Tag: Defined contribution plans

DOL Proposes New Safe Harbor for Investment Selection

The Department of Labor recently proposed a new regulation titled Fiduciary Duties in Selecting Designated Investment Alternatives, which would establish a six-factor safe harbor for prudent investment selection applicable to every investment option on a defined contribution plan’s menu, not just alternative assets. Fiduciaries who objectively, thoroughly, and analytically evaluate all six factors when selecting a designated investment alternative (DIA) would receive a presumption of prudence entitled to “significant deference” in litigation and DOL enforcement. This is one of the most consequential ERISA fiduciary investment proposals in decades. Although the rule is currently proposed, not final, and reliance is not yet authorized — the comment deadline is June 1, 2026 — Plan sponsors and investment committees should be ready to act as soon as the regulation is finalized. Specifically, at your next committee meeting be ready to review the six-factor framework, and begin aligning your practices when selecting investment options to add to the plan lineup, to take advantage of the safe harbor.

Background

Why have alternative investments been absent from most 401(k) plans? The short answer is litigation risk. The DOL’s preamble acknowledges that more than 500 ERISA class action suits have been filed since 2016, resulting in more than $1 billion in settlements since 2020. Alternative investments — private equity, private credit, real estate, digital assets, infrastructure, and commodities — are already standard investments in many defined benefit pension plans, where they are evaluated by sophisticated institutional fiduciaries. But in 401(k) and 403(b) plans, their features (higher fees, limited liquidity, complex valuation, non-public pricing) have made plan sponsors reluctant to include them, for fear of generating lawsuits that would be difficult and expensive to defend even if the investment was, in fact, prudent.

The current proposal follows directly from President Trump’s August 2025 Executive Order (E.O. 14330), which directed DOL to clarify ERISA fiduciary duties in connection with alternative assets and propose safe harbors to curb litigation that constrains fiduciary judgment. The DOL went further than the Executive Order required: rather than limiting the rule to alternative assets, DOL drafted an asset-neutral, principles-based regulation that applies to the selection of any DIA — mutual funds and index funds included. The DOL also simultaneously rescinded its August 2025 supplemental statement that had previously cautioned fiduciaries against private equity in typical 401(k) plans.

This proposed regulation supplements, but does not replace, the existing 1979 Investment Duties Regulation (29 C.F.R. § 2550.404a-1). Nothing in the proposal changes the ERISA duty of loyalty or the existing prohibited transaction rules.

What the Proposed Rule Would Do

The proposed regulation would add 29 C.F.R. § 2550.404a-6. It applies to participant-directed individual account plans (401(k), 403(b), and similar DC plans). It covers the selection of any DIA on the plan’s investment menu, expressly excluding brokerage windows. The rule confirms three foundational principles: (1) ERISA is grounded in process; (2) plan fiduciaries have maximum discretion and flexibility in selecting DIAs, including alternative assets; and (3) when decision-making follows a prudent process, arbiters of disputes — including courts — should defer to fiduciaries under a presumption of prudence. Investments that are illegal under federal law (e.g., investments in foreign adversaries or OFAC-sanctioned entities) are categorically excluded.

The Six-Factor Safe Harbor

Proposed Section 2550.404a-6(f) provides that a fiduciary who objectively, thoroughly, and analytically considers, and makes appropriate determinations on, each of the following six factors is presumed to have satisfied the duty of prudence under ERISA Section 404(a)(1)(B). The six factors are non-exhaustive — fiduciaries must still consider any other facts and circumstances they know or should know are relevant. The safe harbor is only as strong as the documentation supporting it.

