IRS Relaxes Plan Amendment Deadlines for Changes Under the SECURE Act and Other Laws

The Internal Revenue Service recently granted plan sponsors additional time to amend retirement plans to reflect changes in law under: (i) Section 2203 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); (ii) the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act); and (iii) Section 104 of the Bipartisan American Miners Act of 2019 (Miners Act).

Sponsors of qualified plans and non-governmental Section 403(b) plans (including collectively bargained plans) now have until December 31, 2025, to adopt certain plan amendments required by these recent changes in law or to conform the written plan to operational changes permitted by these laws.

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Temporary Reinstatement of Relief for Telemedicine Coverage in HDHPs

The Consolidated Appropriations Act 2022 (“CAA 2022”), signed by President Biden on March 15, 2022, reinstated temporary relief for high deductible health plans (“HDHPs”) to provide pre-deductible coverage of telehealth services from April 1 through December 31, 2022, without impacting HDHP participants’ eligibility to contribute to their health savings accounts (“HSAs”).

In general, HDHP coverage of telehealth services at no or low cost before the participant satisfies the minimum HDHP deductible (in 2022, $1,400 for single-only coverage and $2,800 for family coverage) would cause HDHP participants to become ineligible to make HSA contributions.

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Preview of 2022 Required Changes for Retirement Plans

As 2022 begins, retirement plan sponsors and service providers should keep in mind deadlines for required plan changes in 2022.  In particular, retirement plan changes under the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) and Coronavirus Aid Relief and Economic Security Act (CARES Act) must be adopted by amendment by December 31, 2022, for calendar year plans.  In addition, retirement plans must comply with new SECURE Act disclosure requirements beginning later this year.

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Last Call: Don’t Forget Your Retirement Plan’s Required Year-End Amendments for 2021

As 2021 winds down, retirement plan sponsors should confirm that their plan documents are amended by December 31, 2021, to comply with certain plan changes:

  • Hardship Distributions. 401(k) plans and 403(b) plans must be amended, as applicable, to comply with the final regulations updating the hardship distribution rules.  For hardship distributions made on or after January 1, 2020, plans must be amended by December 31, 2021, to:  (i) eliminate the suspension of elective deferrals following a hardship distribution; and (ii) require employees requesting hardship distributions to represent that they have insufficient cash or other liquid assets reasonably available to satisfy the need.Additionally, plans that made changes to their hardship distribution provisions that were (i) permitted under the regulations, and/or (ii) took effect on or before January 1, 2020 (such as eliminating the requirement to exhaust all available loans before taking a hardship distribution, or permitting amounts contributed as qualified nonelective contributions (QNECs) or qualified matching contributions (QMACs) and earnings to be made available for hardship distributions), must adopt such changes by December 31, 2021.
  • PBGC Rates. Defined benefit plans that refer to the Pension Benefit Guaranty Corporation (PBGC) immediate rate may need to be amended to reflect that the PBGC stopped publishing monthly rates at the end of 2020.  Such amendment would need to be effective January 1, 2021 (which, for calendar year plans, would require adoption of an amendment by December 31, 2021).
  • Collectively Bargained Cash Balance/Hybrid Defined Benefit Plans. Cash balance/hybrid defined benefit plans maintained pursuant to a collective bargaining agreement ratified on or before November 13, 2015 must be amended by December 31, 2021, to comply with requirements regarding market rate of return and other cash balance/hybrid plan requirements that first applied to such plans generally on or after January 1, 2017.
  • Discretionary Amendments. If a retirement plan implements discretionary changes during the 2021 plan year, retirement plan sponsors must adopt an amendment to that effect by the last day of the 2021 plan year (December 31, 2021, for a calendar year plan).

