Employer Student Loan Tax Benefit in the CARES Act

As part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, payments made between March 27 and December 31, 2020, toward employee’s student loan debt may be eligible for a tax benefit. Employees can exclude up to $5,250 from their gross income, so long as the payments are for the retirement of student debt. This section (Section 2206) of the CARES Act amends IRC Section 127 (IRC 127) by adding a special rule in the form of Section 127(c) (1) (B).

Prior to CARES, IRC 127 allowed for tuition paid for an employee’s current education (up to $5,250) to be excluded from gross income.  Under IRC 127, because the benefit is not income to the employee, the employer is not paying payroll taxes while assisting their employees in paying off their debt. The CARES Act provides a temporary window through the end of 2020 to apply the tax benefit for prior education student loan principal and interest. Payments may be made to employees or directly to the employee’s lender.

Employer Student Loan Tax Benefit in the CARES Act

Employees with student loans have been able to claim a deduction for interest paid up to $2,500. The CARES Act prevents employees from claiming this deduction and the $5,250 exclusion from their gross income. In a sense, they cannot “double dip”.

Employers who offer an educational assistance program as prescribed through IRC 127 must have the following elements:

  • Be set forth in writing
  • Not be discriminatory in terms of eligibility
  • Adhere to restrictions on the eligibility of principals who own at least 5% of the company
  • Not be offered as a replacement to other remuneration (i.e. allocation of salary), and
  • Be communicated to employees sufficiently

Why Add the Student Loan Benefit Now?

Many Americans struggle with student debt and this entices employers to create an educational assistance program or revise an existing program to include student loan repayments. It is a benefit that can set companies apart from competitors. This benefit would be especially valuable to employers who are highly competitive in hiring recent college graduates. Surveys from 2019, including a Society of Human Resources Institute survey, indicate that less than 10% of employers are offering the student loan repayment benefit.

What Next?

There is some thought that this temporary exclusion from gross income may become permanent. It would make sense, the IRS provides the benefit for students to stay out of (or reduce) debt through excluding tuition reimbursement from gross income, it seems it could do the same in allowing employees to get out of debt quicker.

It is not difficult to set up and administer an educational assistance program and right now they can provide employees and employers with a substantial tax-free benefit. The one challenge to the benefit is that is one that is not available for all employees to enjoy, as opposed to health insurance, short-term disability, etc. However, offering this as a benefit could prove valuable to employers in attracting talented employees.

To learn more about the student loan tax benefit and how it affects employers, please contact Brad Smith in the form below.

Published June 29, 2020

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New FSA rules from the IRS: Some Considerations

This past week, the IRS has provided two notices (IRS Notice 2020-29 and IRS Notice 2020-33) related to health flexible spending accounts and dependent care flexible spending account plans, commonly referred to as health FSAs and DCAP plans. Many employers and employees have been hoping for, or even expecting this type of guidance, which was a relaxation of strict IRS rules related to health FSA and DCAP plans.  

Given the current COVID-19 public health emergency, childcare facilities have been shut down for a period of time nationwide. Elective surgeries have been deferred and for some people, may not be rescheduled this year. This means that money employees have set aside in DCAP or health FSA accounts may not be needed this year. Unlike other employee healthcare-related accounts, such as health savings accounts (HSAs), funds deferred into health FSAs and DCAPs have limited rollover capabilities. This new guidance from the IRS is a welcome effort to offer flexibility to these programs and it certainly makes sense in this unprecedented time.

A summary of specific changes can be found here.

However, as an employer, there are a couple of things you should keep in mind.

New FSA rules from the IRS

Communication Plan

If you have a DCAP and/or a Health FSA, and you choose to implement these flexible options for 2020 you will want to take some action to notify your employees. Because these changes can have a significant financial impact on your employees during this unusual time, you may want to consider putting some extra efforts toward educating your employees as to their specific new options. You should also expect to work with your FSA and DCAP administrator(s), if applicable, to coordinate upcoming changes and necessary file feeds.  This may be as simple as an email and you may be able to rely on your vendors or broker/consultant to draft communications.

Depending on the needs of your employees, you may feel a more robust communication plan is required. If that is the case, please reach out to the contact below or your Findley consultant and they can help.

Effects on Non-discrimination testing

In general, employers who sponsor DCAP and Healthcare FSA plans are subject to Cafeteria plan non-discrimination testing under IRS Code section 125.  DCAPs are additionally subject to DCAP plan testing under IRS Code section 129. Employers should know that the IRS notices do not suspend non-discrimination testing for the 2020 plan year and employers should be mindful that they still must pass applicable non-discrimination tests in order to maintain tax-qualified benefit plans. If you have already reviewed your current plan year and have passed testing related to IRS codes section 125 and 129, you may need to revisit those tests with updated information.

Particularly for DCAP testing under IRS code section 129, passing the average benefits test can be an annual source of anxiety for some employers. Adding deferral flexibility may change a plan from passing or failing this test in a given year, depending on changes your employees elect.

If you have questions regarding the impact of additional deferral changes on your ability to pass non-discrimination testing, you should reach out to whoever handles your testing annually. This may be your FSA or DCAP administrator or a consultant.

Here at Findley, we offer this type of expertise to our clients. If you should have any questions, please reach out to the Findley consultant you normally work with or Dave Tighe at Dave.Tighe@findley.com or 419.327.4194

For the actual IRS notices click here

Published May 21, 2020

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The DOL and the IRS Issue New COBRA Notices and Extensions

Why?

