IRS

Washington Pulse: IRS Provides Additional SECURE Act Guidance

At the end of 2019, the President signed the most comprehensive retirement reform package in over a decade: the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act is one of multiple bills that were included in the Further Consolidated Appropriations Act, 2020 (FCAA).

The SECURE Act’s primary goals include expanding retirement savings, simplifying existing rules, and preserving retirement income. As with any major legislation, the SECURE Act created numerous outstanding questions. And while the IRS has previously provided some answers, no SECURE Act guidance has been as detailed as the recently released IRS Notice 2020-68. In addition to providing guidance on the SECURE Act, this Notice provides guidance on the Bipartisan American Miners Act, which is also part of FCAA.

 

SECURE Act Guidance

Qualified charitable distributions and the repeal of the Traditional IRA contribution age limit

Effective for 2020 and later taxable years, taxpayers with eligible compensation can make Traditional IRA contributions at any age, not just for years before reaching age 70½. Notice 2020-68 states that financial organizations that accept such contributions must amend their Traditional IRA plan agreements and disclosure statements and provide the amended documents to IRA owners.

Although most financial organizations  are likely to adopt the relaxed eligibility requirements, Notice 2020-68 states that they are not required to accept such contributions. Keeping the old contribution limitation—or delaying implementing the new rule—may benefit organizations who face possible programming concerns.

The Notice confirms that, because IRA contributions and required minimum distribution (RMDs) are reported as two separate transactions, IRA owners may not offset their RMD amount for a taxable year by the amount of contributions made for the same year. So while Traditional IRA owners may contribute past age 70½ (if they are otherwise eligible), they may also have to take an RMD for the same year.

In addition to allowing individuals to make contributions after age 70½, the SECURE Act made changes to qualified charitable distributions (QCDs). Beginning at age 70½, IRA owners and beneficiaries may donate—while satisfying their RMDs—up to $100,000 of IRA assets tax-free to a qualified charity.

The SECURE Act requires that IRA owners age 70½ and older who make deductible Traditional IRA contributions reduce the amount that they can exclude from income when taking a QCD. Notice 2020-68 confirms the formula that IRA owners should use to determine this amount.

Example: In 2020, Mike attains age 70½ and makes a $7,000 deductible contribution to his Traditional IRA. Mike also takes a $9,000 distribution payable directly to his church, which is a qualified charity. How much of the $9,000 QCD can Mike exclude from income?

Excludable QCD amount = A – (B – C)

A = the QCD amount for a year before any reduction

B = the aggregate deductible contributions made for all tax years beginning with Mike’s 70½ year

C = prior year income exclusion reductions made as a result of the SECURE Act

Excludable QCD amount = $2,000, which is $9,000 – ($7,000 – $0)

NOTE: In future years, deductible contributions made after age 70½ will continue to lessen the amount by which QCDs will be excluded from income. Contributions that reduced the excludable QCD amount in previous years are ignored; contributions that have not reduced prior-year excludable QCD amounts are aggregated with current-year deductible contributions to determine what amount of the current QCD is included in income.

 Participation of long-term, part-time employees in 401(k) plans

Effective for 2021 and later plan years, employees who have three consecutive 12-month periods with at least 500 hours of service (and who satisfy the plan’s minimum age requirement) generally must be allowed to make elective deferrals in an employer’s 401(k) plan. The current, more restrictive, eligibility rules could continue to be applied to other contribution sources (such as matching contributions) and to ADP/ACP safe harbor plans. Employers may also exclude such part-time employees from coverage, nondiscrimination, and top-heavy test rules. The SECURE Act states that no 12-month period that begins before January 1, 2021, is considered when determining the three years of service for eligibility.

Notice 2020-68 confirms that an employer can apply the new eligibility rule to employer contributions that are subject to vesting requirements. But then for vesting purposes, the employer must generally consider each 12-month period for which the employee has at least 500 hours of service starting from the employee’s date of hire—including periods of service incurred before January 1, 2021. An employer may, however, continue to exclude periods of service described in Internal Revenue Code Section (IRC Sec.) 411(a)(4) (such as periods of service incurred before age 18 or before the plan was established).

It may be difficult for some employers to determine the correct periods of service for an employee who was previously excluded from the employer’s plan. As a result, the IRS is seeking comments on how to reduce possible administrative concerns related to counting years of vesting service beginning before January 1, 2021.

