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Nothing in Life is Free – ERISA Expense Account Considerations

Many 401(k) plans contain spending accounts funded by revenue-sharing generated by a plan’s 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 “free money.” 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? DOL 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

IRS Issues Additional Guidance Regarding COBRA Premium Subsidy

As we previously reported here, the American Rescue Plan Act of 2021 (“ARPA”) 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 (“Outbreak Period Extensions”), (vii) payments to insurers, (viii) application to state continuation coverage, and (ix) calculation and claiming of the subsidy tax credit. One of… Continue Reading

IRS Clarifies Taxability of Dependent Care Benefits Provided Pursuant to a Carryover or Extended Grace Period

The IRS recently issued Notice 2021-26 (the “Notice”), 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 “CAA Guidance”). The CAA Guidance addressed the taxability of dependent care benefits provided under a dependent care assistance program (“DCAP”) when a carryover or extended grace period is applied.  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 (“CAA Carryover”) or (ii) an extended grace period for incurring DCAP claims for plan years ending in 2020 and 2021 (“CAA Extended Grace Period”). The CAA Guidance confirms that any unused DCAP amounts carried over from one year (“Prior Year”) to, or available in, the subsequent… Continue Reading

HHS Announces Final 2022 Cost-Sharing Maximums under the Affordable Care Act

HHS recently issued its final “Notice of Benefit and Payment Parameters for 2022” (the “Notice”), which includes the maximum annual limitations on cost-sharing that will apply to “essential health benefits” in 2022 under non-grandfathered group health plans subject to the Affordable Care Act. For this purpose, cost-sharing generally includes deductibles, coinsurance, copayments, and other required expenditures that are qualified medical expenses with respect to essential health benefits available under the plan. The 2022 limitations are (i) $8,700 for self-only coverage and (ii) $17,400 for other than self-only coverage. The Notice is available here.

DOL Increases Civil Monetary Penalties for Certain ERISA Violations

The DOL recently issued a final rule that adjusts for inflation the amounts of civil monetary penalties assessed or enforced in its regulations, including for certain ERISA violations. The adjusted penalty amounts apply to penalties assessed after January 15, 2021 and for which the associated violations occurred after November 2, 2015. Some of the penalties that were increased include the following: The maximum penalty for failing to properly file a pension or welfare benefit plan’s annual Form 5500 increased from $2,233 per day to $2,259 per day. The maximum penalty for failing to provide notices of blackout periods or of the right to divest employer securities increased from $141 per day to $143 per day (each statutory recipient is a separate violation). The maximum penalty for failing to provide employees the required Children’s Health Insurance Program (CHIP) coverage notices increased from $119 per day to $120 per day (each employee… Continue Reading

BREAKING: One-Year Limit on Suspended COBRA and Other Deadlines Applies On An Individual Basis

The DOL issued guidance today stating that the one-year limit on the suspension of COBRA, special enrollment, and claims deadlines during the COVID-19 outbreak period applies on an individual basis.  This means those deadlines do not resume running as of March 1, 2021.  Instead, each individual has up to a one-year suspension as long as the COVID-19 national emergency continues.  As discussed in our prior blog post here, it was unclear whether those deadlines were to resume running as of March 1, 2021.  Employers should contact their service providers to ensure they are aware of this new guidance and to issue new participant communications as needed. Notice 2021-01 is available here.

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

The IRS recently issued Notice 2020-86 (the “Notice”), 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 “SECURE Act”). 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 Announces 2021 Qualified Retirement Plan Limits

The IRS recently announced cost-of-living adjustments for 2021. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2021: Compensation limit used in calculating a participant’s benefit accruals: increased to $290,000. Elective deferrals to 401(k) and 403(b) plans: remains unchanged at $19,500. Annual additions to a defined contribution plan: increased to $58,000. Catch-up contributions for employees aged 50 and over to 401(k) and 403(b) plans: remains unchanged at $6,500. Annual benefit limit for a defined benefit plan: remains unchanged at $230,000. Compensation dollar limit for defining a “key employee” in a top heavy plan: remains unchanged at $185,000. Compensation dollar limit for defining a “highly compensated employee”: remains unchanged at $130,000. View the full list of 2021 plan limits in Notice 2020-79 here.

Want to Elect to Have a Safe Harbor Plan for 2021? – The Time is Now

As we previously reported here, earlier this year, the IRS provided relief to plan sponsors of safe harbor 401(k) and 403(b) plans, allowing them to amend their plans mid-year to suspend or reduce safe harbor contributions through the end of the 2020 plan year. Many employers elected to make this change in order to reduce overall costs to help them weather the COVID-19 pandemic. Plan sponsors who want to go back to a safe harbor plan design for 2021 must (i) amend their plan documents before the end of the year to include safe harbor contributions; (ii) notify their third party administrators as soon as possible so that the third party administrator is prepared to administer the plan as a safe harbor plan; and (iii) provide the required safe harbor notice to participants at least 30 days (and not more than 90 days) before the beginning of the plan year.… Continue Reading

The DOL Issues Guidance Regarding Lifetime Income Illustrations

The DOL recently issued an interim final rule (“IFR”) pursuant to the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”) regarding the information that must be provided on pension benefit statements. ERISA requires plan administrators of defined contribution plans to provide periodic pension benefit statements to participants and certain beneficiaries. The SECURE Act requires plan administrators to provide annual statements illustrating participants’ accrued benefits as two lifetime income stream illustrations: (i) a single life annuity, and (ii) a qualified joint and survivor annuity. The IFR describes certain required assumptions plan administrators must use when converting a participant’s accrued benefit into lifetime income streams. The lifetime income stream illustrations must be accompanied by clear and understandable explanations of the assumptions underlying the illustrations. To assist plan administrators, the IFR provides model language that may be used to satisfy this explanation requirement. The IFR is effective September… Continue Reading

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