The IRS recently issued Notice 2020-61 (the “Notice”) containing 18 questions and answers that provide helpful guidance for sponsors of single-employer defined benefit pension plans regarding Section 3608 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Section 3608 of the CARES Act delays the due date for “minimum required contributions” otherwise due during calendar year 2020 until January 1, 2021. In addition, it allows plan sponsors to use the plan’s adjusted funding target attainment percentage (“AFTAP”) for the last plan year ending before January 1, 2020, for plan years that include calendar year 2020. The Notice addresses issues related to the deadline extension for minimum required contributions under the CARES Act, including how the contributions are to be adjusted for interest. The Notice also discusses issues related to the use of the prior year AFTAP for benefit limitations. Plan sponsors should consult with their benefits counsel… Continue Reading
Treasury Regulations § 1.401(a)-21(d)(6) requires participant elections, including spousal consents, to be witnessed in the physical presence of a plan representative or notary public. In light of the COVID-19 pandemic, the IRS recently issued Notice 2020-42 (the “Notice”) to allow individuals making participant elections to do so through electronic means for the period from January 1, 2020 through December 31, 2020. For participant elections, including spousal consents, that require a signature to be witnessed in the physical presence of a notary public, the “physical presence” requirement is satisfied if remote notarization is done through live audio-video technology that otherwise satisfies the requirements of Treasury Regulations § 1.401(a)-21(d)(6) and is compliant with state law applicable to notaries. For participant elections, including spousal consents, that require a signature to be witnessed in the physical presence of a plan representative, the “physical presence” requirement is satisfied if (i) the person signing the participant… Continue Reading
Under Section 3405(e)(2) of the Internal Revenue Code, withholding from periodic payments from pensions and annuities is determined under rules prescribed by the Secretary of the Treasury. Currently, under IRS Notice 2020–3, if no withholding certificate is in effect, the required withholding amount is determined by treating the payee as a married individual claiming three withholding exemptions. Under the proposed rule, beginning in 2021, the required withholding amount will be determined in the manner described in the applicable forms, instructions, publications, and other guidance prescribed by the IRS Commissioner (e.g., the annual Publication 15-T and instructions to Form W-4P). The Proposed Rule can be found here.
The Supreme Court Holds Participants in Fully-Funded Defined Benefit Plans Cannot Sue for Fiduciary Breach
The U.S. Supreme Court held Monday that participants in a fully-funded defined benefit plan have no standing to bring a lawsuit against plan fiduciaries for a breach of ERISA’s fiduciary requirements. In Thole, plan participants alleged that the plan fiduciaries had mismanaged funds and invested in imprudent investments causing the plan to lose approximately $748 million more than it otherwise should have during the 2008 recession. Subsequent to that date, the plan sponsor contributed an additional $311 million to the plan resulting in the plan becoming fully funded. The Court held that because the participants would receive the same benefits whether they won or lost the lawsuit, there was no controversy and, therefore, the participants had no standing under Article III of the U.S. Constitution to bring a civil action under Sections 502(a)(2) or 502(a)(3) of ERISA. Thole v. U.S. Bank N.A., No. 17–1712 (U.S. June 1, 2020) can be… Continue Reading
The DOL and the IRS Jointly Provide Relief from Certain Timeframes Applicable to Health and Welfare and Pension Plans
On April 28, 2020, the IRS and DOL issued a Final Rule extending certain timeframes under ERISA and the Internal Revenue Code for group health, disability and other welfare plans, pension plans, and the participants and beneficiaries under those plans. The timeframe extensions include, among other things, the time to elect COBRA and pay premiums, special enrollment timeframes under HIPPA and CHIPs, claims procedure timeframes, and certain external review process timeframes. Applicable plans must disregard the period from March 1, 2020 until 60 days after the announced end of the COVID-19 National Emergency for all plan participants, beneficiaries, qualified beneficiaries, or claimants wherever located in determining the enumerated time periods and dates and for providing COBRA election notices. In addition, Disaster Relief Notice 2020-01 was issued addressing the timeframe relief and addressing certain other COVID-19 relief. The Final Rule is available here: https://www.dol.gov/sites/dolgov/files/ebsa/temporary-postings/covid-19-final-rule.pdf. Disaster Relief Notice 2020-01 is available here: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/disaster-relief/ebsa-disaster-relief-notice-2020-01.
Although the CARES Act permitted the DOL to delay the deadline for distributing defined benefit plan Annual Funding Notices (“AFNs“), the DOL has not done so. For calendar year plans, that deadline is April 29, 2020 (because 2020 is a leap year). While AFNs generally can be distributed electronically, if there are participants or beneficiaries (including alternate payees) for whom electronic distribution is not possible, those AFNs must be mailed and postmarked no later than April 29.
The Paycheck Protection Program (the “PPP”) under the CARES Act aims to assist small businesses affected by COVID-19 by covering certain operating expenses as an incentive to retain employees during the crisis. Expenses, such as “payroll costs,” are used in the calculation of the amount of the available loan and in the amount that may be forgiven under the program. Notably, the PPP does not consider an individual’s compensation in excess of $100,000 annualized, prorated for the covered period, to be covered as a payroll cost. The “payment of any retirement benefit[s]” are among the payroll costs that are included. However, at this time, it not entirely clear what is intended to be included in the “payment of any retirement benefit.” No formal guidance has been issued by the IRS or Treasury, and initial guidance issued by the U.S. Small Business Administration does not shed much light on this question.… Continue Reading
In light of the recent economic developments stemming from the COVID-19 pandemic, many employers are evaluating their employee benefit plans and how employee and employer costs will be impacted. The following summary provides a list of questions we have been receiving from clients over the past week, along with action items to help employers address these issues. Health and Welfare Plans and Fringe Benefits Should benefits coverage continue while an employee is on an unpaid furlough? If so, how would the employee pay the employee’s portion of the premium? Could the employee elect to drop coverage due to the reduction in hours of active service? Could the employer pay for coverage for some or all of its furloughed employees? Continued eligibility for benefits will depend on whether the employer treats the furlough as a termination of employment or as an unpaid leave of absence. The terms of the plan, including… Continue Reading
Within three years following the acquisition of Anheuser-Busch Companies (the “Company”) which resulted in a change-in-control, the Company sold its entertainment division. The Company’s pension plan provided that a plan participant “whose employment with the Controlled Group is involuntarily terminated within three (3) years after the Change in Control” would be eligible for enhanced pension benefits. The Company determined that the employees of the entertainment division were not eligible for enhanced pension benefits because they continued working with the successor entity after the sale and therefore did not terminate employment. The district court and the Eighth Circuit disagreed. Applying a plain-text analysis to the plan, the Eight Circuit determined that because the employees were no longer employed with the controlled group, their “employment with the Controlled Group” had terminated. Although the plan granted the Company discretion to interpret terms and decide benefits, it was an abuse of discretion to not… Continue Reading