Defined contribution plan

IRS Proposes Updated Life Expectancy Tables for Retirement Arrangement Required Distributions

The IRS has issued a notice of proposed rulemaking and a notice of public hearing for updated life expectancy and distribution tables. The updated tables would be used in determining required minimum distributions (RMDs) from IRAs and employer-sponsored retirement plans. RMDs generally must begin when an individual reaches age 70½, or—in the case of some employer-sponsored retirement plans—when an individual retires and separates from service with the sponsoring employer. Beneficiaries may also take required payments based on the life expectancy tables after the death of an IRA owner or retirement plan participant.

The proposed guidance is a response to an August 2018, Executive Order by President Donald Trump directing the Treasury Department and IRS to revise existing guidance on such distributions, taking into account increased life expectancies in the population since final RMD regulations were last issued in 2002. A public hearing has been scheduled for January 23, 2020. Written or electronically-submitted comments must be received by a date 60 days from publication in the Federal Register (currently scheduled for tomorrow, November 8, 2019).

The notice of proposed rulemaking and public hearing can be found here.

2020 Cost-of-Living Adjustments for IRAs and Retirement Plans

The IRS issued Notice 2019-59 containing the 2020 IRA and retirement plan limitations after cost-of-living adjustments (COLAs). Most of the retirement plan limitations increased.


2020 IRA Contribution Limitations

  • Traditional and Roth IRA contributions: $6,000 (unchanged)
  • Traditional and Roth IRA catch-up contributions: $1,000 (not subject to COLAs)
  • IRA deductibility phase-out range for single taxpayers that are active participants in retirement plans: $65,000 to $75,000 (was $64,000 to $74,000 for 2019)
  • IRA deductibility phase-out range for married joint filing taxpayers that are active participants in retirement plans: $104,000 to $124,000 (was $103,000 to $123,000 for 2019)
  • IRA deductibility phase-out range for non-active participants who are married to active participants in retirement plans: $196,000 to $206,000 (was $193,000 to $203,000 for 2019)
  • Roth IRA income limit phase-out range for determining contribution eligibility for married joint filers: $196,000 to $206,000 (was $193,000 to $203,000 for 2019)
  • Roth IRA income limit phase-out range for determining contribution eligibility for single filers and heads-of-households: $124,000 to $139,000 (was $122,000 to $137,000 for 2019)


2020 Retirement Plan Limitations

  • Annual additions under Internal Revenue Code Section (IRC Sec.) 415(c)(1)(A) for defined contribution plans: $57,000 ($56,000 for 2019)
  • Annual additions under IRC Sec. 415(b)(1)(A) for defined benefit pension plans: $230,000 ($225,000 for 2019)
  • Annual IRC Sec. 402(g) deferral limit for 401(k), 403(b), and 457(b) plans: $19,500 ($19,000 for 2019)
  • Catch-up contributions to 401(k), 403(b), and 457(b) plans: $6,500 ($6,000 for 2019)
  • Annual deferral limit for SIMPLE IRA and SIMPLE 401(k) plans: $13,500 ($13,000 for 2019)
  • Catch-up contributions for SIMPLE IRA and SIMPLE 401(k) plans: $3,000 (unchanged)
  • IRC Sec. 401(a)(17) compensation cap: $285,000 ($280,000 for 2019)
  • Highly compensated employee definition income threshold: $130,000 ($125,000 for 2019)
  • Top-heavy determination key employee definition income threshold: $185,000 ($180,000 for 2019)
  • SEP plan employee income threshold for benefit eligibility: $600 (unchanged)


Retirement Savings Tax Credit

Taxpayers who make contributions to IRAs and/or salary deferrals under retirement plans may qualify for an income tax credit if their income is under certain amounts. Contributions of up to $2,000 may be eligible for credits of 10, 20, or 50 percent of the amount contributed. Eligibility is based on income and tax filing status as provided in the instructions for Form 8880, Credit for Qualified Retirement Savings Contributions. The applicable income limits are subject to cost-of-living adjustments as well.

