The Internal Revenue Service released Notice 2020-51 on June 23, 2020, which provides additional Coronavirus related guidance relating to the waiver of 2020 required minimum distributions (RMDs) under certain defined contribution and individual account plans (such as 401(k) and 403(b) plans) and under individual retirement accounts (IRAs). Then, on June 29, 2020, the IRS released Notice 2020-52, which provides Coronavirus related guidance for safe harbor 401(k) and 401(m) plans that make mid-year amendments to reduce contributions made on behalf of highly compensated employees (HCEs) and temporary relief from certain requirements with respect to mid-year amendments that reduce or suspend safe harbor contributions.

Notice 2020-51

Generally, under Section 401(a)(9) of the Internal Revenue Code of 1986 (Code), taxpayers are required to take RMDs from covered retirement plans when they reach age 70½ (if they reach age 70½ on or before December 31, 2019) or, under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, age 72 (if they reach age 70½ after December 31, 2019). Then, with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress waived the RMD requirement for covered retirement plans for the 2020 calendar year, and permitted certain repayments of 2020 RMDs. See our OnPoint that discusses the changes relating to Section 401(a)(9) of the Code made by the SECURE Act and our OnPoint that discusses the RMD waiver in the CARES Act.

IRS Notice 2020-51 further implements the ability of those who receive RMDs with respect to 2020 from certain defined contribution plans and IRAs to roll such RMDs back into an eligible retirement plan. To assist taxpayers who have already received RMDs in 2020, Notice 2020-51 extends the 60-day rollover period until August 31, 2020 for taxpayers to make such RMD rollover payments. As a result, those who took RMDs earlier in the year—including before the pandemic—may still contribute them back to the eligible retirement plan from which they were distributed, as long as they do so by August 31 of this year (2020). For plan sponsors, Notice 2020-51 includes a sample plan amendment for defined contribution plans that may be adopted to implement 2020 RMD rollovers, which, if adopted, will not result in the loss of reliance on a favorable opinion, advisory or determination letter, and will not cause the plan to fail to be a pre-approved plan.

Notice 2020-52

With respect to 401(k) and 401(m) plans, IRS Notice 2020-52 clarifies that although a mid-year change that reduces only contributions made on behalf of HCEs is not a reduction or suspension of safe harbor contributions, it would be a mid-year change to a plan’s required safe harbor notice content, and an updated safe harbor notice and election opportunity must be provided to HCEs to whom the mid-year change applies. In addition, Notice 2020-52 provides temporary relief for plans that adopt between March 13, 2020 and August 31, 2020 a plan amendment that reduces or suspends safe harbor matching contributions or safe harbor nonelective contributions. Specifically, Notice 2020-52 will not treat a plan as failing the requirement under the Treasury regulations for mid-year reductions and suspensions that the employer is either operating at an economic loss for the plan year or has included in the plan’s safe harbor notice for the plan year a statement that the plan may be amended during the plan year to reduce or suspend the safe harbor contributions and the reduction or suspension will not apply until at least 30 days after all eligible employees are provided notice. In order to qualify for this temporary relief, eligible employees must be provided notice at least 30 days before the reduction or suspension of safe harbor nonelective contributions is effective, provided that notice is provided no later than August 31, 2020, and the plan amendment that reduces or suspends safe harbor nonelective contributions is adopted no later than the effective date of such reduction or suspension.