In Notice 2020-46, the IRS provided guidance regarding cash payments made by employers to certain charitable organizations for the relief of COVID-19 victims under employer-sponsored, leave-based donation programs (see our prior blog post about Notice 2020-46 here). Under such donation programs, an employee could elect to forgo paid vacation, sick, or personal leave in exchange for cash payments made by his or her employer to qualifying charitable organizations for the relief of COVID-19 victims, without having such amounts being included in his or her taxable gross income. Under Notice 2020-46, such cash payments had to be made before January 1, 2021; however, in Notice 2021-42, the IRS extended this relief period to include qualifying cash payments that are made after December 31, 2020 and before January 1, 2022. Notice 2021-42 is available here.
Many 401(k) plans contain spending accounts funded by revenue-sharing generated by a plan?ÇÖs mutual fund holdings. These accounts, often referred to as ERISA expense accounts, revenue-sharing accounts, or plan expense reimbursement accounts, can cause complications for plans if not administered properly. These revenue-sharing accounts can accumulate quickly, and in large plans, can result in hundreds of thousands of dollars each year. However, plan sponsors often do not know that the accounts are accumulating, and when they find them, may think they have just discovered ?Ç£free money.?Ç¥ But nothing in life is free, and missteps with the use of these funds could result in participant claims. Accordingly, before utilizing these funds, plan sponsors should use care and consider the following questions: Are the funds being held in the trust??áDOL Advisory Opinion 2013-03A (which is available here) noted that revenue sharing payments that were being received by the third party administrator prior… Continue Reading
The IRS recently updated its Operational Compliance Checklist (the ?Ç£Checklist?Ç¥) to include qualification requirements that will become effective during the 2021 and 2022 calendar years. Examples of items added to the Checklist for 2021 and 2022 include, among other things: Final regulations relating to updated life expectancy and distribution tables used for determining minimum required distributions; The SECURE Act requirement that qualified cash or deferred arrangements must allow long-term employees (i.e., employees who work at least 500 but less than 1,000 hours per year for three consecutive 12-month periods beginning on or after January 1, 2021) to participate; and Temporary relief from the physical presence requirement for spousal consents under qualified retirement plans. The Checklist is only available online and is updated periodically to reflect new legislation and IRS guidance. The Checklist does not, however, include routine, periodic changes, such as cost-of-living increases, spot segment rates, and applicable mortality tables,… Continue Reading
As we previously reported here, the American Rescue Plan Act of 2021 (?Ç£ARPA?Ç¥) provides a 100% COBRA premium subsidy to any qualified beneficiary who is entitled to COBRA coverage due to an involuntary termination of employment or reduction in hours of employment. Employers will receive a tax credit for the cost of COBRA premiums for April 1 to September 30, 2021. The IRS recently issued FAQs addressing many issues related to the subsidy, including: (i) subsidy eligibility, (ii) what qualifies as a reduction in hours or an involuntary termination of employment, (iii) the type of coverage eligible for the subsidy, (iv) when the subsidy period begins and ends, (v) the extended election period, (vi) coordination with the extended deadlines due to the COVID national emergency (?Ç£Outbreak Period Extensions?Ç¥), (vii) payments to insurers, (viii) application to state continuation coverage, and (ix) calculation and claiming of the subsidy tax credit. One of… Continue Reading
The IRS recently issued Rev. Proc. 2021-25, which sets the 2022 calendar year limits on (i) annual contributions that can be made to a health savings account (?Ç£HSA?Ç¥) and (ii) annual deductibles and out-of-pocket maximums under a high deductible health plan (?Ç£HDHP?Ç¥). The 2022 limits are as follows: Annual HSA contribution limits: $3,650 for self-only coverage ($50 increase from 2021) and $7,300 for family coverage ($100 increase from 2021); Minimum HDHP deductibles: $1,400 for self-only coverage (no change from 2021) and $2,800 for family coverage (no change from 2021); and HDHP out-of-pocket maximum limits: $7,050 for self-only coverage ($50 increase from 2021) and $14,100 for family coverage ($100 increase from 2021). Rev. Proc. 2021-25 is available here.
IRS Clarifies Taxability of Dependent Care Benefits Provided Pursuant to a Carryover or Extended Grace Period
The IRS recently issued Notice 2021-26 (the ?Ç£Notice?Ç¥), which addresses certain questions that were not specifically answered in the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (enacted as part of the Consolidated Appropriations Act, 2021), and subsequent IRS guidance (collectively, the ?Ç£CAA Guidance?Ç¥). The CAA Guidance addressed the taxability of dependent care benefits provided under a dependent care assistance program (?Ç£DCAP?Ç¥) when a carryover or extended grace period is applied.?á As discussed in our prior blog post here, the CAA Guidance permits employers to adopt (i) a carryover of unused DCAP funds from taxable years 2020 to 2021 and 2021 to 2022 (?Ç£CAA Carryover?Ç¥) or (ii) an extended grace period for incurring DCAP claims for plan years ending in 2020 and 2021 (?Ç£CAA Extended Grace Period?Ç¥). The CAA Guidance confirms that any unused DCAP amounts carried over from one year (?Ç£Prior Year?Ç¥) to, or available in, the subsequent… Continue Reading
The IRS recently issued a list of the top errors it finds in Voluntary Correction Program (?Ç£VCP?Ç¥) 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?á 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 ?Çô If one operational error is found, plan sponsors should conduct a self-audit prior to filing a… Continue Reading
In Announcement 2021-7 (the ?Ç£Announcement?Ç¥), the IRS clarified that the costs to purchase personal protective equipment (?Ç£PPE?Ç¥), 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
On March 10, 2021, the DOL released an enforcement policy statement (the ?Ç£Statement?Ç¥), which announced that until the DOL publishes further guidance, it will not enforce the recently issued ?Ç£Financial Factors in Selecting Plan Investments?Ç¥ final rule (the ?Ç£ESG Rule?Ç¥) and the ?Ç£Fiduciary Duties Regarding Proxy Voting and Shareholder Rights?Ç¥ final rule (the ?Ç£Proxy Voting Rule?Ç¥, together with the ESG Rule referred to herein as, the ?Ç£Final Rules?Ç¥). The ESG Rule generally required plan fiduciaries to select investments and investment courses of action based solely on consideration of ?Ç£pecuniary factors,?Ç¥ and the Proxy Voting Rule set forth a plan fiduciary?ÇÖs 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?ÇÖs Regulatory Freeze
On January 20, 2021, the Biden Administration issued a memorandum (the ?Ç£Memo?Ç¥) 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 ?Çô 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