News and Updates from the FuturePlan Team

The DOL’s New Proposal to Regulate Investment Advice

Few aspects of retirement plan governance have been as controversial as regulating investment advice. Exactly what obligation—if any—does an investment professional have to provide impartial, conflict-free advice to savers and retirees? When do financial professionals step over the boundary that can make them a fiduciary, with the ethical and legal obligations that come with this duty?

The answers have been inconsistent, stretching over many years. Department of Labor (DOL) fiduciary investment advice regulations date back to the 1970s. Those regulations needed revision in order to better align with today’s investment products and participant-directed retirement plans. Changes were proposed in 2010, withdrawn in response to public comments, revised again in 2015, and made final in 2016.

The DOL delayed implementing the 2016 final investment fiduciary regulations and accompanying guidance. These regulations were ultimately struck down in 2018 as “regulatory overreach” by the United States Court of Appeals for the Fifth Circuit.

The DOL later issued Field Assistance Bulletin (FAB) 2018-02, which states that the DOL will not pursue prohibited transaction claims against fiduciaries who make good-faith efforts to comply with the Impartial Conduct Standards (discussed later). FAB 2018-02 remains in effect. 

The DOL has again issued investment advice guidance, this time to replace the guidance struck down by the appellate court. This latest guidance package includes a proposed prohibited transaction class exemption entitled Improving Investment Advice for Workers and Retirees, and a technical amendment to DOL Regulations (Regs.) 2509 and 2510 that implements the appellate court’s order by

  • reinstating the original version of DOL. Reg. 2510.3-21 (including the five-part test);
  • removing prohibited transaction exemptions (PTEs) 2016-01 (the Best Interest Contract Exemption) and 2016-02 (the Class Exemption for Principal Transactions);
  • returning PTEs 75-1, 77-4, 80-83, 83-1, 84-24, and 86-128 to their original form; and
  • reinstating Interpretive Bulletin (IB) 96-1, which is intended to help investment providers, financial institutions, and retirement investors determine the difference between investment education and investment advice. Investment providers and financial institutions may rely on the safe harbors in IB-96-1 in order to avoid providing information that could be construed as investment advice.

The technical amendment became effective on July 7, 2020.

What is the five-part test?

The original version of DOL Reg. 2510.3-21 (which the technical amendment reinstates) contains a five-part test that is used to determine fiduciary status for investment advice purposes. Under the test, an investment provider or a financial institution that receives a fee or other compensation is considered a fiduciary if it meets all of the following standards (i.e., prongs) of the test. 

  • The provider or institution gives advice on investing in, purchasing, or selling securities, or other property.
  • The provider or institution gives investment advice to the retirement investor on a regular basis.
  • Investment advice is given pursuant to a mutual agreement or understanding with a retirement plan or its fiduciaries.
  • The retirement investor uses the advice as a primary basis for investment decisions.
  • The provider or institution provides individualized advice, taking into account the plan’s demographics, needs, goals, etc.

Has the DOL’s opinion changed on rollover recommendations?

In the preamble of the proposed PTE, the DOL clarified that it no longer agrees with the guidance originally provided in Advisory Opinion 2005-23A (better known as the Deseret Letter). In the Deseret Letter, the DOL indicated that a recommendation to distribute and roll over retirement plan assets would not generally constitute investment advice because it would not meet the first prong of the five-part test. But because it is common for the investments, fees, and services to change when the decision to roll over assets is made, the DOL now believes that a recommendation to distribute assets from an IRA or an ERISA-covered plan would be considered investment advice with respect to the first prong of the five-part test.

The DOL acknowledges that advice encouraging an individual to roll over retirement plan assets may be an isolated and independent transaction that would fail to meet the second “regular basis” prong. But determining whether advice to roll over assets meets the “regular basis” prong depends on the facts and circumstances.  So the DOL could view a rollover recommendation that begins an ongoing advisory relationship as meeting the “regular basis” prong.

As discussed above, the proposed PTE would allow investment professionals to receive compensation for advising a retirement investor to take a distribution from a retirement plan or to roll over the assets to an IRA. The investment professional could also receive compensation for providing advice on other similar transactions, such as conducting rollovers between different retirement plans, between different IRAs, or between different types of accounts (e.g., from a commission-based account to a fee-based account).

Under the proposed PTE, financial institutions would need to document why the rollover advice was in the retirement investor’s best interest. Documentation would need to 

  • explain whether there were other alternatives available (e.g., to leave the assets in the plan or IRA and select different investment options);
  • describe any applicable fees and expenses;
  • indicate whether the employer paid for some or all of the plan’s administrative expenses; and
  • show the different levels of services and investments available.

In addition, investment providers or financial institutions that recommend rolling over assets from another IRA or changing account types should consider and document the services that would be provided under the new arrangement.

Who is covered under the proposed PTE?

The proposed PTE would apply to registered investment advisers, broker-dealers, banks, and insurance companies (financial institutions), and their employees, agents, and representatives (investment professionals) that provide fiduciary investment advice to retirement investors. The proposed PTE would also apply to any affiliates or related entitites.

“Retirement investors” include

  • IRA and plan fiduciaries (regardless of plan size),
  • IRA owners or beneficiaries, and
  • plan participants or beneficiaries with authority to direct their accounts or take distributions.

The proposed PTE defines a “plan” as including 401(a) plans (e.g., 401(k) plans), 403(a) plans, 403(b) plans, defined benefit plans, owner-only plans, simplified employee pension (SEP) plans, and savings incentive match plan for employees of small employers (SIMPLE) plans. The proposed PTE would also apply to employee welfare benefit plans that have established a trust (e.g., VEBAs). 

The proposed PTE, defines an “IRA” as an individual retirement account, an individual retirement annuity, a health savings account (HSA), an Archer medical savings account (MSA), and a Coverdell education savings account (ESA).

What protection does the proposed PTE offer?

The Internal Revenue Code and ERISA generally prohibit fiduciaries from receiving compensation from third parties and compensation that varies based on investment advice provided to retirement plans and IRAs. Fiduciaries are also prohibited from selling or purchasing their own products to retirement plans and IRAs (known as principal transactions).

Under the proposed PTE, financial institutions and investment professionals providing fiduciary investment advice could receive payments (e.g., commissions, 12b-1 fees, and revenue sharing payments) that would otherwise violate the prohibited transaction rules mentioned above. For example, the exemption would provide relief from prohibited transactions that could occur if a financial institution or investment professional

  • advises a client to take a distribution or roll over assets to an IRA or retirement plan;
  • provides recommendations to acquire, hold, dispose of, or exchange securities or other investments; or
  • recommends using a particular investment manager or investment advice provider.

In addition, the proposed PTE would cover riskless principal transactions  (e.g., when a broker-dealer purchases a security for their own account knowing that it will be sold to a retirement investor at a certain price) as well as principal transactions involving certain specific types of investments (e.g., municipal bonds).

The following transactions would not be covered by the PTE.

  • Transactions where advice is provided solely through a computer model without any personal interaction (i.e., robo-advice arrangements).
  • Transactions in which the investment professional is acting in a fiduciary capacity other than as an investment advice fiduciary under the five-part test, as described below (e.g., a 3(38) investment manager with authority to make discretionary investment decisions).
  • Transactions involving investment providers, financial institutions, and their affiliates if they are the employer of employees covered by the plan; or are a named fiduciary, plan administrator, or affiliate who was chosen to provide advice by a fiduciary who is not independent of the investment professional, financial institution, or their affiliates.

Certain individuals and institutions (and all members within the institution’s controlled group) would be ineligible to rely on the exemption—including those who have been convicted of a crime associated with providing investment advice to a retirement investor, or those who have a history of failing to comply with the exemption. The period of ineligibility would generally be 10 years, but a financial institution with a conviction may petition the DOL for continued reliance on the exemption.

What does the proposed PTE require?

To take advantage of the relief provided under the proposed PTE, investment professionals and financial institutions must provide advice in accordance with the Impartial Conduct Standards. The Impartial Conduct Standards contain three components—a reasonable compensation standard, a best interest standard, and a requirement that prohibits investment providers or financial institutions from giving misleading statements about investment transactions or other related matters.  The Impartial Conduct Standards also requires financial professionals and financial institutions to provide the best execution possible when completing security transactions (e.g., completing the transaction timely).

Under the best interest standard, investment professionals and financial institutions are not required to identify the best investment for the retirement investor, but any investment advice given must put the retirement investor’s interests ahead of the interests of the investment professional, financial institution, or their affiliates. This is consistent with the SEC’s Regulation Best Interest.

Investment providers and financial institutions cannot waive or disclaim compliance with any of the proposed PTE’s conditions. Likewise, retirement investors cannot agree to waive any of the conditions. In addition, the proposed PTE would require a financial institution to 

  • provide the retirement investor—before the transaction takes place—with an acknowledgment of the institution’s fiduciary status in writing, and a written description of the service to be provided and any material conflicts of interest;
  • adopt and enforce policies and procedures designed to discourage incentives that are not in the retirement investor’s best interests and to ensure compliance with the Impartial Conduct Standards;
  • maintain records that prove compliance with the PTE for six years; and
  • conduct a review at least annually to determine whether the institution complied with the Impartial Conduct Standards and the policies and procedures created to ensure compliance with the exemption. Although an independent party does not need to conduct the review, the financial institution’s chief executive officer (or the most senior executive) must certify the review.

Note that the proposed PTE would not give retirement investors new legal claims (e.g., through contract or warranty provisions) but rather would affect the DOL’s enforcement approach.

Next Steps

Many investment advisers, broker-dealers, banks, and insurance companies that will be affected by the proposed PTE currently operate under similar standards found in various state laws and in the SEC’s Regulation Best Interest.  The DOL’s temporary enforcement policy discussed in FAB 2018-02 also remains in effect, as do other more narrowly tailored PTEs.

Each type of investment provider and financial institution is likely affected differently, whether in steps to comply or costs involved. Financial institutions and investment providers may want to review the proposed PTE and start taking steps to comply with it. This may involve creating and maintaining any policies and procedures they don’t already have in place as a result of state law or the Regulation Best Interest.

In the meantime, a 30-day comment period for the proposed PTE starts on July 7, 2020. Comments may be submitted at www.regulations.gov. The Docket ID number is EBSA-2020-0003.

Visit FuturePlan.com for future updates.

  


  

DOL Investment Advice Guidance Published in Federal Register

Today’s Federal Register contains the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) proposed guidance announced by the agency on June 29, 2020, entitled Improving Investment Advice for Workers and Retirees Exemption.

This guidance is meant to replace the DOL’s 2016 final regulations and accompanying exemptions regarding fiduciary investment advice, which—after several implementation delays—were vacated (struck down) as “regulatory overreach” by the U.S. Fifth Circuit Court of Appeals in 2018. Written comments or requests for a public hearing on this new EBSA guidance must be submitted by August 6, 2020.

Accompanying this EBSA proposed exemption is a second “vacatur” document that officially implements the Court’s vacating of the 2016 EBSA guidance, and reinstates earlier guidance that had been superseded by it.

  


  

Limited Relief for Plans Reducing Safe Harbor Contributions Mid-Year

The IRS has issued Notice 2020-52, guidance that provides sponsors of 401(k) and 403(b) safe harbor plans limited relief from certain otherwise-applicable requirements for mid-year suspension or reduction of safe harbor matching or nonelective contributions.

Notice 2020-52’s temporary relief is being granted as a consequence of the widespread economic challenges facing employers as a result of the coronavirus (COVID-19) pandemic.

Requirement for Mid-Year Suspension of Safe Harbor Contributions

In order to suspend safe harbor matching or nonelective contributions mid-year, a sponsoring employer generally must meet one of the following requirements. 

  • The employer must be operating at an economic loss.
  • The employer must have given employees timely notice prior to the start of the plan year that the plan might be amended to suspend safe harbor contributions during the coming plan year, and that such suspension would not apply until 30 days after a mid-year supplemental notice is given.

Temporary Relief for Mid-Year Reduction or Suspension of Safe Harbor Contributions

Employers that adopt or have adopted between March 13, 2020, and August 31, 2020, an amendment to suspend or reduce 401(k) or 403(b) safe harbor matching or nonelective contributions, will not be considered to have violated the economic loss or pre-plan year notice requirements described above.

Temporary Relief for Nonelective Contribution Supplemental Notice

Notice 2020-52 also provides temporary relief for employers that amended or amend their plans for a mid-year reduction or suspension of nonelective contributions, without providing a supplemental notice to employees at least 30 days before the reduction or suspension. This notice requirement will be treated as having been met if the notice is provided to employees by August 31, 2020. This relief is not being extended for a reduction or suspension of safe harbor matching contributions.

Clarification on Reduction or Suspension of Contributions for HCEs

Notice 2020-52 also provides further clarity on mid-year amendments to reduce certain contributions to highly compensated employees (HCEs).

In general, a reduction or suspension of safe harbor contributions only for HCEs is not treated as an impermissible reduction, since contributions on behalf of HCEs are not included in the definition of safe harbor contributions. However, Notice 2020-52 clarifies that a notice to HCEs of the reduction or suspension is still required, and a new deferral election opportunity must be given.

Notice 2020-52’s relief provides a degree of assurance that employers will not be violating safe harbor plan rules that pertain to reductions, suspensions, and notices, if they satisfy its conditions. But the guidance does not provide relief from ADP/ACP nondiscrimination testing for the plan year in which such reductions or suspensions have taken place.

  


  

DOL Issues Investment Advice Guidance to Replace 2016 Regulations

The Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) has released a guidance package entitled Improving Investment Advice for Workers and Retirees Exemption. The guidance package includes a News Release, Fact Sheet, Proposed Class Exemption, and a Technical Amendment.

This guidance, to a greater or lesser degree, is meant to replace the DOL’s 2016 final regulations and accompanying exemptions on fiduciary investment advice. After several implementation delays, that 2016 guidance was struck down as “regulatory overreach” by the U.S. Fifth Circuit Court of Appeals in 2018.

  


  

Senate Passes Bill to Extend PPP Loan Application Deadline

On Tuesday, the United States Senate passed by unanimous consent a bill to extend from June 30, 2020, to August 8, 2020, the deadline for businesses to apply for a Paycheck Protection Program (PPP) loan administered by the federal Small Business Administration.

PPP loans were created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, targeted to businesses with no more than 500 employees. The purpose of the program is to assist small employers in retaining employees on their payrolls in a time of financial stress during the coronavirus (COVID-19) pandemic. More than $130 billion of the $669 billion appropriated for the program had not been applied for as the June 30th deadline approached.

If certain conditions are met, PPP loans can be forgiven and treated as a grant. Among the conditions for full forgiveness is a requirement that 60% of loan proceeds be used for payroll expenses. These expenses can include not only wages and salaries, but also employer contributions to defined contribution and defined benefit retirement plans. Expenses can also include providing group health care coverage, including payment of insurance premiums.

As this is reported, the House of Representatives had yet to approve the bill, which is required—in addition to signing by President Trump—for the application deadline to be extended.

  


  

IRS Issues More Guidance on 2020 RMD Waiver

In issuing Notice 2020-51 on June 23, 2020, the IRS provided much-needed additional guidance—and some welcome relief—pertaining to the 2020 suspension of required minimum distributions (RMDs). The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, signed into law by President Trump on March 27, 2020, suspended for the 2020 tax year the requirement that these distributions be taken from employer-sponsored defined contribution retirement plans and IRAs.

Notice 2020-51 notes the similarity to a previous RMD waiver granted in 2009 by the Worker, Retiree, and Employer Recovery Act (WRERA), and the subsequent guidance and transition relief provided then in IRS Notice 2009-82. This was in response to the economic downturn at the onset of the Great Recession.

RMDs generally must be taken each year beginning when plan participants or IRA owners reach age 72 (formerly age 70½) or—for some plan participants who work beyond age 72—retire. In general, IRA and retirement plan beneficiaries are also subject to RMDs.

