Carol Weiser, Benefits Tax Counsel at the Treasury Department, announced some good news about the deadline for amending plans for the newly final hardship withdrawal regulations at the ASPPA Annual Conference on Oct. 22.
Timing of Amendments for Final Hardship Regulations
Appearing at the Government Update general session the honorable Preston Rutledge, head of the EBSA, Weiser clarified that the deadline for amending preapproved plans to incorporate the Sept. 23 final rules on hardship distributions is being extended.
The amendments must be made by the due date of the employer’s tax return that includes Jan. 1, 2020, Weiser said, even if the amendment is effective before that date. Practitioners had been concerned that if plans changed their hardship withdrawal policies and procedures to follow the Sept. 23 final rules in 2019, they may be faced with an unreasonably short period of time in which to amend the plan to reflect those new policies and procedures – such as the due date for the 2019 tax return.
Mitigating the One Bad Apple Rule
Weiser also dwelt on the IRS/Treasury proposed rule issued in July on MEPs, addressing herself primarily to the regulators’ efforts to mitigate the adverse impact of the one bad apple rule under Code Section 413. Noting that the tax code has always defined a MEP as a single plan in which multiple employers participate, Weiser added that the regulations under Section 413 apply to each participating employer – and that if one participating employer has an issue with its plan, that has the potential to “taint” the entire MEP.
“There was a concern that this created a disincentive for employers to participate in a MEP, and we were directed to see what we could do to try to mitigate that disincentive – without intererfering with the basic principles governing qualified plans,” she said. “So the regulations that we proposed do provide for an opportunity for the administrator of a MEP to take action to deal with an employer that either is not responding to a qualification issue or the adminstrator knows there is a qualification issue.”
“The basic fix is that the plan administrator would be able to facilitate a spinoff and a termination of the plan attributable to that employer. But there are a number of conditions that are designed to ensure that this is not a situation in which the plan administrator is acting precipitously," Weiser said. "The proposed regulations specify a number of steps that the plan administrator would have to follow – basically a series of notices that the administrator would have to provide the employer about corrective steps that must be taken.” The threshold requirements used in this procedure are based on those under the IRS EPCRS program, she noted: the plan must not be under examination, must have practices and procedures in place to monitor qualification issues, etc.
Comments Received on Proposed Rule
Noting that the comment period on the proposed one bad apple rule closed on Oct. 1, Weiser shared some details about the comments that were received. “We got about 20 comments, and two requests for a hearing,” she said, adding that a public hearing has been scheduled for Dec. 11. Characterizing the comments as “helpful” (included those submitted by the ARA), she listed a few of the requests that they make:
- Clarify the types of failures that are eligible for relief
- Clarify when a failure is attributable only to the spinoff employer
- Provide some examples
- Shorten the notice period, such as a total of 6 months, not 9 months
- Compress some of the periods, such as 60 days instead of 90 days
“We’ll certainly be looking at how we can streamline the process and timeframes,” Weiser said. “We want to strike the right balance. And we want to issue final regulations as quickly as we can.”
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