The Rosenbaum Law Firm P.C. Blog

The Internal Revenue Service (IRS) in their January 20, 2021 edition of Employee Plans News opined that pre-approved qualified retirement plan documents may be used to establish arrangements known as pooled employer plans or PEPs.

The IRS stated that it’s creating a language that can be used to amend current pre-approved qualified retirement plan documents to add a PEP feature. Document providers are not required to use IRS-drafted amendment language, but if drafting their own they “will not have a reliance on those provisions,” the IRS states.

As someone who drafts PEP plan documents, using pre-approved plans, it is nice to hear from the IRS on this. However, the plan document provider I’m using, already drafted an amendment for PEPs.

My newsletter for retirement plan professionals can be found here.

My latest article for JDSupra.com can be found here.

The Center for Retirement Research calculated the companies that announced they were suspending the employer 401(k) match. Their data suggests that less than 1% of plan sponsors (with more than 100 participants) covering 1.6% of plan participants have suspended the match. That is far less than the Great Recession in 2008-2009, which showed 5% of participants saw their employer’s match suspended.

The problem with this survey is that it’s far less than what other studies have shown, mainly based on publicly identified matching suspensions. Not every company that suspended their match, did it with a public announcement especially if the company wasn’t publicly traded.

On December 27, 2020, President Trump signed the Consolidated Appropriations Act of 2021 (the “Stimulus Act”), which not only gives taxpayers another stimulus payment but changes to retirement plans.

One change was to the partial termination rules, temporarily. The Stimulus Act provides that a 401(k) plan will not be treated as having experienced a “partial termination” during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants in the plan on March 31, 2021, is at least 80 percent of the number of active participants that were covered on March 13, 2020. What this does is change the measuring stick from the plan year and will allow employers who rehire their terminated employees, some relief from the partial termination rules.

On December 27, 2020, President Trump signed the Consolidated Appropriations Act of 2021 (the “Stimulus Act”), which not only gives taxpayers another stimulus payment but changes to retirement plans, including qualified disaster distributions.

A Qualified Disaster includes any disaster that occurred between December 28, 2019, and December 27, 2020, and which was declared a disaster by the President during the period beginning January 1, 2020, and ending February 25, 2021. Further, a Qualified Individual is someone: (1) whose principal home is located in a “Qualified Disaster Area”; and (2) who suffered an economic loss as a result of the Qualified Disaster. A Qualified Disaster Area is any area in which a Qualified Disaster was declared but doesn’t include an area that is a disaster area solely due to the COVID-19 pandemic (since relief was provided under the CARES Act).

The law provides relief in the form of a Qualified Disaster Distribution. Under the law, a plan sponsor may amend its retirement plan to allow a “Qualified Individual” to take a QDD from his or her eligible retirement plan account of up to $100,000, without penalty or withholding. This distribution mirrors the CARES Act distribution. To constitute a qualified distribution, the distribution must be made to on or after the first day of the incident period of a “Qualified Disaster” and before June 25, 2021. The distribution is taxed over a 3-year period and may be re-contributed in 3 years to an eligible retirement plan, with repayments receiving direct rollover treatment.

The law also allows plan sponsors to amend their plans to grant participants the special right to recontribute any hardship distributions initially taken to purchase or construct a principal residence in a Qualified Disaster Area if those funds were not used for such purposes due to a Qualified Disaster. To qualify for this right: (1) the hardship distribution must have been received no more than 180 days before and within 30 days after the Qualified Disaster incident; and (2) the repayment must be made no later than June 25, 2021, to an eligible retirement plan in which the individual is a beneficiary and for which rollover contributions of such distributions are permitted.

The law also allows plan sponsors to increase their retirement plan’s loan limits to allow Qualified Individuals to receive plan loans in amounts up to $100,000 or 100% of the present value of his or her vested account balance, instead of the $50,000 and 50% vested account balance limits that normally apply under the law. Further, a plan may provide that repayments of a Disaster-related Plan Loan may be suspended for a period of up to one year or up to June 25, 2021, if longer, if repayment of such loan normally would be due during the period beginning on the first day of the disaster incident period and ending 180 days from the last day of such incident period. The is similar to the COVID-related loans allowed under the CARES Act.

Theft of 401(k) account balances by cybercriminals or other types of criminals is an actual thing and they will become more and more popular as long as third party administrators (TPAs) fail in their role and don’t use common sense.

The latest lawsuit by Raymond J. Mandli and Mandli Communications, Inc.—claims that the TPA, American Trust made an unauthorized distribution in the total amount of $124,105 from Mr. Mandli’s plan.

Apparently, someone called American Trust and requested distribution paperwork from Mr. Mandli’s Plan account. The paperwork was sent to an email address that was not in American Trust’s records as being Mr. Mandli’s email address or by mail to a physical address that was not in American Trust’s records as being Mr. Mandli’s address. That should have been a clue.

The form was returned and included a “Daytime Phone Number” that was not any phone number that was ever Mr. Mandli’s or Mandli Communications’ phone number and that was not any phone number in American Trust’s records as being Mr. Mandli’s or his company’s phone number. That should have been another clue.

The withdrawal form for the plan, called for the distribution to be paid by check but the TPA paid via ACH. The person who stole the money, use a voided check with Mr. Mandli’s name on it, the check was #100—which is usually a clue that the bank account is new.

The TPA returned the money that was withheld for taxes but never retrieved the money from Mr. Mandli. I will certainly be interested to read on American Trust’s answer and see whether a quick settlement was hatched.

The Biden administration will review the Department of Labor (DOL) rule stipulating that ERISA plan fiduciaries can’t invest in “non-pecuniary” vehicles that sacrifice investment returns or take on additional risk. This rule essentially curbed the use of environmental, social, and governance (ESG) funds within a retirement plan.

President Joe Biden signed an executive order that directed all executive departments and agencies “to immediately review and, as appropriate and consistent with applicable law, take action to address the promulgation of federal regulations and other actions during the last four years that conflict with these important national objectives, and to immediately commence work to confront the climate crisis.”

The final rule implemented by the Trump administration requires ERISA plan fiduciaries to select investments based on pecuniary factors, described as any factor that a fiduciary prudently determines is expected to have a material effect on the risk and return based on appropriate investment guidelines.

I don’t gamble, but it’s an even bet that the rule will be overturned by the Biden administration.

According to the Department of Labor, you have a missing participant problem if:

1) You have more than a small number of missing or nonresponsive participants.

2) You have more than a small number of terminated vested participants who have reached normal retirement age but have not started receiving their pension benefits.

3) Missing, inaccurate, or incomplete contact information, census data, or both (e.g., incorrect or out-of-date mail, email, and other contact information, partial social security numbers, missing birthdates, missing spousal information, or placeholder entries).

4)   Absence of sound policies and procedures for handling mail returned marked “return to sender,” “wrong address,” “addressee unknown,” or otherwise, and undeliverable email.

5)   Absence of sound policies and procedures for handling uncashed checks (as reflected for example, by the absence of an accounting journal or similar record of uncashed checks, a substantial number of stale uncashed distribution checks, or failure to reclaim stale uncashed check funds in distribution accounts).

As with anything in retirement plans, you need a plan and a way how to handle missing participants. But before you can, you need to know you have a missing participant problem.

With the focus by the Department of Labor (DOL) on missing participants, I have to say it isn’t hard to find missing participants. While you could rely on the automatic rollover provider, the Internet has made searches easy with inexpensive Internet search companies.

I grew up in this retirement plan business before the use of these search engines and more reliance on the Internal Revenue Service letter forwarding program, which no longer exists. Finding missing participants may seem tedious, but Internet searches make it so much easier.