Proposed Rule2022-06005
Multiple Employer Plans
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 28, 2022
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document sets forth proposed regulations relating to certain multiple employer plans (MEPs) described in the Internal Revenue Code (the "Code"). The proposed regulations provide an exception, if certain requirements are met, to the application of the "unified plan rule" for MEPs in the event of a failure by one or more employers participating in the plan to take actions required of them to satisfy the applicable requirements of the Code. These proposed regulations would affect certain MEPs, participants in those MEPs (and their beneficiaries), employers participating in those MEPs, and plan administrators of those MEPs. This document also withdraws proposed regulations published in the Federal Register on July 3, 2019, amending the application of the unified plan rule to MEPs and provides a notice of a public hearing.
Full Text
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<title>Federal Register, Volume 87 Issue 59 (Monday, March 28, 2022)</title>
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[Federal Register Volume 87, Number 59 (Monday, March 28, 2022)]
[Proposed Rules]
[Pages 17225-17241]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-06005]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-121508-18]
RIN 1545-BO97
Multiple Employer Plans
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing;
withdrawal of notice of proposed rulemaking.
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SUMMARY: This document sets forth proposed regulations relating to
certain multiple employer plans (MEPs) described in the Internal
Revenue Code (the ``Code''). The proposed regulations provide an
exception, if certain requirements are met, to the application of the
``unified plan rule'' for MEPs in the event of a failure by one or more
employers participating in the plan to take actions required of them to
satisfy the applicable requirements of the Code. These proposed
regulations would affect certain MEPs, participants in those MEPs (and
their beneficiaries), employers participating in those MEPs, and plan
administrators of those MEPs. This document also withdraws proposed
regulations published in the Federal Register on July 3, 2019, amending
the application of the unified plan rule to MEPs and provides a notice
of a public hearing.
DATES: Written or electronic comments must be received by May 27, 2022.
A public hearing on these proposed regulations has been scheduled for
Wednesday, June 22, 2022, at 10 a.m. EST. Requests to speak and
outlines of topics to be discussed at the public hearing must be
received by May 27, 2022. If no outlines are received by May 27, 2022,
the public hearing will be cancelled. Requests to attend the public
hearing must be received by 5 p.m. EST on Friday, June 17, 2022. The
telephonic hearing will be made accessible to people with disabilities.
Requests for special assistance during the telephonic hearing must be
received by Thursday, June 16, 2022.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at <a href="http://www.regulations.gov">www.regulations.gov</a> (indicate IRS and REG-121508-
18) by following the online instructions for submitting comments. Once
submitted to the Federal eRulemaking Portal, comments cannot be edited
or withdrawn. The IRS expects to have limited personnel available to
process public comments that are submitted on paper through mail. Until
further notice, any comments submitted on paper will be considered to
the extent practicable. The Department of the Treasury (Treasury
Department) and the IRS will publish for public availability any
comment submitted electronically, and to the extent practicable on
paper, to its public docket. Send paper submissions to: CC:PA:LPD:PR
(REG-121508-18), Room 5203, Internal Revenue Service, P.O. Box 7604,
Ben Franklin Station, Washington, DC 20044.
For those requesting to speak during the hearing, send an outline
of topic submissions electronically via the Federal eRulemaking Portal
at <a href="http://www.regulations.gov">www.regulations.gov</a> (indicate IRS and REG-121508-18).
Individuals who want to testify (by telephone) at the public
hearing must send an email to <a href="/cdn-cgi/l/email-protection#44343126282d272c2125362d2a2337042d36376a232b32"><span class="__cf_email__" data-cfemail="f9898c9b95909a919c988b90979e8ab9908b8ad79e968f">[email protected]</span></a> to receive the
telephone number and access code for the hearing. The subject line of
the email must contain the regulation number REG-121508-18 and the word
TESTIFY. For example, the subject line may say: Request to TESTIFY at
Hearing for REG-121508-18. The email should include a copy of the
speaker's public comments and outline of topics. Individuals who want
to attend the public hearing by telephone must also send an email to
<a href="/cdn-cgi/l/email-protection#cbbbbea9a7a2a8a3aeaab9a2a5acb88ba2b9b8e5aca4bd"><span class="__cf_email__" data-cfemail="ec9c998e80858f84898d9e85828b9fac859e9fc28b839a">[email protected]</span></a> to receive the telephone number and access code
for the hearing. The subject line of the email must contain the
regulation number REG-121508-18 and the word ATTEND. For example, the
subject line may say: Request to ATTEND Hearing for REG-121508-18. To
request special assistance during the telephonic hearing contact the
Publications and Regulations Branch of the Office of Associate Chief
Counsel (Procedure and Administration) by sending an email to
<a href="/cdn-cgi/l/email-protection#5b2b2e39373238333e3a2932353c281b322928753c342d"><span class="__cf_email__" data-cfemail="81f1f4e3ede8e2e9e4e0f3e8efe6f2c1e8f3f2afe6eef7">[email protected]</span></a> (preferred) or by telephone at (202) 317-5177
(not a toll-free number).
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Pamela
Kinard at (202) 317-6000 or Tom Morgan at (202) 317-6700; concerning
submission of comments or requests for a public hearing, Regina Johnson
(202) 317-5177 (not toll-free numbers) or by sending an email to
<a href="/cdn-cgi/l/email-protection#027277606e6b616a6763706b6c6571426b70712c656d74"><span class="__cf_email__" data-cfemail="c5b5b0a7a9aca6ada0a4b7acaba2b685acb7b6eba2aab3">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Background
This document sets forth proposed amendments to the Income Tax
Regulations (26 CFR part 1) under section 413(c) of the Code and
proposed regulations under section 413(e) of the Code. This document
also withdraws proposed regulations under section 413(c) that were
published in the Federal Register on July 3, 2019 (84 FR 31777)
(section 413(c) proposed regulations).
I. General Rules Relating to MEPs Including the Unified Plan Rule
Section 413(c) provides rules for a plan maintained by more than
one employer.\1\ A plan described in section
[[Page 17226]]
413(c) often is referred to as a multiple employer plan (MEP) or a
section 413(c) plan.
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\1\ Section 210 of the Employee Retirement Income Security Act
of 1974, Public Law 93-406 (88 Stat. 829), as amended (ERISA), also
provides rules relating to plans maintained by more than one
employer. Similar to section 413(c) of the Code, section 210(a) of
ERISA states that the minimum participation standards, minimum
vesting standards, and benefit accrual requirements under sections
202, 203, and 204 of ERISA, respectively, shall be applied as if all
employees of each of the employers were employed by a single
employer. Under section 101 of Reorganization Plan No. 4 of 1978 (5
U.S.C. App.), the Secretary of the Treasury has interpretive
jurisdiction over section 413 of the Code, as well as ERISA section
210.
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Final regulations under section 413 were published in the Federal
Register on November 9, 1979, 44 FR 65061 (the final section 413
regulations). The final section 413 regulations apply to MEPs described
in section 413(c) and to collectively bargained plans described in
section 413(b) (plans that are maintained pursuant to certain
collective-bargaining agreements between employee representatives and
one or more employers).
Pursuant to section 413(c) and the final section 413 regulations,
all of the employers maintaining a MEP (participating employers) are
treated as a single employer for purposes of certain Code requirements,
which include the following requirements:
<bullet> Under section 413(c)(1) and 26 CFR1.413-2(b), the rules
addressing plan participation under section 410(a) and the regulations
thereunder are applied as if all employees of each of the employers
that maintain the plan are employed by a single employer;
<bullet> under section 413(c)(2) and Sec. 1.413-2(c), in
determining whether a MEP is, with respect to each participating
employer, a plan for the exclusive benefit of its employees (and their
beneficiaries), all of the employees participating in the plan are
treated as employees of each such employer; and
<bullet> under section 413(c)(3) and Sec. 1.413-2(d), the minimum
vesting standards under section 411 are applied as if all employers
that maintain the plan constitute a single employer.
Other rules are applied separately to each participating employer.
For example, under Sec. 1.413-2(a)(3)(ii), the minimum coverage
requirements of section 410(b) generally are applied to a MEP on an
employer-by-employer basis.
A plan is not described in section 413(c) unless it is maintained
by more than one employer and is a single plan under section 414(l).
See Sec. Sec. 1.413-2(a)(2)(i) and 1.413-1(a)(2). Under Sec.
1.414(l)-1(b), a plan is a single plan if and only if, on an ongoing
basis, all of the plan assets are available to pay benefits to
employees who are covered by the plan and their beneficiaries.
Under Sec. 1.413-2(a)(3)(iv), the qualification of a MEP ``is
determined with respect to all employers maintaining the section 413(c)
plan'' (sometimes referred to as the unified plan rule). Therefore, the
failure by one employer maintaining the plan (or by the plan itself) to
satisfy an applicable qualification requirement will result in the
disqualification of the section 413(c) plan for all employers
maintaining the plan.
The section 413(c) proposed regulations, which are being withdrawn,
would have created an exception to the unified plan rule for certain
defined contribution MEPs. The exception generally would have been
available, provided that certain conditions were satisfied, if a
participating employer in a MEP was solely responsible for a
qualification failure that the employer was unable or unwilling to
correct, or if a participating employer failed to comply with a plan
administrator's request for information about a qualification failure
that the plan administrator reasonably believed might exist.
Written comments responding to the section 413(c) proposed
regulations were received, and a public hearing was held on December
11, 2019. The provisions of these proposed regulations were informed by
the comments received with respect to the section 413(c) proposed
regulations.
II. SECURE Act Provisions Related to MEPs
Section 101(a) of the Setting Every Community Up for Retirement
Enhancement Act of 2019 (SECURE Act), which was enacted on December 20,
2019, as Division O of the Further Consolidated Appropriations Act of
2020, Public Law 116-94 (133 Stat. 2534), added section 413(e) to the
Code. Section 413(e) creates a statutory exception to the unified plan
rule for certain types of MEPs and directs the Secretary to issue
guidance that is appropriate to carry out that provision. A MEP is
eligible for the exception to the unified plan rule if it is a section
413(c) defined contribution plan \2\ described in section 401(a) or
consists of individual retirement accounts described in section 408
(including by reason of section 408(c)),\3\ provided that the MEP
either is maintained by employers that have a ``common interest'' or
has a ``pooled plan provider.'' \4\ Section 413(e)(1) provides that,
with certain exceptions, this type of MEP will not be treated as
failing to meet the applicable requirements under the Code merely
because one or more employers of employees covered by the plan fail to
take actions that are required for the plan to meet those requirements.
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\2\ Although section 403(b) plans are defined contribution
plans, they are not plans described in section 401(a) or 408.
Therefore, section 413(e)(1) does not apply to section 403(b) plans.
\3\ Prior to the SECURE Act, section 413(c)(2) of the Code
provided, ``For purposes of section 401(a), in determining whether
the plan of an employer is for the exclusive benefit of his
employees and their beneficiaries all plan participants shall be
considered his employees.'' Section 101(a)(2) of the SECURE Act
amended section 413(c)(2) of the Code so that it applies for
purposes of section 408(c) of the Code in addition to section 401(a)
of the Code.
\4\ Section 101(c) of the SECURE Act also amended title I of
ERISA to introduce the term ``pooled plan provider,'' as well as the
term ``pooled employer plan'' for a plan with a pooled plan
provider. See ERISA sections 3(44) and 3(43), respectively. These
ERISA provisions do not address compliance under the Code for plans
described in section 401(a) or 408, but the requirements for pooled
plan providers and pooled employer plans are otherwise similar to
the requirements in section 413(e).
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Section 413(e)(2)(A) provides that section 413(e)(1) will not apply
unless the terms of the plan provide that, in the case of any employer
in the plan failing to take the actions described in section 413(e)(1),
the assets of the plan attributable to employees of that employer (or
beneficiaries of those employees) will be transferred to a plan
maintained only by that employer (or its successor), to an eligible
retirement plan as defined in section 402(c)(8)(B) for each individual
whose account is transferred, or to any other arrangement that the
Secretary determines is appropriate, unless the Secretary determines it
is in the best interests of those employees (and their beneficiaries)
to retain the assets in the plan. Section 413(e)(2)(A) also states that
section 413(e)(1) will not apply unless the terms of the plan provide
that, in the case of any employer failing to take the actions described
in section 413(e)(1), the employer (and not the plan or any other
employer in the plan) will be liable for any liabilities with respect
to the plan attributable to employees of that employer (or their
beneficiaries), except to the extent provided by the Secretary.