  1. Performance. Expected and historical performance must be assessed in light of the investment’s objectives, strategy, and intended role in the menu. Performance should not be evaluated in isolation; it must be considered in relation to participant outcomes over time. The proposal expressly states there is no presumption against new or innovative investment designs — but fiduciaries must seek the “best possible comparators” for novel strategies.
  2. Fees and Expenses. Fiduciaries must consider a reasonable number of similar alternatives and determine that fees are appropriate, taking into account risk-adjusted expected returns net of fees and any other value the DIA brings to the plan. Fee review is not a standalone inquiry — it must be weighed against investment value.
  3. Liquidity. The fiduciary must evaluate the liquidity profile of the DIA and confirm it is compatible with the plan’s participant liquidity needs (job changes, retirements, hardship withdrawals, plan loans). This factor will require heightened analysis for alternatives with redemption windows, gates, or lock-up periods. The proposal acknowledges that some illiquidity may be acceptable if the investment otherwise merits inclusion.
  4. Valuation. Fiduciaries must understand how the investment is valued and how frequently. For publicly traded assets, valuation is generally deemed satisfied. For assets without a recognized public market, additional due diligence is required — including mutual funds with underlying non-public securities. Valuation methodology must be credible, well-governed, and free from conflicts of interest.
  5. Meaningful Benchmark. Risk-adjusted returns must be compared to a meaningful benchmark — a comparator with similar mandate, objectives, strategy, and risk profile. This factor directly tracks the issue pending before the Supreme Court in Anderson v. Intel Corp. Investment Policy Committee, No. 25-498 (S. Ct., cert. granted Jan. 16, 2026), which will decide whether ERISA plaintiffs must plead a meaningful benchmark to survive a motion to dismiss. The Supreme Court’s decision (expected by mid-2027) may affect how this factor is interpreted in the final rule.
  6. Complexity. Fiduciaries must determine they have the skills, knowledge, experience, and capacity to comprehend the DIA sufficiently to discharge their ERISA obligations — or must seek assistance from a qualified investment adviser or investment manager. Complexity is not disqualifying, but more complex investments require stronger diligence, more robust documentation, and may require engagement of specialized advisers.

Presumption of Prudence and Judicial Deference

The safe harbor creates a presumption that the fiduciary’s selection decision was reasonable and entitled to significant judicial deference, provided the six-factor analysis was conducted objectively, thoroughly, and analytically. DOL has deliberately framed the rule to reduce litigation risk by establishing that courts and other arbiters should defer to fiduciaries who follow the process — not second-guess the outcome. This is consistent with the current DOL’s enforcement posture under FAB 2026-01 (issued April 14, 2026), which also directs EBSA staff to concentrate enforcement on egregious misconduct rather than novel theories.

What the Rule Does Not Cover

The proposed rule addresses DIA selection only. DOL has separately indicated that guidance on the ongoing fiduciary duty to monitor DIAs after selection is forthcoming. Until that monitoring guidance is issued, fiduciaries should consider using the proposed six-factor framework to inform their ongoing monitoring practices as well. The rule also does not alter the duty of loyalty, ERISA’s prohibited transaction rules, or the ERISA Section 404(c) participant direction safe harbor.

Action Items for Plan Sponsors

  • Brief your investment committee. Investment committee members should understand that a major shift in the fiduciary investment selection framework is underway, that the rule intersects with pending Supreme Court litigation (Anderson v. Intel), and that the standards for what constitutes a defensible selection process are becoming more specific and more public. This is an appropriate topic for the next committee meeting.
  • Map your current investment review process to the six factors now. Even though the rule is not final, the six factors — performance, fees, liquidity, valuation, meaningful benchmark, and complexity — represent DOL’s clearest statement yet of what “acting prudently” looks like in investment selection. Begin assessing whether your current investment committee process and documentation capture each factor. This is a documentation hygiene exercise as much as a compliance exercise.
  • Do not rush to add alternative investments in reliance on this proposal. Reliance on the proposed rule is not yet authorized. Wait for the final rule before concluding that any alternative investment is safe to add under this framework
  • Be Ready to Review your existing lineup; Committee Charter, advisory agreements and processes once the rule is finalized.
  • Do not confuse this proposed rule with the Investment Advice Fiduciary Rule which was separately vacated and became effective April 20, 2026 under the restored 1975 five-part test. This proposed rule addresses DIA selection, not the definition of investment advice fiduciary status. Please see our alert regarding that issue here.

