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IRS Issues Guidance on Special Funding and Benefit Limitation Rules under the CARES Act

The IRS recently issued Notice 2020-61 (the ?Ç£Notice?Ç¥) 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 ?Ç£CARES Act?Ç¥). Section 3608 of the CARES Act delays the due date for ?Ç£minimum required contributions?Ç¥ otherwise due during calendar year 2020 until January 1, 2021. In addition, it allows plan sponsors to use the plan?ÇÖs adjusted funding target attainment percentage (?Ç£AFTAP?Ç¥) 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

Approaching Deadline for Cash Balance Plans to Submit IRS Determination Letter Applications

Sponsors of retirement plans that use a statutory hybrid benefit formula (e.g., cash balance plans) have until August 31, 2020 to submit such plans to the IRS for a favorable determination letter. However, because ?Ç£interested parties?Ç¥ must be notified of the filing at least ten days in advance of the submission, the decision on whether to file must be made sooner (within the next week or so). Among other things, under this special determination letter cycle for cash balance plans, the IRS will review plan provisions implementing the final cash balance plan regulations. This is true even if the plan?ÇÖs cash balance formula was in place when the plan received a prior favorable determination letter. The guidance allowing for the special cycle for cash balance plans is available here.

Review Investment Policy Statements for ESG Investment Compliance

The DOL recently updated its ?Ç£investment duties?Ç¥ regulation to provide further guidance in light of recent trends in environmental, social, and governance (?Ç£ESG?Ç¥) investing, which we previously posted on our blog here. As the DOL increases its investigations and inquiries into ESG investments held by retirement plans, plan fiduciaries should review their plan investments and policies to: (i) determine if their retirement plans hold any ESG-type investments, and (ii) if they do hold such investments, (a) review their investment policy statements (?Ç£IPS?Ç¥) and evaluate whether such policies comply with the current rules for ESG investments (and will comply going forward with the DOL?ÇÖs guidance), and (b) confirm whether such investments remain appropriate for the plan. Plan fiduciaries may need to consult with their financial/plan advisors to determine if ESG-type investments are currently held by their plan. If a plan holds ESG investments and the IPS does not address such investments,… Continue Reading

M&A Considerations When the Seller Uses a PEO

Smaller companies often use professional employer organizations (?Ç£PEOs?Ç¥) as a way to reduce benefit costs and to assist with many, if not all, human resources and payroll functions. While PEOs may work well for a company?ÇÖs day-to-day operations, they can create headaches and complications in corporate transactions. When acquiring a company that uses a PEO, it is important to consider the following: Seller?ÇÖs representations and warranties relating to employee benefit plan compliance generally include representations and warranties relating to the compliance of the plans it sponsors. Since individual companies do not sponsor PEOs, the typical benefit plan representations and warranties should be modified to include representations and warranties regarding any plans or benefits provided by the seller or its controlled group members plus more limited representations and warranties regarding the plans sponsored by the PEO. Depending on the PEO involved, it may be more difficult to get copies of actual… Continue Reading

IRS Extends Deadline to Roll Over Waived RMD Distributions / Provides Model Amendment

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

Sixth Circuit Case Excludes Voluntary Retirement Contributions from a Debtor?ÇÖs Disposable Income

The U.S. Court of Appeals for the Sixth Circuit (the ?Ç£Sixth Circuit?Ç¥), whose jurisdiction includes Michigan, Ohio, Kentucky, and Tennessee, recently held that, under Chapter 13 of the Bankruptcy Code, a debtor?ÇÖs pre-petition and certain post-petition voluntary retirement contributions are excludable from the debtor?ÇÖs disposable income, which is used to satisfy a debtor?ÇÖs obligations to its unsecured creditors. In Davis, a debtor filed for bankruptcy under Chapter 13 of the Bankruptcy Code and sought to satisfy her unsecured debts by paying all of her ?Ç£projected disposable income?Ç¥ to her unsecured creditors. The debtor sought to exclude her voluntary 401(k) contributions from her projected disposable income, but the bankruptcy court upheld an amended bankruptcy plan that included such contributions in her disposable income. The debtor appealed to the Sixth Circuit, which held that, because the debtor?ÇÖs post-petition monthly 401(k) contributions were regularly withheld from the debtor?ÇÖs wages prior to the bankruptcy,… Continue Reading

IRS Relief Allows Individuals to Make Participant Elections Electronically

Treasury Regulations ?º 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.?á In light of the COVID-19 pandemic, the IRS recently issued Notice 2020-42 (the ?Ç£Notice?Ç¥) to allow individuals making participant elections to do so through electronic means for the period from January 1, 2020 through December 31, 2020.?á For participant elections, including spousal consents, that require a signature to be witnessed in the physical presence of a notary public, the ?Ç£physical presence?Ç¥ requirement is satisfied if remote notarization is done through live audio-video technology that otherwise satisfies the requirements of Treasury Regulations ?º 1.401(a)-21(d)(6) and is compliant with state law applicable to notaries.?á For participant elections, including spousal consents, that require a signature to be witnessed in the physical presence of a plan representative, the ?Ç£physical presence?Ç¥ requirement is satisfied if (i) the person signing the participant… Continue Reading

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?ÇÖs 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?Çô1712 (U.S. June 1, 2020) can be… 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

IRS Releases FAQs on Retirement Plan Relief Under the CARES Act

The IRS recently published guidance in the form of FAQs related to the implementation of retirement plan relief available under the CARES Act. While the guidance does not resolve all of the open issues, it does provide some helpful clarifications and insight into what we may expect from future guidance. Specifically, the guidance confirms that the CARES Act provisions allowing for coronavirus-related distributions (?Ç£CRDs?Ç¥) and loan relief are permissible, not required. Furthermore, the guidance points out that even if a 401(k) plan decides not to allow CRDs, if an individual meets the requirements to be a ?Ç£qualified individual,?Ç¥ he or she may be able to treat other plan distributions as a CRD for federal tax purposes. Individuals need to consult with their personal tax advisors on these matters. Finally, alluding to what we may expect from future guidance, the CARES Act FAQs referred back to IRS Notice 2005-92 (issued on… Continue Reading

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