Defined contribution plan

House Passes Senate’s Coronavirus Response Bill Unchanged, President Trump Signs Into Law

The House of Representatives today passed—by an expedited procedure—the Coronavirus Aid, Relief and Economic Security (CARES) Act, which was passed by the Senate late on Wednesday, March 25. This afternoon, President Trump signed the legislation into law.

The CARES Act has many elements intended to aid businesses and workers, and to assist the U.S. healthcare system in dealing with the coronavirus (COVID-19) pandemic. As noted in a prior announcement, it also contains the following key provisions that would affect retirement savings arrangements, health savings accounts (HSAs), Archer medical savings accounts (MSAs), health reimbursement arrangements (HRAs), and health flexible spending arrangements (FSAs).

 

Retirement Savings Provisions

  • (As originally drafted, this legislation extended the income tax return filing deadline from April 15, 2020, to July 15, 2020. Prior to its enactment, however, the Treasury Department issued guidance extending the deadline and clarified other acts that are extended—including the ability to make IRA, HSA, and certain employer plan contributions—to July 15 for tax year 2019.)
  • Up to $100,000 in coronavirus-related distributions (CRDs) can be withdrawn by an individual from eligible retirement plans. These distributions will be exempt from the 10 percent early distribution penalty tax.
    • A CRD is defined as any distribution made on or after January 1, 2020, and before December 31, 2020, to a qualified individual, defined as
      • an individual (or the spouse or a dependent of that individual) who is diagnosed with COVID-19 or SARS-CoV-2 in an approved test; or
      • an individual who suffers related adverse financial consequences, or suffers from other factors as determined by the Secretary of the Treasury.

Plan administrators can rely on plan participants’ certification that they meet these requirements.

    • An eligible retirement plan is defined as a qualified retirement plan (e.g., a 401(k) plan), 403(a) plan, 403(b) plan, governmental 457(b) plan, or an IRA.
    • CRDs will be treated as meeting retirement plan distribution requirements, so long as all distributions from one employer—including members of a controlled group—do not exceed $100,000 to an individual.
    • There will be a three-year repayment period beginning the day after distribution, during which one or more repayments may be made, not to exceed, in aggregate, the amount distributed. Taxpayers can recontribute these amounts to an eligible retirement plan or IRA.
    • CRDs that are recontributed within the three-year period will be treated as having satisfied the general 60-day rollover requirement.
    • CRDs will be taxed ratably over a three-year period, unless an individual elects otherwise.
    • CRDs are not considered statutory “eligible rollover distributions” for purposes of 20 percent mandatory withholding, the notice provided to recipients of distributions eligible for rollover (i.e., “402(f) notice”) and direct rollover requirements (but do remain eligible for rollover).
  • The retirement plan loan maximum for a qualified individual (defined as meeting the COVID-19 or SARs-CoV-2 conditions described above) will increase to the lesser of $100,000, or 100 percent of a participant’s vested balance.
    • Retirement plan loan repayment dates that occur between the date of enactment and December 31, 2020, can be delayed for one year. Due dates of subsequent payments (payments after those that may be delayed one year) and the five-year amortization period will be adjusted accordingly.
  • Plan sponsors will generally be required to amend their retirement plans for these provisions by the last day of the 2022 plan year (government plans will have an additional two years), or such other date as the Secretary of the Treasury may prescribe, with operational compliance during the interim period.
  • Individuals, including beneficiaries, will not be required to take their 2020 required minimum distributions (RMDs) from their defined contribution plans or IRAs. This RMD waiver would also apply to individuals who turned 70½ in 2019 but did not take their RMD before January 1, 2020).
  • The 2020 year will not be counted for purposes of a five-year payout period for a beneficiary. (This provision will not alter a required beginning date for years after 2020.)
  • Single employer defined benefit pension plan minimum required contributions due during 2020 can be delayed to January 1, 2021 (adjusted for interim earnings). This provision will also provide an option to use an alternative funding target percentage.
  • This legislation adds “public health emergency” to those events that allow the Department of Labor to postpone certain deadlines governed by ERISA Section 518.

Health Savings Arrangement-Related Provisions 

  • For plan years before 2022, health insurance plans can pay for telehealth and remote care services without first satisfying HSA-qualifying deductible conditions.
  • A medicine or drug need not be obtained by prescription to be a qualified medical expense for HSA, HRA, MSA, and health FSA purposes. This includes over-the-counter menstrual care products.

