The Operational Compliance List ("OC" List) is provided per Rev. Proc. 2016-37, Section 10, to help plan sponsors and practitioners achieve operational compliance by identifying changes in qualification requirements effective during a calendar year. The OC List:
- Identifies matters that may involve either mandatory or discretionary plan amendments depending on the particular plan.
- May reference other significant guidance that affects daily plan operations.
- Is available on this webpage only; it won’t be in the Internal Revenue Bulletin.
The OC list doesn’t include annual, monthly, or other periodic changes that routinely occur (such as, cost-of-living increases, spot segment rates, and applicable mortality tables). You can find these items on the Employee Plans Recent Published Guidance webpage.
We’ll update the OC List periodically to reflect new legislation and IRS guidance. However, the OC List is not intended to be a comprehensive list of every item of IRS guidance or new legislation for a year that could affect a particular plan. For a complete list of IRS guidance, see Recent Published Guidance.
Note: In order to be qualified, a plan must comply operationally with each relevant qualification requirement, even if the requirement is not included on the OC List. A plan must be operated in compliance with a change in qualification requirements from the effective date of the change.
Effective in 2019
Changes Relating to Hardship Distributions.
- Bipartisan Budget Act of 2018, Sections 41113 and 41114. These sections of this act (a) provide that a distribution will not fail to be treated as made on account of hardship merely because the employee does not take any available loan from the plan, and (b) expand the types of contributions and earnings a plan may make available for hardship distributions. In addition, this legislation directs the IRS and Treasury to eliminate the safe harbor requirement to suspend participant contributions for six months in order for the distribution to be deemed necessary to satisfy an immediate and heavy financial need. These changes are effective for plan years beginning after December 31, 2018.
- Proposed Regulations Regarding Hardship Withdrawals (83 F.R. 56763). The proposed regulations would revise the 401(k) regulations to reflect legislation regarding hardship distributions. The proposed regulations would prohibit a plan from suspending a participant’s contributions as a condition of obtaining a hardship distribution. In addition, the proposed regulations would revise the safe harbor list of expenses deemed to constitute an immediate and heavy financial need, including modifications regarding casualty losses and disaster-related expenses. The proposed regulations are generally proposed to be effective for distributions made in plan years beginning after December 31, 2018, but would permit plans to (a) choose to cease suspension of contributions on the first day of the first plan year that begins after December 31, 2018, even for distributions made before that date, and (b) choose to apply the changes to the list of safe harbor expenses to any hardship distribution made after December 31, 2017. In addition, under the proposed regulations the requirement to obtain a representation that a distribution is necessary to satisfy a financial need would only apply for a distribution that is made after 2019, and the prohibition on a plan providing for a suspension of elective contributions or employee contributions as a condition of obtaining a hardship distribution would only apply for a distribution made after 2019.
- Note: The proposed regulations provide that any plan amendments relating to the final regulations will be treated as integrally related to a disqualifying provision, and will thus have the same amendment deadline as a disqualifying provision, as set forth in Rev. Proc. 2016-37. For example, for an individually designed plan that is not a governmental plan, any plan amendments relating to the final regulations must be made by the end of the second calendar year that begins after the issuance of an annual Required Amendments List that includes the final regulations.
- Note: Taxpayers may rely on the proposed regulations until the date of publication of final regulations in the Federal Register.
- Relief for Victims of Hurricanes Florence and Michael (83 F.R. 56766). The IRS and Treasury extended the retirement plan relief provided under Announcement 2017–15 to similarly situated victims of Hurricanes Florence and Michael, except that the ‘‘Incident Dates’’ (as defined in that announcement) are as specified by FEMA for these 2018 hurricanes, relief is provided through March 15, 2019, and any necessary amendments must be made no later than the deadline for amending a disqualifying provision, as set forth in Rev. Proc. 2016–37.
Extension of temporary nondiscrimination relief for closed defined benefit pension plans (Notice 2018-69). This notice extends, to plan years beginning before 2020, the relief provided to closed defined benefit plans under Notice 2014-5, as extended under Notice 2015-28, Notice 2016-57, and Notice 2017-45.
