News ReleasesAscensus Announces Agreement to Acquire Recordkeeping Retirement Business from Truist
Transaction Includes Heritage BB&T Plans Along with Heritage BB&T Outsourced Recordkeeping Business Currently Serviced by Ascensus
Industry & Regulatory NewsDOL Updates Q&As for Pandemic-Related Paid Leave
The Department of Labor’s (DOL’s) Wage and Hour Division has issued an update to its question-and-answer guidance on paid employee leave under provisions of the Families First Coronavirus Response Act (FFCRA). Specifically, this update includes the addition of the following.
Industry & Regulatory NewsIRS Releases 2021 Tax Year IRA and Retirement Plan Reporting Forms 1099-R, 5498
The IRS has posted at its website the 2021 tax year version of Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., and Form 5498, IRA Contribution Information. As the title implies, Form 1099-R is filed by financial organizations and service providers to report to account owners and the IRS distributions from tax-qualified retirement savings arrangements. Form 5498 more narrowly reports IRA-related information—including contributions to IRAs, SEP and SIMPLE IRA employer plans, end-of-year fair market values, rollovers, conversions, recharacterizations, etc.
Industry & Regulatory NewsDespite Some Confusion, December 30, 2020, Remains the Deadline for Special Tax Benefits of CARES Act Retirement Plan Distributions
Today is the last day for eligible taxpayers to take IRA and employer-sponsored retirement plan distributions that qualify for special tax benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This legislation was enacted in March 2020 as a response to the coronavirus (COVID-19) pandemic. There has been some industry and media confusion over whether more recent pandemic relief legislation has provided an extended opportunity to qualify for such benefits, but it has not.
Industry & Regulatory NewsDOL Final Regulations on Independent Contractor Status Have Been Received by OMB
Final regulations entitled Independent Contractor Status Under the Fair Labor Standards Act, issued by the Department of Labor’s Wage and Hour Division, have been received by the federal Office of Management and Budget (OMB). The OMB provides final review of regulatory guidance before its official release. Generally, only if found to be in need of revision, is such guidance returned to the originating agency for changes. Unless this proves to be the case, official release of these final regulations could be imminent.
Industry & Regulatory NewsWashington Pulse: Spending Bill Contains Coronavirus Relief
On December 21, 2020, Congress passed additional measures to provide relief from the widespread economic effects of the coronavirus pandemic. On December 27, 2020, the president signed the bill into law. While both houses of Congress have been working on various provisions since the CARES Act was enacted last March, no agreements were reached until now. The coronavirus provisions are contained in a larger spending bill that funds the federal government through next September. The bill, entitled the Consolidated Appropriations Act, 2021 (CAA), contains relief for various industries, small businesses, and individuals. Although there is no broad employee benefit relief, the items discussed below may interest those that work with employers and with employer-sponsored plans.
Industry & Regulatory NewsRelief from Physical Presence Requirement Extended for Retirement Plan Consents
The IRS issued Notice 2021-03, extending previous guidance released under Notice 2020-42, which provided temporary relief from the physical presence requirements for certain elections that are made by participants and beneficiaries in qualified retirement plans and other tax-favored retirement arrangements. The extension is being issued in consideration of continued business shutdowns and social distancing in response to the coronavirus (COVID-19) pandemic and provides relief through June 30, 2021. This includes signatures of those making an election that ordinarily need to be witnessed in the physical presence of a plan representative or notary public, including spousal consent and certain forms of distribution from retirement plans.
Industry & Regulatory NewsCongress Approves Additional COVID Relief as Part of Government Funding Package
Following lengthy, intense negotiations that delayed the pre-Christmas adjournment of the 116th Congress, the U.S. Senate and House of Representatives have reached agreement and passed legislation on a new round of economic relief for victims of the coronavirus (COVID-19) pandemic. The relief provisions are combined with a larger omnibus spending package that includes funding for federal government agencies. Due to the massive size of the bill and the extra time needed to print and prepare it for signature, President Trump has until December 28 to sign the combined legislation into law.