ERISA Corrections Beyond EPCRS – Recording Now Available

We recently hosted a Lunch & Learn webinar on a topic that is both nuanced and crucial for retirement plan professionals: ERISA corrections outside the guidance of the IRS’s Employee Plans Compliance Resolution System (EPCRS).

The session brought together financial advisers, recordkeepers, TPAs, plan auditors, and other industry professionals for a practical discussion on how to address plan issues that fall into the “gray areas” of compliance—those not directly addressed by EPCRS.

🔍 What We Covered:

  • Real-life examples of errors that didn’t qualify for EPCRS treatment
  • Creative but compliant strategies for resolution
  • Legal considerations and risk mitigation techniques
  • Best practices for documenting and communicating corrections

Whether you’re responsible for plan administration, auditing, or advising plan sponsors, this webinar provided actionable insights to help you handle unusual or complex correction scenarios with confidence.

🎥 Missed the Webinar?

No problem! The full recording is available here:
👉 Watch the webinar

We’re grateful to everyone who attended and engaged with thoughtful questions and comments. If you’d like to discuss a specific correction scenario or need help navigating an issue outside EPCRS, feel free to reach out to our team.

Stay tuned for upcoming events and resources focused on practical ERISA compliance!

Department of Labor Adds Self-Correction to Voluntary Fiduciary Correction Program

The Department of Labor (DOL) published significant updates to its Voluntary Fiduciary Correction Program (VFCP) on January 15, 2025. These updates are designed to make it easier for employers and plan fiduciaries to avoid potential DOL civil enforcement and penalties if they voluntarily correct certain fiduciary breaches.

Key Changes – Addition of Self-Correction Features

The updated VFCP adds two new self correction categories, which better align the DOL’s VFCP with the IRS’s Employee Plans Compliance Resolution System (EPCRS), so that common issues subject to correction under both programs (to gain relief from both IRS and DOL enforcement) can be now be self-corrected. Previously, many failures that could be self-corrected under the IRS’s EPCRS required a formal VFCP application.

New Self-Correction Tool for Delinquent Contributions and Loan Payments

The most significant update to the VFCP is the introduction of a new self-correction tool, which employers and other plan officials can use to remedy delays in transmitting participant contributions and participant loan repayments to retirement plans. These are the most common fiduciary breaches requiring correction under both EPCRS and VFCP.

The VFCP imposes six broad requirements for self-correction of delinquent participant contributions or loan repayments involving retirement plans:

1. $1,000 Earnings Limit. The amount of Lost Earnings on the delinquent participant contributions or loan repayments must be $1,000 or less

2. 180 Limit. The delinquent participant contributions or loan repayments must have been remitted to the plan within 180 calendar days from the date of withholding from participants’ paychecks or receipt by the employer.

3. Lost Earnings Calculation Requirement. The Lost Earnings must be calculated using the DOL online calculator, starting from the “Date of Withholding or Receipt” (NOT from the earliest date the contributions could have been made to the plan)

4. SCC Notice Electronic Filing. The employer or other self-corrector must electronically file a Self-Correction Component Notice with the DOL, which must include: 

  • the name and an email address for the self-corrector;
  • the plan name; 
  • the plan sponsor’s nine-digit employer identification number (EIN);
  • the plan’s three-digit number (PN); 
  • the Principal Amount; 
  • the amount of Lost Earnings and the date paid to the plan; 
  • the Loss Date (for purposes of the SCC, the Date(s) of Withholding or Receipt); and 
  • the number of participants affected by the correction. 

5. Penalty of Perjury Statement. A plan fiduciary with knowledge of the transaction that is being self-corrected and each Plan Official seeking relief under the program must sign a penalty of perjury statement.

