In addition to $600 checks for most Americans, the year-end COVID-19 stimulus package signed by the President on December 27, 2020, includes a new round of changes that employers will need to track for their employee benefit plans. The Consolidated Appropriations Act, 2021 (H.R. 133) (the “Act”) is the fourth major legislative attempt to provide relief to businesses and individuals facing economic hardship due to the COVID-19 pandemic. Although lacking a catchy acronym (like the “CARES” and “SECURE” Acts), this legislation makes the most significant changes to health plans since the Affordable Care Act, offers employers and employees additional flexibility for cafeteria plan benefits, and provides additional retirement plan relief.
On December 15, 2020, the Department of Labor finalized its new guidelines for fiduciary investment advice. Prohibited Transaction Exemption 2020-02 both clarifies the circumstances under which financial institutions and investment professionals are considered “fiduciaries” under ERISA and the Internal Revenue Code, and also establishes a new framework under which such fiduciaries may provide services and receive compensation.
The preamble to the final Exemption provides the Department’s long-awaited final interpretation of when investment advice – such as a recommendation to roll over retirement plan assets to an IRA (or between IRAs) – creates a fiduciary relationship under ERISA or the Code. The substantive terms of the Exemption allow investment advisers who are fiduciaries to receive compensation and engage in principal transactions that would otherwise violate prohibited transaction rules.
The Exemption applies to SEC- and state-registered investment advisers, broker-dealers, banks, insurance companies, and their employees, agents and representatives that are investment advice fiduciaries under the newly interpreted “five-part” test of fiduciary status. It imposes certain conditions to protect the interests of retirement plans, participants, beneficiaries, and IRA owners. The Exemption is set to become effective February 16, 2021, absent a delay by the Biden Administration. Thus, employers will need to be aware of the Exemption and its conditions in their engagement of (and interactions with) plan service providers.
Following announcements by both the Internal Revenue Service and the Social Security Administration, we know most of the dollar amounts that employers will need to administer their benefit plans for 2021. The key dollar amounts for retirement plans and individual retirement accounts (“IRAs”) are shown on the front side of our 2021 limits card.
The reverse side of the card shows a number of dollar amounts that employers will need to know in order to administer health flexible spending accounts (“FSAs”), health savings accounts (“HSAs”), and high-deductible health plans (“HDHPs”), as well as health plans that are not grandfathered under the Affordable Care Act.
A laminated version of the 2021 limits card is available upon request. To obtain one or more copies, please contact any member of our Employee Benefits Group. You also can contact the Spencer Fane Marketing Department at firstname.lastname@example.org.
The SECURE and CARES Acts provide a broad spectrum of required and optional changes that employers must evaluate with respect to retirement plan administration. One impending change is the SECURE Act’s broader eligibility requirement for part-time employees in 401(k) plans, which becomes effective on January 1, 2021. In addition, employers may be surprised to learn that some CARES Act distribution options were added to their plans automatically by their record keepers through a “default” process. Thus, employers should review their plan’s administrative procedures to determine if (and how) changes under the SECURE Act and CARES Act were (and are being) implemented to ensure administrative compliance with the plan document.
On July 14, 2020, Governor Jared Polis signed the “Healthy Families and Workplaces Act” (“HFWA”). Last month, we discussed the emergency COVID-19 provisions here. The emergency provisions are effective from July 15 to December 31, 2020. In this Part 2, we will discuss the paid sick leave provisions of HFWA that go into effect January 1, 2021.
The IRS has granted additional, albeit temporary, COVID-19-related relief for sponsors of “safe-harbor” 401(k) and 403(b) plans (i.e., plans that are exempt from one or both of the ADP and ACP nondiscrimination tests). Notice 2020-52, which was issued on June 29, 2020, provides temporary relief from the current requirements for mid-year amendments to such plans, and provides additional clarification regarding mid-year amendments to safe-harbor plans that only affect highly compensated employees. This guidance is welcome relief for plan sponsors who feel the financial need to reduce or suspend employer contributions under these plans, but who may not be able to satisfy the current regulatory requirements for mid-year amendments.
The Department of Labor (DOL) has now finalized its October 2019 proposal (described in our previous blog) to create a new “safe harbor” for the electronic distribution of ERISA-required notices and disclosures. The final regulation establishes a new, voluntary safe harbor for retirement plan administrators who want to use electronic media, as a default, to furnish covered documents to participants and beneficiaries, rather than providing paper documents through mail or hand delivery. The new safe harbor permits electronic delivery by either (i) posting covered documents on the plan sponsor’s website, if appropriate notification of internet availability is furnished to the participant’s electronic address, or (ii) sending the documents directly to the participant’s electronic address, with the covered document either in the body of the e-mail or as an attachment thereto. Although the final rule is not effective until 60 days after its publication in the Federal Register, the DOL has indicated that it will not take any enforcement action against a plan administrator that relies on the safe harbor before that date.
As part of its ongoing response to the coronavirus (COVID-19) outbreak, the IRS has released new guidance (Notice 2020-29) providing increased flexibility with respect to mid-year election changes under Section 125 cafeteria plans during the 2020 calendar year. The Notice also provides increased flexibility with respect to grace periods that will allow participants with unused amounts in their health or dependent care flexible spending accounts (FSAs) to apply those amounts to expenses incurred through December 31, 2020. Generally, employers may adopt the changes immediately (in some cases retroactive to January 1, 2020), so long as the plan is amended by December 31, 2021.
Deadline relief afforded by a new DOL and IRS Joint Notice during the COVID-19 national emergency significantly changes the administration of both self-funded and fully insured group health plans. Some of the extended deadlines are already causing confusion and increasing compliance risks for employers.
On May 4, 2020, the IRS posted 14 Questions and Answers (Q&As) on its website regarding the special retirement plan distribution options and loan provisions made available to certain qualified participants under the Coronavirus Aid, Relief, and Economic Security Act (hereinafter, the “CARES Act”). These Q&As answer many, but not all, of the questions that plan sponsors and third-party administrators have been grappling with since the CARES Act was enacted on March 27, 2020. Perhaps most importantly, the Q&As confirm that each of the distribution and loan provisions are optional for employers to adopt (or not adopt). They also indicate that the IRS intends to issue formal guidance regarding the CARES Act distribution and loan provisions in the near future, and that it anticipates that the guidance will generally apply the principles set forth in its prior guidance (Notice 2005-92) regarding the Katrina Emergency Tax Relief Act of 2005 (“KETRA”).