The primary focus of the pandemic relief is an extension of unemployment benefits, direct economic stimulus payments to American taxpayers, support for small businesses, and funding for schools and the COVID-19 vaccination. There are limited provisions that directly affect tax-advantaged savings or health and welfare arrangements, but among them are the following.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, provided financial support to businesses adversely affected by the pandemic. Under the Paycheck Protection Program (PPP) provisions, qualifying businesses could borrow funds for payroll and other specified purposes—including retirement and health benefit funding—through approved lenders, with the potential for forgiveness of these loans. These loans are subject to the Small Business Administration’s rules and oversight.
- This legislation provides an additional $284 billion for the PPP program, including a second round of potentially forgivable loans, under these conditions.
- Businesses with 300 or fewer employees that have experienced at least a 25 percent revenue loss in any quarter of 2020 are eligible.
- Expenses now can include supplier costs and the cost of providing coronavirus protection (e.g., personal protective equipment).
- Business expenses paid with PPP loans are tax deductible, even if forgiven.
- The loan forgiveness process for PPP loans of $150,000 or less is simplified.
This legislation includes rescinding approximately $146 billion in unspent allocations for the CARES Act PPP and depositing it into the general fund of the Department of the Treasury.
CRDs for Money Purchase Pension Plans
The legislation extends to money purchase pension plans the option to permit coronavirus-related distributions (CRDs), which provides an in-service distribution trigger, as well as exemption from the early distribution penalty tax, three-year ratable taxation, and the option to repay such distributions over three years.
Partial Plan Termination Relief
Employers will be provided relief from partial plan terminations that could result from a reduction in workforce due to the COVID-19 pandemic. Under current guidance, a reduction in participant number of 20 percent or more during a plan year generally is considered to be a partial plan termination. The result is full vesting for those employees whose job loss has triggered the partial termination. This legislation would assist employers in avoiding this consequence by granting a grace period to March 31, 2021, to reach a participant count at least 80 percent of the number when the National Emergency was declared in March 2020.
Qualified Future Transfers – Pension Plans
Under the qualified future transfers provision, up to 10 years of retiree health and life benefit costs can be transferred from a defined benefit pension plan to a retiree health benefits account and/or a retiree life insurance account within the pension plan, if certain requirements are met.
Study of DOL Electronic Disclosure Final RegulationsThe Department of Labor (DOL) is directed to complete a comprehensive study and issue a report within one year on the impact of its electronic disclosure final regulations on “individuals residing in rural and remote areas, seniors, and other populations that either lack access to web-based communications or who may only have access through public means.”
Temporary Special Rules for Health FSAs and Dependent Care FSAs
- For health flexible spending arrangements (FSAs) and dependent care FSAs (DCAPs) for plan years ending in 2020, the plan can permit a carryover of all unused benefits to the plan year ending in 2021.
- For health FSAs and DCAPs for plan years ending in 2021, the plan can permit a carryover of all unused benefits to the plan year ending in 2022.
- For health FSAs and DCAPS that have a grace period associated with the plan year that ends in 2020 or 2021, that grace period can be extended for 12 months after the end of the plan year (the normal maximum grace period is 2½ months after the end of the plan year).
- For health FSAs and DCAPs, a plan can permit an employee who stops participating in the plan mid-year in 2020 or 2021 to continue to receive reimbursements of their unused contributions through the end of the plan year in which their participation ceased (if their plan adopts the 12 month grace period they would also get the extended grace period).
- For DCAP plans, if the dependent ‘aged-out’ during the pandemic, the plan can substitute age 14 for age 13 (as the maximum age for the child could be considered a qualifying person under the plan), as long as the employee was enrolled in the DCAP for a plan year where the end of the regular enrollment period was on or before January 31, 2020, and the employee had one or more dependents who attained age 13 during the plan year, and the employee had an unused balance for a plan year that will be carried forward to the subsequent plan year.
- For health FSAs and DCAPs that end in 2021, participants will be permitted to prospectively modify their contribution elections (without regard to a change in status).
- To adopt the specified relief, health FSAs and DCAPs must be amended by the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. In the interim, the plan must operate consistent with the terms of the amendment.
Modification to Internal Revenue Code Section 213
The medical expense deduction floor is reduced from 10 percent to 7.5 percent for taxable years beginning after December 31, 2020.
