2017 End of Year Plan Sponsor “To Do” List Qualified Retirement Plans (Part 4)

by Snell & Wilmer
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As 2017 comes to an end, we are pleased to present you with our traditional End of Year Plan Sponsor “To Do” Lists. This year, we are publishing our “To Do” Lists in four separate Employee Benefits Updates. Part 1 covered health and welfare plan issues, Part 2 covered the annual cost of living increases, Part 3 covered executive compensation issues and this Part 4 covers qualified plan issues. Each Employee Benefits Update provides you with a “To Do” List of items on which you may want to take action before the end of 2017 or in early 2018. As always, we appreciate your relationship with Snell & Wilmer and hope that these “To Do” Lists help focus your efforts over the next few months.

This List does not address the various qualified retirement plan proposals that may be part of any proposed tax legislation being discussed by Congress as of the date this “To Do” List is published. When, and if, changes are made, we will publish additional newsletters and blogs highlighting those changes.

For your convenience, we have broken this “To Do” List into five categories, which are accessible via the menu on the left.

All Qualified Plans “To Do” List

  • Adopt Design Changes by the End of the Plan Year: If an employer made any design changes during the year, the plan generally must be amended to reflect those design changes by the last day of the 2017 plan year (i.e., December 31, 2017 for calendar year plans).
  • Consider the Required Amendments List: The Internal Revenue Service (IRS) eliminated the five-year determination letter remedial amendment cycles for individually designed plans and limited the scope of the determination letter program for such plans effective as of January 1, 2017. The IRS will now provide plan sponsors with an annual Required Amendments List (RA List) that includes the changes in qualification requirements that that are first effective in the year in which the RA List is published. Plan sponsors generally have until the end of the second year following the year in which the IRS releases the RA List to make the required amendments. The 2016 RA List, released by the IRS on December 13, 2016, does not include any changes that generally would require amendments to most plans. It includes only one change that relates to collectively bargained defined benefit plans. The IRS has not yet released the 2017 RA List. Plan sponsors should watch for the release of the 2017 RA List and, if necessary, prepare to address the items on the 2017 RA List and amend their plans by December 31, 2019.
  • Update Summary Plan Description if Needed: Summary Plan Descriptions (SPDs) must be updated once every five years if the plan has been amended during the five-year period and once every 10 years for other plans.
  • Consider Compliance with Department of Labor’s Fiduciary Rules: In early 2016, the Department of Labor (DOL) finalized its fiduciary conflict of interest regulations (the Fiduciary Rule), which expand both who is considered a fiduciary and what may be considered advice under ERISA. The new definition of the term “fiduciary” set forth in the Fiduciary Rule was set to become effective on April 10, 2017, while certain other provisions were intended to phase in, with full compliance scheduled for January 1, 2018. However, on February 3, 2017, President Trump issued an executive memorandum calling for a full examination of the impact of the Fiduciary Rule. On April 7, 2017, the DOL published a final rule that officially delayed the applicability of the Fiduciary Rule to June 9, 2017, while retaining the January 1, 2018 full compliance date. The DOL released Frequently Asked Questions and Field Assistance Bulletin No. 2017-02 on May 22, 2017 which, among other things, explained that the DOL, Treasury Department and IRS will not pursue claims against fiduciaries who are working diligently to bring themselves into compliance with the Fiduciary Rule. This non-enforcement policy will last until January 1, 2018. Finally, on August 31, 2017, the DOL proposed an 18-month extension from January 1, 2018 to July 1, 2019 of the special transition period for the Best Interest Contract (BIC) Exemption and the Principal Transactions Exemption. In spite of the delays and uncertainty around the Fiduciary Rule, employers should continue to review existing relationships to determine whether service providers are fiduciaries and decide whether they need to make any changes to these relationships in light of the new rules.
  • Consider Impact of New Disability Claims Regulations: On December 19, 2016, the DOL issued regulations that revise the ERISA claims procedure regulations for employee benefit plans that provide disability benefits (the New Disability Claims Regulations). The New Disability Claims Regulations were scheduled to take effect for all claims for disability benefits filed on or after January 1, 2018, however, the DOL has proposed a 90-day delay. In other words, if the proposed rule is finalized, the New Disability Claims regulations will take effect for all claims for disability benefits filed on or after April 1, 2018. The DOL will use this 90-day delay to seek additional input and consider whether it should rescind, modify, retain, or further delay the New Disability Claims Regulations. The New Disability Claims Regulations are based on the ACA’s enhanced claims and appeals regulations for group health plans. The scope of the New Disability Claims Regulations are broader than employers may realize and apply to any plan, regardless of how it is characterized, that provides benefits or rights that are contingent on whether the plan determines an individual to be disabled. This can include ERISA-governed short-term disability plans, long-term disability plans, qualified retirement plans (e.g., a 401(k) plan), nonqualified retirement plans, and health and welfare plans.
  • Review 2018 Plan Limits: Become familiar with the 2018 plan limits.

