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James Damon is an associate in Covington’s Washington, DC office, where he practices with the firm’s Employee Benefits and Executive Compensation Practice Group.

On January 12, 2021, the Employee Benefits Security Administration (“EBSA”) of the Department of Labor (“DOL”) announced new guidance on a range of issues related to missing participants:

  • In Missing Participants – Best Practices for Pension Plans, EBSA has provided examples of best practices that it has identified as being effective at minimizing and mitigating the problem of missing or nonresponsive participants.
  • This new guidance also includes Compliance Assistance Release No. 2021-01, which provides a roadmap of investigative processes and case-closing practices of EBSA investigators who conduct Terminated Vested Participants Project (“TVPP”) audits of defined benefit pension plans. One purpose of these audits is to assess whether defined benefit plans have taken appropriate steps to locate missing participants and beneficiaries.
  • EBSA also issued Field Assistance Bulletin No. 2021-01, which announced the DOL’s temporary enforcement policy on a terminated defined contribution plans’ use of the Pension Benefit Guaranty Corporation’s expanded missing participants program.

This article focuses on the guidance for ongoing plans (and not Field Assistance Bulletin 2021-01 for terminated plans).


Continue Reading Five New Ways That Plan Fiduciaries May Locate Missing Participants

The IRS recently released Notice 2020-62, which updates the safe harbor explanations that may be used to satisfy the  notice requirement for eligible rollover distributions, also referred to as the “Safe Harbor Notices.”  These changes to the Safe Harbor Notices take into account recent statutory changes brought about by the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act of 2019 and the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

What are the § 402(f) Safe Harbor Notices?

Under § 402(f) of the Code, plan administrators of certain retirement plans are required to provide a written explanation to any recipient of an eligible rollover distribution.  This notice must be provided by 401(k) plans and other qualified plans, 403(b) plans and 457(b) governmental plans within a reasonable period of time before the distribution is to made — generally at least 30 days unless otherwise elected by the recipient.  To assist plan administrators in satisfying this notice requirement, the IRS has published and continues to update two versions of its Safe Harbor Notice, one for distributions from a designated Roth account, and one for distributions from non-Roth accounts.

Plan administrators may satisfy the § 402(f) notice requirement by relying on the Safe Harbor Notices, although they are not required to do so.

What Changes Have Been Incorporated Into the New § 402(f) Safe Harbor Notices?

The Safe Harbor Notices have been revised to reflect the following statutory changes adopted by the SECURE Act and by the CARES Act:


Continue Reading What You Need to Know About the New SECURE Act and CARES Act Updates to the § 402(f) Safe Harbor Rollover Notice

On August 18, 2020, the Department of Labor (“DOL”) announced new guidance on lifetime income disclosures that must be included in pension benefit statements furnished to participants in defined contribution plans, such as 401(k) and 403(b) plans.  This guidance, issued in the form of an interim final rule, sets forth the rules that plan administrators must follow in implementing the lifetime income disclosure requirement that was added to ERISA by Section 203 of the 2019 SECURE Act.

  • The disclosures required by the interim final rule must be provided starting one year after publication of the interim final rule in the Federal Register. (As of publication of this post, the rule has yet to be published in the Federal Register.)
  • As used in the interim final rule (and this blog post), the term participant includes an beneficiary with a plan account, such as an alternate payee or the beneficiary of a deceased participant.


Continue Reading New SECURE Act Guidance: Lifetime Income Disclosures for 401(k) and 403(b) Plans

On May 22, 2020, the IRS released a Generic Legal Advice Memorandum, GLAM 2020-004, which addresses the timing of the taxation and withholding of payroll taxes on certain stock-settled awards issued to employees.  Specifically, the GLAM focuses on the treatment of stock options, stock-settled stock appreciation rights (SARs), and stock-settled restricted stock units (RSUs).

Employers should be aware that the GLAM does not appear to alter the Service’s existing position with respect to such awards — the fair market value of the stock underlying the award is includible in gross income when the stock is deemed transferred to the employee.  However, the GLAM does appear to offer some additional insight into the timing of income inclusion with respect to RSUs.  Perhaps most importantly, the GLAM reiterates the IRS’s 2003 administrative position regarding the application of late deposit penalties to payroll tax deposits due on the exercise of nonqualified stock options.  A question had arisen regarding whether SEC guidance shortening the standard settlement cycle for securities transactions to two business days had the effect of shortening the period for depositing payroll taxes.  Deposits owed with respect to option exercises will continue to be deemed timely if deposited within one day of settlement, so long as settlement occurs within three days of the exercise date.


Continue Reading Much Ado About Nothing Much New: IRS Issues GLAM Addressing Payroll Taxation of Equity Compensation

Ten months ago the California Supreme Court rendered its unanimous decision in Dynamex Operations West, Inc. v. Superior Court, a case that articulated a new standard for classifying employees and independent contractors.  Given the importance of this decision, we provided analysis on this case when it was first decided.  However, once issued, this new Dynamex standard did not settle the issue of employee classification in California once and for all.  Rather, as we anticipated in our prior post, Dynamex has cast a long shadow, and the issues it raised have continued to gestate, giving rise to renewed focus on employee classification at the state (and federal) level.

Continue Reading Dynamex Alters the Employee Classification Landscape in California

On the last day of August, the Trump administration signed an executive order proposing a number of changes which the administration says is intended to strengthen retirement security in America, specifically, by expanding access to multiple employer plans and reducing the costs and burdens associated with employee plan notices.  However, tucked away at the end of this executive order is a proposal that, when implemented, could have a significant impact on plan participants — the revision of the required minimum distribution mortality and life expectancy tables.  This post summarizes how this change could impact defined contribution plan participants.

Continue Reading Executive Order on Strengthening Retirement Security in America: Impact on Required Minimum Distributions from Defined Contribution Accounts

During a participant’s lifetime, required minimum distributions (“RMDs”) from a defined contribution plan are relatively small in size.  Less favorable treatment may apply after the participant’s death, depending on the distribution options offered by the plan, the form of distribution elected by the participant, the age of the beneficiary and the relationship between the participant and the beneficiary.

Surviving spouses can take advantage of a special rule that permits them to create spousal rollover IRAs, which effectively allow the surviving spouse to treat the benefit as if he or she was a participant in the plan.  This treatment allows the surviving spouse to elect a longer payout and to designate a beneficiary who may also be eligible for an extended distribution period.


Continue Reading Reducing Required Minimum Distributions from a Defined Contribution Plan: The Spousal Rollover IRA