IRS Guidance

IRS Guidance Provides Limited Relief and Clarification for 401(k) and 403(b) Plans that Suspend or Reduce Safe Harbor Contributions Mid-Year

The IRS has issued Notice 2020-52, guidance that provides sponsors of 401(k) and 403(b) safe harbor plans limited relief from certain otherwise-applicable requirements for mid-year suspension or reduction of safe harbor matching or nonelective contributions.

Notice 2020-52’s temporary relief is being granted as a consequence of the widespread economic challenges facing employers as a result of the coronavirus (COVID-19) pandemic.

 

Requirement for Mid-Year Suspension of Safe Harbor Contributions

In order to suspend safe harbor matching or nonelective contributions mid-year, a sponsoring employer generally must meet one of the following requirements.

  • The employer must be operating at an economic loss.
  • The employer must have given employees timely notice prior to the start of the plan year that the plan might be amended to suspend safe harbor contributions during the coming plan year, and that such suspension would not apply until 30 days after a mid-year supplemental notice is given.

 

Temporary Relief for Mid-Year Reduction or Suspension of Safe Harbor Contributions

Employers that adopt or have adopted between March 13, 2020, and August 31, 2020, an amendment to suspend or reduce 401(k) or 403(b) safe harbor matching or nonelective contributions, will not be considered to have violated the economic loss or pre-plan year notice requirements described above.

 

Temporary Relief for Nonelective Contribution Supplemental Notice

Notice 2020-52 also provides temporary relief for employers that amended or amend their plans for a mid-year reduction or suspension of nonelective contributions, without providing a supplemental notice to employees at least 30 days before the reduction or suspension. This notice requirement will be treated as having been met if the notice is provided to employees by August 31, 2020. This relief is not being extended for a reduction or suspension of safe harbor matching contributions.

 

Clarification on Reduction or Suspension of Contributions for HCEs

Notice 2020-52 also provides further clarity on mid-year amendments to reduce certain contributions to highly compensated employees (HCEs).

In general, a reduction or suspension of safe harbor contributions only for HCEs is not treated as an impermissible reduction, since contributions on behalf of HCEs are not included in the definition of safe harbor contributions. However, Notice 2020-52 clarifies that a notice to HCEs of the reduction or suspension is still required, and a new deferral election opportunity must be given.

Notice 2020-52’s relief provides a degree of assurance that employers will not be violating safe harbor plan rules that pertain to reductions, suspensions, and notices, if they satisfy its conditions. But the guidance does not provide relief from ADP/ACP nondiscrimination testing for the plan year in which such reductions or suspensions have taken place.

 

 

 


IRS Issues Tax-Related Deadline Relief for Tornado Victims in Parts of South

The IRS has issued News Release IR-2020-126, announcing an extension of time to complete filing of returns and making tax payments as a result of April tornadoes, severe storms, and flooding that took place in parts of Mississippi, Tennessee, and South Carolina. At this time, areas included are Clarke, Covington, Grenada, Jasper, Jefferson Davis, Jones, Lawrence, Panola, and Walthall counties in Mississippi; Bradley and Hamilton counties in Tennessee; and Aiken, Barnwell, Berkeley, Colleton, Hampton, Marlboro, Oconee, Orangeburg, and Pickens counties in South Carolina. Under this guidance, certain tax-related acts with deadlines falling on or after April 12, 2020, have been extended to October 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.

IR-2020-126 specifically notes that this extension applies to IRA contributions. This news release, however, does not specifically appear to address or include other time-sensitive acts described in Treasury Regulation 301.7508A-1(c)(1), such as completion of rollovers, recharacterizations, or correction of excesses., that have been granted in other disaster relief. Additional guidance with respect to these tax-related acts may be forthcoming.

This relief applies 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.

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.


More Details on CARES Act Eligibility and Plan Loan Guidance

The retirement industry eagerly received the IRS guidance on applying provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act with the issuance of Notice 2020-50 on June 19. It has provided important details on compliance with this legislation—which offers financial and tax relief to millions of Americans affected by the coronavirus (COVID-19) pandemic.

The CARES Act was signed into law on March, 27, 2020, as the largest emergency relief package in U.S. history. It offers a variety of potential benefits to those who participate in tax-favored retirement savings arrangements. The legislation not only grants special access to the tax-favored accounts of many who may need it, but also provides a pathway to later repayment. For amounts up to $100,000, there is an exemption from the 10 percent penalty tax for early distributions from a retirement plan, three-year ratable taxation of amounts distributed, and a three-year repayment option for those who qualify.