In response to the National Emergency declared by President Trump on 3/1/2020, the DOL’s Employee Benefits Security Administration (EBSA) is taking efforts to help workers who have had a reduction in hours and could be at risk for unnecessary high costs.

What?

COBRA timeframes, Special Enrollment timeframes, as well as Claim Procedure and External Review Process timeframes, have all been extended after the Outbreak Period ends, which is determined to be 60 days after the National Emergency is declared over. As of this writing, the National Emergency has been ordered through 7/25/2020. That means the Outbreak Period would end on 9/23/2020. So essentially, the “Qualifying event” is the date the Outbreak Period ends for these timeframes, not the date of the actual event or loss of coverage.

The DOL and the IRS Issue New COBRA Notices and Extensions

For example, in the case of a termination of employment on 3/15/2020, that employee would have until 11/22/2020 to elect COBRA. Remember, the final date to elect COBRA is a 60 day extension from the end of the Outbreak period. For an employee who previously declined group health plan coverage and had a baby on April 17, 2020, they have a special enrollment period and have until October 23, 2020 (30 days after Outbreak period), to enroll herself and her child in coverage. These extensions are effective back to 3/1/2020.

Who?

The Joint Notice technically applies only to plans subject to ERISA and the Code. However, it appears HHS intends to adopt a policy to extend similar timeframes to non-federal governmental group health plans and insurers. HHS encourages governmental group health plans to provide similar relief.

When?

These extensions are unprecedented, and employers and plan administrators will need to take steps to ensure that participants understand the new rules. Employers and plan administrators may want to consider supplementing and modifying COBRA forms, special enrollment notices, and summary plan descriptions, to reflect these extensions.

Although it is not required, we feel it is the responsibility of the plan administrators to notify plan participants and their beneficiaries of their COBRA rights. Below you can find model notices from the DOL, along with an FAQ, that you can use to help communicate with your employees. You should work with your COBRA vendor to help notify plan participants that would be eligible. Please note that providing these notices will NOT necessarily protect you from potential COBRA related litigation.

COBRA model notices

Frequently Asked Questions

For more information or questions regarding how these notices and extensions could impact your organization, contact Dave Barchet at Dave.Barchet@findley.com or 216.875.1914 or Blake Babcock at Blake.Babcock@findley.com or 216.875.1904

Published May 8, 2020

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Benefit Plans Get Disclosure and Filing Relief in COVID-19 Emergency

On April 29th, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) issued EBSA Disaster Relief Notice 2020-01 (Notice) to provide employers with additional relief as they make their way through the national emergency due to the Novel Coronavirus Disease (COVID-19) Outbreak. The guidance applies to employee benefit plans, employers, labor organizations, and other plan sponsors, plan fiduciaries, participants, beneficiaries, and service providers subject to ERISA from March 1, 2020 until 60 days after the announcement that the national emergency is over, or such other date announced by the DOL. Additional guidance can be found in  29 CFR Parts 2560 and 2590 and 26 CFR Part 54.

The Notice was a coordinated effort of the Department of Labor’s EBSA, the Internal Revenue Service (IRS) and the Department of Health and Human Services (HHS). Specifically, HHS intends to exercise enforcement discretion and extend timeframes (similar to those announced by EBSA) applicable to group health plans and health insurance issuers offering coverage as to group health plans, their participants, beneficiaries and enrollees. HHS is also urging states and health insurance issuers offering coverage as to group health plans to operate in a manner consistent with the Notice.

Benefit Plans Get Disclosure and Filing Relief

Extension of Deadlines

Specifically, the Notice extends the time for furnishing benefit statements, annual funding notices, as well as other notices and disclosures (e.g. summary plan descriptions, summaries of material modification) required by Title I of ERISA, provided that the efforts to issue such notices and disclosures are made in good faith. The Notice specifies that an employee benefit plan and the plan fiduciary will not violate ERISA for failing to timely furnish a notice, disclosure, or document that must be furnished between March 1, 2020 and 60 days following the announced end of the COVID-19 national emergency.

Expansion of Electronic Delivery of Notices or Disclosures

The DOL specifies that acting in good faith includes use of electronic means of communicating with plan participants and beneficiaries if the plan fiduciary reasonably believes that participants and beneficiaries have effective access to such electronic communication means as email, text message and continuous access websites.

Relief for Deadlines in ERISA’s Claims Procedures

For group health plans subject to ERISA or the Internal Revenue Code, the additional time gives employers, participants and beneficiaries additional time to comply with certain deadlines affecting COBRA continuation coverage, special enrollment periods, benefit claims, appeal claims and the external review of certain claims.

For disability, retirement and others plans subject to ERISA’s claim procedures, participants and beneficiaries are given additional time to comply with deadlines for benefit claims and the appeal of denied claims.

Specific Areas of Relief in the Notice

The Notice provided specific guidance in connection with plan loans and distributions, participant contributions and loan repayments, blackout notices, Form 5500 and Form M-1 filings.

Form 5500 and Form M-1 Filings

Relief for Form 5500 and PBGC deadlines was described in Findley’s article Filing Extension to July 15th for Approaching Form 5500 and PBGC Deadlines. The deadlines for Form M-1 filings required for multiple employer welfare arrangements (MEWAs) and certain entities claiming exception (ECEs) are extended for the same period of time as the Form 5500 filings.