Section 413(e)(2)(B) provides that, if the pooled plan provider of
a plan described in section 413(e)(1)(B) does not perform substantially
all of the administrative duties required by section 413(e)(3)(A)(i)
for any plan year, the Secretary may provide that the determination as
to whether the plan meets the applicable Code requirements for a plan
described in section 401(a) or a plan that consists of individual
retirement accounts described in section 408 (including by reason of
section 408(c)), whichever is applicable, will be
[[Page 17227]]
made in the same manner as would be made without regard to section
413(e)(1).
Section 413(e)(3)(A) provides that, for purposes of section 413(e),
the term pooled plan provider means, with respect to any plan, a person
who:
<bullet> Is designated by the terms of the plan as a named
fiduciary (within the meaning of section 402(a)(2) of ERISA), as the
plan administrator, and as the person responsible to perform specified
administrative duties;
<bullet> registers as a pooled plan provider with the Secretary,
and provides such other information to the Secretary as the Secretary
may require, before beginning operations as a pooled plan provider;
<bullet> acknowledges in writing that such person is a named
fiduciary (within the meaning of section 402(a)(2) of ERISA), and the
plan administrator, with respect to the plan; and
<bullet> is responsible for ensuring that all persons who handle
assets of, or who are fiduciaries of, the plan are bonded in accordance
with section 412 of ERISA.\5\
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\5\ The Department of Labor has issued guidance on the
application of the bonding provision in its final rule on
registration requirements for pooled plan providers. See 85 FR
72934, 72936 n.5 (November 16, 2020).
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The administrative duties for which the pooled plan provider is
responsible are the duties (including conducting proper testing with
respect to the plan and the employees of each employer in the plan)
that are reasonably necessary to ensure that (1) the plan meets any
requirements under ERISA or the Code applicable to a plan described in
section 401(a) or to a plan that consists of individual retirement
accounts described in section 408, whichever is applicable, and (2)
each employer in the plan takes actions that the Secretary or the
pooled plan provider determines are necessary for the plan to meet
those requirements, including providing to the pooled plan provider any
disclosures or other information that the Secretary may require or that
the pooled plan provider otherwise determines are necessary to
administer the plan or to allow the plan to meet the requirements of
section 401(a) or 408. In determining whether a person meets the
requirements to be a pooled plan provider with respect to any plan, all
persons who perform services for the plan and who are treated as a
single employer under section 414(b), (c), (m), or (o) are treated as
one person.
Section 413(e)(3)(B) provides that the Secretary may perform
audits, examinations, and investigations of pooled plan providers as
may be necessary to enforce and carry out the purposes of section
413(e). Section 413(e)(3)(D) provides that each employer in a plan with
a pooled plan provider is treated as the plan sponsor with respect to
the portion of the plan attributable to employees of the employer (or
their beneficiaries), except with respect to the administrative duties
of the pooled plan provider described in section 413(e)(3)(A)(i).
Section 413(e)(4)(A) directs the Secretary to issue guidance that
the Secretary determines appropriate to carry out section 413(e),
including guidance: (i) Identifying the administrative duties and other
actions required to be performed by a pooled plan provider under
section 413(e); (ii) describing the procedures to be taken to terminate
a plan which fails to meet the requirements to be a plan described in
section 413(e)(1), including the proper treatment of, and actions
needed to be taken by, any employer in the plan and the assets and
liabilities of the plan attributable to employees of the employer (or
their beneficiaries); and (iii) identifying appropriate cases to which
the rules of section 413(e)(2)(A) will apply to employers in the plan
failing to take the actions described in section 413(e)(1), taking into
account whether the failure of an employer or pooled plan provider to
provide any disclosures or other information, or to take any other
action, necessary to administer a plan or to allow a plan to meet
requirements applicable to the plan under section 401(a) or 408,
whichever is applicable, has continued over a period of time that
demonstrates a lack of commitment to compliance.
Section 413(e)(4)(B) states that an employer or pooled plan
provider will not be treated as failing to meet a requirement of
guidance issued pursuant to section 413(e)(4) if, before the guidance
is issued, the employer or pooled plan provider complies in good faith
with a reasonable interpretation of the provisions of section 413(e) to
which the guidance relates.
Section 413(e)(5) requires the Secretary to publish model plan
language which meets the requirements of section 413(e) and section
3(43) and (44) of ERISA and which may be adopted in order for a plan to
be treated as a plan that has a pooled plan provider.
Section 101(e)(2) of the SECURE Act states that nothing in the
amendments made by section 101(a) of the SECURE Act shall be construed
as limiting the authority of the Secretary of the Treasury or the
Secretary's delegate (determined without regard to such amendments) to
provide for the proper treatment of a failure to meet any requirement
applicable under the Code with respect to one employer (and its
employees) in a multiple employer plan.
Explanation of Provisions
I. Overview
The proposed regulations provide guidance to implement the
exception to the unified plan rule for section 413(e) plans (unified
plan exception). The proposed regulations define a section 413(e) plan
as a defined contribution plan described in section 401(a), or a plan
that consists of individual retirement accounts described in section
408 (including accounts described in sections 408(c), 408(k), or
408(p)), that is a section 413(c) plan (as defined in Sec. 1.413-
2(a)(2)) and that (1) is maintained by employers that have a common
interest other than having adopted the plan or (2) has a pooled plan
provider. Because a section 413(e) plan is a type of section 413(c)
plan, a section 413(e) plan is subject to all of the rules of section
413(c), including the rules for participation in section 413(c)(1) and
the rules for vesting in section 413(c)(3).\6\
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\6\ For rules relating to section 413(c) plans, see Sec. 1.413-
2.
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These proposed regulations do not provide guidance on whether a
section 413(e) plan is maintained by employers that have a common
interest other than having adopted the plan. The Treasury Department
and the IRS request comments on what (if any) guidance would be helpful
regarding whether employers have such a common interest, including how
any guidance should be coordinated with guidance issued by the
Department of Labor. An employer that desires to participate in a
section 413(e) plan may choose to participate in a defined contribution
plan described in section 401(a) or 408 with a pooled plan provider in
order to ensure that the plan is a plan described in section 413(e).\7\
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\7\ The Department of Labor has advised the Treasury Department
and the IRS that an arrangement with a pooled plan provider can
qualify as a pooled employer plan under section 3(43)(A) of ERISA
without regard to whether the arrangement could be structured as a
plan maintained by employers that have a common interest other than
having adopted the plan. See also 86 FR 51488, 51490, n.12.
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Under the unified plan exception, a section 413(e) plan is not
treated as failing to meet the requirements under the Code applicable
to a plan described in section 401(a) or to a plan that consists of
individual retirement accounts described in section 408 (including
accounts described in section 408(c), 408(k), or 408(p)), whichever is
applicable, merely because of a
[[Page 17228]]
participating employer failure.\8\ For the unified plan exception to
apply, the proposed regulations provide that certain conditions must be
satisfied, including that the section 413(e) plan administrator must
notify the participating employer of the participating employer failure
and, in certain circumstances, transfer amounts attributable to the
employees of the unresponsive participating employer to a separate plan
maintained by the employer or provide an election to certain
participants to remain in the plan or to have their accounts
transferred to another eligible retirement plan.
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\8\ Section 1.416-1, Q&A G-2, includes a rule similar to the
unified plan rule, providing that a failure by a MEP to satisfy
section 416 with respect to employees of one participating employer
means that all participating employers in the MEP are maintaining a
plan that is not a qualified plan. This rule is based on the unified
plan rule in Sec. 1.413-2(a)(3)(iv). Therefore, if a section 413(e)
plan has an unresponsive employer that fails to satisfy section 416
and the section 413(e) plan meets the conditions for the exception
to the unified plan rule, the section 413(e) plan will not be
disqualified for the section 416 failure. The rules in Sec. 1.416-1
are outside the scope of these proposed regulations, but the
Treasury Department and the IRS intend to address the topic in a
broader guidance project updating the regulations under section 416.
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In addition to defining a section 413(e) plan, the proposed
regulations provide a number of other definitions, including the
following: (1) A section 413(e) plan administrator is the plan
administrator, within the meaning of section 414(g), of a section
413(e) plan; (2) a participating employer is one of the employers
maintaining a section 413(e) plan; (3) an unresponsive participating
employer is a participating employer that has a participating employer
failure; (4) an employee is a current or former employee of a
participating employer; (5) a beneficiary is a beneficiary of a
deceased employee or an alternate payee (as defined in section 414(p))
with respect to an employee; and (6) a participating employer is one of
the employers maintaining a section 413(e) plan. As discussed in the
following paragraphs, the proposed regulations also include definitions
for the following terms: (1) Participating employer failure, (2)
amounts attributable to the employees of the unresponsive participating
employer, and (3) pooled plan provider.
The proposed regulations define a participating employer failure in
a section 413(e) plan as a failure to provide information or a failure
to take action. A failure to provide information is defined as a
failure of a participating employer (or any person that is treated as a
single employer with that employer under section 414(b), (c), (m), or
(o)) to respond in a timely manner to a reasonable request by the
section 413(e) plan administrator for data, documents, or any other
information that the plan administrator reasonably believes is
necessary to determine whether a section 413(e) plan is in compliance
with a requirement of section 401(a) or 408 as it relates to the
participating employer. A failure to take action is defined as a
failure of a participating employer (or any person that is treated as a
single employer with that employer under section 414(b), (c), (m), or
(o)) to comply in a timely manner with a reasonable request by a
section 413(e) plan administrator to take action needed for the section
413(e) plan to satisfy a requirement of section 401(a) or 408 as it
relates to the participating employer. For purposes of these
definitions, a section 413(e) plan administrator's request would not be
considered reasonable if it fails to give the employer sufficient time
to provide information or take action (and, consequently, a
participating employer's failure to respond to an unreasonable request
would not be considered a participating employer failure).
The proposed regulations define amounts attributable to the
employees of the unresponsive participating employer as plan assets and
account balances held by a section 413(e) plan on behalf of employees
of an unresponsive participating employer that are attributable to
their employment with the unresponsive participating employer. The
proposed regulations provide rules that apply if there is no separate
accounting for amounts that are attributable to employment with the
unresponsive participating employer and with other participating
employers.\9\ If a participant's account balance includes amounts that
are attributable to current employment with the unresponsive
participating employer and to previous employment with one or more
other participating employers, the entire account balance is treated as
attributable to employment with the unresponsive participating
employer. On the other hand, if a participant's account balance
includes amounts that are attributable to current employment with a
participating employer that is not the unresponsive participating
employer and to previous employment with the unresponsive participating
employer, none of the account balance is treated as attributable to
employment with the unresponsive participating employer. For purposes
of this definition, a participant's most recent employment with a
participating employer in the MEP will be treated as the participant's
current employment.
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\9\ In defining the amounts attributable to the employees of the
unresponsive participating employer, the references in these
proposed regulations to circumstances in which there is no
``separate accounting'' are not intended to address the
recordkeeping obligations under Title I of ERISA, including sections
107 and 209 of ERISA, of an employer, plan administrator, or other
plan fiduciary.
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Under the proposed regulations, the term pooled plan provider
means, with respect to any plan, a person who: (1) Registers as a
pooled plan provider with the Commissioner; (2) is designated by the
terms of the plan as a named fiduciary (within the meaning of section
402(a)(2) of ERISA), as the plan administrator, and as the person
required to perform certain administrative duties; (3) acknowledges in
writing that, with respect to the plan, it is a named fiduciary and the
plan administrator; and (4) is responsible for ensuring that all
persons who handle assets of, or who are fiduciaries of, the plan are
bonded in accordance with section 412 of ERISA.
The requirement to register as a pooled plan provider with the
Commissioner is fulfilled by satisfying the parallel requirement under
ERISA to register as a pooled plan provider with the Department of
Labor. On November 16, 2020, the Department of Labor issued final
regulations under section 3(44) of ERISA (29 CFR 2510.3-44) with
respect to the registration requirement. See 85 FR 72934.
