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PCORI Fee is Back and There’s No Relief From Its Deadline: July 31, 2020

The plan year ending before October 1, 2019 was supposed to be the last year that the Patient-Centered Outcomes Research Institute (“PCORI”) fee was required to be paid. However, legislation passed in December 2019 extended the PCORI fee for another ten years. Recognizing that plan sponsors believed the PCORI fee was ending and may not have anticipated the need to identify the number of covered lives to determine the PCORI fee, the IRS issued transition relief for the plan year ending before October 1, 2020. Under this transition relief, in addition to using one of the three methods specified in the regulations, plan sponsors may use any reasonable method for calculating the average number of covered lives. For the plan year ending on or after October 1, 2019 and before October 1, 2020, the PCORI fee is $2.54 times the average number of covered lives. Payment of the PCORI fee… Continue Reading

Payments for Certain Healthcare Arrangements are Tax Deductible

The IRS recently issued proposed regulations that address the treatment of amounts paid by an individual for a “direct primary care arrangement” or a “health care sharing ministry” (collectively, the “Arrangements”) as being tax-deductible “medical care expenses” under Section 213 of the Internal Revenue Code (the “Code”). Under the proposed regulations, a direct primary care arrangement (“DPC Arrangement”) is defined as a contract between the individual and one or more primary care physicians pursuant to which the physician(s) agree to provide medical care for a fixed annual or periodic fee without billing a third party. A health care sharing ministry (“Sharing Ministry”) is defined as a tax-exempt organization under Section 501(c)(3) of the Code that meets specified requirements, including that its members share a common set of ethical or religious beliefs and share medical expenses in accordance with those beliefs. HSAs and the Arrangements. The preamble to the proposed regulations confirms… Continue Reading

The DOL Says Certain Private Equity Investments May Be Permissible Designated Investment Alternatives Under Individual Accounts Plans

On June 3, 2020, the DOL issued an information letter addressing the possibility of including a private equity type investment as a “designated investment alternative” under a participant directed individual account plan. The DOL concluded that, as a general matter, “a plan fiduciary would not . . . violate [ERISA’s fiduciary duties] solely because the fiduciary offers a professionally managed asset allocation fund with a private equity component as a designated investment alternative for an ERISA covered individual account plan in the manner described in [the] letter.” The DOL observed that private equity investments “involve more complex organizational structures and investment strategies, longer time horizons, and more complex, and typically, higher fees” and they generally have “different regulatory disclosure requirements, oversight, and controls” and “often have no easily observed market value.” In addition to these considerations, the DOL listed several factors that plan fiduciaries should evaluate when considering whether a… Continue Reading

Sixth Circuit Case Excludes Voluntary Retirement Contributions from a Debtor’s Disposable Income

The U.S. Court of Appeals for the Sixth Circuit (the “Sixth Circuit”), whose jurisdiction includes Michigan, Ohio, Kentucky, and Tennessee, recently held that, under Chapter 13 of the Bankruptcy Code, a debtor’s pre-petition and certain post-petition voluntary retirement contributions are excludable from the debtor’s disposable income, which is used to satisfy a debtor’s obligations to its unsecured creditors. In Davis, a debtor filed for bankruptcy under Chapter 13 of the Bankruptcy Code and sought to satisfy her unsecured debts by paying all of her “projected disposable income” to her unsecured creditors. The debtor sought to exclude her voluntary 401(k) contributions from her projected disposable income, but the bankruptcy court upheld an amended bankruptcy plan that included such contributions in her disposable income. The debtor appealed to the Sixth Circuit, which held that, because the debtor’s post-petition monthly 401(k) contributions were regularly withheld from the debtor’s wages prior to the bankruptcy,… Continue Reading

The IRS Amends COVID-19 Relief to Add Additional Time-Sensitive Actions

Previously, IRS Notice 2020-23 extended the due dates for certain tax payments, filings, and other “Time-Sensitive Actions” that would ordinarily fall on or after April 1, 2020 through July 14, 2020 to July 15, 2020. See our prior blog post on Notice 2020-23 here. The IRS recently issued Notice 2020-35 to make additional Time-Sensitive Actions eligible for relief. For example, under this new guidance, an employer that receives a compliance statement issued under the voluntary correction program (VCP) component of the Employee Plans Compliance Resolution System (EPCRS) with a 150-day deadline to implement all corrective actions that ends between April 1, 2020 through July 14, 2020 has until July 15, 2020 to implement the corrections. A full list of the Time-Sensitive Actions is included in Section III.B of Notice 2020-35, which is available here.