The timing of the 2020 RMD waiver was problematic for those who had already taken distributions in 2020 that they believed were required; especially multiple periodic distributions, or beneficiary distributions. In several tangible ways, Notice 2020-51 has come to their rescue.


Notice 2020-51 details are summarized below.

Direct Rollover, Notice, and Withholding Relief

Plan administrators who treated a 2020 distribution as an RMD that was not eligible for rollover—and thus did not permit a direct rollover, provide a 402(f) notice, or withhold at a 20% rate—will not be considered to have failed to meet these requirements.

RMD Amounts Eligible for Rollover

Eligible for rollover under this guidance are amounts that—but for the waiver—would have been 2020 RMDs (including an amount to be taken by an April 1, 2021, required beginning date (RBD)), and amounts that are part of a series of periodic payments made at least annually over life expectancy, or over a period of 10 or more years. 

Retirement Plan Rollover Deadline Extended to August 31, 2020

Notice 2020-51 permits the rollover of waived retirement plan RMDs—amounts withdrawn or distributed in 2020 in the belief they were required—through August 31, 2020, without regard to the normal 60-day limitation. The rollover is limited to the amount of the waived 2020 RMD. 

IRA Repayment Deadline Extended to August 31, 2020

Notice 2020-51 permits the repayment of waived IRA RMDs—amounts previously withdrawn or distributed in 2020 in the belief they were required—through August 31, 2020. This can be done without regard to the normal 60-day limitation for IRA-to-rollovers. “Repayments” that are made by August 31, 2020, will not be considered to violate the one-rollover-per-12-months limitation or the restriction on rollovers for nonspouse beneficiaries. It is not well-defined at this time what reporting distinctions there may be between the reporting of rollovers vs repayments. It appears that “repayments” (vs rollovers) must be to the distributing IRA. Distributions less than 60 days before August 31, 2020, would be eligible for rollover if all rollover requirements were met.

Defined Contribution Plan Sample Amendment

Notice 2020-51 provides a sample defined contribution plan amendment that provides plan participants and beneficiaries the choice of receiving or not receiving amounts that represent waived RMDs, with no impact on other distribution provisions. The amendment follows the design of pre-approved document plans that use a basic plan document and an adoption agreement.

IRA Document Amending

IRA documents are not required to be amended for the CARES Act 2020 RMD waiver. But to ensure clients receive up-to-date information, IRA disclosure statements may need to be revised to reflect the waiver.

QRP Beneficiary Payout Option Amending

For qualified retirement plans that permit beneficiaries to choose between life expectancy payments and a 5-year payout (when a participant’s death occurs before the RBD), the election deadline for a 2019 death would be December 31, 2020. This election deadline can be extended to December 31, 2021, by a plan amendment. (Most nonspouse beneficiaries may not elect life expectancy payments if a participant dies in 2020 or a later year.)

Nonspouse QRP Beneficiary Rollover to Elect Life Expectancy Payments

In general, a nonspouse beneficiary must directly roll over an inherited qualified retirement plan balance to an IRA by the end of the year following the year of death to be eligible to elect life expectancy payments if a plan mandates a 5-year payout. For a participant who died in 2019, this deadline is now 2021, not 2020. (Most nonspouse beneficiaries may not elect life expectancy payments if a participant dies in 2020 or a later year.)

RMD Suspension and the Required Beginning Date

The RBD for an individual to begin withdrawing RMDs is generally April 1 of the year following the year she reaches age 72 (formerly 70 ½), or—if delayed beyond this age by continuing employment—the year of retirement. The 2020 RMD waiver does not affect an individual’s RBD.

2020 Initial RMD With April 1, 2021, RBD, is Waived

A retirement plan participant whose first RMD year is 2020 (the participant reached age 70½ in 2019 or earlier, participates in a plan that allows a delayed RBD, and retires in 2020) has an RBD of April 1, 2021, but is not required to withdraw this amount in 2021. The 2021 RMD, however, must be withdrawn by December 31, 2021. Amounts that are withdrawn in 2021 will be applied to satisfy this 2021 RMD, and any amount in excess of this 2021 RMD will be eligible for rollover.

No Other Deadline Extensions or Rollover Modifications

No deadlines are extended other than the deadlines to 1) complete certain rollovers or repayments (August 31, 2020), 2) elect life expectancy payments or the 5-year rule if a participant died in 2019 (December 31, 2021, if a retirement plan offers both options), and 3) allow a nonspouse beneficiary of a participant who died in 2019 to complete a direct rollover to an IRA and elect life expectancy payments (December 31, 2021).

Spousal Consent and Suspension of 2020 RMDs

If an individual is receiving certain annuity payments (e.g., qualified joint and survivor annuity) from a qualified plan, the suspension for 2020 and resumption in 2021 would not require spousal consent unless the plan provides that there is a new annuity start date.

Rollover to Distributing Plan

Amounts withdrawn from a retirement plan that are eligible for rollover by virtue of the RMD waiver may be rolled back into the same plan if that plan permits rollovers and if other rollover conditions are met.

RMD Waiver and Withholding

Payors do not have the option to treat a 2020 RMD amount paid from a retirement plan as subject to 20% withholding. But if an amount exceeding the calculated 2020 RMD is distributed, and would otherwise be eligible for rollover, it is subject to 20% withholding.

If the individual is receiving monthly distributions that exceed RMD amounts, as part of a series of payments made over a period of 10 or more years, the entire amount of each distribution is subject to the periodic payment optional withholding rules (IRC Sec. 3405(a).

Substantially Equal Periodic Payments and the RMD Waiver 

Substantially equal periodic payments—exempt from the 10% early distribution penalty tax—are not affected by the RMD waiver. Required payments under such a schedule—even if based on the RMD calculation method—must be made if required in 2020, or all prior payments received under this schedule are subject to the 10% early distribution penalty tax.

Financial Organizations Must Notify IRA Owners

Financial organizations must notify their IRA clients that no RMD is due for 2020. One method of notification is to provide IRA owners with a copy of the 2019 Form 5498, IRA Contribution Information, that was filed with the IRS, indicating that there is no RMD required for 2020 (the extended IRS filing deadline for the 2019 Form 5498 is August 31, 2020).

Defined Benefit Plans and the 2020 RMD Waiver

The waiver of 2020 RMDs does not apply to defined benefit pension plans, even if such plans use a formula that calculates the RMD as if it is a distribution from an individual account plan.

  


  

More Details on CARES Act Eligibility and Plan Loan Guidance

The retirement industry eagerly received the IRS guidance on applying provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act with the issuance of Notice 2020-50 on June 19. It has provided important details on compliance with this legislation—which offers financial and tax relief to millions of Americans affected by the coronavirus (COVID-19) pandemic.

The CARES Act was signed into law on March, 27, 2020, as the largest emergency relief package in U.S. history. It offers a variety of potential benefits to those who participate in tax-favored retirement savings arrangements. The legislation not only grants special access to the tax-favored accounts of many who may need it, but also provides a pathway to later repayment. For amounts up to $100,000, there is an exemption from the 10 percent penalty tax for early distributions from a retirement plan, three-year ratable taxation of amounts distributed, and a three-year repayment option for those who qualify.

Although there has been comparable legislation for past disaster events—notably, Hurricane Katrina in 2005—still there has been some uncertainty as to how closely CARES Act procedures might ultimately mirror it. Notice 2020-50 now provides greater clarity and is to be followed in applying CARES Act provisions.

Following are some of the more significant highlights of Notice 2020-50.

CORONAVIRUS-RELATED DISTRIBUTIONS

Qualified Individual Definition Expanded

Notice 2020-50 broadened the definition of who is eligible for a coronavirus-related distribution (CRD)—and therefore eligible for CARES Act tax benefits.

Initial guidance defined a “qualified individual” as

  • an individual (or the spouse or dependent of the individual) who is diagnosed with the COVID-19 disease or the SARS-CoV-2 virus in an approved test; or
  • an individual who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reduced hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Treasury Secretary.

Notice 2020-50 adds new circumstances to the definition of “qualified individual.”

  • An individual who has experienced a reduction in pay (or self-employment income) due to COVID-19, or has had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • An individual whose spouse or a member of the person’s household has
    • been quarantined, furloughed or laid off, or had work hours reduced due to COVID-19;
    • been unable to work because of a lack of childcare due to COVID-19,
    • had a reduction in pay (or self-employment income) due to COVID-19; or
    • had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • An individual whose spouse or a member of the person’s household has experienced the closing or a reduction of hours of their business due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

Timing

A CRD was defined in the statute as an amount distributed from a retirement account on or after January 1, 2020, and before December 31, 2020. Notice 2020-50 affirmed that a distribution taken on December 31, 2020, would not be a CRD. 

Who Can and Cannot Recontribute CRDs

A CRD can be taxed ratably over three years, and generally can be recontributed to an eligible retirement plan within three years. However, Notice 2020-50 makes clear that while beneficiaries of retirement plans and IRAs may be taxed in this manner, only spouse beneficiaries may make recontributions.

Employer May Choose Whether to Allow CRDs, Other CARES Act Options

Employers can choose to allow participants in their retirement plans (other than pension plans) to take CRDs even without otherwise having a distributable event, if they are qualified individuals, up to $100,000 of their vested balance. 

Notice 2020-50 makes clear that employers are not required to offer CRDs to participants. If they do, they are not required to implement all elements of CARES Act relief, such as enhanced retirement plan loan amount or available loan suspension options. 

Reliance on Employee Certification

Employers that offer retirement plan CRDs are allowed to rely on an employee-participant’s certification that he is a qualified individual, unless the employer has actual knowledge to the contrary. Notice 2020-50 states that an employer is under no obligation to “inquire into whether an individual has satisfied the conditions” of eligibility.

Sample Employee Certification Provided

Notice 2020-50 includes a sample of what the IRS considers “an acceptable certification.”

Reporting/Coding

If an employer has adopted provisions allowing CRDs, they will be reported on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc. Notice 2020-50 states that for CRDs made to participants (other than beneficiaries) who are otherwise subject to the 10 percent early distribution penalty tax, Code 2, Early distribution, exception applies, may be used. Alternatively, Code 1, Early distribution, no known exception, may be used. (A qualified individual can claim exemption from the 10 percent penalty tax on his individual income tax return if he qualifies for a CRD, regardless of how Form 1099-R is coded.)

Reliance on Employee Certification for Recontributions

Employers that allow recontributions of CRDs are allowed to rely on an employee-participant’s certification that she is a qualified individual, unless the employer has actual knowledge to the contrary. 

Taxpayer Reporting

A qualified individual will report CRDs as distributions and as repayments—if made—on new Form 8915E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments. This is a form in the same series used for certain prior disaster events, such as Hurricane Katrina. A taxpayer can claim CRD status even if distributions were received from a retirement plan whose sponsoring employer did not elect to add CRDs as a distributable event.

Examples of Tax Treatment

Notice 2020-50 provides several examples of tax impacts when both CRDs and repayments occur. These include amending a prior year’s tax return to account for recontributions made later in the three-year ratable taxation period, and choosing to carry forward or carry back—to future or prior years—the tax impact of a repayment that is made during the three-year ratable taxation period.

No Modification of Substantially Equal Periodic Payments

A CRD received by an eligible individual is not to be considered a modification of a series of substantially equal periodic payments as an exemption from the 10 percent early distribution penalty tax.

PLAN LOANS

Deadline to Take Plan Loan Confirmed

Notice 2020-50 confirmed that the final day to take a CARES Act retirement plan loan, including the enhanced loan amount, is September 22, not September 23.

Plan Loan Suspension Safe Harbor

Notice 2020-50 provides a safe harbor for loan repayment when a loan payment suspension is permitted by the employer under CARES Act provisions. Among its conditions: loan payments must resume at the end of the suspension period; the loan’s term may be extended up to one year from the date originally required to be repaid; interest accrued during the suspension period must be added to the remaining loan principal amount; and the loan must be reamortized and repaid in substantially level amounts over the remaining period of the loan.

Notice 2020-50 recognizes that there may be other reasonable interpretations of the CARES Act loan provisions in addition to the Notice’s safe harbor.

Participant Certification as Eligible Individual

Employers that adopt the CARES Act enhanced loan provisions are allowed to rely on an employee-participant’s certification that he is an qualified individual, unless the plan administrator has actual knowledge to the contrary.

  


  

IRS Issues More Guidance on Waived 2020 Required Minimum Distributions (RMDs)

The IRS has issued Notice 2020-51, providing additional guidance on the 2020 suspension of RMDs that generally must be taken annually by IRA owners, retirement plan participants, and beneficiaries. 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, signed into law by President Trump on March 27, 2020, suspended for the 2020 tax year the general requirement that annual distributions must be taken from tax-favored retirement plans and IRAs when an account owner reaches RMD age, or annually by some account beneficiaries. The timing was problematic for some, who—before the CARES Act enactment—had already in 2020 taken distributions they believed to be required, but under the waiver are not. 

Among the details provided in Notice 2020-51 are the following.

  • Extends the normal 60-day rollover period to permit repayments through August 31, 2020, of waived 2020 RMD amounts
  • Allows repayments without regard to the one-per-12-month rollover limitation
  • Permits repayment by nonspouse beneficiaries of waived 2020 required distributions—these repayments will not violate the statutory prohibition on nonspouse indirect (60-day) rollovers
  • Provides a sample plan amendment for defined contribution plans
  • Includes a 12-item question-and-answer section related to the 2020 RMD waiver 

  


  

Senate, House Bills Would Allow Additional PPP Loans

Companion bills have been introduced in the U.S. House of Representatives and Senate to provide additional capital to small businesses hardest hit by the coronavirus (COVID-19) pandemic. The Prioritized Paycheck Protection Program (P4) Act is sponsored in the Senate by Democrats Chris Coons (DE), Ben Cardin (MD), and Jean Shaheen (NH), and in the House by Democrats Angie Craig (MN), and Antonio Delgado (NY).

The P4 Act would authorize additional Paycheck Protection Program (PPP) loans to businesses with 100 or fewer employees—including sole proprietorships and other self-employed—that have already expended the proceeds of a prior PPP loan or are on-pace to do so, and that can demonstrate a loss of business revenue of 50 percent or more due to the COVID-19 pandemic.

PPP is a Small Business Administration lending program created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help small employers meet payroll and other expenses as businesses and the nation deal with the economic effects of the novel coronavirus pandemic.

Importantly, if certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.

  


  

IRS Issues More CARES Act Eligibility and Plan Loan Guidance

The IRS has issued Notice 2020-50, providing additional guidance on several aspects of the Coronavirus Aid, Recovery, and Economic Security (CARES) Act, legislation enacted in March of this year in response to the coronavirus (COVID-19) pandemic.

A “qualified individual” who has experienced health or financial effects from the COVID-19 pandemic is eligible for certain retirement plan distribution, penalty exemption, plan loan and loan repayment, taxation, and repayment benefits.

Qualified Individual Further Defined

Initial guidance defines a “qualified individual” as

  • an individual (or the spouse or dependent of the individual) who is diagnosed with the COVID-19 disease or the SARS-CoV-2 virus in an approved test; or
  • an individual who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reduced hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Treasury Secretary.

Notice 2020-50 adds new circumstances to the definition of “qualified individual.”

  • An individual who has experienced a reduction in pay (or self-employment income) due to COVID-19, or has had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • A person whose spouse or a member of her household has
    • been quarantined, furloughed or laid off, or had work hours reduced due to COVID-19;
    • been unable to work because of a lack of childcare due to COVID-19,
    • had a reduction in pay (or self-employment income) due to COVID-19; or
    • had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • A person whose spouse or a member of her household has experienced the closing or a reduction of hours of their business due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

CARES Act Loans

Notice 2020-50 provides examples of how to apply the special plan loan provisions of the CARES Act, and includes a safe harbor method. In addition, the Treasury Department and IRS recognize that there may be additional reasonable ways to administer loan repayments under the CARES Act.

This guidance is being further analyzed, and additional details will be shared.

  


  

DOL Seeks Comments for Future PEP/MEP Guidance

The Department of Labor’s Employee Benefits Security Administration (EBSA) has released a pre-publication version of a request-for-information (RFI) seeking public comments on issues pertinent to pooled employer plans (PEPs) and multiple employer plan (MEPs).