Plan Loans and Distributions

The Notice provides relief to an employee pension benefit plan that fails to follow procedural requirements for plan loans or distributions provided in the plan’s provisions. The relief is conditioned on the following factors:

  • The failure is solely attributable to the COVID-19 emergency;
  • The plan administrator’s efforts to comply with the requirements are made in good faith;
  • The plan administrator makes reasonable efforts to correct any procedural deficits as soon as administratively practicable (e.g. obtaining missing documentation).

The relief for verification requirements is limited to those proscribed by Title I of ERISA. The relief does not extend to statutory or regulatory requirements under the jurisdiction of the IRS, such as spousal consent requirements.

Participant Loan Repayments and Contributions

Currently, amounts withheld from a participant’s wages by the employer for contributions or plan loan repayments are considered plan assets that must be forwarded to the plan on the earliest date on which those amounts can reasonably be segregated from the employer’s general assets. In any event, the amounts cannot be forwarded to the plan later than the 15th business day of the month following the month in which the amounts were paid to or withheld by the employer. In this Notice, DOL announces that it will not take enforcement action with respect to a temporary delay in forwarding those contributions and loan repayments, as long as such delay is attributable to the COVID-19 emergency. Employers and service providers must act as soon as administratively practicable, and in the interest of the employees, to forward the delayed amounts.

Blackout Notices  

Currently, the administrator of an individual account plan is required to provide 30 days’ advance notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, or restricted by a blackout period. The advance notice is triggered by a period of suspension or restriction of more than three consecutive business days on a participant’s ability to direct investments, obtain loans or other distributions from the plan. An exception to the advance notice requirement is provided when the inability to provide the notice is due to events beyond the plan administrator’s reasonable control. In this Notice, DOL announces that it will not take enforcement action with respect to a temporary delay in providing required blackout notices, including those required to be provided after the blackout period begins. The currently required written determination by a fiduciary for blackout notices will not be required during the COVID-19 emergency.

General ERISA Fiduciary Guidance

In this Notice the DOL provides that the guiding principle for plans must be to act reasonably, prudently, and in the interest of the covered workers and their families, including making reasonable accommodations to prevent the loss of benefits or undue delay in benefits payments. Plans should minimize the possibility of individuals losing benefits because of a failure to comply with the deadlines discussed above. The DOL’s approach to enforcement will emphasize compliance assistance and include grace periods and other relief where appropriate.

Questions? Please contact the Findley consultant you regularly work with or Sheila Ninneman at Sheila.Ninneman@findley.com, or 216.875.1927

Published on May 1, 2020

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Filing Extensions to July 15th for Approaching Form 5500 and PBGC Deadlines

A pair of government releases provides Form 5500 filing deadline relief for employee benefit plans, and PBGC filing relief for pension plans.

On April 9th, the IRS released Notice 2020-23, in which the Secretary of the Treasury determined that any person required to perform a time-sensitive action between April 1, 2020 and July 15, 2020 is affected by the Coronavirus/COVID-19 emergency. That includes filing a Form 5500 for an employee benefit plan, among other things. Any filing that is due on or after April 1, 2020, and before July 15, 2020, is automatically postponed to July 15, 2020. This is true for original filing deadlines and those obtained via a previous filing for extension. It is also automatic, so there is no need to contact the IRS or file any extension forms.

Filing Extensions to July 15th for Approaching Form 5500 and PBGC Deadlines

On April 10th, in Press Release Number 20-02, the Pension Benefit Guaranty Corporation (PBGC) announced it is offering flexibility to pension plan sponsors in response to the Coronavirus/COVID-19 outbreak.  Any deadlines for upcoming premium payments, and for other filings that originally fell on or after April 1, and before July 15, 2020, have been extended to July 15, 2020. So this includes regular premium filings as well as 4010 filings, but there are exceptions for filings that the PBGC requires related to tracking possible high risk of harm to participants or the PBGC’s insurance program. Some examples of exceptions are notification of large missed contributions through Form 200 and advanced notice of reportable events through Form 10-Advance. For a list of filings not covered by disaster relief announcements, see the PBGC’s Exceptions List.

These two releases provide welcome news for benefit plan sponsors with original deadlines approaching very quickly. However, it does not address deadlines for sponsors of plans with calendar year measurement periods. As more unfolds about how and when the stay-at-home requirements begin to be lifted, we may see additional deadline relief from the IRS and PBGC. Findley will continue to monitor these events and keep you updated.

Questions? Contact the Findley consultant you normally work with, or contact Colleen Lowmiller at colleen.lowmiller@findley.com, 216.875.1913.

Published April 14, 2020

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Coronavirus Crisis Workforce Reduction Can Adversely Affect Retirement Programs

The coronavirus pandemic continues to ripple across the country and many organizations face several unprecedented, difficult decisions surrounding their workforce and the use of cash. While payroll-reducing strategies may be necessary during this time of substandard revenue, they may also present other costs or hurdles in the company’s pension, retiree medical, and retiree life insurance programs. Significantly changing employee demographics can trigger unexpected accounting, cash flow, and compliance issues that could be an unwelcome surprise given current market conditions.

State mandated stay-at-home orders not only reduce the ability for consumers to purchase, but also the need for employees to produce. For many industries, this means downsizing workforces and payroll at record levels via layoffs, furloughs, reductions in force, and salary cuts. However, in this time where management decisions are focused on the best positioning of their organization from “crisis” to “rebound” mode, it is important that pension and retirement programs are not placed on the back burner. 