Consistent with section 413(e)(3)(A)(i), the proposed regulations
require a pooled plan provider to perform all administrative duties
that are reasonably necessary to ensure that: (1) The plan meets any
applicable requirement under ERISA or the Code for a plan described in
section 401(a) or for a plan that consists of individual retirement
accounts described in section 408 (including accounts described in
section 408(c), 408(k), or 408(p)), whichever is applicable, and (2)
each participating employer takes actions, including providing any
disclosures or other information, that are necessary for the plan to
meet those requirements.\10\
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\10\ In determining whether a person meets the requirements to
be a pooled plan provider with respect to any section 413(e) plan,
all persons who perform services for the plan and who are treated as
a single employer under section 414(b), (c), (m), or (o) are treated
as one person.
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The administrative duties of a pooled plan provider include, but
are not limited to, the following:
(1) Monitoring compliance with the terms of the plan, and Code and
ERISA requirements;
[[Page 17229]]
(2) Maintaining accurate plan data, including providing up-to-date
participant and beneficiary information;
(3) Performing and conducting coverage, top-heavy, and
discrimination testing under sections 401(a)(4), (k), and (m), 408(k),
410, and 416, if applicable;
(4) Processing all employee transactions (such as investment
changes, loans, and distributions);
(5) Satisfying Code and ERISA reporting and notice requirements
(such as reporting requirements under sections 6047 (Form 1099-R,
``Distributions From Pensions, Annuities, Retirement or Profit-Sharing
Plans, IRAs, Insurance Contracts, etc.'') and 6058 (Form 5500, ``Annual
Return/Report of Employee Benefit Plan''), and notice requirements
under sections 401(k)(12)(D) and (13)(E) and 402(f)); and
(6) Updating the plan to reflect statutory changes to the Code and
ERISA, to the extent the responsibility for updating the plan document
has been delegated to the section 413(e) plan administrator.
II. Conditions for Application of Exception to Unified Plan Rule
A. In General
The proposed regulations provide that, under the unified plan
exception, a section 413(e) plan is not disqualified on account of a
participating employer failure, provided that the plan satisfies
certain conditions, which are described in Parts II.B through II.G of
this Explanation of Provisions.
B. Plan Language
The proposed regulations provide that the terms of the section
413(e) plan document must include language describing the procedures
that will be followed to address a participating employer failure,
including a description of the notices that the section 413(e) plan
administrator will send in the case of a participating employer failure
(described in Part II.C of this Explanation of Provisions, titled
``Notice Requirements''). The plan must also state that the section
413(e) plan administrator will send the first notice (or, if
applicable, the combined first and second notice) by specified
deadlines that depend on the type of failure. With respect to a failure
to provide information, the specified deadline for sending the first
notice is 12 months following the end of the plan year for which the
information is necessary to determine whether the section 413(e) plan
is in compliance with a requirement of section 401(a) or 408. With
respect to a failure to take action, the specified deadline is 24
months following the end of the plan year in which the failure to
satisfy a requirement of section 401(a) or 408 occurs.
In addition, the plan terms must describe the actions that the
section 413(e) plan administrator will take if, by the end of the 60-
day period following the date the final notice is provided, the
unresponsive participating employer does not take appropriate remedial
action with respect to the failure or initiate a spinoff of amounts
attributable to the employees of the unresponsive participating
employer to a separate single-employer plan that is maintained by the
employer. The terms of the section 413(e) plan must also provide that
if an unresponsive participating employer does not either take
appropriate remedial action or initiate a spinoff by that deadline,
participants who are employees of the unresponsive participating
employer have a nonforfeitable right to the amounts credited to their
accounts that are attributable to employment with the unresponsive
participating employer, determined in the same manner as if the plan
had terminated pursuant to section 411(d)(3). In connection with the
finalization of these proposed regulations, the Treasury Department and
the IRS intend to publish guidance in the Internal Revenue Bulletin
setting forth model language that may be used for this purpose.
The section 413(c) proposed regulations provided that a plan was
ineligible for the unified plan exception if the plan was under
examination before the first notice with respect to a participating
employer failure was provided to an unresponsive participating
employer. These proposed regulations do not include that condition.
However, see the discussion in Part VI of this Explanation of
Provisions, titled ``Coordination with EPCRS,'' on correcting a failure
to send the first notice by the specified deadline, including when a
plan is under examination.
C. Notice Requirements
The proposed regulations require the section 413(e) plan
administrator to provide up to three notices regarding a participating
employer failure to the unresponsive participating employer; with the
final notice, if applicable, also being provided to participants who
are employees of the employer (and their beneficiaries) and the
Department of Labor.\11\
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\11\ As described in Part II.E.2 of this Explanation of
Provisions, titled ``Failure to Provide Information that Becomes a
Failure to Take Action,'' if the notices relate to a failure to
provide information that becomes a failure to take action, then a
new series of notices may be required.
---------------------------------------------------------------------------
The first notice must describe the participating employer failure
(or failures), as well as the actions the unresponsive participating
employer must take to remedy the failure, and the employer's option to
initiate a spinoff of amounts attributable to the employees of the
unresponsive participating employer to a separate single-employer plan
that is maintained by the employer. The first notice must also explain
the consequences under the terms of the plan if the unresponsive
participating employer neither takes appropriate remedial action with
respect to the participating employer failure nor initiates a spinoff,
including that participants who are employees of the employer will not
have any further contributions made to the plan on their behalf and
that individuals who are responsible for the failure may have adverse
tax consequences.
If, by the end of the 60-day period following the date the first
notice is provided, the unresponsive participating employer neither
takes appropriate remedial action with respect to the participating
employer failure nor initiates a spinoff (as described in Part II.D of
this Explanation of Provisions, titled ``Actions by Unresponsive
Participating Employer''), then the section 413(e) plan administrator
must provide a second notice to the employer. The second notice must be
provided no later than 30 days after the expiration of the 60-day
period following the date the first notice is provided. The second
notice must include the information required to be included in the
first notice. The second notice must also state that, if, within 60
days following the date the second notice is provided, the unresponsive
participating employer neither takes appropriate remedial action with
respect to the participating employer failure nor initiates a spinoff,
then a final notice describing the participating employer failure and
the consequences of not correcting the failure will be provided to
participants who are employees of the employer (and their
beneficiaries) and to the Department of Labor.
The proposed regulations provide that if, by the end of the 60-day
period following the date the second notice is provided, the
unresponsive participating employer neither takes appropriate remedial
action with respect to the participating employer failure nor initiates
a spinoff, then the
[[Page 17230]]
section 413(e) plan administrator must provide a final notice to the
employer. The final notice must be provided no later than 30 days after
the expiration of the 60-day period following the date the second
notice is provided. Within this time period, the final notice must also
be provided to participants who are employees of the unresponsive
participating employer (and their beneficiaries) and to the Office of
Enforcement of the Employee Benefits Security Administration in the
Department of Labor (or its successor office).\12\ The final notice
must include the information required to be included in the first
notice and specify the final deadline for an unresponsive participating
employer to take action (which is 60 days after the final notice is
provided). The final notice must also state that the notice is being
provided to participants who are employees of the unresponsive
participating employer (and their beneficiaries) and to the Department
of Labor.
---------------------------------------------------------------------------
\12\ The notice to the Department of Labor should be mailed to
the Employee Benefits Security Administration's Office of
Enforcement (or its successor office). The Office of Enforcement is
currently located at 200 Constitution Ave. NW, Suite 600,
Washington, DC 20210.
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The section 413(c) proposed regulations also required plan
administrators to send up to three notices with respect to a
participating employer failure, but provided a 90-day period between
notices. The shorter 60-day period between notices in these proposed
regulations is provided in response to comments recommending that the
overall notice period be shortened.
D. Actions by Unresponsive Participating Employer
The proposed regulations provide that after the unresponsive
participating employer has received notice of the participating
employer failure, the employer has the opportunity to either take
appropriate remedial action or initiate a spinoff. The final deadline
for the unresponsive participating employer to take one of these
actions is 60 days after the final notice is provided. The consequences
of the employer's failure to meet this deadline are described in Part
II.F of this Explanation of Provisions, titled ``Required Actions
Following Employer's Failure to Meet Deadline.''
The proposed regulations provide that if a participating employer
failure is a failure to provide information, the unresponsive
participating employer takes appropriate remedial action with respect
to that failure if the employer (or any person that is treated as a
single employer with the employer under section 414(b), (c), (m), or
(o)) provides the data, documents, or other information requested by a
section 413(e) plan administrator (or arranges for that information to
be provided to the section 413(e) plan administrator). If a
participating employer failure is a failure to take action, the
unresponsive participating employer takes appropriate remedial action
with respect to the failure if the employer (or any person that is
treated as a single employer with the employer under section 414(b),
(c), (m), or (o)) takes all actions requested by the section 413(e)
plan administrator, such as making corrective contributions, needed for
the section 413(e) plan to satisfy the applicable requirements of
section 401(a) or 408.
As an alternative to taking appropriate remedial action with
respect to a failure to provide information or a failure to take
action, the proposed regulations provide that an unresponsive
participating employer may, after receiving notice of the participating
employer failure, initiate a spinoff. An unresponsive participating
employer initiates a spinoff by directing the section 413(e) plan
administrator to spin off amounts attributable to the employees of the
unresponsive participating employer to a separate single-employer plan
that is maintained by the employer in a manner consistent with the
terms of the section 413(e) plan. If the section 413(e) plan is
described in section 401(a), then the spun-off plan must also be a
section 401(a) plan. If the section 413(e) plan consists of individual
retirement accounts described in section 408 (including accounts
described in section 408(c), (k), or (p)), then the spun-off plan must
also consist of individual retirement accounts described in section
408. The section 413(e) plan administrator must implement the spinoff,
as described in Part II.E.2 of this Explanation of Provisions, titled
``Implementing a Spinoff.''
E. Actions by Section 413(e) Plan Administrator Relating to Remedial
Action or Employer-Initiated Spinoff
1. Failure To Provide Information That Becomes a Failure To Take Action
The proposed regulations describe when a failure to provide
information becomes a failure to take action. This situation could
occur if an unresponsive participating employer takes appropriate
remedial action with respect to a failure to provide information, and
the section 413(e) plan administrator determines that, based on the
information provided by the employer, there is a failure to satisfy a
requirement of section 401(a) or 408 as it relates to that employer's
participation in the section 413(e) plan. If the section 413(e) plan
administrator makes a reasonable request for the employer to take the
actions needed to satisfy the requirement, and the employer does not
comply in a timely manner with that request, then the failure to
provide information becomes a failure to take action.
If a failure to provide information becomes a failure to take
action, a section 413(e) plan will be eligible for the unified plan
exception with respect to the failure to take action by satisfying the
conditions set forth in the proposed regulations with respect to that
failure. In satisfying those conditions, notices provided during the
period that the failure was a failure to provide information are not
taken into account. For example, a final notice that the section 413(e)
plan administrator provided in connection with the failure to provide
information would not satisfy the final notice requirement with respect
to the failure to take action.
However, in response to comments on the section 413(c) proposed
regulations that there were too many notices required in cases in which
the failure to provide information became a failure to take action, the
proposed regulations permit the section 413(e) plan administrator to
reduce the number of notices that it sends to the employer in this
situation. Specifically, if the section 413(e) plan administrator had
provided the second notice with respect to a failure to provide
information before it became a failure to take action, then the section
413(e) plan administrator may satisfy the requirement to send a first
and second notice with respect to the failure to take action by sending
a combined first and second notice to the unresponsive participating
employer, provided that (1) the section 413(e) plan administrator's
request to take action (described in the first paragraph under this
Part II.E of this Explanation of Provisions) is made as soon as
reasonably practicable after the determination of the failure to
satisfy a requirement of section 401(a) or 408 as it relates to that
employer's participation in the section 413(e) plan, and (2) the
section 413(e) plan administrator provides the combined first and
second notice with respect to the failure to take action not later than
24 months following the end of the plan year in which the failure to
satisfy a requirement of section 401(a) or 408 occurs. The combined
first and second notice must include information similar
[[Page 17231]]
to the information required for the first and second notices described
in Part II.C of this Explanation of Provisions, titled ``Notice
Requirements.'' For example, the combined first and second notice must
describe the participating employer failure, the actions the
unresponsive participating employer would need to take to remedy the
failure, and the consequences under the terms of the plan if the
employer neither takes appropriate remedial action with respect to the
failure nor initiates a spinoff of amounts attributable to the
employees of the unresponsive participating employer. In addition, the
combined first and second notice must specify that, if, within 60 days
following the date the combined first and second notice is provided,
the unresponsive participating employer neither takes appropriate
remedial action with respect to the participating employer failure nor
initiates a spinoff, then the final notice described in Part II.C of
this Explanation of Provisions, titled ``Notice Requirements,'' will be
provided to participants who are employees of the employer (and their
beneficiaries) and to the Department of Labor.