This initiative follows enactment in December 2019 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, some provisions of which were intended to enhance the ability of multiple entities to join together in a single retirement plan, and—if certain conditions were met—be treated as a single employer, allowing potential administrative efficiencies and cost savings. The SECURE Act established statutory conditions for the establishment of new affiliations to be known as PEPs, which would require the designation of a “pooled plan provider” that would be a fiduciary of the PEP. 

Issues that EBSA anticipates could include the “possible parties, business models, and conflicts of interest that … will be involved in the formation and ongoing operation of PEPs,” according to an EBSA news release. EBSA is also seeking “information on similar issues involving multiple employer plans sponsored by employer groups or associations or professional employer organizations.” 

The comments received could shape potential future EBSA guidance on the operation of these arrangements, including whether EBSA should propose a new prohibited transaction class exemption.

The RFI contains instructions for submitting comments and is scheduled to be published in tomorrow’s Federal Register.

  


  

Paycheck Protection Program Revised Interim Final Rule Issued

Scheduled for publication in next Tuesday’s Federal Register is a Small Business Administration (SBA) interim final rule on the agency’s Paycheck Protection Program (PPP). This guidance is being issued in response to enactment on June 5 of the Paycheck Protection Program Flexibility Act of 2020, legislation that made enhancements to this SBA loan program intended to help small employers meet payroll and other expenses as they deal with the economic effects of the novel coronavirus (COVID-19) pandemic.

If certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include not only wages and salary, but also employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.

The SBA issued a previous interim final rule in April 2020 to provide guidance in implementing PPP. But with the program changes made by the June 5 legislation, that April rule no longer reflects certain important features of PPP as it now exists, requiring the issuance of a new interim final rule. These important PPP changes include the following.

  • Extends from 8 to 24 weeks from a loan’s origination the period in which expenses paid with a PPP loan could be eligible for loan forgiveness (not to extend beyond December 31, 2020)
  • Reduces from 75 percent to 60 percent the portion of a loan that must be used for payroll expenses (vs. overhead, etc.) and remain fully eligible for loan forgiveness
  • Extends from 2 to 5 years the period for loan repayment for borrowed amounts that are not forgiven (applies to loans made on or after June 5, 2020)
  • Allows a borrower who received a PPP loan before enactment of the June 5 legislation to elect that the covered period run for 8 (vs. 24) weeks

The SBA notes that this interim final rule is effective without advance notice and public comment because of its time sensitivity and specific authorization by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the legislation that created the PPP lending program. Nonetheless, comments are invited and must be submitted within 30 days of the guidance’s publication in the Federal Register.

  


  

President Signs Paycheck Protection Program Extension Legislation

President Trump signed into law Friday, June 5, the Paycheck Protection Program Flexibility Act of 2020, legislation that the Senate approved Wednesday night. The legislation extends elements of and makes certain other adjustments to the Paycheck Protection Program (PPP). This Small Business Administration lending program was created by the Coronavirus Aid, Relief, and Economic Security Act to help small employers meet payroll and other expenses as businesses and the nation deal with the economic effects of the novel coronavirus pandemic.

Importantly, if certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.

Among its provisions, this legislation will have the following effects.

  • Extends from 8 to 24 weeks from the time of loan origination the period in which expenses paid with a PPP loan could be eligible for loan forgiveness (not to extend beyond December 31, 2020)
  • Reduces from 75 percent to 60 percent the portion of a loan that must be used for payroll expenses (vs. overhead, etc.) and remain eligible for loan forgiveness
  • Extends from 2 to 5 years the period for loan repayment for borrowed amounts not forgiven
  • Provides no impediment to loan forgiveness for the documented inability to hire similarly qualified placement employees or to rehire former employees
  • Allows a borrower who received a PPP loan before enactment of this legislation to elect that the covered period run for 8 (vs. 24) weeks

  


  

  


  

Senate Passes Paycheck Protection Program Extension, Legislation Awaits President’s Signature

On Wednesday night, the U.S. Senate approved by voice vote H.R. 7010, the House-passed Paycheck Protection Program Flexibility Act of 2020. The legislation extends elements of and makes certain other adjustments to the Paycheck Protection Program (PPP). This Small Business Administration lending program was created by the Coronavirus Aid, Relief, and Economic Security Act, to help small employers meet payroll and other expenses as businesses and the nation deal with the economic effects of the novel coronavirus pandemic.

Importantly, if certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.

Among its provisions, the legislation now presented to President Trump—who is expected to sign it into law—would have the following effects.

  • Extend from 8 to 24 weeks from the time of loan origination the period in which expenses paid with a PPP loan could be eligible for loan forgiveness (not to extend beyond December 31, 2020) 
  • Reduce from 75% to 60% the portion of a loan that must be used for payroll expenses (vs overhead, etc.) and remain eligible for loan forgiveness
  • Extend from 2 to 5 years the period for loan repayment for borrowed amounts not forgive
  • The documented inability to hire similarly qualified placement employees or to rehire former employees will not be an impediment to loan forgiveness
  • A borrower who received a PPP loan before enactment of this legislation may elect that the covered period run for 8 (vs 24) weeks

  


  

The Internal Revenue Service (IRS) today issued Notice 2020-42, in which the IRS provides temporary relief from the physical presence requirements for certain elections that are made by participants and beneficiaries in qualified retirement plans and other tax-favored retirement arrangements. This includes signatures of those making an election that ordinarily would need to be witnessed in the physical presence of a plan representative or notary public, including spousal consent and certain forms of distribution from retirement plans.

The guidance is being issued in consideration of business shutdowns and social distancing in response to the coronavirus (COVID-19) pandemic. The IRS notes that it is intended to facilitate the payment of coronavirus-related distributions and plan loans to qualified individuals, as permitted by the CARES Act.

Under this relief, for 2020 distributions, live audio-video technologies may be used to facilitate remote notarization if meeting other election requirements and if this is consistent with state laws governing notarization. Also for 2020, for certain plan elections that must be witnessed by a plan representative, witnessing may be accomplished by live audio-video technology, but only if certain access, security, review, and confirmation conditions are met.

  


  

DOL Addresses Private Equity as a Plan Investment

The Department of Labor’s Employee Benefits Security Administration (EBSA) today released an Information Letter addressing the issue of including private equity investments—which are not publicly traded securities—among investment options available in certain individual account (401(k)-type) defined contribution (DC) plans.

EBSA’s letter indicates that such plans could potentially include funds with a private equity component. But the EBSA pointed out that there are significant differences between such DC plans and professionally managed defined benefit (DB) plans, wherein retirement benefits are based on known formulas. EBSA’s letter describes in detail considerations that a plan fiduciary should take into account when determining whether it is prudent to include such an investment component in an individual account DC plan, especially if a private equity investment will be a component of a plan’s qualified default investment alternative (QDIA).

  


  

Washington Pulse: More Options for Delivering Retirement Plan Disclosures

Nearly seven months after releasing proposed regulations, the Department of Labor (DOL) has released final regulations on default electronic delivery of retirement plan disclosures. These final regulations provide an additional safe harbor that may make it easier for plan administrators and their service providers to electronically deliver (either through email or by posting online) certain required disclosures to participants and beneficiaries in ERISA-covered plans. In addition to these final regulations, the DOL also released an accompanying News Release and Fact Sheet

Overview

The new safe harbor created by the final regulations is simply meant to provide employers an additional option for delivering DOL-required disclosures. Employers are not required to follow the new regulations.

The final regulations apply only to disclosures (i.e., “covered documents”) under Title I of ERISA that pension benefit plan administrators must provide to covered individuals; they do not apply to IRS disclosures or to welfare benefit plan disclosures at this time. A covered document does not include a document provided only upon the participant’s written request (e.g., a request for a copy of the plan’s trust agreement). Examples of covered documents include

  • a summary plan description,
  • a summary of material modifications,
  • a summary annual report, or
  • an annual funding notice.

A covered individual is defined as a participant, beneficiary, or another individual (e.g., alternate payee) entitled to covered documents. A covered individual must either provide an electronic address (e.g., an email address or smartphone number) or, in the case of a covered individual who is an employee, have one assigned to them by the employer. The electronic address assigned by an employer must be for employment-related purposes that include, but are not limited to, the delivery of covered documents under the new safe harbor.

What Has Changed From the Proposed Regulations?

The final regulations contain some welcome changes from the proposed regulations (see our previous Washington Pulse for more information on the proposed regulations.) The major changes contained in the final regulations are summarized below.

New Initial Notice Requirements

Plan administrators must provide an initial paper notice to participants who are defaulted into receiving covered documents electronically under the new safe harbor. In addition to the requirements in the proposed regulations, the final regulations require the notice to identify the specific electronic address that will be used to provide the covered documents to a covered individual. While this new requirement may make it more difficult for plan administrators to create the initial notice, it should enhance the long-term prospect of individuals receiving required disclosures.

New Email Delivery Option

In addition to posting covered documents on a website, plan administrators may now send covered documents directly to the email addresses of covered individuals, with the covered documents included either in the body of the email or as an attachment to the email. Whether using email or posting documents online, employers must ensure that the delivery method protects the confidentiality of personal information relating to any covered individual.

More Generalized Requirements for “Opt Out” Election

The proposed regulations allowed participants to opt out of receiving some documents electronically. Under the final regulations, a right to globally opt out must be provided free of charge. Plan administrators may also decide to offer recipients a “pick and choose” option (also free of charge) to receive some documents in paper form and some electronically. Similarly, a plan administrator that uses electronic means to deliver some covered documents need not use electronic means for all.

The final regulations also clarify that plan administrators need only provide one copy of any specific covered document free of charge.

New Website Requirements

  • Flexibility in definition of “website” The final regulations acknowledge the importance of including new and developing technologies in applying the guidance, as long as the safe harbor requirements can be met. For example, mobile applications now qualify as a website.
  • Reasonable procedures for website maintenance: These final regulations add “technical maintenance” of websites as a reason why disclosure documents may be unavailable for a reasonable amount of time.
  • Clarification on availability of web-posted documents: A covered document posted to a website must remain available on the website until it is superseded by a subsequent version, if applicable, but in no event less than one year after the date it is posted to the website. The annual Notice of Internet Availability (NOIA) must inform participants that the covered document may not be available past this time frame.
  • Plan administrators are not required to monitor website use: Plan administrators that choose to post covered documents on a website are not required to monitor whether covered individuals visit the website and view the information. The DOL also noted a recent court case that addressed whether a recipient has read, understood, and has “actual knowledge” of the information posted. The DOL did not, however, provide any further guidance on this issue.

New NOIA Requirements

  • Combined notices of online postings: Certain notices of online postings can be combined in a single annual NOIA, including the following.
  • Summary plan description (SPD)
  • Documents or information that must be provided annually (e.g., summary annual report (SAR))
  • Other documents authorized by the Secretary of Labor
  • Notices required by the IRS if authorized by the Secretary of the Treasury (e.g., automatic contribution arrangement (ACA) notice)

Unlike the proposed regulations, the final regulations clarify that plan administrators may not include a summary of material modifications or quarterly benefit statements in a combined NOIA. These covered documents must have their own NOIAs.

The NOIA, if applicable, must be sent to the covered individual’s electronic address. If the address is a phone number, it must be capable of receiving written text messages, and plan administrators must confirm this. Delivery of a NOIA by voice message does not meet this requirement.

  • NOIAs may contain an “invitation to take action” statement: A NOIA may contain a statement explaining that 1) the covered individual is invited or required to take action in response to the covered document and how to take such action, or 2) no action is required, provided that such statement is not inaccurate or misleading. For example, a NOIA may include a statement that a benefits claim denial delivered to a covered individual is an invitation to take action and requires action within a specific time frame or else the covered individual may forfeit a right to a benefit. In this example, it would be misleading for a plan administrator to suggest on a NOIA that no action is invited or required.
  • Document description accompanying a NOIA: Under the final regulations, a NOIA must include a brief description of a covered document if a covered document’s name does not reasonably convey the nature of the covered document. For example, a NOIA for a quarterly benefit statement ordinarily would not need a brief description, but a NOIA for a blackout notice would.

More Flexible Readability Requirements

Detailed guidelines for readability in the proposed regulations (using the Flesch reading ease score) were removed, and are not included in the final regulations. The final regulations simply require that communications under this guidance be “written in a manner calculated to be understood by the average plan participant.”

Special Rule for Severance from Employment

Procedures must be in place to ensure that a plan administrator will continue to have a valid electronic address to which notices can be provided after a covered individual’s severance from employment. The DOL revised this provision in the final regulations so that it applies only when an electronic address assigned by an employer is used to furnish covered documents. These particular procedures are not required when a personal email address is used to furnish covered documents.

Previous Guidance Still Applies

In 2002, the DOL created a safe harbor for electronically delivering any plan disclosures required by ERISA. Although the 2002 safe harbor is not the only permissible way that an employer may use electronic media, those using it may treat the notice or other document sent by email or other electronic means as having been properly delivered.

In March 2020, the DOL, Treasury Department, and the Department of Health and Human Services released EBSA Disaster Relief Notice 2020-01. This guidance extends deadlines for providing notices, disclosures, and documents that are due to plan participants and beneficiaries between March 1, 2020, and the end of a 60-day period following the close of the COVID-19 National Emergency (known as the Outbreak Period), which has yet to be announced.

Under this notice, plan fiduciaries will not violate ERISA as long as they act in good faith and provide required information as soon as practicable. Acting in good faith includes sending the information electronically when the plan fiduciary reasonably believes that the intended recipient has effective access to the information.

Although the DOL has yet to comment, it does not appear that plans have to rely on either one of the safe harbors in order to take advantage of Disaster Relief Notice 2020-01.

Transition Relief Granted

For an 18-month period following the effective date of these final regulations, plan administrators can also rely on prior guidance for the delivery of certain covered disclosures. This guidance includes FAB 2006-003, FAB 2008-003 (Q&A 7), and Technical Release 2011-03R. Thereafter, the relevant portions of the prior guidance are superseded by the final regulations.

Plan administrators may also rely on previously obtained electronic addresses—in existence on the effective date of the final rule—provided that they reasonably, in good faith, comply with the requirements of the safe harbor.

Effective Date

This guidance officially becomes effective on July 27, 2020. Plan administrators may, however, rely on these regulations immediately because the DOL will not take any enforcement action against those relying on the safe harbor before its effective date because of the COVID-19 pandemic. This approach, it is hoped, will help support the government’s overall response to the pandemic.

Visit FuturePlan.com for future updates.

Click here for a printable version of this issue of the Washington Pulse.

  


  

House Passes Bill to Expand Paycheck Protection Program

The U.S. House of Representatives passed by a 417-1 margin on Thursday, May 28, the Paycheck Protection Program Flexibility Act of 2020. This legislation would modify certain core terms of this Small Business Administration (SBA) emergency lending program. The Paycheck Protection Program (PPP) was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020. Under the program, qualifying small businesses may apply for loans from the SBA to retain employees on their payrolls, and—especially attractive to business owners—the loans are forgiven if certain conditions are met.

As provided in the CARES Act, PPP loans taken to cover 8 weeks of program-eligible expenses can be forgiven (no repayment required). Although mortgage, rent, and other business expenses are included, to be eligible for forgiveness, 75 percent of a loan amount must—under current rules—be used for employee payroll expenses. Certain employee benefits, including defined contribution and defined benefit plan employer contributions, health insurance benefits (including premium payments), and certain employee leave benefits can be considered payroll expenses.

Today’s House-passed legislation would extend the 8-week period to 24 weeks, and would change the 75 percent payroll requirement to 60 percent.

The legislation would also relax certain loan forgiveness provisions in recognition that an employer may be unable to rehire some former employees or to find similarly qualified employees. Loan amounts not forgiven could be repaid over a period of 5 years instead of 2 years as under current rules.