Although there has been comparable legislation for past disaster events—notably, Hurricane Katrina in 2005—still there has been some uncertainty as to how closely CARES Act procedures might ultimately mirror it. Notice 2020-50 now provides greater clarity and is to be followed in applying CARES Act provisions.

Following are some of the more significant highlights of Notice 2020-50.

 

CORONAVIRUS-RELATED DISTRIBUTIONS

Qualified Individual Definition Expanded

Notice 2020-50 broadened the definition of who is eligible for a coronavirus-related distribution (CRD)—and therefore eligible for CARES Act tax benefits.

Initial guidance defined a “qualified individual” as

  • an individual (or the spouse or dependent of the individual) who is diagnosed with the COVID-19 disease or the SARS-CoV-2 virus in an approved test; or
  • an individual who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reduced hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Treasury Secretary.

Notice 2020-50 adds new circumstances to the definition of “qualified individual.”

  • An individual who has experienced a reduction in pay (or self-employment income) due to COVID-19, or has had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • An individual whose spouse or a member of the person’s household has
    • been quarantined, furloughed or laid off, or had work hours reduced due to COVID-19;
    • been unable to work because of a lack of childcare due to COVID-19,
    • had a reduction in pay (or self-employment income) due to COVID-19; or
    • had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • An individual whose spouse or a member of the person’s household has experienced the closing or a reduction of hours of their business due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

Timing

A CRD was defined in the statute as an amount distributed from a retirement account on or after January 1, 2020, and before December 31, 2020. Notice 2020-50 affirmed that a distribution taken on December 31, 2020, would not be a CRD.

Who Can and Cannot Recontribute CRDs

A CRD can be taxed ratably over three years, and generally can be recontributed to an eligible retirement plan within three years. However, Notice 2020-50 makes clear that while beneficiaries of retirement plans and IRAs may be taxed in this manner, only spouse beneficiaries may make recontributions.

Employer May Choose Whether to Allow CRDs, Other CARES Act Options

Employers can choose to allow participants in their retirement plans (other than pension plans) to take CRDs even without otherwise having a distributable event, if they are qualified individuals, up to $100,000 of their vested balance.

Notice 2020-50 makes clear that employers are not required to offer CRDs to participants. If they do, they are not required to implement all elements of CARES Act relief, such as enhanced retirement plan loan amount or available loan suspension options.

Reliance on Employee Certification

Employers that offer retirement plan CRDs are allowed to rely on an employee-participant’s certification that he is a qualified individual, unless the employer has actual knowledge to the contrary. Notice 2020-50 states that an employer is under no obligation to “inquire into whether an individual has satisfied the conditions” of eligibility.

Sample Employee Certification Provided

Notice 2020-50 includes a sample of what the IRS considers “an acceptable certification.”

Reporting/Coding

If an employer has adopted provisions allowing CRDs, they will be reported on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc. Notice 2020-50 states that for CRDs made to participants (other than beneficiaries) who are otherwise subject to the 10 percent early distribution penalty tax, Code 2, Early distribution, exception applies, may be used. Alternatively, Code 1, Early distribution, no known exception, may be used. (A qualified individual can claim exemption from the 10 percent penalty tax on his individual income tax return if he qualifies for a CRD, regardless of how Form 1099-R is coded.)

Reliance on Employee Certification for Recontributions

Employers that allow recontributions of CRDs are allowed to rely on an employee-participant’s certification that she is a qualified individual, unless the employer has actual knowledge to the contrary.

Taxpayer Reporting

A qualified individual will report CRDs as distributions and as repayments—if made—on new Form 8915E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments. This is a form in the same series used for certain prior disaster events, such as Hurricane Katrina. A taxpayer can claim CRD status even if distributions were received from a retirement plan whose sponsoring employer did not elect to add CRDs as a distributable event.

Examples of Tax Treatment

Notice 2020-50 provides several examples of tax impacts when both CRDs and repayments occur. These include amending a prior year’s tax return to account for recontributions made later in the three-year ratable taxation period, and choosing to carry forward or carry back—to future or prior years—the tax impact of a repayment that is made during the three-year ratable taxation period.