The maximum income thresholds in all categories for this credit will increase for 2020. For 2020, taxpayers with adjusted gross income that exceeds $65,000 for joint filers, $48,750 for head of household, and $32,500 for all other filers will not qualify for a tax credit. See Notice 2019-59 for the specific income limitations based on tax filing status.

Washington Pulse: Delivering DOL Disclosures May Get Easier

The Department of Labor (DOL) has issued proposed regulations that provide an additional safe harbor for providing electronic retirement plan disclosures to participants and beneficiaries. The regulations also incorporate the framework used in existing guidance found in FAB 2006-03.

For several years, the retirement industry has been requesting additional guidance and simplified procedures for providing disclosures electronically. Although the current rules were supposed to make it easier for employers and participants to communicate electronically, many employers still find it difficult to meet the current electronic notification requirements. The DOL hopes to remedy this with the release of the proposed regulations.

Note that the proposed regulations apply only to pension benefit plans providing disclosures required under Title I of ERISA; they do not apply to IRS disclosures or to health and welfare plan disclosures.


What are the current safe harbor rules?

In 2002, the DOL created safe harbor standards for electronically delivering any plan disclosures required by the Employee Retirement Income Security Act of 1974 (ERISA). Although this is not the only permissible way that an employer may use electronic media, the safe harbor treats the notice or other document sent by email or other electronic means as having been properly delivered.

The DOL later issued limited guidance for participant benefit statements (FAB 2006-03), qualified default investment alternatives (FAB 2008-03), and participant fee disclosures (Technical Release 2011-03R), but has not updated its broader e-delivery safe harbor since 2002.

The 2002 safe harbor applies to two categories of recipients.

  • The first category consists of participants who can effectively access documents provided electronically at their job site and who regularly access the employer’s electronic information system as part of their job duties.
  • The second category consists of participants, beneficiaries, and others (e.g., retirees) who do not fit into the first category but are entitled to ERISA documents.

The safe harbor assumes that individuals in the second category are using electronic information systems that are beyond the control of the plan sponsor. Accordingly, those individuals must affirmatively consent to receive documents electronically.


What’s different under the proposed safe harbor rules?

The proposed regulations add a second electronic notification safe harbor to the existing 2002 regulations. Similar to FAB 2006-03, the proposed safe harbor allows employers to post retirement plan disclosures online. Employers that want to use a safe harbor e-delivery method can use both options or choose between the new online option and the e-delivery options provided under the 2002 guidance.

The proposed regulations also allow employers to treat e-delivery as their default delivery method for participants who have provided or been issued an electronic address (e.g., an email address or phone number on a smart phone). Participants who want to receive free paper documents must be allowed to opt out of the e-delivery method for some or all of the covered documents. Those who opt out must receive paper documents until they opt in to receive the covered documents online again. Employers must have reasonable procedures in place to track opt outs and requests for paper copies.

Employers may post more documents online

Unlike FAB 2006-03, which allows employers to post only pension benefit statements online, the proposed regulations allow employers to post all “covered documents” online. The DOL defines a covered document as any ERISA Title I document that an employer must provide to participants and beneficiaries. A covered document does not include a document provided only upon the participant’s written request (e.g., a request for a trust agreement).

Examples of covered documents that employers may post online include

  • a summary plan description,
  • a summary of material modifications,
  • a summary annual report, or
  • an annual funding notice.

Employers must provide an initial paper notification

Employers must provide a paper notice to each individual being defaulted to the e-delivery option. The notice must specify that some or all of the documents will be provided online. The notice must also

  • explain that the participant can request a free paper copy of some or all of the documents,
  • clarify that the participant can opt out of receiving documents online at any time, and
  • describe how the participant can exercise those rights.

