As 2018 comes to a close, it’s time for retirement plan sponsors to make sure they have addressed any required year-end plan amendments, are preparing any required year-end participant notices, and are looking ahead to any changes in 2019 that may impact their plans. This Part 1 focuses on the 2018 year-end obligations, while the forthcoming Part 2: Getting Ready for 2019 will concentrate on changes for next year.
2018 Year-End Plan Amendments
- The IRS Required Amendment List: The remedial amendment period for sponsors of individually designed plans to update their plans retroactively to conform to a change in an Internal Revenue Code (Code) Section 401(a) qualification requirement has been extended to the end of the second calendar year that begins after the publication of the annual IRS Required Amendment List that includes the qualification change. The 2016 Required Amendment List calls for only one possible plan amendment that must be adopted by December 31, 2018: a change under the Highway and Transportation Funding Act of 2014 to the technical funding language in defined benefit plans (regarding the calculation of the segment rate for plans in bankruptcy). Most plan sponsors will likely find that the funding language their plans already have in place is broad enough to suffice.
- Qualified 2016 Disaster Distributions: Plans that permitted eligible individuals to take distributions due to any of the major disasters declared in 2016 in accordance with the Robert T. Stafford Disaster Relief and Emergency Assistance Act must be amended by the last day of the 2018 plan year to provide for those distributions. These major disasters included Hurricanes Matthew and Hermine as well as severe storms, tornadoes, flooding, and other disasters.
- Safe Harbor 401(k) Plans: 401(k) plan sponsors whose plans meet the “safe harbor” rules under Section 401(k)(12) or (13) of the Code must generally adopt—before the beginning of the 2019 plan year—any desired design changes that will impact this year’s annual safe harbor notice, including changes to a plan’s hardship provision introduced by the Bipartisan Budget Act of 2018 (Budget Act).
- Claims and Appeals Rules Regarding Disability Benefits: Effective April 1, 2018, plans that contain a disability benefit, whether an actual paid accrued benefit or something like full vesting on disability, and that determine disability subjectively must comply with additional special rules for handling claims and appeals involving these benefits. Changes to plan language to comply with these special rules will likely be considered a discretionary amendment, which under IRS rules must be adopted by the end of the plan year in which they are effective. Plan sponsors that determine disability should be sure to review their plans’ claims and appeals language and amend by the end of the 2018 plan year, if necessary.
Section 401(k) plans that include an automatic contribution arrangement (ACA) or eligible automatic contribution arrangement (EACA) or meet the safe harbor requirements under Section 401(k)(12) or (13) of the Code must send annual participant notices at least 30 days before the beginning of the 2019 plan year. A plan sponsor of a safe harbor 401(k) plan that wishes to adopt any changes introduced by the Budget Act will likely have to describe those changes to some extent in this year’s annual safe harbor notice. Qualified default investment alternative (QDIA) notices, often sent by a plan’s recordkeeper, must also be sent at least 30 days before the beginning of the 2019 plan year.
If you have any questions about these 2018 year-end obligations, please feel free to reach out the authors or your Morgan Lewis contact, and don’t forget to check back for Part 2: Getting Ready for 2019.