Effective in 2018
Final QNEC and QMAC Regulations (T.D. 9835). These regulations provide that employer contributions to a 401(k) plan can be qualified nonelective contributions or qualified matching contributions if they satisfy the applicable nonforfeitability requirements and distribution limitations at the time they are allocated to participants’ accounts. Accordingly, these regulations permit forfeitures to be used to fund qualified nonelective contributions and qualified matching contributions. The regulations apply to plan years beginning on or after July 20, 2018, but taxpayers may apply these regulations to earlier periods.
Relief for California Wildfires (Bipartisan Budget Act of 2018, Section 20102). A plan may offer participants affected by the California wildfires (a) new “qualified wildfire distributions,” subject to special tax treatment and recontribution options, and (b) plan loans of up to $100,000, subject to special repayment rules. To take advantage of the options provided under this legislation, the loans or distributions must be made within a specified time frame ending December 31, 2018. If the plan makes such loans or distributions, any necessary retroactive amendments must be adopted on or before the last day of the first plan year beginning on or after January 1, 2019 (or for IRC Section 414(d) governmental plans, the last day of the first plan year beginning on or after January 1, 2021). See, Pub. 976 for more information.
Extension of temporary nondiscrimination relief for closed defined benefit pension plans (Notice 2017-45). This notice extends, to plan years beginning before 2019, the relief provided to closed defined benefit plans under Notice 2014-5, as extended under Notice 2015-28 and Notice 2016-57. See also, Notice 2018-69.
Extended rollover periods for certain amounts. Recent legislation extended the deadline for individuals to roll over certain distributions from qualified retirement plans. A plan that accepts rollovers may choose to permit rollover contributions made within the new extended deadlines. The new rules extend the rollover deadline for:
- Qualified plan loan offset amounts (Tax Cuts and Jobs Act of 2017, Section 13613). Qualified plan loan offset amounts (as defined in IRC Section 402(c)(3)(C)(ii)) may be rolled over by the due date (including extensions) for filing the tax return for the taxable year in which such amount is treated as distributed from a qualified employer plan. (Qualified plan loan offsets include only certain offsets made upon separation of service or termination of the plan.) The extended due date applies to qualified plan loan offset amounts which are treated as distributed in taxable years beginning after December 31, 2017. See, IRC Section 402(c)(3)(C).
- Refunds of improper tax levies (Bipartisan Budget Act of 2018, Section 41104). A plan may choose to permit participants whose account or benefit under the plan had been subject to an improper federal tax levy to roll over to the plan any refund of such levy (including interest) that the participant subsequently receives from the IRS, no later than the due date (not including extensions) for filing the participant’s tax return for the taxable year in which the refund is received. These rules apply to levy refunds received in taxable years beginning after December 31, 2017. See, IRC Section 6343(f).
Modification of deduction for personal casualty losses (Tax Cuts and Jobs Act, Section 11044). Under IRC Section 165(h)(5), for taxable years 2018 through 2025, the deduction for a personal casualty loss generally is available only to the extent the loss is attributable to a federally declared disaster (as defined in IRC Section 165(h)(5)). However, see proposed Treasury Regs. Section 1.401(k)-1(d)(3)(ii)(B)(6) (related to deemed immediate and heavy financial need), which provide, in part, that expenses for the repair of damage to an employee’s principal residence that would qualify for the IRC Section 165 casualty deduction is determined without regard to IRC Section 165(h). Thus, for example, a plan that made hardship distributions relating to casualty losses deductible under IRC Section 165 without regard to the changes made to IRC Section 165 by this legislation may be amended to apply the revised safe harbor expense relating to casualty losses to distributions made in 2018 so that plan provisions will conform to the plan’s operation. Taxpayers may rely on the proposed regulations until the date of publication of final regulations in the Federal Register.
Effective in 2017
Relief for 2016 Disaster Areas (Tax Cuts and Jobs Act of 2017, Section 11028). Plans may offer participants affected by 2016 disasters “qualified 2016 disaster distributions,” subject to special tax treatment and recontribution options. Any qualified 2016 disaster distributions under this legislation must have been made on or after January 1, 2016, and before January 1, 2018. If the plan made such distributions, any necessary retroactive amendments must be adopted on or before the last day of the first plan year beginning on or after January 1, 2018 (or for IRC Section 414(d) governmental plans, the last day of the first plan year beginning on or after January 1, 2020).