Employers must notify participants when documents are posted

When an employer posts a covered document online, the employer must also notify participants that the document is available. The notice, referred to as a “Notice of Internet Availability,” must meet certain form and content requirements. The employer’s system for delivering this notice must alert the employer when there is an inoperable or an invalid electronic address.

The employer generally must provide the Notice of Internet Availability for each covered document, as each document is posted. But the employer can provide one combined notice for certain covered documents that are triggered solely by the passage of time. For example, an employer can provide one combined notice if it posts the summary plan description and summary annual report at the same time. Employers providing a combined notice for multiple covered documents may provide the notice annually, but over a 14-month window for added flexibility.

Websites must meet certain standards

Employers must ensure that employees can easily access any covered documents posted online. For example, an employer could provide a web address that leads directly to the covered document or to a login page that contains a prominent link to the covered document. Employers must also

  • post documents online by their applicable due date;
  • keep documents online until the documents are superseded;
  • present documents in a printable, easy-to-read format that can be searched electronically by numbers, letters, or words;
  • permanently retain each document in an electronic format; and
  • protect each individual’s personal information.

A new rule applies to former employees

If an employee terminates employment (e.g., retires), the employer must take reasonable steps to obtain and maintain an accurate email address for the former employee. This rule is meant to give former employees who are still participating in the plan access to important plan information, while still allowing the employer to post the disclosures electronically.


More to come?

The DOL has asked for comments on the proposed regulations and has also issued a Request for Information (RFI). The questions in the RFI generally focus on how the DOL can improve the design and content of ERISA disclosures. Examples of questions asked include the following.

  • What current routine disclosures need improved effectiveness and efficiency?
  • Is any required disclosure obsolete?
  • Is it feasible to condense and streamline information into fewer or less voluminous disclosures?
  • Are there steps the DOL could take to better coordinate disclosures required under ERISA and notices required under the Internal Revenue Code?

Comments on both the proposed regulations and responses to the RFI are due by November 22, 2019. The new guidance is proposed to take effect 60 days after publication as final regulations in the Federal Register. Once published, the regulations will become applicable on the first day of the next calendar year.


Next Steps

The proposed regulations seem to represent a “middle-of-the-road” approach by the DOL. While many in the retirement industry have been hoping for this type of guidance, others believe that it will make it harder for certain participants (e.g., retirees) to access important plan information. In addition, the proposed regulations apply only to DOL retirement plan notices, which means employers must still follow separate IRS disclosure requirements when delivering IRS required notices.

Employers interested in using the proposed safe harbor may want to start reviewing the regulations now (knowing that some provisions might change) in order to determine whether to make operational changes, which could include website modifications and revisions to notifications. Those looking for additional information on the proposed regulations may refer to the DOL’s fact sheet and news release. Ascensus will continue to monitor any new developments on the proposed regulations. Visit for the latest information.

Click here for a printable version of this edition of the Washington Pulse.

Treasury Department Weighs in Informally on Hardship Amendment Deadline for Pre-Approved Retirement Plans

Treasury Benefits Tax Counsel Carol Weiser, speaking at the American Society of Pension Professionals and Actuaries (ASPPA) annual retirement industry conference this week, shared the IRS’ interpretation of when plans established on pre-approved documents—prototype or volume submitter—must be amended for changes to hardship distribution rules found the Bipartisan Budget Act of 2018.

The hardship distribution changes include an end to previous requirements that participants must take all available plan loans and suspend elective deferrals for six months, as well as broadening the contribution types—now to include earnings—that are available for hardship distribution. Some changes could be implemented in 2018 or 2019, and, while some changes are optional, all required changes must apply to hardship distributions taken on, or after, January 1, 2020.

Ms. Weiser indicated that all employers using pre-approved plan documents will have an extended amendment deadline tied to the sponsoring business’s tax return deadline. Specifically, Ms. Weiser stated that the amending deadline will be the tax return due date plus extensions for an employer’s tax year that includes January 1, 2020.

