IRS releases three issue snapshots for retirement plans

With the COVID-19 pandemic dominating news cycles, retirement plan sponsors may not have noticed three new issue snapshots on IRS’s website. These research summaries aim to educate plan sponsors, IRS audit agents and other practitioners on a variety of tax issues. While the snapshots generally summarize existing guidance rather than provide new information, they may alert sponsors to the kinds of issues IRS agents review during plan audits.
Failure to timely distribute assets on plan terminations. A terminating retirement plan must distribute its assets as soon as administratively feasible under all facts and circumstances. This generally means distributions must be completed within 12 months of the plan’s termination date. However, filing Form 5310 to request a determination letter (DL) on the plan termination extends the 12-month period. A plan that fails to timely distribute assets must continue to meet the Internal Revenue Code’s requirements on plan qualification, minimum funding (if applicable) and reporting.
Plan loan cure period. Under IRS regulations, a retirement plan may — but is not required to — give participants a cure period to correct a delinquent loan and avoid triggering a deemed distribution. This snapshot explains the cure period rules and applies them to several fact patterns.
Design-based safe harbor plan compensation. IRS will not issue a DL expressing an opinion on a plan’s design-based safe harbor formula unless the plan’s definition of compensation automatically satisfies the nondiscrimination requirements of Treas. Reg. Section 1.414(s)-1(c) without the need for annual testing. The snapshot reminds sponsors requesting a DL that if a plan does not use such a definition, the sponsor must amend the plan’s definition of compensation or modify the DL submission to withdraw the request to review the formula. The snapshot also gives several examples of compensation satisfying and not satisfying the rules.
Related resources
- Issue snapshot — Plan loan cure period (IRS, March 12, 2020)
- Issue snapshot — Design-based safe harbor plan compensation (IRS, March 12, 2020
- Issue snapshot — Plan termination: failure to timely distribute assets (IRS, March 3, 2020)
-
Law & PolicyHealth, wealth and global news, views and analysis, written by Mercer legislative, regulatory and policy pros with practical insights for employers and benefit…
Related insights
-
Law & Policy
Roundup: Global employer resources on artificial intelligence
Artificial intelligence is becoming a permanent feature of the workplace and poses challenges/considerations as it reshapes work. This roundup provides general… -
Law & Policy
House committee clears bill to curb ERISA plans’ ESG investing
The House Committee on Education and Workforce advanced proposed legislation aimed at curbing ERISA fiduciaries’ consideration of ESG factors. -
Law & Policy
IRS releases 2026 mortality tables for defined benefit plans
IRS releases its 2026 mortality tables for lump sums and the static mortality tables for certain defined benefit plans’ minimum funding calculations.