partial plan termination rules for 2020. um i did a webinar on though that was really solely devoted to partial plan terminations i think in november december last year so we really tried to emphasize this and of course at the last minute congress changed the rules on us but for a little background for those of you who may not be familiar with it a partial termination of a a qualified retirement plan happens whenever there's a significant percentage uh drop in the active participants in the plan due to some sort of employer initiated event that significant percentage is generally 20 although it sort of depends on the circumstances and when that happens um the affected employees must be made 100 invested under the plan so this of course doesn't apply if you're a safe harbor plan it also doesn't apply if you're if you have a 403b plan but it does happen from time to time for other qualified retirement plans so if we take an example here if you had a reduction in force in 2020 that resulted in a 20 drop in active participants you may have had a partial termination of the plan in 2020 under the under the normal rules and we had kind of emphasized that it's good to catch that when it happens because it's difficult to it's not difficult but it could be expensive to correct a partial termination in a later plan year when you find out about it so i think um you know some employers who knew that they were laying folks off and weren't doing rehires in 2020 they may have acted on this and actually bested people under these partial termination rules under the consolidated appropriate appropriations act though there's a provision that says we're basically going to ignore these partial termination rules during this period this particular period of time in the act so between march 31 and 2020 and march 31 2021. in other words even if you may have had a partial termination in 2020 and again this partial termination uh determination is sort of made on a plan year basis usually so you look at the end of the year whether you had um enough enough of a reduction to trigger one of these terminations i think congress was worried that a number of employers who weren't paying close attention to this could have had a partial termination last year and wouldn't even know it and that could cause a real problem so under this provision of the act it moves basically moves the partial plan termination decision until march 31 of this year so basically what you do you as long as you comply with this rule uh you won't have to have to worry about a partial termination last year and the rule is basically if the number of active participants in your plan as of march 31 2021 as at least 80 percent of the number of active participants as of march 31 2020 then you don't have to worry about having a partial termination during that period of time so i think that's good news i think that that will protect employers who maybe weren't even aware of these rules to some degree especially if things turn around a little bit and and there there are fewer lockdowns by march and maybe there's some rehiring uh particularly by the restaurant industry or the hospitality industry before march i think it's going to be a little bit difficult though if you're one of the employers who was on the ball last year and maybe vested folks because a partial termination happened i don't know that there's a way to unring the bell in that circumstance if you've communicated it or if people have taken distributions i suppose if you've invested some people and um you know maybe it's just a change in the record-keeping system that you need to make to undo that that may be okay but if you've if you've actually processed a partial termination invested people i think you'd want to talk to us uh before you do anything to try to to try to take advantage of this new provision in the consolidated appropriations act so that's one of the major changes the the consolidated appropriations act also includes a number of disaster a disaster relief provision that's similar to other provisions the coronavirus related distributions last year were really based on these these disaster provisions that we've had in the past uh in previous examples of hurricanes the idea here is that there's some similar qual with what are called qualified disaster distributions uh in the event that you are a participant with a primary residence in a disaster area it's important to understand that these are federally declared disasters that are unrelated to covet 19 so we've seen in some news reporting that this act basically extended the coronavirus related distribution relief and that's not true those those distributions ended uh the end of last year this these provisions are limited to um federally declared disasters that are declared between january 1 of last year and february 25 of this year and so if you think about it they're structured similar to coronavirus related distributions of last year under the cares act but you know those distributions were for people who were qualified individuals under the cares act so they were they tested positive for uh the coronavirus or someone in their household for example tested positive these are more related to some sort of hardship that you would have had because your residence was in a disaster area and that can come up in the context of wildfires in california for example or hurricane laura and again these are optional for a plan to add you don't you're not required to add these disaster relief provisions they work similar to the distributions under the cares act so a participant if you were to add these could receive a distribution of their full account balance up to a hundred