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IRS Updates Operational Compliance List

Government Affairs

The IRS on March 26 updated its Operational Compliance List for compliance in 2019. The list is intended to help plan sponsors and practitioners achieve operational compliance by identifying changes in qualification requirements effective during a calendar year.

The Operational Compliance List:

  • Identifies matters that may involve either mandatory or discretionary plan amendments depending on the particular plan.
  • May reference other significant guidance that affects daily plan operations.
  • Is available only on the IRS webpage
  • Does not include annual, monthly or other periodic changes that routinely occur, such as cost-of-living increases, spot segment rates and applicable mortality tables.

A variety of changes relating to hardship distributions are effective this year. These include:

Bipartisan Budget Act of 2018, Sections 41113 and 41114

This law:

  • provides 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;
  • expands the types of contributions and earnings a plan may make available for hardship distributions; and
  • 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.

These changes are effective for plan years beginning after Dec. 31, 2018.

Proposed Regulations Regarding Hardship Withdrawals (83 F.R. 56763)

The proposed regulations:

  • would revise the 401(k) regulations to reflect legislation concerning hardship distributions;
  • would prohibit a plan from suspending a participant’s contributions as a condition of obtaining a hardship distribution;
  • would revise the safe harbor list of expenses deemed to constitute an immediate and heavy financial need, including modifications regarding casualty losses and disaster-related expenses;
  • are generally proposed to be effective for distributions made in plan years beginning after Dec. 31, 2018, but would permit plans to: (a) choose to cease suspension of contributions on the first day of the first plan year that begins after Dec. 31, 2018, even for distributions made before that date, and (b) choose to apply the changes to the list of safe harbor expenses to any hardship distribution made after Dec. 31, 2017;
  • provide that the requirement to obtain a representation that a distribution is necessary to satisfy a financial need would only apply for a distribution that is made after 2019; 
  • provide that the prohibition on a plan providing for a suspension of elective contributions or employee contributions as a condition of obtaining a hardship distribution would only apply for a distribution made after 2019; and
  • provide that any plan amendments relating to the final regulations will be treated as integrally related to a disqualifying provision, and will thus have the same amendment deadline as a disqualifying provision, as set forth in Rev. Proc. 2016-37.


Relief for Victims of Hurricanes Florence and Michael

The IRS and Treasury extended the retirement plan relief provided under Announcement 2017-15 to similarly situated victims of Hurricanes Florence and Michael, except that:

  • the incident dates as defined in that announcement are as specified by FEMA for these 2018 hurricanes;
  • relief is provided through March 15, 2019; and
  • any necessary amendments must be made no later than the deadline for amending a disqualifying provision, as set forth in Rev. Proc. 2016–37.

Extension of Temporary Nondiscrimination Relief for Closed Defined Benefit Plans

Notice 2018-69 extends to plan years beginning before 2020 the relief provided to closed DB plans under Notice 2014-5, as extended under Notice 2015-28, Notice 2016-57 and Notice 2017-45.