No Modification of Substantially Equal Periodic Payments

A CRD received by an eligible individual is not to be considered a modification of a series of substantially equal periodic payments as an exemption from the 10 percent early distribution penalty tax.

 

PLAN LOANS

Deadline to Take Plan Loan Confirmed

Notice 2020-50 confirmed that the final day to take a CARES Act retirement plan loan, including the enhanced loan amount, is September 22, not September 23.

Plan Loan Suspension Safe Harbor

Notice 2020-50 provides a safe harbor for loan repayment when a loan payment suspension is permitted by the employer under CARES Act provisions. Among its conditions: loan payments must resume at the end of the suspension period; the loan’s term may be extended up to one year from the date originally required to be repaid; interest accrued during the suspension period must be added to the remaining loan principal amount; and the loan must be reamortized and repaid in substantially level amounts over the remaining period of the loan.

Notice 2020-50 recognizes that there may be other reasonable interpretations of the CARES Act loan provisions in addition to the Notice’s safe harbor.

Participant Certification as Eligible Individual

Employers that adopt the CARES Act enhanced loan provisions are allowed to rely on an employee-participant’s certification that he is an qualified individual, unless the plan administrator has actual knowledge to the contrary.

 


IRS Issues More Guidance on Waived 2020 Required Minimum Distributions (RMDs)

The IRS has issued Notice 2020-51, providing additional guidance on the 2020 suspension of RMDs that generally must be taken annually by IRA owners, retirement plan participants, and beneficiaries.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, signed into law by President Trump on March 27, 2020, suspended for the 2020 tax year the general requirement that annual distributions must be taken from tax-favored retirement plans and IRAs when an account owner reaches RMD age, or annually by some account beneficiaries. The timing was problematic for some, who—before the CARES Act enactment—had already in 2020 taken distributions they believed to be required, but under the waiver are not.

Among the details provided in Notice 2020-51 are the following:

  • Extends the normal 60-day rollover period to permit repayments through August 31, 2020, of waived 2020 RMD amounts
  • Allows repayments without regard to the one-per-12-month rollover limitation
  • Permits repayment by nonspouse beneficiaries of waived 2020 required distributions—these repayments will not violate the statutory prohibition on nonspouse indirect (60-day) rollovers
  • Provides a sample plan amendment for defined contribution plans
  • Includes a 12-item question-and-answer section related to the 2020 RMD waiver

 


IRS Issues More CARES Act Eligibility and Plan Loan Guidance

The IRS has issued Notice 2020-50, providing additional guidance on several aspects of the Coronavirus Aid, Recovery, and Economic Security (CARES) Act, legislation enacted in March of this year in response to the coronavirus (COVID-19) pandemic.

A “qualified individual” who has experienced health or financial effects from the COVID-19 pandemic is eligible for certain retirement plan distribution, penalty exemption, plan loan and loan repayment, taxation, and repayment benefits.

Qualified Individual Further Defined

Initial guidance defines a “qualified individual” as

  • an individual (or the spouse or dependent of the individual) who is diagnosed with the COVID-19 disease or the SARS-CoV-2 virus in an approved test; or
  • an individual who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reduced hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Treasury Secretary.

Notice 2020-50 adds new circumstances to the definition of “qualified individual.”

  • An individual who has experienced a reduction in pay (or self-employment income) due to COVID-19, or has had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • A person whose spouse or a member of her household has
    • been quarantined, furloughed or laid off, or had work hours reduced due to COVID-19;
    • been unable to work because of a lack of childcare due to COVID-19,
    • had a reduction in pay (or self-employment income) due to COVID-19; or
    • had a job offer rescinded or a start date for a job delayed due to COVID-19.
  • A person whose spouse or a member of her household has experienced the closing or a reduction of hours of their business due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

CARES Act Loans

Notice 2020-50 provides examples of how to apply the special plan loan provisions of the CARES Act, and includes a safe harbor method. In addition, the Treasury Department and IRS recognize that there may be additional reasonable ways to administer loan repayments under the CARES Act.

This guidance is being further analyzed, and additional details will be shared.


Relief for Certain Retirement Plan Consent Requirements

The Internal Revenue Service (IRS) today issued Notice 2020-42, in which the IRS provides 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. This includes signatures of those making an election that ordinarily would need 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.

The guidance is being issued in consideration of business shutdowns and social distancing in response to the coronavirus (COVID-19) pandemic. The IRS notes that it is intended to facilitate the payment of coronavirus-related distributions and plan loans to qualified individuals, as permitted by the CARES Act.