For example, a C corporation that operates on a calendar year would have a hardship distribution amendment deadline of April 15, 2021, 3½ months after the December 31, 2020, end of its business tax year (if no filing extension).

By comparison, a C corporation that operates on a fiscal year that ends January 31, 2020, would need to amend for the hardship distribution changes by May 15, 2020 (if no filing extension).

Ms. Weiser acknowledged that the earlier amendment deadline for employers with off-calendar tax years is not ideal considering the timing of the IRS’ final regulations, and that the IRS will further consider the issue.

DOL Proposed Electronic Delivery Regulations Published in Federal Register

The Federal Register now contains the official publishing of the DOL Employee Benefit Security Administration (EBSA) regulations describing a proposed safe harbor for electronic delivery of employee benefit plan disclosures to participants and beneficiaries.

If adopted, these regulations would provide a safe harbor for electronic delivery as the primary or default means to provide ERISA benefit plan disclosures to participants and beneficiaries. Under conditions prescribed in this guidance, plan administrators could inform participants and beneficiaries that disclosures would be made available on a website. Participants and beneficiaries could, however, request the information in paper form, and opt out of electronic delivery altogether.

This guidance also contains a DOL request-for-information (RFI) seeking input on additional changes to the “design, delivery and content” of ERISA benefit plan disclosures, changes that could “further improve the effectiveness of ERISA disclosures.”

Comments on the proposed regulations and responses to the RFI are due on or before November 22, 2019. The guidance is proposed to take effect 60 days after publication as final regulations in the Federal Register.

DOL Proposes a Safe Harbor for Electronic Delivery of Employee Benefit Plan Disclosures

The Department of Labor (DOL) has issued proposed regulations which—if adopted—would provide a safe harbor for electronic delivery as the primary or default means to provide ERISA benefit plan disclosures to participants and beneficiaries. The DOL has also provided a fact sheet and posted a news release about the proposed regulations.

Under conditions prescribed in this guidance, plan administrators may inform participants and beneficiaries that these disclosures will be made available on a website. Participants and beneficiaries may, however, request the information in paper form, and may opt out of electronic delivery altogether.

This guidance also contains a DOL request-for-information (RFI) seeking input on additional changes to the “design, delivery and content” of ERISA benefit plan disclosures, changes that could “further improve the effectiveness of ERISA disclosures.”

Comments on the proposed regulations and responses to the RFI are due 30 days from publication in the Federal Register, which is scheduled for tomorrow. The guidance is proposed to take effect 60 days after publication as final regulations in the Federal Register.

President’s Executive Orders Could Affect Agency Guidance and Enforcement

President Trump on October 9, signed two executive orders that could have an impact on retirement, health and welfare, and comparable guidance issued by agencies that are part of the executive branch of our federal government. Among these agencies are the Treasury Department and IRS, the Department of Labor’s Employee Benefit Security Administration (EBSA), the Department of Health and Human Services (HHS), and the Department of Education.

The ultimate effects of these executive orders have yet to be determined, but they seem clearly intended to limit the issuance, the effect, and the enforcement of certain types of guidance below the level of formal regulations. These executive orders are consistent with the Trump administration’s stated intent to limit regulatory burden, and, in particular, to limit certain kinds of nonregulation guidance that have the effect or force of law.


Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents

This executive order is intended to establish a policy limiting the issuance of agency guidance other than formal regulations that have been subject to public notice, comment, and approval procedures. Furthermore, existing guidance of this kind—called “sub-regulatory” guidance—is to undergo review by the Office of Management and Budget (OMB) if the affected agencies wish to have that guidance remain in effect.


Executive Order on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication

This executive order would appear to limit compliance enforcement to violations of statutes or approved regulations. Furthermore, if an agency wishes to cite its own understanding of what is necessary to comply with a statute or regulation, then any guidance expressing that agency’s understanding must first have been made publicly available, either by publishing in the Federal Register, or made available in a searchable database of that agency.


What Next?

