As we enter the summer months, retirement plan sponsors should start looking to the end of the 2022 calendar year to ensure they are prepared to adopt all necessary plan amendments ahead of the deadlines.

To cut through some of the confusion of COVID-related legislation passed over the past few years, we have compiled a list of three primary amendment opportunities employers should add to their to-do list.

The SECURE Act

On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act1 into law, making significant changes to most retirement plans, including 401(k)s.

Retirement plan documents must be formally amended no later than December 31, 2022.

Key amendments include:

  • Required Minimum Distributions (RMDs): Under the SECURE Act, the applicable RMD age is permanently increased to age 72 instead of 70½. Note, if SECURE Act 2.02 is signed into law, then the RMD age will be increased again; however, this does not fall under the 2022 amendment deadlines, as it is still pending in Congress.
  • Plan Distributions to Non-Spouse Beneficiaries: For any plan participants that die on or after January 1, 2020, the plan administrator must pay out all beneficiary distributions within ten years after the participant’s death, unless the beneficiary is the participant’s spouse or an “eligible designated beneficiary,” as defined in the SECURE Act.

Additionally, if an employer adopted any of the SECURE Act’s optional amendments, they should be sure to have those reflected in formal amendments, executed not later than December 31, 2022.

The CARES Act

After the COVID-19 pandemic was declared a public health emergency, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act)3 into law on March 27, 2020. Under the CARES Act, retirement plan sponsors could adopt temporary and optional plan amendments, providing relief to employees and their families.

Some key optional provisions include:

  • Suspension of required minimum distributions (RMDs) due in 2020 (extending the deadline one year);
  • Increased limits available for plan loans taken between March 27, 2020, and September 22, 2020, to the lesser of $100,000 or 100% of the participant’s vested plan balance along with extended repayment periods;
  • Additional, permissible early distributions for the 2020 plan year, waiving the 10% early withdrawal penalty.

Like the SECURE Act, if an employer adopted any of the CARES Act’s optional amendments, they should be sure to have those reflected in formal amendments, executed not later than December 31, 2022.

Cycle 3 Restatement for Pre-Approved Plans

The Internal Revenue Service (IRS) requires that all pre-approved retirement plans be amended and restated every six years, giving plan sponsors the opportunity to align their plans with current law and business practices.

For retirement plan sponsors with pre-approved 401(k), profit sharing, or money purchase plans, the Cycle 3 restatement window4 opened on August 1, 2020 and closes on July 31, 2022.

Failing to restate a plan within the Cycle 3 window can lead to IRS penalties, and in some cases, disqualification of a retirement plan.

When restating a plan, employers should be sure to review their 401(k) plan document and adoption agreement, confirming that each complies with the intended plan design along with applicable legislative and regulatory requirements. Additionally, employers will want to align their plan documents with their summary plan description (SPD) and any other employee communications, such as an employee handbook.

Note that Cycle 3 does not apply to defined contribution plans using an individually-designed plan document or defined benefit plans of any sort.

Additionally, Cycle 3 does not cover any of the mandatory or optional changes set forth in the SECURE or CARES Act. Those changes must be adopted for calendar year plans by standalone amendments no later than December 31, 2022.

Additional Resources

  1. Congress.gov (2019, June 3). H.R. 1994, 116th Congress, 1st Session. https://www.congress.gov/bill/116th-congress/house-bill/1994/text
  2. Congress.gov (2022, March 30). H.R. 2954, 117th Congress, 2nd Session. https://www.congress.gov/bill/117th-congress/house-bill/2954/text#toc-HB9B18B5F05D04C1F8F7B67AC535C6314
  3. Congress.gov (2020, March 27). H.R. 748, 116th Congress, 2019-2020 Session. https://www.congress.gov/bill/116th-congress/house-bill/748
  4. Internal Revenue Service (2020, February 10). Announcement 2020-7. https://www.irs.gov/pub/irs-drop/a-20-07.pdf
  5. Internal Revenue Service. (2022, May 17). Operational Compliance List. https://www.irs.gov/retirement-plans/operational-compliance-list
  6. Internal Revenue Service. (2022, March 16). Retirement Plan and IRA Required Minimum Distributions FAQs. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions
  7. Internal Revenue Service (2020, February 10). Announcement 2020-7. https://www.irs.gov/pub/irs-drop/a-20-07.pdf

Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Financial Advisors at Pensionmark may also be registered representatives of Pensionmark Securities, LLC (member SIPC), which is affiliated with Pensionmark through common ownership.

Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2022 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved

Jenny Kiesewetter — Jenny is a Retirement Plan Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline retirement plan compliance. In her free time, Jenny enjoys spending time with her friends and family, traveling, live music, and dining out.