Defined contribution plan

Industry Welcomes Final Regulations for Default Electronic Delivery of Retirement Plan Disclosures

Scheduled for publication in the May 27th Federal Register are final regulations on default electronic delivery of retirement plan disclosures. These final regulations, issued by the Department of Labor’s Employee Benefits Security Administration (EBSA), provide an additional safe harbor that may enhance the ability of plan administrators and their service providers to deliver DOL-required disclosures to participants and beneficiaries of ERISA plans by electronic means.

An accompanying news release and EBSA fact sheet cite the presidential Executive Order of August, 2018, which directed the agency—in part—“to focus on reducing the costs and burdens that retirement plan disclosures impose on employers and others.” Proposed regulations were issued in October 2019, and public comments solicited at that time contributed to shaping these final regulations.

This guidance officially becomes effective 60 days following publication in the Federal Register. But the EBSA Fact Sheet notes that retirement plans may rely on these regulations immediately; no enforcement action will be taken against a plan for such premature reliance due to the impact of the coronavirus (COVID-19) pandemic. (The regulations’ preamble notes that the agency has chosen not to extend the guidance to welfare benefit plans at this time.)

Following are selected observations from an initial review of the final regulations and EBSA fact sheet.

The new safe harbor

The electronic delivery safe harbor can be satisfied by either of two means.

  • Website posting: A plan administrator is allowed to post covered documents (documents required to be furnished by ERISA Title 1 plans) on a website if appropriate notification of Internet availability is furnished to the electronic addresses of covered individuals.
  • Email delivery: A plan administrator may send covered documents directly to the electronic addresses of covered individuals, with the covered documents either in the body of the email or as an attachment to the email.

First step to e-delivery is on paper

As in the proposed regulations, a plan administrator intending to deliver some, or all, covered documents electronically must first notify participants—in a paper communication—of this intention.

Paper option remains

Not unexpected, recipients can opt out of receiving covered documents electronically and receive them in paper form, without charge. However, plan administrators need not (but may) offer recipients a “pick and choose” option to receive some documents in paper form and some electronically; the plan can require that an opt-out be “global;” (all or nothing). Conversely, a plan that uses electronic means to deliver some covered documents need not use electronic means for all.

Combining notices of Internet document postings

Certain notices of Internet postings can be combined in a single annual notice of Internet availability (NOIA), including the following.

  • Summary Plan Description (SPD)
  • Documents that must be provided annually; (e.g., Summary Annual Report (SAR))
  • Other documents authorized by the Secretary of Labor
  • Notices required by the Internal Revenue Code if authorized by the Secretary of the Treasury; (e.g., automatic contribution arrangement (ACA) notice)

Flexibility in definition of “website

The final regulations acknowledge the importance of including new and developing technologies in applying the guidance, as long as the safe harbor requirements can be met. Mobile applications qualify.

Informing participants of document posting

If covered documents are to be posted to a website, recipients must be able to receive a plan’s NOIA. An electronic address to which a NOIA is sent may be an email address. If it is a phone number, it must be capable of receiving written/text messages (plan administrators must confirm this). Delivery of a NOIA by voice message does not meet this requirement.

Availability of web-posted documents

A covered document posted to a plan’s website must remain there at least one year, or—if longer—until superseded (replaced by) an updated version of the same document.

Document description accompanying a NOIA
A NOIA alerting a participant to an Internet document posting need not include a separate description of the document, if the document’s name—included in the NOIA—would reasonably convey the nature of the document. If not (e.g., a blackout notice), a description of the document being posted to the Internet is required.

Readability

Detailed guidelines for readability in the proposed regulations (using the Flesch reading ease score) were removed, and are not included in the final regulations. The final regulations more simply require that communications under this guidance be “written in a manner calculated to be understood by the average plan participant.”

Accessing and Understanding

The plan administrator has no affirmative obligation under the final regulations to monitor whether covered individuals have visited a website to view posted information. Unaddressed—but noted, in reference to a recent ERISA court case—is the issue of whether a recipient has read, understood, and has “actual knowledge” of the information posted.

Special rule for severance from employment from plan sponsor

Procedures should be in place to ensure that a plan administrator will continue to have a valid electronic address to which notices can be provided after severance from employment.

Transition relief, prior guidance superseded

For an 18-month period following the effective date of these final regulations, retirement plans can also rely on prior guidance for the delivery of certain covered disclosures. This guidance includes Field Assistance Bulletin (FAB) 2006-003, FAB 2008-003 (Q&A 7), and Technical Release 2011-03R. Thereafter, the relevant portions of the prior guidance are superseded by the final regulations.

