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Voluntary Correction Program Applications – Best Practices

The IRS recently issued a list of the top errors it finds in Voluntary Correction Program (“VCP”) submissions, which is available here. The errors listed generally relate to issues associated with the submission of files in the correct PDF format, failing to pay the correct user fee, or the incorrect submission of the Form 8950. Filing a VCP application can be a useful method for plan sponsors to correct operational issues that have spanned numerous years or  other issues for which self-correction is unavailable. Errors in the submission can delay resolution of the application or, in some cases, cause a rejection of the application. In addition to the common errors outlined by the IRS, plan sponsors should also use care to avoid the following additional common issues: Failure to Submit a Comprehensive Filing – If one operational error is found, plan sponsors should conduct a self-audit prior to filing a… Continue Reading

IRS Announces that Purchases of Personal Protective Equipment are Tax Deductible

In Announcement 2021-7 (the “Announcement”), the IRS clarified that the costs to purchase personal protective equipment (“PPE”), such as masks, hand sanitizers, and sanitizing wipes, for the primary purpose of preventing the spread of COVID-19, are tax deductible as a medical expense. Specifically, the amounts paid for PPE will be treated as amounts paid for medical care under Section 213(d) of the Internal Revenue Code. The costs of PPE are also eligible to be paid or reimbursed by health flexible spending arrangements, Archer medical savings accounts, health reimbursement arrangements, and health savings accounts. However, if the PPE expense is paid or reimbursed by such an arrangement or account, then the expense will not be tax deductible as a medical expense. The IRS also stated that group health plans may be amended to provide for the reimbursement of PPE expenses incurred for any period beginning on or after January 1, 2020… Continue Reading

The DOL Announces a Non-Enforcement Policy on Final ESG Investment and Proxy Voting Rules

On March 10, 2021, the DOL released an enforcement policy statement (the “Statement”), which announced that until the DOL publishes further guidance, it will not enforce the recently issued “Financial Factors in Selecting Plan Investments” final rule (the “ESG Rule”) and the “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” final rule (the “Proxy Voting Rule”, together with the ESG Rule referred to herein as, the “Final Rules”). The ESG Rule generally required plan fiduciaries to select investments and investment courses of action based solely on consideration of “pecuniary factors,” and the Proxy Voting Rule set forth a plan fiduciary’s obligations when voting proxies and exercising other shareholder rights in connection with plan investments. The implementation of the ESG Rule in particular has caused concerns for plan fiduciaries about the use of environment, social, and governance considerations in its investment decisions and has been met with increasing criticism from a… Continue Reading

Employee Benefits Regulations Potentially Impacted by the Biden Administration’s Regulatory Freeze

On January 20, 2021, the Biden Administration issued a memorandum (the “Memo”) announcing a regulatory freeze on regulations that have not taken effect as of the date of the Memo. Specifically, the Memo recommends postponing the effective date of any regulation that has been issued, but has not taken effect, for 60 days from the date of the Memo. The Memo further directs that regulations not yet published in the Federal Register be immediately withdrawn for review. Listed below are some of the proposed and final regulations related to employee benefits that may be subject to withdrawal or postponement under the Memo: Prohibited Transaction Exemption 2020-02 – Improving Investment Advice for Workers & Retirees. Final Rule. Application of the Employer Shared Responsibility Provisions and Certain Nondiscrimination Rules to Health Reimbursement Arrangements and Other Account-Based Group Health Plans Integrated with Individual Health Insurance Coverage or Medicare. Final Rule. Pension Benefit Statements-Lifetime… 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 (“FEMA”) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, provided the participant’s 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’s 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