6. Self-Correction Checklist and Document Retention. Self-correctors must prepare a SCC Retention Record Checklist and collect a list of documents, and provide the completed checklist and required documentation to the plan administrator. The checklist and documents include:

  • A brief statement explaining why the employer retained the participant contributions or loan repayments instead of timely forwarding such amounts to the plan;
  • Proof of payment, showing the actual date the plan received the corrective payment;
  • Lost Earnings printout from the DOL online Calculator;
  • A statement describing policies and procedures (if any) that the employer put into place to prevent future delinquencies of participant contributions or loan repayments;
  • A copy of the SCC Notice Acknowledgement and Summary page received from EBSA after electronic submission of the SCC notice; and
  • The required Penalty of Perjury statement

Also Note: Self-correction does not relieve plans from reporting delinquent participant contributions on the plan’s Form 5500 or Form 5500-SF, as applicable.

Self-Correction for Certain Participant Loan Failures Self-Corrected Under the Internal Revenue Service’s Employee Plans Compliance Resolution System (EPCRS.)

The updated VFCP also adds a new Self-Correction Component for participant loan failures, which allows self-correction of the following transactions, provided that they are eligible for, and have been self-corrected under, the IRS’s EPCRS:

  • Loans, the terms of which did not comply with plan and Code provisions concerning amount, duration, or level amortization, or loans that defaulted due to a failure to withhold loan repayments from the participant’s wages;
  • The failure to obtain spousal consent for a plan loan;
  • Loans that exceed the number permitted under the terms of the plan; and
  • Any eligible inadvertent failure relating to a participant loan that is self-corrected in accordance with EPCRS

Other VFCP Changes

The updated VFCP makes some additional changes, that will make it easier for employers to use the program, including

Expanded Scope of Eligible Transactions: The VFCP now covers a wider range of transactions that can be corrected. This includes transactions that were previously ineligible, such as certain types of excess contributions.

Clarification of Existing Corrections: The DOL has clarified the types of transactions that are already eligible for correction under the VFCP. This will help employers and plan officials determine whether they can take advantage of the program.

Simplified Procedures: The DOL has simplified the administrative and procedural requirements for using the VFCP. This will make it easier and less time-consuming for employers and plan officials to correct fiduciary breaches.

Updated Class Exemption: The DOL has amended the VFCP class exemption to reflect the changes to the program.

The updated VFCP goes into effect on March 17, 2025.

Attorney Kristi Hill Receives Distinguished Legal Writing Award

ERISA Benefits Law is proud to announce that attorney Kristi Hill has been recognized as one of the nations finest law firm writers, by the Burton Awards, a national 501(c)(3) non-profit program, which is run in association with the Library of Congress. This award is made to a select group of 20 attorneys who demonstrate the highest standard of excellence in legal writing. Kristi won the award for her article Secure Act 2.0 – New and Enhanced Retirement Tools, which was published in the April 2023 edition of the Arizona Attorney magazine.

Kristi’s Law360 Distinguished Legal Writing Award will be presented by lead sponsor Law360, and co-sponsored by the American Bar Association, at an awards program to be held at the Library of Congress on May 20, 2024.

Congratulations, Kristi!

IRS Announces COLA Adjusted Retirement Plan Limitations for 2022

The Internal Revenue Service today released Notice 2021-61 announcing cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2022.

Highlights Affecting Plan Sponsors of Qualified Plans for 2022

  • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,500 to $20,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,500.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains is increased from $13,500 to $14,000.
  • The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • The limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $230,000 to $245,000.
  • The limitation for defined contribution plans under Section 415(c)(1)(A) is increased for 2022 from $58,000 to $61,000.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $290,000 to $305,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $185,000 to $200,000.
  • The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from $1,165,000 to $1,230,000, while the dollar amount used to determine the lengthening of the five year distribution period is increased from $230,000 to $245,000.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $130,000 to $135,000.

The IRS previously updated Health Savings Account limits for 2021. See our post here.