Small-employer automatic-enrollment tax credit

The SECURE Act created a new tax credit for small employers that include an eligible automatic contribution arrangement (EACA) feature in their new or existing qualified employer plan. A “qualified employer plan” includes a 401(a) plan, a 403(a) plan, a simplified employee pension (SEP) plan, and a savings incentive match plan for employees of small employers (SIMPLE) plan. To be eligible for the credit, employers must have had 100 or fewer employees who earned at least $5,000 in compensation during the previous calendar year. The maximum annual tax credit is $500 for each of the first three years that the employer includes an EACA in a qualified employer plan. This provision is effective for 2020 and later taxable years.

Notice 2020-68 clarifies that employers may receive a credit for each year during a single three-year period, starting in the first year that an employer adds an EACA. In addition, employers that maintain more than one qualified employer plan must offer an EACA in the same qualified employer plan for each year of the three-year period. For example, an employer that maintains two different 401(k) plans cannot receive a tax credit in 2021 if it adds an EACA to Plan A in 2020, amends to remove the EACA from Plan A in 2021, and then amends to add the EACA to Plan B in 2021.

Notice 2020-68 also clarifies that each eligible employer that participates in a multiple employer plan (MEP) may receive the tax credit. The three-year period begins with the first taxable year that an eligible employer includes an EACA under a MEP. An employer will continue to be eligible for the credit even if it spins off and establishes its own single-employer plan.

Qualified birth or adoption distributions (QBADs)

As of January 1, 2020, distributions taken within 12 months of the birth of a child or adoption of an “eligible adoptee” are exempt from the 10 percent early distribution penalty tax. An eligible adoptee is a child under the age of 18 or an individual who is physically or mentally incapable of self-support. An eligible adoptee does not include a child of the individual’s spouse. Each parent may distribute up to $5,000 in aggregate, per birth or adoption event, from an IRA, a 401(a) defined contribution plan, a 403(a) or 403(b) annuity plan or contract, or a governmental 457(b) plan.

Individuals may repay these amounts to an IRA or eligible retirement plan. While there is currently no stated deadline for repaying a QBAD, the Treasury Department plans to issue regulations under IRC Sec. 72(t) that will address recontribution rules, including rules related to the timing of recontributions.

Notice 2020-68 clarifies that individuals are “physically or mentally incapable of self-support” if they meet the disability definition found in IRC Sec. 72(m)(7). According to this definition, an individual is disabled if he “is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or to be of long-continued and indefinite duration.”

In addition, the Notice addresses several other matters.

  • Individuals may receive a QBAD for each birth and each adoption. For example, an individual who gives birth to twins may distribute $10,000 from her IRA and treat the entire amount as a QBAD.
  • A QBAD is not treated as an eligible rollover distribution for purposes of the direct rollover rules, the IRC Sec. 402(f) notice requirement, and the 20 percent mandatory withholding requirement.
  • A QBAD is an optional distributable event, so employers are not required to add the feature to their plans.
  • A plan administrator may rely on a reasonable representation that the individual is eligible for a QBAD, unless the administrator has actual knowledge to the contrary.
  • An eligible retirement plan must accept QBAD recontributions if 1) the retirement plan permits QBADs, 2) the individual received a QBAD from that plan, and 3) the individual is otherwise eligible to make a rollover contribution to that plan at the time he wishes to recontribute the QBAD to the plan.
  • A QBAD that is recontributed to an eligible retirement plan is deemed to be an eligible rollover distribution that meets the 60-day rollover rule.
  • A participant who receives an in-service distribution from a plan that does not offer QBADs may still claim that distribution as a QBAD on her income tax return and recontribute the amount to an IRA.

Difficulty-of-care compensation eligible for IRA contributions

Certain foster care providers receive payments that are not includable in taxable income and therefore were not considered to be compensation. As a result, such individuals may not have been able to contribute to a retirement plan. Now such after-tax “difficulty-of-care payments” will qualify as eligible compensation for IRAs and defined contribution plans. This provision is effective for IRA contributions made after December 20, 2019, and for contributions made to defined contribution plans in 2016 and later plans years.

Notice 2020-68 confirms that difficulty-of-care payments to an employee must be made by the employer in order to be treated as eligible compensation. Employers that make difficulty-of-care payments to their employees must amend their retirement plans to include difficulty-of-care payments in their plan’s definition of compensation. Notice 2020-68 also notes that the IRS will release future guidance to address whether the six percent penalty tax will apply to excess IRA contributions that are based on difficulty of care payments.