Members of the U.S. Senate have been discussing a similar bill, one said to expand the 8-week period to 16, not 24 weeks. If the Senate is unable to pass its version of PPP revisions this week, which seems likely, its bill could be taken up when the Senate returns to Washington, D.C., next week.

  


  

IRS Provides Welcome Deadline Relief for Savings Arrangement Reporting, Limited Additional Extensions

On May 28, 2020, the IRS issued limited additional relief that extends deadlines for certain time-sensitive actions related to tax-advantaged savings arrangements. Most awaited was an extension for providing information returns for IRAs, health savings accounts (HSAs), Archer medical savings accounts (MSAs), and Coverdell education savings accounts (ESAs). These information returns are Form 5498, IRA Contribution Information, Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, and Form 5498- ESA, Coverdell ESA Contribution Information.

Deadlines for providing these information returns to the IRS and to account owners had previously been extended by IRS Notice 2020-23 through July 15, 2020, in response to the coronavirus (COVID-19) pandemic. The deadline for annual contributions to these accounts was also extended to July 15, 2020. This presented custodial organizations and service providers to these accounts with the dilemma of reporting contributions that could be received as late as the deadline for their reporting.

Notice 2020-35 now provides a six-week window after the July 15, 2020, contribution deadlines in which organizations can prepare and provide these information returns to the IRS and to account owners.

Other Deadlines Not Extended

Notice 2020-23 extended many other deadlines to July 15, 2020, including completing rollovers, making retirement plan loan payments, filing Form 5500, Annual Return, Report of Employee Benefit Plan, as well as numerous others. These deadlines are not extended by the latest guidance in Notice 2020-35.

Extensions Granted by Notice 2020-35

The following are among the limited number of deadlines extended by Notice 2020-35.

  • Providing Form 5498-series information returns for IRAs, ESAs, HSAs, and MSAs. (Providing these information returns after August, 31, 2020, will be subject to IRS penalty, which will be calculated from September 1, 2020, through the date the information returns are actually provided.)
  • Close of the 403(b) plan remedial amendment period remains at June 30, 2020, this guidance making official an earlier IRS website announcement.
  • Adoption by a defined benefit pension plan of a pre-approved plan document, filing a request for a determination letter under the second six-year cycle, or certain other actions with respect to disqualifying provisions have a deadline of July 31, 2020.

Notice 2020-35 also extends to July 15, 2020 (not August 31), several items not previously granted extensions. These include the following.

  • Application for a funding waiver by a defined benefit pension plan that is not a multi-employer (union) plan.
  • Filing IRS Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, and paying these excise taxes.

  


  

Final eDelivery Regulations for Retirement Plan Disclosures Are Published

Published in today’s Federal Register are final regulations issued by the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) that provide an additional safe harbor for ERISA retirement plans to deliver DOL-required disclosures by electronic means. A pre-publication version was released by EBSA on May 21. (The regulations’ preamble notes that the agency has chosen not to extend the guidance to welfare benefit plans at this time.)

These regulations become effective 60 days from today’s publication date. The EBSA noted in the guidance, however, that retirement plans may rely on these regulations immediately; no enforcement action will be taken against a plan for premature reliance due to the impact of the coronavirus (COVID-19) pandemic.

  


  

Proposed Regulations Are Published on Withholding from Retirement Payments

The House of Representatives late Friday passed H.R. 6800, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, providing additional aid to many who are adversely affected by the novel coronavirus (COVID-19) pandemic. The bill also contained non-COVID-19-related provisions considered likely to prove controversial in the Senate.

Unlike the Families First Coronavirus Response Act, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act—both of which moved fairly rapidly through Congress—the HEROES Act has been called “dead on arrival” by Senate Majority Leader Mitch McConnell (R-KY), who—with Republican colleagues—envisions a much less comprehensive bill. Sen. McConnell has also expressed a desire to move slowly and gauge the effectiveness of earlier relief. Most expect no additional COVID-19-related legislation to be enacted before sometime in June.

As announced last week, the House bill contains provisions for the following.

  • Continued financial assistance to unemployed workers
  • Financial assistance to state, local, tribal, and territorial government entities
  • Waiver of 2019 required minimum distributions (RMDs)
  • Waiver of the 60-day and one-rollover-per-12-month rules for otherwise-required RMDs waived for 2019 and 2020
  • Amendments to the Emergency Family and Medical Leave Expansion Act
  • Relief for participants in health flexible spending arrangements (FSAs)
  • Codifying the ability of employers to deduct certain expenses covered by loans that are forgiven under the SBA Paycheck Protection Program
  • Providing money purchase pension plans the early distribution and loan relief that the CARES Act provided to other qualified retirement plans
  • A new retirement “composite plan,” with features that include those of 401(k) and defined benefit (DB) pension plan
  • Relief for multiemployer (collectively-bargained) DB pension plans
  • Amortization relief for single employer DB pension plans
  • Further funding relief (beyond that provided by the SECURE Act) to certain community newspaper DB plans
  • Aid to certain federal agencies affected by the pandemic, including the Departments of Homeland Security, Interior, Health and Human Services, Labor, Transportation, Housing and Urban Development, and Education
  • Enhanced Medicare and Medicaid benefits
  • Medical supply chain enhancement
  • Testing and reporting enhancement
  • National strategic stockpile for pandemic response
  • Bankruptcy protections for homeowners
  • Certain student loan relief and protections
  • Additional aid to veterans during the COVID-19 pandemic
  • Federal election early and by-mail voting procedure

  


  

Industry Welcomes Final Regulations for Default Electronic Delivery of Retirement Plan Disclosures

Scheduled for publication in the May 27th Federal Register are final regulations on default electronic delivery of retirement plan disclosures. These final regulations, issued by the Department of Labor’s Employee Benefits Security Administration (EBSA), provide an additional safe harbor that may enhance the ability of plan administrators and their service providers to deliver DOL-required disclosures to participants and beneficiaries of ERISA plans by electronic means.

An accompanying News Release and EBSA Fact Sheet cites the presidential Executive Order of August, 2018, which directed the agency—in part—“to focus on reducing the costs and burdens that retirement plan disclosures impose on employers and others.” Proposed regulations were issued in October 2019, and public comments solicited at that time contributed to shaping these final regulations.

This guidance officially becomes effective 60 days following publication in the Federal Register. But the EBSA Fact Sheet notes that retirement plans may rely on these regulations immediately; no enforcement action will be taken against a plan for such premature reliance due to the impact of the coronavirus (COVID-19) pandemic. (The regulations’ preamble notes that the agency has chosen not to extend the guidance to welfare benefit plans at this time.)

Following are selected observations from an initial review of the final regulations and EBSA Fact Sheet.

The new safe harbor
The electronic delivery safe harbor can be satisfied by either of two means.

  • Website posting: A plan administrator is allowed to post covered documents (documents required to be furnished by ERISA Title 1 plans) on a website if appropriate notification of Internet availability is furnished to the electronic addresses of covered individuals.
  • Email delivery: A plan administrator may send covered documents directly to the electronic addresses of covered individuals, with the covered documents either in the body of the email or as an attachment to the email.

First step to e-delivery is on paper
As in the proposed regulations, a plan administrator intending to deliver some, or all, covered documents electronically must first notify participants—in a paper communication—of this intention.

Paper option remains
Not unexpected, recipients can opt out of receiving covered documents electronically and receive them in paper form, without charge. However, plan administrators need not (but may) offer recipients a “pick and choose” option to receive some documents in paper form and some electronically; the plan can require that an opt-out be “global;” (all or nothing). Conversely, a plan that uses electronic means to deliver some covered documents need not use electronic means for all.

Combining notices of Internet document postings
Certain notices of Internet postings can be combined in a single annual notice of Internet availability (NOIA), including the following.

  • Summary Plan Description (SPD)
  • Documents that must be provided annually; (e.g., Summary Annual Report (SAR))
  • Other documents authorized by the Secretary of Labor
  • Notices required by the Internal Revenue Code if authorized by the Secretary of the Treasury; (e.g., automatic contribution arrangement (ACA) notice)

Flexibility in definition of “website
The final regulations acknowledge the importance of including new and developing technologies in applying the guidance, as long as the safe harbor requirements can be met. Mobile applications qualify.

Informing participants of document posting
If covered documents are to be posted to a website, recipients must be able to receive a plan’s NOIA. An electronic address to which a NOIA is sent may be an email address. If it is a phone number, it must be capable of receiving written/text messages (plan administrators must confirm this). Delivery of a NOIA by voice message does not meet this requirement.

Availability of web-posted documents
A covered document posted to a plan’s website must remain there at least one year, or—if longer—until superseded (replaced by) an updated version of the same document.

Document description accompanying a NOIA
A NOIA alerting a participant to an Internet document posting need not include a separate description of the document, if the document’s name—included in the NOIA—would reasonably convey the nature of the document. If not (e.g., a blackout notice), a description of the document being posted to the Internet is required.

Readability
Detailed guidelines for readability in the proposed regulations (using the Flesch reading ease score) were removed, and are not included in the final regulations. The final regulations more simply require that communications under this guidance be “written in a manner calculated to be understood by the average plan participant.”

Accessing and Understanding
The plan administrator has no affirmative obligation under the final regulations to monitor whether covered individuals have visited a website to view posted information. Unaddressed—but noted, in reference to a recent ERISA court case—is the issue of whether a recipient has read, understood, and has “actual knowledge” of the information posted.

Special rule for severance from employment from plan sponsor
Procedures should be in place to ensure that a plan administrator will continue to have a valid electronic address to which notices can be provided after severance from employment.

Transition relief, prior guidance superseded
For an 18-month period following the effective date of these final regulations, retirement plans can also rely on prior guidance for the delivery of certain covered disclosures. This guidance includes Field Assistance Bulletin (FAB) 2006-003, FAB 2008-003 (Q&A 7), and Technical Release 2011-03R. Thereafter, the relevant portions of the prior guidance are superseded by the final regulations.

Reasonable procedures for compliance
These final regulations add “technical maintenance” of websites as a circumstance that warrants consideration of facts and circumstances, when—for a reasonable amount of time—disclosure documents may be unavailable to a recipient.

In addition to details provided in this announcement, a Washington Pulse is being prepared, and will be posted to FuturePlan News.

  


  

Final Regulations for Default Electronic Delivery of Retirement Plan Disclosures

The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued a pre-publication version of highly-anticipated final regulations on default electronic delivery of retirement plan disclosures. These regulations become effective 60 days following their publication in the Federal Register, currently scheduled for Wednesday, May 27.

Retirement plan administrators and service providers have been awaiting these final regulations since they were issued in proposed form in October 2019. This guidance is expected to enhance the ability of retirement plans and their service providers to deliver required disclosures to participants and beneficiaries by electronic means.

  


  

House Passes Next Coronavirus Relief Bill

The House of Representatives late Friday passed H.R. 6800, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, providing additional aid to many who are adversely affected by the novel coronavirus (COVID-19) pandemic. The bill also contained non-COVID-19-related provisions considered likely to prove controversial in the Senate.

Unlike the Families First Coronavirus Response Act, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act—both of which moved fairly rapidly through Congress—the HEROES Act has been called “dead on arrival” by Senate Majority Leader Mitch McConnell (R-KY), who—with Republican colleagues—envisions a much less comprehensive bill. Sen. McConnell has also expressed a desire to move slowly and gauge the effectiveness of earlier relief. Most expect no additional COVID-19-related legislation to be enacted before sometime in June.

As announced last week, the House bill contains provisions for the following.

  • Continued financial assistance to unemployed workers
  • Financial assistance to state, local, tribal, and territorial government entities
  • Waiver of 2019 required minimum distributions (RMDs)
  • Waiver of the 60-day and one-rollover-per-12-month rules for otherwise-required RMDs waived for 2019 and 2020
  • Amendments to the Emergency Family and Medical Leave Expansion Act
  • Relief for participants in health flexible spending arrangements (FSAs)
  • Codifying the ability of employers to deduct certain expenses covered by loans that are forgiven under the SBA Paycheck Protection Program
  • Providing money purchase pension plans the early distribution and loan relief that the CARES Act provided to other qualified retirement plans
  • A new retirement “composite plan,” with features that include those of 401(k) and defined benefit (DB) pension plan
  • Relief for multiemployer (collectively-bargained) DB pension plans
  • Amortization relief for single employer DB pension plans
  • Further funding relief (beyond that provided by the SECURE Act) to certain community newspaper DB plans
  • Aid to certain federal agencies affected by the pandemic, including the Departments of Homeland Security, Interior, Health and Human Services, Labor, Transportation, Housing and Urban Development, and Education
  • Enhanced Medicare and Medicaid benefits
  • Medical supply chain enhancement
  • Testing and reporting enhancement
  • National strategic stockpile for pandemic response
  • Bankruptcy protections for homeowners
  • Certain student loan relief and protections
  • Additional aid to veterans during the COVID-19 pandemic
  • Federal election early and by-mail voting procedure

  


  

Washington Pulse: New COVID-19 Relief for Employee Welfare Benefit Plans

During the last few months, the Department of Labor (DOL), Treasury Department, and Department of Health and Human Services (DHHS) have jointly issued multiple pieces of guidance intended to provide much needed relief to those suffering economic hardships from the coronavirus (COVID-19) pandemic. In this article, we’ll explain how the most recent relief affects employee welfare benefit plans.

Overview of New Relief

To help overcome the financial hardships facing millions of Americans, the DOL and the Treasury Department published a final rule on May 4, 2020. The final rule extends and suspends various employee welfare benefit plan and COBRA deadlines that fall between March 1, 2020, and the end of a 60-day period following the close of the COVID-19 National Emergency (known as the Outbreak Period), which has yet to be announced.

The DOL and Treasury Department also worked with the DHHS to create EBSA Disaster Relief Notice 2020-01.This guidance extends deadlines for providing notices, disclosures, and documents that are due to plan participants and beneficiaries between March 1, 2020, and the end of the Outbreak Period. The relief applies to plan fiduciaries that act in good faith to provide this information as soon as administratively practicable. The EBSA notice also confirms that Form 5500 filing deadlines that occur between April 1, 2020, and July 14, 2020, must now be filed by July 15, 2020 (calendar-year plans are not affected).

On May 12, 2020, the IRS issued Notice 2020-29 and Notice 2020-33. Notice 2020-29 allows employees to make election changes relating to employer-sponsored group health coverage, health flexible savings accounts (FSAs), and dependent care FSAs mid-year with no special enrollment events. The notice also allows for health FSA and dependent care FSA participants to submit new claims for reimbursement up to December 31, 2020, from amounts that remained in accounts as of a plan year end or the end of the grace period that occurred at any time in 2020.

Notice 2020-33 increases the maximum $500 health FSA carryover amount to an amount that is equal to 20 percent of the maximum salary reduction contribution for the plan year. The increase takes effect immediately, making the maximum amount that can be carried forward for the 2020 plan year $550 (20 percent of $2,750).

 

How the Final Rule Affects Employee Welfare Benefit Plans

The most significant impact of the final rule involves providing certain individuals extended deadlines for performing certain acts. When calculating the new extended deadlines, the final rule disregards the Outbreak Period.

  • Filing a benefit claim: The final rule extends the deadline for filing claims for benefits under welfare benefit plans. Importantly, this relief will also include calendar-year health FSAs and health reimbursement accounts (HRAs) that had a runout period ending on March 1, 2020 or later. Although this provision will help individuals with existing claims, it does not allow them to incur new claims applicable to an old plan year.
    • Example:  An employee terminated employment and lost health coverage on May 1, 2020. Because the plan has a 90 day-runout period for terminated participants, the employee would normally have until July 30, 2020, to submit claims for reimbursement of eligible expenses incurred before the employee terminated employment. The period between the date of termination and the end of the Outbreak Period is now disregarded. If March 2, 2021 is the end of the Outbreak Period, the 90-day runout period will start on March 3, 2021, and end on May 31, 2021.
  • Filing an appeal and requesting a review: The final rule extends the period to file an appeal of an adverse benefit determination. This period must be at least 60 days (for welfare benefit plans) or 180 days (for group health plans) following notification of the adverse benefit determination. The final rule also extends the four-month period for filing a request for external or internal review.
  • Special Enrollment Periods: Employees and their eligible dependents now have more time to enroll in a group health plan following a special enrollment event. Usually individuals must elect coverage during a 30-day period (or a 60-day period, depending on plan provisions) following a special enrollment event.
    • Example: An employee had a child on March 20, 2020. The employee would normally have 30 days to elect coverage for the child. The period between the birth and the end of the Outbreak Period is now disregarded. If October 10, 2020, is the end of the Outbreak Period, the 30-day period would start on October 11, 2020, and end on November 9, 2020.

