Industry & Regulatory News

DOL Guidance to Aid Retirement Plans Facing Missing Participant Issues

The Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) has released a three-part guidance package to assist retirement plan fiduciaries in dealing with issues of missing or unresponsive participants. These issues typically involve terminated participants who have vested benefits remaining in an employer-sponsored plan, or terminating or abandoned plans. An EBSA news release accompanies the guidance package.

The guidance package consists of the following components.


Best Practices Guidance

The “Missing Participants – Best Practices for Pension Plans” element of the guidance describes steps that fiduciaries of retirement plans—including both defined benefit and defined contribution plans, such as 401(k) plans—can take to avoid incidents of missing or unresponsive participants, and to locate those with benefits due them that have not responded to efforts to locate them. This element also describes documentation that should be retained by retirement plans to show evidence of due diligence in meeting this fiduciary obligation.


Compliance Assistance Release 2021-01

The Compliance Assistance Release No. 2021-01—addressed to EBSA regional directors—describes the investigative and enforcement approach that the agency will take in assessing whether a defined benefit pension plan fiduciary has met its obligations to find and convey plan benefits that are due terminated participants. It is intended to guide the EBSA’s regional offices in facilitating voluntary compliance by retirement plan fiduciaries under the agency’s Terminated Vested Participants Project.


Field Assistance Bulletin (FAB) 2021-01

FAB 2021-01 describes the DOL’s temporary enforcement policy with respect to retirement plans’ use of a recently provided option that allows participant benefits in terminating or abandoned defined contribution plans to be transferred to the Pension Benefit Guaranty Corporation (PBGC) under its Defined Contribution Missing Participants Program.

There is currently a regulatory safe harbor for participant benefits in terminating or abandoned defined contribution plans to be transferred to IRAs, and—in limited circumstances—to be transferred to state unclaimed property funds. The EBSA envisions expanding this regulatory safe harbor to include the transfer of such benefits to the PBGC under its Defined Contribution Missing Participants Program.

Pending the expansion of this safe harbor, FAB 2021-1 states that it will not pursue violations against responsible plan fiduciaries of terminating defined contribution plans or qualified termination administrators (QTAs) of abandoned plans who transfer benefits to the PBGC in accordance with its missing participant regulations.

Opinion Letter Addresses Interaction Between ADEA and Individual Coverage HRAs

The Equal Employment Opportunity Commission (EEOC) has issued an Opinion Letter dated January 7, 2021, to clarify whether the Age Discrimination in Employment Act (ADEA) prohibition against requiring older workers to bear a greater proportion of the cost of a fringe benefit than younger workers will affect contributions to Individual Coverage Health Reimbursement Arrangements (ICHRAs).

The Opinion Letter reviews two scenarios: (1) a defined contribution amount (i.e., fixed), and (2) a contribution based on a percentage of premium cost (with premium cost increasing with age).

In its Opinion Letter, the EEOC clarifies that the ADEA prohibition applies to fringe benefit plans that require employee contributions. Because ICHRAs are funded completely by employer contributions, they are not subject to the ADEA prohibition, and an employer could offer an ICHRA under either of the scenarios described above. In addition, the EEOC clarified that the individual insurance coverage selected by the employee is not administered or selected by the employer, and, therefore, does not trigger a prohibition under ADEA. The EEOC opinion did not consider whether the contribution formulas would be permissible under the requirements of the final health reimbursement arrangement regulations, only the restrictions imposed by the ADEA.

IRS Proposes Regulations for Automatic Deadline Postponements for Federally Declared Disasters

The IRS has released a pre-publication version of proposed regulations that would create an automatic 60-day postponement of deadlines for certain time-sensitive, tax-related acts in circumstances of federally-declared disasters.

The tax-related acts covered by this guidance are defined in Internal Revenue Code Section 7508A. This is the authority that historically has been cited for postponement of deadlines in cases of localized disaster declarations. Such localized relief is announced by the IRS in news release form, describing the area affected—generally on a county-by-county basis—and describing the length of the deadline postponements.

These individually designated postponements may have a duration of as much as 120 days. Some are less. The new proposed regulations would create an automatic 60-day postponement in cases of federally declared disasters, ensuring that there would be at least 60 days to complete the tax-related acts covered by the guidance. The proposed regulations also define what that term “federally-declared disaster” will mean for purposes of this 60-day period.

In addition to extending certain tax filing and tax payment deadlines, the postponements addressed in this guidance include completion of the many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1), which include filing Form 5500 for retirement plans, completing rollovers, making retirement plan loan payments, etc.

A period of 60 days for submitting comments on the guidance, or to request a public hearing, will begin upon publication in the Federal Register.