Coronavirus Crisis Workforce Reduction Can Adversely Affect Retirement Programs

Identify and Prepare for Potential Consequences

A proactive analysis of an organization’s workforce reduction program, as well as the group of employees impacted, may help identify and prepare for the impact of some of these potential unintentional consequences due to coronavirus:

Curtailment Accounting Under U.S. GAAP

Curtailment accounting may be initiated when more than 5-10% of the plan’s active participants are impacted by a workforce reduction event such as layoffs or forced termination, or a reduction or elimination of future benefit accruals. The curtailment impact is an immediate recognition of a portion of unrecognized prior service costs and could also prompt an interim re-measurement at the time of the event, likely unfavorable given the current market environment. Curtailment accounting can increase the “below the line” expense for accounting for pension, retiree medical, and retiree life insurance plans under U.S. GAAP.

Settlement Accounting Under U.S. GAAP and Cash Concerns for Pension Plans Offering Lump Sums

Settlement accounting is set into motion when lump sum payouts exceed the service cost and interest cost components of net periodic pension cost during the fiscal year. This may be increasingly likely as laid off participants may access their pension benefits for their own financial security. The settlement impact is an immediate recognition of unrecognized gains and losses, and similar to curtailments, could also cause an interim re-measurement at the time of the event. 

In addition, while payroll reducing strategies may be advantageous for cutting current expenses, pension plans that offer lump sums upon termination could end up in a situation where the plan requires more cash in the future. Paying an increased number of lump sums to participants could force the pension plan to raise cash by selling equities at a time when the market is significantly depressed. Selling equity at market lows may inhibit the pension plan’s ability to recover in the long term. 

Benefit Enhancements and Plant Shutdown Liability under PBGC and ERISA

Benefit enhancements and plan shutdown liability may be triggered when either a facility closure impacts more than 15% of the plan sponsor’s active participants benefitting in any pension or defined contribution plan; or if the pension plan document provides for special shutdown benefits in any size closure. Special, enhanced shutdown benefits that can increase pension plan liability and plan costs may be required to protect employees close to retirement if defined in the plan document. In addition, the Pension Benefit Guaranty Corporation (PBGC) may require special reporting and accelerated cash contributions under ERISA 4062 for some underfunded pension plans. The PBGC also may require a special report under ERISA 4043 if the number of active participants is significantly reduced for any reason.

Vesting Enhancements under IRS Partial Pension Plan Termination

A partial pension plan termination may occur when more than 10-20% of the plan’s active participants are impacted by closing a facility or division, or from any higher turnover due to economic factors. Partial pension plan termination requires the plan sponsor to grant immediate vesting eligibility or face Internal Revenue Service (IRS) disqualification in the pension plan. This is ultimately an IRS decision based on facts and circumstances and might be avoided if the reduction is structured to furlough (not typically a formal separation) rather than permanently terminate employees. 

Increased Liability and Cash Requirements for Unfunded Retiree Medical Plans

Eliminating participants who are retirement eligible can lead to a spike in retiree medical claims costs and liabilities. Unfunded retiree medical plans “pay as you go” and do not have back-up trust assets to use toward claims in the event more participants begin retiree medical plan benefits sooner than expected. Retiree medical plans with early eligibility may be responsible for benefits over a much longer period than expected at a time when rates charged by insurers may also be increasing. Together, plan sponsors may see increased claim costs in 2021, as well as higher liability and net periodic benefit costs in fiscal 2021.

IRS Compliance Concerns Related to Passing Pension Plan Non-discrimination Testing

There is a likelihood for increased difficulty in obtaining favorable non-discrimination testing (NDT) results when there is a significant change in the demographics of the plan’s active employees. For example, NDT results will be less favorable when non-highly compensated employees (NHCEs) are forced to terminate at higher rates than highly compensated employees (HCEs) and also when salaries for NHCEs are reduced at higher levels than HCEs. Alternatively, workforce reductions impacting HCEs at higher rates could improve testing results.

Violation of Union Agreements and Debt Covenants

While not tied exclusively to workforce reductions, any decision that deviates from normal practice has a potential to violate established agreements with union contracts and debt covenants. Keep in mind, relief permitted by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) may not be permitted under current arrangements.

Minimum or Variable Interest Credit Rates for Cash Balance Plans

While interest crediting rates have already been set for most cash balance plans with calendar plan years, if low interest rates persist it could mean a significant drop in the crediting rate for 2021, possibly requiring the minimum interest crediting rate to apply. In addition, plans using variable interest crediting rates may see negative returns, making non-discrimination testing more difficult.   

Seek Guidance

The bottom line is this: the coronavirus crisis continues to evolve and any workforce strategy decision should be pursued with guidance from your actuary, auditor, or legal counsel. Early analysis may help your company prepare for retirement program concerns that may arise from implementation of the selected cost-saving payroll strategy. Contact your Findley consultant to discuss any workforce reduction program you may be considering to ensure all relevant issues are addressed.

Questions? For more information, contact the Findley consultant you normally work with, or contact Debbie Sichko at debbie.sichko@findley.com, or 216.875.1930

Published April 13, 2020

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Breaking Down the Secure Act – Required Minimum Distributions

Benefits experts are still poring through the SECURE Act’s various mandated provisions, optional provisions, and effective dates, some of which may be retroactive. This series of articles will break down the implications that the Act has for existing tax-qualified retirement plans. This article will focus on the Act’s impact on required minimum distributions (RMDs) for both defined benefit and defined contribution plans. Related articles will address (1) changes that impact 401(k) and other defined contribution plans only, (2) changes for defined benefit plans only; and (3) other changes to the retirement plan landscape.

