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Guidance on Benefit Plan Cybersecurity Best Practices

Plan participants now enroll, change elections, review benefits, apply for plan loans and hardship distributions, and access account information through websites and cellphone apps. As electronic access to plan information has increased, so has the interest of hackers in obtaining the wealth of information stored electronically. Recently, the DOL?ÇÖs Employee Benefits Security Administration (the ?Ç£EBSA?Ç¥) issued the following cybersecurity guidance documents to help plan sponsors comply with their duties to protect plan information: Tips for Hiring a Service Provider with Strong Cybersecurity Practices: These tips are intended to help plan sponsors and plan fiduciaries meet their duties under ERISA to prudently select and monitor service providers. They include a list of questions to ask and considerations to make when evaluating potential service providers. Cybersecurity Program Best Practices: This guidance provides a list of 12 best practices intended to help plan fiduciaries mitigate cybersecurity risks and make prudent decisions when selecting… Continue Reading

Severe Winter Storm Hardship Withdrawal Relief

The safe harbor rules for hardship withdrawals from a retirement plan permit such withdrawals for expenses and losses incurred by a participant due to a natural disaster declared by the Federal Emergency Management Agency (?Ç£FEMA?Ç¥) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, provided the participant?ÇÖs principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance related to that disaster. FEMA issued a series of disaster declarations as a result of the February 2021 winter storms that impacted portions of Texas, Louisiana, and Oklahoma. A list of counties that have been designated by FEMA for individual assistance in those states can be found on FEMA?ÇÖs website here. Those disaster declarations mean that affected participants may be eligible for hardship distributions from their 401(k) plan accounts. Plan sponsors with participants who live or work… Continue Reading

Last Day for Coronavirus-Related Distributions is December 30, 2020

As a reminder, the last day that coronavirus-related distributions may be made from an eligible retirement plan to a qualified individual is December 30, 2020, and not December 31, 2020.?á Distributions may be included in income ratably over the 2020, 2021, and 2022 tax years or, if the participant elects, may be included entirely in income in 2020.?á For more information on coronavirus-related distributions, please see the IRS FAQs here.

Hurricane Sally Hardship Withdrawal Relief

Last year, the safe harbor rules for hardship withdrawals were amended to include a new subsection which permits hardship withdrawals for expenses and losses incurred by an employee on account of a disaster declared by the Federal Emergency Management Agency (?Ç£FEMA?Ç¥). Recently, FEMA issued a disaster declaration as a result of Hurricane Sally that impacted portions of Alabama and Florida on September 14, 2020. A list of areas covered by the disaster declaration can be found on FEMA?ÇÖs website. This disaster declaration means that affected participants may be eligible for hardship distributions under their 401(k) plans. Plan sponsors should review their 401(k) plan?ÇÖs hardship distribution provisions to ensure they contain either the updated safe harbor provisions specifically allowing hardship distributions for federally declared disasters or catch-all language allowing distributions on any permissible hardship under the Internal Revenue Code.

IRS Publishes Updated Operational Compliance Checklist

The IRS recently published an updated Operational Compliance Checklist (the ?Ç£Checklist?Ç¥), which lists changes in qualification requirements that became effective during the 2016 through 2020 calendar years. Examples of items added to the Checklist for 2020 include, among other things: Final regulations relating to hardship distributions; Temporary nondiscrimination relief for closed defined benefit pension plans; Penalty-free withdrawals from retirement plans for individuals in cases of birth or adoption; and Increase in age for required beginning date for mandatory distributions. The Checklist is only available online and is updated periodically to reflect new legislation and IRS guidance.?á The Checklist does not, however, include routine, periodic changes, such as cost-of-living increases, spot segment rates, and applicable mortality tables, which can instead be found on the IRS?ÇÖs Recently Published Guidance webpage here. The Checklist is available here.

IRS Expands Definition of Qualified Individual for Loans and Coronavirus-Related Distributions under the CARES Act

Notice 2020-50 provides additional guidance to taxpayers and sponsors of qualified retirement plans regarding coronavirus-related distributions and loan extensions under the Coronavirus Aid, Relief, and Economic Security Act (the ?Ç£CARES Act?Ç¥). Among the guidance included in Notice 2020-50 are the following three items of special importance to plan sponsors: Notice 2020-50 expands the definition of ?Ç£Qualified Individual?Ç¥ for purposes of eligibility to receive a coronavirus-related distribution or special loan treatment to also include three new categories of individuals: an individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19; an individual whose spouse or a member of the individual?ÇÖs household (as defined below) is quarantined, furloughed or laid off, or has work hours reduced due to COVID-19, is unable to work due to lack of childcare due to COVID-19, has a reduction… 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?ÇÖs 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

IRS Provides Retirement Plan Loan and Hardship Distribution Relief for Victims of Hurricane Maria and the California Wildfires

The IRS released Announcement 2017-15 providing relief from some of the loan and hardship distribution requirements for qualified retirement plans (including Code Section 401(a) and 403(b) plans). The relief applies to employees or former employees either (i) whose principal residence was on the island of Puerto Rico or the U.S. Virgin Islands, or in one of the California counties identified by FEMA for individual assistance because of wildfires; or (ii) whose place of employment was in one of those locations. A list of the areas covered by this relief can be found on FEMA?ÇÖs website. Qualified plans that do not have loan or hardship distribution provisions can still make loans or hardship distributions, so long as the plan is amended to provide for them no later than the end of the first plan year beginning after December 31, 2017. View Announcement 2017-15.

IRS provides Retirement Plan Loan and Hardship Distribution Relief for Harvey Victims

The IRS has released Announcement 2017-11 providing relief from some of the loan and hardship distribution requirements under qualified retirement plans (including Code Section 401(a) and 403(b) plans) for the period of August 23, 2017 through January 31, 2018. The relief applies to employees or former employees either (i) whose principal residence on Aug. 23 was in one of the Texas counties identified by FEMA for individual assistance because of Hurricane Harvey, or (ii) whose place of employment on Aug. 23 was in one of those counties. The relief also applies if the employee?ÇÖs or former employee?ÇÖs ?Ç£lineal ascendant or descendant, dependent, or spouse?Ç¥ lived or worked in one of those counties on Aug. 23. This relief will also apply to those living or working in other areas FEMA may identify for individual assistance in Texas or other states due to damage from Harvey. For a list of the counties… Continue Reading

IRS Releases Memo Addressing Hardship Withdrawal Substantiation Requirements for 403(b) Plans

The IRS recently released a memorandum (the “403(b) Memo“) directed to its Employee Plan Examinations agents regarding the documentation they should obtain from plan administrators in order to determine whether distributions from 403(b) plans were made on account of an immediate and heavy financial need. The 403(b) Memo follows a similar memorandum that was recently released by the IRS that related to hardship substantiation requirements for 401(k) plans (the “401(k) Memo“). The 403(b) Memo states that since hardship distributions from a 403(b) plan are subject to the same rules that apply to such distributions from a 401(k) plan, 403(b) plan administrators and recordkeepers should follow the same steps as outlined in the 401(k) Memo to substantiate a participant’s claimed hardship, namely the plan administrator or recordkeeper should, prior to making the distribution, (1) obtain source documents from the employee substantiating the hardship or (2) obtain a summary of the information… Continue Reading

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