Updated Operational Compliance List Reflects SECURE Act and Final Hardship Distribution Regulations

The IRS has updated its Operational Compliance (OC) list highlighting changes in tax-qualification requirements and other guidance affecting the operation of retirement plans. The OC list—available only on the IRS webpage—is one of two tools provided by the IRS to help individually designed plans maintain compliance (see our Checkpoint article). (The other is the annual required amendments list; see our Checkpoint article.) Beginning with this version, additions to the OC list will be dated, and prior-year entries will not be revised except for retroactive legislation or guidance. The updated list includes provisions effective in 2020 but does not yet reflect the Coronavirus Aid, Relief, and Economic Security (CARES) Act (see our Checkpoint article). New items have also been added to the lists of provisions effective in prior years (2016–19). Here are highlights for 401(k) plans:

• Final Regulations on Hardship Distributions. The list of changes effective in 2020 includes the final hardship distribution regulations, which modified prior rules on what events constitute qualifying hardships, the funds available for hardship distributions, and the standards used to determine whether those funds are needed to relieve a participant’s hardship (see our Checkpoint article). Revenue Procedure 2020-9, which clarified plan amendment issues relating to the final regulations (see our Checkpoint article), is also mentioned.
• SECURE Act Items. Other items on the list of changes effective in 2020 reflect the Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted as part of the Further Consolidated Appropriations Act, 2020 (FCAA) (see our Checkpoint article). These include changes relating to nondiscrimination safe harbors, new rules on lifetime income options, the addition of birth or adoption as a permitted distribution event, changes to the required minimum distribution rules, and plan amendment provisions. The elimination of favorable tax treatment for plan loans made using credit cards or similar arrangements took effect as of the SECURE Act’s December 20, 2019 enactment date, so it has been added to the list of changes effective in 2019.
• Disaster Relief. Several of the lists include disaster-relief provisions enacted under a separate part of the FCAA.

EBIA Comment: Plan sponsors and advisors may find the OC list’s utility as a compliance checklist enhanced by the inclusion of dates specifying when items were added. Keep in mind, however, that the list is not comprehensive—it does not include routine periodic changes (such as cost-of-living increases) and may not include developments with limited applicability. Moreover, additions to the list (e.g., the CARES Act) may lag significantly behind their effective dates. Consequently, the list should not be relied on too heavily as a way to track changes. For more information, see EBIA’s 401(k) Plans manual at Sections IV.B (“Form and Operational Qualification Requirements”) and XXVII.G.1 (“Extended Remedial Amendment Periods for Individually Designed Plans Resulting From a Change in Qualification Requirements”).

Contributing Editors: EBIA Staff.