IRS Updates Listings of Required Modifications

The IRS has made the 2023 Cumulative List of Changes in Plan Qualification Requirements for Defined Contribution Qualified Pre-Approved Plans available. The new list, contained in Notice 2024-3, provides updated listings of required modifications and information packages for DC plans. 

The 2023 Cumulative List will assist providers applying to the IRS for opinion letters for the fourth remedial amendment cycle for DC qualified pre-approved plans (Cycle 4) under the IRS pre-approved plan program. 

Generally, the IRS will consider only the items on the 2023 Cumulative List in determining whether to issue a Cycle 4 opinion letter regarding a pre-approved plan. However, if a plan has not been previously reviewed and is submitted for Cycle 4 (or has been amended regarding previously approved language), the IRS will also review the plan for items on earlier cumulative lists as well as for any other applicable qualification requirements the IRS considered in issuing opinion letters before the implementation of cumulative lists.

Cycle 4 began on Feb. 1, 2023. The Cycle 4 submission period begins on Feb. 1, 2024, and ends on Jan. 31, 2025.

The 2023 Cumulative List also does the following. 

• It sets forth specific items the IRS has identified for review in determining whether the form of a DC qualified pre-approved plan that has been submitted to the IRS for a Cycle 4 opinion letter has been properly updated since the plan was submitted for a Cycle 3 opinion letter.
• It identifies recent changes in the qualification requirements of the Internal Revenue Code (IRC) that were not taken into account during the first three remedial amendment cycles for defined contribution qualified pre-approved plans and that will be taken into account by the IRS with respect to the form of a plan submitted to the IRS for Cycle 4. 

Highlights 

The changes in plan qualification requirements for DC qualified pre-approved plans enumerated in the 2023 Cumulative List of include, but are not limited to, the following. 

Required Minimum Distributions. The SECURE ACT increased the age by which the required beginning date for RMDs is determined from age 70½ to age 72 for employees born on or after July 1, 1949, but before Jan. 1, 1951. The SECURE 2.0 Act increased the age by which the required beginning date for RMDs is determined from age 72 to age 73 for employees born on or after Jan. 1, 1951.

Limitations Relevant to Paying Premiums. The SECURE 2.0 Act eliminates the percentage limitation and increases the dollar limitation (from $125,000 to $200,000, subject to future adjustments for inflation) regarding the amount of an employee’s interest under a DC plan which may be used to pay premiums for a qualifying longevity annuity contract.

Involuntary Cashout Limit. The SECURE 2.0 Act permits a plan to increase its involuntary cashout limit up to $7,000.

Distributions of Certain Lifetime Income Investment Options. The SECURE Act provides that DC plans may permit certain transfers and distributions of lifetime income investment options in cases in which the investment options are no longer authorized to be held as investment options under the plan.

Qualified Birth or Adoption Distributions. The SECURE Act adds Section 72(t)(2)(H) to the IRC. It permits an individual to receive a distribution from an applicable eligible retirement plan of up to $5,000 without application of the 10% additional tax if the distribution meets the requirements to be a qualified birth or adoption distribution. An individual generally may recontribute a qualified birth or adoption distribution to an applicable eligible retirement plan in which the individual is a beneficiary and to which a rollover may be made.

Elective Deferrals. The SECURE 2.0 Act amends IRC Section 401(b)(2) to provide that, in the case of an individual who owns the entire interest in an unincorporated trade or business and who is the only employee of such trade or business, any elective deferrals under a qualified cash or deferred arrangement that has been adopted retroactively under IRC Section 401(b)(2), which are made by the individual before the time for filing his or her tax return (determined without regard to any extensions) for the taxable year ending after or with the end of the plan’s first plan year, will be treated as having been made before the end of such first plan year.

Hardship Distributions. The Bipartisan Budget Act of 2018 directs that Treas. Reg. §1.401(k)-1(d)(3)(iv)(E) be modified to delete the 6-month prohibition on contributions after a hardship distribution and to make any other modifications necessary to carry out the purposes of IRC Section 401(k)(2)(B)(i)(IV) It also amends IRC Section 401(k) to:

• modify the hardship distribution rules to expand the sources of hardship distributions to include qualified nonelective contributions, qualified matching contributions, and earnings on those contributions and on elective contributions; and 
• provide that a distribution from a plan is not treated as failing to be made upon the hardship of an employee solely because the employee does not take any available loan under the plan.

QNECs and QMACs. Final regulations under IRC Section 401(k) and IRC Section 401(m) that were published on July 20, 2018 amend the definitions of qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs) to provide that QNECs and QMACs must satisfy applicable nonforfeitability and distribution requirements at the time they are allocated to participants’ accounts, but need not meet these requirements when they are contributed to the plan.

QACAs. The SECURE Act amends IRC Section 401(k)(13)(C)(iii) to increase the 10% cap on automatic elective contributions under a qualified automatic contribution arrangement to 15% (for periods following the initial period of automatic elective contributions described in IRC Section 401(k)(13)(C)(iii)(I)).

Starter 401(k)s. The SECURE 2.0 Act adds new Section 401(k)(16) to the IRC to provide that an eligible employer may establish a “starter 401(k) deferral-only arrangement.” 

Long-term, Part-time Employees. The SECURE Act and the SECURE 2.0 Act amend IRC Section 401(k)(2)(D) and add new Section 401(k)(15) to the IRC to provide that a qualified cash or deferred arrangement may not require an employee meeting the minimum age requirement to complete, for eligibility purposes, a period of service that extends beyond the close of the earlier of: (1) the period permitted under IRC Section 410(a)(1), or (2) subject to IRC Section 401(k)(15), the first period of three consecutive 12-month periods (or, for plan years beginning after Dec. 31, 2024, the first period of two consecutive 12-month periods) during each of which the employee has completed at least 500 hours of service. 

Sample Plan Provisions 

The IRS also has updated sample plan provisions that satisfy certain specific requirements of the IRC, taking into account changes in plan qualification requirements and guidance listed in the 2023 Cumulative List of Changes in Plan Qualification Requirements, as well as changes enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the SECURE Act of 2019, and Division T of the SECURE 2.0 Act.

The language may or may not be acceptable in different plans depending on the context in which used. For example, some language may not be required in a non-electing church plan or government plan. 

The IRS has prepared this information to assist providers who are drafting or redrafting plans to conform to applicable law and regulations. It also hopes that the sample plan provisions will help them process and approve pre-approved plans more quickly.

Plan provisions contained in this information package are arranged in three parts: Part I contains provisions generally applicable to all plans; Part II contains those provisions applicable to standardized plans; and Part III contains those applicable to nonstandardized plans.