Industry & Regulatory NewsIRS Updates Yield Curves and Segment Rates for DB Plan Calculations
The IRS has issued Notice 2022-14, which contains updated guidance on factors used in certain defined benefit (DB) pension plan minimum funding and present value calculations. Updates include the corporate bond monthly yield curve, the corresponding spot segment rates used under Internal Revenue Code Section (IRC Sec.) 417(e)(3), and the 24-month average segment rates under IRC Sec. 430(h)(2). IRC Sec. 417 contains definitions and special rules for minimum survivor annuity requirements in DB plans. IRC Sec. 430 addresses minimum funding standards for single-employer DB plans.
Industry & Regulatory NewsSEC Proposes ESG Reporting for Publicly Traded Companies
The SEC has issued a proposed rule that would require publicly traded companies to include certain climate-related disclosures in their registration statements and periodic reports, such as the annual Form 10-K.
The proposed rule would in part require disclosure about the following.
- The registrant’s governance of climate-related risks and relevant risk management processes.
- How any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements.
- How any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook.
- The impact of climate-related events (such as severe weather and other natural conditions) and transition activities on the line items of a registrant’s financial statements and estimates used in financial statements.
The rule would also require disclosures about direct greenhouse gas admissions and indirect emissions from purchased electricity or other forms of energy, as well as disclosure of greenhouse gas emissions from upstream and downstream activities in its value chain if material or if the registrant has set an emissions target. Accelerated filers would be required to include an attestation report from an independent attestation service provider covering emission disclosures.
A fact sheet provides an overview of requirements and the applicable phase-in period—depending on the type of registrant and type of emission disclosure required. The comment period will remain open for the longer of 1) 30 days after publication in the Federal Register, or 2) 60 days after the date of issuance and publication on sec.gov.
Industry & Regulatory NewsEnhancing Emergency and Retirement Savings Act Introduced in House
Representative Brad Wenstrup (R-OH) has introduced the Enhancing Emergency and Retirement Savings Act of 2022 to provide flexibility and access for those who experience unexpected emergencies. The bill is the House companion to S. 1870, introduced by Senator James Lankford (R-OK) and Senator Michael Bennet (D-CO) last year.
The legislation would provide a penalty-free “emergency personal expense distribution” option from employer-sponsored retirement plans and IRAs. The proposal would allow for one emergency distribution per calendar year of up to $1,000 from the individual’s total nonforfeitable accrued benefit under the plan. The bill requires that the withdrawn funds be paid back to the plan before an additional emergency distribution from that same plan is allowed. The amount can be recontributed within a three-year period to any eligible plan to which a rollover contribution can be made.
An emergency personal expense distribution is defined as a distribution for purposes of meeting unforeseeable or immediate financial need relating to necessary personal or family emergency expenses. The plan sponsor of an employer-sponsored retirement plan may rely on an employee’s certification that the conditions are satisfied in determining whether the distribution is an emergency distribution.
Industry & Regulatory NewsLong-Term Care Affordability Act Introduced
Representative Ann Wagner (R-MO) has introduced the Long-Term Care Affordability Act to allow distributions from retirement accounts for the payment of long-term care insurance coverage. The bill is the House companion to S.2415 introduced in the Senate by Senator Patrick Toomey (R-PA) last year.
The proposal would permit tax-free retirement saving distributions of up to $2,500 per year—indexed for inflation—that are used to purchase long-term care insurance. The arrangements to which the legislation applies would include qualified retirement plans, 403(a) and 403(b) plans, governmental 457(b) plans, and IRAs. These distributions would also be exempt from the 10 percent early distribution penalty tax. The bill would also create new distribution triggers for employee deferral amounts that have been contributed to 401(k), 403(b), and governmental 457(b) plans.
Industry & Regulatory NewsIRS Issues Proposed MEP Rule
The IRS has released a new proposed rule providing for an exception, if certain requirements are met, to the application of the “unified plan rule” for multiple employer plans (MEPs) when there is a failure by one or more participating employers to take actions necessary to satisfy requirements of the Internal Revenue Code. The unified plan rule (also referred to as “one bad apple rule”) specifies that the failure by one participating employer to satisfy an applicable qualification requirement would result in the disqualification of the MEP for all employers maintaining the plan. The release also withdraws prior proposed regulations that were published in the Federal Register on July 3, 2019.
