Defined contribution plan

2022 Taxable Wage Base Announced

The Social Security Administration has announced the 2022 adjustments for benefits and certain other limitations that are subject to annual cost-of-living adjustment (COLA) indices. One of these includes the Social Security taxable wage base (TWB), which identifies the maximum amount of an individual’s annual earnings that are subject to withholding for Social Security-administered benefits. The TWB is sometimes also used in retirement plan contribution allocations that use so-called “integrated” formulas, providing additional retirement plan benefits on income above the TWB, income for which the recipient will not receive Social Security benefits. For 2022, the TWB will rise from $142,800 to $147,000.

Significantly, it has been common for the IRS to provide the COLA-determined retirement limitations for the coming year shortly after the revised TWB is announced by the Social Security Administration. These 2022 retirement limitations will be announced as soon as they become available.


Proposed Bill Would Create Portable Retirement Accounts

Representative Jim Himes (D-CT) and Senator Mark Warner (D-VA) have announced legislation to establish universal, portable retirement accounts. The Portable Retirement and Investment Account (PRIA) Act of 2021 would create such accounts for every American at birth, in conjunction with the issuance of a Social Security number.

The child of any taxpayer who received the earned income tax credit in the tax year prior to establishment of the account would also receive a $500 contribution. Any individual will be permitted to make contributions to their own account throughout their life, except during years in which they are an active participant in an employer-sponsored retirement plan. Annual aggregate contributions will be limited to an amount comparable to the IRA contribution limit imposed under Internal Revenue Code Section 219(b) and catch-up contributions for those age 50 or older.

Employers will be permitted to make direct deposits, apply automatic contribution and automatic escalation features, and make contributions to the accounts of their eligible employees. These employees are limited to anyone

  • whose employer does not maintain a qualified retirement plan,
  • whose employment consists of work (whether or not as an employee) through mobile platforms, or
  • who is not eligible to participate in their employer’s qualified retirement plan.

 

The bill was referred to the House Committee on Ways and Means.


Proposed House Budget Reconciliation Amendment Includes IRA Restrictions

The House Ways and Means Committee has released additional legislative text as part of its tax portion of the anticipated $3.5 trillion budget reconciliation bill. If enacted, the proposal would impose several restrictions on IRAs.

  • Creates a prohibition on Roth or Traditional IRA contributions if aggregate IRA and defined contribution balances exceed $10M, and generally applies to individuals making more than $400–$450k (depending on filing status)
  • For account balances exceeding $10M, provides for a required distribution equal to 50 percent of the amount by which the prior year aggregate balance exceeds $10M—again, for individuals making more than $400–$450K. If the aggregate value exceeds $20M, then the excess is required to be distributed first from Roth IRAs and designated Roth accounts to bring the value to $20M (or deplete Roth assets) after which the individual can choose which accounts to distribute from to satisfy the remaining RMD resulting from having a balance exceeding $10M.
  • Closes the “back-door” Roth loophole by eliminating conversions of all after-tax IRA and after-tax employer plan contributions
  • Eliminates pretax conversions and rollovers to Roth from non-Roth accounts for those making $400–$450k (beginning in 2032)
  • Extends statute of limitations from three years to six years after a return containing an error was filed to allow IRS to pursue IRA noncompliance

The legislation also imposes restrictions on certain types of investments as follows.  Such investments that exist in IRAs at the time of enactment would be required to be divested from the IRA by December 31, 2023.

  • Prohibits investment of IRA assets in a security if the issuer of the security (or other person specified by the Treasury Department) requires the account owner to either
    • have a specified minimum amount of income or assets,
    • have completed a specified level of education, or
    • hold a specific license or credential
  • Prohibits investment of IRA assets in entities in which the owner has a substantial interest (10 percent or more) or is an officer or director of the entity. Constructive ownership of family members applies (spouse, ancestor, lineal descendant, and spouse of lineal descendant).

Other retirement provisions included in the Ways and Means Committee’s portion of the bill were announced last week. After nearly 40 hours of debate and 66 amendments over the course of four days, the legislation was approved by the Ways and Means Committee in a near party-line vote. It now moves to the House Budget Committee for markup.


IRS Issues Deadline Relief for Hurricane Ida Victims in Pennsylvania

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of Hurricane Ida in Pennsylvania. The tax relief postpones various tax filing deadlines that began August 31, 2021. Affected individuals and households who reside or have a business in Bucks, Chester, Delaware, Montgomery, Philadelphia, and York counties, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after August 31, 2021, and before January 3, 2022, will have until January 3, 2022, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after August 31, 2021, and before January 3, 2022.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.


DOL Releases Proposed Revisions to Form 5500 Reporting

The Department of Labor’s Employee Benefits Security Administration (EBSA), in conjunction with the IRS and Pension Benefit Guarantee Corporation (PBGC), have released proposed forms revisions modifying requirements for Form 5500, Annual Return/Report of Employee Benefit Plan, reporting. Additionally, the EBSA has issued a proposed rule to amend regulations relating to annual reporting requirements under Title I of the Employee Retirement Income Security Act of 1974 (ERISA).