2. Implementing a Spinoff
The proposed regulations provide that if, instead of taking
appropriate remedial action (as described in Part II.D of this
Explanation of Provisions, titled ``Actions by Unresponsive
Participating Employer''), an unresponsive participating employer
initiates a spinoff of amounts attributable to the employees of the
unresponsive participating employer to a separate single-employer plan
established and maintained by the employer, or to a separate plan
sponsored by the employer that consists of individual retirement
accounts, then the section 413(e) plan administrator must implement and
complete the spinoff as soon as reasonably practicable after the
employer initiates the spinoff. Under a safe harbor in the proposed
regulations in Sec. 1.413-3(d)(2), the section 413(e) plan
administrator is treated as satisfying this requirement if the spinoff
is completed within 180 days of the date on which the unresponsive
participating employer initiates the spinoff. Comments are requested on
whether there are any circumstances in which it would be appropriate
for any of the amounts attributable to the employees of the
unresponsive participating employer to remain in the MEP after the
employer has specifically directed that there be a spinoff, and, if so,
what those circumstances are, and for which employees this treatment
may be appropriate.
F. Required Actions Following Employer's Failure To Meet Deadline
The proposed regulations provide that if, by the final deadline (60
days after the final notice is provided), an unresponsive participating
employer neither takes appropriate remedial action nor initiates a
spinoff, then as soon as reasonably practicable after that deadline,
the section 413(e) plan administrator must: (1) Stop accepting
contributions from the unresponsive participating employer and its
employees; (2) provide notice to participants who are employees of the
unresponsive participating employer (and their beneficiaries); and (3)
to the extent provided in the proposed regulations, provide
participants who are employees of the unresponsive participating
employer (and their beneficiaries) with an election regarding treatment
of their plan accounts. In addition, the section 413(e) plan
administrator must distribute benefits as soon as administratively
feasible following an individual's election or following the section
413(e) plan administrator's determination that it is not required to
provide an individual with an election.\13\
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\13\ Whether an action is taken as soon as administratively
feasible is determined under all the facts and circumstances. See
Rev. Rul. 89-87, 1989-2 CB 81 (Whether a distribution is made as
soon as administratively feasible after the date of plan termination
specified by an employer is to be determined under all the facts and
circumstances of a given case but, generally, a distribution that is
not completed within one year following the date of termination will
be presumed not to have been made as soon as administratively
feasible.)
---------------------------------------------------------------------------
The notice to participants required by Sec. 1.413-3(e)(1)(ii)(B)
and (e)(2) of the proposed regulations must state that: (1) No further
contributions will be made to the section 413(e) plan on behalf of
participants who are employees of the unresponsive participating
employer; (2) participants who are employees of the unresponsive
participating employer have a nonforfeitable right to amounts credited
to their accounts that are attributable to employment with the
unresponsive participating employer; and (3) a participant who is an
employee of the unresponsive participating employer (or, if applicable,
any beneficiary of the participant) will receive additional information
regarding the disposition of the participant's or beneficiary's
account.
To satisfy the election requirement in Sec. 1.413-3(e)(1)(ii)(C)
of the proposed regulations, except as otherwise provided by the
proposed regulations, a section 413(e) plan administrator must provide
participants who are employees of the unresponsive participating
employer (and their beneficiaries) with an election to have amounts
attributable to the employees of the unresponsive participating
employer (1) directly rolled over to an eligible retirement plan within
the meaning of section 402(c)(8), or (2) remain in the section 413(e)
plan. With respect to this election, under a default rule in Sec.
1.413-3(e)(3)(ii) of the proposed regulations, an individual who fails
to make an affirmative election is treated as having elected to have
those amounts remain in the section 413(e) plan.
The option to remain in the plan is consistent with section
413(e)(2)(A), which requires the terms of the plan to provide, in part,
that the plan assets attributable to the employees of the unresponsive
participating employer will be transferred to an eligible retirement
plan or to another arrangement that the Secretary determines is
appropriate, unless the Secretary determines that it is in their best
interests to retain the assets in the plan. The Treasury Department and
the IRS have determined that it is in the best interest of an
individual who elects to remain in the section 413(e) plan to have that
election followed. In addition, the default rule with respect to that
election, under which the account of an individual who does not make an
affirmative election will remain in the section 413(e) plan, is
consistent with the consent requirements of section 411(a)(11).
The proposed regulations provide that if an individual elects to
have amounts attributable to the employees of the unresponsive
participating employer remain in the section 413(e) plan, those amounts
must remain in the section 413(e) plan until a distribution is made
under the terms of the plan without regard to section 413(e). Although
the terms of the section 413(e) plan continue to apply to a participant
remaining in the plan, the section 413(e) plan administrator may not
have contact with the participating employer after contributions have
ceased (and, therefore, may not be notified about the individual's
severance from employment with the employer). Accordingly, the proposed
regulations provide that, in determining whether a participant is
entitled to a distribution upon severance from employment, a section
413(e) plan administrator may rely on the participant's representation
that the participant has experienced a severance from employment,
unless the section 413(e) plan administrator has actual knowledge to
the contrary.
[[Page 17232]]
The option to remain in the plan is not available to an individual
if plan terms would have provided for a mandatory distribution of those
amounts had the participant experienced a severance from employment.
Instead, those amounts must be distributed from the section 413(e)
plan. In this situation, the proposed regulations provide rules for the
disposition of the mandatory distribution, based on the applicability
of section 401(a)(31) under the terms of the plan that would apply in
the case of a severance from employment. Comments are requested on
whether there should be special rules for mandatory distributions that
apply in this situation, including in cases involving missing
participants.
The proposed regulations provide that the portion of the mandatory
distribution that is an eligible rollover distribution subject to
section 401(a)(31)(B) must be directly rolled over to an eligible
retirement plan. In accordance with section 401(a)(31)(B), the section
413(e) plan administrator must provide the individual with an election
for the rollover to be made either to an eligible retirement plan
chosen by the individual or to an individual retirement plan of a
designated trustee or issuer. For example, a section 413(e) plan
administrator is not required to provide the option to remain in the
plan to an individual with an account balance of $3,000 if, consistent
with sections 401(a)(31)(B) and 411(a)(11), plan terms require
mandatory distributions with respect to a participant who experiences a
severance from employment with an account balance of up to $5,000 and
automatic rollover of distributions with respect to an participant who
experiences a severance from employment with an account balance that
exceeds $1,000.
For any portion of the mandatory distribution that is an eligible
rollover distribution subject to section 401(a)(31)(A) (but not section
401(a)(31)(B)), the section 413(e) plan administrator must provide the
individual with an election in accordance with section 401(a)(31)(A)
for that portion to be rolled over directly to an eligible retirement
plan chosen by the individual or, if no eligible retirement plan is
chosen, paid directly to the individual.
For the portion of a mandatory distribution that is not subject to
the requirement to offer a direct rollover option under section
401(a)(31), the section 413(e) plan administrator must pay the
individual. For example, a section 413(e) plan administrator is not
required to provide an election to an individual with an account
balance of less than $200 if, consistent with section 411(a)(11) and
Sec. 1.401(a)(31), Q&A-11, plan terms require that mandatory
distributions of less than $200 be paid directly to distributees.
Giving an individual an election to have amounts transferred to an
individual retirement plan generally does not mean that a distribution
may be paid directly to the individual. However, if, pursuant to the
proposed regulations, an individual makes an election to have an amount
directly rolled over to an eligible retirement plan, and a portion of
the amount is not an eligible rollover distribution described in
section 402(c)(4), then that portion must be paid directly to the
individual. For example, the portion of a distribution that would be a
required minimum distribution under section 401(a)(9) must be paid
directly to the individual rather than directly rolled over. In
addition, if an individual is otherwise entitled to a distribution from
the section 413(e) plan without regard to section 413(e), the
individual may elect to have amounts paid directly to the individual.
Any election that is provided to an individual pursuant to the
proposed regulations must include an effective opportunity for the
individual to make the election. Whether an individual has an effective
opportunity is determined based on all the relevant facts and
circumstances, including the adequacy of notice of the availability of
the election, the period of time during which the election may be made,
and any other conditions on the election.
G. Duties of a Pooled Plan Provider
The proposed regulations provide that, if a section 413(e) plan has
a pooled plan provider during the plan year of a participating employer
failure, the unified plan exception will not apply unless the pooled
plan provider performs substantially all of the administrative duties
that are required of the pooled plan provider for that year.
III. Other Rules
A. Form of Notices and Elections
Any notice required to be provided or election required to be made
under the proposed regulations must be in written or electronic form.
For notices and elections provided to or made by participants and
beneficiaries, see generally Sec. 1.401(a)-21 for rules permitting the
use of electronic media to provide applicable notices and make
participant elections with respect to retirement plans.
B. Status of Spun-Off Plan
In the case of any plan that is spun off in accordance with the
proposed regulations, any participating employer failure that would
have caused the section 413(e) plan to fail to meet the requirements of
section 401(a) or 408, as applicable, but for the application of the
unified plan exception, will result in the spun-off plan failing to
meet those requirements.
C. Responsible Parties
The proposed regulations provide that a participating employer
demonstrates a lack of commitment to compliance if the participating
employer fails to take appropriate remedial action or initiate a
spinoff by the final deadline (60 days after the final notice). The IRS
reserves the right to pursue appropriate remedies under the Code
against any party (such as the owner of the participating employer) who
is responsible for the failure to satisfy the requirements of section
401(a) or 408, as applicable, even in the party's capacity as a
participant or beneficiary (such as by not treating a section 413(e)
plan distribution made with respect to the owner of a participating
employer as an eligible rollover distribution).
IV. Updates to Section 413(c) Regulations
The proposed regulations update existing Sec. 1.413-2 to reflect
legislation enacted after the regulations were issued. The proposed
regulations update the rules for determining the number of employers
maintaining a plan for purposes of the requirement in Sec. 1.413-
2(a)(2)(i)(B) of the proposed regulations that a section 413(c) plan
must be maintained by more than one employer. For purposes of that
requirement, the proposed regulations include a rule that the number of
employers maintaining a plan is determined by treating any employers
described in section 414(m) (relating to affiliated service groups) as
if such employers are a single employer. The existing regulations in
Sec. 1.413-2(a)(2) were issued in 1979 and, therefore, did not address
section 414(m), which was added by section 201(a) of the Miscellaneous
Revenue Act of 1980, Public Law 96-605 (94 Stat. 3521). Section 414(m)
provides that all employers in an affiliated service group shall be
treated as a single employer for certain purposes.
The proposed regulations also modify the definition of a section
413(c) plan and the unified plan rule in the final section 413(c)
regulations to apply to a
[[Page 17233]]
plan that consists of individual retirement accounts under section 408,
remove a reference to section 405(a) from the final section 413(c)
regulations (because that section was repealed), and modify the final
section 413(c) regulations to add that the exclusive benefit provision
in section 413(c)(2) applies for purposes of section 408(c).\14\
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\14\ Section 414(l) does not apply to a plan that consists of
individual retirement accounts described in section 408. Therefore,
in Sec. 1.413-2(a)(2)(i)(A), the proposed regulations limit the
cross references to section 413(a) and Sec. 1.413-1(a)(2) to apply
only to qualified plans.