Section 401(k) Plans “To Do” List

  • Comply with Items on All Qualified Plans “To Do” List: The items on the All Qualified Plans list also apply to Section 401(k) plans.
  • Consider Amending Plan to Permit Use of Forfeitures for QNECs and QMACs: On January 18, 2017, the IRS issued proposed regulations that will allow employers to use forfeitures to make qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs). Under the regulations currently in effect, QNECs and QMACs must meet certain distribution requirements and must be fully vested when contributed to the plan. The IRS proposes to change the regulations to require that QNECs and QMACs be fully vested when allocated to participants’ accounts. The changes will apply to plan years beginning on or after the date on which the regulations are finalized. However, the IRS made clear that employers may rely on the regulations now, and if the final regulations are more restrictive than the proposed regulations, they will not have retroactive effect. Employers who wish to use forfeitures to make QNECs and QMACs should review and, as necessary, amend their plans.
  • Consider Amending Plan to Document 2016 Disaster Relief: The IRS provided disaster relief in 2016 for individuals impacted by the Louisiana storms and by Hurricane Matthew. As described in IRS Announcements 2016-30 and 2016-39, the IRS relaxed the existing standards for hardship distributions and loans from qualified retirement plans for those affected by these disasters. The IRS permitted employers to offer these hardship distributions and loans even if their plans did not provide for them. Employers who did so must amend their plans to allow for hardship distributions and/or loans by December 31, 2017.
  • Consider Providing Disaster Relief Made Available in 2017 and Amending Plan as Necessary: The IRS also provided disaster relief in 2017 for individuals affected by Hurricanes Harvey, Irma and Maria and by the California Wildfires in Announcements 2017-11, 2017-13 and 2017-15. As it did in 2016, the IRS relaxed the existing standards for hardship distributions and loans from qualified retirement plans for those affected by these disasters. Employers are permitted to offer hardship distributions and loans even if their plans do not provide for them. Employers who do so must amend their plans to allow for the hardship distributions and loans by December 31, 2018. Congress also got involved on the disaster relief front. On September 29, 2017, the Disaster Tax Relief and Airport and Airway Extension Act of 2017 was enacted to offer additional disaster relief to those affected by Hurricanes Harvey, Irma and Maria. The Act permits eligible retirement plans to make qualified hurricane distributions to participants of up to $100,000 (across all IRAs and employer plans). These distributions are not subject to the excise taxes that otherwise would apply to early distributions from retirement plans. Participants can retain the distribution and mitigate the tax burden by including the amount of the distribution in gross income evenly over a three-year period. In the alternative, participants can pay the amount of the distribution back to the plan within three years without subjecting the distribution to income taxes. The Act also permits employers to relax plan loan limitations for participants with a principal residence in the hurricane areas. Employers can permit these participants to request a loan of up to $100,000 (rather than the standard loan limitation of (1) $10,000 or 50 percent of the participant’s vested account balance or (2) $50,000, whichever is less). Employers who offer qualified hurricane distributions or loan relief to participants must amend their plans by December 31, 2019 to make the necessary changes.
  • Provide Section 401(k)/401(m) Safe Harbor Notice by December 2, 2017 for Calendar Year Plans: If a plan has a Section 401(k)/401(m) contribution safe harbor, an employer must provide the safe harbor notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2017 for calendar year plans).
  • Provide Annual Automatic Enrollment Notice by December 2, 2017 for Calendar Year Plans: If a plan has an automatic contribution arrangement, an eligible automatic contribution arrangement (EACA), a qualified automatic contribution arrangement (QACA), or any combination thereof, an employer must give an annual automatic enrollment notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2017 for calendar year plans).
  • Provide Annual Qualified Default Investment Alternative (QDIA) Notice by December 2, 2017 for Calendar Year Plans: If an employer is relying on the QDIA safe harbor, it must give an annual notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2017 for calendar year plans).
  • Provide Participant Fee Disclosure Information: Plans are required to provide to participants and beneficiaries on an annual basis a comparative chart of detailed investment-related information about the plan’s designated investment alternatives. DOL guidance requires this information to be provided at least annually.
  • Provide Participant Benefit Statements: Defined contribution plans must provide individual benefit statements at least annually, although plans that permit participants to direct the investment of their accounts must provide the statement at least quarterly. Defined contribution plans also must provide the statement upon request.
  • Distribute Summary Annual Report: Employers should distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report must be distributed within two months following the date on which the Form 5500 was due.
  • If Adding Qualified Automatic Contribution Arrangement or Eligible Automatic Contribution Arrangement for 2017, Adopt Amendment Before the 2017 Plan Year: Neither a QACA nor an EACA may be adopted mid-year. Accordingly, if an employer wishes to add a QACA or an EACA to its plan for the 2017 plan year, it must adopt an amendment by December 31, 2017 for calendar year plans.
  • Consider Amendments to Safe Harbor Plans: Employers may make mid-year changes to a safe harbor plan in light of guidance the IRS issued in 2016. Mid-year amendments are limited and in many cases will require an updated safe harbor notice. To the extent an employer wants to make changes to a safe harbor plan, it should consider doing so before year end and, depending on the change, before providing the safe harbor notice described above. For additional information on permissible mid-year changes to a safe harbor plan, see our February 22, 2016 SW Benefits blog post.

