IRS Issues Operational Compliance List for 2019 | Practical Law

IRS Issues Operational Compliance List for 2019 | Practical Law

On March 22, 2019, the Internal Revenue Service (IRS) issued the Operational Compliance List for tax-qualified retirement plans. The Operational Compliance List is mandated by IRS Rev. Proc. 2016-37 and notifies plan sponsors and service providers of changes to the tax-qualification requirements that became effective during the 2019 calendar year.

IRS Issues Operational Compliance List for 2019

Practical Law Legal Update w-019-6262 (Approx. 4 pages)

IRS Issues Operational Compliance List for 2019

by Practical Law Employee Benefits & Executive Compensation
Published on 25 Mar 2019 • USA (National/Federal)
On March 22, 2019, the Internal Revenue Service (IRS) issued the Operational Compliance List for tax-qualified retirement plans. The Operational Compliance List is mandated by IRS Rev. Proc. 2016-37 and notifies plan sponsors and service providers of changes to the tax-qualification requirements that became effective during the 2019 calendar year.
On March 22, 2019, the IRS issued the latest Operational Compliance List for tax-qualified retirement plans. Under IRS Rev. Proc. 2016-37, the Operational Compliance List identifies changes to the tax-qualification requirements for plans that will become effective during the 2019 calendar year. For more information on Rev. Proc. 2016-37, see Legal Update, IRS Provides Determination Letter Guidance in Revenue Procedure 2016-37.

Operational Compliance List 2019

The Operational Compliance List identifies two categories of changes to tax-qualification requirements that will take effect in 2019:
  • Changes relating to hardship distributions.
  • The extension of temporary nondiscrimination relief for closed defined benefit pension plans under Notice 2018-69.

Hardship Distributions

The Operational Compliance List includes changes relating to the rules for hardship distributions from retirement plans under:
  • The Bipartisan Budget Act of 2018. Sections 41113 and 41114 of the Act eliminate the requirement that a participant take an available loan under the plan before taking a hardship withdrawal, and expand the types of contributions and earnings a plan may make available for hardship distributions. The Act also requires the Secretary of the Treasury to amend the regulation containing the safe harbor (26 C.F.R. § 1.401(k)–1(d)(3)(iv)(E)(2)) to eliminate the six-month prohibition on contributions following a hardship distribution. These changes are effective for plan years beginning after December 31, 2018. To learn more about the Bipartisan Budget Act of 2018, see Legal Update, Latest Government Funding Legislation Impacts Retirement Plans and Includes Health Provisions.
  • The 2018 proposed IRS regulations on hardship withdrawals. The proposed regulations would revise the hardship distribution rules to reflect recent legislation, including, among other Acts, the Bipartisan Budget Act of 2018 and the Tax Cuts and Jobs Act of 2017 (83 Fed. Reg. 56763 (Nov. 14, 2018); see Legal Update, IRS Issues Proposed Regulations on Hardship Distribution Rules). The proposed regulations would, among other things:
    • prohibit a plan from suspending a participant's contributions as a condition of obtaining a hardship distribution;
    • revise the regulatory safe harbor list of expenses deemed to constitute an immediate and heavy financial need, including modifications regarding casualty losses and expenses incurred because of a federally declared disaster;
    • extend to the victims of Hurricanes Florence and Michael the relief from certain loan and hardship requirements that was provided for victims of Hurricane Maria and the California wildfires in IRS Announcement 2017-15; and
    • with certain exceptions, apply to distributions made in plan years beginning after December 31, 2018, but plans may choose to apply the changes to the list of safe harbor expenses to any hardship distribution made after December 31, 2017.

Closed DB Plans

The Operational Compliance List also includes Notice 2018-69, which extended, to plan years beginning before 2020, temporary nondiscrimination relief for closed defined benefit pension plans (see Legal Update, IRS Notice 2018-69 Extends Temporary Nondiscrimination Relief for Closed Defined Benefit Plans Through 2019).

Practical Implications

The Operational Compliance List helps plans remain operationally compliant by identifying changes in qualification requirements effective in 2019. It is important for tax-qualified retirement plan sponsors and service providers to be aware of the 2019 updates to the Operational Compliance List.