How Notice 2020-29 Affects Employee Welfare Benefit Plans

IRS Notice 2020-29 gives plans additional deadline flexibility and eases restrictions associated with various plan requirements found in the Internal Revenue Code and associated Treasury Regulations. The extensions provided by the Notice are described below.

  • Modified rules on irrevocable elections: Notice 2020-29 eliminates certain restrictions that limit the ability of participants to revoke and make new plan elections after the start of the plan year. During the 2020 plan year, elections pertaining to employer health coverage, health FSAs, and dependent care FSAs can now be made at any time on a prospective basis. This relief is not automatic. An employer will be required to amend its plan to allow participants to take advantage of this relief.
    • Example: A participant elected to defer $1,200 into an FSA during open enrollment for a plan year that began on January 1, 2020. The participant is now permitted to change her election at any time and defer a different amount (e.g., $2,200) if she so chooses.
  • Extended the deadline for incurring claims: Plan participants in health FSAs and dependent care FSAs may now incur and submit new claims for reimbursement up to December 31, 2020, based on amounts that remained in their FSA as of the end of a plan year or the end of a grace period that occurred at any time in 2020. This relief is not automatic. An employer will be required to amend its plan to allow participants to take advantage of this relief.
    • Example: An employee was a participant in a 2019 calendar year FSA with a grace period that ended on March 15, 2020. He had $1,200 remaining in his account as of that date. He had not incurred any claims that he could submit for reimbursement through March 15, 2020. On June 29, 2020, the participant received medical services in excess of $1,200. He can submit his claim and be reimbursed for that amount.

How the Final Rule Affects COBRA Coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA) helps employees going through a qualifying event (such as termination of employment) maintain health coverage, often at a lower cost than they might find in the marketplace. To assist those who have lost health insurance coverage because of the pandemic, the final rule extends several COBRA-related deadlines. When calculating the new extended deadlines, the final rule disregards the Outbreak Period.

Delayed COBRA Election Deadline

To assist those who have lost health insurance coverage through termination of employment or a reduction of hours, the final rule extends the deadline to elect COBRA coverage. Normally, the election period ends 60 days following the later of 1) the qualifying event or 2) the date the plan provides the COBRA election notice to the qualified beneficiary.

  • Example: An employee is terminated on April 10, 2020, and loses coverage on April 30, 2020. If the terminated employee receives the COBRA election notice on May 5, 2020, he would normally have until July 4, 2020, which is 60 days, to elect COBRA coverage. But the Outbreak Period is now disregarded. If November 14, 2020, is the end of the Outbreak Period, the 60-day election period would start on November 15, 2020, and end on January 13, 2021.

This provision also gives employees flexibility in determining whether to spend money to continue coverage based on the type of medical issues they have during the extended deadline. Some people may choose to not enroll in COBRA coverage unless some type of expensive medical event makes it necessary. Normally, they would have a shorter window to determine the necessity of enrollment.

While the extended deadline helps individuals, it also creates risk for insurers and employers who may see employees taking advantage of the deadlines to enroll only if they incur significant costs. Healthy employees who would normally elect coverage, pay the premiums, and incur limited costs, will not have incentive to enroll during the window and will not be able to help offset costs as they normally would.

Delayed COBRA Payments

The final rule extends the amount of time that a qualified beneficiary has to submit a COBRA premium payment before coverage under the plan will cease. To be considered timely, the payment deadline is normally 30 days after the due date (or 45 days for the initial payment). While it is possible for qualified beneficiaries to take advantage of this relief in order to minimize expenses and avoid paying their premiums during the Outbreak Period, it is important to note that once the Outbreak Period is over, qualified beneficiaries must fully pay all prior months’ premiums in order to retain coverage. This could be a substantial financial burden. But if a qualified beneficiary has a major medical event, it could be cheaper to make up the costs of numerous months of premiums than to pay for the medical expenses

Delayed COBRA Notices

  • Extended qualified event notification deadline: The final rule extends the date by which a covered employee or qualified beneficiary must notify the plan administrator of the following qualifying events: divorce (or legal separation) or a dependent child ceasing to be a dependent child. The normal deadline is 60 days after the date of the qualifying event.
  • Extended disability notification deadline: Covered employees and qualified beneficiaries have more time to notify the plan administrator of a disability determination. The normal deadline is 60 days after the date of being determined to be disabled.
  • Extended COBRA rights notification deadline: Plan administrators have more time to notify qualified beneficiaries of their COBRA rights following a qualifying event. The normal deadline is 14 days following the qualifying event (or 44 days when the employer is the plan administrator). Although plan administrators are not required to provide the COBRA election notice during the Outbreak Period, they must provide COBRA coverage if a participant elects it. Plan administrators will likely want to provide timely notices to encourage qualified beneficiaries to elect and pay for COBRA coverage.

Previous Relief Affecting Employee Welfare Benefit Plans

In March 2020, the IRS released Notice 2020-18, postponing the due date for all Federal income tax returns normally due on April 15, 2020, to July 15, 2020. Although not mentioned, contribution deadlines were expected to be delayed as well. A few weeks later, these expectations were met when Notice 2020-23 officially extended multiple deadlines that fell on or after April 1, 2020, and before July 15, 2020, to July 15, 2020—including deadlines for

  • making 2019 HSA contributions;
  • completing a 60-day rollover;
  • providing Form 5498-SA to HSA owners and to the IRS;
  • forfeiting unused FSA benefits;
  • receiving cash for unused vacation days; and
  • electing benefits in a noncalendar-year cafeteria plan.

Watch for Future Guidance

The last few months have seen a flurry of new guidance. This trend may continue for the duration of the pandemic. In fact, at the time of this writing the House of Representatives had just introduced a fourth stimulus package. Ascensus will be closely monitoring all future guidance. Visit FuturePlan.com for future updates.

Click here for a printable version of this issue of the Washington Pulse.

  


  

Next Coronavirus Relief Bill Introduced

In an atmosphere more partisan than earlier coronavirus relief efforts, the Democratic caucus of the House of Representatives has released a bill to fund another round of assistance as the nation attempts to cope with the health and economic effects of the coronavirus (COVID-19) pandemic. This legislation, as yet unnumbered, is being referred to as the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act.

Three prior bills—which provided direct cash benefits to Americans, created a small business lending program to help employers retain employees and provided enhanced access to tax-favored retirement savings—were dealt with quickly by Congress and signed into law by President Trump. This round of relief has been predicted to provoke greater resistance among lawmakers who are averse to expanding the federal deficit. There is also expected to be less common ground in the House and Senate—and Democrat and Republican—priorities for additional relief.

The House-released bill contains provisions for the following.

  • Continued financial assistance to unemployed workers
  • Financial assistance to state, local, tribal, and territorial government entities
  • Waiver of 2019 required minimum distributions (RMDs)
  • Waiver of the 60-day and one-rollover-per-12-month rules for otherwise-required RMDs waived for 2019 and 2020
  • Amendments to the Emergency Family and Medical Leave Expansion Act
  • Relief for participants in health flexible spending arrangements (FSAs)
  • Codifying the ability of employers to deduct certain expenses covered by loans that are forgiven under the SBA Paycheck Protection Program
  • Providing money purchase pension plans the early distribution and loan relief that the SECURE Act provided to other qualified retirement plans
  • A new retirement “composite plan,” with features that include those of 401(k) and defined benefit (DB) pension plan
  • Relief for multiemployer (collectively-bargained) DB pension plans
  • Amortization relief for single employer DB pension plans
  • Further funding relief (beyond that provided by the SECURE Act) to certain community newspaper DB plans
  • Aid to certain federal agencies affected by the pandemic, including the Departments of Homeland Security, Interior, Health and Human Services, Labor, Transportation, Housing and Urban Development, and Education
  • Enhanced Medicare and Medicaid benefits
  • Medical supply chain enhancement
  • Testing and reporting enhancement
  • National strategic stockpile for pandemic response
  • Bankruptcy protections for homeowners
  • Certain student loan relief and protections
  • Additional aid to veterans during the COVID-19 pandemic
  • Federal election early and by-mail voting procedure

  


  

AICPA Delays Required Implementation of New Reporting Standards

The American Institute of Certified Public Accountants (AICPA) has issued Statement of Auditing Standards (SAS) Number 141, which provides for a delay in effective dates for several SAS’s, including SAS 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA.

As previously reported in an Ascensus Retirement Spotlight, SAS 136 clarifies and formalizes best practices that auditors must adhere to when conducting an audit of ERISA employee benefit plans as part of the annual Form 5500 filing, and requires a new two-pronged opinion on the plan’s financial statements. SAS 136 also provides that the new rules are to apply for plan years ending on or after December 15, 2020, and early implementation is not allowed.

SAS 141, however, amends the effective date to December 15, 2021. Additionally, it amends SAS 136 to no longer preclude early implementation.

  


  

The IRS has issued news release OR-2020-01, announcing an extension of time to complete certain time-sensitive tax-related acts as a result of storms, flooding, mudslides, and landslides in Oregon. At this time, the only area to which the relief applies is Umatilla County, as well as the Confederated Tribes of the Umatilla Indian Reservation. Under this guidance, certain tax-related acts with deadlines falling on or after February 5, 2020, and before April 1, 2020, are extended through July 15, 2020. (This guidance is in addition to the nationwide coronavirus-related relief already available to taxpayers for time-sensitive tax act completions that are due on or after April 1, 2020, and before July 15, 2020, which are extended through July 15.)

OR-2020-01 specifically notes that this extension applies to IRA contributions, as well as to the numerous time-sensitive acts described in Treasury Regulation 301.7508A-1(c)(1). These acts include completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under this regulation.

This relief applies specifically to residents of the identified area, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area who is injured or killed as a result of the events is also entitled to deadline relief.

Affected taxpayers who reside, or have a business located, outside the covered disaster area are required to call the IRS disaster hotline at 1-866-562-5227 to request relief.

  


  

IRS Q&As Provide Details on Implementing CARES Act Provisions

The IRS’ posting earlier this week of new question-and-answer (Q&A) guidance on the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, was welcomed by those who administer retirement savings arrangements. The guidance provides some additional details on the IRA and retirement plan relief provided by the CARES Act.

The CARES Act is intended to aid those affected by the coronavirus (COVID-19) pandemic, which has affected the health and economic welfare—or both—of many Americans. It offers special retirement account distribution, loan access, tax treatment, and repayment options, as well as penalty tax relief. The CARES Act resembles, in most respects, legislation enacted in prior years to aid victims of hurricanes and other major disasters.

The new IRS Q&A-format guidance summarizes the special relief granted to IRA owners and retirement plan participants and, in some cases, provides new and clarifying information on dimensions of the relief. The following is a summary of the content of each Q&A, in numeric order.

  1. The relief includes expanded distribution options and favorable tax treatment for up to $100,000 (in aggregate) distributed from IRAs and employer-sponsored retirement plans. This includes exemption from the 10 percent early distribution penalty tax, ratable taxation over three years (unless electing current-year taxation), and a three-year period for repayment to an IRA or employer plan.
  2. This Q&A promises additional CARES Act guidance “in the near future.” This is welcome news because the CARES Act is similar, but not identical to, previous disaster relief legislation and previous IRS disaster guidance (Notice 2005-92, issued following Hurricane Katrina) is being looked to as an indication of how CARES Act-specific guidance may look. The IRS has further promised that CARES Act guidance will apply the principles of Notice 2005-92 to the extent that the CARES Act and the post-Hurricane Katrina legislation’s provisions align.
  3. Coronavirus-related distributions (CRDs) are IRA or employer plan distributions taken by qualified individuals. These are persons who have (or whose spouse or dependent has) been diagnosed with COVID-19, have been quarantined due to the COVID-19 pandemic, or have experienced adverse financial consequences such as job loss, reduction in work hours, or furlough; including being unable to work due to loss of child care. The IRS in this guidance has indicated that it is reviewing comments submitted and may expand the circumstances that qualify as adverse financial consequences.
  4. A CRD is defined as a distribution from an eligible employer retirement plan or IRA that is withdrawn by a qualified individual—as described above—from January 1, 2020, to December 30, 2020, in an aggregate amount not to exceed $100,000. It is of some concern that this unusual date could lead to end-of-year errors; the IRS is apparently unwilling to interpret the CARES Act to include December 31.
  5. This Q&A confirms that CRDs are exempt from the 10 percent additional tax on early distributions from tax-advantaged retirement arrangements to which they apply.
  6. Taxable amounts withdrawn as CRDs will be taxed ratably (equally) in one-third amounts in tax years 2020, 2021, and 2022, unless the taxpayer receiving them elects when filing 2020 taxes to have the CRDs taxed entirely in 2020.
  7. In common with legislation responding to several previous disaster events—including Hurricane Katrina in 2005—the distributions known as CRDs can be repaid to eligible retirement plans, including IRAs and eligible employer-sponsored plans. This must occur no later than three years after the date of the distribution(s). A repayment will be “treated as though it were repaid in a direct trustee-to-trustee transfer” within 60 days to preserve prior pretax character. Pretax status would be restored by a taxpayer amending his or her tax return for any prior year in which the distribution was included in income and taxed. This Q&A notes that IRS Hurricane Katrina Notice 2005-92 provides examples of this tax recovery procedure.
  8. For retirement plan loans that are outstanding on the date of CARES Act enactment (March 27, 2020), any payment due from March 27 to December 31, 2020, may be delayed for one year, with payments after the one-year suspension period adjusted for accrued interest. Employers may allow participants to take loans of up to 100% of their accrued vested balance (normally 50%) to a maximum of $100,000 (normally $50,000). The new guidance confirms that the final date for a participant to secure a CARES Act enhanced retirement plan loan is September 22, not September 23 as most had believed.
  9. Employers may choose to add CRDs as a distributable event for anyone CRD-eligible, regardless of age or other eligibility—and regardless of whether they will allow plan loans in the legislation-enhanced amounts. CRDs and enhanced plan loans are not linked, and an employer may elect to adopt one, both, or neither. Similarly, the increased loan limits and loan suspension period are independent of one another as options for the employer. Even if an employer does not adopt CRD distribution provisions, a taxpayer who meets a CARES Act COVID-19 diagnosis or economic harm condition for CRD eligibility—and has another distributable event under the plan—may claim the 10 percent penalty exemption, ratable taxation, and repayment privileges associated with CRDs.
  10. Employers that sponsor a defined benefit pension plan or money purchase pension plan may not choose to add CRDs as a distributable event. Furthermore, the qualified joint-and-survivor-annuity (QJSA) and spousal consent requirements of these plans continue to apply, including for any eligible distribution to a participant who meet CARES Act CRD conditions.
  11. A retirement plan administrator may rely on the participant‘s representations that he or she satisfies the criteria to be eligible for a CRD. CARES Act statutes do not mention employer “actual knowledge” as a reason to deny a CRD distribution over the representations of a participant. However, both the new IRS Q&As and Notice 2005-92—the Hurricane Katrina guidance—state that a CRD is not to be granted based on participant representations if an employer has actual knowledge to the contrary. While an employer may report a distribution as a CRD based on a participant’s representations, this reporting does not entitle the participant to claim CARES Act tax benefits if he or she is not truly eligible.
  12. An eligible retirement plan is permitted to accept timely CRD repayments if it accepts rollovers. These repayments are, in fact, rollover contributions, and would be placed in a rollover account, thus, eliminating any question about whether they must be assigned to another contribution source. A plan is not required to amend its provisions to accept CRD repayments. It is not clear from this Q&A whether a plan that accepts rollovers generally can exclude participant CRD repayments. Hopefully the IRS-promised additional guidance will clarify this.
  13. Qualified individuals will report CRDs when they file their individual income tax return. In addition to the 1040 series return itself, the taxpayer will file new Form 8915-E (the 8915 series reports certain disaster-related tax events) to determine the amount of any CRD included in income for the year, and to report CRD repayments.
  14. The retirement plan or IRA administrator will report the distribution itself on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc. In this Q&A the IRS promises more information on how to report CRDs “later this year.”

