Summary of Provisions in the Securing a Strong Retirement Act of 2021 | Groom Law Group, Chartered

Sec. 301. Recovery of retirement plan overpayments Fiduciaries for plans that have mistakenly overpaid a participant must take reasonable steps to recoup such overpayment, such as collecting the overpayment from the participant or employer in order to maintain the tax-qualified status of the plan and comply with ERISA. EPCRS includes various procedures for correcting overpayments made from defined benefit and defined contribution plans. The PBGC also has overpayment recoupment policies for terminating defined benefit plans.
  A 401(a), 403(a), 403(b), and governmental plan (not including a 457(b) plan) will not fail to be a tax favored plan merely because the plan fails to recover an “inadvertent benefit overpayment” or otherwise amends the plan to permit this increased benefit. There is also fiduciary relief for failure to make the plan whole.

However, the plan sponsor must still satisfy minimum funding requirements and prevent/restore an impermissible forfeiture.

Alternatively, if the plan sponsor elects to offset future plan payments to recover the overpayment, restrictions will be imposed on the offset. Moreover, restrictions will be imposed on collection efforts from the participant (e.g., no interest, must recover within 3 years, etc.).

In certain cases, the overpayment is also treated as an eligible rollover distribution.

Effective upon enactment.

Sec. 302. Reduction in excise tax on certain accumulations in qualified retirement plans Existing law imposes an excise tax on an individual if the amount distributed to an individual during a taxable year is less than the RMD under the plan for that year. The excise tax is equal to 50% of the shortfall (that is, 50% of the amount by which the required minimum distribution exceeds the actual distribution). (The excise tax may be abated under a reasonable cause exception.) Reduces the excise tax for failure to take RMDs from 50% of the shortfall to 25%. Further reduces the excise tax to 10% if the individual corrects the shortfall during a two year correction window.

Effective for taxable years beginning after December 31, 2021.

Sec. 303. Performance benchmarks for asset allocation funds Existing regulations require a plan fiduciary to supply certain performance and benchmark data to participants about their investment options. Requires the Secretary of Labor to modify existing regulations no later than six months after enactment to provide that, in the case of a designated investment alternative which contains a mix of asset classes, a plan administrator may, but is not required to, use a benchmark which is a blend of different broad-based securities market indices.

Effective upon enactment.

Sec. 304. Review and report to the Congress relating to reporting and disclosure requirements Plans are currently required to file reports with federal agencies (e.g., Form 5500) and provide numerous notices to participants (e.g., Summary Plan Description). Requires the Secretaries of Labor and the Treasury and the Director of the Pension Benefit Guaranty Corporation (“PBGC”) to study the disclosure and reporting requirements on plan sponsors and submit a report to Congress addressing possible avenues for simplification, consolidation, or standardization.

Effective upon enactment.

Sec. 305. Eliminating unnecessary plan requirements related to unenrolled participants Under current rules, employees who choose not to participate in an employer-sponsored plan (“unenrolled participants”) are required to receive numerous communications from the plan sponsor. Amends the requirements for plan sponsor notices to unenrolled participants to consist solely of an annual notice of eligibility to participate during the annual enrollment period (and providing any document so entitled upon request).

Effective for plan years beginning after December 31, 2021.

Sec. 306. Retirement savings lost and found N/A Directs Secretaries of Treasury, DOL, and Commerce to create an online searchable “Lost and Found” database maintained by PBGC to collect information on benefits owed to missing, lost or non-responsive participants and beneficiaries in tax-qualified retirement plans and to assist such plan participants and beneficiaries in locating those benefits.

This applies to tax-qualified defined benefit and defined contribution plans subject to ERISA vesting provisions.

Payments from an ongoing plan to nonresponsive participants where the vested accrued benefit does not exceed $1,000 must be paid to the Lost and Found.

Imposes annual reporting requirements for plan sponsors and additional reporting changes.

Increases the mandatory cashout provisions to $6,000 (up from $5,000) and expands the rollover options for mandatory distributions.

Effective upon enactment.

Sec. 307. Expansion of Employee Plans Compliance Resolution System (“EPCRS”) Under existing rules, employer sponsors of qualified plans have certain opportunities to self-correct plan errors under EPCRS. This generally involves operational failures that are insignificant (or otherwise corrected within a two year period).

 

 

Allows any eligible inadvertent failure (as defined in the bill) to be self-corrected under EPCRS (subject to any IRS imposed restrictions).

This covers 401(a), 403(a), 403(b), 408(p) (SIMPLE IRAs) and 408(k) (SEPs).

