Employee benefit plans are subject to numerous laws that restrict, or at least limit, discrimination within the plans. Many benefit plan nondiscrimination rules focus on whether highly and non-highly compensated employees are receiving equal treatment under those plans; however, the recently enacted Consolidated Appropriations Act, 2021 (CAA) is bringing some attention to an often-overlooked discrimination rule that prohibits group health plans from discriminating with respect to mental health and substance use disorder benefits (MH/SUD benefits). Read more
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Starting in January, unaffiliated employers can band together and participate in a new type of collective retirement plan, called a “pooled employer plan” or PEP. PEPs are expected to be attractive to plan sponsors because of the ability to lower plan fees and expenses by leveraging assets, simplifying administration, and shifting fiduciary risk to the PEP provider. We first posted about PEPs back in January. Nearly 11 months and a pandemic later, many questions remain, but PEPs are slowly starting to take shape.
A variety of industry players have already announced an intention to offer PEPs. Ironically, and in true PEP spirit, many unaffiliated service providers have partnered to offer PEPs, with third-party administrators/recordkeepers often partnering with investment advisors/consultants. PEPs will come in many flavors and sizes. Expect to see both national PEPs offered by well-known providers as well as smaller regional PEPs. While the strategy of pooling assets may have been aimed at smaller plans – since those plans seem to have the most to gain from a cost cutting perspective – it appears that PEPs will be marketed to larger plans ($100M+ plans) as well.
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Early in the pandemic, the IRS and DOL issued a temporary rule (published May 4, 2020) extending certain deadlines applicable to retirement plans and health and welfare plans. (See Deadlines and Commitments: DOL and IRS Temporary Rule for COVID for more information about that extension.) Under that temporary rule, the deadlines were generally extended until 60 days after the announced end of the National Emergency due to COVID-19, which was referred to as the “Outbreak Period.” The deadlines are essentially “tolled” during the Outbreak Period. The National Emergency began on March 1, 2020, as declared by President Trump’s Proclamation.
The examples in the temporary rule assumed an end date of April 30, 2020 for the National Emergency, which would have extended the Outbreak Period through June 29, 2020. As we all now know, this National Emergency did not end on April 30, and in fact it is still in place. So we are still waiting for the National Emergency period to end and trigger the normal deadlines.
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What’s in a number? Retirement plan participants may soon better understand how account balances translate to retirement readiness. The SECURE Act enacted last December requires defined contribution plans to show participants the value of their account balances if converted into a monthly lifetime stream of income. The disclosures are aimed at reminding participants that retirement plan balances are meant to last for life – and busting the “wealth illusion” that single sum account balances present.
The details on the disclosures are starting to take form following an interim final rule recently released by the Department of Labor (“DOL”). Under the interim final rule, plans must provide participants with two lifetime income illustrations: the value of the benefit converted to (1) a single life annuity, and (2) a qualified joint and 100% survivor annuity (assuming the participant is married with a spouse of equal age). The DOL clarified in the final rule that the projections will be based on the participant’s current account balance (rather than a future projected value) and will show what that balance would buy purchasing an annuity at age 67 (or the participant’s actual age, if older).
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We have been monitoring an increase in litigation relating to COBRA election notices in recent months. The plaintiffs in these cases allege that COBRA election notices are deficient, and as a result, the plaintiffs, on a class basis, should be awarded a $110/per day per participant penalty (among other relief). Many of these cases allege deficiencies on notices that are substantially similar to the Department of Labor’s model notice.
While none of these cases have fully worked through the courts, a number have settled for significant sums. The settlement success has predictably spurred more complaints and suits.
Many employers are venturing into uncharted waters as significant numbers of employees are being rehired or returning from extended leaves of absence (e.g., furloughed employees). In this environment, it can be easy to overlook the employee benefit plan implications of this workforce shift. Below are some best practices for employers faced with employees returning to work.
Ensure that retirement plans are crediting service for returning employees correctly. In most cases, employers will not be able to treat a rehired employee as a new employee for retirement plan purposes. This means that the employer will have to consider the employee’s prior service for purposes of determining proper eligibility and vesting credit. This is a good time for employers to check and confirm that any systems that track service (e.g., payroll systems and the retirement plan administrator’s systems) are configured correctly to credit prior service.
With calendar year-end Form 5500s due on July 31, or October 15 with an extension (and still no COVID-19 filing relief as of the date this blog was published), it’s that time of year where plan sponsors begin thinking about their annual retirement plan independent audits. However, these are not the only audits companies should be thinking about.
Both the Internal Revenue Service (IRS) and the Department of Labor (DOL) routinely select qualified retirement plans for examination. In the event of an audit by either agency, a plan’s records, procedures and processes will be examined. If errors or deficiencies are found, at a minimum, corrections will be required, and in some instances, fines or sanctions will be levied.
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In the midst of everything going on, we wanted to point out a few “under the radar” implications of IRS Notice 2020-23. The Notice, issued on April 9th, provides that tax-related deadlines that fall between April 1, 2020 and July 14, 2020 (the “delay period”) are automatically extended to July 15, 2020.
Delayed 5500s. Most plan sponsors hoping for Form 5500 relief will have to wait for additional guidance since only a small group of plans have Form 5500 deadlines fall during the delay period. For example, the regular Form 5500 due date for calendar year plans (July 31st) falls just outside of the delay period. We note that the DOL has authority under the CARES Act to provide additional Form 5500 relief.
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We interrupt our usual Benefits Dial programming – to take a closer look at developments affecting multiple employer plans (MEPs) as part of our series of posts on the recently enacted benefit plan legislation, including the SECURE Act (background here). The reform to MEPs is seen by many as the biggest disruptor to the retirement plan industry. Why? It facilitates the banding together of retirement plan assets from unrelated employers, helping employers punch above their weight. By combining together to form a larger plan, smaller employers can leverage assets with regard to plan services, and maybe most importantly, investment fees paid by participants.
MEPs have long been permitted but many employers have been
unwilling to participate in those plans.
The biggest deterrent has been the “one bad apple rule.” That rule provides that a defect in any
participating employer’s portion of the MEP can impact the tax qualification
of the entire MEP for other participating employers. In other words, if one participating
employer in the MEP is unwilling (or maybe unable) to correct an error, the
whole plan can be disqualified by the IRS.
The SECURE Act helps solve this issue with a special kind of MEP called
a pooled employer plan (PEP). PEPs have
a specific procedure for dealing with tax qualification defects. In short, a participating employer in a PEP
who refuses to correct the error, can be discharged (spun off) from the PEP to
isolate the disqualification impact. The SECURE Act grants relief under ERISA
to boot. Historically, MEPs were
treated as a collection of separate plans unless the underlying employers met
a commonality standard. A PEP (called a
“Group of Plans” under ERISA) is also treated as a single plan for ERISA
purposes under the SECURE Act. This
means, for example, that such plans would be allowed to file a single Form
5500.
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“I was the last one you’d thought you’d see there…”
We tend to think of untimely remittances to retirement plans
as primarily an ERISA issue, and certainly, the cause of many DOL audits.
Lately, however, it seems the IRS also sees late contributions as an invitation
to examine the plan.
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