COVID-19

Pandemic Relief Package Includes Multiple Retirement, Health Benefit Provisions

Legislation proposed by the House Ways and Means Committee to provide COVID-19 pandemic relief and economic stimulus includes several items that would affect retirement and health benefits. Among them are the following.

COLA Freeze for Certain Retirement Plan Limitations

The legislation would freeze cost-of-living adjustments (COLAs) for the following retirement plan limitations after 2030, to reduce federal tax expenditures in keeping with the budget reconciliation process under which this legislation is being managed.  (The freeze would not apply to collectively bargained plans.)

  • Annual additions limit for defined contribution plans ($58,000 for 2021)
  • Annual additions limit for defined benefit pension plans ($230,000 for 2021)
  • Compensation cap for determining retirement plan allocations ($290,000 for 2021

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 2020 plan years and, by election, 2019 plan years
  • Extends single-employer pension plan funding stabilization percentages, as follows
  • The 10% interest rate corridor would be reduced to 5%, effective in 2020.
  • The phase-out of the 5% 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% in 2030, where it would remain.
  • A 5% floor would be placed on the 25-year interest rate averages.
  • Extends the SECURE Act funding relief for certain community newspapers to additional community newspapers
  • Permits a temporary delay in 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 5 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 to be made by Treasury transfer

Health Benefit Provisions

The legislation 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 85% of the cost of COBRA continuation coverage for eligible individuals and families, effective the first of the month after enactment, through September 31, 2021
  • Extends the COBRA election period
  • Provides a refundable payroll tax credit to reimburse employers and plans that paid a subsidized portion of the premium on behalf of an assistance-eligible individual

A vote by the full House of Representatives is expected by the week of February 22. If passed, the legislation would be referred to the Senate for its consideration.


IRS Updates FAQs on Employer Tax Credits for COVID-Related Paid Leave

On January 28, 2021, the IRS posted updated Frequently Asked Questions (FAQs) on COVID-19-related employer tax credits for paid leave that is provided by certain small- and mid-size businesses. These tax credits were initially created by the Family First Coronavirus Response Act that was signed into law in March 2020.

The FAQ update clarifies that the Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Expansion Act (EFMLEA) requirements that employers provide emergency leave to employees unable to work or telework applied only to periods of leave after March 31, 2020, and before January 1, 2021. However, the Consolidated Appropriations Act, 2021—enacted in December 2020—extended the employer tax credit qualifying period for such paid leave from the initial expiration of December 31, 2020, through March 31, 2021.

The updated FAQs clarify that while employers are not required to provide paid sick and family leave to employees after December 31, 2020, eligible employers that voluntarily provide such benefits that meet the emergency leave requirements may claim tax credits for leave-paid wages provided through March 31, 2021.


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.

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.


DOL Updates Q&As for Pandemic-Related Paid Leave

The Department of Labor’s (DOL’s) Wage and Hour Division has issued an update to its question-and-answer guidance on paid employee leave under provisions of the Families First Coronavirus Response Act (FFCRA). Specifically, this update includes the addition of the following.

Q&A-104 provides that employers are not required to provide FFCRA leave after December 31, 2020. However, employers may still provide such leave voluntarily. Employer tax credits for paid sick leave and expanded family and medical leave voluntarily provided to employees until March 31, 2021, are available for those employers that voluntarily offer FFCRA leave after December 31, 2020.

Q&A-105 provides that employees whose employers granted FFCRA leave but did not pay it may file complaints with the DOL’s Wage and Hour Division. Q&A-105 also clarifies that the statute of limitations for both the paid sick leave and expanded family and medical leave provisions of the FFCRA is two years from the date of the alleged violation (or three years in cases involving alleged willful violation).


Washington Pulse: Spending Bill Contains Coronavirus Relief

On December 21, 2020, Congress passed additional measures to provide relief from the widespread economic effects of the coronavirus pandemic. On December 27, 2020, the president signed the bill into law. While both houses of Congress have been working on various provisions since the CARES Act was enacted last March, no agreements were reached until now. The coronavirus provisions are contained in a larger spending bill that funds the federal government through next September. The bill, entitled the Consolidated Appropriations Act, 2021 (CAA), contains relief for various industries, small businesses, and individuals. Although there is no broad employee benefit relief, the items discussed below may interest those that work with employers and with employer-sponsored plans.

Paycheck Protection Program Relief

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided significant relief to businesses adversely affected by the pandemic. The Paycheck Protection Program (PPP) allowed qualifying entities to borrow money through approved lenders, which are subject to the Small Business Administration’s (SBA’s) rules and oversight. Demand for the PPP funds was so great that last spring Congress approved a further infusion of federal aid to keep the program running. Employers who borrow PPP assets may have the loan forgiven if they follow the program rules, which generally include using the funds for payroll and certain other expenses, including funding a business’s retirement plan.

The CAA infuses nearly $300 billion of additional funding into the PPP to support small businesses. These are some of the significant provisions.