The following chart summarizes various significant benefit Plan limits for 2020 through 2022:

Type of Limitation202220212020
415 Defined Benefit Plans$245,000$230,000$230,000
415 Defined Contribution Plans$61,000$58,000$57,000
Defined Contribution Elective Deferrals$20,500$19,500$19,500
Defined Contribution Catch-Up Deferrals$6,500$6,500$6,500
SIMPLE Employee Deferrals$14,000$13,500$13,500
SIMPLE Catch-Up Deferrals$3,000$3,000$3,000
Annual Compensation Limit$305,000$290,000$285,000
SEP Minimum Compensation$650$650$600
SEP Annual Compensation Limit$305,000$290,000$285,000
Highly Compensated$135,000$130,000$130,000
Key Employee (Officer)$200,000$185,000$185,000
Income Subject To Social Security Tax  (FICA)$147,000$142,800$137,700
Social Security (FICA) Tax For ER & EE (each pays)6.20%6.20%6.20%
Social Security (Med. HI) Tax For ERs & EEs (each pays)1.45%1.45%1.45%
SECA (FICA Portion) for Self-Employed12.40%12.40%12.40%
SECA (Med. HI Portion) For Self-Employed2.90%2.90%2.90%
IRA Contribution$6,000$6,000$6,000
IRA Catch-Up Contribution$1,000$1,000$1,000
HSA Max. Contributions Single/Family Coverage$3,650/ $7,300$3,600/ $7,200$3,550/ $7,100
HSA Catchup Contributions$1,000$1,000$1,000
HSA Min. Annual Deductible Single/Family$1,400/ $2,800$1,400/ $2,800$1,400/ $2,800
HSA Max. Out Of Pocket Single/Family$7,050/ $14,100$7,000/ $14,000$6,900/ $13,800

Presence Not Required – IRS Extends Remote Signature Procedures for Qualified Plans

The IRS has extended temporary relief allowing plan representatives to witness participant elections or spousal waivers via videoconference until June 30, 2021. 

The IRS initially provided relief from the physical presence requirement from January 1, 2020 through December 31, 2020 in IRS Notice 2020-42 in response to the COVID-19 related social distancing restrictions. On December 22, 2020, the IRS extended that relief through June 30, 2020 through IRS Notice 2021-03.

The relief provides that participant elections required to be witnessed by a plan representative or notary public, including spousal consent, may be satisfied using alternative procedures that do not require physical presence. For a participant election witnessed by a notary public, the physical presence requirement is deemed satisfied with remote notarization using live audio-video technology that satisfies certain requirements. For a participant or spousal election witnessed by a plan representative, the physical presence requirement is deemed satisfied if an audio-video system is used that satisfies the following requirements:

  1. The individual signing the election presents a valid photo ID to the plan representative during the videoconference (transmitting the ID before or after the videoconference is not good enough);
  2. The video conference is live and allows direct interaction between the participant and plan representative;
  3. The individual faxes or electronically transmits a legible copy of the signed document to the plan representative on the same day it is signed; and
  4. After receiving the signed document, the plan representative acknowledges that the signature has been witnessed by the plan representative and transmits the signed document, including the acknowledgement, back to the individual using an electronic medium the individual can easily access.

Notice 2021-03

Employee Benefits Relief in the Year-End COVID-19 Stimulus Legislation

The Consolidated Appropriations Act, 2021 (H.R. 133) (the “Act”) was passed by both houses of Congress on December 21, 2020, and signed into law by the President on December 27, 2020. The Act is an incredible 5,593 pages long and contains both an omnibus spending bill to fund the government through September 30, 2021 and a COVID-19 stimulus package that provides approximately $900 billion in emergency relief to individuals and businesses.

The Act contains numerous provisions that impact employee benefit plans. The principal takeaways from the Act that plan sponsors must consider are summarized below. In contrast to the length of the Act itself, this alert is intended to provide a high level summary. Please reach out to us if you have specific questions about the Act.

Health and Welfare Plan Related Provisions

This is the largest health care legislative package since the Affordable Care Act and the Act includes almost a dozen new patient protections with quickly approaching effective dates, which will result in significant new regulation being issued in 2021.

FSA Flexibility

The Act provides for significant additional flexibility for both health care flexible spending arrangements (“FSA”) and dependent care FSAs. These provisions are optional, not required, and employers will need to amend their plans to provide the new rights, if they choose to offer them.

