The IRS on Dec. 20 issued the 2023 cumulative list of changes in plan qualification requirements for pre-approved defined contribution (DC) plans. The changes are contained in Notice 2024-03.
The 2023 Cumulative List is intended to 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. Cycle 4 began on Feb. 1, 2023.
The 2023 Cumulative List 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 DC pre-approved plans and that will be taken into account regarding the form of a plan submitted to the IRS for Cycle 4. The Cycle 4 submission period begins on Feb. 1, 2024, and ends on Jan. 31, 2025.
SECURE 2.0 Act
The SECURE 2.0 Act made a variety of changes to plan qualification requirements.
The IRS will review a DC qualified pre-approved plan document that is submitted for Cycle 4 only for changes in qualification requirements made under SECURE 2.0 that are listed in Section V of Notice 2024-03. Providers of pre-approved plans should not include in plan documents submitted with their Cycle 4 opinion letter applications terms reflecting SECURE 2.0 provisions that are not listed in Section V.
However, providers of pre-approved plans need to comply with applicable requirements relating to timely adoption of interim or discretionary amendments to reflect changes in qualification requirements made by SECURE 2.0 provisions.
Generally, the deadline for adopting any required plan amendment made under SECURE 2.0 is Dec. 31, 2026. This deadline will apply regarding interim amendments made under SECURE 2.0, rather than the general deadline for timely adoption of interim amendments set forth in Section 7.01(1)(a) of Revenue Procedure (Rev. Proc.) 2023-37. The deadline for discretionary amendments made under SECURE 2.0 generally is also Dec. 31, 2026, or, if later, the deadline for the timely adoption of discretionary amendments set forth in Section 7.01(1)(b) of Rev. Proc. 2023- 37, if applicable—depending on the year in which the operation of the plan is changed to reflect a SECURE 2.0 provision permitting an optional change.
Rev. Proc. 2023-37
Under Rev. Proc. 2023-37, every pre-approved plan has a recurring remedial amendment cycle, and a provider of a pre-approved plan may apply for a new opinion letter for the plan for each remedial amendment cycle. Further, DC qualified pre-approved plans, defined benefit qualified pre-approved plans, and 403(b) pre-approved plans all have separate remedial amendment 2 cycles.
Application of the 2023 Cumulative List
The 2023 Cumulative List 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.
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 by issuing opinion letters before the implementation of cumulative Lists.
The list of changes in Notice 2024-03 does not extend the deadline by which a plan must be amended to comply with any change in the qualification requirements applicable to the plan. The general deadline for timely adoption of an interim or discretionary amendment is provided in Section 7 of Rev. Proc. 2023-37.
2023 Cumulative List
Among the changes included in the cumulative list are the following.
Required minimum distribution required beginning date. Section 107 of SECURE 2.0 increases the age for the required beginning date for RMDs from age 72 to age 73, for employees born on or after Jan. 1, 1951.
Waiver of 2020 RMD. Section 2203(a) of the CARES Act added new IRC Section 401(a)(9)(I) to provide for a temporary waiver of RMDs from DC plans for calendar year 2020.
Dollar limits and qualifying longevity annuity contracts. SECURE 2.0 eliminated the percentage limitation and increased the dollar limitation 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.
Distributions during working retirement. The Bipartisan American Miners Act of 2019 lowered from 62 to 59½ the minimum age at which a pension plan may make a distribution to an employee who is not separated from employment at the time of the distribution.
Transfers and distributions. 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.
Distributions to a domestic abuse victim. SECURE 2.0 amends the IRC to permit an individual to receive a distribution from an applicable eligible retirement plan of up to $10,000 (to be adjusted for inflation) without application of the 10% additional tax if the distribution is an eligible distribution to a domestic abuse victim.
Contributions after a hardship distribution. The Bipartisan Budget Act of 2018 modifies 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.
Safe harbor automatic contribution arrangements. SECURE 2.0 amends the IRC to provide that a safe harbor automatic contribution arrangement under IRC Section 401(m)(12) must meet the notice requirements under IRC Section 401(k)(13)(E).
SIMPLE 401(k) plans. SECURE 2.0 amends the IRC to permit an employer to make additional nonelective contributions for a year (beyond the 2% nonelective contribution permitted in lieu of the otherwise required matching contribution) of a uniform percentage of compensation up to a specified amount for each employee who is eligible to participate in the employer’s SIMPLE 401(k) plan and who has at least $5,000 of compensation from the employer for the year.
Publication
Notice 2024-03 will be published in Internal Revenue Bulletin 2024-2 on Jan. 8, 2024.