It is difficult to predict the extent to which these executive orders may affect reliance on past guidance, the issuance of new guidance, and the enforcement of past or future guidance.

Student Loan and Retirement Plan Guidance on IRS Priority List

The IRS has released its fiscal year 2019-2020 Priority Guidance Plan (PGP). Employee benefit-related items on the list include “Guidance on student loan payments and qualified retirement plans and 403(b) plans.”

Both employers and federal lawmakers have made student loans a high-profile issue, due in part to debt burdens that are said to be limiting employees’ ability to participate fully in their employers’ retirement plans, and in the U.S. economy.

Employers have individually requested IRS approval of benefit arrangements that link student loan repayment and retirement plans. There have been calls for the IRS to issue guidance that other employers could avail themselves of without seeking IRS guidance or approval individually.

Similarly, many bills that have a student loan dimension have been introduced. Some address such elements as disclosure, financing options, and debt forgiveness, but several have linked student loan payments with employer-sponsored retirement plans. For example, the Retirement Parity for Student Loans Act, introduced in December 2018 by Sens. Rob Portman (R-OH) and Ben Cardin (D-MD), would allow employer retirement plan contributions on behalf of employees that are based on their higher education student loan payments.

Other retirement benefit-related items on the 2019-2020 PGP are either new or carryovers from prior years’ lists, including the following.

  • Revisions to the IRS Employee Plans Compliance Resolution System program for correcting retirement arrangement defects
  • Revised life expectancy tables used to calculate required minimum distributions, taking into account longer life expectancies
  • Broad updated guidance on Traditional and Roth IRAs
  • Guidance on retirement plans of affiliated service groups
  • Guidance on church retirement plans

2020 Taxable Wage Base Announced

The U.S. Social Security Administration has announced several 2020 benefit amounts that increase according to a cost-of-living-adjustment (COLA) formula. The adjustment that applies to tax-advantaged retirement savings arrangements is the Social Security taxable wage base (TWB), which will rise from $132,900 to $137,700 for 2020.

The TWB is the income level above which amounts are not withheld from earnings for Social Security benefit purposes. The TWB is used in certain retirement plan allocation formulas, notably for the allocation of some profit sharing and simplified employee pension (SEP) plan contributions. Such formulas are often referred to as “integrated” or “permitted disparity” formulas. Their use allows an additional benefit based on employee compensation above an integration level; one of the permitted integration levels is the Social Security TWB.

Potentially significant for other savings arrangements is the fact that IRS COLA-adjusted amounts for IRAs and employer-sponsored retirement plans for the coming year are often released very shortly after the Social Security Administration announces the TWB.

DOL Issues Final Regulations on Overtime Pay and Exemptions for Certain Classes of Employees

The Department of Labor’s (DOL) Wage and Hour Division has issued final regulations on overtime pay, and, specifically, exemptions from overtime pay for certain “executive, administrative, professional, outside sales and computer employees.”

The Fair Labor Standards Act (FLSA) requires certain covered employees to be paid a minimum wage and—for employees who work more than 40 hours in a week—to receive “overtime premium pay that is at least 1.5 times the regular rate of pay.” Certain classes of employees—generally salaried employees—are exempt from this requirement, but there are salary levels below which an employee would nevertheless be considered eligible for overtime pay.

The Wage and Hour Division issued a request for information (RFI) in July 2017, seeking public input that might be helpful in rewriting previously issued final regulations regarding overtime pay and exemptions. Information gathered following this RFI led to the agency’s issuance of proposed regulations in March 2019, and now—six months later—their issuance in final form.

These final regulations address salary levels in the context of overtime pay eligibility, the inclusion of bonuses, incentive payments and commissions in salary level requirements, treatment of highly compensated employees, and future updates to earnings thresholds.

While employers or their plan administrators generally make compensation determinations for retirement plan purposes, some feel this DOL guidance could affect not only compensation for benefits purposes, but potentially plan design.

The effective date of these final regulations is January 1, 2020.