thousand dollars they could also repay hardship distributions that they may have taken out to purchase or build a home in the disaster area so if you took a hardship out to build a home and then it was ravaged by some sort of wildfire this provision lets you repay that hardship distribution to the plan without any tax penalties um you can also delay the reap similar to the cares act delay repayment of loans and there's an increase in the availability of loans up to a hundred thousand dollars or a hundred percent of the vested account balance rather than the standard rule which is uh fifty thousand and fifty percent of the standard of the invested account balance so again these are optional provisions but if you're and they really don't impact anyone in michigan because we haven't had a federally declared disaster that's not related to covid19 so um but if you've got other operations in california or some of these other places affected by hurricanes maybe this is option you want to consider the deadline to amend the plan to add this if you want to is the uh end of the plan year that begins or after january 1 2022. so you've got some time just like the secure act and the cares act before you need to amend your plan to add this provision there are a couple other i would say minor points in the in the consolidated appropriations act related to retirement plans one of them one provision basically retroactively amends the cares act to allow coronavirus related distributions from money purchase pension plans we don't see many of these money purchase pension plans anymore but it was a little bit unclear under the cares act how it worked with those plans so this act kind of corrects that lack of clarity and retroactively amends the carries actually those distributions now those distributions are still they've ended by the end of last year so you couldn't get a new coronavirus related distribution under a money purchase pension plan but if you took a distribution from one of those plans last year that would have otherwise qualified as a coronavirus related distribution you could get the tax benefits from that by virtue of this provision and the new law there's also i think a really obscure provision at least from my perspective that relates to over-funded pension plans that have elected to transfer uh certain excess funds to a retiree health account or retiring life insurance account there's a provision in the tax code that lets you sort of take that over funded amount and in the future transfer it annually or transfer it apart over 10 years into another health account kind of take advantage of that over funding um there's so there's a rule in this consolidated appropriations act that basically lets you terminate that transfer early and if there were previously if there are funds that were previously transferred into this other account uh that haven't been used under this retiree health account you could get those you get those funds back as the plan sponsor and you can basically use them uh without penalty as long as you put them back in the account within five years uh if you fail to do that it's treated as a reversion which is subject to additional taxes i think it's a 50 additional 50 tax on the on the amount so i would be surprised if anyone on this call is in this situation at all if you are i'll let me know i because i'd be shocked um so that's really it i mean the good news is you know we hear rumblings that there are more retirement plan provisions in the latest stimulus building you think oh great what's going to happen now what's going to be the big change and there really wasn't just some minor minor changes for retirement plans and i think that i feel good about that i don't i don't know if you do either but there's just so much change it's nice that there wasn't anything uh earth shattering in that act um let's see so there but there have been a few even in 2021 already uh three weeks in right we've already got some more guidance from the irs uh this though is pretty simple last year you might recall if you have a pension plan or another plan with annuity payment options there's a requirement that spouses consent to a participant's election of any other payment option besides the joint survivor annuity so if a participant with a plan like this wants to take a lump sum the spouse has to sign off on that and what we ran into last year especially in the context of terminating pension plans you you basically have all these participants who have to make a decision about how to take their distribution and so you could have hundreds of people or more who need to get spousal consents and the banks were closed so what do you do so the community generally pushed the irs to allow allow that allow those spousal consents to be witnessed remotely uh the irs without really any support from the statute in the relevant statute has always required required this witnessing to be done in the physical presence of a plan representative or notary so when the spouse needs to do this consent it has to be witnessed by someone the statute says witnessed by one of two people either a notary or a plan representative and in the past at some point the irs said what we think congress means that means witnessed in the physical presence of one of those people and that physical presence requirement became like i said a real tricky thing to navigate around last year but we did get some guidance from last year that said okay we'll give you some relief from this physical presence requirement until july 31 2020. uh you can basically do these you can witness these consents remotely um and the rules for those remote consents it's basically as long as you are