CAA Requires Disclosure of Compensation Paid by Employer-Sponsored Health Plans

The Consolidated Appropriations Act, 2021 (CAA), signed into law on December 27, 2020, contained many provisions, including a transparency provision that requires the disclosure of compensation paid to brokers and consultants who provide services to employer-sponsored health plans.

Section 202 of the CAA amends the Employee Retirement Income Security Act (ERISA) Section 408(b)(2) to incorporate “reasonableness” compensation standards for group health plans, mirroring those that apply to retirement plans when negotiating contracts or service arrangements. These disclosure requirements are to become effective one year after the enactment of the CAA and require the Department of Labor to finalize the notice and comment rulemaking process by the same date. However, the CAA provides a transition rule under which these disclosure requirements will not apply to any contract executed prior to one year after the December 27, 2020, enactment of the CAA.

ERISA Section 408(b)(2) provides a statutory exemption from the party-in-interest prohibitions for any “reasonable” contract or arrangement with a “party-in-interest.” A broker or consultant receiving such compensation is considered a party-in-interest. Pursuant to regulations finalized in 2012, but applicable to retirement plans only, a contract was not considered “reasonable” unless the “covered service provider” disclosed its direct or indirect compensation. Similarly, Section 202 of the CAA requires the disclosure of compensation paid by group health plans—excluding qualified small employer health reimbursement arrangements (QSEHRAs)—in order to meet the reasonableness standard of ERISA and qualify for the statutory exemption. A group health plan covered by Section 202 of the CAA would include a welfare plan that provides medical care to an employee and/or his dependents through insurance, reimbursement, or otherwise. Generally, a group health plan will include a health reimbursement arrangement, a health flexible spending arrangement, and an employer payment plan.

Pursuant to Section 202 of the CAA, a “covered service provider” is defined as a service provider that enters into a contract or arrangement with the covered plan and reasonably expects $1,000 or more in direct or indirect compensation in connection with providing either brokerage or consulting services or both. The CAA defines brokerage and consulting services as follows.

Brokerage Services: Selection of insurance products (including vision and dental), recordkeeping services, medical management vendor, benefits administration (including vision and dental), stop-loss insurance, pharmacy benefit management services, wellness services, transparency tools and vendors, group purchasing organization preferred vendor panels, disease management vendors and products, compliance services, employee assistance programs, or third party administration services.

Consulting Services: Development or implementation of plan design, insurance or insurance product selection (including vision and dental), recordkeeping, medical management, benefits administration selection (including vision and dental), stop-loss insurance, pharmacy benefit management services, wellness design and management services, transparency tools, group purchasing organization agreements and services, participation in and services from preferred vendor panels, disease management, compliance services, employee assistance programs, or third party administration services.

If an entity determines that it is a covered service provider, it must disclose certain information to the plan fiduciary no later than the date that is reasonably in advance of the date on which the contract or arrangement is entered into, extended or renewed. A covered service provider must disclose a change of any information as soon as practicable, but not later than 60 days from the date on which the covered service provider is informed of such change, unless precluded by extraordinary circumstances. In addition, the covered service provider is required to provide information requested by a plan fiduciary or a covered plan administrator to comply with disclosure and reporting requirements pursuant to ERISA.

Finally, a contract or arrangement does not cease to be reasonable if the covered service provider acted in good faith and with “reasonable diligence” but makes an error or omission if the covered service provider discloses the information to the plan fiduciary as soon as practicable, but not later than 30 days from the date the covered service provider knows of the error or omission.

Section 202 of the CAA also provides that a plan fiduciary will not have engaged in a prohibited transaction if, upon learning of an error or omission, the plan fiduciary requests the relevant information in writing from the covered service provider. Moreover, if the plan fiduciary does not receive the information within 90 days of the request, it must notify the Secretary of Labor within 30 days following the earlier of

  • the covered service provider’s refusal to furnish the information; or
  • 90 days after the written request.

If a covered service provider fails to comply with a written request for information within 90 days, the plan fiduciary must determine whether to terminate or continue the contract or arrangement, or, if the notice relates to future services, the plan fiduciary must terminate the contract or arrangement.

Paycheck Protection Program to Re-Open Next Week

The Department of Treasury and Small Business Administration have jointly announced the reopening of the Paycheck Protection Program the week of January 11. Community financial institutions will begin offering First Draw PPP Loans Monday, January 11, and Second Draw PPP Loans starting Wednesday, January 13. Loans will be available to all participating lenders soon after.

Included in the announcement is new guidance that seeks to remove barriers for minority, underserved, veteran, and women-owned business, as well as interim final rules on amendments to the PPP and terms of Second Draw PPP Loans. Those available for a Second Draw PPP Loan generally include borrowers that

  • previously received a first draw PPP loan and will or have used the full amount only for authorized uses;
  • have no more than 300 employees; and
  • can demonstrate at least a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020.