Relief for plans that make loans and hardship distributions to victims of Hurricanes Harvey, Irma, and Maria and of the California wildfires (Announcement 2017-11, Announcement 2017-13, Announcement 2017-15). These announcements provide relief from certain requirements for loans and hardship distributions to victims of Hurricanes Harvey, Irma, and Maria, and to victims of the California wildfires, if certain conditions are met.
- Note: To make a loan or hardship distribution pursuant to the relief provided in these announcements, a plan that does not provide for them must be amended to provide for loans or hardship distributions no later than the end of the first plan year beginning after December 31, 2017, and other conditions must be met.
New “qualified hurricane distributions” and increased plan loan limits permitted for victims of Hurricanes Harvey, Irma, and Maria (Disaster Tax Relief and Airport and Airway Extension Act of 2017, Section 502, as amended by the Bipartisan Budget Act of 2018, Section 20201(a)). A plan may offer participants affected by Hurricanes Harvey, Irma, and Maria (a) new “qualified hurricane distributions,” subject to special tax treatment and recontribution options, and (b) plan loans of up to $100,000, subject to special repayment rules. To take advantage of the options provided under this legislation, the loans or qualified hurricane distributions must be made within a specific time frame ending December 31, 2018.
- Note: Plans that choose to offer the expanded distributions and/or loans permitted by this legislation must be amended to include the relevant provisions by the last day of the first plan year beginning on or after January 1, 2019 (or for IRC Section 414(d) governmental plans the last day of the first plan year beginning on or after January 1, 2021), and other conditions must be met.
Proposed Regulations regarding QNECs and QMACs in defined contribution plans (REG-131643-15). These proposed regulations provide that qualified matching contributions and qualified nonelective contributions must satisfy applicable nonforfeitability and distribution requirements at the time they are allocated to participants’ accounts but need not meet these requirements when they are contributed to the plan. These proposed regulations apply only to taxable years beginning on or after the publication of final regulations. Taxpayers were permitted to rely on these proposed regulations (including for periods prior to the issuance of the proposed regulations.)
Extension of temporary nondiscrimination relief for closed defined benefit pension plans (Notice 2016-57). This notice extends, to plan years beginning before 2018, the relief provided to closed defined benefit plans under Notice 2014-5, as extended under Notice 2015-28. Also see, Notice 2018-69.
Final regulations regarding partial annuity distribution options for defined benefit pension plans (T.D. 9783). Defined benefit plans that permit benefits to be paid partly in the form of an annuity and partly as a single sum (or other accelerated form) must do so in a manner that complies with the IRC Section 417(e) regulations. Treasury Regs. Section 1.417(e)-1(d)(7) provides rules under which the minimum present value rules of IRC Section 417(e)(3) apply to the distribution of only a portion of a participant’s accrued benefit. Treasury Regs. Section 1.417(e)-1(d)(7) applies to distributions with annuity starting dates in plan years beginning on or after January 1, 2017, but taxpayers may elect to apply Treasury Regs. Section 1.417(e)-1(d)(7) with respect to any earlier period.
Note: The regulations provide relief from the anti-cutback rules of IRC Section 411(d)(6) for certain amendments adopted on or before December 31, 2017.
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Note: Model amendments that a sponsor of a qualified defined benefit plan may use to amend its plan to offer bifurcated benefit distribution options in accordance with these regulations are provided in Notice 2017-44.
Final regulations regarding cash balance/hybrid plans (T.D. 9693 and T.D. 9743). Cash balance/hybrid plans must be amended to the extent necessary to comply with those portions of the regulations that first become applicable to the plan for the plan year beginning in 2017. (Treasury Regs. Section 1.411(b)(5)-1(f)(2)(i)(B)(3) provides an extended applicability date for certain collectively bargained plans; specifically, the applicability of the provisions referenced in Treasury Regs. Section 1.411(b)(5)-1(f)(2)(i)(B)(1) is extended to 2018 or 2019 for these plans.)
