2021 Year-End Compliance Issues and Amendments for Retirement Plans

As the end of 2021 approaches, despite the current focus on proposed legislative infrastructure, spending, and tax packages, retirement plan sponsors should take time before year-end to review deadlines for required 2021 plan amendments and related compliance obligations.

1. 401(k) plan hardship withdrawals — required amendment. The IRS issued regulations in 2019 liberalizing the hardship withdrawal rules. For example, participants no longer must take a plan loan before requesting a hardship withdrawal, the 6-month suspension on participant contributions following a hardship withdrawal has been eliminated, the requirements for demonstrating financial need have been relaxed, and a new hardship category was created for losses due to Federally-declared disasters. For 401(k) plans that permit hardship withdrawals, these changes must be incorporated retroactively by a plan amendment by the end of 2021.
2. Pre-approved plan restatement deadline approaching in mid-2022. Employers using pre-approved defined contribution plan documents must adopt an updated plan document by July 31, 2022.  Employers should coordinate with their plan document providers to make they have the new document by that time.
3. Design changes. If the employer made any discretionary plan design changes (not legally required) during 2021, they must be documented in a plan amendment by the end of 2021. Remember that amendments for SECURE Act and CARES Act changes are not required until the end of 2022.  However, plans must comply in operation.  See the prior articles for details on these changes.

• • • The Secure Act
    • SECURE Act 2.0 — Look Out for New Retirement Plan Incentives
    • COVID-19, the CARES Act and Retirement Plan Issues
    • New ERISA Guidance on Retirement Plan Cybersecurity

4. 401(k) plan eligibility for long-term part-time employees. Under the SECURE Act, part-time employees who work 500 hours in a 3-year period must be allowed to participate in the employer's 401(k) plan.  A current proposal would reduce this to 2 consecutive years.  Prior to the SECURE Act, employers could exclude part-time employees.  In any event, employers should have started counting hours for part-time employees in 2021 for this purpose and should continue to do so in 2022.
5. Relief from notarized consents. IRS rules require that elections to change to a non-spouse beneficiary or waive a spousal annuity benefit require the spouse's written consent either notarized or in the presence of a plan representative.  Earlier this year, the IRS issued guidance that eliminated this requirement, allowing such consents to be provided remotely.  This relief has been extended through June 30, 2022.
6. Updated plan correction procedures. Earlier this year, the IRS updated its procedures for correcting plan operational errors.  The updated Employee Plans Compliance Resolution System (EPCRS) expands guidance on handling plan overpayments, extends the allowable correction period for significant failures, and eliminates the ability to make anonymous "John Doe" correction submissions to the IRS.
7. Cybersecurity. Since issuing guidance earlier this year on retirement plan fiduciary cybersecurity obligations, the Department of Labor has begun to audit employers and plan administrators for cybersecurity compliance.  It is important to review the guidance and adopt a cybersecurity policy that includes best practices provided in the guidance.

Please contact Vandeventer Black LLP if you have any questions or would like additional information.