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IRS and PBGC Provide Welcome Clarification on Contribution Deadline for Defined Benefit Pension Plans

On November 16, 2020, the Internal Revenue Service (IRS) issued Notice 2020-82 (the Notice), to further extend the deadline for required minimum contributions for single-employer defined benefit pension plans that would otherwise be due during the 2020 calendar year, from January 1, 2021, to January 4, 2021. On the same day, the PBGC issued complementary guidance, in Technical Update 20-2 (the PBGC Update), to reflect the January 4, 2021, deadline established by the IRS in the Notice when calculating variable-rate premiums.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) previously established a January 1, 2021, deadline for certain required minimum contributions that would otherwise be due during the 2020 calendar year. This pension funding holiday applies for contributions to single-employer defined benefit pension plans required under Section 430(j) of the Internal Revenue Code (the Code). Under Code Section 430(j), single-employer defined benefit pension plan sponsors are required to make certain minimum contributions that are designed to keep the plan sufficiently funded. For a given contribution to apply for a plan year, generally the contribution must be made no later than 8-1/2 months after the plan year ends. However, when a plan has a funding shortfall for the prior plan year, the plan sponsor is required to pay four quarterly installments toward the required minimum contribution for the plan year (due on April 15, July 15, and October 15 of the plan year, and January 15 of the following year, for a calendar year plan). The CARES Act gave plan sponsors additional time to make these required minimum contributions, by providing a January 1, 2021, due date for amounts otherwise due during 2021.

In the Notice, the IRS recognized the legislative intent to defer a plan sponsor’s payment obligation to calendar year 2021. The IRS acknowledged that this deferment to 2021 would not be possible with a January 1, 2021, deadline, given that January 1, 2021, is a bank holiday, and financial institutions cannot transfer funds on the January 1, 2021, due date. As a result, the Notice extends the deadline to January 4, 2021, the next business day after January 1, 2021. For amounts that are contributed on January 4, 2021, and treated as timely made pursuant to the Notice, the amount of the required minimum contribution that is considered satisfied by the contribution is determined by computing the applicable interest adjustment based on the actual contribution date.

The Notice also extends the deadline for a plan sponsor of a single-employer defined benefit pension plan to make certain elections related to the plan’s prefunding balance. These extended deadlines relate to (a) an election to add contributions made in excess of the minimum required contribution for a plan year to the plan’s refunding balance (i.e., a balance that may be used at the plan sponsor’s election to offset minimum required contributions for a later plan year) and (b) an election to use an existing prefunding balance or funding standard carryover balance to offset a required minimum contribution for a plan year. The deadline for those elections is now also January 4, 2021, for a plan year for which the extended due date for required minimum contributions applies. Note, however, that the Notice does not impact the treatment of certain missed quarterly installment contributions otherwise due on January 1, 2021, pursuant to the CARES Act. Further, the extended deadline (previously January 1, 2021, and now January 4, 2021) does not apply for a multiemployer plan, a money purchase pension plan, a “cooperate and small employer charity” (CSEC) plan, or a fully insured plan as described in Code Section 412(e)(3).

Prior to this Notice, the IRS had issued guidance on the CARES Act funding rules for single-employer defined benefit pension plans in Notice 2020-61. That notice addressed the payment of annual premiums to the Pension Benefit Guaranty Corporation (PBGC) (as well as interest adjustments for minimum required contributions, the actuarial certification of a plan’s adjusted funding target attainment percentage (AFTAP), and Form 5500 reporting for contributions made with respect to the 2019 plan year that were made after the filing deadline for the 2019 plan year).

The PBGC Update referenced above addresses the IRS guidance and its impact on the PBGC premium filings by providing that, for premium filings due on or after March 1, 2020, and before January 1, 2021, the date by which prior-year contributions must be received by the plan to be included in plan assets used to determine the variable-rate premium is extended to January 4, 2021. If such a contribution is made by January 4, 2021, a plan sponsor may amend the premium filing to revise the originally reported asset value and the applicable variable-rate premium. Note that the PBGC relief does not impact the premium due dates, and it does not allow a plan sponsor to include a contribution that has not yet been made in the premium filing.

Contact your Faegre Drinker attorney for more information on the extended deadline for required minimum contributions, the variable-rate premium contribution calculation and deadlines, and other aspects of the CARES Act relief for single-employer defined benefit pension plans.

Audiocast: Year-End Checklist for Your Retirement Plan: 2020

Each year, retirement plans’ fiduciaries have a lot of responsibilities as they prepare for year-end. This year, fiduciaries and plan sponsors have a few extra “to do’s” on their list, with the passage of the CARES and SECURE Acts within the past year. Join Summer Conley, partner at Faegre Drinker, and Bonnie Treichel, co-founder and COO of ZUNA, on Thursday, October 22, 2020, at 1:00 p.m. ET for an actionable audiocast that will cover the tasks that are most critical to preparing for a successful year-end and start to 2021.