  


  

The IRS has issued guidance in question-and-answer (Q&A) format on the special IRA and retirement plan relief granted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, legislation signed into law on March 27, 2020. This relief is intended to aid those affected by the coronavirus (COVID-19) pandemic that has impacted the health and economic welfare—or both—of many Americans.

Special IRA and retirement plan distribution, taxation, and rollover options, as well as retirement plan loan access, are provided by the CARES Act, which in most respects resembles legislation to aid victims of past hurricane and major disaster events. The IRS Q&As address the following issues.

  • The CARES Act expanded distribution, favorable tax treatment, and portability options for coronavirus-related distributions (CRDs) from IRAs and employer-sponsored retirement plans
  • The IRS’ intention to issue additional guidance based on previous IRA and employer-plan-related relief granted under the Katrina Emergency Tax Relief Act (KETRA) of 2005
  • Who is a qualified individual for purposes of CARES Act relief
  • What is considered an eligible coronavirus-related distribution (CRD) from an IRA or employer-sponsored retirement plan
  • Exemption of CRDs from the 10 percent early distribution penalty tax
  • Special taxation options for CRDs
  • Eligibility to repay CRDs taken from an IRA or employer-sponsored retirement plan
  • Increased retirement plan loan amount and delayed loan repayment options
  • Enhanced access to employer-sponsored retirement plan assets through CRDs, and the ability of plan administrators to rely on plan participants’ representations of eligibility for CRDs
  • The option for employer-sponsored retirement plans to adopt—or choose not to adopt—the enhanced distribution and loan provisions of the CARES Act
  • Retirement plan acceptance of CRD repayments
  • Taxpayer reporting of CRDs
  • Retirement plan and IRA reporting of CRDs

It is hoped that the additional guidance referred to in this Q&A posting will be forthcoming soon, and will provide more clarity in administering the provisions of the CARES Act.

  


  

  


  

The Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA), has issued several information and guidance items to provide administrative and operational relief to ERISA-governed retirement and health benefit plans as a result of the coronavirus (COVID-19) pandemic. Among the guidance items is a final rule jointly issued with the Department of the Treasury and the IRS.

EBSA Disaster Relief Notice 2020-01

  • Extends deadlines for ERISA-governed benefit plans to furnish required benefit statements, funding notice, and disclosures if they make a “good faith effort to provide them as soon as administratively practicable”
  • Authorizes under a good faith compliance standard the use of electronic means to communicate with plan participants and beneficiaries if a plan fiduciary reasonably believes recipients have “effective access” to the communications
  • Provides compliance guidance on Form 5500 and Form M-1 filing relief, as well as operational guidance on plan loans, participant contributions, blackout notices, and general fiduciary responsibilities

COVID-19 FAQs for Participants and Beneficiaries

DOL/EBSA has also provided a 23-question series of frequently-asked-questions (FAQs) for retirement and health plan participants and beneficiaries. The FAQs provide general guidance, including information about access to, and management of, retirement plan assets and benefits, and health benefit entitlement and options for those whose employment-based benefits have been affected.

 

Joint Agency Health Benefit Extensions

The DOL/EBSA and Treasury Department/IRS have jointly issued a final rule to be published in the Federal Register, extending timeframes for health benefit plan participants to take certain actions affecting their entitlement to benefits. Actions include filing for health benefit continuing coverage under COBRA, filing or perfecting health benefit claims, and appealing benefit claim denials.

 

DOL News Release

  


  

New Bill Would Triple Retirement Plan Contribution Limits for 2020

Rep. Patrick McHenry (R-NC) has introduced the Securing Additional Value for Every Retirement Saver (SAVERS) Act, legislation that would permit increased annual contributions to tax-qualified retirement savings arrangements for 2020.

The legislation would raise the following annual contribution limitations to 300 percent of previously-announced limits for 2020 (not to exceed applicable compensation).

  • Aggregate elective deferrals of an individual who participates in one or more 401(k), 403(b), governmental 457(b), or SIMPLE IRA plan, including catch-up deferrals
  • SIMPLE IRA-specific elective deferral limitations, including catch-up deferrals
  • Retirement plan annual additions (Internal Revenue Code Section 415) made on behalf of an individual under all plans of an employer
  • IRA contributions (does not appear to apply to catch-up contributions of those age 50 or older)

At a taxpayer’s option, 2019 compensation—or compensation for a tax year beginning in 2019—could be substituted for 2020 compensation.

The legislation has been referred to the House Committee on Ways and Means.

  


  

  


  

  


  

President Trump Signs Bill to Replenish Paycheck Protection Program

Following passage by an overwhelming margin in the U.S. House of Representatives Thursday, President Trump today signed into law the Paycheck Protection and Healthcare Enhancement Act, infusing $320 billion in additional funding into the Small Business Administration’s Paycheck Protection Program (PPP).

PPP is a lending program created to help small employers retain employees on their payrolls during the coronavirus (COVID-19) pandemic and resulting economic emergency. In addition to providing additional funding for the small business loan program, the legislation also provides new funding for hospitals dealing with the immediate effects of the pandemic, and—specifically—for enhanced COVID-19 testing.

PPP loans, which, under certain conditions, may be forgiven, can be used not only for employee wages and salaries, but also to fund employee retirement and health benefits.

  


  

  


  

Bill Passed by Senate Would Replenish Paycheck Protection Program

The U.S. Senate on Tuesday overwhelmingly passed the Paycheck Protection and Healthcare Enhancement Act, legislation that would provide $320 billion in additional funding to the Small Business Administration’s Paycheck Protection Program (PPP). This lending program is intended to help small employers retain employees on their payrolls during the coronavirus (COVID-19) pandemic and resulting economic emergency. The legislation would also provide funding for hospitals dealing with the immediate effects of the pandemic, and, specifically, for enhanced COVID-19 testing.

PPP loans, which, under certain conditions, may be forgiven, can be used not only for employee wages and salaries, but also to fund employee retirement and health benefits during an eight-week period.

The legislation must now be passed by the U.S. House of Representatives. An attempt to do so is expected on Thursday, April 23. President Trump has indicated he would sign the Senate’s version of the bill.

  


  

E-Delivery Regulations Closer to Being Released

Much-awaited Department of Labor (DOL) final regulations on electronic delivery of retirement plan disclosures have made their way to the federal Office of Management and Budget (OMB), generally the final stop on their way to official issue. (Only if the OMB finds objections to guidance is it returned to the issuing agency for revision.)

The retirement industry has been awaiting these final regulations since their proposed version was issued in October 2019. It is hoped that the guidance will enhance the ability of retirement plans and their service providers to deliver required disclosures to participants and beneficiaries by electronic means. While the OMB can take as much as 90 days to review such guidance (there is no minimum review period), a lengthy review period is not anticipated.

  


  

  


  

On April 10, 2020, the IRS issued Notice 2020-23. This guidance—citing IRS Revenue Procedure 2018-58—identified a number of time-sensitive tax-related actions whose completion can be delayed to July 15, 2020, as a result of disruptions caused by the coronavirus (COVID-19) pandemic.

For the identified actions, a deadline falling on or after April 1, 2020, and before July 15, 2020, is extended to July 15, 2020. This also applies to the following employee stock ownership plan (ESOP) actions.

  • Distribute C Corp stock dividends made to the plan within the time period required to qualify for deductibility under Internal Revenue Code Section (IRC Sec.) 404(k)
  • Provide or exercise put options on employer stock distributed from the ESOP
  • Repurchase of employer stock after a total distribution
  • Repurchase of employer stock after installment distributions
  • Commence distributions within the maximum timeframes allowed under IRC Sec. 409(o)
  • Purchase qualified replacement property to avoid taxable sale of employer stock to an ESOP

Most of the other deadline extensions provided by Notice 2020-23 were described in a previous Ascensus Industry & Regulatory News posting.

  


  

SBA Confirms Eligible Employee Benefits for Payroll Protection Program

Scheduled to be published in the Federal Register is an interim final rule issued by the federal Small Business Administration (SBA), guidance that includes frequently-asked-questions (FAQs) on Payroll Protection Program (PPP) loans available to small businesses to help them maintain their workforce during the coronavirus (COVID-19) pandemic. Businesses with no more than 500 employees—including not-for-profits and sole proprietorships—can apply for these low interest and potentially forgivable SBA loans if certain conditions are met.

The FAQs answer many potential employer questions on eligibility, calculating amount of loan available, and—especially important—what expenses qualify as “payroll” costs for purposes of the program. Similar to Treasury Department guidance previously issued and announced here, these SBA FAQs affirm that eligible payroll costs include a number of employee benefits; among them are the following.

  • Retirement benefits
  • Group healthcare coverage, including the payment of premiums
  • Payment of state and local taxes on employee compensation
  • Family, medical, or sick leave benefits

  


  

The Pension Benefit Guaranty Corporation (PBGC), the agency that insures benefits in certain single-employer defined benefit pension plans, has posted an announcement describing deadline relief being provided as a result of the coronavirus (COVID-19) pandemic.

The PBGC’s disaster relief policy provides that when an event warrants an extension of time to file Form 5500, Annual Return/Report of Employee Benefit Plan (or others in the 5500 series), then “the due date for most PBGC filings is extended to the same date.” Triggering the latest extension was IRS Notice 2020-23, which, by reference to Revenue Procedure 2018-58, extended to July 15, 2020, the deadlines for many actions otherwise due to be completed between April 1 and July 15. One of these actions is the filing of Form 5500 for those plans whose deadline falls within these date parameters.

The relief noted by PBGC includes the following.

  • Payment of PBGC premiums due on or after April 1, 2020, and before July 15, 2020
  • ERISA 4010 filings for certain underfunded pension plans (those with filing deadlines on or after April 1, 2020, and before July 15, 2020

Some deadlines are not extended, including those that are “particularly important or time-sensitive filings … that may indicate a high risk of harm to pension plan participants and the insurance program.” These pertain to such issues as filings to report a loan default and filings to report a liquidation.

To qualify for the relief, it is necessary for the filer to notify the PBGC of its eligibility. The filer must do so on or before the last day of the relief period. The PBGC’s “Disaster Relief Announcement” provides more information on the notification process.

  


  

A Message to Our Friends and Partners

On behalf of all of us at FuturePlan, we extend our wishes for a full recovery to those directly affected by COVID-19, and our deepest sympathies to those who have lost loved ones. Our heartfelt thanks go out to the medical professionals, first responders, and essential workers who are saving lives and sustaining our communities. Our highest priority at FuturePlan is the safety and wellbeing of our people, clients, and partners.

Even before the rapid spread of COVID-19 in the United States, we implemented action plans to protect our business practice and our clients from a crisis of this scale. FuturePlan teams had the flexibility, training, resources, and technology infrastructure to respond immediately when the crisis hit, shifting to a fully remote operation within four business days without interruptions to client service. Each day since, we have been working continuously to support all those who depend on us, responding with care, compassion, and commitment. Through the Ascensus government relations team, we’ve been advocating in Washington for every possible legislative and regulatory measure to support employers, plan sponsors, and savers.

We know that many of you are experiencing major business disruptions and may face difficult financial decisions. We understand and empathize, since so many of us at FuturePlan have owned or managed small businesses through previous economic downturns and devastating events. We hope you’ll reach out so we can support you and share our experience balancing urgent business needs with retirement security goals.

As we go forward, we will keep you up to date with regular communication. We are continually adapting and enhancing our services in response to the changing environment, committing every resource to help our clients, associates and partners persevere together and build a better future for all.

Stay safe and well.

Jerry Bramlett
President, FuturePlan by Ascensus

  


  

  


  

IRS Provides Guidance for Employers to Claim Tax Credits for Emergency Paid Sick Leave Act and Expanded FMLA Payments

The IRS has posted at its website much-anticipated guidance for claiming tax credits for amounts paid by employers under the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Expanded Leave Act (Expanded FMLA), as provided in the Families First Coronavirus Response Act (FFCRA). The guidance contains 66 FAQs that cover all aspects of the tax credits.

The FFCRA was passed in response to the coronavirus pandemic and provides that employers may claim tax credits for amounts required to be paid for qualifying EPSLA or Expanded FMLA leave of absence that is taken April 1, 2020, through December 31, 2020.

  


  

CARES Act Update

New Coronavirus Law Provides Retirement Plan Healthcare Relief

With virtually every part of the U.S. economy facing unexpected financial challenges from the coronavirus (COVID-19) pandemic, Congress has passed the largest relief package in U.S. history. Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act is designed to assist the millions of Americans affected by the outbreak. The legislation has multiple provisions that affect retirement and health savings

Retirement Savings Provisions

Most financial experts advise against using assets that have been set aside for retirement. But many individuals may have to do just that in order to supplement their income. The following provisions are intended to help individuals access their IRA and retirement plan assets and to replenish those assets later on.

  • New coronavirus-related distributions (CRDs). Individuals may withdraw up to $100,000 in aggregate from eligible retirement plans without paying the 10 percent early distribution penalty tax.
    • A CRD is defined as a distribution made on or after January 1, 2020, and before December 31, 2020, to a qualified individual, defined as:
      • an individual (or the spouse or dependent of the individual) who is diagnosed with the COVID-19 disease or the SARS-CoV-2 virus in an approved test; or
      • an individual who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reduced hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Treasury Secretary.

      The CARES Act clarifies that employers may rely on participants’ certification that they meet the CRD requirements.

    • An eligible retirement plan is defined as a qualified retirement plan (e.g., a 401(k) plan), 403(b) plan, governmental 457(b) plan, or an IRA.
    • CRDs will meet the retirement plan distribution requirements as long as all distributions from one employer do not exceed $100,000.
    • Individuals may repay CRDs over three years beginning with the day following the day a CRD is made. Repayments may be made to an eligible retirement plan or IRA.
    • CRD repayments made within the three-year period will be treated as having satisfied the general 60-day rollover requirement.
    • CRDs will be taxed ratably over a three-year period unless an individual elects otherwise. Although CRDs may be rolled over, they are not considered “eligible rollover distributions” for certain purposes. Employers are not required to offer a direct rollover option. Employers are also not required to withhold 20 percent on a CRD or provide a 402(f) notice, which explains the tax and rollover options required by IRC Sec. 402(f).
  • Waiver of RMDs in—or for—2020. Financial markets have taken a hit in the wake of the coronavirus outbreak. To help savers retain more in their retirement accounts, the CARES Act waives the required minimum distribution (RMD) in 2020 for plan participants, IRA owners, and beneficiaries.
    • RMDs normally required to be taken for 2020 are waived.
    • This waiver also applies to individuals who turned 70½ in 2019 but who did not take their first RMD before January 1, 2020. In the absence of additional relief, the next RMD for those individuals must be taken by December 31, 2021.
    • For purposes of counting the five-year period for beneficiary distributions, 2020 is disregarded and one year is added to the remaining period. For example, for deaths occurring in 2019, the five-year period in which the inherited assets must be distributed will end on December 31, 2025, instead of on December 31, 2024.
    • A distribution that is taken in 2020—but that is not an RMD because of the waiver—may be rolled over to another eligible retirement plan or to an IRA within 60 days of the distribution. Though such distributions may be rolled over, they are similar to CRDs in that they are not treated by employer plans as eligible rollover distributions for purposes of the 20 percent mandatory withholding, the 402(f) notice, or the direct rollover requirements.
  • Increased maximum plan loan amount. The retirement plan loan maximum for a qualified individual (defined as meeting the COVID-19 or SARs-CoV-2 conditions described previously) is increased to the lesser of $100,000 or 100 percent of the participant’s vested balance. This increased amount applies to loans made during the 180-day period beginning on March 27, 2020.
  • Delayed plan loan repayment date. Retirement plan loan repayment dates that occur between March 27, 2020, and December 31, 2020, can be delayed for one year, with the amortization period—including the five-year repayment deadline—adjusted accordingly.
  • Funding relief for defined benefit plans. For single-employer defined benefit pension plans, the minimum required contributions due during 2020 can be delayed to January 1, 2021 (adjusted for interim earnings). Employers also have an option to use an alternative funding target percentage
  • Expanded DOL authority to postpone certain deadlines. In addition to taking action in response to a disaster or terroristic threat, the DOL may now postpone certain deadlines under ERISA if a public health emergency (like the COVID-19 pandemic) occurs.
  • Amendment guidance. Plan sponsors generally must amend their retirement plans for these provisions by the last day of the 2022 plan year (government plans have an additional two years), or such other date as the Treasury Secretary may prescribe, with operational compliance during the interim period.

