The Department of Labor (DOL) issued final electronic disclosure rules for retirement plans on May 27, 2020 (2020 Safe Harbor). We are already fielding questions about these new rules and have provided answers here to some of the common questions we are hearing from clients.
The U.S. Department of Labor (DOL) has issued final regulations that provide an additional safe harbor method of satisfying the ERISA electronic disclosure requirements for retirement plans (note, these rules do not apply to welfare plans). The final regulations will allow employers to post retirement plan disclosures online or deliver them by email.
The new electronic disclosure regulations will be published in the Federal Register on May 27, 2020; for your convenience, we have provided an unpublished copy here.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act suspended 401(k) loan repayments for qualified individuals that are due between March 27, 2020, and December 31, 2020. Qualified individuals include plan participants (1) who have been diagnosed with COVID-19, (2) whose spouse or dependents have been diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of COVID-19. The CARES Act allows the loan period to be extended to account for the suspension, and prior IRS guidance in Notice 2005-92 allows the loan to be reamortized.
There is another loan provision included in Notice 2020-23 that effectively delays repayment of all 401(k) loans. Notice 2020-23 Section III.A. defines affected taxpayers to include anyone performing a “time-sensitive action” listed in Revenue Procedure 2018-58, which applies to any taxpayer affected by a federally declared disaster and includes in the list of actions payment of 401(k) plan loans.
COVID-19 is a federally declared disaster in every state, so Notice 2020-23 delays any 401(k) plan loan payments that are due between April 1, 2020, and July 14, 2020. But unlike the CARES Act loan suspension, under Notice 2020-23 taxpayers only have a delay and potentially will have to pay all missed loan repayments as of July 15, 2020 (additional guidance from the IRS on this point would be very helpful). As of the date of publication of this alert, it does not appear that the term of the loan can be adjusted to include the Notice 2020-23 delay period (unlike the CARES Act loan suspensions). It is likely that the loan still will be subject to the original loan term.
If the Notice 2020-23 payment delay applies, then it will impact 401(k) plans because of the timing of when a loan default occurs. For example, generally if a participant stopped making loan repayments in May, the latest default period allowed under the Code would be the end of the third quarter (although a 401(k) plan may specify a shorter period). But if the loan repayment due date is delayed until July 15, 2020, then the loan will end up missing a repayment in Q3 and defaulting in Q4. Based on the July 15, 2020, delayed payment date, it is unlikely any loan recipients will have any tax issues that span into 2021 as a result of Notice 2020-23.
Note that 401(k) plan sponsors and their recordkeepers should be aware of this issue and properly administer plan loans in light of Notice 2020-23.
As people across the country react to the quickly changing COVID-19 pandemic, Congress passed another piece of legislation providing guidance and relief on a variety of issues — the Coronavirus Aid Relief and Economic Security (CARES) Act, signed into law on March 27, 2020. This article includes brief summaries of what employers should know about key benefits-related components of the CARES Act. Plan sponsors should review their plans to assess the impact of these changes and take appropriate steps to implement the changes (some of which are required).