Reasonable procedures for compliance

These final regulations add “technical maintenance” of websites as a circumstance that warrants consideration of facts and circumstances, when—for a reasonable amount of time—disclosure documents may be unavailable to a recipient.

We’re currently preparing a Washington Pulse article to provide further analysis of the final e-delivery regulations, and it will be posted to the the ascensus.com newsroom once available.

 


House Passes More Pandemic Aid; Quick Senate Action Not Expected

The House of Representatives late Friday passed H.R. 6800, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, providing additional aid to many who are adversely affected by the novel coronavirus (COVID-19) pandemic. The bill also contained non-COVID-19-related provisions considered likely to prove controversial in the Senate.

Unlike the Families First Coronavirus Response Act, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act—both of which moved fairly rapidly through Congress—the HEROES Act has been called “dead on arrival” by Senate Majority Leader Mitch McConnell (R-KY), who—with Republican colleagues—envisions a much less comprehensive bill. Sen. McConnell has also expressed a desire to move slowly and gauge the effectiveness of earlier relief. Most expect no additional COVID-19-related legislation to be enacted before sometime in June.

As announced last week, the House bill contains provisions for the following.

  • Continued financial assistance to unemployed workers
  • Financial assistance to state, local, tribal, and territorial government entities
  • Waiver of 2019 required minimum distributions (RMDs)
  • Waiver of the 60-day and one-rollover-per-12-month rules for otherwise-required RMDs waived for 2019 and 2020
  • Amendments to the Emergency Family and Medical Leave Expansion Act
  • Relief for participants in health flexible spending arrangements (FSAs)
  • Codifying the ability of employers to deduct certain expenses covered by loans that are forgiven under the SBA Paycheck Protection Program
  • Providing money purchase pension plans the early distribution and loan relief that the CARES Act provided to other qualified retirement plans
  • A new retirement “composite plan,” with features that include those of 401(k) and defined benefit (DB) pension plan
  • Relief for multiemployer (collectively-bargained) DB pension plans
  • Amortization relief for single employer DB pension plans
  • Further funding relief (beyond that provided by the SECURE Act) to certain community newspaper DB plans
  • Aid to certain federal agencies affected by the pandemic, including the Departments of Homeland Security, Interior, Health and Human Services, Labor, Transportation, Housing and Urban Development, and Education
  • Enhanced Medicare and Medicaid benefits
  • Medical supply chain enhancement
  • Testing and reporting enhancement
  • National strategic stockpile for pandemic response
  • Bankruptcy protections for homeowners
  • Certain student loan relief and protections
  • Additional aid to veterans during the COVID-19 pandemic
  • Federal election early and by-mail voting procedure

House Democrats Introduce Next Coronavirus Relief Bill

In an atmosphere more partisan than earlier coronavirus relief efforts, the Democratic caucus of the House of Representatives has released a bill to fund another round of assistance as the nation attempts to cope with the health and economic effects of the coronavirus (COVID-19) pandemic. This legislation, as yet unnumbered, is being referred to as the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act.

Three prior bills—which provided direct cash benefits to Americans, created a small business lending program to help employers retain employees and provided enhanced access to tax-favored retirement savings—were dealt with quickly by Congress and signed into law by President Trump. This round of relief has been predicted to provoke greater resistance among lawmakers who are averse to expanding the federal deficit. There is also expected to be less common ground in the House and Senate—and Democrat and Republican—priorities for additional relief.

The House-released bill contains provisions for the following.

  • Continued financial assistance to unemployed workers
  • Financial assistance to state, local, tribal, and territorial government entities
  • Waiver of 2019 required minimum distributions (RMDs)
  • Waiver of the 60-day and one-rollover-per-12-month rules for otherwise-required RMDs waived for 2019 and 2020
  • Amendments to the Emergency Family and Medical Leave Expansion Act
  • Relief for participants in health flexible spending arrangements (FSAs)
  • Codifying the ability of employers to deduct certain expenses covered by loans that are forgiven under the SBA Paycheck Protection Program
  • Providing money purchase pension plans the early distribution and loan relief that the CARES Act provided to other qualified retirement plans
  • A new retirement “composite plan,” with features that include those of 401(k) and defined benefit (DB) pension plan
  • Relief for multi-employer (collectively-bargained) DB pension plans
  • Amortization relief for single employer DB pension plans
  • Further funding relief (beyond that provided by the SECURE Act) to certain community newspaper DB plans
  • Aid to certain federal agencies affected by the pandemic, including the Departments of Homeland Security, Interior, Health and Human Services, Labor, Transportation, Housing and Urban Development, and Education
  • Enhanced Medicare and Medicaid benefits
  • Medical supply chain enhancement
  • Testing and reporting enhancement
  • National strategic stockpile for pandemic response
  • Bankruptcy protections for homeowners
  • Certain student loan relief and protections
  • Additional aid to veterans during the COVID-19 pandemic
  • Federal election early and by-mail voting procedure

