Temporary Relief from “Physical Presence” Requirement for Participant Elections

On June 3, 2020, the Treasury Department issued Notice 2020-42 providing temporary relief from the requirement for a plan representative or notary public to be physically present to witness certain participant elections (including spousal consents), which has been exceptionally difficult to satisfy while following COVID-19 shelter-in-place orders and social distancing guidelines.

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New DOL Electronic Disclosure Rules – What You Need to Know

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.

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DOL Issues New Rules on Electronic Disclosure

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regulations will be published in the Federal Register on May 27, 2020; for your convenience, we have provided an unpublished copy here.

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COVID-19 Joint Agency Relief Part 2: Guidance for Implementing Claim-Related Deadline Extensions

As described in our May 1 blog post, in response to the COVID-19 pandemic, the Employee Benefits Security Administration, the Department of Labor (DOL), and the Internal Revenue Service, the Department of the Treasury (Agencies) recently issued guidance (Extension Guidance) providing emergency relief to employee benefit plans, participants, and beneficiaries for complying with certain deadline and notice requirements under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As part of this guidance, the Agencies released a notification of relief (Joint Notice), which significantly affects administration of all ERISA-governed health, welfare and retirement plans by tolling certain claim-related deadlines throughout the duration of the National Emergency declared by President Trump. This alert, which can be read in its entirety on the Faegre Drinker website, describes the impact of those deadline extensions and provides practical guidance for plan sponsors and fiduciaries to consider in complying with the Joint Notice. For analysis of the Extension Guidance’s implications on retirement plans, see part one of this series of alerts.

IRS Releases Coronavirus-Related FAQs for Retirement Plans and IRAs – Some Guidance Still Forthcoming

On March 27, Congress enacted the Coronavirus Aid, Relief and Economic Security (CARES) Act, a massive stimulus package in response to the global coronavirus pandemic. Section 2202 of the CARES Act provides certain individuals who are affected by the pandemic – referred to as “qualified individuals” – with special distribution options from 401(k), 403(b) and governmental 457(b) plans and IRAs, and expands permissible retirement plan loans.

On Monday, May 4, the Internal Revenue Service published answers to commonly asked questions regarding section 2202.

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COVID-19 Layoffs Could Trigger Partial Plan Terminations

Employers considering layoffs during this period of economic uncertainty should be aware that extensive layoffs could inadvertently cause a partial termination of their company’s qualified retirement plan. Employers should monitor their employee turnover rate and consult with benefits counsel to determine the potential impact on their retirement plans.

Partial plan terminations can occur where a significant change to the plan or a significant event affects the rights of employees to vest in their plan benefits, such as termination of a large group of employees.

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A Tale of Two Loan Repayment Changes

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. 

Cutting Costs in a COVID-19 World – Reducing or Suspending Company Contributions to a 401(k) or 403(b) Plan

In response to the current economic crisis caused by COVID-19, many companies are considering cost-savings measures to improve their companies’ financial stability. One such cost-saving option is the reduction or suspension of company contributions to a company’s 401(k) or 403(b) plan. The procedure for and the implications of such suspension will depend on the plan terms, including whether the contribution is intended to be a “safe harbor” contribution. Continue reading “Cutting Costs in a COVID-19 World – Reducing or Suspending Company Contributions to a 401(k) or 403(b) Plan”

Audiocast – Navigating Employee Benefits in an Evolving COVID-19 Pandemic

Faegre Drinker and Multnomah Group held a roundtable discussion designed to provide practical advice on navigating employee benefits during the COVID-19 pandemic. Employers are dealing with remote work, layoffs, reduced hours, as well as determining how these changes will impact the operations of their employee benefit plans. Furthermore, with the passage of recent legislation such as the Families First Coronavirus Response Act and potential passage of the Coronavirus Aid, Relief and Economic Security Act, employers are faced with more challenges and changes.

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Calculating Plan Loan Limits under the CARES Act: Application of the One-Year Lookback

The Coronavirus Aid, Relief, and. Economic Security (CARES) Act temporarily increases the plan loan limit for loans to qualified individuals (as defined below) from defined contribution plans, such as 401(k) plans and 403(b) plans. This is generally good news for employees, but care should be taken when plan sponsors and plan recordkeepers calculate the loan limit because the one-year “lookback” continues to apply.

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