Remedial Amendment Period

Plan sponsors generally have until the last day of the 2022 plan year to adopt amendments that reflect the Act’s required revisions.  For calendar year plans the last day is December 31, 2022. Governmental plans have until the 2024 plan year to amend. Remember that operational compliance is still required during the period from the effective date for the Act’s required changes and the date the plan is amended.

Delay of Lifetime RMDs – MANDATORY

Prior law: Distributions from an eligible employer retirement plan must be made by April 1 of the calendar year following: (a) the calendar year in which the participant turns age 70-1/2, or (b) for a participant who is not a 5% owner, the calendar year in which he or she terminates employment after age 70-1/2.

Under the Act: The required age for RMDs is raised from 70-1/2 to 72. Participants who are not 5% owners and who work beyond the required age for RMDS, under the Act still don’t trigger RMDs until the calendar year in which they retire. The Act did not change the way in which 5% owners are determined. In addition, post-death distributions to a participant’s surviving spouse are not required to begin before the calendar year in which the participant would have obtained age 72 (formerly 70-1/2). 

Effective date: The new age applies to employees who turn age 70-1/2 after December 31, 2019; that is, for those born after June 30, 1949. For those born on or before June 30, 1949 (already obtained age 70-1/2 prior to January 1, 2020), the prior law applies.

What to do and when: Plan sponsors should work with their service providers to track two populations: those born on and before June 30, 1949 (for whom age 70-1/2 is the RMD trigger date), and those born after that date (for whom age 72 is the RMD trigger date). Distributions of RMDs for the latter population therefore need not begin until April 1 of the calendar year following the year they attain age 72.

This change to tax-qualified retirement plans will necessitate updates to distribution forms, SPDs, 402(f) notices, and participant communications.

Post-Death RMDs are accelerated – MANDATORY

Prior law: In general, distributions are permitted to be paid annually over the beneficiary’s life expectancy. In general, if the participant died before RMDs began, distributions could be made at various times, provided the entire account was distributed by the end of the fifth year following the participant’s year of death.

Under the Act:  Following the death of the participant, distributions must generally be made by the end of the 10th calendar year following the year of death. The determination of the 10-year period is presumably calculated in the same way that the 5-year period was calculated. Payments can be made over the beneficiary’s life expectancy provided the beneficiary is an “eligible designated beneficiary”, which can be the surviving spouse, a disabled/chronically ill individual, a minor child of the participant or a beneficiary no more than 10 years younger. Prior rules still apply to a beneficiary that is not a “designated beneficiary”.

Effective date: The rule regarding the acceleration of post-death RMDs is effective for deaths that occur after December 31, 2019. Special delayed effective dates apply to collectively bargained and governmental retirement plans. 

What to do and when: Sponsors of tax-qualified retirement plans should be working with their service providers to implement these rules now.

This change will impact beneficiary designation forms, distribution forms, SPDs and other participant/beneficiary communications.

Special Note for Defined Benefit Pension Plans

The Act does not change actuarial increases required by Internal Revenue Code 401(a)(9)(C).  For individuals who continue working and choose to retire late, a defined benefit plan must provide actuarial increases beginning at age 70-1/2.  

General Thoughts

Commentators anticipate IRS guidance to provide self-correction relief for plans that fail to implement the new rules correctly during the remedial amendment period and clarify the Act’s impact on current regulations. Tax-qualified plan sponsors considering an amendment prior to the remedial amendment deadline, for the sake of clarity for itself and its service providers, may want to wait to see how further guidance may affect that amendment.

Questions? Please contact the Findley consultant you regularly work with or Sheila Ninneman at Sheila.Ninneman@findley.com, or 216.875.1927.

To learn more about the passage of the Secure Act and changes to retirement plans, click here

Published March 19, 2020

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2020 Health and Group Benefits Plan Compliance Calendar

Calendar Plan Year & Calendar Employer Tax Year*

2020 Health and Group Benefits Plan Compliance Calendar January through June
2020 Health and Group Benefits Plan Compliance Calendar July through December

January 2020

31   Last day to report on Form W-2 to employees the cost of applicable employer-sponsored coverage under a group health plan

February 2020

28   Paper Filing – Last day for applicable large employer member to file one or more Forms 1094-C and to file Form 1095-C for each employee who was a full-time employee for any month of the calendar year 2019

28   Paper Filing – Last day for person that provides minimum essential health coverage to an individual during calendar year 2019 to file an information return with the IRS reporting the coverage. Filers will use Form 1094-B, Transmittal of Health Coverage Information Returns, to submit Forms 1095-B, Health Coverage, to IRS.

28   Notice of Breach of Unsecured Protected Health Information – breaches affecting fewer than 500 individuals. Last day for covered entities to notify HHS of a breach affecting fewer than 500 individuals. (Covered entities must notify affected individuals of such a breach without unreasonable delay and in no case later than 60 days following the discovery of a breach.)

