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IRS Extends Deadline to Roll Over Waived RMD Distributions / Provides Model Amendment

The IRS issued Notice 2020-51 which provides additional guidance and relief relating to the required minimum distribution (“RMD”) waiver provisions in Section 2203 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act waived the requirement to make RMDs in 2020. Distributed amounts that—but for the CARES Act waiver—would have been RMDs are instead treated as eligible rollover distributions. Generally, the deadline to roll over an eligible rollover distribution into an IRA or another qualified plan is 60 days from the distribution date. However, for those eligible rollover distributions made in 2020 that otherwise would have been RMDs and for which the 60-day rollover period expires before August 31, 2020, the IRS extended the rollover deadline to August 31, 2020. Additionally, Notice 2020-51 includes a Q&A relating to the waiver of RMDs in 2020 and a model amendment that plan sponsors can adopt to provide… 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

Fifth Circuit Holds that Offering Single Stock Investments in a 401(k) Plan is Not Per-Se Imprudent

Following a spinoff, a 401(k) plan continued to offer the employer stock fund of the predecessor parent company as an investment alternative, but closed it to new investments. After the share price fell by approximately 50%, the participants brought a lawsuit against the plan fiduciaries claiming, among other things, that the fiduciary breached its duty to diversify under ERISA Section 404(a)(1)(C) by retaining the stock fund as an investment alternative. The District Court dismissed the case and the U.S. Court of Appeals for the Fifth Circuit upheld the dismissal. The Fifth Circuit held that although the stock of the former parent was not statutorily exempt from ERISA’s diversification because it was no longer a “qualifying employer security”, there was no obligation for the plan fiduciaries to force plan participants to divest from the funds. The court explained that ERISA contains no per se prohibition on individual account plans offering single-stock… Continue Reading

Use Care When Implementing CARES Act Retirement Plan Distributions – State Law and Benefit Offset Concerns

As we have previously reported on our blog here and here, the CARES Act provided relief to participants in retirement plans by allowing employers to amend their retirement plans to include certain coronavirus-related distributions and to permit increased loan amounts for certain qualified individuals. Many employers have agreed to adopt these changes, and under federal law, the treatment of these distributions is clear. But there are other issues that employers and employees should consider, including: The coronavirus-related distributions could be subject to taxation under state law, even if the employee later repays the distribution to the plan; and If employees are receiving unemployment and/or disability benefits, the coronavirus-related distributions may reduce or offset these benefits. However, the enhanced loans would not be subject to taxation and may not offset unemployment and disability benefits, which may make the enhanced loan a better option for employees who anticipate paying back the distribution.… Continue Reading

IRS Releases FAQs on Retirement Plan Relief Under the CARES Act

The IRS recently published guidance in the form of FAQs related to the implementation of retirement plan relief available under the CARES Act. While the guidance does not resolve all of the open issues, it does provide some helpful clarifications and insight into what we may expect from future guidance. Specifically, the guidance confirms that the CARES Act provisions allowing for coronavirus-related distributions (“CRDs”) and loan relief are permissible, not required. Furthermore, the guidance points out that even if a 401(k) plan decides not to allow CRDs, if an individual meets the requirements to be a “qualified individual,” he or she may be able to treat other plan distributions as a CRD for federal tax purposes. Individuals need to consult with their personal tax advisors on these matters. Finally, alluding to what we may expect from future guidance, the CARES Act FAQs referred back to IRS Notice 2005-92 (issued on… Continue Reading

UPDATE: Calculation of Payroll Costs for Purposes of the Paycheck Protection Program (“PPP”)

The Small Business Administration (“SBA”) continues to update its FAQs on PPP loans to provide additional guidance regarding what costs constitute payroll costs. Borrowers should use care in determining what amounts constitute payroll costs since borrowers are responsible for providing an accurate calculation of payroll costs and must attest to the accuracy of those calculations on their Borrower Application Form. Under the new guidance the SBA clarified: The $100,000 annualized per employee cap only applies to cash compensation and does not include any non-cash benefits, such as employer contributions to defined benefit or defined contribution retirement plans, payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and payment of state and local taxes assessed on employees’ compensation. PPP loans can be used to cover costs for employee paid vacation, parental, family, medical and sick leave (other than qualified sick and family wages for… Continue Reading

The DOL and the IRS Jointly Provide Relief from Certain Timeframes Applicable to Health and Welfare and Pension Plans

On April 28, 2020, the IRS and DOL issued a Final Rule extending certain timeframes under ERISA and the Internal Revenue Code for group health, disability and other welfare plans, pension plans, and the participants and beneficiaries under those plans. The timeframe extensions include, among other things, the time to elect COBRA and pay premiums, special enrollment timeframes under HIPPA and CHIPs, claims procedure timeframes, and certain external review process timeframes.  Applicable plans must disregard the period from March 1, 2020 until 60 days after the announced end of the COVID-19 National Emergency for all plan participants, beneficiaries, qualified beneficiaries, or claimants wherever located in determining the enumerated time periods and dates and for providing COBRA election notices.  In addition, Disaster Relief Notice 2020-01 was issued addressing the timeframe relief and addressing certain other COVID-19 relief. The Final Rule is available here: https://www.dol.gov/sites/dolgov/files/ebsa/temporary-postings/covid-19-final-rule.pdf. Disaster Relief Notice 2020-01 is available here: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/disaster-relief/ebsa-disaster-relief-notice-2020-01.

EMPLOYEE BENEFIT/EXECUTIVE COMPENSATION CHANGES MADE BY THE CARES ACT

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). This historic $2 trillion relief package received bipartisan support and is part of the third wave of federal government support as the nation copes with the acute economic fallout from the coronavirus (COVID-19) pandemic.  Some of the key provisions of the CARES Act that apply to health and welfare plans, educational assistance programs, retirement plans, executive compensation programs, and employment and payroll taxes are outlined below. Health and Welfare Plans Q1.      What COVID-19 testing and treatment is our company’s employer-sponsored group health plan required to cover? The Families First Coronavirus Response Act (“FFCRA”) requires an employer-sponsored group health plan (including a grandfathered plan under the Affordable Care Act (“ACA”)) (a “Plan”) to provide coverage for COVID-19 diagnostic testing and services related to the diagnostic testing without any cost sharing (including deductibles, copayments, and… Continue Reading

COVID-19 EMPLOYEE BENEFIT AND EXECUTIVE COMPENSATION QUESTIONS AND ANSWERS

In light of the recent economic developments stemming from the COVID-19 pandemic, many employers are evaluating their employee benefit plans and how employee and employer costs will be impacted. The following summary provides a list of questions we have been receiving from clients over the past week, along with action items to help employers address these issues. Health and Welfare Plans and Fringe Benefits Should benefits coverage continue while an employee is on an unpaid furlough? If so, how would the employee pay the employee’s portion of the premium? Could the employee elect to drop coverage due to the reduction in hours of active service? Could the employer pay for coverage for some or all of its furloughed employees? Continued eligibility for benefits will depend on whether the employer treats the furlough as a termination of employment or as an unpaid leave of absence. The terms of the plan, including… Continue Reading

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