 

Bipartisan American Miners Act Guidance

Under IRC Sec. 401(a)(36), pension plans could allow in-service distributions at age 62. Effective for 2020 and later plan years, the Bipartisan American Miners Act allows in-service distributions at age 59½ to participants in governmental 457(b) plans and 401(a) pension plans.

Notice 2020-68 verifies that allowing participants to take in-service distributions starting at age 59½ does not solely affect the plan’s normal retirement age. A pension plan’s definition of normal retirement age must still meet the requirements of Treas. Reg. 1.401(a)-1(b)(2), which states that a plan’s normal retirement age may not be earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed. A normal retirement age that is age 62 or later is deemed to satisfy the reasonably representative requirement. Notice 2020-68 also states that employers may continue to rely on the proposed regulations that were issued in 2016 for governmental pension plans. Employers are not required to offer the age 59½ in-service distribution.

 

Amendment Guidance

To help synchronize amendment deadlines for the SECURE Act, the Bipartisan Miners Act, and the Coronavirus Aid, Relief, and Economic Security Act, Notice 2020-68 states that employers with qualified retirement plans and 403(b) plans that are not maintained by a public school will have until the last day of the first plan year beginning on or after January 1, 2022, to amend their plans for the SECURE Act and the Bipartisan American Miners Act. This is a change from the Bipartisan Miners Act, which gave employers until the end of their 2020 plan year to amend their plan documents. Those employers with qualified governmental plans under IRC Sec. 414(d), collectively bargained (union) plans, and 403(b) plans maintained by a public school have until the last day of the first plan year beginning on or after January 1, 2024.

Governmental 457(b) plan administrators must amend their documents for the SECURE Act and the Bipartisan American Miners Act by the later of the last day of the first plan year beginning on or after January 1, 2024, or if applicable, the first day of the first plan year beginning more than 180 days after the date of notification by the IRS that the plan was administered in a manner that is inconsistent with the requirements of IRC Sec. 457(b).

Notice 2020-68 provides long awaited IRA amendment guidance. The Notice states that financial organizations must amend their IRA plan agreements and disclosure statements for the SECURE Act by December 31, 2022, or a later date as prescribed by the Treasury Secretary. The IRS expects to issue revised model IRA documents and an updated Listing of Required Modifications (LRMs). The LRMs will contain sample language that document providers may use when updating their IRA prototype documents. Employers must amend their deemed IRA documents based on the deadline applicable to the retirement plan under which the deemed IRA is established.

 

Next Steps

If they haven’t already, employers and financial organizations should educate themselves and their staff on the new requirements and determine whether they will offer any of the optional provisions. They should also start considering the amendment process for their retirement plan and IRA documents.

The IRS is requesting comments on the topics covered in Notice 2020-68—especially on the provision relating to long-term, part-time employees. Comments must be submitted on or before November 2, 2020, and should refer to Notice 2020-68. The Treasury Department and IRS are still expected to provide further guidance—including new regulations—on the SECURE Act and Bipartisan American Miners Act.

Ascensus will continue to follow any new guidance as it is released. Visit ascensus.com for the latest developments.

 

 

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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.

HSA 2021 Cost-of-Living Adjustments Released

The IRS has issued Revenue Procedure 2020-32, providing inflation-adjusted amounts for health savings accounts (HSAs) for calendar year 2021. Maximum annual HSA contributions will rise from $3,550 to $3,600 for those with self-only insurance coverage, and from $7,100 to $7,200 for those with family coverage.

Minimum deductible amounts for qualifying high deductible health plans will remain (no indexing upward for 2021) at $1,400 for self-only coverage, and $2,800 for a family plan. Maximum annual out-of-pocket amounts under self-only coverage will rise from $6,900 to $7,000, and from $13,800 to $14,000 for family coverage.

 


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.


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


Washington Pulse: New Coronavirus Law Provides Retirement Plan and Healthcare Relief

With virtually every part of the U.S. economy facing unexpected financial challenges from the coronavirus (COVID-19) pandemic, Congress has passed the largest relief package in U.S. history. Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act is designed to assist the millions of Americans affected by the outbreak. The legislation has multiple provisions that affect retirement and health savings arrangements.

 

Retirement Savings Provisions

Most financial experts advise against using assets that have been set aside for retirement. But many individuals may have to do just that in order to supplement their income. The following provisions are intended to help individuals access their IRA and retirement plan assets and to replenish those assets later on.

  • New coronavirus-related distributions (CRDs). Individuals may withdraw up to $100,000 in aggregate from eligible retirement plans without paying the 10 percent early distribution penalty tax.
    • A CRD is defined as a 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 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.