AICPA Delays Required Implementation of New Reporting Standards for Plans Subject to ERISA

The American Institute of Certified Public Accountants (AICPA) has issued Statement of Auditing Standards (SAS) Number 141, which provides for a delay in effective dates for several SAS’s, including SAS 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA.

As previously reported in an Ascensus Retirement Spotlight, SAS 136 clarifies and formalizes best practices that auditors must adhere to when conducting an audit of ERISA employee benefit plans as part of the annual Form 5500 filing, and requires a new two-pronged opinion on the plan’s financial statements. SAS 136 also provides that the new rules are to apply for plan years ending on or after December 15, 2020, and early implementation is not allowed.

SAS 141, however, amends the effective date to December 15, 2021. Additionally, it amends SAS 136 to no longer preclude early implementation.


Oregon Storm Victims Receive Tax-Related Deadline Relief

The IRS has issued news release OR-2020-01, announcing an extension of time to complete certain time-sensitive tax-related acts as a result of storms, flooding, mudslides, and landslides in Oregon. At this time, the only area to which the relief applies is Umatilla County, as well as the Confederated Tribes of the Umatilla Indian Reservation. Under this guidance, certain tax-related acts with deadlines falling on or after February 5, 2020, and before April 1, 2020, are extended through July 15, 2020. (This guidance is in addition to the nationwide coronavirus-related relief already available to taxpayers for time-sensitive tax act completions that are due on or after April 1, 2020, and before July 15, 2020, which are extended through July 15.)

OR-2020-01 specifically notes that this extension applies to IRA contributions, as well as to the numerous time-sensitive acts described in Treasury Regulation 301.7508A-1(c)(1). These acts include completion of rollovers or recharacterizations, correction of certain excess contributions, making plan loan payments, filing Form 5500, and certain other acts under this regulation.

This relief applies specifically to residents of the identified area, to those whose businesses or records necessary to meet a covered deadline are located there, and to certain relief workers providing assistance following the disaster events. Any individual visiting a covered disaster area who is injured or killed as a result of the events is also entitled to deadline relief.

Affected taxpayers who reside, or have a business located, outside the covered disaster area are required to call the IRS disaster hotline at 1-866-562-5227 to request relief.


IRS Q&As Provide Details on Implementing CARES Act Provisions

The IRS’ posting earlier this week of new question-and-answer (Q&A) guidance on the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, was welcomed by those who administer retirement savings arrangements. The guidance provides some additional details on the IRA and retirement plan relief provided by the CARES Act.

The CARES Act is intended to aid those affected by the coronavirus (COVID-19) pandemic, which has affected the health and economic welfare—or both—of many Americans. It offers special retirement account distribution, loan access, tax treatment, and repayment options, as well as penalty tax relief. The CARES Act resembles, in most respects, legislation enacted in prior years to aid victims of hurricanes and other major disasters.

The new IRS Q&A-format guidance summarizes the special relief granted to IRA owners and retirement plan participants and, in some cases, provides new and clarifying information on dimensions of the relief. The following is a summary of the content of each Q&A, in numeric order.