March 2020

02   Last day to file electronically with DOL Form M-1 annual report for MEWAs (and certain entities claiming exception) for 2019 (without extension)

02   Last day for filers of IRS For 1095-B, Health Coverage, to furnish a copy of Form 1095-B to the person identified as the “responsible individual” on the form for coverage in 2018

02   Last day for an applicable large employer member to furnish a Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to each of its full-time employees

31   Electronic Filing – Last day for an applicable large employer member to file one or more Forms 1094-C and to file a Form 1095-C for each employee who was a full-time employee for any month of the calendar year 2019 bb

31  Electronic Filing – Last day for person that provides minimum essential coverage to an individual during calendar-year 2018 to file an information return with the IRS reporting the coverage. Filers will use Form 1094-B, Transmittal of Health Insurance Offer and Coverage Information Returns, to submit Forms 1095-B, Health Coverage, to IRS

May 2020

15   Last day (unextended deadline) to file Form 990 series for a 2019 VEBA. An automatic filing extension of 6 months may be requested by filing Form 8868 by the due date of the Form 990

July 2020

28   Last day to furnish Summary of Material Modifications (SMM) to participants and beneficiaries receiving benefits

31   Last day to file Form 5500 for 2019 without extension

31   Last day (unextended deadline) to file Form 5330 and pay excise tax on disqualified benefits underfunded welfare plans

31   Last day (unextended deadline) to file Form 5330 and pay excise tax on certain excess fringe benefits

September 2020

30   Last day to furnish Summary Annual Report (SAR) for 2019 plan year to participants and beneficiaries if an extension to file Form 5500 was not obtained

October 2020

Prior to Oct. 15, 2020 – Medicare Part D Creditable Coverage Notice – Employers offering prescription drug coverage to Medicare Part D eligible individuals must notify those individuals whether the offered prescription drug coverage is creditable coverage. Notice must be provided prior to Oct. 15, 2020.

15   Last day to file Form 5500 with extension

December 2020

15   Last day (with extension) to furnish Summary Annual Report (SAR) for 2019 plan year to participants and beneficiaries

*This calendar is designed to provide a general overview of certain key compliance dates and is not meant to indicate all possible compliance dates that may affect your plan.

Copyright © 2020 by Findley, Inc. All rights reserved.

To access other selected requirements with no specific deadline plus a detailed description of each compliance item, click below.

View 2020 Detailed Health and Welfare Plan Compliance Calendar/Checklist and other selected requirements with no specific deadline

Interested in other compliance calendars?

Defined Benefit

Defined Contribution

2020 Defined Contribution Plan Compliance Calendar

Calendar Plan Year & Calendar Employer Tax Year*

defined contribution plan compliance calendar 2020 January through June
defined contribution plan compliance calendar 2020 July through December

January 2020

31   Last day to file Form 945 to report withheld federal income tax from distributions

31   Last day to furnish Form 1099-R to recipients of distributions in 2019

February 2020

14   Last day to furnish fourth quarter 2019 benefit statement to a participant or beneficiary in an individual account plan that permits participant investment direction

28   Last day to file Form 1096 and Form 1099-R on paper with the IRS

March 2020

15   Last day to refund excess contributions (ADP test) and refund or forfeit (if forfeitable) excess aggregate contributions (ACP test) for 2019 to avoid 10% excise tax (unless plan is an EACA)

31   Last day to file Form 1099-R electronically with the IRS

31   Last day (unextended deadline) to file Form 5330 and pay excise tax on 2018 plan year excess contributions or excess aggregate contributions where excess amounts not distributed (or forfeited, if forfeitable) by Mar. 15, 2019 (or by June 30, 2019 in case of an EACA)

April 2020

01   Last day to make required minimum distributions (for first distribution calendar year) to applicable plan participants

15   Last day to distribute excess deferrals in excess of 402(g) dollar limits for 2019 to applicable participants

15  Last day for C corporation employer plan sponsors to make contributions and take tax deductions for 2019 without corporate tax return extension

May 2020

15   Last day to furnish first quarter 2020 benefit statement to a participant or beneficiary in an individual account plan that permits participant investment direction

June 2020

30   Last day to refund excess contributions (ADP test) and refund or forfeit (if forfeitable) excess aggregate contributions (ACP test) for 2019 to avoid 10% excise tax – in case of an EACA

July 2020

29   Last day to furnish Summary of Material Modifications (SMM) to participants and beneficiaries receiving benefits

31   Last day to file Form 5500 for 2019 without extension

31   Last day to file Form 8955-SSA without extension

31   Last day to provide a notice to terminated vested participants describing deferred vested retirement benefits (in conjunction with Form 8955-SSA)

31   (or the day Form 5500 is filed, if earlier) – Last day (without 5500 extension) to furnish annual benefit statement to a participant or beneficiary in an individual account plan that does not provide for participant investment direction

31   Last day (unextended deadline) to file Form 5330 and pay excise tax on nondeductible contributions, prohibited transactions, certain employee stock ownership plan dispositions, and certain prohibited allocations of qualified securities by an ESOP (if applicable)

August 2020

14   Last day to furnish second quarter 2020 benefit statement to a participant or beneficiary in an individual account plan that permits participant investment direction

30   Last day to furnish annual participant fee disclosures in a participant-directed individual account plan (or up to 14 months from last disclosure notice, if later)

September 2020

15   Last day to pay balance of remaining required contributions for 2019 plan year to satisfy minimum funding requirements for plans subject to minimum funding requirements (such as money purchase pension plans)

30   Last day to furnish Summary Annual Report for 2019 plan year to participants and beneficiaries if an extension to file Form 5500 was not obtained

October 2020

15   Last day to file Form 5500 (with extension)

15   Last day to file Form 8955-SSA (with extension)

15   Last day to provide a notice to terminated vested participants describing deferred vested retirement benefits (in conjunction with Form 8955-SSA)

