As the end of the year approaches, employers should be aware of important year-end deadlines and considerations related to their retirement and health and welfare plans. We have compiled a list of these deadlines, and we provide guidance on how to comply with recent plan changes.
Changes to 2020 Plan Limits
The IRS recently published cost-of-living adjustments for 2020. Employers should make any necessary changes to the payroll system to apply the new IRS limits for 2020, and they should update participant communications as necessary.
• The employee salary deferral limit for 401(k), 403(b), and 457(b) plans increased from $19,000 to $19,500. The age 50 catch-up contribution limit increased from $6,000 to $6,500. A detailed list of the 2020 retirement plan limits can be found on the IRS website.
• The contribution limits for HSAs increased from $3,500 to $3,550 (single) and from $7,000 to $7,100 (family). The age 55 catch-up contribution limit remains the same for 2020 at $1,000.
• The contribution limits for healthcare FSAs increased from $2,700 to $2,750.
Qualified Retirement Plan Considerations
• Safe Harbor Notices for 401(k) and 403(b): If a 401(k) or 403(b) plan provides for a safe harbor match or non-elective contributions, the plan must provide an annual safe harbor notice to participants at least 30 days (but no more than 90 days) before the beginning of each plan year. For calendar year plans, the deadline is December 2, 2019.
• Automatic Enrollment Notice: If a plan has an automatic enrollment or re-enrollment feature, the plan must provide an automatic enrollment notice at least 30 days (but no more than 90 days) before the beginning of each plan year (i.e., December 2, 2019, for calendar year plans).
• Qualified Default Investment Alternatives (QDIA) Notice: If a participant-directed plan intends to rely on the QDIA safe harbor relief from fiduciary liability, the plan must provide an annual notice at least 30 days (but no more than 90 days) before the beginning of each plan year (i.e., December 2, 2019, for calendar year plans).
• Eligible and Qualified Automatic Contribution Arrangements (EACAs/QACAs): An EACA or QACA generally cannot be added to a plan mid-year. Therefore, if an employer intends to add an EACA or QACA to its plan for the 2020 plan year, a plan amendment must be adopted before the beginning of the 2020 plan year. Participant notices must also be provided at least 30 days (but no more than 90 days) prior to the start of the year (i.e., December 2, 2019, for calendar year plans).
• Required Minimum Distributions: Employers should confirm with the plan’s recordkeeper that post-age 70.5 minimum required distributions for former employees will be distributed no later than December 31, 2019. Employers are also encouraged to inquire with the recordkeeper whether there are any “lost” participants (e.g., no current mailing address on file). This is an important fiduciary issue for the Department of Labor (DOL), mostly in the context of defined benefit pension plans, but the rules generally apply to 401(k) and other defined contribution plans as well.
• Uncashed Distribution Checks: If a participant or beneficiary received, but did not cash, a distribution check in 2019, the plan should treat the distribution as having been made in 2019. Based on recent IRS guidance, the distributee should be taxed on the distribution in 2019, withholding on the distribution should be reported and paid to the IRS in 2019, and the distributee should be provided a Form 1099-R for 2019.
• Employee Stock Ownership Plan (ESOP) Loan Repayment: Some ESOP companies have had the practice of making ESOP loan repayments by book entries without actual transfers of cash. Recent IRS guidance stated the IRS position that book entries alone, without a corresponding transfer of assets to the plan, will not support the employer’s deduction for the contribution. When making the 2019 loan repayment, an ESOP company should cause an actual transfer of cash from the company to the ESOP as a contribution, followed by an actual transfer of cash from the ESOP back to the company as a loan repayment.
• Adoption of Discretionary Plan Amendments: If an employer implemented discretionary changes during the plan year, the plan generally must be amended to reflect those changes no later than the last day of the plan year (i.e., December 31, 2019, for calendar year plans) […]