  • A second round of forgivable loans is available.
    • Businesses with 300 or fewer employees that have experienced at least a 25 percent revenue loss in any quarter of 2020—versus the same quarter in 2019—are eligible.
    • In addition to most payroll costs, expenses can now also include supplier costs and the cost of providing coronavirus protection (e.g., adding drive-through service or upgrading air filtration).
    • Business expenses paid with PPP loans are tax deductible.
    • There is a new simplified loan forgiveness process for PPP loans of $150,000 or less.
  • Funding is included for independent live-venue operators, including certain movie theaters and museums that were affected by COVID-19 restrictions.

Medical Expense Deduction Floor Reduced

The annual amount of unreimbursed medical expenses that individuals must incur in order to get a deduction has been permanently reduced from 10 percent of adjusted gross income to 7.5 percent. This provision applies to taxable years beginning on or after January 1, 2021.

Disaster Relief: Distributions and Loans

The CAA provides relief for those who have experienced an economic loss because of a “qualified disaster” and whose principal residence is located in a presidentially declared disaster area. This provision does not apply to any disaster declarations that are made only because of COVID-19. But this relief closely mirrors the coronavirus-related distribution (CRD) rules found in the CARES Act.

  • Individuals can distribute up to $100,000 for disasters that begin on or after December 28, 2019, and that end on or before December 27, 2020 (the date the CAA was signed into law). The disaster distribution must be taken within 180 days of December 27, 2020. If an individual is affected by multiple disasters, this dollar limit applies separately to each disaster.
  • As with CRDs, these disaster distributions
    • are not subject to a 10 percent early distribution penalty tax,
    • are taxed equally over 3 years (unless the taxpayer chooses taxation in the distribution year), and
    • may be repaid within 3 years of the distribution date.
  • Individuals can take distributions from IRAs and employer-sponsored retirement plans. Distributions from 401(k), 403(b), governmental 457(b), and money purchase plans are not treated as “eligible rollover distributions” for certain purposes: specifically, they are not subject to 20 percent withholding or to Internal Revenue Code (IRC) Sec. 402(f) notification.
  • Individuals who meet the following requirements may repay hardship distributions or first-time homebuyer distributions taken to purchase or construct a principal residence.
    • The individual received the distribution 180 days before the disaster (defined by FEMA) to 30 days after the disaster ended.
    • The principal residence is in the disaster area.
    • The individual did not use the distribution because of the disaster.
  • Loans may be taken for up to $100,000 or the participant’s vested account balance, whichever is less. This increased limit is available to eligible participants to who take a loan within 180 days following December 27, 2020.
  • Loan repayments may generally be delayed for a year (or if later, 180 days after December 27, 2020). But subsequent payments must reflect any interest accrued during the delay. This extended deadline applies to loan repayments that are due within the period beginning on the first day of the disaster and ending 180 days following December 27, 2020.

Although new disaster distributions or loans may be hard to process because the CAA was enacted so late in the year, these provisions may provide relief for qualified individuals who have already taken distribution or loans in 2020. As with CRDs, these disaster-related provisions are also optional for employer-sponsored retirement plans.

Money Purchase Plans May Offer Coronavirus-Related Distributions

The CARES Act authorized qualified individuals to take CRDs from IRAs and certain defined contribution retirement plans by December 30, 2020. Specifically, the CARES Act created a permissible distribution trigger for eligible retirement plans, including 401(k) plans, 403(a) and (b) plans, governmental 457 plans, profit-sharing plans, and IRAs. But this relief did not include money purchase pension plan assets, which are subject to in-service distribution restrictions. So the CAA amended the CARES Act to include money purchase pension plans in the types of plans that are treated as meeting the plan distribution requirements of IRC Sec. 401(a). This provision allows employers with money purchase pension plans to permit eligible participants to take CRDs as if such plans were originally included in the CARES Act.

Partial Plan Termination Relief

The coronavirus pandemic has caused countless employers to lay off or furlough portions of their workforce. Many of these employers took this action to preserve their businesses, hoping that they could rehire those workers once the economy started to recover. But under current rules, a partial plan termination generally occurs when there is a workforce reduction of more than 20 percent. This results in 100 percent vesting for the affected workers. To avoid treating all such temporary workforce reductions as partial plan terminations, the CAA changes the rules to give employers additional time to rehire workers. If the active participant count as of March 31, 2021, is at least 80 percent of the active participant count at the time the coronavirus national emergency was declared (March 13, 2020), a plan will not be treated as having a partial plan termination.

Qualified Future Transfer Elections

The CAA provides relief for certain defined benefit plan excesses transferred to health benefit accounts. This relief allows employers to make an election to end an existing transfer period if the election is made by December 31, 2021. Qualified future transfers allow excess pension assets to be transferred to health benefit accounts to pay for health or life insurance costs if certain requirements are met—including a minimum funding requirement.