Preventing Surprise Medical Bills
- A group health plan or a health insurance issuer that offers group or individual health insurance coverage to cover emergency services is required to provide such services without the need for prior authorization or other limitations, whether or not the healthcare provider is a participating provider. Any limitation cannot be more restrictive than requirements that apply to emergency services received from participating providers and facilities with respect to such plan or coverage.
- A high deductible health plan (HDHP) will not be prevented from being treated as an HDHP if it provides medical care in accordance with this provision. This applies to plan years beginning on or after January 1, 2022.
- Expand consumer protections through an external review process beginning in 2022 in cases of adverse determinations by group plans and health issuers.
Additional (Non-COVID-Related) Disaster Relief
The legislation provides limited non-COVID-related disaster relief for certain federal disasters declared on or after January 1, 2020, and ending 60 days after enactment of this bill. Relief includes the following.
Qualified Disaster Distributions
Distributions of up to $100,000 (less certain disaster distributions taken in prior tax years) may be taken by those whose principal residence is within the disaster area and who sustained an economic loss due to the disaster.
- Provides for three-year taxation of the distribution, and three years to repay
- Provides a distribution trigger for 401(k), 403(b), 457(b), and money purchase pension plans
- Will not be subject to 20 percent mandatory withholding or 402(f) notice requirements
Hardship or First-Time Homebuyer Distributions
Such distributions that were taken to purchase or construct a principal residence may be repaid if the distribution was taken within the period 180 days before the disaster incident and 30 days after the disaster incident period, and are repaid between the first day of the disaster incident period and no later than 180 days after enactment.
Increased Retirement Plan Loan Limit
Plan loans taken within 180 days following the legislation’s enactment because of a disaster declaration will have an increased loan limit of up to the lesser of $100,000 or the vested account balance, if the borrower’s principal residence is in the disaster area and an economic loss was sustained as a result of the disaster.
Delay in Loan Repayment
Loan payments that are due within the period beginning on the first day of the disaster and ending 180 days after the disaster period may be delayed for one year (or, if later, 180 days after the legislation’s enactment), with the loan’s term extended by the period of the delay.
Amendments to implement these provisions will be required by the end of the 2022 plan year (2024 for governmental plans).
Multiemployer Pension Plan In-Service Distributions
One unanticipated provision is a change to certain multiemployer (union) pension plans that allows for a subset of individuals in the construction industry to take an in-service distribution at age 55 if several service and plan provisions are satisfied. Specifically, it would apply to distributions to individuals who were participants in the plan on or before April 30, 2013, if
- the trust was in existence before January 1, 1970, and
- prior to December 31, 2011, in-service distributions were permitted at age 55 when the plan received at least one written IRS determination that the trust in the first bullet constituted a qualified trust.
Because the circumstances are so specific, it is not likely to have broad applicability.
Education Related Provisions
- A CARES Act provision that permitted employers to provide student loan repayment benefits of up to $5,250 to employees on a tax-free basis has been extended to December 31, 2025.
- Made changes to the FAFSA program intended to simplify the application process and make aid more predictable
- Increased the income limitations for phase-out of the lifetime learning credit
- Repealed the deduction for qualified tuition and related expenses
Industry & Regulatory NewsInvestment Advice Fiduciary Class Exemption Published, Effective Date Set
Appearing in today’s Federal Register is Department of Labor Employee Benefits Security Administration (EBSA) Prohibited Transaction Exemption (PTE) 2020-02, which will provide guidance to investment advisors who counsel retirement and other investors. As noted in an Ascensus December 16 announcement, the guidance completes a process that began with 2016 regulations and exemptions issued under the Obama administration. Those regulations and exemptions were subsequently vacated in 2018 by a federal appeals court.
Industry & Regulatory NewsDOL Issues Investment Advice Fiduciary Class Exemption
The Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) has issued a long-awaited class exemption, Prohibited Transaction Exemption (PTE) 2020-02, providing guidance to investment advisors who counsel retirement and other investors. The guidance completes a process that began with 2016 regulations and exemptions issued under the Obama administration, which were vacated in 2018 by a federal appeals court, and a promise by new DOL leadership under President Trump to issue new guidance in its stead. Yesterday’s issuance of a news release, fact sheet, and PTE 2020-02 completes that process.