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Ordinary Employee Benefits Issues That Can Cause Extraordinary Problems in M&A Deals

Employee benefits rarely drive corporate transactions, but if the benefits of a target company are not reviewed carefully, they can sometimes derail the transaction.  Even some of the most routine facets of benefit plan administration can result in significant potential financial exposure (e.g., additional employer contributions, taxes, penalties, and fees as well as fees associated with the preparation and filing of IRS and DOL correction program applications) that could negatively affect the overall value of the target company. By identifying issues early in the transaction, the seller can prevent costly purchase price reductions and identify issues that need correction, while the buyer can avoid overpaying for a target and ensure that representation and warranty insurance will be available to cover potential claims. Some of those routine compliance issues include, but are not limited to, the following: Failing to timely file an annual Form 5500.  The DOL can assess a penalty… 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.

IRS Issues Final Regulations Regarding Timing of Qualified Plan Loan Offset Amount Rollovers

The IRS recently issued final regulations relating to amendments made to Code Section 402(c) by the Tax Cuts and Jobs Act of 2017 (the ?Ç£TCJA?Ç¥).?á The TCJA provides an extended rollover period for plan loan offset amounts that are treated as distributed from a qualified plan due to (i) termination of the plan or (ii) failure to repay the loan due to the participant?ÇÖs severance from employment, each a ?Ç£qualified plan loan offset?Ç¥ (?Ç£QPLO?Ç¥).?á Although most of the general rules relating to plan loan offsets apply to QPLO amounts, the permissible rollover period is extended.?á Generally, a participant has only 60 days to contribute the loan offset amount in a tax-free rollover to another qualified retirement plan.?á However, a participant may roll over QPLO amounts into another qualified retirement plan until the due date for his or her personal income tax return for the year in which the QPLO occurred.… Continue Reading

IRS Issues Safe Harbor Plan Guidance on Sections 102 and 103 of the SECURE Act

The IRS recently issued Notice 2020-86 (the ?Ç£Notice?Ç¥), which provides guidance through a series of questions and answers with respect to Sections 102 and 103 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (the ?Ç£SECURE Act?Ç¥). Section 102 of the SECURE Act increases the maximum automatic elective deferral percentage for automatic enrollment safe harbor plans from 10% to 15% (provided, however, that the maximum automatic deferral rate remains 10% during the initial period of automatic elective contributions).  Notably, the Notice clarifies that a QACA safe harbor 401(k) plan is not required to increase the maximum percentage, so long as the percentage is (i) applied uniformly, (ii) does not exceed 15% (or 10% during the initial period of automatic elective contributions), and (iii) satisfies certain other minimum percentage requirements as described in Code Section 401(k)(13)(C)(iii).  The Notice also clarifies that, if a plan incorporates the maximum qualified… Continue Reading

IRS Issues Additional Guidance on Certain Coronavirus-Related Tax Credits

In a new series of FAQs, the IRS issued additional guidance on tax credits for qualified family leave wages and qualified sick leave wages provided under the Families First Coronavirus Response Act (the ?Ç£FFCRA?Ç¥). The first set of FAQs explains what amounts can be counted as qualified family leave wages for purposes of the tax credit granted for such amounts. The second set of FAQs explains how to determine the amount of qualified health plan expenses for purposes of the tax credits for qualified family leave wages and qualified sick leave wages, including how health plan expenses may be calculated for self-funded and fully insured plans, as well as how to calculate health plan expenses when an employer offers more than one health plan or other health-related benefits, such as health flexible spending accounts and health savings accounts. Links to the guidance are below, and more detailed information on the… Continue Reading

Qualified Transportation Fringe Benefits in the Time of COVID ?Çô IRS Provides an Overview on Treatment of Unused Amounts and Changes to Elections

Prior to the pandemic, many employees used qualified transportation fringe benefits, such as receiving mass transit passes or paying for on-site parking on a pre-tax basis, to help defray the costs of getting to the office. As a result of the pandemic, many workers are working from home, with no need to pay for on-site parking or reap the benefit of employer-provided mass transit passes. The pandemic has also caused some employees to change their mode of transportation, with many deciding to forgo the use of mass transit to drive their own vehicles to work. A recent IRS information letter outlined some options available to employees whose use of qualified transportation has changed throughout the course of the pandemic. Under the example in the information letter, an employee was no longer using mass transit, and so, no longer needed to use compensation deductions to pay for mass transit passes. Instead,… Continue Reading

