Compliance
Compliance Essentials for Employee Plans: Long-Term Care Distributions & Issuer Disclosures
With SECURE 2.0 now in effect, retirement plan administrators and insurance issuers must adapt to new rules for long-term care distributions—this article walks through compliance steps and risks.
By NomadicTax Research Team • 5-8 min read • June 9, 2026
## What Are Qualified Long-Term Care Distributions?
Under SECURE 2.0 (division T of the Consolidated Appropriations Act, 2023), beginning **after December 29, 2025**, defined contribution plans may distribute funds for certified long-term care insurance premiums for plan participants and their spouses. Distributions must comply with three limits:
- Not exceed the amount paid for certified LTC insurance in the year.
- Or **10% of the present value of the participant’s vested accrued benefit**.
- Or **$2,600**, adjusted for inflation (for tax year 2026). ([irs.gov](https://www.irs.gov/irb/2026-24_IRB?utm_source=openai))
The 10% addition-tax on early withdrawn amounts under section 72(t) **doesn’t apply** to these distributions—but such distributions **are still taxable** as ordinary income. Eligible rollover distribution rules do **not apply**. ([irs.gov](https://www.irs.gov/irb/2026-24_IRB?utm_source=openai))
## Key Compliance Obligations
Plan administrators and insurance issuers should note the following:
- **Issuer Disclosure Requirement**: Insurance companies offering certified LTC must **file an Issuer Disclosure** with the IRS detailing the specific products covered. LTC premium statements provided to plan participants must reference that Disclosure. ([irs.gov](https://www.irs.gov/pub/irs-drop/n-26-33.pdf?utm_source=openai))
- **Long-Term Care Premium Statement**: Must include specific info about the policyholder, the issuer, coverage, and product referenced. Helpful safe harbors are included in Notice 2026-33. ([irs.gov](https://www.irs.gov/pub/irs-drop/n-26-33.pdf?utm_source=openai))
- **Plan Amendments**: Non-governmental defined-contribution plans, public school 403(b) plans, and collectively bargained plans need to amend plan documents to permit LTC distributions—IRS extended deadline via Notice 2026-33. ([irs.gov](https://www.irs.gov/pub/irs-drop/n-26-33.pdf?utm_source=openai))
## Penalties and Risks of Non-Compliance
- Distributions made without proper issuer disclosures or premium statements may be reclassified, triggering the 10% early-withdrawal penalty. ([irs.gov](https://www.irs.gov/pub/irs-drop/n-26-33.pdf?utm_source=openai))
- Failure to amend the plan properly may invalidate LTC distribution options or lead to disallowed distributions for participants.
- Misreporting or missing Form 1099-LPS (Long-Term Care Premiums Paid Statement) could lead to penalties under reporting rules. ([irs.gov](https://www.irs.gov/pub/irs-drop/n-26-33.pdf?utm_source=openai))
## Practical Steps for Plan Administrators
1. Identify certified LTC insurance products you cover, and ensure the issuers have submitted the required Disclosures to IRS.
2. Update participant enrollment materials to include new LTC premium statement requirements.
3. Amend plan documentation by IRS deadlines to include LTC distribution language.
4. Train staff or record-keepers on processing LTC distributions correctly (taxability, withholding, non-rollover status).
5. Maintain complete records and track inflation-adjusted limits annually.
## Example Scenario
**ACME 401(k) Plan**, participant Maria, age 55, has a vested accrued benefit present value of $100,000. She pays $3,000 in certified LTC insurance premiums in 2026.
- Maximum allowable qualified LTC distribution = least of (i) $3,000 premiums, (ii) 10% of $100,000 = $10,000, and (iii) LTC limit of $2,600. Here, **$2,600** applies. Maria may receive $2,600 distribution free of the 10% penalty, but must include it in gross income.
## Actionable Takeaways
- Set up systems now for annual inflation-adjustments to the LTC limit.
- Review each LTC product to ensure it meets “certified long-term care insurance” definition under IRC 7702B and section 401(a)(39)(C).
- Coordinate with insurers to obtain timely issuer disclosures.
- Adjust payroll or tax reporting systems to accept Form 1099-LPS data when it becomes available.