Defined contribution plan

The Department of Labor (DOL) has released a proposed amendment to its Voluntary Fiduciary Protection Program (VFCP), along with a proposed amendment to Prohibited Transaction Exemption (PTE) 2002-51, to permit certain transactions identified in the VFCP transaction exemption.

The VFCP allows plan officials to avoid potential civil enforcement actions and civil penalties under ERISA if eligible transactions are voluntarily corrected in a manner that meets the program’s requirements. Correction of these transactions under the current Voluntary Fiduciary Correction Program requires plan officials to submit an application to EBSA for review and approval. According to a DOL press release, EBSA’s proposed changes will do the following:

• Clarify some existing transactions that are eligible for correction under the program.
• Expand the scope of other transactions currently eligible for correction and simplify administrative or procedural requirements under the program.
• Amend the associated prohibited transaction class exemption, known as PTE 2002-51.

Most notable among the proposed changes is the addition of a self-correction component. This feature will enable employers and other plan officials to notify EBSA electronically that they have self-corrected certain failures to send participant contributions and loan repayments to pension plans on time. The proposed self-correction component can be used only if the following conditions are met:

• Participant contributions or loan repayments to the plan must be remitted no more than 180 calendar days from the date of withholding or receipt.
• Lost earnings must not exceed $1,000 calculated from date of withholding or receipt.
• The plan or self-corrector must not be under investigation as defined in the program.
• Self-correctors must use the program’s online calculator to calculate lost earnings and an online web tool to complete and file the self-correction component notice. Self-correctors must also complete and retain the self-correction retention record checklist.

Comments on the proposed changes can be made within 60 days of publication in the Federal Register. The proposals will be reviewed, and additional details provided.

The IRS has announced the postponement of certain tax-related deadlines for victims of severe storm and flooding in Illinois. The tax relief postpones various tax filing deadlines that began on July 25, 2022. Affected individuals and households who reside or have a business in St. Clair County, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after July 25, 2022, and before February 15, 2023, will have until February 15, 2023, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after July 25, 2022, and before February 15, 2023.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.

The Department of Labor’s Wage and Hour Division has once again released guidance on the definition of “employee.” This October 2022 guidance, in the form of proposed regulations, applies primarily to determinations under the Fair Labor Standards Act (FLSA), but may help in other contexts, such as in determining whether a worker should be covered by a retirement or health plan. Although the new rules are not radically different from previous regulations, there are some important changes.

The IRS has issued Revenue Ruling 2022-22, which contains the applicable federal rates (AFR) for December 2022. These rates are used for such purposes as calculating distributions from retirement savings arrangements that meet the requirements for substantially equal periodic payments (a 10 percent early distribution penalty tax exception), also referred to as "72(t) payments."

Representative Ron Kind (D-WI) and co-sponsor Mike Kelly (R-PA) have introduced HR 9286 to treat certain price protection payments from Employee Stock Ownership Plans (ESOPs) as eligible rollover distributions. Price protection payments are made under a price protection agreement and provide a guaranteed minimum price for shares that may temporarily decline in value as a result of the company loaning money to the ESOP to purchase shares.

The proposal would treat certain price protection payments made after December 12, 2019, for plan years ending before January 1, 2023, as eligible rollover distributions if payments were made pursuant to a price protection agreement for distributions due to separation from service, retirement, death or disability. For plan years beginning after 2022, payments made under a price protection agreement as a result of any separation of service of a plan participant (regardless of the reason for such separation) would be eligible for rollover. Price protection payments must be made within a period not to exceed the lesser of five years or the life of the exempt loan following the purchase of employer securities with such loan.

The Pension Benefit Guaranty Corporation (PBGC) is extending the comment period for a proposed rule that would provide interest rate assumptions that may be used by a plan actuary in determining a withdrawing employer’s liability under a multiemployer plan. PBGC published the proposed rule in the Federal Register on October 14, 2022, with a comment period that was scheduled to end on November 14, 2022. After receiving a request to extend the comment period to provide a total of at least 60 days from October 14, 2022, PBGC is extending the comment period through December 13, 2022. Release of the proposed rule was previously announced.