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) created a statutory exception to the unified plan rule for certain types of MEPs and directed the Secretary to issue guidance to carry out that provision. The exception applies to defined contribution plans maintained by employers that have a “common interest” or have a “pooled plan provider” and failed to take action required to meet qualification requirements, subject to the following conditions.
- The plan assets attributable to employees of the employer that failed to take action will be transferred to a plan maintained only by that employer
- The employer (and not the plan or any other employer in the plan) will generally be responsible for liabilities with respect to the plan attributable to employees of that employer
- The pooled plan provider performs substantially all of the administrative duties for which it is responsible for any plan year
The proposed regulations provide that the terms of the MEP document must include language describing the procedures that will be followed to address a participating employer failure, including a description of the notices that the plan administrator will send and when such notices will be sent. The plan terms must also describe the actions that the plan administrator will take if by the end of the 60-day period following the date the final notice is provided, the unresponsive participating employer does not take appropriate action with respect to the failure or initiate a spinoff to a separate plan maintained by the employer. The IRS intends to publish model language for this purpose in connection with a final rule.
Under the proposal, a MEP plan administrator may be required to provide up to three notices to an unresponsive participating employer regarding a failure—with the final notice also being provided to affected participants and the Department of Labor. The unresponsive participating employer can either take appropriate remedial action or initiate a spinoff. The proposal delineates notice requirements for both “a failure to provide information” and a “failure to take action”, and in situations where a failure by a participating employer is initially a failure to provide information, but becomes a failure to take action, more than three notices may be necessary.
If an unresponsive participating employer neither takes appropriate action or initiates a spinoff within 60 days after the final notice is provided, the MEP plan administrator must 1) stop accepting contributions from the unresponsive participating employer and participants, 2) provide notice to affected participants of the unresponsive participating employer, and 3) provide participants with an election regarding treatment of their accounts.
Comments may be submitted within 60 days of publication in the Federal Register. A public hearing on the proposed rule has been scheduled for Wednesday, June 22.
Industry & Regulatory NewsWashington Pulse: IRS Releases Proposed Required Minimum Distribution Regulations
After a two year wait, we have guidance regarding certain changes brought about by the SECURE Act. On February 23, 2022, the IRS released proposed regulations that revise the existing required minimum distribution (RMD) regulations and other related regulations.
Industry & Regulatory NewsLegislation Proposed to Automatically Re-enroll Employees
Bill text has been made available for legislation introduced by Senator Tim Kaine (D-VA) intending to improve participation in employer-sponsored retirement plans. The Auto Reenroll Act of 2022 would require qualified automatic contribution arrangements and eligible automatic contribution arrangements that take effect after December 31, 2024, to re-enroll at least every three years, eligible participants that chose not to defer. Representative Kathy Manning (D-NC) has also introduced a companion bill in the House of Representatives.
Industry & Regulatory NewsPCORI Fee Update
In late December 2021, the IRS issued Notice 2022-04, providing the updated rate for Patient-Centered Outcomes Research Institute (“PCORI”) fees for plan years that end on or after October 1, 2021, and before October 1, 2022.
The Affordable Care Act (ACA) imposes a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans to help fund the PCORI fee.
The fee is calculated using the average number of lives covered under the policy or plan and the applicable dollar amount for that policy year or plan year. IRS Notice 2020-84 provided that the adjusted applicable dollar amount for policy years and plan years that ended on or after October 1, 2020, and before October 1, 2021, is $2.66.
Notice 2022-04 provides that the adjusted applicable dollar amount for policy years and plan years that end on or after October 1, 2021, and before October 1, 2022, is $2.79.
The PCORI fee is filed using the Quarterly Federal Excise Tax Return (IRS Form 720). Although Form 720 is a quarterly return, PCORI Form 720 is filed annually only, by July 31. Plan sponsors should apply the applicable PCORI fees and file Form 720 corresponding to policy or plan years ending from January 1, 2021, to December 31, 2021, by July 31, 2022.