It also directs the Secretary to expand EPCRS to (1) allow custodians of IRAs to address eligible inadvertent failures, and (2) add additional safe harbors for correcting such inadvertent failures (including earnings calculations).

Effective upon enactment.

Sec. 308. Eliminate the “first day of the month” requirement for governmental Section 457(b) plans Currently, participants in a 457(b) plan generally may only defer compensation if an agreement providing for the deferral has been entered into before the first day of the month in which the compensation is paid or made available. Conforms rule for governmental 457(b) plans to rule for 401(k) and 403(b) plans by allowing participants of governmental 457(b) plans to change their deferral rate at any time before the compensation is available to the individual. For a tax-exempt 457(b) plans, participants may defer compensation for any calendar month only if an agreement providing for such deferral has been entered into before the beginning of such month.

Effective for taxable years beginning after enactment.

Sec. 309. One-time election for qualified charitable distribution (QCD) to split-interest entity; increase in qualified charitable distribution limitation Under current law, certain charitable IRA distributions (called qualified charitable distributions) up to $100,000 are excluded from gross income of the individual. QCDs also count for minimum required distribution purposes. Allows individuals to make a one-time election of up to $50,000 (indexed) for qualifying charitable distributions to certain split-interest entities, including charitable remainder annuity trusts, charitable remainder unitrusts, and charitable gift annuity.

Indexes the $100,000 limit to inflation.

Effective for distributions made in taxable years ending after the date of enactment.

Sec. 310. Distributions to firefighters Current law permits “qualified public safety employees” in a governmental plan to take retirement withdrawals beginning at age 50 after separation from service without incurring a 10% early withdrawal penalty. Extends the age 50 early withdrawal exception for qualified public safety employees to also apply to private sector firefighters receiving distributions from a qualified retirement plan or 403(b) plan.

Effective for distributions made after December 31, 2021.

Sec. 311. Exclusion of certain disability-related first responder retirement payments Disability-related retirement payments are typically included in the recipient’s taxable income. For first responders, excludes service-connected disability pension payments (from a 401(a), 403(a), governmental 457(b), or 403(b) plan) from gross income after reaching retirement age up to an annualized excludable disability amount.

Effective for amounts received with respect to taxable years beginning after December 31, 2026.

Sec. 312. Individual retirement plan statute of limitations for excise tax on excess contributions and certain accumulations The Code imposes excise taxes on excess contributions made to IRAs (Section 4973), failures to distribute RMDs from plans and IRAs (Section 4974), and prohibited transactions involving plans and IRAs (Code Section 4975). The statute of limitations with respect to a tax liability for excess retirement contributions or other accumulations generally starts to run within three years after the tax return (or Form 5329 in certain cases) is filed, but if a return is never filed, the statute does not begin to run. For purposes of any excise tax imposed on excess contributions or on certain accumulations in connection with an IRA, provides that for the applicable return to start the statute of limitation is the income tax return filed by the person on whom the tax is imposed for the year in which the act (or failure to act) giving rise to the liability for such tax occurred. The filing of Form 5329 is generally no longer be required to start the statute of limitations.

For a person not required to file a return for that year, the statute of limitations begins on the date that the return would have been required to be filed.

Effective upon enactment.

Sec. 313. Requirement to provide paper statements in certain cases ERISA requires plan administrators to periodically furnish participants and beneficiaries with statements describing the individual’s benefit under the plan. In defined contribution plans, benefit statements must be provided at least once each calendar quarter, if the participant has the right to direct investments, and at least once each calendar year in other cases. In defined benefit plans, benefit statements must generally be delivered at least once every three years.

DOL disclosure regulations include various document delivery safe harbors. DOL updated the disclosure regulations in 2020 to add two new additional safe harbors: (1) a 2002 safe harbor that applies only to individuals who generally either (a) have the ability to effectively access electronic documents at work, where such access is an integral part of the individual’s duties; or (b) have consented to receiving documents electronically; and (2) a 2020 safe harbor where the plan administrator complies with certain notice, access, and other requirements.
 

Modifies the pension benefit statements requirement to generally require that:

– for a defined contribution plan, at least one statement must be provided on paper in written form for each calendar year; and

– for a defined benefit plan, at least one statement must be provided on paper every three years.

Exceptions allowed for plans that allow employees to opt in to e-delivery or plans that follow the 2002 safe harbor.

It also directs the Secretary to make changes by December 31, 2021 to the e-delivery rules to include certain participant protections.

Effective for plan years beginning after December 31, 2022.