The CARES Act clarifies that employers may rely on participants’ certification that they meet the CRD requirements.

    • An eligible retirement plan is defined as a qualified retirement plan (e.g., a 401(k) plan), 403(b) plan, governmental 457(b) plan, or an IRA.
    • CRDs will meet the retirement plan distribution requirements, as long as all distributions from one employer do not exceed $100,000.
    • Individuals may repay CRDs over three years beginning with the day following the day a CRD is made. Repayments may be made to an eligible retirement plan or IRA.
    • CRD repayments made 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.
    • Although CRDs may be rolled over, they are not considered “eligible rollover distributions” for certain purposes. Employers are not required to offer a direct rollover option. Employers are also not required to withhold 20 percent on a CRD or provide a 402(f) notice, which explains the tax and rollover options required by IRC Sec. 402(f).
  • Waiver of RMDs in—or for—2020. Financial markets have taken a hit in the wake of the coronavirus outbreak. To help savers retain more in their retirement accounts, the CARES Act waives the required minimum distribution (RMD) in 2020 for plan participants, IRA owners, and beneficiaries.
    • RMDs normally required to be taken for 2020 are waived.
    • This waiver also applies to individuals who turned 70½ in 2019 but who did not take their first RMD before January 1, 2020. In the absence of additional relief, the next RMD for those individuals must be taken by December 31, 2021.
    • For purposes of counting the five-year period for beneficiary distributions, 2020 is disregarded and one year is added to the remaining period. For example, for deaths occurring in 2019, the five-year period in which the inherited assets must be distributed will end on December 31, 2025, instead of on December 31, 2024.
    • A distribution that is taken in 2020—but that is not an RMD because of the waiver—may be rolled over to another eligible retirement plan or to an IRA within 60 days of the distribution. Though such distributions may be rolled over, they are similar to CRDs in that they are not treated by employer plans as eligible rollover distributions for purposes of the 20 percent mandatory withholding, the 402(f) notice, or the direct rollover requirements.
  • Increased maximum plan loan amount. The retirement plan loan maximum for a qualified Individual (defined as meeting the COVID-19 or SARs-CoV-2 conditions described previously) is increased to the lesser of $100,000 or 100 percent of the participant’s vested balance. This increased amount applies to loans made during the 180-day period beginning on March 27, 2020.
  • Delayed plan loan repayment date. Retirement plan loan repayment dates that occur between March 27, 2020, and December 31, 2020, can be delayed for one year, with the amortization period—including the five-year repayment deadline—adjusted accordingly.
  • Funding relief for defined benefit plans. For single-employer defined-benefit pension plans, the minimum required contributions due during 2020 can be delayed to January 1, 2021 (adjusted for interim earnings). Employers also have an option to use an alternative funding target percentage.
  • Expanded DOL authority to postpone certain deadlines. In addition to taking action in response to a disaster or terroristic threat, the DOL may now postpone certain deadlines under ERISA if a public health emergency (like the COVID-19 pandemic) occurs.
  • Amendment guidance. Plan sponsors generally must amend their retirement plans for these provisions by the last day of the 2022 plan year (government plans have an additional two years), or such other date as the Treasury Secretary may prescribe, with operational compliance during the interim period.

 

Health-Related Provisions

  • Allowable Services. Health insurance plans can pay for telehealth and remote care services without first requiring an individual to satisfy a deductible. Such payments will be deemed not to violate existing HSA requirements. This relief applies to plan years that begin on or before December 31, 2021, and promotes diagnosis and treatment while helping individuals avoid possibly risky in-person contact.
  • New qualified medical expenses. Certain medicines or products do not need to be a “prescription” to be qualified medical expenses for HSA, HRA, MSA, and health FSA purposes. The CARES Act specifically includes over-the-counter menstrual care products.

Although the CARES Act represents the largest relief package in U.S. history, there may be more to come. Government officials have stated that more relief will be available if needed. For now, the CARES Act should help many Americans get some of the financial relief that they desperately need. We are closely reviewing the CARES Act and other possible COVID-19 guidance. Visit ascensus.com for the latest information and developments.

 

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IRS Announces Extension of Deadlines for 403(b) and Pre-Approved DB Plans

The IRS on Friday, March 27, announced in a website posting that it is extending the last day of the initial remedial amendment period for pre-approved and individually designed 403(b) plan documents, from March 31, 2020, to June 30, 2020. Plan sponsors will have until this June date to update their pre-approved and individually designed 403(b) plan documents. The IRS noted that existing guidance (Revenue Procedure 2019-39) specifying the earlier deadline will be modified to reflect the extension.