15   (or the day Form 5500 is filed, if earlier) – Last day (with 5500 extension) to furnish annual benefit statement to a participant or beneficiary in an individual account plan that does not provide for participant investment direction

15   Last day to adopt and implement retroactive corrective plan amendment to correct 2019 410(b) coverage or 401(a)(4) nondiscrimination failures

15   Last day for C corporation employer plan sponsors to make contributions and take a tax deduction for 2019 if 6-month automatic extension to file federal income tax return was obtained

November 2020

14   Last day to furnish third quarter 2019 benefit statement to a participant or beneficiary in an individual account plan that permits participant investment direction

December 2020

01   Last day to provide a notice of intent to use safe harbor contribution formula for 2020 plan year to eligible employees

01   Last day to provide an automatic contribution arrangement notice for 2020 plan year to all eligible employees

01   Last day to furnish a qualified default investment alternative (QDIA) notice for 2020 plan year to participants and beneficiaries on whose behalf an investment in a QDIA may be made

15   Last day (with 5500 extension) to furnish Summary Annual Report for 2019 plan year

31   Last day to refund excess contribution (ADP test) and refund or forfeit (if forfeitable) excess aggregate contributions (ACP test) for the 2019 plan year

31   Last day to make required minimum distributions to applicable participants for distribution calendar years other than for the first distribution calendar year

31   Last day for plan sponsors to adopt discretionary plan amendments that would be effective for the current plan year

*This calendar is designed to provide a general overview of certain key compliance dates and is not meant to indicate all possible compliance dates that may affect your plan.

Copyright © 2020 by Findley, Inc. All rights reserved.

If you would like more specific information about each compliance item, you may review or print the calendar below.

Print 2020 Detailed Defined Contribution Plan Compliance Calendar

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Defined Benefit

Health & Welfare

Year-End Spending Bill includes the SECURE Act and other Retirement Plan Changes

Featured

With the passage of the 2020 federal government spending bill less than a week before Christmas, Congress has gifted us with the most significant piece of retirement legislation in over a decade. This newly enacted legislation incorporates the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) that was overwhelmingly passed by the House of Representatives earlier this year but never considered by the Senate. The spending bill even has a few additional retirement-related tidbits that were not part of the SECURE Act.

Here are some of the key changes:

Frozen Defined Benefit Plan Nondiscrimination Testing

Currently- Defined benefit plans that were frozen to new hires in the past and operate with a grandfathered group of employees continuing to accrue benefits have ultimately run into problems trying to pass nondiscrimination or minimum participation requirements as the group of benefiting employees became smaller and normally higher paid. This problem for frozen defined benefit plans has been around for a while and the IRS has been providing stop-gap measures to deal with it every year.

Effective as of the date of enactment of this legislation and available going back to 2013 – plans may permit the grandfathered group of employees to continue to accrue benefits without running afoul of nondiscrimination or minimum participation rules so long as the plan is not modified in a discriminatory manner after the plan is closed to new hires. This special nondiscrimination testing relief also extends to:

  • defined benefit plans that close certain plan features to new hires,
  • defined contribution plans that provide make-up contributions to participants who had benefits in a defined benefit plan that were frozen.

Increasing the 10% Limit on Safe Harbor Auto Escalation

Currently – a safe harbor 401(k) Plan with automatic enrollment provisions cannot automatically enroll or escalate a participant’s contribution rate above 10%.

Effective for Plan Years beginning after Dec. 31, 2019 – the 10% cap would remain in place in the year the participant is enrolled but the rate can increase to 15% in a subsequent year.

Simplifying the Rules for Safe Harbor Nonelective 401(k) Plans

Currently – All safe harbor plans must provide an annual notice prior to the beginning of the year that provides plan details and notifies employees of their rights under the plan. Also, any plan sponsors that want to consider implementing a safe harbor plan generally must adopt the safe harbor plan provisions prior to the beginning of the plan year.

Effective for Plan Years beginning after Dec. 31, 2019 – the notice requirement for plans that satisfy the safe harbor through a nonelective contribution has been eliminated. Also, sponsors can amend their plan to become a nonelective safe harbor 401(k) plan any time up until 30 days prior to year-end. The safe harbor election can even be made as late as the end of the next year if the plan sponsor provides for at least a 4% nonelective contribution.

Open Multiple Employer Plans (Open MEPs)

CurrentlyMultiple employer plans (MEPs) are legal and actually quite common, but a couple of limitations have stunted the development of a concept called open MEPs. An open MEP is a situation where the employers within the MEP are not tied together through a trade association or some common business relationship. In 2012 the DOL issued an Advisory Opinion provided that a MEP made up of unrelated employers that did not have “common nexus” must operate as a separate plan for each of these unrelated employers and not as a single common plan. This advisory opinion took away much of the perceived advantages of operating an open MEP. Additionally, the IRS has followed a policy that provides if one employer within the MEP makes a mistake, that the error can impact the qualified status of the entire plan; this is known as the “one bad apple” rule, this policy is clearly a negative selling point for any plan sponsor that might consider signing up to participate in a MEP.

Effective for Plan Years beginning after Dec. 31, 2020 – the “common nexus” requirement and the “one bad apple” rule are eliminated. The new open MEP rules provide for a designated “pooled plan provider” that would operate as the MEPs named fiduciary and the ERISA 3(16) plan administrator. The open MEP will be required to file a 5500 with aggregate account balances attributable to each employer. These changes are expected to create a market for pooled plans that will offer efficient retirement plan solutions to smaller plan sponsors.

