As 2019 comes to an end, we are pleased to present our traditional End of Year Plan Sponsor “To Do” Lists. This year, we present 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 adjustments, this Part 3 covers qualified plan issues, and Part 4 will cover executive compensation 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 2019 or in early 2020. 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.

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

• Review 2020 Plan Limits: Become familiar with the 2020 plan limits. See Part 2 – Annual Cost of Living Adjustments for more information.
• 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 2019 plan year (i.e., December 31, 2019 for calendar year plans).
• Update Section 402(f) Notice: The Internal Revenue Service (“IRS”) updated its Section 402(f) safe harbor notices that retirement plans may use to satisfy the advance notice requirements to participants who are recipients of eligible rollover distributions. The updated notices reflect legislative changes, including the extended rollover deadline for qualified plan loan offsets under the Tax Cuts and Jobs Act. For more information, please see our October 26, 2018 SW Benefits Blog, “IRS Issues Updated Tax Notice for Qualified Retirement Plan Distributions.”
• Make Required Minimum Distributions: Required minimum distributions must be made when a participant attains age 70½ and must be made annually by December 31. A special rule permits the delay of the first required minimum distribution until April 1 of the year following the year in which the participant attains age 70½.
• 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.
• Take Action to Locate Missing Participants: Missing participants continue to pose challenges to plan administrators and continue to be an area of focus for the Department of Labor (“DOL”) and the IRS. Plan administrators should consider taking steps to locate missing participants and also should consider adopting missing participant procedures to address steps that the plan administrator will take to locate missing participants.
• Consider the Required Amendments List: The 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 now provides plan sponsors with an annual Required Amendments List (“RA List”) that includes the changes in qualification requirements 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 2017 RA List contains changes to the qualification requirements that affect most plans. In particular, the 2017 RA List provides for required changes with respect to the final regulations regarding cash balance/hybrid plans and partial annuity distribution options for defined benefit plans. The remedial amendment deadline for disqualifying provisions resulting from items on the 2017 RA list is December 31, 2019. For more information about the 2017 RA List, please see our December 18, 2017 SW Benefits Blog, “IRS Publishes 2017 Required Amendments List.”
  • The 2018 RA list does not set forth any changes in qualification requirements and therefore plan sponsors have no required amendments based on the 2018 RA List.
  • The IRS has not yet issued the 2019 RA list. Plan sponsors should be on the lookout for the 2019 RA list.
• Consider the Operational Compliance List: The IRS provides an Operational Compliance List to help plan sponsors identify changes in qualification requirements that may require mandatory or discretionary amendments to plans or that may contain other significant guidance that affects the operation of plans. The Operational Compliance List is available only on the IRS website at https://www.irs.gov/retirement-plans/operational-compliance-list. Plan sponsors should review the Operational Compliance List and consider whether any plan amendments are required for the items included on the Operational Compliance List.
• Consider New Correction Procedures: The IRS issued an updated version of the Employee Plans Compliance Resolution System (“EPCRS”), which includes new features designed to assist employers with the correction of operational and document failures. In particular, employers may now self-correct certain plan loan failures and certain non-amender failures. Likewise, EPCRS now permits employers to self-correct many operational failures by adopting a retroactive plan amendment to the extent that such amendment permissibly increases the benefits, rights or features available to all eligible employees. For more information about the changes to EPCRS, see our May 7, 2019 SW Benefits Blog, “To Err is Human – To Forgive is Up to the IRS in Rev. Proc. 2019-19.”
• Consider Requesting Determination Letter for Hybrid or Merged Plans: As mentioned above, the IRS scaled back its determination letter program for individually designed retirement plans effective as of January 1, 2017. Now, the IRS has decided to offer a limited expansion of that program and will accept determination letter applications for individually designed statutory hybrid plans and individually designed merged plans. In particular, Revenue Procedure 2019-20 indicates that plan sponsors may submit applications for statutory hybrid plans only during the period beginning September 1, 2019 and ending August 31, 2020. Similarly, the IRS will accept applications for the review of certain merged plans effective as of September 1, 2019. In this context, a “merged plan” is an individually designed plan that results from the merger or consolidation of two or more plans that were maintained by previously unrelated entities in connection with a corporate merger, acquisition or similar transaction. For more information about the expanded determination letter program, see our May 1, 2019 SW Benefits Blog, “Reopening the Floodgates: IRS Announces Expanded Determination Letter Program.”
• Monitor the SECURE Act: Congress has been working to pass legislation aimed at making changes to the qualified retirement plan system. In particular, the House of Representatives passed a version of the Setting Every Community Up for Retirement (“SECURE”) Act earlier this year that remains under consideration in the Senate. If passed by Congress and signed into law by the President, the SECURE Act (as proposed) would make several important changes, including adjustments to required minimum distributions, auto-enrollment and part-time participation. For more information about the proposed SECURE Act, see our May 30, 2019 SW Benefits Blog, “The SECURE Act – A Primer on the Top Six SECURE Act Changes that Could be Coming to Retirement Plans Next Year.”
• Monitor Changes to Electronic Distribution Requirements: The DOL recently issued a proposed rule that allows certain retirement plan disclosures to be posted online, rather than printing and mailing such disclosures. The rule is currently in proposed form, but if finalized, this rule will make electronic media easier to use. For more information, see our November 20, 2019 SW Benefits Blog, “Potential $2.4 Billion and Countless Trees Saved - Department of Labor’s Proposed Rule on Electronic Disclosure for Retirement Plans.”