Further developments, including any clarifying guidance issued by the IRS or other governing agencies, will be shared on ascensus.com.

 


Senate Approves Massive Coronavirus Response Bill, with Significant Retirement Savings and Health Elements

On Wednesday night, March 25, shortly before midnight, Eastern Time, the U.S. Senate cleared lingering objections of both Democrat and Republican members and unanimously passed H.R. 748, the Coronavirus Aid, Relief and Economic Security, or CARES Act. The legislation has many elements intended to aid businesses and workers, and assist the U.S. health care system in working through the coronavirus (COVID-19) pandemic. It also contains multiple provisions that would affect retirement savings arrangements, health savings accounts (HSAs), Archer medical savings accounts (MSAs), health reimbursement arrangements (HRAs), and flexible spending arrangements (FSAs).

The next move is up to the U.S. House of Representatives, where a strategy known as “unanimous consent” could speed up passage of the legislation there, resulting in quicker delivery to President Trump for his signature. If there are objections to that strategy by House members, that body—currently in recess—may have to be recalled to the Capitol for a vote. Following are key provisions that would impact tax-favored retirement and health savings arrangements.

Retirement Savings Provisions

  • This legislation would extend the income tax return filing deadline from April 15, 2020, to July 15, 2020. (The Treasury Department has already extended the deadline as described above and clarified other acts that are extended as a result—including the ability to make IRA, HSA, and certain employer plan contributions by July 15 for tax year 2019.)
  • Up to $100,000 in coronavirus-related distributions (CRDs) could be withdrawn by an individual from eligible retirement plans. These distributions would be exempt from the 10 percent early distribution penalty tax.
    • A CRD is defined as any distribution made on or after January 1, 2020, and before December 31, 2020, to a qualified individual, defined as
      • an individual (or the spouse or a dependent of that individual) who is diagnosed with COVID-19 or SARS-CoV-2 in an approved test; or
      • an individual who suffers related adverse financial consequences, or suffers from other factors as determined by the Secretary of the Treasury.

Plan administrators could rely on plan participants’ certification that they meet these requirements.

    • An eligible retirement plan is defined as a qualified retirement plan (e.g., a 401(k) plan), 403(a) plan, 403(b) plan, governmental 457(b) plan, or an IRA.
    • CRDs would be treated as meeting retirement plan distribution requirements, so long as all distributions from one employer—including members of a controlled group—do not exceed $100,000 to an individual.
    • There would be a three-year repayment period beginning the day after distribution, during which one or more repayments may be made, not to exceed, in aggregate, the amount distributed. Taxpayers could recontribute these amounts to an eligible retirement plan or IRA.
    • CRDs that are recontributed within the three-year period will be treated as having satisfied the general 60-day rollover requirement.
    • CRDs would be taxed ratably over a three-year period, unless an individual elects otherwise.
    • CRDs are not considered statutory “eligible rollover distributions” for purposes of 20 percent mandatory withholding, the notice provided to recipients of distributions eligible for rollover (i.e., “402(f)” notice) and direct rollover requirements (but do remain eligible for rollover).
  • The retirement plan loan maximum for a qualified individual (defined as meeting the COVID-19 or SARs-CoV-2 conditions described above) would increase to the lesser of $100,000, or 100 percent of a participant’s vested balance.
    • Retirement plan loan repayment dates that occur between the date of enactment and December 31, 2020, could be delayed for one year. Due dates of subsequent payments (payments after those that may be delayed one year) and the five-year amortization period would be adjusted accordingly.
  • Plan sponsors would generally be required to amend their retirement plans for these provisions by the last day of the 2022 plan year (government plans would have an additional two years), or such other date as the Secretary of the Treasury may prescribe, with operational compliance during the interim period.
  • Individuals would not be required to take their 2020 required minimum distributions (RMDs) from their defined contribution plans or IRAs. This RMD waiver would also apply to individuals who turned 70½ in 2019 but did not take their RMD before January 1, 2020).
  • The 2020 year would not be counted for purposes of a five-year payout period for a nonperson beneficiary. (This provision would not alter a required beginning date for years after 2020.)
  • Single employer defined benefit pension plan minimum required contributions due during 2020 could be delayed to January 1, 2021 (adjusted for interim earnings). This provision would also provide an option to use an alternative funding target percentage.
  • This legislation would add “public health emergency” to those events that would allow the DOL to postpone certain deadlines governed by ERISA Section 518.