Under this relief, for 2020 distributions, live audio-video technologies may be used to facilitate remote notarization if meeting other election requirements and if this is consistent with state laws governing notarization. Also for 2020, 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.


IRS Provides Welcome Deadline Relief for Savings Arrangement Reporting, Limited Additional Extensions

On May 28, 2020, the IRS issued limited additional relief that extends deadlines for certain time-sensitive actions related to tax-advantaged savings arrangements. Most awaited was an extension for providing information returns for IRAs, health savings accounts (HSAs), Archer medical savings accounts (MSAs), and Coverdell education savings accounts (ESAs). These information returns are Form 5498, IRA Contribution Information, Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, and Form 5498- ESA, Coverdell ESA Contribution Information.

Deadlines for providing these information returns to the IRS and to account owners had previously been extended by IRS Notice 2020-23 through July 15, 2020, in response to the coronavirus (COVID-19) pandemic. The deadline for annual contributions to these accounts was also extended to July 15, 2020. This presented custodial organizations and service providers to these accounts with the dilemma of reporting contributions that could be received as late as the deadline for their reporting.

Notice 2020-35 now provides a six-week window after the July 15, 2020, contribution deadlines in which organizations can prepare and provide these information returns to the IRS and to account owners.

Other Deadlines Not Extended

Notice 2020-23 extended many other deadlines to July 15, 2020, including completing rollovers, making retirement plan loan payments, filing Form 5500, Annual Return, Report of Employee Benefit Plan, as well as numerous others. These deadlines are not extended by the latest guidance in Notice 2020-35.

Extensions Granted by Notice 2020-35

The following are among the limited number of deadlines extended by Notice 2020-35.

  • Providing Form 5498-series information returns for IRAs, ESAs, HSAs, and MSAs. (Providing these information returns after August, 31, 2020, will be subject to IRS penalty, which will be calculated from September 1, 2020, through the date the information returns are actually provided.)
  • Close of the 403(b) plan remedial amendment period remains at June 30, 2020, this guidance making official an earlier IRS website announcement.
  • Adoption by a defined benefit pension plan of a pre-approved plan document, filing a request for a determination letter under the second six-year cycle, or certain other actions with respect to disqualifying provisions have a deadline of July 31, 2020.

Notice 2020-35 also extends to July 15, 2020 (not August 31), several items not previously granted extensions. These include the following.

  • Application for a funding waiver by a defined benefit pension plan that is not a multi-employer (union) plan.
  • Filing IRS Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, and paying these excise taxes.

Proposed Regulations on Withholding from Periodic Retirement and Annuity Payments Are Published

Today’s Federal Register contains IRS proposed regulations that would govern federal tax withholding on certain periodic retirement and annuity distributions. These regulations have been drafted in response to amendments made to the Internal Revenue Code by the Tax Cuts and Jobs Act, tax reform legislation enacted in December 2017. (A pre-publication version of these proposed regulations was released on May 26.)

The guidance would potentially affect retirement plan administrators, payors, and recipients of such payments. Public comments, as well as requests for a public hearing, will be accepted. The IRS notes that due to current working conditions in response to the coronavirus (COVID-19) pandemic, electronic submission of comments is favored.


Washington Pulse: New COVID-19 Relief for Employee Welfare Benefit Plans

During the last few months, the Department of Labor (DOL), Treasury Department, and Department of Health and Human Services (DHHS) have jointly issued multiple pieces of guidance intended to provide much needed relief to those suffering economic hardships from the coronavirus (COVID-19) pandemic. In this article, we’ll explain how the most recent relief affects employee welfare benefit plans.

 

Overview of New Relief

To help overcome the financial hardships facing millions of Americans, the DOL and the Treasury Department published a final rule on May 4, 2020. The final rule extends and suspends various employee welfare benefit plan and COBRA deadlines that fall between March 1, 2020, and the end of a 60-day period following the close of the COVID-19 National Emergency (known as the Outbreak Period), which has yet to be announced.

The DOL and Treasury Department also worked with the DHHS to create EBSA Disaster Relief Notice 2020-01. This guidance extends deadlines for providing notices, disclosures, and documents that are due to plan participants and beneficiaries between March 1, 2020, and the end of the Outbreak Period. The relief applies to plan fiduciaries that act in good faith to provide this information as soon as administratively practicable. The EBSA notice also confirms that Form 5500 filing deadlines that occur between April 1, 2020, and July 14, 2020, must now be filed by July 15, 2020 (calendar-year plans are not affected).