Carryover. Any unused funds in FSAs from a plan year ending in 2020 or 2021 may be carried over and used at any time in the next plan year. These carryovers will be allowed under rules similar to the existing carryover rules for health FSAs (but without the dollar limit on carryovers).

Grace Periods. FSAs with grace periods may extend those grace periods to up 12 months for plan years ending in 2020 or 2021. Normally, grace periods have a maximum 2 ½-month period.

Post-Termination Reimbursement. If an employee terminates participation during calendar year 2020 or 2021, FSAs may also reimburse for otherwise eligible expenses incurred through the end of that year (plus any grace period).

Dependent Care Post-Age 13 Coverage. For dependent care FSAs, if a dependent became too old to have their care expenses reimbursed (age 13) due to the pandemic, any unused funds may be used for the remainder of the plan year in which they aged out. Further, if any funds remain unused at that time, those funds can be used until the child turns 14.

Prospective Changes Permitted. For plan years ending in 2021, employees may prospectively change their FSA contributions without incurring a permitted election change event.

“No Surprise” Medical Billing Provisions

Under a section titled the “No Surprises Act,” the Act includes several provisions to regulate surprise medical billing from certain non network providers, air ambulances and for emergency services. These provisions concern bills from out-of-network providers requiring more money from the patient after the health plan has paid its part. This can happen in an emergency setting or where a patient goes into an in-network hospital, but is treated there by an out-of-network provider.

Generally, the Act provides that individuals covered by a group health plan or individual/group health insurance receiving non-emergency services at a network facility cannot be balance billed by a non-network provider, unless the non-network provider provides notice to the individual and the individual consents. An exception exists for “ancillary services”, such as anesthesiology, pathology, and radiology, and the Act also fleshes out associated details, such as payment timelines and dispute resolution processes.

The agencies are required to begin finalizing implementing regulations regarding the methodology for making payments by July 1, 2021, with the rest to come by December 31, 2021. These provisions become effective January 1, 2022.

These rules replace the current Affordable Care Act rules governing the payment of emergency services and apply to both grandfathered and non-grandfathered plans.

Additional Health Plan Provisions

ID Card Information. ID cards for group health plans (physical or electronic) must include, in clear writing, the deductible, out-of-pocket limits, and consumer assistance information.

Continuity of Care. Patients undergoing treatment for a serious and complex condition, who are pregnant, receiving inpatient care, scheduled for non-elective surgery or terminally ill must be notified if their provider leaves the network and given the opportunity to continue care (at an in-network rate) for 90 days.

Cost Comparison Tools. Plans and carriers will be required to offer cost comparison tools (via phone or the internet) starting with plan years beginning on or after January 1, 2022.

Gag Clauses Prohibited. “Gag” clauses will be prohibited. These clauses prevent health plans from sharing provider-specific reimbursements and information. Prohibiting these clauses facilitates the creation of the cost-comparison tools.

Provider Directories. Group health plans must update provider directories at least every 90 days and establish a system to respond to inquiries about the network status of a provider within one business day.

Mental Health Parity. Plans will be required to analyze the nonquantitative treatment limitations that they apply to mental health and substance use disorder benefits to show that the limitations are comparable to those that are used for medical/surgical benefits.

Retirement Plan Related Provisions

Partial Plan Terminations. The Act provides for temporary relief from the 100% vesting requirement for partial plan terminations caused by employee turnover under Code section 411(d)(3) if the turnover is due to COVID-19. A qualified plan will not incur a partial termination during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020.

Coronavirus-Related Distributions. The Act extends the COVID-19 in-service distribution relief under the CARES Act to money purchase pension plans.

Disaster Relief (Not Including COVID). The Act provides special disaster related distribution and loan rules (similar to prior natural disaster relief, including a distribution right, increase in loan limits, loan suspensions, etc.) for FEMA declared disasters (other than COVID-19) from January 1, 2020 through 60 days after enactment of the Act. 