Health-Related Provisions

  • Allowable Services. Health insurance plans can pay for telehealth and remote care services without first requiring an individual to satisfy a deductible. Such payments will be deemed not to violate existing HSA requirements. This relief applies to plan years that begin on or before December 31, 2021, and promotes diagnosis and treatment while helping individuals avoid possibly risky in-person contact.
  • New qualified medical expenses. Certain medicines or products do not need to be a “prescription” to be qualified medical expenses for HSA, HRA, MSA, and health FSA purposes. The CARES Act specifically includes over-the-counter menstrual care products.

Although the CARES Act represents the largest relief package in U.S. history, there may be more to come. Government officials have stated that more relief will be available if needed. For now, the CARES Act should help many Americans get some of the financial relief that they desperately need. We are closely reviewing the CARES Act and other possible COVID-19 guidance. Visit FuturePlan.com for the latest information and developments.

Links to Helpful Resources from the U.S. Chamber of Commerce

  • Economic Injury Disaster Loan Guide. This resource explains the enhanced Economic Injury Disaster Loan Program (EIDL), which provides emergency grants to eligible small business, nonprofits, sole proprietors, and independent contractors.
  • Employee Retention Tax Credit Guide. The CARES Act also includes an employee retention tax credit for companies severely impacted by COVID-19. This guide explains eligibility and credit calculations.

Download a PDF version of CARES Act Update: CARES Act Update

  


  

Pandemic Preparedness and Response Statement

Overview

As a business division of Ascensus, FuturePlan has maintained a Pandemic Preparedness plan since day one. It is one component of our larger Business Continuity planning process.

Even before the rapid spread of the COVID-19 virus in the United States, we proactively implemented action steps outlined in the Pandemic Plan to protect our business and clients from being impacted by potential disruptions that efforts to combat this situation could cause.

FuturePlan remains committed to providing plan sponsors, advisors, and our recordkeeping partners with the level of service they need and expect while also helping safeguard the health and welfare of our associates.

Action Plan

Following the parameters set forth in our Pandemic Plan, specific actions that have been taken include:

  • COVID-19-Specific Risk Identification – Based on what we know about this pathogen and its spread, we have validated our plan based on risks that are specific to COVID-19. Our goal is to ensure that the nuances that this outbreak shows are accounted for, including its ability to be contagious before symptoms that could lead to mass clusters of infection present themselves. We will continue to reevaluate risks related to COVID-19 on a regular basis to determine if our plan needs to be updated.
  • Information Technology – Prior to any governmental order, more than 97% of FuturePlan’s associates were set up to work remotely and continue day-to-day operations and services. We have taken additional steps to allow more of our staff to work remotely and will continuously evaluate our Information Technology infrastructure to ensure that we have the hardware and infrastructure in place to allow all critical functions to be completed effectively by associates.
  • Workload Management Flexibility – Because FuturePlan is a national TPA, we are able to leverage operational sites across our geographic footprint that can support each other. We also conduct regular risk assessments to ensure that we can execute effective workload management processes, and are now taking extra steps—such as cross-training individuals on critical functions—to further strengthen our support system.
  • Human Resources Evaluations – As with any pandemic, there could be a significant number of associates unavailable to work at any given time (although we fortunately have not seen that to date). With that in mind, our Human Resources team is working closely with Risk Management and Business Operations to ensure that work coverage is available for all key functions. We have also implemented restrictions on international and business travel, as well as large-group gatherings.
  • Vendor Capabilities – We are working with vendors that provide operational support and those that are part of our hardware/software supply chain to ensure that service levels are maintained.

FuturePlan, along with all of Ascensus’ lines of business, will continue to monitor this evolving global health situation. Relying on Ascenus’ ERISA team for legislative updates, we will distill the information and share it as educational tools to help plan sponsors and advisors navigate this challenging time.

Download a PDF version of Pandemic Preparedness and Response Statement: Pandemic Preparedness and Response Statement

  


  

Our COVID-19 Response

At FuturePlan, we consider the safety and wellbeing of our clients and associates to be paramount. Our service and leadership teams have been closely monitoring the global spread of COVID-19 and have been making proactive adjustments to our operations in order to ensure the continued service and expertise you count on.

In order to continue our commitment to you while minimizing risks to the wellbeing of our associates, we’ve:

  • leveraged our robust business continuity planning to ensure all systems are fully operational;
  • implemented remote working solutions for our associates wherever possible to sustain the full readiness of our workforce;
  • broadly leveraged remote, digital communications to ensure connectivity while we suspend all business travel; and
  • postponed and avoided scheduling group gatherings of associates and clients.

Our technology infrastructure offers us the resources and flexibility we need stay in close, personal contact with you and one another.

As this situation evolves, we’ll continue to update our practices and, where necessary, commit resources to support the needs of those who depend on us in both the near and long term. In the meantime, we’d like to share our wish that you, your family, and your colleagues remain well.

Feel free to contact us for additional support.

  


  

  


  

FuturePlan Supports Small Businesses

Small businesses are the backbone of the American economy. With these businesses and their workers bearing the brunt of the hardship associated with the coronavirus (COVID-19) pandemic, it’s incumbent on the financial services industry to do whatever we can to support them. Many believe that this support will come mainly through federal relief, and that smart legislation—providing financial stimulus and other appropriate relief—will help right the ship.

But there are three ways that the financial services industry can help, as well.

  1. 1. Do all within our power to serve our clients faithfully. In this tumultuous time, our clients—along with their clients—need us more than ever. Although the vast majority of retirement industry teams are now working remotely, we must ensure that employers neither see nor feel any differences regarding the services we provide. That means continuing to fulfill our duties—such as processing payrolls accurately, responding promptly to employer and employee questions, and providing thoughtful plan design guidance—in spite of technological and social obstacles.
  2. 2. Speak with one voice to Congress and to regulatory officials, who can help employee benefits plans weather this economic storm. Even with major federal legislation recently being signed into law, we continue to advocate for individual and business relief. We can actively support further legislative and regulatory efforts to make plan operations easier for employers and more beneficial for workers. Some of the provisions we think make sense are:
  • Granting employers funding relief. Both defined contribution plans and defined benefit plans would benefit from delayed deadlines and reduced funding obligations.
  • Extending deadlines for reporting and corrections. The federal government should recognize that small businesses may find it especially difficult to meet deadlines for certain required annual reporting. Deadlines should be extended and penalties for late reports should be lessened, especially in light of recent increases under the SECURE Act.
  • Making hardship and coronavirus-related distributions easier for employers to process.If employers allow their participants to distribute their plan assets on account of hardship or coronavirus expenses, they should be able to expedite the payment—and then gather proof of the expenses later.
  • Advocating for financial relief for workers.
    • Relax loan repayments. Employees who struggle to repay plan loans during this crisis should be given some reprieve to avoid a downward financial spiral.
    • Remove the 10% early distribution penalty. This penalty should be eliminated for hardship distributions and for expenses related to the COVID-19 outbreak.
    • Waive 2020 required minimum distributions (RMDs). Without a waiver, individuals would have to take distributions based on valuations that occurred before the markets declined, resulting in disproportionately high RMDs. Individuals who have already taken 2020 RMDs should be allowed to roll over such distributions in the event that a 2020 RMD waiver is enacted.

Already, our efforts have helped several relief provisions—including the 2020 RMD waiver noted above and an extended plan amendment deadline—become part of a bill that was just enacted. The provisions listed above represent just a few of Ascensus’ advocacy efforts that are intended to assist those employers, employees, and service providers adversely affected by the COVID-19 outbreak.

3. Support the long-term success of workplace retirement plans. As we all know, many small business owners have overcome financial and administrative obstacles to offer retirement benefits to employees. Now—of all times—we should help these businesses maintain their plans through this financial downturn. The president has just signed into law a massive relief bill, which includes a number of beneficial retirement plan provisions. But this is just the start of a longer-term effort to guide our clients through the many questions and concerns they will have about implementing all the new rules. We still have a monumental responsibility to push for effective relief from the IRS and other federal agencies that will interpret the new statutes.

Our industry shouldn’t lose sight of the importance of facilitating long-term retirement savings—by serving our constituents faithfully, by pushing for specific federal retirement plan relief, and by giving our clients tools to stay in their plans for the long run.

Our country will eventually emerge from this situation stronger than ever. If historical patterns hold true, financial markets will also rebound. When that happens, businesses that have maintained their plans—and workers who have allowed their retirement savings to go untouched—will be in a position to see that their retirement goals are intact and on the road to recovery.

This is why financial services firms must do their part to reinforce and sustain the employers and workers that have helped keep our economy vital for so long.

Legislative and regulatory information contained in this piece will be refreshed as events continue to unfold. Please check back regularly for updates.

  


  

  


  

House Passes Senate’s Coronavirus Response Bill Unchanged, President Trump Signs Into Law

The House of Representatives today passed—by an expedited procedure—the Coronavirus Aid, Relief and Economic Security (CARES) Act, which was passed by the Senate late on Wednesday, March 25. This afternoon, President Trump signed the legislation into law.

The CARES Act has many elements intended to aid businesses and workers, and to assist the U.S. healthcare system in dealing with the coronavirus (COVID-19) pandemic. As noted in a prior announcement, it also contains the following key provisions that would affect retirement savings arrangements, health savings accounts (HSAs), Archer medical savings accounts (MSAs), health reimbursement arrangements (HRAs), and health flexible spending arrangements (FSAs).

Retirement Savings Provisions

  • (As originally drafted, this legislation extended the income tax return filing deadline from April 15, 2020, to July 15, 2020. Prior to its enactment, however, the Treasury Department issued guidance extending the deadline and clarified other acts that are extended—including the ability to make IRA, HSA, and certain employer plan contributions—to July 15 for tax year 2019.)
  • Up to $100,000 in coronavirus-related distributions (CRDs) can be withdrawn by an individual from eligible retirement plans. These distributions will be exempt from the 10 percent early distribution penalty tax.
    • A CRD is defined as any distribution made on or after January 1, 2020, and before December 31, 2020, to a qualified individual, defined as
      • an individual (or the spouse or a dependent of that individual) who is diagnosed with COVID-19 or SARS-CoV-2 in an approved test; or
      • an individual who suffers related adverse financial consequences, or suffers from other factors as determined by the Secretary of the Treasury.
    • Plan administrators can rely on plan participants’ certification that they meet these requirements.

    • An eligible retirement plan is defined as a qualified retirement plan (e.g., a 401(k) plan), 403(a) plan, 403(b) plan, governmental 457(b) plan, or an IRA.
    • CRDs will be treated as meeting retirement plan distribution requirements, so long as all distributions from one employer—including members of a controlled group—do not exceed $100,000 to an individual.
    • There will be a three-year repayment period beginning the day after distribution, during which one or more repayments may be made, not to exceed, in aggregate, the amount distributed. Taxpayers can recontribute these amounts to an eligible retirement plan or IRA.
    • CRDs that are recontributed within the three-year period will be treated as having satisfied the general 60-day rollover requirement.
    • CRDs will be taxed ratably over a three-year period, unless an individual elects otherwise.
    • CRDs are not considered statutory “eligible rollover distributions” for purposes of 20 percent mandatory withholding, the notice provided to recipients of distributions eligible for rollover (i.e., “402(f) notice”) and direct rollover requirements (but do remain eligible for rollover).
  • The retirement plan loan maximum for a qualified individual (defined as meeting the COVID-19 or SARs-CoV-2 conditions described above) will increase to the lesser of $100,000, or 100 percent of a participant’s vested balance.
    • Retirement plan loan repayment dates that occur between the date of enactment and December 31, 2020, can be delayed for one year. Due dates of subsequent payments (payments after those that may be delayed one year) and the five-year amortization period will be adjusted accordingly.
  • Plan sponsors will generally be required to amend their retirement plans for these provisions by the last day of the 2022 plan year (government plans will have an additional two years), or such other date as the Secretary of the Treasury may prescribe, with operational compliance during the interim period.
  • Individuals, including beneficiaries, will not be required to take their 2020 required minimum distributions (RMDs) from their defined contribution plans or IRAs. This RMD waiver would also apply to individuals who turned 70½ in 2019 but did not take their RMD before January 1, 2020).
  • The 2020 year will not be counted for purposes of a five-year payout period for a beneficiary. (This provision will not alter a required beginning date for years after 2020.)
  • Single employer defined benefit pension plan minimum required contributions due during 2020 can be delayed to January 1, 2021 (adjusted for interim earnings). This provision will also provide an option to use an alternative funding target percentage.
  • This legislation adds “public health emergency” to those events that allow the Department of Labor to postpone certain deadlines governed by ERISA Section 518.

Health Savings Arrangement-Related Provisions 

  • For plan years before 2022, health insurance plans can pay for telehealth and remote care services without first satisfying HSA-qualifying deductible conditions.
  • A medicine or drug need not be obtained by prescription to be a qualified medical expense for HSA, HRA, MSA, and health FSA purposes. This includes over-the-counter menstrual care products.

Further developments, including any clarifying guidance issued by the IRS or other governing agencies, will be shared on Futureplan.com.

  


  

Senate Approves Massive Coronavirus Response Bill, with Significant Retirement Savings and Health Elements

On Wednesday night, shortly before midnight, Eastern Time, the U.S. Senate cleared lingering objections of both Democrat and Republican members and unanimously passed H.R. 748, the Coronavirus Aid, Relief and Economic Security, or CARES Act. The legislation has many elements intended to aid businesses and workers, and assist the U.S. health care system in working through the coronavirus (COVID-19) pandemic. It also contains multiple provisions that would affect retirement savings arrangements, health savings accounts (HSAs), Archer medical savings accounts (MSAs), HRAs, and flexible savings accounts (FSAs).

The next move is up to the U.S. House of Representatives, where a strategy known as “unanimous consent” could speed up passage of the legislation there, resulting in quicker delivery to President Trump for his signature. If there are objections to that strategy by House members, that body—currently in recess—may have to be recalled to the Capitol for a vote. Following are key provisions that would impact tax-favored retirement and health savings arrangements.