On May 12, 2020, the IRS issued Notice 2020-29 and Notice 2020-33. Notice 2020-29 allows employees to make election changes relating to employer-sponsored group health coverage, health flexible savings accounts (FSAs), and dependent care FSAs mid-year with no special enrollment events. The notice also allows for health FSA and dependent care FSA participants to submit new claims for reimbursement up to December 31, 2020, from amounts that remained in accounts as of a plan year end or the end of the grace period that occurred at any time in 2020.

Notice 2020-33 increases the maximum $500 health FSA carryover amount to an amount that is equal to 20 percent of the maximum salary reduction contribution for the plan year. The increase takes effect immediately, making the maximum amount that can be carried forward for the 2020 plan year $550 (20 percent of $2,750).

 

How the Final Rule Affects Employee Welfare Benefit Plans

The most significant impact of the final rule involves providing certain individuals extended deadlines for performing certain acts. When calculating the new extended deadlines, the final rule disregards the Outbreak Period.

  • Filing a benefit claim: The final rule extends the deadline for filing claims for benefits under welfare benefit plans. Importantly, this relief will also include calendar-year health FSAs and health reimbursement accounts (HRAs) that had a runout period ending on March 1, 2020 or later. Although this provision will help individuals with existing claims, it does not allow them to incur new claims applicable to an old plan year.
    • Example: An employee terminated employment and lost health coverage on May 1, 2020. Because the plan has a 90 day-runout period for terminated participants, the employee would normally have until July 30, 2020, to submit claims for reimbursement of eligible expenses incurred before the employee terminated employment. The period between the date of termination and the end of the Outbreak Period is now disregarded. If March 2, 2021 is the end of the Outbreak Period, the 90-day runout period will start on March 3, 2021, and end on May 31, 2021.
  • Filing an appeal and requesting a review: The final rule extends the period to file an appeal of an adverse benefit determination. This period must be at least 60 days (for welfare benefit plans) or 180 days (for group health plans) following notification of the adverse benefit determination. The final rule also extends the four-month period for filing a request for external or internal review.
  • Special Enrollment Periods: Employees and their eligible dependents now have more time to enroll in a group health plan following a special enrollment event. Usually individuals must elect coverage during a 30-day period (or a 60-day period, depending on plan provisions) following a special enrollment event.
    • Example: An employee had a child on March 20, 2020. The employee would normally have 30 days to elect coverage for the child. The period between the birth and the end of the Outbreak Period is now disregarded. If October 10, 2020, is the end of the Outbreak Period, the 30-day period would start on October 11, 2020, and end on November 9, 2020.

 

How Notice 2020-29 Affects Employee Welfare Benefit Plans

IRS Notice 2020-29 gives plans additional deadline flexibility and eases restrictions associated with various plan requirements found in the Internal Revenue Code and associated Treasury Regulations. The extensions provided by the Notice are described below.

  • Modified rules on irrevocable elections: Notice 2020-29 eliminates certain restrictions that limit the ability of participants to revoke and make new plan elections after the start of the plan year. During the 2020 plan year, elections pertaining to employer health coverage, health FSAs, and dependent care FSAs can now be made at any time on a prospective basis. This relief is not automatic. An employer will be required to amend its plan to allow participants to take advantage of this relief.
    • Example: A participant elected to defer $1,200 into an FSA during open enrollment for a plan year that began on January 1, 2020. The participant is now permitted to change her election at any time and defer a different amount (e.g., $2,200) if she so chooses.
  • Extended the deadline for incurring claims: Plan participants in health FSAs and dependent care FSAs may now incur and submit new claims for reimbursement up to December 31, 2020, based on amounts that remained in their FSA as of the end of a plan year or the end of a grace period that occurred at any time in 2020. This relief is not automatic. An employer will be required to amend its plan to allow participants to take advantage of this relief.
    • Example:  An employee was a participant in a 2019 calendar year FSA with a grace period that ended on March 15, 2020. He had $1,200 remaining in his account as of that date. He had not incurred any claims that he could submit for reimbursement through March 15, 2020. On June 29, 2020, the participant received medical services in excess of $1,200. He can submit his claim and be reimbursed for that amount.