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New Guidance on Health Coverage Issues Relating to COVID-19

On June 23, 2020, the Department of Labor, Department of Health and Human Services (HHS), and Department of the Treasury (the Departments) issued new frequently asked questions (FAQs) regarding coverage for COVID-19 testing under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The FFCRA and the CARES Act generally require employer health plans to provide coverage for COVID-19 testing without imposing any cost sharing (including deductibles, copayments and coinsurance), prior authorization or certain other medical management requirements. Prior FAQs were issued on April 11, 2020 (FAQs Part 42).

The June 23, 2020, FAQs provide additional guidance on health coverage issues for sponsors of group health plans during the COVID-19 pandemic, and are particularly relevant for employers considering return-to-work policies.

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IRS Expands and Clarifies Relief Provided for CARES Act Retirement Plan Distributions

On June 19, 2020, the Internal Revenue Service (IRS) issued Notice 2020-50 (the Notice) to provide guidance on coronavirus-related distributions, increased plan loan limits, and deferment of plan loan repayments allowed pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Notice provides further guidance for retirement plan sponsors on implementing changes under the CARES Act provision, and supplements prior IRS guidance issued in the form of FAQs, as discussed in a prior post.

Key elements of the Notice include:

  1. An Expanded Definition of “Qualified Individual”

    Under the CARES Act, coronavirus-related distributions, the increased plan loan limits, and the deferral of plan loan repayments are available only to “qualified individuals.” A “qualified individual” is someone who has been diagnosed with the virus SARS-CoV-2 or the coronavirus disease 2019 (each referred to herein as “COVID-19”); whose spouse or dependent has been diagnosed with COVID-19; or who experiences adverse financial consequences stemming from COVID-19 as a result of being quarantined, furloughed, laid off, having reduced work hours, being unable to work due to lack of child care, the closing or reduction of hours of a business owned or operated by the individual, or other factors as determined by the Department of the Treasury.

    In the Notice, the IRS exercises this authority and expands the definition of “qualified individual” to include an individual who experiences adverse financial consequences as a result of one or more of the following:

    • Having a reduction in pay (or self-employment income) due to COVID-19
    • Having a job offer rescinded or a start date for a job delayed due to COVID-19
    • The individual’s spouse or member of the individual’s household being (1) quarantined, furloughed, laid off, or having work hours reduced due to COVID-19; (2) being unable to work due to lack of childcare due to COVID-19; (3) having a reduction in pay (or self-employment income) due to COVID-19; or (4) having a job offer rescinded or start date for a job delayed due to COVID-19
    • The closure or reduction of hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.

    A “member of the individual’s household” means someone who shares the individual’s principal residence.

    NOTE: This broadens the already expansive definition of qualified individual, and allows a greater number of plan participants to benefit from the favorable tax treatment of a coronavirus-related distribution (discussed in more detail in our earlier alert).

  2. Clarification of Rules Allowing Reliance on Self-Certification of “Qualified Individual” Status

    The Notice also resolves an open issue about whether a plan administrator may rely on an individual’s self-certification that he or she is a “qualified individual” for purposes of the expanded plan loan provisions. The CARES Act and earlier FAQ guidance allowed plan administrators to rely on self-certification, but only for coronavirus-related distributions. The Notice makes it clear that plan administrators may rely on self-certification for purposes of the plan loan changes as well. In both instances, reliance on an individual’s self-certification is permitted if the administrator does not have actual knowledge that is contrary to that certification. For purposes of this standard, a plan administrator is not obligated to inquire into whether the individual has satisfied the conditions to be a “qualified individual.” The Notice also includes a sample certification.

  3. Clarification that CARES Act Changes Are Optional

    The Notice clarifies that retirement plan sponsors are not required to allow coronavirus-related distributions, increase the plan loan limits, or suspend plan loan repayments. These changes are optional, and plan administrators may develop any reasonable procedures for identifying which distributions are treated as coronavirus-related distributions under its retirement plans, provided the plan is consistent in its treatment of similar distributions.

    Regardless of whether a plan is amended to allow coronavirus-related distributions, a qualified individual may obtain favorable tax treatment by treating a distribution that would otherwise satisfy the CARES Act requirements as a coronavirus-related distribution on his or her federal income tax return.