IRS Clarifies Optional Flexible Spending Account and Cafeteria Plan Enhancements

In 2020, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the “Act”) was enacted. The Act is part of the Consolidated Appropriations Act of 2021. The Act provides employer sponsors of cafeteria plans, including health flexible spending accounts (“HFSAs”) and dependent care flexible spending accounts (“DCFSAs”) (collectively, “FSAs”), with helpful new options for easing the normal FSA use-it-or-lose-it and mid-year election change rules. Generally, the Act provides for (i) flexibility with respect to carryovers of unused FSA amounts from the 2020 and 2021 plan years (“Enhanced Carryover”); (ii) extension of the permissible period for incurring FSA claims for plan years ending in 2020 and 2021 (“Enhanced Grace Period”); (iii) a special rule regarding post-termination reimbursements from HFSAs during plan years 2020 and 2021 (“HFSA Post-Termination Option”); (iv) a special claims period and carryover rule for DCFSAs when a dependent “ages out” during the COVID-19 public health emergency; and… Continue Reading

Required Minimum Distributions: A Tragedy in Three Acts

The SECURE Act and CARES Act made significant changes to required minimum distributions (“RMDs”). What should you be doing to ensure your retirement plans are administered correctly? The first step is to understand your options. SECURE Act Shifts the Start Before the SECURE Act, RMDs had to begin by April 1st of the calendar year following the later of (i) the calendar year during which the participant retires or (ii) the calendar year in which the participant turns age 70½.  Following the passage of the SECURE Act, the age cutoff in that rule changed from age 70½ to age 72, but only for individuals who turned age 70½ on or after January 1, 2020 (i.e., individuals born on or after July 1, 1949). In short, those terminated vested participants born before July 1, 1949 had to start their RMDs by April 1 of the year after turning 70½, while those… Continue Reading

Plan Record Retention Considerations in Corporate Transactions

As we’ve previously reported here, there are a number of record retention requirements applicable to employee benefit plans. Plan sponsors should be mindful of the impact and application of these requirements in the context of corporate mergers and acquisitions, especially if assets of the target’s retirement plan are to be merged into the buyer’s plan. When acquiring a company that sponsors (or has sponsored) its own retirement plan, plan sponsors should consider: Protected Benefits. Though the buyer’s plan may be amended to protect certain benefits under the target’s plan, as required by the Internal Revenue Code, in many cases the plan sponsor will need to refer to the target’s actual plan document to fully understand the specifics of the protected benefits. Missing Participants. The DOL recently issued a memorandum outlining best practices for pension plans to avoid and resolve missing participant issues (we previously discussed this issue here). Included in… Continue Reading

IRS Issues Updated FAQs on Certain COVID-Related Employer Tax Credits

The IRS recently issued updated FAQs related to the expanded paid sick and family leave tax credits authorized under the Consolidated Appropriations Act of 2021 (the “CAA”). Specifically, the CAA extends through March 31, 2021, the availability of paid sick and family leave credits, which were first adopted in the Families First Coronavirus Response Act in March 2020. The extended paid leave tax credits are not new benefits and simply extend the period of time during which eligible employers may claim the credits. Consequently, if an employer has already claimed the maximum amount of these tax credits, they will not be eligible to claim additional paid leave tax credits. For additional information on the paid sick and family leave tax credits, please see our prior blog posts here and here.  The IRS has yet to update its FAQs for changes made in the CAA to the terms and conditions of… Continue Reading

The Consolidated Appropriations Act of 2021 and Benefits Changes Employers Need to Focus on Right Now

Retirement Plans Additional Relief May Help Prevent Partial Plan Terminations The recently adopted Consolidated Appropriations Act of 2021 (the “CAA”) provides relief for qualified retirement plans of employers that had to reduce their workforce as a result of the pandemic (through furloughs, layoffs, or terminations) for plan years that include the period beginning on March 13, 2020 and ending on March 31, 2021. Specifically, these plans shall not be treated as incurring a partial plan termination if the number of active participants covered by the plan on March 31, 2021 is at least 80% of the number of active participants that were covered by the plan on March 13, 2020. A partial plan termination generally occurs when more than 20% of a plan’s participants are terminated in a plan year. If a partial plan termination occurs, then the plan is required to 100% vest any “affected employees”. “Affected employees” are… Continue Reading

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