Updated Internal Revenue Service Operational Compliance List

The Internal Revenue Service ("IRS") published its updated Operational Compliance List for 2016 through 2019 on the IRS website at https://www.irs.gov/retirement-plans/operational-compliance-list on March 26, 2019. The Operational Compliance List includes the below developments for operational compliance that were effective in 2018 and 2019, in addition to some updates for 2016 and 2017.

By way of background, in Revenue Procedure ("Rev. Proc.") 2016-37 §§ 3.04 and 10, the IRS announced that it intends to publish an annual Operational Compliance List to identify changes in qualification requirements effective during a calendar year in order to help plan sponsors achieve operational compliance. The Operational Compliance List identifies matters that may involve either mandatory or discretionary plan amendments or that may contain other significant guidance which affects daily plan operations. The Operational Compliance List is not intended to be an exhaustive list of all IRS legislation or guidance issued for a year. To be qualified, however, a plan must comply operationally with each relevant qualification requirement, even if the most recently issued Operational Compliance List does not include the requirement.

Effective in 2018
 

1. Final regulations regarding qualified non-elective contributions ("QNECs") and qualified matching contributions ("QMACs"). These regulations provide that employer contributions to a 401(k) plan can be qualified non-elective contributions or qualified matching contributions, provided they satisfy the applicable nonforfeitability requirements and distribution limitations when they are allocated to participant accounts. 
2. The extension of temporary non-discrimination relief for closed defined benefit pension plans.
3. Extended rollover periods for certain amounts. New rules allow an extended rollover deadline for qualified plan loan offset amounts and refunds of improper tax levies.
4. Modification of deduction for personal casualty losses. Under Code § 165(h)(5), for taxable years 2018-2025, the deduction for a personal casualty loss is generally available only to the extent the loss is attributable to a federally declared disaster. Proposed Treas. Reg. 1.401(k)-1(d)(3)(ii)(B)(6) provides that expenses for the repair of damage to an employee's principal residence that would qualify for the Code § 165 casualty deduction is determined without regard to Code § 165(h).

Effective in 2019

1. Bipartisan Budget Act of 2018. Sections 41113 and 41114 provide that a distribution will not fail to be treated as made on account of hardship merely because the employee does not take any available loan from the plan. Further, they expand the types of contributions and earnings a plan may make available for hardship distributions. This legislation also directs the IRS and Treasury to eliminate the safe harbor requirement to suspend participant contributions for six months in order for the distribution to be deemed necessary to satisfy an immediate and heavy financial need.
2. Proposed regulations regarding hardship withdrawals. These proposed regulations would revise the 401(k) regulations to reflect legislation regarding hardship distributions.
3. Relief for victims of Hurricanes Florence and Michael. The IRS and Treasury extended the retirement plan relief provided under Announcement 2017-15 to include similarly situated victims of Hurricanes Florence and Michael, except that: (1) the "Incident Dates" are as provided by FEMA; (2) relief is provided through March 15, 2019; and (3) any necessary amendments must be made no later than the deadline for amending a disqualifying provision, as set forth in Rev. Proc. 2016-37.
4. The extension of temporary non-discrimination relief for closed defined benefit pension plans.

On August 10, 2017, we published an e-alert entitled "Introducing Ice Miller's Qualified Plan Comply Now Program," which addressed how Ice Miller can assist you with keeping your plan documents in compliance with the IRS' ongoing changes in qualification requirements in light of the IRS' current termination of its determination letter program.

For more information about Comply Now, please contact Audra Ferguson-Allen, Robert Gauss, Lisa Harrison, Lindsay Knowles, Tara Sciscoe, Chris Sears, or the Ice Miller LLP Employee Benefits attorney with whom you most closely work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.