Required Minimum Distribution Age Now 72

Currently Required Minimum Distribution from a qualified plan or IRA must begin in the year the participant turns 70 ½.

Effective for Distributions after 2019, with respect to individuals who attain 70 ½ after 2019. – This is a simple change to age 72 for computation purposes, but note the effective date means that if the participant is already subject to RMD rules in 2019 they remain subject to RMDs for 2020 even though the person may not be 72 yet. Also, plan sponsors should be aware that distributions made in 2020 to someone that will turn 70 ½ in 2020 will not be subject to RMD rules and therefore would be eligible for rollover and subject to the mandatory 20% withholding rules.

Increase Retirement Savings Access to Long-Term Part-Time Workers

Currently– Plans can exclude employees that do not meet the 1,000 hours of service requirement

Effective for Plan Years beginning after Dec. 31, 2020 – Plans will need to be amended to permit long-term part-time employees who work at least 500 hours over a 3 year period to enter the plan for the purpose of making retirement savings contributions. The employer may elect to exclude these employees from employer contributions, nondiscrimination, and top-heavy testing.

Stretch IRAs are Eliminated

Currently– If Retirement plan or IRA proceeds are passed upon death to a non-spouse beneficiary; the beneficiary can set up an inherited IRA and “stretch” out payments based upon the beneficiary’s life expectancy. Depending upon the age of the beneficiary and the size of the IRA this strategy potentially provided significant tax advantages.

Effective for distributions that occur as a result of deaths after 2019 – Distributions from the IRA or plan are generally going to need to be made within 10 years. There are exceptions if the beneficiary is (1) the surviving spouse, (2) disabled, (3) chronically ill, (4) not more than 10 years younger than the IRA owner or plan participant, or (5) for a child that has not reached the age of majority, the ten year rule would be delayed until the child became of age.

Increased Penalties for Failure to File Retirement Plan Returns and Other Notices

Current Penalty Structure:

Failure to file Form 5500$25 per day maximum of $15,000
Failure to report participant on Form 8955-SSA$1 per participant, per day maximum of $5,000
Failure to provide Special Tax Notice$10 per failure up to a maximum of $5,000

New penalty structure:

Failure to file Form 5500$250 per day maximum of $150,000
Failure to report participant on Form 8955-SSA$10 per participant, per day maximum of $50,000
Failure to provide Special Tax Notice$100 per failure up to a maximum of $50,000

Other Retirement Plan Changes Effective for Years Beginning After December 31, 2019

  • Phased retirement changes – defined Benefit Plans can be amended to provide voluntary in-service distributions begin at age 59 ½, down from the current age 62 requirement.
  • Start-up credits – the cap on tax credits that small employers (up to 100 employees) can get for starting up a new retirement plan has gone up from $500 to $5,000.
  • Auto-Enroll credits for small employers – small employers can get an additional $500 tax credit for adopting an automatic enrollment provision.
  • More time to adopt a plan – currently a qualified plan must be adopted by the end of the employer’s tax year to be effective for that year. The new rule will permit a plan to be adopted as late as the due date of the employer’s tax return for the year.
  • Plan annuity provisions – in recognition that defined contribution plans typically do not offer lifetime income streams two changes have been added to encourage in-plan annuity options.
    • A fiduciary safe harbor standard that if followed, would protect plan sponsors from potential liability relating to the selection of an annuity provider.
    • Plans may permit tax-advantaged portability of lifetime income annuity options from one plan to another.
  • 403(b) changes include providing a mechanism for the termination of a 403(b) custodial account and clarification that non-qualified church controlled organizations (e.g. hospitals and schools) can participate in Section 403(b)(9) retirement income accounts.
  • Penalty free distribution for birth or adoption expenses – up to $5,000 could be distributed from a defined contribution or 403(b) plan to cover costs relating to birth or adoption of a child.
  • Special tax penalty relief and income tax treatment for distributions for qualified disaster distributions from qualified plans up to $100,000.  Additionally, plan sponsors can permit the $50,000 participant loan limit to be increased to $100,000 with increased repayment periods for participants that suffered losses in a qualified disaster area.

Other Changes with a Delayed Effective Date

  • Lifetime income disclosure – this provision will require a defined contribution plan to provide all participants with an annual statement that discloses the projected lifetime income stream equivalent of the participant’s account balance.  This requirement will become effective for benefit statements furnished one year after applicable DOL guidance has been issued that will be necessary to provide the prescribed assumptions and explanations that will be used to create this disclosure.
  • Combining 5500 – IRS and DOL have been directed to permit a consolidation of Form 5500 reporting for similar plans. Defined contribution plans with the same trustee, same-named fiduciary and same plan administrator using the same plan year and same plan investments may be combined into one 5500 filing. This is scheduled to begin no later than January 1, 2022, for 2021 calendar plan year filings.

What to Do Now

Obviously the SECURE Act is bringing a lot of changes to retirement plans. Many of the operational aspects to this new retirement legislation will need to be implemented immediately, in particular, tax withholding related items that will change in 2020 will necessitate plan sponsors and their recordkeepers act immediately to review tax withholding and distribution processes. Plans do have until the end of the 2022 plan year to adopt conforming amendments to their documents. The amendment deadline is the 2024 plan year for governmental plans.

If you have any questions about the SECURE Act and this new retirement plan legislation we encourage you to contact the Findley consultant you normally work with, or contact John Lucas at 615.665.5329 or John.Lucas@findley.com.

Published December 23, 2019

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