The IRS also noted in the same posting that it is extending from April 30, 2020, to July 31, 2020, the end of the six-year remedial amendment cycle for pre-approved defined benefit (DB) pension plans. That deadline will also apply for employers to adopt a pre-approved DB plan and—if eligible—to submit a determination letter application under the second six-year remedial amendment cycle.

The third six-year remedial amendment cycle for pre-approved DB plans will begin August 1, 2020, and end on January 31, 2025. The submission period for on-cycle, pre-approved plan opinion letter applications for the third six-year remedial amendment cycle will begin (unchanged) August 1, 2020, and end on July 31, 2021. Future IRS guidance will reflect these DB plan changes.


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.

 


Washington Pulse: Congress and the IRS Provide Separate COVID-19 Guidance that Addresses Payment for Diagnosis and Treatment

The U.S. government has delivered two pieces of welcome relief in the midst of the coronavirus (COVID-19) pandemic. First, the President has signed legislation that requires healthcare insurance providers to cover COVID-19 testing without charging the patient. Second, the IRS has indicated that high deductible health plans (HDHPs) will retain their qualified status even if they cover the cost of COVID-19 testing and treatment before the satisfaction of the plan deductible. This will enable individuals with health savings accounts (HSAs) to continue to make tax-deductible contributions.

 

Legislative Relief for COVID-19 Testing

President Trump signed the Families First Coronavirus Response Act (the Act) on March 18, 2020, to address the many disruptions caused by the COVID-19 outbreak. One of the primary concerns addressed in this bill is the fear that those exposed to the virus might hesitate to be tested for the disease if they have to pay for such testing out of pocket. To encourage testing, the Act requires group and individual health insurance plans to provide coverage for two items.

  • Diagnostic testing products. This refers to federally approved products that detect the COVID-19 virus.
  • Items and services that are associated with the use of such a diagnostic product. Simply put, this requires health insurance plans to cover the costs of
    1. the office visit (even if virtual),
    2. any materials or services needed to determine whether testing is needed, and
    3. administering the test.

Health insurance plans must provide this coverage with no cost sharing (e.g., no deductibles, copayments, or coinsurance) and with no prior authorization. The statute gives joint enforcement authority to the Secretary of Health and Human Services, the Secretary of Labor, and the Secretary of Treasury, and each of these departments has the authority to issue guidance to implement these provisions.

 

IRS Relaxes HDHP Rules

To help facilitate the nation’s response to the COVID-19 virus, the IRS issued Notice 2020-15 on March 11. This guidance provides a green light for insurers offering HSA-compatible HDHPs to cover the cost of the COVID-19 diagnostic testing and associated treatment without application of a deductible or other cost sharing. The IRS notes that doing so will not disqualify the HDHP, so individuals covered by these plans may continue to contribute to their HSAs.

Normally, individuals can make HSA contributions only if they maintain HSA-compatible HDHPs. This means that the HDHP must meet certain requirements such as minimum deductibles and maximum out-of-pocket expenses. In general, individuals must not also be covered by a non-HDHP.

The concern that the cost of COVID-19 testing could be a barrier to seeking medical care during this outbreak led the IRS to relax current rules. The IRS states in Notice 2020-15, that

Due to the nature of this public health emergency, and to avoid administrative delays or financial disincentives that might otherwise impede testing for and treatment of COVID-19 for participants in HDHPs, this notice provides that all medical care services received and items purchased associated with testing for and treatment of COVID-19 that are provided by a health plan without a deductible, or with a deductible below the minimum annual deductible otherwise required . . . for an HDHP, will be disregarded for purposes of determining the status of the plan as an HDHP.

This easing of the existing HSA-compatible HDHP rules should be a welcome relief for many individuals who may be affected by the COVID-19 outbreak.

 

The Interaction of Legislative Relief and Notice 2020-15

IRS Notice 2020-15 states that an HDHP  that covers the cost of COVID-19 testing or treatment will still be considered an HSA-compatible HDHP—and eligible HSA owners will still be able to make tax-deductible contributions. The new federal statute, on the other hand, requires health plans to cover COVID-19 testing expenses, but not treatment expenses.

Individuals participating in HDHPs or any other type of health plan should consult the insurer regarding their costs associated with COVID-19 testing and treatment, including the potential application of any deductible or cost sharing. Watch ascensus.com Latest News for further developments regarding the effects of the COVID-19 pandemic on both health and welfare and retirement arrangements.

 

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