Section 401(k) Plans “To Do” List

• Comply with Items on All Qualified Plans “To Do” List: The items on the All Qualified Plans “To Do” List also apply to Section 401(k) plans.
• Consider Changes to Hardship Distributions to Implement Final Regulations Issued Pursuant to the Bipartisan Budget Act: The Bipartisan Budget Act of 2018 (the “Budget Act”) made changes to hardship distributions that may be effective as early as the first day of the plan year that began in 2019 (i.e., January 1, 2019 for calendar year plans). The Budget Act: (1) permits a participant to obtain a hardship distribution without obtaining all available plan loans, (2) removes the requirement to suspend elective deferrals for six months following a hardship distribution, and (3) expands the available sources from which a participant may elect to receive a hardship distribution. On September 23, 2019, the IRS issued final regulations implementing certain statutory changes to hardship distributions, including those required by the Budget Act. The final regulations closely track the proposed regulations that the IRS issued in November 2018. The more significant changes the final regulations make to the hardship distribution rules are the following:
  • The final regulations clarify that safe harbor expenses for the repair of damage to the participant’s principal residence are not limited to those attributable to a federally declared disaster pursuant to Code Section 165(h).
  • The final regulations add a new category of safe harbor expenses for losses incurred by the participant on account of a disaster declared by the Federal Emergency Management Agency (“FEMA”) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. The safe harbor for disaster-related expenses is limited to those of a participant who lives or works in the area designated by FEMA for assistance with respect to a given disaster.
  • The final regulations eliminate the requirement that a participant’s plan contributions be suspended for the six-month period following a hardship distribution. The final regulations also eliminate the requirement that a participant request a plan loan prior to receiving a hardship distribution.
  • The final regulations modify the existing rules to permit participants to receive hardship distributions from elective deferrals, qualified non-elective contributions (“QNECs”), qualified matching contributions (“QMACs”) and earnings on any of them. Previously, participants were allowed to receive hardship distributions only from their elective deferrals.
  • The final regulations generally apply to distributions on or after January 1, 2020. However, employers generally are permitted to apply the new rules to distributions made in plan years beginning after December 31, 2018. Consequently, employers should consider amending their plans to address the final regulations by December 31, 2019.
• Amend Plan for 2017 and 2018 Disaster Relief if Needed: Congress enacted disaster relief for those affected by certain natural disasters including hurricanes and wildfires. The disaster relief eased certain distribution requirements and tax penalties from eligible retirement plans. Employers that offered this disaster relief need to amend their plans by December 31, 2019.
• Provide Section 401(k)/401(m) Safe Harbor Notice by December 2, 2019 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, 2019 for calendar year plans).
• Provide Annual Automatic Enrollment Notice by December 2, 2019 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, 2019 for calendar year plans).
• Provide Annual Qualified Default Investment Alternative (“QDIA”) Notice by December 2, 2019 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, 2019 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 extended date on which the Form 5500 was due.
• If Adding QACA or EACA for 2020, Adopt Amendment Before the 2020 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 2020 plan year, it must adopt an amendment by December 31, 2019 for calendar year plans.
• Consider Amendments to Safe Harbor Plans: Employers may make some 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, “The IRS Significantly Increased the Availability of Mid-Year Changes to Safe Harbor Plans.”
• Update Prospectus if Needed: Reporting issuers of equity securities that have registered securities under a defined contribution plan or interests in the plan must update the prospectus to reflect any material changes to the plan information during any period in which offers or sales are being made. Material changes should be disclosed in a prospectus or an update or supplement that is delivered to participants before the effective date of the change.

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

• Comply with Items on All Qualified Plans “To Do” List: The items on the All Qualified Plans “To Do” List also apply to defined contribution plans.
• Amend Plan for 2017 and 2018 Disaster Relief if Needed: Please see our description of this issue under “Section 401(k) Plans ‘To Do’ List” above.
• Provide Annual QDIA Notice by December 2, 2019 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, 2019 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 extended date on which the Form 5500 was due.
• Update Prospectus if Needed: Reporting issuers of equity securities that have registered securities under a defined contribution plan or interests in the plan must update the prospectus to reflect any material changes to the plan information during any period in which offers or sales are being made. Material changes should be disclosed in a prospectus or an update or supplement that is delivered to participants before the effective date of the change.