  1. The relief includes expanded distribution options and favorable tax treatment for up to $100,000 (in aggregate) distributed from IRAs and employer-sponsored retirement plans. This includes exemption from the 10 percent early distribution penalty tax, ratable taxation over three years (unless electing current-year taxation), and a three-year period for repayment to an IRA or employer plan.
  2. This Q&A promises additional CARES Act guidance “in the near future.” This is welcome news because the CARES Act is similar, but not identical to, previous disaster relief legislation and previous IRS disaster guidance (Notice 2005-92, issued following Hurricane Katrina) is being looked to as an indication of how CARES Act-specific guidance may look. The IRS has further promised that CARES Act guidance will apply the principles of Notice 2005-92 to the extent that the CARES Act and the post-Hurricane Katrina legislation’s provisions align.
  3. Coronavirus-related distributions (CRDs) are IRA or employer plan distributions taken by qualified individuals. These are persons who have (or whose spouse or dependent has) been diagnosed with COVID-19, have been quarantined due to the COVID-19 pandemic, or have experienced adverse financial consequences such as job loss, reduction in work hours, or furlough; including being unable to work due to loss of child care. The IRS in this guidance has indicated that it is reviewing comments submitted and may expand the circumstances that qualify as adverse financial consequences.
  4. A CRD is defined as a distribution from an eligible employer retirement plan or IRA that is withdrawn by a qualified individual—as described above—from January 1, 2020, to December 30, 2020, in an aggregate amount not to exceed $100,000. It is of some concern that this unusual date could lead to end-of-year errors; the IRS is apparently unwilling to interpret the CARES Act to include December 31.
  5. This Q&A confirms that CRDs are exempt from the 10 percent additional tax on early distributions from tax-advantaged retirement arrangements to which they apply.
  6. Taxable amounts withdrawn as CRDs will be taxed ratably (equally) in one-third amounts in tax years 2020, 2021, and 2022, unless the taxpayer receiving them elects when filing 2020 taxes to have the CRDs taxed entirely in 2020.
  7. In common with legislation responding to several previous disaster events—including Hurricane Katrina in 2005—the distributions known as CRDs can be repaid to eligible retirement plans, including IRAs and eligible employer-sponsored plans. This must occur no later than three years after the date of the distribution(s). A repayment will be “treated as though it were repaid in a direct trustee-to-trustee transfer” within 60 days to preserve prior pretax character. Pretax status would be restored by a taxpayer amending his or her tax return for any prior year in which the distribution was included in income and taxed. This Q&A notes that IRS Hurricane Katrina Notice 2005-92 provides examples of this tax recovery procedure.
  8. For retirement plan loans that are outstanding on the date of CARES Act enactment (March 27, 2020), any payment due from March 27 to December 31, 2020, may be delayed for one year, with payments after the one-year suspension period adjusted for accrued interest. Employers may allow participants to take loans of up to 100% of their accrued vested balance (normally 50%) to a maximum of $100,000 (normally $50,000). The new guidance confirms that the final date for a participant to secure a CARES Act enhanced retirement plan loan is September 22, not September 23 as most had believed.
  9. Employers may choose to add CRDs as a distributable event for anyone CRD-eligible, regardless of age or other eligibility—and regardless of whether they will allow plan loans in the legislation-enhanced amounts. CRDs and enhanced plan loans are not linked, and an employer may elect to adopt one, both, or neither. Similarly, the increased loan limits and loan suspension period are independent of one another as options for the employer. Even if an employer does not adopt CRD distribution provisions, a taxpayer who meets a CARES Act COVID-19 diagnosis or economic harm condition for CRD eligibility—and has another distributable event under the plan—may claim the 10 percent penalty exemption, ratable taxation, and repayment privileges associated with CRDs.
  10. Employers that sponsor a defined benefit pension plan or money purchase pension plan may not choose to add CRDs as a distributable event. Furthermore, the qualified joint-and-survivor-annuity (QJSA) and spousal consent requirements of these plans continue to apply, including for any eligible distribution to a participant who meet CARES Act CRD conditions.
  11. A retirement plan administrator may rely on the participant‘s representations that he or she satisfies the criteria to be eligible for a CRD. CARES Act statutes do not mention employer “actual knowledge” as a reason to deny a CRD distribution over the representations of a participant. However, both the new IRS Q&As and Notice 2005-92—the Hurricane Katrina guidance—state that a CRD is not to be granted based on participant representations if an employer has actual knowledge to the contrary. While an employer may report a distribution as a CRD based on a participant’s representations, this reporting does not entitle the participant to claim CARES Act tax benefits if he or she is not truly eligible.
  12. An eligible retirement plan is permitted to accept timely CRD repayments if it accepts rollovers. These repayments are, in fact, rollover contributions, and would be placed in a rollover account, thus, eliminating any question about whether they must be assigned to another contribution source. A plan is not required to amend its provisions to accept CRD repayments. It is not clear from this Q&A whether a plan that accepts rollovers generally can exclude participant CRD repayments. Hopefully the IRS-promised additional guidance will clarify this.
  13. Qualified individuals will report CRDs when they file their individual income tax return. In addition to the 1040 series return itself, the taxpayer will file new Form 8915-E (the 8915 series reports certain disaster-related tax events) to determine the amount of any CRD included in income for the year, and to report CRD repayments.
  14. The retirement plan or IRA administrator will report the distribution itself on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc. In this Q&A the IRS promises more information on how to report CRDs “later this year.”

