March 01, 2018
Benefits Law Alert
Author(s): Claire P. Rowland, Thomas J. McCord
The recently signed Bipartisan Budget Act of 2018 unexpectedly revived and added a number of changes to tax laws affecting retirement plans.
In February 2018 the president signed the Bipartisan Budget Act of 2018 (Budget Act). This legislation unexpectedly revived a number of changes to tax laws affecting retirement plans. Many of these changes were originally included in the Tax Cut and Jobs Act of 2017, but were cut from the final version of that bill before its passage on December 22, 2017.
The latest changes relax certain limitations on retirement plans, generally beginning next year. But the law also contains immediately effective changes for certain plan participants affected by the California wildfires. Implementation of these changes may require changes to existing plan documents, administrative procedures and trust accounting practices.
Plans must be amended to comply with the new California wildfire disaster-related rules by the last day of the first plan year beginning on or after January 1, 2019.
The liberalized hardship distribution rules are generally optional, and plan sponsors can consider whether they may wish to adopt the changes. However, plan sponsors that wish beginning in 2019 to eliminate their plans’ requirements for first obtaining all nontaxable loans available under the plan before taking a hardship distribution and for imposing a six-month suspension of participant contributions following a hardship distribution will need to amend their plans.
First, however, the Treasury Department must modify the current Treasury regulations to remove the six-month suspension requirement, as Congress specifically instructed it to do in the Budget Act. Congress imposed a one-year deadline for the Treasury Department to accomplish this task, which technically means the IRS has until February 8, 2019, to issue new regulations. Nevertheless, Congress also mandated that the removal of the six-month suspension requirement must be effective for plan years beginning after December 31, 2018 (i.e., January 1, 2019, for calendar year plans), so the new regulations will be effective January 1, 2019, for calendar year plans even if the modification of the regulations is not finalized until after that date.
In is currently unclear how any six-month suspensions that begin prior to the 2019 plan year and that have not yet ended when the 2019 plan year commences will be affected by the modified regulations. The IRS is expected to issue guidance regarding operational compliance and any plan language that will need to be amended, and the deadline by which any amendments will need to be adopted.
Plan sponsors and fiduciaries should also consult with their counsel, third-party administrator and other service providers or vendors in order to identify plan documents, forms and procedures that may need to be amended to take advantage of the liberalized hardship distribution rules.
The Budget Act also created the Joint Select Committee on Solvency of Multiemployer Pension Plans, which will be comprised of twelve members, including an equal number (six) from both the Democratic and Republican parties as well as from both the Senate and the House of Representatives. This bipartisan committee will be tasked with improving the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation (PBGC). Provided at least four committee members from each party are able to agree on a compromise, an expedited vote on the committee’s recommendation—without amendments—would take place by the end of the current congressional session later this year.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.