Consolidated Appropriations Act, 2021

IRS Announces COLA Adjusted Retirement Plan Limitations for 2021

The Internal Revenue Service today released Notice 2020-79 announcing cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2021.

Highlights Affecting Plan Sponsors of Qualified Plans for 2021

  • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $19,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,500.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $13,500.
  • The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • The limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $230,000.
  • The limitation for defined contribution plans under Section 415(c)(1)(A) is increased for 2021 from $57,000 to $58,000.
  • The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $285,000 to $290,000.
  • The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan remains unchanged at $185,000.
  • The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five year distribution period is increased from $1,150,000 to $1,165,000, while the dollar amount used to determine the lengthening of the five year distribution period remains unchanged at $230,000.
  • The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $130,000.

The IRS previously updated Health Savings Account limits for 2021. See our post here.

The following chart summarizes various significant benefit Plan limits for 2019 through 2021:

Type of Limitation202120202019
415 Defined Benefit Plans$230,000$230,000$225,000
415 Defined Contribution Plans$58,000$57,000$56,000
Defined Contribution Elective Deferrals$19,500$19,500$19,000
Defined Contribution Catch-Up Deferrals$6,500$6,500$6,000
SIMPLE Employee Deferrals$13,500$13,500$13,000
SIMPLE Catch-Up Deferrals$3,000$3,000$3,000
Annual Compensation Limit$290,000$285,000$280,000
SEP Minimum Compensation$650$600$600
SEP Annual Compensation Limit$290,000$285,000$280,000
Highly Compensated$130,000$130,000$125,000
Key Employee (Officer)$185,000$185,000$180,000
Income Subject To Social Security Tax  (FICA)$142,800$137,700$132,900
Social Security (FICA) Tax For ER & EE (each pays)6.20%6.20%6.20%
Social Security (Med. HI) Tax For ERs & EEs (each pays)1.45%1.45%1.45%
SECA (FICA Portion) for Self-Employed12.40%12.40%12.40%
SECA (Med. HI Portion) For Self-Employed2.90%2.90%2.90%
IRA Contribution$6,000$6,000$6,000
IRA Catch-Up Contribution$1,000$1,000$1,000
HSA Max. Contributions Single/Family Coverage$3,600/
$7,200		$3,550/ $7,100$3,500/ $7,00
HSA Catchup Contributions$1,000$1,000$1,000
HSA Min. Annual Deductible Single/Family$1,400/ $2,800$1,400/ $2,800$1,350/ $2,700
HSA Max. Out Of Pocket Single/Family$7,000/
$14,000		$6,900/ $13,800$6,750/ $13,500

DOL Final Rule Facilitates Retirement Plan Electronic Disclosures

The U.S. Department of Labor (DOL) published a final rule on May 27, 2020 that will allow employers to post retirement plan disclosures online or deliver them to employees by email, as a default. The DOL believes this will make it easier for employers to furnish retirement plan disclosures electronically, reducing administrative expenses and making disclosures more readily accessible and useful for employees.

Background

There are approximately 700,000 retirement plans covered by ERISA, covering approximately 137 million participants. ERISA-covered retirement plans must furnish multiple disclosures each year to participants and beneficiaries. The number of disclosures per year depends on the specific type of retirement plan, its features, and for defined benefit plans, the plan’s funding status.

Delivery methods for ERISA disclosures must be reasonably calculated to ensure that workers actually receive the disclosures. To deliver disclosures electronically, plan administrators previously had to rely on a regulatory safe harbor established by the DOL in 2002. See 29 CFR 2520.104b-1(c).

On August 31, 2018, the President issued Executive Order 13847, directing the DOL to review whether regulatory or other actions could be taken to make retirement plan disclosures more understandable and useful for participants and beneficiaries and to focus on reducing the costs and burdens that retirement plan disclosures impose on employers and others responsible for their production and distribution. The Order specifically emphasized that this review include an exploration of the potential for broader use of electronic delivery as a way to improve the effectiveness of the disclosures and to reduce their associated costs and burdens.

