Defined contribution plan

The IRS has issued Notice 2023-12, which contains updated guidance on factors used in certain defined benefit (DB) pension plan minimum funding and present value calculations. Updates include the corporate bond monthly yield curve, the corresponding spot segment rates for January used under Internal Revenue Code Section (IRC Sec.) 417(e)(3), and the 24-month average segment rates under IRC Sec. 430(h)(2). IRC Sec. 417 contains definitions and special rules for minimum survivor annuity requirements in DB plans. IRC Sec. 430 addresses minimum funding standards for single-employer DB plans.

The IRS has issued Revenue Ruling 2023-03, which contains the applicable federal rates (AFR) for February 2023. 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."

The Federal Emergency Management Agency (FEMA) has issued a disaster declaration for severe storms, straight-line winds, and tornadoes in Alabama, for January 12, 2023.

Employers with qualified retirement plans may allow participants to take hardship distributions if they have incurred expenses and losses because of a FEMA-declared disaster, and their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at irs.gov/newsroom/tax-relief-in-disaster-situations and will be announced here if such relief is granted.

The Federal Emergency Management Agency (FEMA) has issued a disaster declaration for severe winter storms, flooding, landslides, and mudslides in California, starting on December 27, 2022 (there is no end date at this time).

Employers with qualified retirement plans may allow participants to take hardship distributions if they have incurred expenses and losses because of a FEMA-declared disaster, and their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at irs.gov/newsroom/tax-relief-in-disaster-situations and will be announced here if such relief is granted.

The Federal Emergency Management Agency (FEMA) has issued a disaster declaration for severe weather in Georgia, for January 12, 2023.

Employers with qualified retirement plans may allow participants to take hardship distributions if they have incurred expenses and losses because of a FEMA-declared disaster, and their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at irs.gov/newsroom/tax-relief-in-disaster-situations and will be announced here if such relief is granted.

The Federal Emergency Management Agency (FEMA) has issued a disaster declaration for severe winter storm, straight-line winds, flooding, landslides, and mudslides in Washington, for the period of November 3, 2022 – November 8, 2022.

Employers with qualified retirement plans may allow participants to take hardship distributions if they have incurred expenses and losses because of a FEMA-declared disaster, and their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at irs.gov/newsroom/tax-relief-in-disaster-situations and will be announced here if such relief is granted.

The Department of Labor has published in the Federal Register several inflation-adjusted penalty amounts for certain failures associated with qualified retirement plans.

• Per day, for failure to properly file a plan annual report (Form 5500 series); penalty rises from $2,400 to $2,586
• Per day, for failure to properly provide a plan black-out notice, or notice of right to divest employer securities (each recipient being a separate failure); penalty rises from $152 to $164
• Per day, for failure to provide DOL-requested documents; penalty increases from $171 to $184 (not to exceed $1,846 per request)
• Failure to properly provide benefit statements and maintain records vis-à-vis former participants and beneficiaries; penalty rises from $33 to $36 per required statement
• Failure of a fiduciary to comply with the prohibition on certain types of distributions from defined benefit pension plans with certain liquidity shortfalls; maximum penalty rises from $18,500 to $19,933 (penalty will be the amount of any distribution, if less)

Additionally, penalty amounts for certain failures associated with group health plans have been updated as follows.

• Failure to provide the Summary of Benefits and Coverage (“SBC”); penalty rises from $1,264 to $1,362 per failure
• Failure to comply with the Genetic Information Nondiscrimination Act (GINA), and failure to comply with disclosure requirements under Medicaid or the Children’s Health Insurance Program (CHIP); penalty rises from $127 to $137 per participant, per day
• Failure to meet filing requirements for multiple employer welfare arrangements (MEWA); penalty increases from $1,746 to $1,881 per day

These adjustments for 2023 are made under the authority of the Federal Civil Penalties Inflation Adjustment Act and are in effect for any of the described penalties that are assessed after January 15, 2023.

The IRS has issued Revenue Procedure (Rev. Proc.) 2023-4, which updates guidance on determination letter submission procedures. Changes from the prior year Rev. Proc. 2022-4 include the following.

• Sections 6, 8, 9, 10, 11, 19, and 20 and Appendix B have been revised to provide the procedures for obtaining a determination letter with respect to a § 403(b) individually designed plan, beginning June 1, 2023. Appendix A adds user fees for these submissions.
• Sections 6.02 and 16 are revised to provide that Form 5307, Application for Determination for Adopters of Modified Nonstandardized Pre-Approved Plans, and Form 5316, Application for Group or Pooled Trust Ruling, may be submitted electronically beginning June 1, 2023, and must be submitted electronically beginning July 1, 2023, including payment of the user fee.
• Sections 3 and 31 and  Appendix A reflect the temporary suspension of the opinion letter program for prototype IRAs (Traditional, Roth and SIMPLE IRAs), SEPs (including salary reduction SEPs (SARSEPs)), and SIMPLE IRA plans.
• Section 02 of this revenue procedure reflects changes to the scope of determination letters.
• Appendix A has been modified to increase certain user fees.

A new Appendix G has been added which provides a checklist for applications for nonbank trustee approval letters.

Retirement legislation has been a welcome area of bipartisan cooperation in the U.S. Congress, marked by a history of Republican and Democratic bill co-sponsorship and support. A recent example is the Setting Every Community Up for Retirement Enhancement Act—the SECURE Act—passed and signed into law in 2019. The SECURE Act has been hailed as the most important retirement enhancement legislation in more than a decade.

The IRS has announced the postponement of certain tax-related deadlines for victims of severe winter storms, flooding, and mudslides in California. The tax relief postpones various tax filing deadlines that began on January 8, 2023. Affected individuals and households who reside or have a business in Colusa, El Dorado, Glenn, Humboldt, Los Angeles, Marin, Mariposa, Mendocino, Merced, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Ventura, Yolo, and Yuba counties, 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 January 8, 2023, and before May 15, 2023, will have until May 15, 2023, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after January 8, 2023, and before May 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.