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V. Withdrawal of Section 413(c) Proposed Regulations
Because section 101 of the SECURE Act amended the Code with respect
to the unified plan rule after the issuance of the section 413(c)
proposed regulations, the Treasury Department and the IRS withdraw the
section 413(c) proposed regulations.
VI. Coordination With EPCRS
A. In General
Under EPCRS,\15\ a failure to follow plan terms is an operational
failure that adversely affects plan qualification. An operational
failure would include, for example, a section 413(e) plan
administrator's failure to provide the first notice by the applicable
deadline included in plan terms, discussed in Part II.B of this
Explanation of Provisions, titled ``Plan Language.'' EPCRS sets forth
three programs for correcting operational failures.
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\15\ The Employee Plans Compliance Resolution System (EPCRS) is
a comprehensive system of correction programs for sponsors of
certain retirement plans, including plans that are intended to
satisfy the requirements of sections 401(a), 408(k), and 408(p).
EPCRS provides procedures for an employer to correct a plan's
failure to satisfy an applicable qualification requirement so that
the failure does not result in disqualification of the plan. EPCRS
has been updated and expanded several times, most recently in Rev.
Proc. 2021-30, 2021-I.R.B. 324. The discussion in this Part VI of
this Explanation of Provisions is limited to the application of
EPCRS to qualified plans under section 401(a). See Rev. Proc. 2021-
30 for rules under sections 408(k) and 408(p).
---------------------------------------------------------------------------
Under the Self-Correction Program (SCP), a plan sponsor that
follows established compliance practices and procedures may correct
operational failures without paying a fee or sanction. A plan sponsor
of a qualified plan (for example, a plan that is intended to satisfy
section 401(a)) may correct significant operational failures under SCP
if the plan has a favorable determination letter or a favorable opinion
or advisory letter.\16\ In general, correction of a significant
operational failure through SCP must be completed by the last day of
the correction period, which generally ends on the last day of the
third plan year following the plan year for which the failure
occurred.\17\ However, the correction period for a significant
operational failure that occurs for any plan year ends on the first
date the plan or plan sponsor is under examination \18\ for that plan
year.\19\
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\16\ See section 4.03 of Rev. Proc. 2021-30.
\17\ Section 9 of Rev. Proc. 2021-30 addresses the period for
correcting significant operational failures under SCP, including
some exceptions to this general rule.
\18\ Under examination is defined in section 5.08 of Rev. Proc.
2021-30.
\19\ If correction has been substantially completed (as
described in section 9.03 of Rev. Proc. 2021-30) before the end of
the correction period, correction is permitted to be completed after
the end of the correction period.
---------------------------------------------------------------------------
Under the Voluntary Correction Program (VCP), a plan sponsor, at
any time before audit, may file a VCP submission, pay an applicable
user fee, implement corrective actions, and satisfy any other
conditions in an IRS compliance statement for correction of an
operational failure in a qualified plan, SEP, or SIMPLE IRA Plan. In
general, if the plan or plan sponsor is under examination, VCP is not
available.
Under the Audit Closing Agreement Program (Audit CAP), if an
operational failure (other than a failure corrected through SCP or VCP)
is identified on audit, the plan sponsor may correct the failure and
pay a sanction. The sanction imposed will bear a reasonable
relationship to the nature, extent, and severity of the failure, and
will be based on a number of factors,\20\ including the maximum payment
amount (which is approximately equal to the tax the IRS could collect
upon plan disqualification).
---------------------------------------------------------------------------
\20\ See section 14 of Rev. Proc. 2021-30.
---------------------------------------------------------------------------
B. Using EPCRS To Correct an Operational Failure to Timely Provide the
First Notice
A section 413(e) plan administrator's failure to provide the first
notice with respect to a participating employer failure by the
applicable deadline included in plan terms would not affect the section
413(e) plan's eligibility for the unified plan exception. However, the
failure to follow plan terms would result in an operational failure
treated as a significant operational failure under EPCRS that is
independent of any underlying participating employer failure.
Whether SCP, VCP, or Audit CAP is available to correct an
operational failure to provide the first notice by the applicable
deadline will be determined under the rules of EPCRS. Because the
failure is a significant operational failure, the failure may be
corrected under SCP only if correction is completed (or substantially
completed) by the end of the correction period, and the correction
period generally ends on the last day of the third plan year following
the plan year containing the deadline for sending the first notice. For
example, if the deadline for sending the first notice is December 31,
2024, a failure to provide notice by that deadline generally may be
corrected through SCP until December 31, 2027 (assuming the plan year
is the calendar year). If, however, the plan or plan sponsor comes
under examination for 2024 beginning on July 1, 2026, the correction
period for SCP ends on July 1, 2026, and SCP is no longer available
(unless the correction had been substantially completed by that date).
A failure to provide the first notice by the deadline included in
the terms of the plan may also be corrected under VCP. If, for example,
the deadline for sending the first notice is December 31, 2024, and the
correction period under SCP ends on December 31, 2027, then a VCP
application may be submitted with respect to the failure in 2028 or in
a later year, provided that neither the plan nor the plan sponsor is
under examination for the plan year ending December 31, 2024. If SCP
and VCP are not available with respect to a failure, the failure may be
corrected under Audit CAP.
C. Resolution of Participating Employer Failure
If the unresponsive participating employer provides the information
requested by the section 413(e) plan administrator in connection with a
failure to provide information, there is no longer a failure to provide
information. If the unresponsive participating employer takes the
action requested by the plan administrator in connection with a failure
to take action (and the plan satisfies the requirements of SCP, VCP, or
Audit CAP, as applicable, with respect to the underlying failure),
there is no longer a failure to take action. In either case, if a
participating employer failure no longer exists, an operational failure
to provide the first notice by the deadline included in plan terms with
respect to that participating employer failure is treated as corrected.
Proposed Applicability Date
These regulations are proposed to apply beginning on the date of
publication of the Treasury decision adopting these rules as final
regulations in the Federal Register. Pursuant to section 413(e)(4)(B),
until the final
[[Page 17234]]
regulations are published, an employer or pooled plan provider may rely
on a good faith, reasonable interpretation of the provisions of section
413(e) to which the final regulations relate. Compliance with these
proposed regulations is considered reliance on a good faith, reasonable
interpretation of the provisions of section 413(e) to which the final
regulations relate.
Availability of IRS Documents
For copies of recently issued revenue procedures, revenue rulings,
notices and other guidance published in the Internal Revenue Bulletin,
please visit the IRS website at <a href="http://www.irs.gov">www.irs.gov</a> or contact the
Superintendent of Documents, U.S. Government Printing Office,
Washington, DC 20402.
Special Analyses
I. Regulatory Impact Analysis
These regulations are not subject to review under section 6(b) of
Executive Order 12866 pursuant to the Memorandum of Agreement (April
11, 2018) between the Treasury Department and the Office of Management
and Budget regarding review of tax regulations.
II. Paperwork Reduction Act
The following provisions of the proposed regulations contain a
collection of information: (1) Sec. 1.413-3(a)(2)(i) (requirement to
adopt plan language); (2) Sec. 1.413-3(a)(2)(ii)(A), (b), and
(d)(1)(ii) (requirement to provide notice with respect to a
participating employer failure); (3) Sec. 1.413-3(a)(3) (requirements
to be a pooled plan provider); (4) Sec. 1.413-3(e)(1)(ii)(B) and
(e)(2) (requirement to provide notice to certain participants and
beneficiaries; and (5) Sec. 1.413-3(e)(1)(ii)(C), (e)(3), and (e)(4)
(requirement to provide an election to certain participants and
beneficiaries). The collection of information contained in proposed
Sec. 1.413-3 will generally be carried out by section 413(e) plan
administrators seeking to satisfy the conditions for the exception to
the unified plan rule. The collection of information in this notice of
proposed rulemaking has been submitted to the Office of Management and
Budget for review in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)).
1. Plan Language Requirement, Sec. 1.413-3(a)(2)(i)
Section 1.413-3(a)(2)(i) states that, as one of the conditions of
the exception to the unified plan rule, a section 413(e) plan must
include plan language that sets forth the procedures that will be
followed to address participating employer failures. Thus, a section
413(e) plan will not be eligible for the exception to the unified plan
rule if it does not satisfy this plan-language requirement. In general,
the plan language requirement is a one-time paperwork burden for each
section 413(e) plan. In addition, after final regulations are issued,
the IRS intends to publish model plan language, which will help to
minimize the burden.
We estimate that the burden for this requirement under the
Paperwork Reduction Act of 1995 will be 3 hours per section 413(e)
plan. Given the potential benefits of satisfying the conditions for the
unified plan exception, we assume that approximately 95 percent of
section 413(e) plans (4,275 section 413(e) plans \21\) will be amended
to satisfy this condition. Therefore, the total burden of this
requirement is estimated to be 12,825 hours (4,275 section 413(e) plans
times 3 hours). However, because a section 413(e) plan that adopts an
amendment will generally do so on a one-time basis, to determine an
annual estimate, the total time is divided by three, or 4,275 hours
annually (section 413(e) plans times 1 hour).
---------------------------------------------------------------------------
\21\ This calculation uses data from the 2018 Form 5500,
``Annual Return/Report of Employee Benefit Plan.'' These filings
indicate that there are approximately 4,523 defined contribution
MEPs. See 2018 Form 5500 Annual Reports Abstract (<a href="http://dol.gov">dol.gov</a>). We
estimate that 4,500 defined contribution MEPs will satisfy the
requirements to be a section 413(e) plan.
---------------------------------------------------------------------------
2. Notice Requirements, Sec. 1.413-3(a)(2)(ii)(A), (b), and (d)(1)(ii)
Section 1.413-3(a)(ii)(A) of the proposed regulations provide that
notice is another condition of the exception to the unified plan rule.
In most cases, Sec. 1.413-3(b) of the proposed regulations would
require a section 413(e) plan administrator to send up to three notices
informing an unresponsive participating employer of a participating
employer failure and the consequences if the employer fails to take
remedial action or initiate a spinoff from the section 413(e) plan.
After each notice is provided, the employer has 60 days to take
appropriate remedial action or initiate a spinoff from the section
413(e) plan. If the employer takes those actions after the first or
second notice is provided, subsequent notices are not required. Thus,
it is possible that a section 413(e) plan administrator will send fewer
than three notices to an employer. However, because the notice
requirements only apply if an employer has already been unresponsive to
the section 413(e) plan administrator's requests, we assume that in
most cases, all three notices will be provided.
Section 1.413-3(d)(1)(ii) of the proposed regulations provide that
if a failure to provide information becomes a failure to take action,
the section 413(e) plan administrator may be required to send up to two
(rather than three) notices with respect to the failure to take action
by combining the first and second notices. This rule applies if the
section 413(e) plan administrator had provided the second notice with
respect to the failure to provide information and certain other
conditions are satisfied.
We estimate that the burden of preparing the notices will be an
average of 3 hours per unresponsive participating employer. We estimate
that approximately 450 section 413(e) plans (10 percent of the 4,500
total estimated section 413(e) plans described in footnote 20) will
provide notice with respect to one unresponsive participating employer
per year. We estimate that approximately 10 percent of section 413(e)
plans (10 percent of 4,500 section 413(e) plans is 450 section 413(e)
plans) will provide notice with respect to one unresponsive
participating employer per year. Therefore, we estimate a burden of
1,350 hours (450 section 413(e) plans times 3 hours). As with all
estimates in this collection of information, we expect to be able to
adjust these estimates based on experience after the regulations are
finalized.
The notices must be sent to the unresponsive participating employer
and the final notice will also be sent to plan participants who are
employees of the unresponsive participating employer (and their
beneficiaries) and to the Department of Labor. We estimate that, on
average, a section 413(e) plan administrator will send the final notice
to approximately 50 plan participants who are employees of the
unresponsive participating employer (and their beneficiaries). Based on
the estimate in the previous paragraph that 450 section 413(e) plans
will provide notice with respect to one unresponsive participating
employer per year, we estimate the burden of distributing these notices
to be an average of 2 hours per section 413(e) plan, for a total burden
of 900 hours (450 section 413(e) plans times 2 hours).