  4. A Safe Harbor for Administration of Suspended Loan Payments

    The CARES Act includes a rule under which the due date for repayments on a qualified individual’s outstanding plan loan that would otherwise be due during the period beginning March 27, 2020, and ending on December 31, 2020, may be delayed for one year.  Subsequent loan repayments are required to be adjusted to reflect the delay and any interest accruing during the delay, and the period of the delay is disregarded in determining the five-year maximum repayment period.

    Prior to the Notice, there were a number of open questions related to administration of this provision and re-amortization of repayments otherwise due during the suspension period. The Notice establishes a safe harbor that is available when a qualified individual’s obligation to repay a plan loan is suspended for any period beginning March 27, 2020, and ending not later than December 31, 2020 (the “suspension period”), provided: (1) the loan repayments resume after the end of the suspension period; (2) interest accruing during the suspension period is added to the remaining principal of the loan; and (3) the loan is re-amortized and repaid in substantially level installments over the remaining period of the loan (which may be extended by up to one year from the date the loan was originally due to be repaid). If a plan administrator satisfies the safe harbor, the plan is treated as complying with the applicable requirements of section 72(p) of the Internal Revenue Code of 1984, as amended (the Code). Compliance with the safe harbor is not required, however, and the Notice acknowledges that there may be other, reasonable ways to administer this provision in the CARES Act.

    NOTE: This safe harbor for re-amortization of suspended repayments is substantially similar to the relief the IRS provided following Hurricane Katrina and the similar loan rules established in the Katrina Emergency Tax Relief Act of 2005. This guidance is welcome relief for plans and administrators who hoped the IRS guidance would align with past administrative practices.

In addition to the changes listed above, the Notice provides guidance on a number of other aspects of coronavirus-related distributions, including: tax reporting by plans and individuals; the types of distributions that can and cannot be designated as a coronavirus-related distribution; the types of distributions that may be recontributed to a retirement plan or IRA; accepting recontributions; special tax notice and mandatory/optional withholding requirements; and the $100,000 total distribution limit.

Along with the guidance on the CARES Act, the Notice also briefly addresses nonqualified deferred compensation plans. The Notice permits the cancellation of a service provider’s deferral election under such a plan when the service provider receives a distribution from a retirement plan that constitutes a coronavirus-related distribution by deeming such a distribution a hardship distribution for purposes of existing regulations under Code section 409A. Note that it is required that the deferral election be cancelled; it cannot be delayed.

Please contact your Faegre Drinker attorney with questions and/or to request more detailed information about implementing these CARES Act changes and the impact of the Notice.

Preventing an ERISA Litigation Outbreak After COVID-19 – Part 2: Cybertheft of 401(k) Plan Distributions

To address growing concerns over an increase in ERISA litigation claims related to the COVID-19 pandemic, Faegre Drinker’s ERISA litigation team developed the “Preventing an ERISA Litigation Outbreak After COVID-19” alert series to help clients navigate the fiduciary and plan liability issues associated with COVID-19. Part Two of our series examines the potential for fraudulent 401(k) distributions as an unexpected result of the Coronavirus Aid, Relief and Security Act (CARES Act), and highlights steps plan sponsors and recordkeepers can take to mitigate the risk of these cybercrimes.

View Part One of this series, which provides guidance to assist ESOP fiduciaries in carrying out their duties during the pandemic.

IRS Issues Welcome Guidance on Mid-Year Cafeteria Plan Election Changes and Other Health & Welfare Matters

On May 12, 2020, the Internal Revenue Service (IRS) issued Notice 2020-29 (the Notice), an important piece of guidance for employers that sponsor health & welfare plans.

The Notice provides much-needed flexibility for employers who are dealing with unexpected requests and circumstances as a result of the 2019-nCoV (COVID-19) pandemic. As discussed below, the Notice permits – but does not require – cafeteria plans to provide additional opportunities for mid-year election changes for health coverage, health flexible spending account (health FSA) coverage and dependent care FSA (dependent care FSA) coverage. It also permits plans to extend the claims periods for health FSA and dependent care FSA expense reimbursement, and it clarifies earlier guidance regarding coverage of telehealth and COVID-19-related items under a high deductible health plan (HDHP).

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