PBGC Final Rule for Computing Union DB Plan Withdrawal Liability

The Pension Benefit Guaranty Corporation (PBGC) has issued final regulations that amend earlier agency guidance on the determination of withdrawal liability when a participating employer withdraws from a multiemployer (union) defined benefit pension plan. The regulations being amended are entitled, Allocating Unfunded Vested Benefits to Withdrawing Employers and Notice, Collection and Redetermination of Withdrawal Liability.

The amendments reflect certain statutory changes with respect to multiemployer plan withdrawal liability, including statutory changes in 2006 and 2014. They affect the determination of a withdrawing employer’s liability and annual withdrawal liability payment amount when the plan has had benefit reductions, benefit suspensions, surcharges, or contribution increases that must be disregarded. These amendments also provide simplified withdrawal liability calculation methods.


IRS Issues Deadline Relief for Mississippi Victims of Hurricane Zeta

The IRS has issued News Release MS-2021-01, announcing the postponement of certain tax-related deadlines for Mississippi victims of Hurricane Zeta, for hurricane-related events beginning October 28, 2020. In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1), which include filing Form 5500 for retirement plans, completing rollovers, making retirement plan loan payments, etc.

The area included in the relief at this time includes George, Greene, Hancock, Harrison, Jackson, and Stone counties. Taxpayers in other locations will automatically be added to the relief if the disaster area is further expanded.

Affected taxpayers with a covered deadline on or after October 28, 2020, and on or before March 1, 2021, will have until March 1, 2021, to complete the act(s). “Affected taxpayer” automatically includes anyone who resides or has a business located within the designated disaster area. Those who reside or have a business located outside the identified disaster area, but have been affected by the disaster, may contact the IRS at 866-562-5227 to request the relief.

Final Regulations Published on Independent Contractor Status

Final regulations, entitled Independent Contractor Status Under the Fair Labor Standards Act, issued by the Department of Labor’s Wage and Hour Division, are published in today’s Federal Register. They are described as being intended to clarify distinctions between “employee” and “independent contractor” status. The guidance was issued in proposed form in September 2020. Accompanying the final regulations is an agency news release.

IRS Revenue Ruling Addresses Tax Benefits Related to Paycheck Protection Program Loans

The IRS has issued Revenue Ruling (Rev. Rul.) 2021-02, guidance that addresses certain tax benefits associated with employer loans under the federal Paycheck Protection Program (PPP), an element of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The PPP is a Small Business Administration lending program created by the CARES Act to help small employers meet payroll and other expenses, as businesses and the nation dealt with the economic effects of the coronavirus (COVID-19) pandemic. Payroll expenses can include employer contributions to defined contribution and defined benefit retirement plans, as well as providing group healthcare coverage, including payment of insurance premiums. If certain conditions are met, PPP loans can be forgiven and treated as a grant.

Rev. Rul. 2021-02 addresses questions related to other potential tax ramifications and/or benefits associated with expenses for which PPP loans are taken, including loans that are ultimately forgiven.

Rev. Rul. 2021-02 retroactively amends the CARES Act, as well as supersedes post-CARES Act guidance (Notice 2020-32 and Rev. Rul. 2020-27). In doing so, it provides that no amount will be included in the gross income of a PPP participant as a result of a PPP loan being forgiven. No tax deduction for such PPP-related expenses is to be denied, and no other tax benefit reduced, as a result of that exclusion from gross income.

Final Regulations Published on Offset Retirement Plan Loan Rollovers

Published in today’s Federal Register are IRS final regulations that implement a provision of the 2017 Tax Cuts and Jobs Act (TCJA) that provides an extended period—beyond the normal 60 days—to roll over amounts of certain retirement plan loans that are offset and treated as distributions. These final regulations were released in pre-publication form on December 8, 2020.

A qualified plan loan offset (QPLO) is a plan loan in good standing that is offset as a result of plan termination or a participant’s severance from employment. The amount of such an offset loan can be rolled over to an IRA or another employer-sponsored retirement plan as late as the participant’s tax return deadline, including extensions, for the tax year when the loan was offset.

A plan loan that is offset for other reasons, such as for a failure to meet required payments while still employed, is not a QPLO and does not qualify for the extended rollover period. The final regulations provide details and examples to help make such determinations.

While these final regulations are considered “effective” with today’s publication, they are only required to be applied to loans that are offset on or after January 1, 2021. As a result, required reporting of QPLOs on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., will first apply to 2021 information returns that are provided to participants and to the IRS in January 2022.

However, taxpayers and information return filers may optionally apply the guidance and report accordingly as of the August 20, 2020, date when the guidance was published in proposed form.