3. Requirements for Pooled Plan Providers, Sec. 1.413-3(a)(3)
Under the proposed regulations, the term pooled plan provider
means, with respect to any plan, a person who satisfies the following
requirements: (1) Registers as a pooled plan provider with the
Commissioner (Sec. 1.413-
[[Page 17235]]
3(a)(3)(i)(A)); (2) is designated by the terms of the plan as a named
fiduciary (within the meaning of section 402(a)(2) of ERISA), as the
plan administrator, and as the person required to perform certain
administrative duties (Sec. 1.413-3(a)(3)(i)(B)); (3) acknowledges in
writing that, with respect to the plan, it is a named fiduciary and the
plan administrator (Sec. 1.413-3(a)(3)(i)(C)); and (4) is responsible
for ensuring that all persons who handle assets of, or who are
fiduciaries of, the plan are bonded in accordance with section 412 of
ERISA (Sec. 1.413-3(a)(3)(i)(D)).
Pursuant to proposed Sec. 1.413-3(a)(3)(i)(A), the requirement to
register as a pooled plan provider under section 413(e) is fulfilled by
satisfying the parallel requirement under ERISA to register as a pooled
plan provider with the Department of Labor. On November 16, 2020, the
Department of Labor issued final regulations under section 3(44) of
ERISA (29 CFR 2510.3-44) with respect to the registration requirement.
See 85 FR 72934. The OMB Control Number associated with the requirement
in those regulations is 1210-0164.
With respect to Sec. 1.413-3(a)(3)(i)(B) and (C), the Department
of Labor estimates that roughly 3,200 pooled plan providers will file
an original registration, and that there will be 3,460 supplemental
filings in the first year. See 85 FR 72952. A supplemental filing may
amend the original registration to include information for pooled
employer plans that either begin or cease operations, or it can be used
to make certain other changes to the initial filing. Based on this
data, we estimate that in the first year a large number of the
estimated supplemental filings, or 3,000, will be used to report the
beginning of pooled employer plan operations. In subsequent years, we
estimate that approximately 450 plans with pooled plan providers will
commence operations.\22\ We estimate the combined burden of Sec.
1.413-3(a)(3)(i)(B) and (C) to be an average of 15 minutes per section
413(e) plan, for a total initial burden of 750 hours (3,000 section
413(e) plans times 15 minutes) and a total annual burden of 112.5 hours
(450 section 413(e) plans times 15 minutes).
---------------------------------------------------------------------------
\22\ This estimate was informed by the Department of Labor's
estimate of the number of pooled employer plans expected to commence
operations. See 85 FR 72952-3
---------------------------------------------------------------------------
4. Notice to Participants, Sec. 1.413-3(e)(1)(ii)(B) and (e)(2)
If an unresponsive participating employer neither takes appropriate
remedial action nor initiates a spinoff by the deadline in the proposed
regulations, then the section 413(e) plan administrator must provide
notice to participants who are employees of the unresponsive
participating employer (and their beneficiaries) stating the following:
(1) No further contributions will be made to the section 413(e) plan on
their behalf; (2) they have a nonforfeitable right to amounts credited
to their accounts that are attributable to employment with the
unresponsive participating employer; and (3) they will receive
additional information regarding the disposition of their accounts. We
estimate that in a given year, 5 percent of all section 413(e) plans
(225 section 413(e) plans) will provide this notice, and that each
notice will be sent to approximately 50 individuals. We also estimate
that the burden for this requirement is 1 hour. Based on this number,
we estimate that the burden of preparing and distributing the notices
will be 225 hours (225 section 413(e) plans times 1 hour).
5. Election, Sec. 1.413-3(e)(1)(ii)(C), (e)(3) and (4)
If an unresponsive participating employer neither takes appropriate
remedial action nor initiates a spinoff by the deadline in the proposed
regulations, then the section 413(e) plan administrator generally must
provide participants who are employees of the unresponsive
participating employer (and their beneficiaries) with an election to
have amounts attributable to the employees of the unresponsive
participating employer directly rolled over to an eligible retirement
plan within the meaning of section 402(c)(8) or remain in the section
413(e) plan. A participant whose account is subject to the mandatory
distribution rules will have an alternative election. We estimate that
in a given year, 5 percent of all section 413(e) plans (225 section
413(e) plans) will provide an election, and that each election will be
sent to approximately 50 individuals. We also estimate that the burden
for this requirement is 3 hours. Based on this number, we estimate that
the burden for this requirement will be 675 hours (225 section 413(e)
plans times 3 hours).
Comments on the collection of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of the Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP; Washington, DC
20224. Comments on the collection of information should be received by
May 27, 2022. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information;
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collections of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of service to provide information.
Estimated total average annual recordkeeping burden: 7,750 hours.
Estimated average annual burden per response: 1 hour, 43 minutes.
Estimated number of recordkeepers: 4,500.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
III. Regulatory Flexibility Act
It is hereby certified that these proposed regulations will not
have a significant economic impact on a substantial number of small
entities pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter
6). This certification is based on the fact that the proposed
regulations reflect the statutory changes to section 413 made by
section 101 of the SECURE Act. More specifically, these regulations
merely conform existing regulations under section 413(c) and implement
new regulations under section 413(e) in a manner that is consistent
with the new statutory language.
Although these proposed regulations might affect a substantial
number of small entities, the economic impact of these proposed
regulations is not expected to be significant. These regulations are
not expected to result in economically meaningful changes in
[[Page 17236]]
behavior for MEPs and participating employers. While MEPs may be an
efficient way to reduce costs and complexity associated with
establishing and maintaining defined contribution plans, some employers
may be reluctant to join a MEP because of the potential adverse impact
of the unified plan rule. These proposed regulations will implement a
statutory exception to the unified plan rule, thus eliminating a
potential barrier to an employer joining a MEP.
It is unlikely that the exception to the unified plan rule will be
used often in a section 413(e) MEP. In general, it is expected that
participating employers in defined contribution MEPs will comply with
applicable requirements for a defined contribution plan. Accordingly,
the use of the exception to the unified plan rule by a section 413(e)
plan is expected to be rare.
For the reasons stated, a regulatory flexibility analysis under the
Regulatory Flexibility Act is not required. The Treasury Department and
the IRS invite comments on the impact of these regulations on small
entities. Pursuant to section 7805(f) of the Code, this notice of
proposed rulemaking has been submitted to the Chief Counsel of Advocacy
of the Small Business Administration for comment on its impact on small
business.
Comments and Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments that are
submitted timely to the IRS as prescribed in the preamble under the
ADDRESSES section. The Treasury Department and the IRS request comments
on all aspects of the proposed regulations. Comments are specifically
requested on what (if any) guidance would be helpful regarding whether
employers have a common interest other than having adopted a plan, as
described in Part I.A of the Explanation of Provisions, titled
``Overview.'' Comments are also specifically requested on the rules for
mandatory distributions for employees of an unresponsive participating
employer, as described in Part II.F of the Explanation of Provisions,
titled ``Required Actions Following Employer's Failure to Meet
Deadline.''
Any electronic comments submitted, and to the extent practicable
any paper comments submitted, will be made available at
<a href="http://www.regulations.gov">www.regulations.gov</a> or upon request.
A telephonic public hearing has been scheduled for June 22, 2022,
beginning at 10 a.m. EST. The rules of 26 CFR 601.601(a)(3) apply to
the hearing. Persons who wish to present oral comments by telephone at
the hearing must submit electronic or written comments and an outline
of the topics to be addressed and the time to be devoted to each topic
by May 27, 2022 as prescribed in the preamble under the ADDRESSES
section.
A period of 10 minutes will be allocated to each person for making
comments. After the deadline for receiving outlines has passed, the IRS
will prepare an agenda containing the schedule of speakers. Copies of
the agenda will be made available at <a href="http://www.regulations.gov">www.regulations.gov</a>, search IRS
and REG-121508-18. Copies of the agenda will also be available by
emailing a request to <a href="/cdn-cgi/l/email-protection#39494c5b55505a515c584b50575e4a79504b4a175e564f"><span class="__cf_email__" data-cfemail="1e6e6b7c72777d767b7f6c7770796d5e776c6d30797168">[email protected]</span></a>. Please put ``REG-121508-
18 Agenda Request'' in the subject line of the email.
Drafting Information
The principal authors of these regulations are Jamie Dvoretzky and
Pamela Kinard, Office of Associate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment Taxes (EEE)). However, other
personnel from the IRS and the Treasury Department participated in the
development of these regulations.
Withdrawal of Proposed Amendments to the Regulations
Under the authority of 26 U.S.C. 7805, the notice of proposed
rulemaking that was published in the Federal Register on Wednesday,
July 3, 2019 (84 FR 31777) is withdrawn.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Amend Sec. 1.413-2 by revising paragraph (a)(2), (a)(3)(iv),
(a)(4), and (c) to read as follows:
Sec. 1.413-2 Special rules for plans maintained by more than one
employer.
(a) * * *
(2) Section 413(c) plan--(i) Definition of section 413(c) plan. A
plan (and each trust which is part of such plan) is a section 413(c)
plan if--
(A) The plan is a single plan (which for a qualified plan is a
single plan within the meaning of section 413(a) and Sec. 1.413-
1(a)(2)); and
(B) The plan is maintained by more than one employer.
(ii) Determining the number of employers maintaining the plan. For
purposes of paragraph (a)(2)(i)(B) of this section, the number of
employers maintaining a plan is determined by treating any employers
described in section 414(b) (relating to a controlled group of
corporations), any employers described in section 414(c) (relating to
trades or businesses under common control), or any employers described
in section 414(m) (relating to affiliated service groups), whichever is
applicable, as if such employers are a single employer.
(iii) Master or prototype plans and common trust funds. A master or
prototype plan is not a section 413(c) plan unless such a plan is
described in this paragraph (a)(2). Similarly, the mere fact that a
plan, or plans, utilize a common trust fund or otherwise pool plan
assets for investment purposes does not, by itself, result in a
particular plan being treated as a section 413(c) plan.
(3) * * *
(iv) Whether a section 413(c) plan complies with the requirements
of section 401(a), 403(a), or 408 is determined with respect to all
participating employers. Consequently, the failure by one participating
employer (or by the plan itself) to satisfy an applicable requirement
of those sections will result in the section 413(c) plan failing to
satisfy that requirement with respect to all employers maintaining the
section 413(c) plan. However, the rules in this paragraph (a)(3)(iv) do
not apply to the extent provided in section 413(e) and Sec. 1.413-3.
(4) Applicability dates--(i) General applicability date. Except as
otherwise provided in paragraph (a)(4)(ii) of this section, section
413(c) and this section apply to a plan for plan years beginning after
December 31, 1953.
(ii) Special applicability date. Paragraphs (a)(2), (a)(3)(iv), and
(c) of this section apply beginning on the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register. For earlier periods, the rules of paragraphs (a)(2),
(a)(3)(iv), and (c) of 26 CFR 1.413-2 (revised as of April 1, 2021)
apply.
* * * * *
(c) Exclusive benefit. In the case of a plan subject to this
section, in determining whether the plan of an employer is for the
exclusive benefit of its employees (and their beneficiaries)
[[Page 17237]]
for purposes of sections 401(a) and 408(c), all of the employees
participating in the plan shall be treated as employees of the
employer.
* * * * *
0
Par. 3. Section 1.413-3 is added to read as follows:
Sec. 1.413-3 Special Rules for Section 413(e) Plans
(a) Exception to unified plan rule for section 413(e) plans--(1) In
general. Notwithstanding Sec. 1.413-2(a)(3)(iv), a section 413(e) plan
will not be treated as failing to meet the requirements under the Code
applicable to a plan described in section 401(a) or to a plan that
consists of individual retirement accounts described in section 408
(including accounts described in section 408(c), 408(k), or 408(p)),
whichever is applicable, merely because of a participating employer
failure, provided that the conditions in paragraph (a)(2) of this
section are satisfied.
(2) Conditions for exception to general rule. The conditions for
the exception to the unified plan rule in paragraph (a)(1) of this
section are set forth in paragraphs (a)(2)(i) through (iii) of this
section.