Health Savings Arrangement-Related Provisions 

  • For plan years before 2022, health insurance plans could pay for telehealth and remote care services without first satisfying HSA-qualifying deductible conditions.
  • A medicine or drug need not be prescribed to be a qualified medical expense for HSA, HRA, MSA, and health FSA purposes. This includes over-the-counter menstrual care products.

Further progress of this legislation will be monitored and developments shared on ascensus.com

 


Dan Basile Shares Best Practices for Fostering Engagement with Financial Wellness Programs

In a PLANSPONSOR webcast​ presented on March 25, Dan Basile, Ascensus’ head of retirement product, shared perspective on tactics employers can leverage to foster employee engagement with their financial wellness offerings. He encourages employers to utilize multi-channel communications tactics and to identify employee advocates who can act as champions of the program to their colleagues.

He also shared insight on why Ascensus chose to partner with Financial Finesse and how we’ve incorporated their wellness tools and services into our core retirement plan product to ensure employees across businesses of all sizes could access the tools and education they need to chart a personalized savings strategy. Watch a full recording of the webcast here​.


IRS FAQs Confirm July 15, 2020, Deadline to Make 2019 IRA, HSA, and Certain Employer Retirement Plan Contributions

The IRS has updated the frequently-asked-question (FAQ) information at its website, confirming that IRA, HSA, and certain retirement plan contributions otherwise due by April 15, 2020, can be made as late as July 15, 2020. This aligns with the three-month tax return filing deadline extension the IRS announced in Notice 2020-18, issued on March 20, 2020.

While Notice 2020-18 addressed the three-month tax return deadline extension, it did not address contribution deadlines that generally align with the year’s tax filing deadline. Nor did Notice 2020-18 cite other guidance—such as natural disaster declarations—that are sometimes relied on to confirm extension of contribution deadlines.

The posting of these new FAQ items, #17, #20, and #21, give the guidance that has been awaited. IRA and HSA contributions for 2019, and employers wanting to make retirement plan contributions aligned with a business tax filing deadline of April 15, 2020, have an extended deadline of July 15, 2020, to make these contributions.

 


GOP Legislative Package Would Alter Retirement Plan and HSA Provisions as Part of COVID-19 Pandemic Response

Senate Republican coronavirus response legislation—the Coronavirus Aid, Relief and Economic Security, or CARES Act—has been proposed in order to assist Americans affected by the COVID-19 pandemic. The proposal has multiple provisions that would affect retirement savings arrangements and health savings accounts (HSAs). This legislative proposal is being monitored closely, and further developments will be shared as warranted.

Retirement Savings Provisions

  • Would extend the income tax return filing deadline from April 15, 2020, to July 15, 2020. (The IRS has since issued Notice 2020-18, which officially delayed the deadline to July 15, 2020.)
  • Would exempt up to $100,000 withdrawn from an Eligible Retirement Plan from the 10% early distribution penalty tax for Coronavirus-Related Distributions (CRDs).
    • A CRD is defined as a distribution made on or after the date of enactment and before December 31, 2020, to a Qualified Individual, defined as
      • an individual (or the spouse of the individual) who is diagnosed with COVID-19 or SARS-CoV-2 in an approved test;
      • an individual who suffers related adverse financial consequences, or suffers from other factors as determined by the Secretary of the Treasury.
    • An Eligible Retirement Plan is defined as a qualified retirement plan, including a 403(b) plan, governmental 457(b) plan, SEP plan, SIMPLE IRA plan, or an IRA.
    • CRDs would be treated as meeting retirement plan distribution requirements, so long as all distributions from one employer—including members of a controlled group—do not exceed $100,000.
    • There would be a 3-year repayment period, in one or more repayments, not to exceed the amount distributed. Taxpayers could recontribute these amounts to any retirement plan or IRA that the Internal Revenue Code permits.
    • CRDs that are recontributed within the 3-year period will be treated as having satisfied the general 60-day rollover requirement.
    • CRDs would be taxed ratably over a 3-year period, unless a taxpayer elects otherwise.
    • CRDs are not considered eligible rollover distributions. Plan sponsors will need to adjust their 402(f) statements to explain that these distributions are not subject to the mandatory 20% withholding and direct rollover rules (though they are still eligible for rollover).
  • The retirement plan loan maximum for a Qualified Individual (defined as meeting the COVID-19 or SARs-CoV-2 conditions described above) would increase to the lesser of $100,000, or 100% of a participant’s vested balance.
  • Retirement plan loan repayment dates between the date of the legislation’s enactment and December 31, 2020, could be delayed for 1 year, with the amortization period—including the 5-year repayment deadline—adjusted accordingly.
  • Retirement plan amendments for these provisions would generally be required by the last day of the 2020 plan year (government plans would have an additional two years), or such other date as the Secretary of the Treasury may prescribe, with operational compliance during the interim period.

