January 18, 2023
On January 3, 2023, the IRS released Revenue Procedure (Rev. Proc.) 2023-4, which outlines the procedures for requesting determination letters and private letter rulings from the IRS for qualified retirement plans. Rev. Proc. 2023-4, which is published in Internal Revenue Bulletin 2023-01, is a general update to the information previously provided in Rev. Proc. 2022-4. Determination letters indicate whether the IRS finds the form of an employer’s employee benefit plan document meets the necessary qualification requirements. Private letter rulings interpret and apply the Internal Revenue Code to a set of facts presented by a taxpayer.
In addition to minor non-substantive changes, the updates include the following:
Retirement plan sponsors who may apply for a determination letter or request a private letter ruling should familiarize themselves with this updated guidance.
On January 12, 2023, the Pension Benefit Guaranty Corporation (PBGC) published revised civil penalty amounts for failure to provide certain notices or other material information, as required by ERISA. The amounts apply to penalties assessed on or after the publication date. The adjusted maximum amounts are $2,586 (up from $2,400) for Section 4071 penalties and $345 (up from $320) for Section 4302 penalties, which are related to multiemployer plan notices.
The IRS recently released the new Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions, to replace Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments, in certain instances. Form W-4P, and now Form W-4R as well, are used to address federal income tax withholding for taxable IRA distributions.
Form W-4R was optional in 2022 but is now required in 2023 for IRA distributions considered nonperiodic, which are those paid on demand as opposed to a specific schedule. Form W-4R will be updated annually to incorporate current marginal tax rate tables, which are used as part of the withholding calculation. Individuals receiving IRA distributions should familiarize themselves with the new form and consult with their tax advisor on applying each form to their situation.
January 04, 2023
On December 29, 2022, President Biden signed the Consolidated Appropriations Act, 2023 (HR 2617) into law. The main purpose of this legislation is to continue funding certain government operations. However, the bill also adopts the SECURE 2.0 Act of 2022 (SECURE 2.0) relating to retirement plans.
SECURE 2.0 follows the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which was passed as part of the 2020 appropriations bill. (You can read about the SECURE Act in the January 7, 2020, edition of Compliance Corner.) SECURE Act 2.0 introduces new provisions affecting how retirement plans are offered, and it amends some of the provisions found in the SECURE Act.
As background, SECURE 2.0 comes after multiple follow-ups to the SECURE Act that were introduced in the House and Senate. First, the Securing a Strong Retirement Act was passed in the House in March 2022. Next, the Senate Health, Education, Labor and Pensions Committee approved a version known as the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act in June 2022. Finally, the Senate Finance Committee approved the Enhancing American Retirement Now (EARN) Act in September 2022. SECURE 2.0 includes provisions from each of those bills.
SECURE 2.0 is broken up into seven titles, and some of the major provisions affecting employer-sponsored retirement plans are summarized as such:
Like the SECURE Act, this legislation will overhaul of many of the retirement regulations that have been in place for decades. Some provisions of the bill are effective upon enactment; others are effective for plan years beginning January 1, 2023, while others will become effective at later dates. Retirement plan sponsors should work with their plan advisers, recordkeepers and other service providers to amend their plan as necessary.
On December 30, 2022, the IRS proposed regulations to permanently change retirement plan rules that require certain participant elections and spousal consents to be witnessed in the physical presence of a notary or plan representative. If specified conditions are met, the proposed regulations will allow affected qualified retirement plans to also accept remote notarization or witnessing by a plan representative.
IRS regulations have historically required that certain participant elections and spousal consents (e.g., a defined benefit plan lump sum distribution) be physically witnessed by a notary public or plan representative. However, in Notice 2020-42, the IRS provided temporary COVID-19 relief from the physical presence requirement and allowed the use of an electronic medium for participant elections and spousal consents. This relief was extended several times but was set to expire at the end of 2022. (For further details on IRS Notices 2020-42 and the subsequent relief extensions, please see our June 9, 2020, January 5, 2021, and July 7, 2021, Compliance Corner editions.) The proposed regulations make this relief permanent, with modifications.
Under the proposed regulations, a participant election or spousal consent witnessed remotely by a notary public or plan representative must satisfy the general requirements for participant electronic elections. Under these requirements, the electronic system must be one that the individual making the election can effectively access and that is reasonably designed to prevent anyone else from making the election. The system must also give the individual a reasonable opportunity to review, confirm, modify or rescind the election before it becomes effective and provide a compliant paper or electronic election confirmation within a reasonable time.
Additionally, for a plan to accept remote witnessing by a notary public, the notary public must witness the signature of the individual (e.g., spouse) signing the consent using live audio-video technology and adhere to applicable state laws.
If a plan representative performs the remote witnessing, the process must also meet the following requirements:
Retirement plan sponsors should be aware of the proposed regulations and may welcome the flexibility to allow remote witnessing on a permanent basis. However, sponsors are not required to permit remote witnessing. If the sponsor chooses to do so, remote witnessing cannot be the sole option. (Sponsors must still accept notarizations witnessed in the physical presence of a notary.)
Comments on the proposed regulations are being accepted through March 30, 2023, and a telephonic public hearing has been scheduled for April 11, 2023, at 10:00 a.m. Final regulations, once issued, are proposed to apply six months after publication in the Federal Register. Sponsors are permitted to rely upon the proposed regulations in the interim.