Sec. 314. Separate application of top heavy rules to defined contribution plans covering excludable employees Generally, for a defined contribution plan, the top heavy minimum contribution is three percent of the participant’s compensation. A defined contribution plan is top-heavy if the aggregate of accounts for key employees exceeds 60 percent of the aggregate accounts for all employees. If a plan is top-heavy, minimum contributions or benefits must be provided for non-key employees and, in some cases, faster vesting is required. Allows a top-heavy plan that covers otherwise excludable employees (e.g., the Code’s age and service eligibility rules — age 21 and one year of service) and which meet the top-heavy minimum contribution rules testing only this group, to disregard this group from the top-heavy minimum contribution testing.

Effective for plan years beginning after date of enactment.

Sec. 315. Repayment of qualified birth or adoption distribution limited to 3 years Following the SECURE Act, current law does not limit the period during which a qualified birth or adoption distribution (QBAD) may be repaid and qualify as a rollover contribution. Requires qualified birth or adoption distributions to be recontributed within three years of the distribution in order to qualify as a rollover contribution. (This aligns the rule with similar disaster relief provisions and simplifies plan administration.)

Effective as if included in section 113 of the SECURE Act.

Sec. 316. Employer may rely on employee certifying that deemed hardship distribution conditions are met Applicable Treasury regulations provide that hardship distributions may be made on account of an immediate and heavy financial need or an unforeseeable emergency. These needs are evaluated using facts and circumstances. (There is a streamlined hardship documentation approach that uses a self-certification process if certain requirements are met.) Allows employees to self-certify that they have had one of the safe harbor events that constitutes a deemed hardship for purposes of taking a hardship withdrawal from a 401(k) plan or a 403(b) plan.

The administrator can also rely on the employee’s certification that the distribution is not in excess of the amount required to satisfy the financial need.

A similar rule applies for purposes of unforeseeable emergency distributions from governmental Section 457(b) plans.

Effective for plan years beginning after December 31, 2021.

Sec. 317. Penalty-free withdrawals from retirement plans for individuals in case of domestic abuse N/A
  Permits certain penalty-free early withdrawals in the case of domestic abuse in an amount not to exceed the lesser of $10,000 or 50% of the value of the employee’s account under the plan.

In addition, such eligible distributions to a domestic abuse victim (defined in the bill) may be recontributed to applicable eligible retirement plans, subject to certain requirements. (This is similar to the QBAD provision.)

This also provides for an in-service distribution event for 401(k), 403(b), and governmental 457(b) plans.

Effective for distributions made after the date of enactment.

Sec. 318. Reform of family attribution rule Current law provides family attribution rules to address scenarios in which a person, such as a family member, is treated as having an ownership interest in a business. These rules take into account the laws on familial property ownership in a community property state. These rules are important for determining who is the employer and in the controlled group/affiliated service group for various testing and distribution rights. Adds special rules to address family attribution and to disregard community property laws for purposes of determining ownership of a business. To the extent these changes result in changes to the controlled group or affiliated service group, the Section 410(b)(6)(C) transition relief is available.

Effective for plan years beginning on or after the date of enactment.

Sec. 319. Amendments to increase benefit accruals under plan for previous plan year allowed until employer tax return due date Current law provides a remedial amendment period for plans to meet qualification requirements. In general, a discretionary plan amendment (which would include an increase in benefit accruals) must be adopted by the end of the plan year in which it is effective. Allows plans to make discretionary plan amendments to increase benefits until the employer’s tax filing deadline (including extensions) for the taxable year in which the amendment is effective.

This applies to stock bonus, pension, profit-sharing, or annuity plan to increase benefits for the preceding plan year (other than increasing matching contributions).

Effective for amendments made in plan years beginning after December 31, 2022.

Sec. 320. Retroactive first year elective deferrals for sole proprietors Under section 201 of the SECURE Act, a Section 401(k) plan of a sole proprietor can be funded with employer contributions as of the due date for the business’s return, but the elective deferrals must be made as of December 31 of the prior year.
  For a sole proprietor’s first plan year (if the owner is the only employee), allows elective deferrals to be made by the tax filing due date (determined without regard to any extensions).

Effective for plan years beginning after enactment.

Sec. 321. Limiting cessation of IRA treatment to portion of account involved in a prohibited transaction If an IRA beneficiary engages in a prohibited transaction with respect to the IRA, the IRA loses its tax-favored status and ceases to be an IRA as of the first day of the taxable year in which the prohibited transaction occurs. As a result, the IRA is treated as distributing to the individual on the first day of that taxable year the fair market value of all of the assets in the account. Modifies the disqualification rule that applies when an IRA owner or beneficiary engages in a prohibited transaction so that only the portion of the IRA that is used in the prohibited transaction is treated as distributed to the individual.

Effective for taxable years beginning after enactment.