Defined Contribution Plans (Other Than Section 401(k) Plans) “To Do” List

  • Consider Amending Plan to Document 2016 Disaster Relief: Please see our description of this issue under “Section 401(k) Plans ‘To Do List’” above.
  • Consider Providing Disaster Relief Made Available in 2017 and Amending Plan as Necessary: Please see our description of this issue under “Section 401(k) Plans ‘To Do List’” above.
  • Provide Annual Qualified Default Investment Alternative (QDIA) Notice by December 2, 2017 for Calendar Year Plans: If an employer is relying on the QDIA safe harbor, it must give an annual notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2017 for calendar year plans).
  • Provide Participant Fee Disclosure Information: Plans are required to provide to participants and beneficiaries on an annual basis a comparative chart of detailed investment-related information about the plan’s designated investment alternatives. DOL guidance requires this information to be provided at least annually.
  • Provide Participant Benefit Statements: Defined contribution plans must provide individual benefit statements at least annually, although plans that permit participants to direct the investment of their accounts must provide the statement at least quarterly. Defined contribution plans also must provide the statement upon request.
  • Distribute Summary Annual Report: Employers should distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report must be distributed within two months following the date on which the Form 5500 was due.

Defined Benefit Plans “To Do” List

  • Comply with Items on All Qualified Plans “To Do” List: The items on the All Qualified Plans list also apply to defined benefit plans.
  • Consider Adoption of Amendment for Plans with Bifurcated Distribution Options: If a defined benefit plan permits participants to receive bifurcated distribution options (e.g., a portion of the accrued benefit is paid in a lump sum and the remainder of the benefit is paid in the form of an annuity), the plan sponsor may want to consider whether the current plan terms comply with the final regulations issued under Section 417(e). Notice 2017-44 provides model amendments that a sponsor of a defined benefit plan may use to comply with these requirements. The Notice and regulations also provide for certain anti-cutback relief if the amendment is adopted on or before December 31, 2017. Plan sponsors who wish to add a bifurcated benefit option in the future also may use the model amendments to add such distribution option to a plan.
  • Consider Impact of New Mortality Tables. The IRS and Treasury issued updated mortality tables that are to be used for funding defined benefit plans and for calculating lump sum and other accelerated distributions. The new mortality tables are generally effective for plan years beginning on or after January 1, 2018. Plan sponsors, however, may be able to delay the new mortality tables for a period of one year for funding calculations. Plan sponsors should consult with their actuaries to understand the impact of the morality tables on their plans. Plan sponsors also should review their plans to determine whether the existing plan language will automatically incorporate the new mortality tables into the plan or whether a plan amendment is needed.
  • Consider Required Amendments List: As described above, the 2016 RA List includes one possible change relating to restrictions on accelerated distributions from collectively bargained single employer defined benefits plans when the employer is in bankruptcy. Plan sponsors of collectively bargained defined benefit plans should review the terms of the plan to determine if an amendment is required. If a plan amendment is required, plan sponsors have until December 31, 2018 to adopt such amendment.
  • Post Portions of Form 5500 on Company’s Intranet: A plan sponsor of a defined benefit plan that maintains an intranet website for the purpose of communicating with employees (and not the public) is required to post portions of the defined benefit plan’s Form 5500 on the intranet.
  • Comply with Annual Funding Notice to Participants: Single employer defined benefit plan sponsors must provide participants with an annual notice of the plan’s funding status within 120 days of the end of the plan year to which the notice relates. Plans with fewer than 100 participants do not have to provide the notice until the Form 5500 annual report is due for the plan year.
