The deadline for employers to adopt the SECURE Act and CARES Act required minimum distribution (RMD) provisions plan changes.
Because the amendments had already been written and the amendment process had already started, as well as the desire to memorialize employer elections now rather than waiting to find out how a plan had been operated in the past, many providers are reportedly moving forward with the amendments for these clauses despite the extension.
Any time a plan is changed, the issue of employee communications comes up. What needs to be shared with plan participants, and potentially what should be shared as well, and when must that communication take place?
What Must Be Shared?
Of the two questions, this one is simpler. It is logical to infer that any modifications to a plan that modifies the Summary Plan Description (SPD), whether they are employer-discretionary clauses or necessary owing to a change in the law, must be disclosed to plan participants.
Distributing a new SPD or a Summary of Material Modifications (SMM) to the SPD to plan participants will accomplish this.
To produce either of these, it is necessary to understand what discretionary provisions an employer has implemented, either through a plan change or in actual use (pending the adoption of a plan amendment at a later date).
When Is The SPD Or SMM Required To Be Distributed?
The discussion starts here. One can mention the DOL’s mandate that an SMM is delivered no later than 210 days following the conclusion of the plan year in which the change is approved.
Does this imply that if an employer who sponsors a calendar year plan waits until the extended deadline (Dec. 31, 2025, for the majority of plans) to adopt the amendment, the employer will then have until July 29, 2026, to distribute an SMM (for provisions that may have gone into effect as early as 2020)?
The DOL regulation is clear that the SMM deadline is based on the date on which the plan amendment was really adopted, not the date on which a provision was implemented for the operational plan. Most practitioners would agree that this doesn’t feel right.
This might not be accurate for a variety of reasons. Perhaps, as the Ninth Circuit Court of Appeals concluded, there is an overriding ERISA fiduciary obligation to explain current plan rules regardless of the precise dates for issuing SPDs and SMMs.
When a plan change has a significant impact on plan benefits, that would unquestionably be a worry (and there are advance notice requirements for certain plans when there is a substantial reduction of benefits).
Aside from that, don’t forget about the IRS’s eligibility standards. A qualifying strategy needs to be a concrete, documented policy that is “communicated to personnel.”
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The IRS has not given up on the communication requirement, but we lack broad direction from them on how to apply this obligation (e.g., we have detailed rules on the timing of notices when mid-year amendments are made to safe harbour plans).
When deciding whether a benefit, right, or characteristic is discriminatory, the nondiscrimination regulations additionally include the arbitrary “effective availability” criteria.
How could the plan satisfy the effective availability criterion if an element of the plan—like a qualified birth or adoption distribution provision—is not disclosed to non-highly compensated employees?
The final and most significant justification for informing plan participants of adjustments as soon as possible is that it is the morally responsible thing to do.
The reason why our sector is so heavily regulated is frequently because of outliers that violate the law. We must never forget that our main objective is to assist plan participants in getting ready for retirement. It’s not always the best course of action to only adhere to the bare minimum legal obligations.
