Compliance January 31, 2022

IRS Issues 2022 Cumulative List for 403(b) Plans

It identifies changes in the requirements of Section 403(b) of the Internal Revenue Code that the agency will take into account during the second remedial amendment cycle.

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The IRS has issued Notice 2022-8, laying out the 2022 Cumulative List of Changes in requirements for Section 403(b) pre-approved plans.

The 2022 Cumulative List will assist providers of Section 403(b) pre-approved plans applying to the IRS for opinion letters for the second remedial amendment cycle (Cycle 2) under the 403(b) pre-approved plan program. Cycle 2 began on July 1, 2020.

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The 2022 Cumulative List identifies changes in the requirements of Section 403(b) of the Internal Revenue Code (IRC) that will be taken into account by the IRS with respect to a plan document submitted to the IRS for Cycle 2 and that were not taken into account during the first remedial amendment cycle (Cycle 1). Section 403(b) plans may be submitted for approval during the Cycle 2 submission period, which begins May 2, 2022, and ends May 1, 2023.

Revenue Procedure (Rev. Proc.) 2021-37 set forth the agency’s procedures for issuing opinion letters regarding satisfaction in the form of 403(b) pre-approved plans with respect to the requirements for Cycle 2. It also set forth the rules for determining when Remedial Amendment Periods expire for 403(b) pre-approved plans.

In Rev. Proc. 2019-39, the IRS established a recurring remedial amendment period for 403(b) plans and extended the initial remedial amendment period beyond March 31, 2020, for certain form defects.

The IRS said Rev. Proc. 2021-37 modified the procedures for the 403(b) pre-approved plan program to be more similar to those applicable under the IRC Section 401(a) pre-approved plan program.

The 2022 Cumulative List includes, among other things:

  • changes regarding permitted midyear reductions or suspensions of safe harbor nonelective contributions in certain circumstances as well as the elimination of certain safe harbor notice requirements for plans that provide for safe harbor nonelective contributions and new provisions for the retroactive adoption of safe harbor status for those plans;
  • amended definitions of qualified matching contributions (QMACs) and qualified nonelective contributions (QNECs);
  • changes regarding in-plan Roth rollovers;
  • changes to hardship distribution rules;
  • rules regarding 403(b) plan termination and distribution of individual custodial accounts upon plan termination;
  • an exception to the 10% additional tax for any qualified birth or adoption distribution; and
  • changes to required minimum distribution (RMD) rules.
To assist eligible employers in achieving operational compliance, the IRS says it intends to provide an Operational Compliance List periodically to identify changes in Section 403(b) requirements that are effective during a calendar year. For the current Operational Compliance List, see https://www.irs.gov/retirement-plans/operational-compliance-list.
Compliance January 31, 2022

DOL Targets NYC Courier in ERISA Breach Lawsuit

The defendants are accused of failing to remit employee contributions to the company 401(k) profit sharing plan.

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Department of Labor (DOL) Secretary Marty Walsh has filed a lawsuit in the District Court for the Southern District of New York against Velo Corp. of America, its plan administrator and its plan trustee alleging breaches of fiduciary duty under the Employee Retirement Income Security Act (ERISA) in regard to the Velo Corp. of America 401(k) Profit Sharing Plan.

Velo Corp. is the named owner and operator of Quik Trak, a New York City area courier and bike messenger service, according to the complaint.

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Walsh alleges that the defendants breached their fiduciary duties, caused the plan to enter into non-exempt prohibited transitions and engaged in self-dealing. The complaint alleges that the defendants failed to remit all employee contributions to workers’ accounts from January 2016 onward; allowed contributions to remain unsegregated in Velo’s general operating account; and failed to ensure that all employer matching contributions for employees were made to the plan.   

“Because of these breaches, the plan and its participants and beneficiaries have suffered significant losses, including lost opportunity costs, for which the defendants are jointly and severally responsible,” the complaint states.

Walsh has included in the complaint seven claims for relief.

Employer-sponsored defined contribution (DC) plans are obligated to always act in the best interests of participants, or company owners and plan fiduciaries can face legal retribution. For example, the defendants are accused failing to administer the plan by not honoring “at least two requests for distributions by participants,” according to the complaint.

The suit notes that ERISA Section 403(c)(1) requires plan assets to be held only for the exclusive purposes of providing benefits to plan participants and defraying reasonable plan administration expenses, and it expressly forbids plan assets inuring to any employer’s benefit.

“[The defendants] were responsible to but failed to remit all employee contributions to the plan after they could have reasonably segregated the employee contributions from Velo’s general assets,” the complaint states. “By their actions and omissions, [the defendants] allowed plan assets to inure to the direct benefit of Velo.”

Additionally, the complaint includes allegations that the defendants engaged in ERISA prohibited transactions for transferring plan assets to a “party in interest”; for failing to promptly segregate and remit all contributions to the plan; for failing to make all required employer matching contributions to the plan; and for dealing with plan assets in their own interest or for their own account.

A lawsuit alleging self-dealing was filed against Bessemer Trust Co. earlier this month. 

Some plan sponsors have started to include defensive provisions to manage fiduciary breach claims and litigation risks.  

Velo Corp. has not yet responded to a request for comment about the lawsuit.  

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