  • Comply with Participant Notice Requirement if Adjusted Funding Target Attainment Percentage is less than 80 Percent: In addition to the annual funding notice described above, Section 101(j) of ERISA requires a plan administrator to provide a notice to participants if the plan is subject to any restrictions on the payment of benefits. These restrictions become applicable if the plan’s adjusted funding target attainment percentage is less than 80 percent. Plan administrators are not required to provide this notice to participants and beneficiaries who are in pay status.
  • Provide Participant Benefit Statements: Defined benefit plans should provide individual benefit statements every three years or upon request. Alternatively, defined benefit plans may satisfy the requirement by annually notifying participants that the pension benefit statement is available and how they may obtain such statement.
  • Provide Suspension of Benefits Notice, if Applicable: If required by the terms of the plan, plan administrators must provide notice of the suspension of benefits to participants who continue employment beyond normal retirement age and to rehired retirees. This notice should be given during the first month during which the benefit is suspended.

Section 403(b) Plans “To Do” List

  • Adopt Design Changes by the End of the Plan Year: If an employer made any design changes to the plan during the year, it generally must amend its plan to reflect those design changes by the last day of the 2017 plan year (i.e., December 31, 2017 for calendar year plans).
  • Consider Amending Plan to Document 2016 Disaster Relief: Please see our description of this issue under “Section 401(k) Plans ‘To Do List’” above.
  • Consider Providing Disaster Relief Made Available in 2017 and Amending Plan as Necessary: Please see our description of this issue under “Section 401(k) Plans ‘To Do List’” above.
  • Update Summary Plan Description if Needed: SPDs for a Section 403(b) plan that is subject to ERISA must be updated once every five years if the plan has been amended during the five-year period and once every 10 years for other plans.
  • Provide Safe Harbor Notice by December 2, 2017 for Calendar Year Plans: If a Section 403(b) plan uses an ACP contribution safe harbor, an employer must provide the safe harbor notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2017 for calendar year plans).
  • Provide Annual Automatic Enrollment Notice by December 2, 2017 for Calendar Year Plans: If a Section 403(b) plan is subject to ERISA and has automatic deferrals, an employer must give an annual automatic enrollment notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2017 for calendar year plans).
  • Provide Annual Qualified Default Investment Alternative (QDIA) Notice by December 2, 2017 for Calendar Year Plans: If a Section 403(b) plan is subject to ERISA and an employer is relying on the QDIA safe harbor, it must give an annual notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2017 for calendar year plans).
  • Provide Participant Benefit Statements: Section 403(b) plans that are subject to ERISA must provide individual benefit statements at least annually, although plans that permit participants to direct the investment of their accounts must provide the statement at least quarterly. Plans must also provide the statement upon request.
  • Distribute Summary Annual Report: Section 403(b) plans that are subject to ERISA must distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report must be distributed within two months following the date on which the Form 5500 was due.
  • If Adding an ACP Contribution Safe Harbor for 2017, Adopt Amendment Before the 2017 Plan Year: ACP contribution safe harbors may not be adopted mid-year. Accordingly, if an employer wishes to add an ACP contribution safe harbor to its Section 403(b) plan for the 2017 plan year, it must adopt an amendment by December 31, 2017 for calendar year plans.
  • Comply with Form 5500 Reporting Requirements: Section 403(b) plans that are subject to ERISA must comply with standard Form 5500 filing requirements, including an annual plan audit for large plans (i.e., plans with 100 or more participants) and detailed financial information for small Section 403(b) plans (i.e., plans with fewer than 100 participants).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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