Defined Benefit Plans “To Do” List

• Comply with Items on All Qualified Plans “To Do” List: The items on the All Qualified Plans “To Do” List also apply to defined benefit plans.
• Amend and Restate Pre-Approved Defined Benefit Plans: Employers that sponsor pre-approved defined benefit plans (including cash balance plans) must amend and restate such plans for items on the 2012 Cumulative List on or before April 30, 2020. This is known as the “PPA Restatement.”
• Consider Availability of Lump Sum Distributions to Retirees: In Notice 2015-49, the IRS prohibited the payment of lump sums to participants in pay status as a violation of the required minimum distribution provisions of the Code. Prior to Notice 2015-49, a number of defined benefit plans offered retirees receiving annuities a limited opportunity to elect to convert their annuities into lump sum benefits in what became known as “de-risking” transactions. In Notice 2019-18, the IRS changed its position and announced that it will permit employers to offer lump sum payments to retirees who are currently receiving annuity payments from a defined benefit plan. For more information about Notice 2019-18, see our March 19, 2019 SW Benefits Blog, “IRS Changes Course on Lump Sums to Retirees.”
• 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. Plan sponsors should consult with their actuaries to understand the impact of the mortality 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.
• 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

• Review 2020 Plan Limits: Please see our description of this issue under “All Qualified Plans ‘To Do’ List” above.
• Make Required Minimum Distributions: Please see our description of this issue under “All Qualified Plans ‘To Do’ List” above.
• Take Action to Locate Missing Participants: Please see our description of this issue under “All Qualified Plans ‘To Do’ List” above.
• 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 2019 plan year (i.e., December 31, 2019 for calendar year plans).
• Consider Changes to Hardship Distributions: The changes to the hardship distribution rules described above under “Section 401(k) Plans ‘To Do’ List” generally apply to Section 403(b) plans. Two important distinctions in the context of Section 403(b) plans are (1) earnings on elective deferrals in a Section 403(b) plan may not be included in a hardship distribution, and (2) QNECs and QMACs in a Section 403(b) plan that are not in a custodial account may be included in a hardship distribution, but QNECs and QMACs in a Section 403(b) plan that are in a custodial account are not eligible for a hardship distribution.
• Amend Plan for 2017 and 2018 Disaster Relief if Needed: Please see our description of this issue under “Section 401(k) Plans ‘To Do’ List” above.
• Update SPD 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, 2019 for Calendar Year Plans: If a Section 403(b) plan uses an Actual Contribution Percentage ("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, 2019 for calendar year plans).
• Provide Annual Automatic Enrollment Notice by December 2, 2019 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, 2019 for calendar year plans).
• Provide Annual QDIA Notice by December 2, 2019 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, 2019 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 extended date on which the Form 5500 was due.
• Provide Participant Fee Disclosure Information: Plans are required to annually provide to participants and beneficiaries in individual account plans a comparative chart of detailed investment-related information about the plan’s designated investment alternatives. The DOL has released model charts on its website at www.dol.gov.
• Remember the Deadline to Restate Section 403(b) Plans to Align with IRS Pre-Approved Plan Documents: In March 2017, the IRS published pre-approved Section 403(b) plan documents for the first time. The IRS also announced the last day of the initial remedial amendment period for pre-approved and individually designed Section 403(b) plans. If plan sponsors retroactively adopt a pre-approved plan by March 31, 2020, any form defects in the previously adopted plan document will automatically be deemed corrected and the previously adopted plan document will be deemed compliant with plan-document requirements back to 2010. If plan sponsors adopt an individually designed Section 403(b) plan, the plan must be amended to correct form defects by March 31, 2020, provided that the correction generally is retroactive to the later of January 1, 2010 or the effective date of the plan. In Revenue Procedure 2019-39, the IRS provided a permanent system of remedial amendment periods for Section 403(b) plans. In doing so, the IRS provided a limited extension to the initial remedial amendment period for certain form defects. For pre-approved plans, the IRS extended the initial remedial amendment period to the end of the second pre-approved amendment cycle which begins immediately after March 31, 2020. This extension applies only if the defect occurs in connection with a change in the Section 403(b) requirements and did not first occur before January 1, 2018. For individually designed plans, the IRS extended the initial remedial amendment period to the later of March 31, 2020 or the date on which the remedial amendment period established in the 2019 guidance ends. For form defects that involve a change in the Section 403(b) requirements, this extension is available only if the change in Section 403(b) requirements was effective in 2019 or later.
• Ensure Compliance with the Universal Applicability (“UA”) Rules: Noncompliance with the UA rules is a common defect in Section 403(b) plans. The UA rules ensure that if an employer allows one employee to make salary deferrals, the employer offers the same opportunity to all employees, with certain exceptions. The IRS requires that the plan provide each employee with an “effective opportunity” to participate, which is determined by all of the facts and circumstances, including notice of eligibility, the period of time during which an election may be made, and any other conditions on elections.
• If Adding an ACP Contribution Safe Harbor for 2019, Adopt Amendment Before the 2019 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 2019 plan year, it must adopt an amendment by December 31, 2019 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).