providing as long as you're following the state law that relates to the witnessing or i'm sorry the remote notarization of a document you're okay so michigan for example has a set of rules for notaries for notarizing things remotely um and i think there's and also um the governor last year issued some rules about that as well uh and then the notice itself from last year provides the requirements if you actually have a plan representative who's witnessing these sorts of consents remotely both situations require a kind of live audio video technology and then there are a number of other requirements that go along with it so if you're doing the point of this slide is that this relief has been extended and if you are actually in the situation of doing remote notarization or allowing participants to uh do these consents these spousal consents remotely just be aware that you want to check these state rules about remote notarization to make sure people are doing it correctly and we also have a client alert on this i think from last year that lays those rules out in a little bit more detail so if anybody actually wants those just let me know i can i can show you that client alert that we did um we also have this was a rule that the the department of labor issued i think in october last year so this is a new not new but uh a rule that was that's final based on the plan sponsors fiduciary duties when it comes to uh selecting investments for a retirement plan this has been this has been kind of ongoing issue but this relates to selecting investment based on what are called selecting investments that are based on what we're referring to as environmental social or corporate governance factors or esg uh and this has been gone going on for quite a while basically what happens is and i've heard this in retirement playing committees from time to time you'll be there with the retirement plan committee and somebody will say well you know uh we're in we are in the um you know whatever it might be the the uh the alternative energy sector of of the of the financial system so we don't we don't think we should have any funds in our plan that include stocks of oil and gas companies for example and vice versa maybe you've got an oil and gas company that says hey we don't want any of these alternative energy stocks in the lineup for people to invest in because there are competitors or i've had situations where maybe you had a kind of religious organization or order that was more pacifist in nature and they were just absolutely against having any sort of funds with defense contractors you can think that there's a number many ways in which a retirement plan committee might say to itself you know we just don't want to support this particular this particular group or this particular idea the problem with that is that orisa has baked into it a clear fiduciary obligation to act solely in the best interest of participants and the department of labor labor's emphasis here is that that obligation really means you as the plan sponsor need to be need to be selecting funds based on their financial returns based on what what the dol refers to as pecuniary factors you know not these other factors outside the scope of how will these investments work in terms of providing retirement funds for employees that has to be the focus we can't subordinate kind of the financial aspect of these funds to other objectives that a committee may have this got a lot of pushback from a lot of people i think there was something like 7 000 comments that came in on this rule but it's it's final rule um there is a situation where you can use these not what the what the doll refers to as non-pecuniary factors but it seems like it's a big hurdle to to to meet uh if you have two kind of equivalent funds that based on the normal investment uh investment sort of guidance are kind of the same so we've got two funds the peculiary factors sort of work out the same well in that search way in that situation maybe you can rely on these other objectives or these other environmental or social aspects but you have to go through this process of documenting why these funds are basically the same from a financial perspective and and then also document uh all of the all of the other factors that now you're relying on besides those financial factors and it just seems like it's it's kind of a trap i think it's it's going to be difficult to do but but it's possible um and i don't really this stuff the financial advice makes me sort of my eyes glaze over but when you're in these meetings the financial advisors talk about things like sharp ratios and up down capture there's they have all these to me seem like complicated financial measurements but the focus here is to focus on enough is to aim at those objectives and not these other other objectives that may come up so the next piece of guidance again came out late last year this just clarified this irs notice 2020-86 clarified certain aspects of the secure act related to safe harbor plans as you may recall under the secure act non-elective safe harbor plans no longer have to send out a safe harbor notice either annually or to new participants a non-elected plan is a plan that basically uh you you're contributing a safe harbor contribution based on the participants uh compensation whether they defer into the plan or not so we compare matching plans plans that have matching contributions and plans that have non-elective contributions this change in the in the um notice requirements only impacts non-elective safe harbor plans so this notice 2020-86 just clarified that hey there are some other notice obligations that still exist of course even if you have a