Compliance July 17, 2023

IRS Gives Extra Time to Fix RMDs Made Erroneously Under SECURE 2.0

The IRS notice also allows IRA beneficiaries to not take RMDs this year from accounts inherited in 2020 or later.

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The Internal Revenue Service and the Department of the Treasury have issued a notice that provides leniency regarding mistaken required minimum distribution payouts from retirement plans under new SECURE 2.0 Act of 2022 rules and gives additional RMD relief for beneficiaries of individual retirement accounts.

The IRS’s Notice 2023-54, issued on Friday, extends a 60-day rollover deadline for retirement plan accounts, including IRAs, that were mistakenly paid out as RMDs, even though they did not need to be. SECURE 2.0, passed in December 2022, amended Section 401(a)(9) of the Internal Revenue Code to increase the RMD age by one year to 73.

In the notice, the IRS wrote that plan administrators and other payors commented that, following SECURE 2.0, “automated payment systems would need to be updated to reflect the change in the required beginning date” and that they “expressed concern that these revisions could take some time to implement.” As a result, there could have been RMDs taken out for those who were still young enough to keep them within the retirement savings investment.

The latest notice grants relief to any distribution made between January 1 and July 31 to a participant born in 1951, allowing that distribution to roll back into the savings plan.

“For example, if a participant who was born in 1951 received a single-sum distribution in January 2023, part of which was treated as ineligible for rollover because it was mischaracterized as an RMD, that participant will have until September 30, 2023, to roll over that mischaracterized part of the distribution,” the IRS wrote.

The regulators also announced relief for IRA beneficiaries from a 10-year rule created from the original Setting Every Community Up for Retirement Enhancement Act of 2019. That legislation mandated that, for defined contribution plan participants and IRA owners, their entire plan balance must be paid out within 10 years after their death.

That notice was causing confusion among IRA retirement plan beneficiaries, according to the IRS, so it extended relief to designated beneficiaries into 2023, allowing them to skip RMDs. The IRS had already waived enforcement in 2022 for those beneficiaries who had not taken RMDs in 2021 and 2022.

The notice states that the final regulations the Treasury Department and IRS intend to issue related to RMDs will apply to RMDs for calendar years beginning no earlier than 2024.

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Compliance July 17, 2023

Manufacturing, Transportation, Retail Pension Funds Receive PBGC Bailouts

Special Financial Assistance funds were granted to three struggling pension plans by the PBGC on July 11.

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The Pension Benefit Guaranty Corporation granted Special Financial Assistance packages to three struggling multiemployer pension funds on July 11, including more than $1 billion dollars to a single fund.

The Automotive Industries Plan, based in Dublin, California, received $1.1 billion in assistance. The plan has 23,687 participants and was expected to become insolvent in 2033. Upon insolvency, it would have had to cut benefits by about 50%.

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The 5500 Form for the Automotive Industries Plan showed it had 3,024 active participants at the end of 2021. It also had 9,305 participants receiving benefits and 9,011 inactive participants entitled to benefits in the future.

The Western Pennsylvania Teamsters and Employers Pension Plan received $279.5 million in supplemental assistance on top of the $715 million it received in July 2022. The Pittsburgh-based plan has 21,110 participants and became insolvent in August 2019, when it implemented a 20% benefit cut to about 15,000 participants.

According to the Western Pennsylvania Teamsters and Employers’ Form 5500, the plan had 3,799 active participants at the end of 2021, as well as 8,528 participants receiving benefits and 5,437 separated participants entitled to future benefits.

Lastly, the Retail Clerks Specialty Stores Pension Plan, based in Concord, California, received $60.4 million in assistance. The plan has 1,274 participants and was expected to become insolvent in 2024, when it would have had to cut benefits by 15%.

Form 5500 for this plan showed it had 32 active participants at the end of 2021, as well as 849 participants receiving benefits and 331 separated participants entitled to future benefits.

The SFA provision of the American Rescue Plan Act allows for PBGC funding for severely underfunded multiemployer pension plans. Funds that receive assistance must monitor the interest resulting from the grant money as separate from other sources of funding. The PBGC requires that at least two-thirds of the money it provides be invested in “high-quality fixed income investments.” The Final Rule on Special Financial Assistance, issued in July 2022, states that the other third can be invested in “return-seeking investments,” such as stocks and stock funds.

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