HSA-Related Provisions

  • Telehealth and remote care services associated with the coronavirus pandemic could be paid by a health insurance plan without first satisfying a deductible, and would not be treated as violating HSA requirements.
  • Certain “direct primary care” arrangements for services between health care providers and clients would be treated as not violating HSA requirements.
  • Over-the-counter menstrual care products would be considered qualified medical expenses for HSA purposes.

 


Treasury Secretary Announces Tax Return Deadline Extension; Expected to Extend Contribution Deadlines

Treasury Secretary Steven Mnuchin has announced in a Twitter message this morning that the April 15, 2020, tax return filing deadline will be extended 90 days, to July 15, 2020. Formal guidance confirming this is expected. It is further expected that the deadline to make certain contributions to tax-advantaged savings arrangements—such as IRAs—will be similarly extended. This has been the case with certain previous federally-declared natural disasters. More information, including confirmation in formally-issued guidance, will be provided in a future communication.


Ascensus SECURE Act Video Series: Beneficiary Option Changes

Ascensus is excited to present the SECURE Act Video Series. This multi-video series will provide a snapshot of retirement-related SECURE Act provisions, included in the Further Consolidated Appropriations Act, 2020.

For more coverage from our experts on the SECURE Act and its implications, check out our latest news.

For more coverage from our experts on the SECURE Act and its implications, check out our latest news.


Legislation to be Introduced to Suspend RMDs for 2020, Exempt Social Security Income from Taxation

Sen. Ed Markey (D-MA) has proposed legislation (S. 3527) to suspend for 2020 the obligation to withdraw required minimum distributions (RMDs) from employer-sponsored retirement plans and IRAs in response to investment market volatility accompanying the coronavirus (COVID-19) pandemic. Sen. Markey has also announced plans to introduce another bill to exempt Social Security benefits received in 2020 from taxation. (Taxation of Social Security benefits generally is means-tested, with amounts exceeding $25,000—$32,000 for married couples—subject to income tax.)

Retirement plan withdrawals generally are required annually for those who reached age 70½ in 2019 or a prior year, or who reach age 72 in 2020 or a later year (some who are still employed after these ages can further delay withdrawals from certain retirement plan).

In a news release issued Wednesday, March 18, Sen. Markey noted that the formula used to calculate these annual RMDs—which is based on December 31, 2019, values that preceded the recent markets downturn—would consume a disproportionate share of these individuals’ retirement savings. Thus, this reflects the importance of this 2020 RMD suspension.

The legislation based on S. 3527 bill text at Sen. Markey’s website, and which has bipartisan support, would do the following.

  • Suspend otherwise-required 2020 RMDs from qualified retirement plans, 403(b) plans, governmental 457(b) plans, and individual retirement arrangements (IRAs).
  • 2020 will be disregarded for purposes of the 5-year period for required depletion of an inherited IRA or retirement plan account.
  • Mandatory withholding (e.g., 20%) would not be applied to 2020 amounts withdrawn from these retirement savings arrangements, exempt up to such amount(s) that would represent RMDs if not for the 2020 exemption.
  • Retirement plans may operationally comply with these provisions, but must amend for the changes by the last day of 2022 plan years (2023 plan years for governmental plans).
  • An individual’s required beginning date for RMDs (generally April 1 of the year after attainment of RMD age or, if later, the year of retirement) would not be altered by a 2020 suspension.