In March monthly minutewe look at proposed IRS regulations implementing the SECURE Act, DOL guidelines on cryptocurrency investments, and expanded national emergency “outbreak period” guidelines.
Crypto-Curious vs. Crypto-Cautious
The DOL has urged caution regarding 401(k) investments in cryptocurrencies. In Compliance Assistance Release No. 2022-01, the DOL reminds plan trustees that their duties of care and loyalty are the “highest known by law” and that they carry the risk of personal liability. for plan losses resulting from a breach. In this regard, the DOL has expressed serious concerns about the caution of exposing plan participants to direct investments in cryptocurrencies and related products, considering them to be speculative and volatile investments. The DOL also notes that cryptocurrencies can create challenges for plan participants to make informed investment decisions and present various custodial, recordkeeping, and valuation concerns. In addition, the DOL expressed concern that the changing regulatory environment could create compliance challenges. In light of these concerns, the DOL plans to conduct a program of investigation targeting plans offering participants investments in cryptocurrencies and take steps to protect the interests of plan participants and beneficiaries with respect to these investments.
Comment by KMK: The DOL doesn’t mince words in its latest release on what it sees as the risks of allowing cryptocurrency investments on 401(k) plan investment menus. This advice is a strong warning to plan administrators to proceed with caution and prioritize their fiduciary duties over speculative interests in cryptocurrency investments.
The IRS muddies the waters of the RMD
The IRS recently proposed new regulations incorporating changes made by the SECURE Act of 2019 (see our February 2020 legal alert: What you need to know about the SECURE Act). It should be noted that the proposed settlement sets out rules for required minimum distributions (RMDs), including the application of the 10-year rule. Under the proposed rule, most beneficiaries (with the exception of spouses, young children and certain other beneficiaries) who inherit a balance after the deceased participant reached the RMD age before his death should receive annual distributions until the end of the 10and year, the entire account balance should be distributed. Unsurprisingly, this rule has many critics who oppose the new annual distribution requirement, citing previous IRS guidance that stated that no RMD from years 1 through 9 would be required.
The proposed regulations also expand on the SECURE Act designations of eligible designated beneficiaries. For example, the “age of majority” is generally set at the age of 21 for the child.st anniversary, although defined benefit plans have some leeway to retain a previous definition. The new rules also refine the term “disability,” changing what constitutes “disability” depending on whether the beneficiary is under 18, though a safe harbor tied to disability determinations for Social Security benefit purposes is also available. Similarly, the new rules also provide special documentation requirements for a beneficiary who is disabled or chronically ill on the date of an employee’s death.
The new rules also deal with many other complex issues, such as whether the death of a participant who would have reached the age of 70.5 on or after January 1, 2020, prevents the application of the rule of age 72 to determine the participant’s required start date and the start date of distributions to a surviving spouse who is waiting to start distributions; distributions and deemed distributions that are not taken into account in determining whether an RMD has been made for the year; and how to determine the benefit amount if there are multiple named beneficiaries.
Comment by KMK: The proposed regulations would apply to calendar years 2022 onwards, and operation in accordance with the proposed regulations will be considered a reasonable and good faith interpretation of the amendments to the SECURE Act for 2021 RMDs. To provide clarity and align with legislative changes brought about by the SECURE Act, skeptics complain that the lengthy regulations expose inconsistent agency guidance and create unnecessary complexity. In this regard, it is essential to work closely with administrators and legal counsel to ensure compliance with these complex rules.
And the Pace Continues: Prolonged National COVID-19 Emergency
Last month, the Biden administration issued a notice announcing the continuation of the COVID-19 national emergency which was set to expire on March 1, 2022, as noted in the February 2021 report. monthly minute UPDATE. This means that the various deadlines of the plan will continue to be imposed for one year (or, if earlier, 60 days from the end of the national emergency). As noted earlier, these “Outbreak Period” extensions generally apply to: HIPAA Special Enrollment Periods; Notice of COBRA Qualification Event and Disability Extension; COBRA election notice deadlines, election deadlines and bonus payment deadlines; and, benefit claims and appeal deadlines.
Comment by KMK: As various COVID-19 related measures appear to be coming to an end, extending the “outbreak period” may come as an unwelcome surprise to plan administrators. However, given the growing pressure to announce the end of the national emergency, it is possible that the Biden administration will change course in the coming months. We will keep you updated as new guidelines are released.
COMPLIANCE ALERT — Cycle 3 restatement deadline
The Cycle 3 restatement window for pre-approved defined contribution plans began August 1, 2020 and ends July 31, 2022. Enacting employers should work with plan providers and legal counsel now to ensure a restatement in right time.