 

How the Final Rule Affects COBRA Coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA) helps employees going through a qualifying event (such as termination of employment) maintain health coverage, often at a lower cost than they might find in the marketplace. To assist those who have lost health insurance coverage because of the pandemic, the final rule extends several COBRA-related deadlines. When calculating the new extended deadlines, the final rule disregards the Outbreak Period.

Delayed COBRA Election Deadline

To assist those who have lost health insurance coverage through termination of employment or a reduction of hours, the final rule extends the deadline to elect COBRA coverage. Normally, the election period ends 60 days following the later of 1) the qualifying event or 2) the date the plan provides the COBRA election notice to the qualified beneficiary.

  • Example: An employee is terminated on April 10, 2020, and loses coverage on April 30, 2020. If the terminated employee receives the COBRA election notice on May 5, 2020, he would normally have until July 4, 2020, which is 60 days, to elect COBRA coverage. But the Outbreak Period is now disregarded. If November 14, 2020, is the end of the Outbreak Period, the 60-day election period would start on November 15, 2020, and end on January 13, 2021.

This provision also gives employees flexibility in determining whether to spend money to continue coverage based on the type of medical issues they have during the extended deadline. Some people may choose to not enroll in COBRA coverage unless some type of expensive medical event makes it necessary. Normally, they would have a shorter window to determine the necessity of enrollment.

While the extended deadline helps individuals, it also creates risk for insurers and employers who may see employees taking advantage of the deadlines to enroll only if they incur significant costs. Healthy employees who would normally elect coverage, pay the premiums, and incur limited costs, will not have incentive to enroll during the window and will not be able to help offset costs as they normally would.

Delayed COBRA Payments

The final rule extends the amount of time that a qualified beneficiary has to submit a COBRA premium payment before coverage under the plan will cease. To be considered timely, the payment deadline is normally 30 days after the due date (or 45 days for the initial payment). While it is possible for qualified beneficiaries to take advantage of this relief in order to minimize expenses and avoid paying their premiums during the Outbreak Period, it is important to note that once the Outbreak Period is over, qualified beneficiaries must fully pay all prior months’ premiums in order to retain coverage. This could be a substantial financial burden. But if a qualified beneficiary has a major medical event, it could be cheaper to make up the costs of numerous months of premiums than to pay for the medical expenses.

Delayed COBRA Notices

  • Extended qualified event notification deadline: The final rule extends the date by which a covered employee or qualified beneficiary must notify the plan administrator of the following qualifying events: divorce (or legal separation) or a dependent child ceasing to be a dependent child. The normal deadline is 60 days after the date of the qualifying event.
  • Extended disability notification deadline: Covered employees and qualified beneficiaries have more time to notify the plan administrator of a disability determination. The normal deadline is 60 days after the date of being determined to be disabled.
  • Extended COBRA rights notification deadline: Plan administrators have more time to notify qualified beneficiaries of their COBRA rights following a qualifying event. The normal deadline is 14 days following the qualifying event (or 44 days when the employer is the plan administrator). Although plan administrators are not required to provide the COBRA election notice during the Outbreak Period, they must provide COBRA coverage if a participant elects it. Plan administrators will likely want to provide timely notices to encourage qualified beneficiaries to elect and pay for COBRA coverage.

 

Previous Relief Affecting Employee Welfare Benefit Plans

In March 2020, the IRS released Notice 2020-18, postponing the due date for all Federal income tax returns normally due on April 15, 2020, to July 15, 2020. Although not mentioned, contribution deadlines were expected to be delayed as well. A few weeks later, these expectations were met when Notice 2020-23 officially extended multiple deadlines that fell on or after April 1, 2020, and before July 15, 2020, to July 15, 2020—including deadlines for

  • making 2019 HSA contributions;
  • completing a 60-day rollover;
  • providing Form 5498-SA to HSA owners and to the IRS;
  • forfeiting unused FSA benefits;
  • receiving cash for unused vacation days; and
  • electing benefits in a noncalendar-year cafeteria plan.

 

Watch for Future Guidance

The last few months have seen a flurry of new guidance. This trend may continue for the duration of the pandemic. In fact, at the time of this writing the House of Representatives had just introduced a fourth stimulus package. Ascensus will be closely monitoring all future guidance. Visit ascensus.com for the latest updates.

 

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


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.