 


IRS Q&As Provide Some Guidance on IRA, Retirement Plan COVID-19-Related Relief

The IRS has issued guidance in question-and-answer (Q&A) format on the special IRA and retirement plan relief granted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, legislation signed into law on March 27, 2020. This relief is intended to aid those affected by the coronavirus (COVID-19) pandemic that has impacted the health and economic welfare—or both—of many Americans.

Special IRA and retirement plan distribution, taxation, and rollover options, as well as retirement plan loan access, are provided by the CARES Act, which in most respects resembles legislation to aid victims of past hurricane and major disaster events. The IRS Q&As address the following issues.

  • The CARES Act expanded distribution, favorable tax treatment, and portability options for coronavirus-related distributions (CRDs) from IRAs and employer-sponsored retirement plans
  • The IRS’ intention to issue additional guidance based on previous IRA and employer-plan-related relief granted under the Katrina Emergency Tax Relief Act (KETRA) of 2005
  • Who is a qualified individual for purposes of CARES Act relief
  • What is considered an eligible coronavirus-related distribution (CRD) from an IRA or employer-sponsored retirement plan
  • Exemption of CRDs from the 10 percent early distribution penalty tax
  • Special taxation options for CRDs
  • Eligibility to repay CRDs taken from an IRA or employer-sponsored retirement plan
  • Increased retirement plan loan amount and delayed loan repayment options
  • Enhanced access to employer-sponsored retirement plan assets through CRDs, and the ability of plan administrators to rely on plan participants’ representations of eligibility for CRDs
  • The option for employer-sponsored retirement plans to adopt—or choose not to adopt—the enhanced distribution and loan provisions of the CARES Act
  • Retirement plan acceptance of CRD repayments
  • Taxpayer reporting of CRDs
  • Retirement plan and IRA reporting of CRDs

It is hoped that the additional guidance referred to in this Q&A posting will be forthcoming soon, and will provide more clarity in administering the provisions of the CARES Act.

 


DOL and Treasury Provide COVID-19-Related Deadline Relief and Guidance to Retirement and Health Plans and Their Participants

The Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA), has issued several information and guidance items to provide administrative and operational relief to ERISA-governed retirement and health benefit plans as a result of the coronavirus (COVID-19) pandemic. Among the guidance items is a final rule jointly issued with the Department of the Treasury and the IRS.

 

EBSA Disaster Relief Notice 2020-01

  • Extends deadlines for ERISA-governed benefit plans to furnish required benefit statements, funding notice, and disclosures if they make a “good faith effort to provide them as soon as administratively practicable”
  • Authorizes under a good faith compliance standard the use of electronic means to communicate with plan participants and beneficiaries if a plan fiduciary reasonably believes recipients have “effective access” to the communications
  • Provides compliance guidance on Form 5500 and Form M-1 filing relief, as well as operational guidance on plan loans, participant contributions, blackout notices, and general fiduciary responsibilities

 

COVID-19 FAQs for Participants and Beneficiaries

DOL/EBSA has also provided a 23-question series of frequently asked questions (FAQs) for retirement and health plan participants and beneficiaries. The FAQs provide general guidance, including information about access to, and management of, retirement plan assets and benefits, and health benefit entitlement and options for those whose employment-based benefits have been affected.

 

Joint Agency Health Benefit Extensions

The DOL/EBSA and Treasury Department/IRS have jointly issued a final rule to be published in the Federal Register, extending timeframes for health benefit plan participants to take certain actions affecting their entitlement to benefits. Actions include filing for health benefit continuing coverage under COBRA, filing or perfecting health benefit claims, and appealing benefit claim denials.

 

DOL News Release


President Trump Signs Bill to Replenish Paycheck Protection Program

Following passage by an overwhelming margin in the U.S. House of Representatives Thursday, President Trump today signed into law the Paycheck Protection and Healthcare Enhancement Act, infusing $320 billion in additional funding into the Small Business Administration’s Paycheck Protection Program (PPP).

PPP is a lending program created to help small employers retain employees on their payrolls during the coronavirus (COVID-19) pandemic and resulting economic emergency. In addition to providing additional funding for the small business loan program, the legislation also provides new funding for hospitals dealing with the immediate effects of the pandemic, and—specifically—for enhanced COVID-19 testing.

PPP loans, which, under certain conditions, may be forgiven, can be used not only for employee wages and salaries, but also to fund employee retirement and health benefits.