Day two of the 2021 virtual PLANSPONSOR National Conference (PSNC) reviewed the litigation efforts that were upended by the coronavirus pandemic last year, the new pieces of legislation that were enacted and what plan sponsors should begin considering for their plans’ futures.
Jodi Epstein, partner at Ivins, Phillips & Barker, began the session by disclosing five provisions of the Setting Up Every Community for Retirement Enhancement (SECURE) Act that are relevant for the current year, the first being an annual disclosure of plan contribution account balances as projected lifetime income.
Second, Epstein told plan sponsors to look out for notices on qualified birth or adoption distributions (QBADs), which are available to any qualified participant. While QBADs have been available since January 2020, many plan sponsors have been waiting for additional guidance from the Department of Labor (DOL) on how to distribute such features, Epstein said. A QBAD would allow for up to a $5,000 distribution for the birth or adoption of one child, to each parent.
Epstein noted that plan sponsors are not mandated to offer QBADs. Additionally, participants can take other paths to receive a distribution. “It’s an optional provision, and then even if your plan doesn’t have a QBAD, a participant can get an in-service withdrawal and characterize it as a QBAD,” Epstein said.
Third, plan sponsors that have not started to count hours for long-term, part-time employees should begin quickly, Epstein said. According to the DOL, long-term, part-time employees who complete at least 500 hours of work for three consecutive years will be eligible for plan benefits in 2024, and therefore the counting of their hours should begin this year, she said.
This also goes for any “leased,” contract, or gig workers as well, said Epstein, in the case that a plan sponsor hires the employee for full-time work and benefits.
Epstein listed required minimum distributions (RMDs) as another change to review, since the SECURE Act increased the age to receive a distribution from 70.5 to 72 years old. Those who were receiving RMDs prior to 2020, but then suspended their distribution due to the pandemic, will resume receiving them, Epstein said. Those who reach age 72 in 2021 will also need to take their first RMD.
Lastly, RMD death-payout changes must also be reviewed by plan sponsors, especially given the SECURE Act’s 10-year rule. Under the legislation, entire balances of a participant’s inherited individual retirement account (IRA) must be distributed or withdrawn within 10 years of the original owner’s death. This rule applies even if the death occurred before the owner began taking an RMD.
The panel also touched on the possibility of extended coronavirus-related distributions (CRDs) in the future, adding that the likelihood may be slim as the economy rebuilds and most of the United States opens back up.
“We have to think back to where we were when that CARES [Coronavirus, Aid, Relief and Economic Security] Act was passed,” said David Levine, principal at Groom Law Group. “We were looking at 10% to 20% unemployment, people being concerned over their small businesses, and [the government] was throwing everything to salvage the economy. Fast-forward to the end of last year where you had people filing for PPP [Paycheck Protection Program] loans, and not as high of an unemployment rate. I don’t think Congress sees a big need to bring back that provision.”
With COVID-19 declared a national disaster, and as reports circulate on possible disaster relief aid, Epstein advised plan sponsors to document any alterations to their plan that could have been caused by the pandemic, or any changes that were a result of the CARES Act. “Keep track of what you did. You think you’ll be able to think back to what happened in 2020, but then years go by,” she said.
For example, any plans that took advantage of the CARES Act loan suspension feature will soon have to implement loans again. Epstein said that while vendors are handling this differently, it’s up to the plan sponsor to keep the plan qualified and accurate with regular revisions. “Update your loan policy because people have loans that predated COVID and loans that are post-COVID,” Epstein added.
Because workforces went remote in 2020, cybersecurity protection is anticipated to grow even more important in coming years. This means employers will have more responsibility to review and enact the best protection for their plans and participants, the panelists said.
Levine underscored the significance of properly reviewing vendors for not just their cyber-protection features, but for their insurance as well.
“If there is a massive breach and things get stolen without insurance, you want to understand what their controls are,” he said. “You want to understand notification steps and what they can promise to do.”