Healthcare Provisions

Flexible spending and dependent care accounts. The CAA gives employers greater flexibility in permitting employees to carry over unused amounts in both their health flexible spending arrangements (FSAs) and their dependent care FSAs. All leftover amounts from 2020 can be carried forward to 2021. Employees can also carry over 2021 amounts to 2022. This is in addition to the CAA extending the normal grace period from 2½ months to 12 months for plan years ending in 2020 and 2021. Employees who stop participating in either kind of plan during calendar year 2020 or 2021 can continue to receive reimbursements through the end of the plan year in which they stopped. And finally—in addition to other minor changes—for plan years ending in 2021, participants in health and dependent care FSAs may modify their contributions without a change in status. Employers who choose to implement these optional provisions must operationally comply with them until they amend their plans to reflect the change.

Preventing surprise medical billing. A group health plan or a health insurance issuer that offers group or individual health insurance coverage to cover emergency services is required to provide such services without the need for prior authorization or other limitations, even if the healthcare provider is not considered a participating (in-network) provider. Any limitation that a plan or coverage contains cannot be more restrictive than requirements that apply to emergency services received from participating providers and facilities.

Other healthcare provisions. The CAA contains several other healthcare-related changes that may benefit employers or employees.

  • Families First Coronavirus Response Act (paid sick and family leave credit) extended This credit was set to expire on December 31, 2020, but the CAA extends this credit until March 31, 2021. The CAA also makes other minor changes.
  • Paid family and medical leave employer credit extended – This employer credit was also due to expire on December 31, 2020. The CAA extends the credit to December 31, 2025.

Education-Related Provisions

  • The CARES Act permitted employers to provide tax-free student loan repayment benefits of up to $5,250 to employees through 2020. The CAA now extends this benefit through December 31, 2025.
  • The CAA simplifies the Free Application for Federal Student Aid (FAFSA) program to make the application process easier and to make financial aid more predictable.
  • The CAA increases the income that individuals can earn and still receive the Lifetime Learning Credit—while repealing the deduction for qualified tuition and related expenses.

Looking Ahead

At nearly 5,600 pages, Ascensus will continue to analyze the bill for items pertinent to providers of retirement, healthcare, and education products and services. In addition, while the current Congressional session is winding down, many lawmakers have suggested that more coronavirus relief is needed. Ascensus will continue to monitor legislative activity pertaining to such relief. Visit ascensus.com for the latest information.

Click here for a printable version of this issue of the Washington Pulse.


Ascensus Insights on Employer Match Changes Featured in WSJ

Ascensus’ data on employer changes to retirement plan matching contributions is highlighted in a recent Wall Street Journal feature​. The article notes that more employers that had decreased or suspended their match over the course of the COVID-19 pandemic are “reversing course as their businesses rebound.”

“At Ascensus, 21% of the employers that use its 401(k) administration services suspended their 401(k) contributions between March 1 and Sept. 30, and two-thirds of those have since restarted them,” notes the article.

“They are going back to what they had before,” states Pam Sandelin, vice president of insights and analytics at Ascensus. She notes that our data suggests employers “are trying to help employees navigate the uncertainty of Covid” and keep their retirement savings on track.


IRS Clarifies Extended Due Date for Single-Employer DB Plan Contributions

The IRS clarified today in IRS Notice 2020-82 that contributions to single-employer defined benefit plans due January 1, 2021, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act are considered timely if they are made no later than Monday, January 4, 2021.

The CARES Act delayed both the annual and quarterly minimum funding contributions for single-employer defined benefit plans to January 1, 2021. While plan sponsors appreciated this delay, this raised a concern, as January 1, 2021, is a federal holiday falling on a Friday. While tax deadlines falling on a federal holiday generally are considered performed timely if they are performed on the next day that isn’t a Saturday, Sunday, or legal holiday, it was unclear if this extension to January 1, 2021, would be considered performed timely if completed on January 4, 2021.

 


Treasury and SBA Announce Simpler PPP Loan Forgiveness Form

The Treasury Department and the Small Business Administration (SBA) have issued a joint press release and Interim Final Rule announcing a “simpler” version of the form used by recipients of Paycheck Protection Program (PPP) business loans of $50,000 or less to request loan forgiveness.

The PPP is an SBA lending program created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help small employers meet payroll and other expenses as businesses and the nation have been dealing with the economic effects of the coronavirus (COVID-19) pandemic.

Importantly, if certain conditions are met, PPP loans can be forgiven and treated as a grant. Payroll expenses can include employer contributions to defined contribution and defined benefit retirement plans, as well as providing group health care coverage, including payment of insurance premiums.

The “simpler” PPP Loan Forgiveness Application Form 3508S and its instructions is intended for borrowers who received a PPP loan of $50,000 or less and did not, together with its affiliates, receive PPP loans totaling $2 million or greater. The standard Loan Forgiveness Application Form 3508 and EZ Loan Forgiveness Application Form 3508 EZ remain available for borrowers to use when applicable.

All of the loan forgiveness application forms are set to expire October 31, 2020.