Retirement Savings Provisions

  • This legislation would extend the income tax return filing deadline from April 15, 2020, to July 15, 2020. (The Treasury Department has already extended the deadline as described above and clarified other acts that are extended as a result—including the ability to make IRA, HSA, and certain employer plan contributions by July 15 for tax year 2019.)
  • Up to $100,000 in coronavirus-related distributions (CRDs) could be withdrawn by an individual from eligible retirement plans. These distributions would be exempt from the 10 percent early distribution penalty tax.
    • A CRD is defined as any distribution made on or after January 1, 2020, and before December 31, 2020, to a qualified individual, defined as
      • an individual (or the spouse or a dependent of that individual) who is diagnosed with COVID-19 or SARS-CoV-2 in an approved test; or
      • an individual who suffers related adverse financial consequences, or suffers from other factors as determined by the Secretary of the Treasury.
  • Plan administrators could rely on plan participants’ certification that they meet these requirements.
    • An eligible retirement plan is defined as a qualified retirement plan (e.g., a 401(k) plan), 403(a) plan, 403(b) plan, governmental 457(b) plan, or an IRA.
    • CRDs would be treated as meeting retirement plan distribution requirements, so long as all distributions from one employer—including members of a controlled group—do not exceed $100,000 to an individual.
    • There would be a three-year repayment period beginning the day after distribution, during which one or more repayments may be made, not to exceed, in aggregate, the amount distributed. Taxpayers could recontribute these amounts to an eligible retirement plan or IRA.
    • CRDs that are recontributed within the three-year period will be treated as having satisfied the general 60-day rollover requirement.
    • CRDs would be taxed ratably over a three-year period, unless an individual elects otherwise.
    • CRDs are not considered statutory “eligible rollover distributions” for purposes of 20 percent mandatory withholding, the notice provided to recipients of distributions eligible for rollover (i.e., “402(f)” notice) and direct rollover requirements (but do remain eligible for rollover).
  • The retirement plan loan maximum for a qualified individual (defined as meeting the COVID-19 or SARs-CoV-2 conditions described above) would increase to the lesser of $100,000, or 100 percent of a participant’s vested balance.
    • Retirement plan loan repayment dates that occur between the date of enactment and December 31, 2020, could be delayed for one year. Due dates of subsequent payments (payments after those that may be delayed one year) and the five-year amortization period would be adjusted accordingly.
  • Plan sponsors would generally be required to amend their retirement plans for these provisions by the last day of the 2022 plan year (government plans would have an additional two years), or such other date as the Secretary of the Treasury may prescribe, with operational compliance during the interim period.
  • Individuals would not be required to take their 2020 required minimum distributions (RMDs) from their defined contribution plans or IRAs. This RMD waiver would also apply to individuals who turned 70½ in 2019 but did not take their RMD before January 1, 2020).
  • The 2020 year would not be counted for purposes of a five-year payout period for a nonperson beneficiary. (This provision would not alter a required beginning date for years after 2020.)
  • Single employer defined benefit pension plan minimum required contributions due during 2020 could be delayed to January 1, 2021 (adjusted for interim earnings). This provision would also provide an option to use an alternative funding target percentage.
  • This legislation would add “public health emergency” to those events that would allow the DOL to postpone certain deadlines governed by ERISA Section 518.

Health Savings Arrangement-Related Provisions 

  • For plan years before 2022, health insurance plans could pay for telehealth and remote care services without first satisfying HSA-qualifying deductible conditions.
  • Over-the-counter menstrual care products would be considered qualified medical expenses for HSA, HRA, Archer MSA, and health flexible spending account purposes.

Further progress of this legislation will be monitored and developments shared on ascensus.com

  


  

FuturePlan is excited to present the SECURE Act Video Series by our industry-leading team of ERISA experts. This helpful new series provides insights on the retirement-related SECURE Act provisions included in the Further Consolidated Appropriations Act, 2020.

FuturePlan SECURE Act Video Series, Part 10: Qualified Birth or Adoption Distributions

FuturePlan SECURE Act Video Series, Part 9: Beneficiary Option Changes

FuturePlan SECURE Act Video Series, Part 8: New Plan Adoption Deadline

FuturePlan SECURE Act Video Series, Part 7: New 529 Plan Eligible Expenses

FuturePlan SECURE Act Video Series, Part 6: Increased Penalties for Plan Reporting Failures

FuturePlan SECURE Act Video Series, Part 5: Employer Plan Tax Credits

FuturePlan SECURE Act Video Series, Part 4: Qualified Charitable Distributions

FuturePlan SECURE Act Video Series, Part 3: Safe Harbor Plans

FuturePlan SECURE Act Video Series, Part 2: Traditional IRA Contribution Eligibility

FuturePlan SECURE Act Video Series, Part 1: Required Minimum Distributions

Washington Pulse: SECURE Act: The Wait is Finally Over

For the past three years, Congress has attempted to pass major retirement reform legislation. It has finally succeeded with the year-end passage of two spending packages meant to avert a government shutdown. One of the packages, the Further Consolidated Appropriations Act, 2020 (FCAA), includes multiple bills—including the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which contains several major retirement-related provisions. These provisions are nearly identical to those included in an earlier version of the SECURE Act that was passed by the U.S. House of Representatives in May 2019. At the time of this publication, the President had not yet signed these bills into law. But it is widely anticipated that he will.

The SECURE Act provides the most comprehensive retirement reform package in over a decade. The primary goals of the SECURE Act are to expand retirement savings, improve plan administration, simplify existing rules, and preserve retirement income. The provisions summarized below will certainly give rise to questions in the coming days. Our aim is to provide an easy reference to the important retirement plan changes, while understanding that more federal guidance will be needed to resolve certain matters.

The FCAA also includes bills that provide disaster relief (discussed later) and new health and welfare provisions. The most significant health and welfare measure repeals the controversial “Cadillac Tax.” The Affordable Care Act had created a 40 percent excise tax on the most expensive employer-sponsored health insurance plans when benefits exceeded a certain threshold. This tax was supposed to become effective in 2018, but was previously delayed until 2022.

New Incentives to Establish or Enhance Employer Plans

The following SECURE Act provisions create new incentives and modify existing incentives for employers to establish retirement plans. They also broaden the time frame for employers to establish plans.

  • Multiple employer plans (MEPs). Employers can more easily participate in a MEP or a new variant, a “pooled employer plan,” or PEP. Both have basic features in common, the latter to be administered by a pooled plan provider. (Effective for 2021 and later plan years.)
  • Multiple participating businesses with a common interest would generally be part of a MEP.
  • Multiple participating businesses with no common interest other than plan sponsorship would generally be part of a PEP.
  • Smaller MEPs and PEPs may be able to file a simplified short Form 5500-SF tax return for the plan.
  • Noncompliance by one participating employer will not disqualify the entire MEP/PEP arrangement, thus eliminating the “one bad apple” rule.
  • Deadline to establish a plan. Employers may establish a qualified plan—such as a profit sharing or pension plan—as late as their business tax filing deadline, including extensions. (Under previous rules, employers had until the last day of their business year.) This extension will not apply to certain plan provisions, such as elective deferrals. (Effective for 2020 and later taxable years.)
  • Small employer plan startup credit. The small employer retirement plan startup tax credit increases from $500 to a maximum of $5,000 per year, available to cover startup costs for the first three years that the plan is in effect. (Effective for 2020 and later taxable years.)
  • Automatic enrollment credit. The SECURE Act provides a new tax credit to employers that include an automatic enrollment feature in their new or existing small 401(k) plans (100 or fewer employees) or SIMPLE IRA plans. The maximum annual tax credit is $500 for each of the first three years that the plan is maintained. (Effective for 2020 and later taxable years.)
  • Election of 401(k) nonelective safe harbor design. Employers that make nonelective safe harbor plan contributions (versus a matching contribution) get two benefits: 1) they now escape the notice requirement, and 2) they have more time to amend their plans to implement this nonelective 401(k) safe harbor plan feature. Specifically, they may amend up to 30 days before the end of a plan year if they make a three percent contribution. But they may generally amend by the close of the following plan year if the plan is also amended to require a four percent nonelective safe harbor contribution. (Effective for 2020 and later plan years.)
  • Annuity selection safe harbor. The SECURE Act creates a new safe harbor for a plan fiduciary to meet ERISA’s “prudent man rule” when selecting an insurer and an annuity contract in order to offer lifetime income options under a plan. (Effective on date of enactment.)

New Ways to Save More in Employer Plans

The next set of provisions lets employers automatically increase employees’ deferral contributions to a higher percentage, requires employers to give participants a future benefits projection, and promotes plan entry for certain part-time employees.

  • Higher cap on deferrals in safe harbor 401(k) plans. Some 401(k) plans meet nondiscrimination requirements through automatic enrollment and automatic deferral increases. These qualified automatic contribution arrangements (QACAs) will now have a maximum 15 percent deferral rate instead of 10 percent. (Effective for 2020 and later plan years.)
  • Lifetime income disclosure. Defined contribution plans must provide, at least annually, a projected lifetime income stream that a participant’s accrued benefit could generate. This disclosure does not create employer liability for the amounts projected. (Effective for benefit statements provided more than 12 months after the DOL issues guidance, including the interest assumptions to be used and a model disclosure. The bill prescribes that this guidance be completed within one year of the date of enactment.)
  • Participation by less than full-time employees. Employees who have three consecutive 12-month periods of 500 hours of service and who satisfy the plan’s minimum age requirement must be allowed to make elective deferrals in an employer’s 401(k) plan. The current, more restrictive, eligibility rules could continue to be applied to other contribution sources (e.g., matching contributions) and to ADP/ACP safe harbor plans. Employers may also exclude such part-time employees from coverage, nondiscrimination, and top-heavy test rules. (Effective for 2021 and later plan years, but no 12-month period that begins before January 1, 2021, shall be taken into account.)

More Targeted Provisions Affecting Employer Plans

The SECURE Act contains a number of additional, more targeted provisions that apply to employer plans.

  • Custodial accounts of terminating 403(b) plans. Plan administrators or custodians of a 403(b) custodial account may distribute the account “in kind” to a participant or beneficiary when the employer is terminating the 403(b) plan. (Retroactive; effective for 2009 and later taxable years.)
  • Lifetime income portability. Participants in a qualified plan, 403(b) plan, or governmental 457(b) plan may roll over lifetime income investments to an IRA or another retirement plan without a traditional distribution triggering event if their plan no longer permits such investments. (Effective for 2020 and later plan years.)
  • Higher penalties for plan reporting failures. Retirement plan information reporting failures will result in the following increased penalties. (Effective for filings and notices required January 1, 2020, and thereafter.)
    • Form 5500, $250 per day, up to a maximum of $150,000
    • Form 8955-SSA (deferred benefit reporting), $10 per day, up to a maximum of $50,000 for failing to file, $10 per day, up to a maximum of $10,000 for failing to file a notification of change
    • Withholding notices, $100 per failure, up to a maximum of $50,000 for all such failures during any calendar year
  • Credit card loan prohibition. Retirement plan loans enabled through a credit card (or a similar program) will be treated as distributed from the plan and subject to taxation. (Applies to loans made after the date of enactment.)
  • Shared Form 5500 filing. Employers sponsoring defined contribution plans that have the same trustee, administrator, fiduciaries, plan year, and investment options may file a common Form 5500. (Effective for 2022 and later plan years.)
  • Nondiscrimination relief for closed pension plans. Defined benefit pension plans that are closed to new participants will get nondiscrimination relief that protects benefits for older, longer serving participants. (Effective upon enactment, or—if elected—for 2014 and later plan years).
  • Community newspaper pension funding relief. Sponsors of certain plans maintained for community newspapers may calculate defined benefit plan contributions with interest rates and amortization periods that reduce funding requirements. (Effective for plan years ending after December 31, 2017.)
  • Church retirement plan rules. New rules clarify which employees may participate in retirement plans sponsored by church-controlled organizations. (Effective for past, present, and future plan years.)
  • Pension plans of cooperatives and charities. Certain cooperatives and charities may reduce their Pension Benefit Guaranty Corporation (PBGC) insurance premiums for defined benefit plans. (Effective for 2019 and later plan years).
  • Lower minimum age for in-service distributions. This provision is not part of the SECURE Act, but is found in Division M—the Bipartisan American Miners Act, which is part of FCAA. This provision allows in-service distributions at age 59½ (instead of age 62 under current law) to participants in governmental 457(b) plans and certain pension plans. (Effective for 2020 and later plan years.)

New Provisions Affecting Employer Plans and IRAs

The following SECURE Act provisions affect both employer plans and IRAs.

  • More rapid payouts to nonspouse (and other) beneficiaries. Most nonspouse beneficiaries of IRAs, qualified defined contribution plans, 403(b) plans, and governmental 457(b) plans will generally be required to distribute inherited amounts within 10 years. (Effective for plan participant/IRA owner deaths in 2020 or later years; 2022 or later years for governmental plans; special delay to accommodate contracts of certain collectively bargained plans.) Exceptions include those who, at the time of the account owner’s death, are
  • disabled individuals,
  • certain chronically ill individuals,
  • beneficiaries whose age is within 10 years of the decedent’s age,
  • minors (they would begin a 10-year payout period upon reaching the age of majority), and
  • recipients of certain annuitized payments begun before enactment of the SECURE Act.
  • Delayed age for beginning RMDs. The age when required minimum distributions (RMDs) from Traditional IRAs, qualified plans, 403(b) plans, and governmental 457(b) plans must generally begin is increased from age 70½ to age 72. (Effective for distributions required in 2020 and later years, for those who reach age 70½ in 2020 or a later year.)
  • Birth/adoption excise tax exception. The birth of a child or adoption of a child (or individual who is incapable of self-support) qualifies both as a plan distribution event and as an amount that is exempt from the 10 percent early distribution penalty tax (if applicable) for distributions of up to $5,000 in aggregate from IRAs and defined contribution qualified plans, 403(b) plans, and governmental 457(b) plans. These amounts may be repaid. (Effective for distributions in 2020 and later years.)
  • Difficulty of care” payments treated as eligible compensation for retirement plan funding. Because many home healthcare workers receive payment that is not taxable income, they haven’t been able to contribute to a retirement plan. Now such “difficulty of care” payments will qualify as eligible compensation for IRA and other plan contributions. (Effective upon enactment for IRAs, and for 2016 and later plans years for employer plans.)

More Flexibility for IRA Contributions

The following provisions specifically affect IRAs.

  • Traditional IRA contributions at any age. Taxpayers with earned income can make Traditional IRA contributions at any age, not just for years before reaching age 70½, as under current law. (Effective for 2020 and later taxable years.)
  • Graduate student IRA contributions. Certain stipend, fellowship, and similar payments to graduate and postdoctoral students will be treated as earned income for IRA contribution purposes. (Effective for 2020 and later taxable years.)

New Eligible Expenses for 529 Plans

The SECURE Act also broadens the definition of eligible expenses for qualified tuition or “529” plans. Individuals may now take a qualified, tax-free 529 plan distribution to pay for registered apprenticeships. They may also distribute up to $10,000 in order to make repayments of student loans for a 529 plan beneficiary—or a beneficiary’s sibling. (Effective for distributions in 2019 and later years.)

Disaster Relief Provisions

To provide relief for certain natural disasters that occurred during the last couple of years, the FCAA contains a bill entitled the Taxpayer Certainty and Disaster Tax Relief Act of 2019. Among other things, this bill provides disaster relief to individuals in presidentially declared disaster areas who have taken IRA and retirement plan distributions between January 1, 2018, and 180 days after enactment of this legislation. (Applicable to plans that are amended on or before the last day of the first plan year beginning on or after January 1, 2020, or later, if the IRS allows.)

  • Qualified disaster distributions. Qualifying distributions of up to $100,000 from employer-sponsored retirement plans and IRAs are exempt from the 10 percent early distribution penalty tax and the normal withholding requirements. Individuals affected by more than one disaster may distribute up to $100,000 per disaster.
  • Repayment options. Individuals may repay qualifying distributions within a three-year period. Distributions not repaid generally will be taxed ratably over a three-year period, unless individuals elect otherwise. Individuals may also repay distributions taken for cancelled home purchases.
  • Relaxed loan requirements. Employers may allow participants to request a plan loan of up to $100,000. Participants may delay loan repayments for up to one year.

Effective Dates and Amendment Deadlines

Some effective dates are mere days away—January 1, 2020. These dates were retained from the May 2019 version of the legislation. But the final version of FCAA contains delayed amendment deadlines for employer-sponsored retirement plans. This will allow employers to implement changes immediately, while generally having until the end of their 2022 plan year (2024 for governmental and collectively-bargained plans) to amend for the changes.

As with any major piece of legislation, questions will arise as provisions are analyzed. We expect the IRS and Department of Labor to address these concerns in the coming months. Ascensus will continue to assess the effect of this legislation and any related guidance. Visit Ascensus.com for future updates.

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