The IRS has released Notice 2021-57, providing guidance for multiemployer defined benefit (DB) plans receiving funding relief under the American Rescue Plan Act of 2021. The Notice provides guidance regarding the plan sponsor’s ability to elect to delay designating a plan as being in endangered, critical, or critical and declining status or to delay updating the plan’s funding improvement or rehabilitation plan, and to extend the plan’s funding improvement or rehabilitation period. The guidance further explains the plan sponsor’s ability to amortize certain investments and other experience losses related to COVID-19 over a 30-year period in determining charges to the funding standard account.
The IRS has issued Notice 2021-58, which clarifies the application of extension under the “Joint Notification of Extensions of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak” and additional guidance issued by the Department of Labor’s Emergency Relief Notices. Moreover, this notice addresses the interaction between the Emergency Relief Notices and COBRA premium assistance available under the American Rescue Plan Act (ARPA).
Notice 2021-58 clarifies that the disregarded period for an individual to elect COBRA continuation coverage runs concurrent to the disregarded period to make the premium payment. Individuals generally have 60 days to elect COBRA and an additional 45 days to pay the premium. The Notices provide that if an individual elects COBRA continuation coverage within the 60-day period, the individual will have one year and 45 days after the date of the COBRA election to make the initial COBRA premium payment. However, if the individual elects COBRA continuation coverage outside of the initial 60-day COBRA election time frame, the individual will have one year and 105 days after the date the COBRA notice was provided to make the initial COBRA premium payment. Relating to subsequent premium payments, Notice 2021-58 provides that an individual has a maximum period of one year from the date the payment originally would have been due, including any applicable 30-day grace period.
The guidance also offers transition relief to those individuals who made an election outside of the initial 60-day period and whose payment is due before November 1, 2021. Under the transition relief, the premium payment is not required to be made before November 1, 2021, even if November 1, 2021, is more than one year and 105 days after the date the election notice was received. The transition relief applies so long as the individual makes the initial payment within one year and 45 days after the date of the election.
Notice 2021-58 reiterates that the extensions under the Emergency Relief Notices do not apply to the COBRA subsidy notices required under the ARPA or to the election of COBRA continuation coverage under the ARPA. Individuals may retroactively elect COBRA continuation coverage but will not be eligible for the COBRA subsidy.
Finally, the notice offers various examples of applying the extension.
Senator Patty Murray (D-WA) and Representative Lauren Underwood (D-IL) have introduced the Women’s Retirement Protection Act of 2021 in their respective chambers. The legislation is intended to address what some have identified as a gap between the retirement preparedness of women compared to their male counterparts—a gap seemingly exacerbated by the COVID-19 pandemic. Key provisions of the legislation are as follows.
- Require consent of marital partner for retirement plan loans or distributions
- Reduce long-term, part-time worker eligibility from three years during which an employee earns 500 hours as enacted under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, to two years (this proposal is included in other retirement reform legislation under consideration in the House and Senate)
- Require the providing of consumer protection-type information with financial product or service proposals
- Provide Department of Labor-administered grants to community-based organizations to improve the financial literacy of women and assist in obtaining qualified domestic relations orders
The IRS issued Notice 2021-40, extending guidance released under Notice 2020-42 and previously extended by Notice 2021-03, which provided temporary relief from the physical presence requirements for certain elections that are made by participants and beneficiaries in qualified retirement plans and other tax-favored retirement arrangements. The additional extension provides relief through June 30, 2022. This includes signatures of those making an election ordinarily needing to be witnessed in the physical presence of a plan representative or notary public, including spousal consent and certain forms of distribution from retirement plans.
Under this relief, live audio-video technologies may be used to facilitate remote notarization for distributions if meeting other election requirements and if this is consistent with state laws governing notarization. Also, for certain plan elections that must be witnessed by a plan representative, witnessing may be accomplished by live audio-video technology, but only if certain access, security, review, and confirmation conditions are met.
The IRS has received comments from several stakeholders requesting permanent relief from the physical presence requirement, or asking for additional time to comment. The IRS continues to request comments until September 30, 2021, particularly on cost burdens associated with the physical presence requirement, whether there is evidence that the temporary removal has resulted in fraud, how participant elections are being witnessed, and what procedures and guidance should be implemented to provide safeguards in lieu of existing requirements.
The IRS released a five-part Q&A on the temporary partial plan termination rules for qualified retirement plans in accordance with the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the Act). Generally, there is a presumption that a partial plan termination has taken place when an employer’s turnover rate is at least 20 percent during the plan year. Partial plan termination requires those participants covered under the portion of the plan that is terminated to be fully vested.