- Note: The relief from the anti-cutback requirements of IRC Section 411(d)(6) provided in Treas. Regs. Section 1.411(b)(5)-1(e)(3)(vi) applies only to plan amendments that are adopted before the effective date of these regulations.
- Also see, Notice 2016-67. This notice addresses the applicability of the market rate of return rules to implicit interest pension equity plans.
Application of benefit restrictions for certain defined benefit plans (eligible cooperative plans or eligible charity plans described in Section 104 of the Pension Protection Act of 2006, as amended (“PPA”)). An eligible cooperative plan or eligible charity plan that was not subject to the benefit restrictions of IRC Section 436 for the 2016 plan year under Section 104 of PPA ordinarily becomes subject to those restrictions for plan years beginning on or after January 1, 2017. However, this rule does not apply to a plan that fits within the definition of a Certain Cooperative and Small Employer Charity Pension Plan (“CSEC plan”) as defined in IRC Section 414(y), unless the plan sponsor has made an election for the plan not to be treated as a CSEC plan.
Effective in 2016
Relief for plans that make loans and hardship distributions to victims of Hurricane Matthew (Announcement 2016-39). This announcement provides relief from certain requirements for loans and hardship distributions to victims of Hurricane Matthew if certain conditions are met.
- Note: To make a loan or hardship distribution pursuant to the relief provided in this announcement, a qualified employer plan that does not provide for them must be amended to provide for loans or hardship distributions no later than the end of the first plan year beginning after December 31, 2016, and other conditions must be met.
Relief for plans that make loans and hardship distributions to victims of the Louisiana Storms (Announcement 2016-30). This announcement provides relief from certain requirements for loans and hardship distributions to victims of the Louisiana Storms if certain conditions are met.
- Note: To make a loan or hardship distribution pursuant to the relief provided in this announcement, a qualified employer plan that does not provide for them must be amended to provide for loans or hardship distributions no later than the end of the first plan year beginning after December 31, 2016, and other conditions must be met.
Mid-year changes to safe harbor 401(k) plans (Notice 2016-16). This notice permits mid-year changes to safe harbor 401(k) plans under certain circumstances.
Proposed regulations regarding nondiscrimination testing under section 401(a)(4) (REG-125761-14, as modified by Announcement 2016-16, which announced that the IRS will withdraw some portions of the proposed regulations). These proposed regulations propose changes to the nondiscrimination testing requirements (generally relating to testing contributions or benefits for a grandfathered group of employees with respect to a closed defined benefit plan.) Plan sponsors may choose to rely on the proposed regulations.
Proposed regulations regarding normal retirement age for governmental pension plans (REG-147310-12). These proposed regulations provide safe harbors and other rules regarding normal retirement age under an IRC Section 414(d) governmental pension plan. These regulations are proposed to be effective for employees hired during plan years beginning on or after the later of (1) January 1, 2017, or (2) the close of the first regular legislative session of the legislative body with the authority to amend the plan that begins on or after the date that is three months after the final regulations are published in the Federal Register. However, employers may choose to rely on these proposed regulations currently and for prior periods.
Extension of temporary nondiscrimination relief for closed defined benefit plans (Notice 2015-28). This notice extends the temporary nondiscrimination relief provided to closed defined benefit plans under Notice 2014-5, to plan years beginning before 2017. (Notice 2014-5 provides alternative nondiscrimination testing methods that sponsors of closed defined benefit plans may choose to use.) Also see, Notice 2018-69.
Restrictions on distributions in bankruptcy for collectively-bargained single-employer defined benefit plans (Highway and Transportation Funding Act of 2014, Section 2003). This Act provides that single-employer defined benefit plans may not use the adjustment of segment rates under IRC Section 430(h)(2)(C)(iv) in determining the plan’s adjusted funding attainment percentage for purposes of the restrictions on accelerated distributions in employer bankruptcy under IRC Section 436. For collectively-bargained plans, this rule is effective for plan years beginning after December 31, 2015.