As noted in our client alert dated December 27, 2022, the U.S. SECURE Act 2.0 makes significant changes for correcting certain tax-qualified plan defects. The purpose of this alert is to do a deeper dive regarding the following changes that are effective immediately:
(1) Plan fiduciaries are no longer required to seek recovery of overpayments in certain circumstances.
(2) SECURE 2.0 expands the Employee Plans Compliance Resolution System (EPCRS) to allow for self-correction in a broader array of situations.
Prior Internal Revenue Service (IRS) guidance mandated that plan fiduciaries make attempts to recover accidental benefit overpayments made to plan participants and beneficiaries. SECURE 2.0 provides that plan fiduciaries are no longer required to recover retirement benefit overpayments from participants. The decision not to seek recoupment must still be made by the fiduciary “in the exercise of its fiduciary discretion,” but the plan will not fail to comply with the Employee Retirement Income Security Act of 1974 (ERISA) or risk losing tax-qualified status merely because of the decision not to recoup overpayments. The law specifically notes that minimum funding obligations are unchanged.
If fiduciaries seek to recover overpayments, they are now subject to the following rules:
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