New Voluntary Safe Harbor

The new electronic disclosure rule establishes a new, voluntary safe harbor for retirement plan administrators who want to use electronic media, as a default, to furnish covered documents to covered individuals, rather than sending potentially large volumes of paper documents through the mail. The new safe harbor permits the following two optional methods for electronic delivery:

  1. Website Posting. Plan administrators may post covered documents on a website if appropriate notification of internet availability is furnished to the electronic addresses of covered individuals.
  2. Email Delivery. Alternatively, plan administrators may send covered documents directly to the electronic addresses of covered individuals, with the covered documents either in the body of the email or as an attachment to the email.

Retirement plan administrators who comply with the safe harbor will satisfy their statutory duty under ERISA to furnish covered documents to covered individuals. The safe harbor is limited in the following respects:

Limited Scope of the New Safe Harbor

The safe harbor is limited to retirement plan disclosures.

A plan administrator may use this safe harbor only for “covered individuals.” To be a covered individual, the person must be entitled under ERISA to receive covered documents and must have a valid electronic address (e.g., email address or smart phone number).

The new safe harbor does not supersede the 2002 safe harbor; the 2002 safe harbor remains in place as another option for plan administrators.

Protections for Plan Participants

The new safe harbor includes a variety of protections for covered individuals, including:
1. Right to Paper. Covered individuals can request paper copies of specific documents, or globally opt out of electronic delivery entirely, at any time, free of charge.

2. Initial Notification. Covered individuals must be furnished an initial notification, on paper, that the way they currently receive retirement plan disclosures (e.g., paper delivery in the US mail) is changing. The notice must inform them of the new electronic delivery method, the electronic address that will be used, and the right to opt out if they prefer paper disclosures, among other things. The notice must be given to them before the plan may use the new safe harbor.

3. Notifications of Internet Availability. Covered individuals generally must be furnished a notice of internet availability (NOIA) each time a new covered document is made available for review on the internet website.

To avoid “notice overload,” the final rule permits an annual NOIA to include information about multiple covered documents, instead of multiple NOIAs throughout the year.

The NOIA must briefly describe or identify the covered document that is being posted online, include an address or hyperlink to the website, and inform the covered individual of the right to request paper copies or to opt out of electronic delivery altogether.

The NOIA must be concise, understandable, and contain only specified information.

4. Website Retention. Covered documents must remain on an internet website until superseded by a subsequent version, but in no event for less than one year.

5. System Check for Invalid Electronic Addresses. Plan administrators must ensure that the electronic delivery system is designed to alert them if a participant’s electronic address is invalid or inoperable. In that case, the administrator must attempt to promptly cure the problem, or treat the participant as opting out of electronic delivery.

6. System Check at Termination of Employment. When someone leaves their job, the plan administrator must take steps to ensure the continued accuracy and operability of the person’s employer-provided electronic address.

Effective Date & Immediate Availability

The new safe harbor is effective July 27, 2020 (60 days after its publication in the Federal Register). However, the DOL, as an enforcement policy, will not take any enforcement action against a plan administrator that relies on this safe harbor before that date.

Erwin Kratz Discusses Fiduciary Compliance for Plan Sponsors

ERISA Benefits Law attorney Erwin Kratz was a panelist on “ERISA Principles That Every Plan Fiduciary Needs to Know”, presented by Wellspring Financial Partners on February 19, 2020. Erwin joined Eric Dyson of Wellspring, who discussed the four main fiduciary duties – the duties of Loyalty, of Prudence, to Diversify Plan Assets and to Follow the Plan Documents.

Erwin then provided practical tips for fiduciary compliance by discussing four points of impact when the “fiduciary rubber” most frequently hits the road:

  • When Restating your Plan
  • Top Three Mistakes a Committee Can Make
  • How to be a Good Committee Member; and
  • Working with your Non-Fiduciary Administrative Staff

View the YouTube video here:

And download a copy of the PowerPoint Presentation here:

ERISA Benefits Law Wellspring Financial Partners Fiduciary Presentation- February 2020Download