(i) Plan language. The terms of the section 413(e) plan must set
forth the procedures that will be followed to address a participating
employer failure, including:
(A) A description of the notices that the section 413(e) plan
administrator will send in the case of a participating employer
failure, pursuant to paragraph (b) of this section;
(B) A statement that the section 413(e) plan administrator will
send the first notice described in paragraph (b)(1) of this section
(or, if applicable, the combined first and second notice described in
paragraph (d)(1)(ii) of this section) by a specified deadline (which,
for a failure to provide information, is 12 months following the end of
the plan year for which the information is necessary to determine
whether the section 413(e) plan is in compliance with a requirement of
section 401(a) or 408 and which, for a failure to take action, is 24
months following the end of the plan year in which the failure to
satisfy a requirement of section 401(a) or 408) occurs;
(C) A description of the actions that the section 413(e) plan
administrator will take if, by the final deadline described in
paragraph (c)(1) of this section, an unresponsive participating
employer does not either take appropriate remedial action pursuant to
paragraph (c)(2) of this section or initiate a spinoff pursuant to
paragraph (c)(3) of this section; and
(D) A statement that if an unresponsive participating employer does
not either take appropriate remedial action or initiate a spinoff by
the final deadline described in paragraph (c)(1) of this section,
participants who are employees of the unresponsive participating
employer have a nonforfeitable right to the amounts credited to their
accounts that are attributable to employment with the unresponsive
participating employer, determined in the same manner as if the plan
had terminated pursuant to section 411(d)(3).
(ii) Section 413(e) plan administrator obligations. A section
413(e) plan administrator must--
(A) Satisfy the notice requirements described in paragraph (b) of
this section with respect to the participating employer failure (taking
into account the rules for a combined first and second notice described
in paragraph (d)(1)(ii) of this section);
(B) Implement a spinoff in accordance with paragraph (d)(2) of this
section if an unresponsive participating employer initiates a spinoff
pursuant to paragraph (c)(3) of this section; and
(C) Take the actions required in paragraph (e) of this section if
an unresponsive participating employer fails either to take appropriate
remedial action with respect to the participating employer failure (as
described in paragraph (c)(2) of this section) or initiate a spinoff
(as described in paragraph (c)(3) of this section) by the final
deadline described in paragraph (c)(1) of this section.
(iii) Pooled plan providers. If the section 413(e) plan has a
pooled plan provider during the plan year of the participating employer
failure, the pooled plan provider must perform substantially all of the
administrative duties that are required of the pooled plan provider
pursuant to paragraph (a)(3)(ii) of this section for the plan year.
(3) Section 413(e) plans administered by pooled plan providers--(i)
Requirements to be a pooled plan provider. With respect to a section
413(e) plan, for purposes of this section, a pooled plan provider is a
person who--
(A) Registers as a pooled plan provider with the Commissioner by
satisfying the registration requirements in section 3(44)(A)(ii) of the
Employee Retirement Income Security Act of 1974, Public Law 93-406 (88
Stat. 829), as amended (ERISA), in accordance with guidance issued by
the Department of Labor,
(B) Is designated by the terms of the plan as a named fiduciary
(within the meaning of section 402(a)(2) of ERISA), as the plan
administrator, and as the person required to perform the administrative
duties described in paragraph (a)(3)(ii) of this section,
(C) Acknowledges in writing that, with respect to the plan, it is a
named fiduciary and the plan administrator, and
(D) Is responsible for ensuring that all persons who handle assets
of, or who are fiduciaries of, the plan are bonded in accordance with
section 412 of ERISA.
(ii) Administrative duties required of pooled plan provider--(A) In
general. A pooled plan provider is required to perform all
administrative duties that are reasonably necessary to ensure that the
plan meets any applicable requirement under ERISA or the Code for a
plan described in section 401(a) or for a plan that consists of
individual retirement accounts described in section 408 (including
accounts described in section 408(c), 408(k), or 408(p)), whichever is
applicable, and each participating employer takes actions, including
providing any disclosures or other information, that are necessary for
the plan to meet the requirements described in this paragraph
(a)(3)(ii)(A).
(B) Administrative duties. The administrative duties of a pooled
plan provider include, but are not limited to, the following:
(1) Monitoring compliance with the terms of the plan, and Code and
ERISA requirements;
(2) Maintaining accurate plan data, including up-to-date
participant and beneficiary information;
(3) Performing and conducting coverage, top-heavy, and
discrimination testing under sections 401(a)(4), (k), and (m), 408(k),
410, and 416, if applicable;
(4) Processing all employee transactions (such as investment
changes, loans, and distributions);
(5) Satisfying Code and ERISA reporting and notice requirements
(such as reporting requirements under sections 6047 and 6058 and notice
requirements under sections 401(k)(12)(D) and (13)(E) and 402(f)); and
(6) Updating the plan to reflect statutory changes to the Code and
ERISA, to the extent the responsibility for updating the plan document
has been delegated to the section 413(e) plan administrator.
(iii) Aggregation rules. In determining whether a person meets the
requirements to be a pooled plan provider with respect to any section
413(e) plan, all persons who perform services for the plan and who are
treated as a single employer under section
[[Page 17238]]
414(b), (c), (m), or (o) are treated as one person.
(4) Definitions. The following definitions apply for purposes of
this section:
(i) Amounts attributable to the employees of the unresponsive
participating employer. Amounts attributable to the employees of the
unresponsive participating employer are plan assets and account
balances held by a section 413(e) plan on behalf of employees of an
unresponsive participating employer that are attributable to their
employment with the unresponsive participating employer. If there is no
separate accounting for amounts that are attributable to employment
with the unresponsive participating employer and with other
participating employers, and a participant's account balance includes
amounts that are attributable to current employment with the
unresponsive participating employer and to previous employment with one
or more other participating employers, the entire account balance is
treated as attributable to employment with the unresponsive
participating employer. On the other hand, if a participant's account
balance includes amounts that are attributable to current employment
with a participating employer that is not the unresponsive
participating employer and to previous employment with the unresponsive
participating employer, none of the account balance is treated as
attributable to employment with the unresponsive participating
employer. For purposes of this paragraph (a)(4)(i), a participant's
most recent employment with a participating employer in the section
413(e) plan will be treated as the participant's current employment.
(ii) Beneficiary. A beneficiary is a beneficiary of a deceased
employee or an alternate payee (as defined in section 414(p)) with
respect to an employee.
(iii) Employee. An employee is a current or former employee of a
participating employer.
(iv) Failure to provide information. A failure to provide
information is a failure of a participating employer (or any person
that is treated as a single employer with that employer under section
414(b), (c), (m), or (o)) to respond in a timely manner to a reasonable
request by the section 413(e) plan administrator for data, documents,
or any other information that the plan administrator reasonably
believes is necessary to determine whether a section 413(e) plan is in
compliance with a requirement of section 401(a) or 408 as it relates to
the participating employer.
(v) Failure to take action. A failure to take action is a failure
of a participating employer (or any person that is treated as a single
employer with that employer under section 414(b), (c), (m), or (o)) to
comply in a timely manner with a reasonable request by a section 413(e)
plan administrator to take action needed for the section 413(e) plan to
satisfy a requirement of section 401(a) or 408 as it relates to the
participating employer.
(vi) Participating employer. A participating employer is one of the
employers maintaining a section 413(e) plan.
(vii) Participating employer failure. A participating employer
failure in a section 413(e) plan is a failure to provide information
(as defined in paragraph (a)(4)(iv) of this section) or a failure to
take action (as defined in paragraph (a)(4)(v) of this section).
(viii) Section 413(e) plan. A section 413(e) plan is a defined
contribution plan described in section 401(a) or a plan that consists
of individual retirement accounts described in section 408 (including
accounts described in section 408(c), (k), or (p)) that--
(A) Is a section 413(c) plan (as defined in Sec. 1.413-2(a)(2)),
and
(B) Is maintained by employers that all have a common interest
other than having adopted the plan or has a pooled plan provider as
described in paragraph (a)(3) of this section.
(ix) Section 413(e) plan administrator. A section 413(e) plan
administrator is the plan administrator, within the meaning of section
414(g), of a section 413(e) plan.
(x) Unresponsive participating employer. An unresponsive
participating employer is a participating employer that has a
participating employer failure.
(b) Notice. The section 413(e) plan administrator satisfies the
notice requirements with respect to a participating employer failure if
it satisfies the requirements of this paragraph (b).
(1) First notice. The section 413(e) plan administrator must
provide notice to the unresponsive participating employer describing
the participating employer failure, the actions the employer must take
to remedy the failure, and the employer's option to initiate a spinoff
of amounts attributable to the employees of the unresponsive
participating employer to a separate single-employer plan that is
maintained by the employer. In addition, the notice must explain the
consequences under the terms of the plan if the unresponsive
participating employer neither takes appropriate remedial action with
respect to the participating employer failure nor initiates a spinoff,
including that participants who are employees of the employer will not
have any further contributions made to the plan on their behalf and
that individuals who are responsible for the failure may have adverse
tax consequences.
(2) Second notice. If, by the end of the 60-day period following
the date the first notice described in paragraph (b)(1) of this section
is provided, the unresponsive participating employer neither takes
appropriate remedial action with respect to the participating employer
failure nor initiates a spinoff, then the section 413(e) plan
administrator must provide a second notice to the employer. The second
notice must be provided no later than 30 days after the expiration of
the 60-day period described in the preceding sentence. The second
notice must include the information required to be included in the
first notice. The second notice must also state that if, within 60 days
following the date the second notice is provided, the unresponsive
participating employer neither takes appropriate remedial action with
respect to the participating employer failure nor initiates a spinoff,
then a final notice describing the participating employer failure and
the consequences of not correcting the failure will be provided to
participants who are employees of the employer (and their
beneficiaries) and to the Department of Labor.
(3) Final notice. If, by the end of the 60-day period following the
date the second notice described in paragraph (b)(2) of this section is
provided, the unresponsive participating employer neither takes
appropriate remedial action with respect to the participating employer
failure nor initiates a spinoff, then the section 413(e) plan
administrator must provide a final notice to the employer. The final
notice must be provided no later than 30 days after the expiration of
the 60-day period described in the preceding sentence. Within this time
period, the final notice must also be provided to participants who are
employees of the unresponsive participating employer (and their
beneficiaries) and to the Office of Enforcement of the Employee
Benefits Security Administration in the Department of Labor (or its
successor office). The final notice must include the information
required to be included in the first notice and specify the final
deadline for an unresponsive participating employer to take action set
forth in paragraph (c)(1) of this section. The final notice must also
state that the notice is being provided to participants who are
employees of the unresponsive
[[Page 17239]]
participating employer (and their beneficiaries) and to the Department
of Labor.
(c) Actions by unresponsive participating employer--(1) In general.
An unresponsive participating employer takes appropriate remedial
action with respect to a participating employer failure if it satisfies
the requirements of paragraph (c)(2) of this section. Alternatively, an
unresponsive participating employer initiates a spinoff for purposes of
paragraph (a)(2) of this section if the employer satisfies the
requirements of paragraph (c)(3) of this section. The final deadline
for an unresponsive participating employer to take one of these actions
is 60 days after the final notice described in paragraph (b)(3) of this
section is provided to the employer.
(2) Appropriate remedial action--(i) Appropriate remedial action
with respect to a failure to provide information. If a participating
employer failure is a failure to provide information, the unresponsive
participating employer takes appropriate remedial action with respect
to that failure if the employer provides the data, documents, or other
information requested by a section 413(e) plan administrator (or
arranges for that information to be provided to the section 413(e) plan
administrator).
(ii) Appropriate remedial action with respect to a failure to take
action. If a participating employer failure is a failure to take
action, the unresponsive participating employer takes appropriate
remedial action with respect to the failure if the employer (or any
person that is treated as a single employer with the employer under
section 414(b), (c), (m), or (o)), takes all actions requested by the
section 413(e) plan administrator, such as making corrective
contributions, needed for the section 413(e) plan to satisfy the
applicable requirements of section 401(a) or 408.