The IRS has issued its 2022-2023 Priority Guidance Plan, in which it describes guidance projects in the current fiscal year. Many items in the plan have appeared in prior years’ Priority Guidance Plans. A number of the guidance items deal with retirement savings arrangements, including the following, which have been included in previous plans.

• Regulations and guidance relating to the 10 percent early distribution tax
• Comprehensive IRA regulations
• Final regulations on the application of the normal retirement age regulations under Internal Revenue Code Section (IRC Sec.) 401(a) for governmental plans
• Regulations and guidance updating electronic delivery rules for providing applicable notices and making participant elections
• Final regulations regarding RMD requirements under the SECURE Act (proposed regulations were published in February 2022)
• Regulations relating to SECURE Act modifications to certain rules governing 401(k) plans
• Guidance on student loan payments and their interplay with qualified retirement plans and 403(b) plans
• Guidance on closed defined benefit plans and related matters
• Regulations on the exception to the unified plan rule for IRC Sec. 413(e) multiple employer plans (proposed regulations were issued in July 2019)
• Regulations on the definition of "governmental plan"
• Final regulations updating minimum-present-value requirements for defined benefit pension plans (proposed regulations were issued in November 2016)
• Regulations on mortality tables to determine present value for single-employer defined benefit pension plans
• Final regulations for withholding on distributions when payments are made to a non-U.S. address (proposed regulations were issued in May 2019)
• Regulations relating to the IRC Sec. 6057 reporting requirements (proposed regulations were issued in June 2012)
• Guidance updating electronic filing requirements for employee plans to reflect changes made by the Taxpayer First Act

 Two new noteworthy items include

• Regulations relating to the timing of the use or allocation of forfeitures in qualified retirement plans
• Regulations on the definition of church plan under IRC Sec. 414(e)

The Securities and Exchange Commission (SEC) is adopting amendments to the recordkeeping rules applicable to broker-dealers, security-based swap dealers (SBSDs), and major security-based swap participants (MSBSPs). The amendments modify requirements regarding the maintenance and preservation of electronic records, the use of third-party recordkeeping services to hold records, and the prompt production of records. The SEC is also designating broker-dealer examining authorities as SEC designees for purposes of certain provisions of the broker-dealer record maintenance and preservation rule.

The SEC’s broker-dealer electronic recordkeeping rule currently requires firms to preserve electronic records exclusively in a nonrewriteable, nonerasable format, known as the write once, read many format. The amendments add an audit-trail alternative under which electronic records can be preserved in a manner that permits the recreation of an original record if it is altered, over-written, or erased. According to the SEC, the audit-trail alternative is designed to provide broker-dealers with greater flexibility in configuring their electronic recordkeeping systems so they more closely align with current electronic recordkeeping practices while also protecting the authenticity and reliability of original records. The amendments apply the same requirements to nonbank SBSDs and MSBSPs.

The amendments also require broker-dealers and all types of SBSDs and MSBSPs to produce electronic records to securities regulators in a reasonably usable electronic format.

With publication in the federal register set for tomorrow, the final rule is effective January 3, 2023, and compliance dates for the new requirements will be May 3, 2023, for broker-dealers and November 3, 2023, for SBSDs or MSBSPs.

Effective November 2, 2022, the federal prime interest rate increased from 6.25 percent to 7 percent. The prime interest rate is largely determined by the federal funds rate, as set by the Federal Reserve’s Federal Open Market Committee (FOMC). As Department of Labor regulations require a retirement plan loan interest rate to be comparable to interest rates charged by entities that are in the business of lending money in similar circumstances, plan sponsors typically use a benchmark such as the prime rate to set the interest rate on plan loans.

The next FOMC meeting is scheduled for December 14, 2022.

The Securities and Exchange Commission (SEC) has finalized rules to amend Form N-PX, Annual Report Of Proxy Voting Record of Registered Management Investment Company, to enhance the information mutual funds, exchange-traded funds (ETFs), and certain other funds currently report annually about their proxy votes and to make that information easier to analyze. The rule and form amendments will also require institutional investment managers subject to the Securities Exchange Act of 1934 to report annually on Form N-PX how it voted proxies relating to executive compensation matters.

The rule is effective July 1, 2024.