The Setting Every Community Up for Retirement Enhancement (SECURE) Act included a provision that would allow employers sponsoring defined contribution plans that have the same trustee, administrator, fiduciaries, plan year, and investment options the opportunity to file one common Form 5500 beginning in 2022. While guidance outlining reporting requirements in accordance with the Act had been anticipated, the proposals also appear to include several other forms modifications.

The following revisions have been highlighted as part of the guidance package release.

  • Implement SECURE Act requirements by establishing a new type of direct filing entity called a Defined Contribution Group Reporting Arrangement and add a new Schedule DCG that such reporting group must file
  • Modify Form 5500 to reflect pooled employer plans as a new type of plan and modify multiple employer plan reporting of information by establishing a new Schedule MEP
  • For multiple employer welfare plans that provide medical benefits, move questions regarding participating employers from the Form 5500 to the Form M-1 Report for Multiple Employer Welfare Arrangement (MEWA) and Certain Entities Claiming Exception, and apply that reporting requirement to non-plan MEWAs that file the Form M-1
  • Expand reporting requirements to add new fee and expense reporting and enhance the content of the existing schedules of assets held for investment
  • Add questions to improve financial and funding reporting by PBGC-covered defined benefit pension plans

There will be a 45-day comment period following publication in the Federal Register.

 

 


IRS Issues Deadline Relief for Tropical Storm Fred Victims in North Carolina

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of Tropical Storm Fred in North Carolina. The tax relief postpones various tax filing deadlines that began August 16, 2021. Affected individuals and households who reside or have a business in Avery, Buncombe, Haywood, Madison, Transylvania, Watauga, and Yancey counties, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after August 16, 2021, and before December 15, 2021, will have until December 15, 2021, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after August 16, 2021, and before December 15, 2021.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.


IRS Issues Deadline Relief for Hurricane Ida Victims in Mississippi

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of Hurricane Ida in Mississippi. The tax relief postpones various tax filing deadlines that began August 28, 2021. Affected individuals and households who reside or have a business in all counties in Mississippi and the Mississippi Choctaw Indian Reservation, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after August 28, 2021, and before November 1, 2021, will have until November 1, 2021, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after August 28, 2021, and before November 1, 2021.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.


IRS Issues Deadline Relief for Hurricane Ida Victims in New Jersey

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of Hurricane Ida in New Jersey. The tax relief postpones various tax filing deadlines that began September 1, 2021. Affected individuals and households who reside or have a business in Bergen, Gloucester, Hunterdon, Middlesex, Passaic, and Somerset counties, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines qualify for relief. This relief will be automatically granted to taxpayers in Ida-affected locations in other parts of the state subsequently designated by the Federal Emergency Management Agency (FEMA).

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after September 1, 2021, and before January 3, 2022, will have until January 3, 2022, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after September 1, 2021, and before January 3, 2022.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.


IRS Priority Guidance Plan Includes Retirement Items

The IRS has issued its initial 2021-2022 Priority Guidance Plan, in which it describes guidance projects in the current fiscal year. Many items in the plan have appeared in prior years’ Priority Guidance Plans. A number of the guidance items deal with retirement savings arrangements, including the following.

  • Guidance related to several IRS tax-exempt and government entities programs, including the EPCRS, pre-approved plan, and determination letter programs
  • Regulations and guidance relating to the 10 percent early distribution tax
  • Comprehensive IRA regulations
  • Final regulations on normal retirement age under governmental plans (proposed regulations issued in January 2016)
  • Regulations and guidance updating electronic delivery rules for providing applicable notices and making participant elections
  • Regulations relating to SECURE Act modifications, including required minimum distributions and other rules for 401(k) plans
  • Guidance on student loan payments and their interplay with qualified retirement plans and 403(b) plans
  • Regulations on closed defined benefit plans (proposed regulations issued in January 2016)
  • Guidance on missing participants and uncashed checks
  • Regulations on the exception to the unified plan rule for Internal Revenue Code Section 413(e) multiple employer plans (proposed regulations issued in July 2019)
  • Regulations on the definition of “governmental plan”
  • Final regulations updating minimum-present-value requirements for defined benefit pension plans (proposed regulations issued in November 2016)
  • Regulations on mortality tables to determine present value for single-employer defined benefit pension plans
  • Guidance implementing changes and relief provided under the American Rescue Plan Act of 2021 for defined benefit plans
  • Final regulations for withholding on distributions when payments are made to a non-U.S. address (proposed regulations issued in May 2019)
  • Regulations relating to the Section 6057 reporting requirements (proposed regulations issued in June 2012)
  • Guidance updating electronic filing requirements as required by the Taxpayer First Act

IRS Issues Deadline Relief for Hurricane Ida Victims in New York

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of Hurricane Ida in New York. The tax relief postpones various tax filing deadlines that began September 1, 2021. Affected individuals and households who reside or have a business in Bronx, Kings, New York, Queens, Richmond, and Westchester counties, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines qualify for relief. The IRS has indicated similar guidance will be released for Bergen, Gloucester, Hunterdon, Middlesex, Passaic, and Somerset counties in New Jersey. This relief will be automatically granted to taxpayers in Ida-affected locations in other parts of these states subsequently designated by the Federal Emergency Management Agency (FEMA).

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 3.01.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after September 1, 2021, and before January 3, 2022, will have until January 3, 2022, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after September 1, 2021, and before January 3, 2022.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.