(3) Employer-initiated spinoff. After receiving a notice described
in paragraph (b) of this section, an unresponsive participating
employer initiates a spinoff pursuant to this paragraph (c)(3) by
directing the section 413(e) plan administrator to spin off amounts
attributable to the employees of the unresponsive participating
employer to a separate single-employer plan that is maintained by the
employer in a manner consistent with the terms of the section 413(e)
plan. If the section 413(e) plan is described in section 401(a), then
the spun-off plan must also be a section 401(a) plan. If the section
413(e) plan consists of individual retirement accounts described in
section 408 (including accounts described in section 408(c), 408(k), or
408(p)), then the spun-off plan must also consist of individual
retirement accounts described in section 408.
(d) Section 413(e) plan administrator's response to employer's
remedial action--(1) Rules for a failure to provide information that
becomes a failure to take action--(i) In general. This paragraph (d)(1)
provides rules that apply if a failure to provide information becomes a
failure to take action. This situation could occur if the unresponsive
participating employer takes appropriate remedial action by providing
the information described in paragraph (c)(2)(i) of this section and,
based on this information, the section 413(e) plan administrator
determines that there is a failure to satisfy a requirement of section
401(a) or 408 as it relates to that employer's participation in the
section 413(e) plan. If the section 413(e) plan administrator makes a
reasonable request for the employer to take the actions needed to
satisfy the requirement, and the employer does not comply in a timely
manner with that request, then, in accordance with paragraph (a)(4)(v)
of this section, the failure to provide information becomes a failure
to take action. In that case, the section 413(e) plan will be eligible
for the exception in paragraph (a)(1) of this section with respect to
the failure to take action by satisfying the conditions set forth in
paragraph (a)(2) of this section with respect to that failure, taking
into account the rules of this paragraph (d)(1).
(ii) Ability to combine first and second notices in certain
circumstances. For purposes of applying paragraph (a)(2)(ii)(A) of this
section in the case of a failure to provide information that becomes a
failure to take action, notices provided during the period that the
failure was a failure to provide information are not taken into
account. For example, a final notice that the section 413(e) plan
administrator provided in connection with the failure to provide
information would not satisfy the final notice requirement with respect
to the failure to take action. However, if the section 413(e) plan
administrator had provided the second notice described in paragraph
(b)(2) of this section with respect to a failure to provide information
before it became a failure to take action, then the section 413(e) plan
administrator may satisfy the requirement to send a first and second
notice with respect to the failure to take action by sending a combined
first and second notice that includes the information described in
paragraph (d)(1)(iii) of this section to the unresponsive participating
employer, provided that--
(A) The section 413(e) plan administrator's request to take action
described in paragraph (d)(1)(i) of this section is made as soon as
reasonably practicable after the determination of the failure to
satisfy a requirement of section 401(a) or 408 as it relates to that
employer's participation in the section 413(e) plan; and
(B) The section 413(e) plan administrator provides the combined
first and second notice with respect to the failure to take action not
later than 24 months following the end of the plan year in which the
failure to satisfy a requirement of section 401(a) or 408 occurs.
(iii) Contents of combined first and second notice. To satisfy the
requirements of a combined first and second notice described in
paragraph (d)(1)(ii) of this section, the notice must--
(A) Describe the participating employer failure, the actions the
unresponsive participating employer would need to take to remedy the
failure, and the employer's option to initiate a spinoff of amounts
attributable to the employees of the unresponsive participating
employer to a separate single-employer plan that is maintained by the
employer,
(B) Explain the consequences under the terms of the plan if the
unresponsive participating employer neither takes appropriate remedial
action with respect to the participating employer failure nor initiates
a spinoff, including that participants who are employees of the
employer will not have any further contributions made to the plan on
their behalf and that individuals who are responsible for the failure
may have adverse tax consequences, and
(C) Specify that if, within 60 days following the date the combined
first and second notice is provided, the unresponsive participating
employer neither takes appropriate remedial action with respect to the
participating employer failure nor initiates a spinoff, then a notice
describing the participating employer failure and the consequences of
not correcting the failure will be provided to participants who are
employees of the employer (and their beneficiaries) and to the
Department of Labor.
(2) Implementing employer-initiated spinoff. If an unresponsive
participating employer initiates a spinoff pursuant to paragraph (c)(3)
of this section by directing the section 413(e) plan administrator to
spin off amounts attributable to the employees of the
[[Page 17240]]
unresponsive participating employer to a separate single-employer plan
established and maintained by the employer, or to a separate plan
sponsored by the employer that consists of individual retirement
accounts, then the section 413(e) plan administrator must implement and
complete the spinoff as soon as reasonably practicable after the
employer initiates the spinoff. The section 413(e) plan administrator
is treated as satisfying the requirement of the prior sentence if the
spinoff is completed within 180 days of the date on which the
unresponsive participating employer initiates the spinoff.
(e) Required actions following employer's failure to meet
deadline--(1) In general--(i) Deadline for action. If, by the final
deadline described in paragraph (c)(1) of this section, the
unresponsive participating employer neither takes appropriate remedial
action pursuant to paragraph (c)(2) of this section nor initiates a
spinoff pursuant to paragraph (c)(3) of this section, then the
requirements of paragraph (e)(1)(ii) and (iii) of this section must be
satisfied.
(ii) Requirements for section 413(e) plan administrator. As soon as
reasonably practicable after the final deadline described in paragraph
(e)(1)(i) of this section, the section 413(e) plan administrator must--
(A) Stop accepting contributions from the unresponsive
participating employer and its employees;
(B) Provide notice to participants who are employees of the
unresponsive participating employer (and their beneficiaries) as
described in paragraph (e)(2) of this section; and
(C) Provide participants who are employees of the unresponsive
participating employer (and their beneficiaries) with an election
regarding treatment of their plan accounts to the extent provided in
paragraph (e)(3) or (4) of this section.
(iii) Timing of distributions. The section 413(e) plan
administrator must distribute benefits as soon as administratively
feasible following an individual's election that is made pursuant to
paragraph (e)(3) or (4) of this section or following the section 413(e)
plan administrator's determination that it is not required to provide
an individual with an election pursuant to paragraph (e)(4)(iv) of this
section.
(2) Contents of notification. The notice required under paragraph
(e)(1)(ii)(B) of this section must include the information described in
this paragraph (e)(2).
(i) No contributions. The notice must state that no further
contributions will be made to the section 413(e) plan on behalf of
participants who are employees of the unresponsive participating
employer.
(ii) Full vesting. The notice must state that participants who are
employees of the unresponsive participating employer have a
nonforfeitable right to amounts credited to their accounts that are
attributable to employment with the unresponsive participating
employer.
(iii) Information about disposition of accounts. The notice must
state that a participant who is an employee of the unresponsive
participating employer (or, if applicable, any beneficiary of the
participant) will receive additional information regarding the
disposition of the participant's or beneficiary's account.
(3) Election for direct rollover or to remain in section 413(e)
plan--(i) General rule. Except as provided in paragraph (e)(4) of this
section, a section 413(e) plan administrator must provide participants
who are employees of the unresponsive participating employer (and their
beneficiaries) with an election to have amounts attributable to the
employees of the unresponsive participating employer--
(A) Subject to the rules of paragraph (e)(5) of this section,
directly rolled over to an eligible retirement plan within the meaning
of section 402(c)(8); or
(B) Remain in the section 413(e) plan.
(ii) Default. An individual who fails to make an affirmative
election described in paragraph (e)(3)(i)(A) of this section is treated
as having elected to have the amounts described in paragraph (e)(3)(i)
of this section remain in the section 413(e) plan.
(iii) Individuals remaining in section 413(e) plan. If, pursuant to
paragraph (e)(3)(i)(B) of this section, an individual elects to have
the amounts described in paragraph (e)(3)(i) of this section remain in
the section 413(e) plan, those amounts must remain in the section
413(e) plan until a distribution is made under the terms of the plan
without regard to section 413(e). To determine whether a participant is
entitled to a distribution upon severance from employment under the
terms of the plan without regard to section 413(e), a section 413(e)
plan administrator may rely on the participant's representation that
the participant has experienced a severance from employment unless the
plan administrator has actual knowledge to the contrary.
(4) Rules for individuals subject to mandatory distributions--(i)
No election to remain in plan. The option to remain in the plan
described in paragraph (e)(3)(i)(B) of this section with respect to
amounts described in paragraph (e)(3)(i) of this section is not
available to an individual if the terms of the plan would have provided
for a mandatory distribution of those amounts had the participant
experienced a severance from employment. Instead, those amounts must be
distributed from the section 413(e) plan.
(ii) Mandatory distributions subject to automatic rollover. The
portion of the mandatory distribution that is an eligible rollover
distribution subject to section 401(a)(31)(B) must be directly rolled
over to an eligible retirement plan. In accordance with section
401(a)(31)(B), the section 413(e) plan administrator must provide the
individual with an election for the eligible retirement plan to be--
(A) An eligible retirement plan chosen by the individual, or
(B) An individual retirement plan of a designated trustee or
issuer.
(iii) Mandatory distributions not subject to automatic rollover.
For the portion of the mandatory distribution that is an eligible
rollover distribution subject to section 401(a)(31)(A) (but not section
401(a)(31)(B)), the section 413(e) plan administrator must provide the
individual with an election in accordance with section 401(a)(31)(A)
for that portion to be--
(A) Rolled over directly to an eligible retirement plan chosen by
the individual; or
(B) If no eligible retirement plan is chosen pursuant to paragraph
(e)(4)(iii)(A) of this section, paid directly to the individual.
(iv) Individuals who are ineligible for direct rollover. For any
portion of a mandatory distribution that is not subject to the
requirement to offer a direct rollover option under section 401(a)(31),
the section 413(e) plan administrator must pay the individual. For
example, a section 413(e) plan administrator is not required to provide
an election to an individual with an account balance of less than $200
if, consistent with section 411(a)(11) and Sec. 1.401(a)(31)-1, Q&A-
11, plan terms require that mandatory distributions of less than $200
be paid directly to distributees.
(5) Amounts not eligible for rollover. If an individual makes an
election to have an amount described in paragraph (e)(3)(i) of this
section directly rolled over to an eligible retirement plan pursuant to
paragraph (e)(3) or (4) of this section, and a portion of the amount is
not an eligible rollover distribution described in section 402(c)(4),
then that portion must be paid directly to the individual. For example,
the portion of a distribution that would be a required minimum
distribution under section
[[Page 17241]]
401(a)(9) must be paid directly to the individual.
(6) Effective opportunity to make election. Any election that is
provided to an individual pursuant to paragraph (e)(3) or (4) of this
section must include an effective opportunity for the individual to
make the election. Whether an individual has an effective opportunity
to make an election is determined based on all the relevant facts and
circumstances, including the adequacy of notice of the availability of
the election, the period of time during which the election may be made,
and any other conditions on the election.
(f) Other rules--(1) Form of notices and elections. Any notice
provided or election made pursuant to paragraph (b) or (e) of this
section must be in written or electronic form. For notices and
elections provided to or made by participants and beneficiaries, see
generally Sec. 1.401(a)-21 for rules permitting the use of electronic
media to provide applicable notices and make participant elections with
respect to retirement plans.
(2) Status of spun-off plan. In the case of any plan that is spun
off in accordance with paragraph (d)(2) of this section, any
participating employer failure that would have caused the section
413(e) plan to fail to meet the requirements of section 401(a) or 408,
as applicable, but for the application of the exception set forth in
paragraph (a)(1) of this section, will result in the spun-off plan
failing to meet those requirements.
(3) Responsible parties. A participating employer demonstrates a
lack of commitment to compliance if the participating employer fails to
take appropriate remedial action pursuant to paragraph (c)(2) of this
section or initiate a spinoff pursuant to paragraph (c)(3) of this
section by the final deadline described in paragraph (c)(1) of this
section. The IRS reserves the right to pursue appropriate remedies
under the Code against any party (such as the owner of the
participating employer) who is responsible for the failure to satisfy
the requirements of section 401(a) or 408, as applicable, even in the
party's capacity as a participant or beneficiary (such as by not
treating a section 413(e) plan distribution made with respect to the
owner of a participating employer as an eligible rollover
distribution).
(g) Applicability date. This section applies beginning on
[PUBLICATION DATE OF FINAL RULE].
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2022-06005 Filed 3-25-22; 8:45 am]
BILLING CODE 4830-01-P
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</html>Indexed from Federal Register on March 28, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.