The Act codified that a partial plan termination does not occur “during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021, is at least 80 percent of the number of active participants covered by the plan on March 13, 2020.”
The Q&A clarifies the following points.
- “Active participant covered by the plan” is determined based upon a reasonable, good-faith interpretation of the term, applied in a consistent manner. When only part of the plan year falls between March 13, 2020, and March 31, 2021, the Act “applies to any partial termination determination for that entire plan year.” The IRS provides this example: “If a plan has a calendar year plan year, the 80% partial termination in [the Act] applies to both the January 1 to December 31, 2020 plan year and the January 1 to December 31, 2021 plan year because both plan years include a part of the statutory determination period of March 13, 2020, to March 31, 2021.”
- The Act does not require the same individuals to be covered on the beginning and end dates, only that the number counted on March 31, 2021, include all individuals who are active participants covered by the plan on said date.
- The reduction in the number of active participants is not solely limited to reductions related to the COVID-19 pandemic.
President Biden has signed into law the American Rescue Plan Act one day after the House of Representatives voted to pass the amended package. Several provisions directly affect tax-advantaged savings arrangements.
Following Senate passage on Saturday, the House of Representatives has passed by a vote of 220-211 the American Rescue Plan Act of 2021 to provide additional relief to address the continued impact of COVID-19. Included in the package are several items that would affect retirement and health benefits.
Defined Benefit Pension Plan Relief
- Extends the single-employer plan funding shortfall amortization period from 7 to 15 years, to be applied to all plans beginning with 2022 plan years and, by election, retroactive to 2019 plan years. The amended bill provides plan sponsors with more flexibility than earlier versions which would have required use of the 15-year amortization schedule starting with 2020 plan years.
- Extends single-employer pension plan funding stabilization percentages, as follows.
- The 10 percent interest rate corridor would be reduced to 5 percent, effective in 2020.
- The phase-out of the 5 percent corridor would be delayed until 2026, at which point the corridor would, as under current law, increase by 5 percentage points each year until it attains 30 percent in 2030, where it would remain.
- A 5-percent floor would be placed on the 25-year interest rate averages.
- The amended bill now allows plan sponsors to elect not to apply the updated percentages until 2022.
- Extends SECURE Act funding relief for certain community newspapers to additional community newspapers
- Permits a temporary delay in the designation of a multiemployer (union) plan as being in endangered, critical, or critical-and-declining status
- Permits a plan in endangered or critical status for a plan year beginning in 2020 or 2021 to extend its rehabilitation period by five years
- Permits multiemployer plans to amortize investment losses over 30, rather than 15, years, as was granted to plans for 2008 and 2009 losses (for plan years ending on or after February 29, 2020)
- Creates a financial assistance program under which cash payments would be made by the Pension Benefit Guaranty Corporation to financially troubled multiemployer plans to continue paying retiree benefits; such payments are to be made by Treasury transfer
Absent from the final bill was a provision that would have frozen cost-of-living adjustments (COLAs) for the annual additions limit and compensation cap after 2030.
Health Benefit Provisions
The American Rescue Plan Act also contains provisions to assist employees who have lost employer-provided health insurance benefits and employers that have provided benefit continuation assistance.
- Provides premium assistance to cover 100 percent of the cost of COBRA continuation coverage for eligible individuals and families from April 1, 2021, through September 30, 2021. This is an increase from prior proposals for premium assistance that would have covered 85 percent of the cost of continuation coverage. Premium assistance is available if health coverage was lost due to involuntary termination of employment or a reduction in hours. It is not available when an employee has a voluntary termination of employment.
- Extends the COBRA election period for individuals who had not currently enrolled in COBRA who are otherwise assistance-eligible individuals.
- Requires health plans to provide additional notifications on the availability of the premium assistance and extended election periods; specifies that the Department of Labor must draft and issue model notice language within 30 days following the enactment of the Act.
- Provides a refundable payroll tax credit to reimburse employers and plans that paid a premium on behalf of an assistance-eligible individual
- For the 2021 plan year, the dependent care flexible spending arrangement (FSA) contribution limit will increase from $5,000 to $10,500 (half that dollar amount per parent if married filing separately)
President Biden is expected to sign the bill Friday.
