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The IRS Extended the Deadline to Adopt Amendments — Do We Need to Tell Participants?

Government Affairs

As previously reported, IRS Notice 2022-33 extends the deadline for employers to  adopt plan amendments for the SECURE Act as well as the required minimum distribution (RMD) provisions of the CARES Act.[1] We’ve heard that many  providers are moving forward with amendments for these provisions despite the extension since the amendments had already been drafted and the amendment process had already begun, not to mention the desire to  memorialize employer elections now rather than waiting to determine how a plan had been operated years ago. 

Regardless of when a plan is amended, it always raises the issue of employee communications. What must — and perhaps should — be communicated to plan participants and when must that communication be made?

What Must Be Communicated?

This is the easier of the two questions. It’s safe to assume that any changes to a plan — whether they be employer discretionary provisions or required due to a change in the law — that affect the Summary Plan Description (SPD) need to be communicated to plan participants.[2] This can be done by distributing to plan participants a new SPD or a Summary of Material Modifications (SMM) to the SPD.[3] In order to prepare either of these, one must know what discretionary provisions an employer has adopted either in a plan amendment or in operation (pending the adoption of a plan amendment at a later date). 

When Must the SPD or SMM Be Distributed?

This is where the debate begins. One could point to the DOL requirement that an SMM be distributed within 210 days after the end of the plan year in which the change is adopted.[4] Does this mean an employer who sponsors a calendar year plan waits until the extended deadline (Dec. 31, 2025 for most plans) to adopt the amendment, that the employer then has until July 29, 2026, to distribute an SMM (for provisions that may have been effective as early as 2020)? The DOL regulation is clear that the SMM deadline is based on the actual adoption of the plan amendment and not the date that a provision applied to the plan in operation. This certainly doesn’t feel right to most practitioners. 

There are a number of reasons as to why this might not be correct. Perhaps, as held by the Ninth Circuit Court of Appeals, there is an overriding ERISA fiduciary requirement to communicate current plan provisions regardless of the specific deadlines for distributing SPDs and SMMs.[5] That would certainly be a concern where a modification to a plan has a material impact on plan benefits (and there are advance notice requirements for certain plans when there is a substantial reduction of benefits). 

Let’s also not forget the qualification requirements under the Internal Revenue Code. A qualified plan must be a definite written program which is “communicated to employees.”[6] We have no broad guidance from the IRS on how this requirement is applied, but we know the IRS has not abandoned the communication requirement (e.g., we have detailed rules on the timing of notices when mid-year amendments are made to safe harbor plans). We also have the subjective ‘effective availability’ requirement of the nondiscrimination regulations when determining whether a benefit, right or feature is discriminatory.[7] If a plan provision (such as a qualified birth or adoption distribution provision) is not communicated to non-highly compensated employees, then how could the plan satisfy the effective availability requirement?

Last, and probably the most important reason for communicating modifications to plan participants sooner rather than later, is because it’s the right thing to do. Our industry is highly regulated, and it’s often because of outliers who push the legal limits. We must not lose sight that our overall goal is to help plan participants prepare for retirement. Sometimes just satisfying the bare minimum legal requirements isn’t always the right thing to do. 

Footnotes

[1] It is not clear why the IRS did not provide for an extension of the plan amendment deadline for the other loan and distribution provisions of the CARES Act. It may be because no more guidance is expected will be issued on those provisions.  
[2] There is always room for interpretation on which provisions affect the SPD and how much detail is needed, but it’s generally accepted that the SECURE Act does impact virtually all SPDs (e.g., the change from age 70 ½ to age 72 for purposes of determining a participant’s required beginning date).
[3] Non-ERISA plans are not required to provide an SPD to plan participants, but as a practical matter, most employers provide an SPD equivalent in order to inform participants about the plan.
[4] DOL Reg. §2520.104b-3(a)
[5] For example, see Estate of Foster v. American Marine SVS Group Benefit Plan, No-20-35023 (9th Cir. 2021), in which the 9th circuit held that the plan sponsor was required to provide a further explanation of plan provisions even though the plan did provide an SPD in accordance with the statutory requirements. 
[6] Treas. Reg. §1.401-1(a)(2).
[7] Treas. Reg. §1.401(a)(4)-4(c).

Robert Richter is the Editor and Author of the ERISA Outline Book.