Retirement legislation updates for Q2 2022

June 29, 2022

Legislation surrounding retirement plans and regulations is always a hot topic for Congress in the United States. Read on to learn about newly introduced legislation and IRS changes from the second quarter of 2022.

Senate committee proposes retirement legislation

The Senate Health, Education, Labor, and Pensions Committee approved the bipartisan Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (also known as the RISE & SHINE Act) by unanimous voice vote June 14. Congressional watchers believe major retirement reform can be enacted this year. For that to happen, the RISE & SHINE Act is expected to be merged with the Senate Finance Committee’s counterpart to the House’s SECURE 2.0 bill. The Senate’s version of SECURE 2.0 is anticipated in the next few months; then, the House SECURE 2.0 bill and the Senate companion bill will need to be reconciled to address the minor differences in the bills. A final bill could potentially be passed into law after the November elections, but before the end of the year.

Key provisions of the RISE & SHINE Act include the following:

  • Increase in mandatory distribution dollar limit. Under current law, an employer may transfer a former employee’s retirement account balance to an automatic rollover IRA if the employee’s account balance is between $1,000 and $5,000. The RISE & SHINE Act would increase the $5,000 limit to $7,000.
  • Provisions for long-term part-time employees. The SECURE Act requires a long-term part-time employee be allowed to participate in the elective deferral portion of a 401(k) plan if they are credited with at least 500 hours of service in three consecutive eligibility computation periods (“ECP”). The RISE & SHINE Act would decrease the required service from three to two consecutive ECPs.
  • Emergency savings account provisions. The RISE & SHINE Act would allow, but not require, a participant to maintain an emergency savings account in a 401(k) plan. The savings account would be capped at $2,500 (or lower amount as determined by the employer), and funded with Roth deferrals and/or after-tax employer contributions.

IRS announces new pre-audit compliance program

On June 3, the IRS announced a new pre-audit compliance program aimed at reducing taxpayer burden and the amount of time the IRS spends on retirement plan examinations.

Under the pilot program, the IRS will send written notice to an employer when a plan has been selected for audit. The employer will have 90 days to (1) review the plan’s document and operations; (2) correct any compliance issues as needed; and (3) notify the IRS of the corrective action taken, if any. If the employer does not respond within 90 days, or the IRS is not satisfied with the employer’s response, the IRS will schedule the plan for a limited or full-scope examination.

To our knowledge, the IRS has already started sending 90-day letters to employers. Accordingly, if you receive a 90-day letter, it is recommended that you immediately contact Union Bank and ERISA counsel to determine what action should be taken.

Although it’s unclear how long the pilot program will continue, when it ends, the IRS will evaluate its effectiveness and determine whether it should be made permanent. We will continue to keep you updated on current developments for retirement plans. If you have any questions, please contact your Relationship Manager.

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