Employer Friendly Changes to PPP Loan Forgiveness Requirements

On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act (the “Act”), which made certain changes to the requirements of forgivable loans made under the Paycheck Protection Program (“PPP”). For a PPP loan to be forgiven, the loan proceeds must be used to cover payroll and other approved operating costs incurred by the employer during a designated time period following the date on which the loan was made (the “Coverage Period”). The Act extended the coverage period from eight to 24 weeks and reduced the percentage of loan proceeds that must be used to cover payroll costs during the Coverage Period to 60% (down from 75%). Accordingly, up to 40% of the loan proceeds could be used by an employer to cover other non-payroll operating costs, such as rent, utilities, and interest on its other debt obligations that are due during the Coverage Period. The Act is… Continue Reading

Reminder: A Severance Policy Could be an ERISA Plan

As the coronavirus pandemic continues, many employers have been forced to reduce their workforce, oftentimes paying some form of severance to their employees. One area that continues to cause confusion among employers is whether their severance policy is an employee benefit plan subject to ERISA. Generally, informal arrangements that feature one-time payments in response to ad hoc situations and that do not have an ongoing administrative scheme will not be subject to ERISA. However, it is not always clear when such arrangements become “employee benefit plans” that are subject to ERISA. It is generally not to the employer’s advantage to have its severance strategy characterized as an informal arrangement not subject to ERISA. For example, the beneficiary of such an arrangement would be able to sue in state court for benefits, which could expose the employer to larger damage awards than are available under ERISA. Employers should ask their counsel… Continue Reading

IRS Relief Allows Individuals to Make Participant Elections Electronically

Treasury Regulations § 1.401(a)-21(d)(6) requires participant elections, including spousal consents, to be witnessed in the physical presence of a plan representative or notary public.  In light of the COVID-19 pandemic, the IRS recently issued Notice 2020-42 (the “Notice”) to allow individuals making participant elections to do so through electronic means for the period from January 1, 2020 through December 31, 2020.  For participant elections, including spousal consents, that require a signature to be witnessed in the physical presence of a notary public, the “physical presence” requirement is satisfied if remote notarization is done through live audio-video technology that otherwise satisfies the requirements of Treasury Regulations § 1.401(a)-21(d)(6) and is compliant with state law applicable to notaries.  For participant elections, including spousal consents, that require a signature to be witnessed in the physical presence of a plan representative, the “physical presence” requirement is satisfied if (i) the person signing the participant… Continue Reading

Cases Highlight Importance of Governing Law Clauses in ERISA Plan Documents

The U.S. Court of Appeals for the Tenth Circuit recently held that the choice of law provision contained in a long-term disability insurance policy (the “LTD Policy”) controlled when determining which state law applied to the case. The LTD Policy, which was subject to regulation under ERISA as an employee benefit plan, stated that it was governed by the law of Pennsylvania, where Comcast (the employer) was incorporated and had its principal place of business. The employee argued that Colorado law controlled, because Colorado is where the employee worked for Comcast and filed the lawsuit. This was important because Colorado insurance law prohibited granting discretion to the plan administrator to interpret the LTD Policy, whereas Pennsylvania law did not prohibit this deferential standard. Generally, a plan administrator’s denial of benefits under an ERISA plan is reviewed by a court de novo (i.e., without deference being paid to the plan administrator’s… Continue Reading

IRS Issues Memorandum Providing Guidance on Income Inclusion, FICA, and Income Tax Withholding for Stock-Settled Equity Awards

The IRS recently issued Generic Legal Advice Memorandum No. AM 2020-004 (the “GLAM”) to address when income from nonqualified stock options, stock-settled stock appreciation rights, and stock-settled restricted stock units is (i) includable in an employee’s gross income, (ii) subject to FICA taxes, and (iii) subject to federal income tax withholding. In addition, the GLAM provides a discussion of the deposit rules for FICA and income tax withholdings that have been withheld with respect to such equity awards, including the “One-Day” rule (or the Next-Day Deposit Rule) that requires employers to deposit employment taxes on the next banking day after $100,000 or more in employment taxes have been accumulated. The GLAM provides a series of illustrative examples and analyses of such issues. The GLAM does not, however, address the impact of an employer’s ability to defer employment tax deposits under Section 2302 of the Coronavirus, Aid, Relief and Economic Security… Continue Reading

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