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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 “CARES Act”). 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 “Qualified Individual” 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individuals: an individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19; an individual whose spouse or a member of the individual’s household (as defined below) is quarantined,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

Employer Friendly Changes to PPP Loan Forgiveness Requirements

On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act (the “Act”), which made certain changes to the requirements of forgivable loans made under the Paycheck Protection Program (“PPP”). For a PPP loan to be forgiven, the loan proceeds must be used to cover payroll and other approved operating costs incurred by the employer during a designated time period following the date on which the loan was made (the “Coverage Period”). The Act extended the coverage period from eight to 24 weeks and reduced the percentage of loan proceeds that must be used to cover payroll costs during the Coverage Period to 60% (down from 75%). Accordingly, up to 40% of the loan proceeds could be used by an employer to cover other non-payroll operating costs, such as rent, utilities, and interest on its other debt obligations that are due during the Coverage Period. The Act is… Continue Reading

PPP Loans: SBA Releases New Loan Forgiveness Application and Instructions

The Small Business Administration (“SBA”) recently released a form Loan Forgiveness Application and instructions related to the potentially forgivable loans made under the Paycheck Protection Program (“PPP”). PPP loans are generally forgivable if, among other things, the loan proceeds are used to cover certain payroll costs incurred over the eight-week period after the loan is made (for additional information on PPP loans, see our prior blog posts here, here, here, and here). To apply for the forgiveness of a PPP loan, borrowers should complete a Loan Forgiveness Application, which can be completed in either paper or electronic form, and then send the completed application to its lender. The Loan Forgiveness Application and instructions are available here. For additional information on the Loan Forgiveness Application and other recent SBA Guidance, see the following Haynes and Boone article: SBA Issues New Guidance via Interim Final Rule on Foreign Affiliates; Releases Loan Forgiveness… 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

DOL Issues Relief for Plan Fiduciaries

The DOL’s Employee Benefits Security Administration (“EBSA”) recently issued EBSA Disaster Relief Notice 2020-01. Notice 2020-01 applies to employee benefit plans, employers, labor organizations, and other plan sponsors, plan fiduciaries, participants and beneficiaries, and service providers subject to ERISA. Notice 2020-01 remains in effect from March 1, 2020 until 60 days after the announcement of the end of the presidentially declared national emergency due to COVID-19 (the “National Emergency”). Untimely Notice Relief Fiduciaries of ERISA plans generally have an obligation to provide notices and disclosures in accordance with the timing requirements of ERISA. However, under Notice 2020-01, the employee benefit plan and the responsible plan fiduciary will not be considered to violate ERISA for failing to timely furnish a notice, disclosure, or document that must be furnished between March 1, 2020 and 60 days after the announced end of the National Emergency, if the plan and responsible fiduciary act in… Continue Reading

CARES Act Relief Checklist: Considerations in Deciding What Relief is Right for Your Business

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) offers relief to businesses affected by COVID-19 through various programs, including forgivable loans and federal income tax credits. However, the CARES Act prevents businesses from claiming certain benefits that are considered duplicative.  The following checklist outlines key considerations for businesses when selecting among the Paycheck Protection Program (the “PPP”), the Employee Retention Tax Credit, the Employer Social Security Tax Deferral, and Work Opportunity Tax Credit. Certain industries, such as aviation, have specialized relief, which is beyond the scope of this checklist. In deciding what relief is appropriate, businesses should consider, as discussed in detail below, employer size, what may be best for the business’s employees, and the business’s long-term prospects. While this checklist is designed as a tool to assist businesses in choosing the proper relief, the best way to determine which option is optimal for a particular business… Continue Reading

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

Plan Loans: Plan Document and Forms May Require Updates Due to Tax Reform

Under the terms of many defined contribution plans, if a participant incurs a termination of employment, any outstanding loan will become immediately due and payable. If the participant is unable to repay the loan, the participant’s account balance will be offset by the amount of the outstanding loan, and this offset will be treated as a taxable distribution from the plan unless the participant contributes the amount of the loan offset to an eligible retirement plan (such as an IRA). As we previously reported on our blog, the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, extended the period of time a participant has to make such a contribution from 60 days after the date of the offset to the due date (including extensions) for filing the participant’s federal income tax return for the year in which the plan loan offset occurred. Plan sponsors should confirm… 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’s 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.

Additional Relief for Benefit Plans Due to Hurricane Harvey

The IRS and DOL have announced additional relief for benefit plans affected by Hurricane Harvey. This relief applies to participants, beneficiaries, and plans whose plan administration and/or recordkeeping functions reside within the disaster area. This relief includes the following: The filing date for Form 5500 filings due on or after August 23, 2017 and before January 31, 2018 is automatically extended to January 31, 2018. The DOL will provide relief for certain plan loan and distribution verification procedures to be described in later guidance, provide enforcement relief for delays in forwarding participant contributions, and provide relief for failures to timely provide blackout notices for temporary plan restrictions caused by Harvey. The DOL requests welfare plans make reasonable accommodations for participants and beneficiaries who are unable to timely file benefit claims or make COBRA elections for the purposes of preserving coverage and providing benefits. The request for accommodation should also include… Continue Reading

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