non-elective safe harbor plan you still have to send out this automatic enrollment notice if you have automatic elective contributions and what's called an iaca or an eligible automatic contribution arrangement in those plans participants can take out their automatic deferrals within 90 days that type of plan has a particular notice that goes with it so all the auto enrollment notices those still stay in place even if you have an unelected plan and also one issue that came up last year we were as we were kind of debating what to do about this you know if you're not elected safe harbor plan you don't have to send out this annual notice but there's a requirement that if you are going to suspend your safe harbor contributions in the middle of a plan year you can only do that in two situations one where you're operating at an economic loss where the business is operating at an economic loss or two that in the safe harbor notice that you sent out uh that that you explained to participants that that the safe harbor contributions may be reduced in the middle of the year and so our thought was that well if we don't if a non-elected plane doesn't send the safe harbor notice under the security act because not required to anymore are they going to lose the advantage of that provision that other provision in the code that allows you to reduce or eliminate the safe harbor contribution mid-year and i thought it was yes that you still need to send the safe harbor notice out if you want to preserve the ability to suspend or reduce safe harbor contributions mid-year the irs notice 2020-86 confirmed our suspicions which is that yes if you still want to preserve that ability to suspend your safe hardware contribution mid-year you should send out the same type of safe harbor safe harbor notice that you've been sending out even if you're a non-elective safe harbor plan all right let's go to the next slide this is just a slide to remind folks that there are some different timing requirements for for these changes and the required minimum distribution rules under the secure act so we know that the secure act increased the age at when these minimum distributions have to begin from age 70 and a half to age 72 and that generally applies to participants who turn age 70 and say 70 and a half after december 31 of 2019 so but then there's a different rule that talks about that it basically accelerates certain post-death requirement distributions for divine contribution plans so in the past you could kind of spread those post-death required minimum distributions out over the joint life expectancy of the participant and the beneficiary the secure act limited the number of situations in which you can do that so surviving spouses you can still do that some minor children are disabled folks there's some exceptions where that where you can still kind of stretch those post-death required minimum distributions but outside those situations the general rule is that the full payout has to happen within 10 years of the end of the year in which the death occurs but for whatever reason there are a few different uh effective dates for this provision we just wanted to mention it private and for private to abnormal not normal but private employers this rule applies to deaths that happen after december 31 of 2019 but if you have a collectively bargained plan there's a kind of delay at work there so the general rule is this new rule applies to deaths after december 31 2019 or the expiration of the current or collective bargaining agreement if that expiration date is later but the kind of final drop dead deadline for this is december 31 of 2021 and then governmental employers uh this new rule applies to deaths that happen after december 31 2021. so depending on which group you fall in there you'll have uh you'll have different effective dates for this post-death post-death required minimum distribution requirement this is just again a reminder to employers that if you have a pre-approved plan those pre-approved irs plans are still on the six-year cycle for restating for legal compliance the latest uh third cycle started very very recently in terms of the so there's the kind of four-year period at the beginning of the six-year cycle where these plans get submitted to the irs and approved and then there's a two-year period at the end when the employers actually have to review and sign these plans so that two-year period started last year in the summer on august 1 and so then this two-year period extends until july 31 2022. so you've got a little bit more time here about a year a year plus to to review and sign any restated plan documents um so you'll get a if you use a kind of off-the-shelf plan from principal or fidelity or whoever it is they will be sending you a restated plan to sign uh soon if you use one of miller johnson's pre-approved plans we also are ready to restate that plan we're in the process of restating many right now because it's uh it's a it's a process and honestly july 31 2022 we will be here before we know it so it's good to get going on this uh get your plans reviewed restated and signed by that deadline um there's also you know if you have a purely individually designed plan it may be a number of years since the irs approved that plan uh there are there's no longer a an approval process for individually designed 401k plans for example so if it's possible to put that individually designed plan on a pre-approved format like the miller johnson format now would be a good time to kind of explore that possibility so that was just more of a heads up and that's all thanks for joining me and if you have any questions on any of these points please let me know