For more information regarding PCORI fees in general, please refer to IRS Code Sections Internal Revenue Code Sections 4375 and 4376.
Industry & Regulatory NewsEnhance Your Benefit Offerings with a Post-Deductible HRA
During this time when unprecedented numbers of employees are changing jobs, employers need creative ways to enhance their benefits programs to increase employee satisfaction and attract new talent. Lowering the employee’s medical deductible by offering a post-deductible health reimbursement arrangement (HRA) is one way to do that.
A post-deductible HRA is a specific type of HRA plan that is designed to be integrated with a qualified high deductible health insurance plan (HDHP) and a health savings account (HSA). To do this, the HRA must require the employee to meet the IRS mandated minimum deductible. In 2022, the minimum is $1,400 for individual coverage and $2,800 for family coverage.
HRAs are very flexible and even in this specific situation, the employer has options for customizing the plan to meet their needs, including choosing the amount that they want to offer and deciding whether any remaining funds are rolled over for use in future plan years or retained by the employer.
Employers can use a post-deductible HRA to help employees by:
- Lowering their deductible. If the medical plan deductible is $3,000 for single coverage and $6,000 for family coverage, the employer can add an HRA so that the employee is only responsible for the first half of the deductible and the employer covers the second half, if needed. This way the “new” deductible is only $1,500 for single and $3,000 for a family. This meets the minimum deductible requirement for an HSA qualifying plan but decreases the amount the employee is responsible for paying. The employer will benefit from lower insurance premiums as well.
- Easing the transition to a higher deductible. Since the employer decides how much they want to offer or potentially be responsible for paying, they can use a stepped approach to reduce “sticker shock.” Perhaps the qualifying HDHP that they have chosen has a deductible of $4,000 for single coverage and $8,000 for family coverage. The first year the employer could choose to make the HRA deductible $1,500 for single coverage and $3,000 for family coverage; then the next year they could increase the employee’s portion of the deductible to $1,700 for single coverage and $3,400 for family coverage. This gives the employer the flexibility to adjust each year based on budgetary constraints as well.
- Providing time to build up their HSA balance. The post-deductible HRA does not affect the amount allowed to be contributed to the employee’s HSA by the employee or the employer. The employer can still contribute to the employee’s HSA in addition to offering the post-deductible HRA, if desired.
- Pairing with a limited purpose FSA. A limited purpose FSA is also compatible with the post-deductible HRA and HSA combination. Employees can use the limited purpose FSA to help them reduce the costs of dental and vision expenses and avoid using money in their HSA.
As with a traditional HRA, the post-deductible HRA can be beneficial to employers as well, giving them the flexibility to design the plan around their current needs and goals.
Industry & Regulatory NewsMaintaining ACA Compliance When Hiring a Former Employee
There are many advantages to bringing back former employees, but applicable large employers need to follow the Affordable Care Act (ACA) rules when determining when to offer benefits. The key to this is determining whether the employee should be treated as a “new hire” or a “continuing employee.” This determination will tell the employer whether to offer benefits right away or if the designated waiting period applies.
There are three possible scenarios:
- Employee returns after 13 weeks or more (26 weeks for educational entities): This employee can be treated as a “new hire” and, if the employee is a variable hourly worker or part-time, employers can wait until the end of the designated measurement period to begin offering coverage. If the employee is hired full-time, then the same rules for other newly hired full-time employees would apply.
- Employee returns after less than 13 weeks (26 weeks for educational entities): This individual is treated as a “continuing employee” and must be offered coverage immediately on the first date of reemployment.
- The exception to this rule is the ACA’s Rule of Parity. It says that if the returning employee’s employment gap was longer than the period they worked before leaving, they should be treated as a new hire.
- If the returning employee was eligible before the break in service, but opted not to receive coverage, then the employer may not have an obligation to offer new coverage upon rehire, according to Cafeteria Plan regulations.
- Employee was in a stability period when they left. If the returning employee was in a stability period when they left, then they should be placed back into the ongoing eligible stability period and offered benefits upon reemployment.
Employers are allowed to be more generous than the ACA employer mandate rules require. The above rules and the employer’s policies should be spelled out in plan documents or other plan communications and should be applied consistently.