The Puerto Rico Treasury Department (?Ç£Puerto Rico Treasury?Ç¥) recently issued Internal Revenue Circular Letter (?Ç£CC RI?Ç¥) 20-29 extending the period to make ?Ç£Special Disaster Distributions?Ç¥ from qualified retirement plans and IRAs from June 30, 2020 to December 31, 2020. See our prior blog post here for details regarding what distributions qualify as Special Disaster Distributions. Other provisions of previously issued CC RI 20-09 (which provides rules applicable to distributions), CC RI 20-23 (which amends CC RI 20-09 to add additional eligible expenses), and CC RI 20-24 (which removes the requirement of signing before a notary public) continue in force. A copy of CC RI 20-29 can be found here.
Notice 2020-52 (the ?Ç£Notice?Ç¥) provides temporary relief allowing sponsors of ?Ç£safe harbor?Ç¥ 401(k) and 403(b) plans to amend their plans mid-plan year to suspend or reduce safe harbor contributions through the end of the plan year regardless of whether the employer (i) is suffering an economic loss, or (ii) included a statement in its annual safe harbor notice that safe harbor contributions could be reduced or suspended during the plan year. Plans that adopt an amendment to reduce or suspend safe harbor non-elective contributions in accordance with this Notice will not be treated as failing to satisfy the 30 day notice requirement in the regulations, provided that a supplemental notice is provided to the eligible employees no later than August 31, 2020, and the plan amendment that reduces or suspends the non-elective contributions is adopted no later than the effective date of the reduction or suspension. Plans that adopt an… Continue Reading
The IRS issued Notice 2020-51 which provides additional guidance and relief relating to the required minimum distribution (?Ç£RMD?Ç¥) waiver provisions in Section 2203 of the Coronavirus Aid, Relief, and Economic Security Act (the ?Ç£CARES Act?Ç¥). The CARES Act waived the requirement to make RMDs in 2020. Distributed amounts that?Çöbut for the CARES Act waiver?Çöwould have been RMDs are instead treated as eligible rollover distributions. Generally, the deadline to roll over an eligible rollover distribution into an IRA or another qualified plan is 60 days from the distribution date. However, for those eligible rollover distributions made in 2020 that otherwise would have been RMDs and for which the 60-day rollover period expires before August 31, 2020, the IRS extended the rollover deadline to August 31, 2020. Additionally, Notice 2020-51 includes a Q&A relating to the waiver of RMDs in 2020 and a model amendment that plan sponsors can adopt to provide… Continue Reading
Following a spinoff, a 401(k) plan continued to offer the employer stock fund of the predecessor parent company as an investment alternative, but closed it to new investments. After the share price fell by approximately 50%, the participants brought a lawsuit against the plan fiduciaries claiming, among other things, that the fiduciary breached its duty to diversify under ERISA Section 404(a)(1)(C) by retaining the stock fund as an investment alternative. The District Court dismissed the case and the U.S. Court of Appeals for the Fifth Circuit upheld the dismissal. The Fifth Circuit held that although the stock of the former parent was not statutorily exempt from ERISA?ÇÖs diversification because it was no longer a ?Ç£qualifying employer security?Ç¥, there was no obligation for the plan fiduciaries to force plan participants to divest from the funds. The court explained that ERISA contains no per se prohibition on individual account plans offering single-stock… Continue Reading
Use Care When Implementing CARES Act Retirement Plan Distributions ?Çô 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
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.
COVID-19 Puerto Rico Tax Exemptions for Employer Payments and Changes to Puerto Rico Qualified Plans
The Puerto Rico Treasury Department (?Ç£Puerto Rico Treasury?Ç¥) issued Internal Revenue Circular Letter (?Ç£CC RI?Ç¥) 20-22 to offer tax exemptions for certain employer-provided payments for COVID-19. Specifically: CC RI 20-22 extends the provisions of CC RI 20-08, which provides income tax exemptions for ?Ç£Qualified Payments Made for Disaster Assistance?Ç¥ (?Ç£Qualified Payments?Ç¥) made by employers to employees and independent contractors, to include certain payments made as a result of the COVID-19 emergency. Qualified Payments must: (i) be made be during the period from February 1, 2020 to April 30, 2020; (ii) be in addition to the compensation that the employee or contractor ordinarily receives; (iii) not discriminate in favor of highly compensated employees; (iv) not be attributable to or related to the position or salary of the employee or independent contractor; and (v) be limited to maximum payments of $2,000 per month and $4,000 in total (including both Qualified Payments made… Continue Reading
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the ?Ç£CARES Act?Ç¥). 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?ÇÖs employer-sponsored group health plan required to cover? The Families First Coronavirus Response Act (?Ç£FFCRA?Ç¥) requires an employer-sponsored group health plan (including a grandfathered plan under the Affordable Care Act (?Ç£ACA?Ç¥)) (a ?Ç£Plan?Ç¥) 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
The Setting Every Community Up for Retirement Enhancement Act of 2019 (the ?Ç£SECURE Act?Ç¥) was signed into law on December 20, 2019. This law will likely impact most tax qualified retirement plans, and some of the changes appear to be immediately effective. Plan sponsors should review their plans with counsel to determine what administrative modifications and plan amendments may be required. Key provisions of the SECURE Act include: ?Çó Changes to the eligibility and coverage requirements for certain long-term part-time employees. ?Çó Changes to the required minimum distribution (?Ç£RMD?Ç¥) requirements, including increasing the age for RMDs from age 70?? to age 72. ?Çó Increased penalties for failures to file and/or provide certain retirement plan returns and notices, including the Form 5500, the registration statement for deferred vested participants, and the rollover notice. ?Çó Changes to rules applicable to non-elective safe harbor plans. Non-elective safe harbor plans are those that provide… Continue Reading
The recently enacted Bipartisan Budget Act of 2018 (the ?Ç£Act?Ç¥) modifies certain Internal Revenue Code provisions relating to hardship distributions from qualified retirement plans that (i) eliminate the requirement that a participant?ÇÖs deferrals be suspended for six months following a hardship distribution, (ii) eliminate the requirement that participants take out all available plan loans before receiving a hardship distribution, and (iii) expand the sources available to fund hardship distributions to include QNECs and QMACs. These changes to the hardship distribution rules are effective for plan years beginning on or after January 1, 2019. In addition to the changes for hardship distributions, the Act provides additional relief for victims of the recent California wildfires that permits eligible plan participants to receive a distribution of up to $100,000, which will not be subject to the mandatory 20 percent income tax withholding or the 10 percent early withdrawal penalty. The participant may elect… Continue Reading