Regulations Provide for More Cost Transparency in Health Coverage

The federal Departments of Health and Human Services, Labor, and the Treasury (collectively, the ?Ç£Departments?Ç¥) have jointly issued final regulations that are intended to provide for more transparency in health coverage (the ?Ç£Regulations?Ç¥). The Regulations have important implications for employer sponsors of certain group health plans (?Ç£Plans?Ç¥) and health insurers. The Regulations do not apply to health plans that are grandfathered under the Affordable Care Act, health reimbursement arrangements, certain other account-based group health plans, or short-term limited duration insurance. The Regulations require two key forms of disclosures (collectively, the ?Ç£Disclosures?Ç¥) in order to provide for this improved transparency: Self-Service Disclosure. First, the Regulations require Plans and insurers in the individual and group markets to disclose certain cost-sharing information upon request to a participant, beneficiary, or enrollee (or his or her authorized representative), including (a) an estimate of the individual?ÇÖs cost-sharing liability for covered items or services furnished by a… Continue Reading

IRS Issue Snapshot Highlights Plan Sponsor Responsibilities to Missing Participants and Beneficiaries

The IRS recently published an Issue Snapshot (the ?Ç£Snapshot?Ç¥) on IRS.gov that revisits the steps a plan sponsor must complete in order to locate missing plan participants and beneficiaries. While the Snapshot does not contain any new guidance, its publication is an indication that ensuring plan sponsors are undertaking appropriate steps to locate missing participants and beneficiaries remains an area of focus for the IRS, including when they are conducting plan audits. Under current IRS guidance, plan sponsors should complete the following steps to attempt to locate missing plan participants and beneficiaries: Search for alternate contact information (address, telephone number, email, etc.) held by the plan or any related plan, sponsor, or publicly-available records or directories. Use a commercial locator service, credit reporting agency, or proprietary Internet search tool for locating individuals. Mail a letter via certified mail to the last known mailing address and through any appropriate means for… Continue Reading

Additional Rules Issued Regarding Coverage of COVID-19 Preventive Care

Federal agencies issued a new interim final rule that applies to group health plans that are subject to the Affordable Care Act (?Ç£ACA?Ç¥) and not grandfathered under the ACA. These plans are required to cover, without cost-sharing, qualifying coronavirus preventive services (including recommended COVID-19 immunizations) within 15 business days after the date the preventive service either (i) receives an A or B rating from the United States Preventive Services Task Force or (ii) has a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention. Coverage must be provided for any qualifying coronavirus preventive service received in-network or out-of-network. If there is no negotiated rate between the plan and provider, the plan must pay the provider the prevailing market rate for such service. The new rules are effective upon being published in the Federal Register and apply until the end of the public health… Continue Reading

Federal Tax Withholding and Reporting Requirements for Distributions from a Qualified Retirement Plan to a State?ÇÖs Unclaimed Property Fund

Third party administrators for employer-sponsored qualified retirement plans often recommend to employers that unclaimed account balances for mandatory cash-outs of small amounts (under $1,000) be remitted to the unclaimed property fund for the participant?ÇÖs state of residence. The IRS recently clarified in Rev. Rul. 2020-24 that amounts remitted to a state?ÇÖs unclaimed property fund are subject to withholding under Section 3405 of the Internal Revenue Code (the ?Ç£Code?Ç¥) and, in the event the amounts distributed exceed $10, reporting under Section 6047 of the Code. A plan sponsor will not be treated as failing to comply with the withholding and reporting requirements with respect to payments made before the earlier of January 1, 2022 or the date it becomes reasonably practicable for the plan sponsor to comply with such requirements. An employer that sponsors a qualified retirement plan should discuss this guidance with their plan?ÇÖs third-party administrator to ensure that any… Continue Reading

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