The Small Business Administration (SBA) has issued an interim final rule effective March 4, 2021, that would allow business owners who file an IRS Form 1040, Schedule C, to use gross income rather than net earnings from self-employment in determining payroll costs for Paycheck Protection Program (PPP) loans. Previously, PPP rules defined payroll costs for individuals who file an IRS Form 1040, Schedule C, as payroll costs (if there are employees) plus net profits, which is net earnings from self-employment.
This change would affect many sole proprietors who have been effectively excluded from the PPP, especially those with very little or negative net profit, many of which are located in underserved communities. Business owners with employees can use either net profit or gross income minus certain employee benefit and wage expenses.
PPP loans were initially created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act to assist small employers in retaining employees on their payrolls in a time of financial stress during the coronavirus (COVID-19) pandemic. If certain conditions are met, PPP loans can be forgiven and treated as a grant. Among the conditions for full forgiveness is a requirement that 60 percent of loan proceeds be used for payroll expenses. These expenses can include not only wages and salaries, but also employer contributions to defined contribution and defined benefit retirement plans. Expenses can also include providing group healthcare coverage, including payment of insurance premiums.
To mitigate the risk of fraud or abuse, if a borrower that is Schedule C filer elects to use gross income to calculate his or her loan amount on a First Draw PPP Loan and more than $150,000 in gross income was reported on the Schedule C that was used to calculate the loan amount, the borrower will not automatically be deemed to have made the statutorily required certification concerning the necessity of the loan request in good faith. The borrower may be subject to a certification review by the SBA.
The interim final rule also removes exclusions for small business owners with prior non-fraud felony convictions and those struggling to make student loan payments from participating in the program. Unless extended, the PPP is currently set to expire on March 31, 2021.
The Departments of Labor, Health and Human Services, and Treasury (the Departments) have issued “FAQs About Families First Coronavirus Response Act and Coronavirus Aid, Relief, and Economic Security Act Implementation Part 44” (the FAQs).
The FAQs address the requirement to cover items and services related to diagnostic testing, qualifying preventive services, and recommended immunizations of COVID-19 without the imposition of cost sharing, prior authorization, or other medical management requirements. In particular, the FAQs provide that group health plans or issuers
- cannot impose medical management criteria, including medical screening, to determine coverage of a diagnostic test;
- may distinguish between an individual clinical assessment versus a test for the general workplace, health and safety, or for public health surveillance;
- must cover diagnostic tests provided through testing sites administered by a state or locality;
- must cover point of care tests without cost sharing;
- must cover immunizations with a recommendation in effect from the Advisory Committee on Immunization Practices (ACIP);
- must begin providing coverage for qualifying preventive services no later than 15 business days after the date the United States Preventive Services Task Force or ACIP make an applicable recommendation;
- cover the immunization fee even when not billed for the immunization; and
- provide immunizations in accordance with immunization specific recommendations, regardless of priority.
Additionally, the FAQs provide that the Departments will not take enforcement action against a group health plan or issuer that fails to provide an advance notice of modification to a Summary of Benefits Coverage (SBC), so long as the group health plan or issuer provides the notice as soon as practicable.
The FAQs further clarify that employers are permitted to offer benefits for COVID-19 immunizations and its administration under an Employee Assistance Program (EAP) or through an onsite medical clinic that constitute an excepted benefit.
Finally, the FAQs provide information about the reimbursement of COVID-19-related services for the uninsured from the federal government.
The House of Representatives has passed by a vote of 219-212 the American Rescue Plan Act of 2021 to provide additional relief to address the continued impact of COVID-19. Noteworthy retirement and health provisions include the following.
- Freezing of cost-of-living adjustments after 2030 for retirement plan annual additions and compensation cap limits
- Extending defined benefit single-employer plan funding shortfall amortization period from 7 to 15 years beginning with 2020 plan years
- Extending single-employer pension plan funding stabilization percentages, with the 10 percent interest rate corridor reduced to 5 percent effective in 2020 and phase-out of the 5 percent corridor delayed until 2026
- Health benefit provision granting premium assistance to cover 85 percent of the cost of COBRA continuation coverage, and extending the COBRA election period
- Refundable tax credit reimbursing employers and plans that paid a subsidized portion of the premium on behalf of an assistance-eligible individual
The Senate is likely to take up and debate later this week a version of the bill that, once passed, would need to return to the House. The Senate parliamentarian is also expected to weigh in on whether multiemployer pension bailout relief and premium subsidies for laid-off workers through COBRA can be included in the bill. While legislation created through the budget reconciliation process can be passed through the Senate with a simple majority vote—additional restrictions apply—including that provisions be predominantly fiscal in nature.