Electronic Delivery could save Billions

Summer 2020 – Benefit Insights Newsletter

Electronic Delivery Could Save Billions

IRS Issues Additional Pandemic Relief

Upcoming Compliance Deadlines for Calendar-Year Plans

Electronic Delivery Could Save Billions

On May 21, 2020, the U.S. Department of Labor and the Employee Benefits Security Administration (EBSA) announced the publication of a final rule that will allow employers to communicate the required retirement plan disclosures and other plan information electronically. The rule finishes a 2018 DOL initiative aimed at reducing administrative burdens and costs associated with the delivery of retirement plan disclosures. EBSA projects that electronic delivery could save retirement plan sponsors an estimated $3.2 billion over the next 10 years by eliminating significant materials, printing, and mailing costs associated with furnishing printed disclosures. As businesses face economic and logistical challenges due to the COVID-19 National Emergency, the rule brings much needed relief to plan sponsors and service providers while making disclosures more readily accessible and useful for America’s workers.

New Voluntary Safe Harbor

The final rule, which was effective July 26, 2020, establishes a voluntary safe harbor for retirement plan administrators who elect to use electronic media to furnish retirement plan disclosures to “covered individuals.” For plan sponsors interested in taking advantage of the new safe harbor, there are three rules to which they must comply:

1. The safe harbor only applies to retirement plan disclosures and does not include any document that must be furnished only if it is requested.
2. Covered individuals must provide an electronic delivery address such as an email address or smartphone number. An employer assigned email address, such as a company email address, may be treated as provided by the individual if the email address has a separate employment related purpose.
3. The initial notification of electronic delivery must be on paper. For those plans that would like to rely on the new safe harbor, the plan administrator must distribute a paper notice to covered individuals advising them of the intended electronic delivery and providing an opportunity for the individual to opt out.

“EBSA projects that electronic delivery could save retirement plan sponsors an estimated $3.2 billion over the next 10 years” — Employee Benefits Security Administration, 2020

The rule allows two methods for delivering retirement plan disclosures electronically:

1. Website posting. Referred to as the Notice and Access model, administrators may post participant disclosures on a website if an appropriate Notice of Internet Availability (NOIA) is furnished to the electronic addresses of covered individuals. These documents must remain on a website until superseded by a subsequent version but never for less than one year. The NOIA must include a description of the covered document(s), the electronic address (or hyperlink to the address) where the individual can access the document, and a required statement that advises individuals of their right to opt out of electronic delivery and to receive free paper copies along with the administrator’s or a designated representative’s phone number. The NOIA must generally be provided each time a new covered document is available for review on the website. However, the final rule permits an annual NOIA to include information about multiple covered documents instead of requiring that plan sponsors provide multiple NOIAs throughout the year.
2. Email delivery. Alternatively, administrators may send required disclosures directly to the email addresses of plan participants. Required documents must be sent to participants’ email addresses no later than the date by which the document must be furnished under ERISA.

Documents Eligible for Electronic Delivery

Under the final rule, documents that may be provided electronically include:

• Annual disclosure notices such as safe harbor, Qualified Default Investment Alternative (QDIA), Fee Disclosures, and automatic enrollment.
• Summary Plan Descriptions (SPDs)
• Summaries of Material Modifications (SMMs)
• Summary Annual Reports (SARs)
• Notice of blackout period for participant investment direction
• Notices relating to Qualified Domestic Relations Orders (QDROs) Individual benefit statements required by the Pension Protection Act

IMPORTANT: The rules do not apply to any document that must be furnished only if it is requested.

Upcoming Compliance Deadlines for Calendar-Year Plans

15th September 2020
Required contribution to Money Purchase Pension and Target Benefit Pension.
Contribution deadline for deducting 2019 employer contributions for those sponsors who filed a tax extension for Partnership or S-Corporation returns for the March 15, 2020 deadline.
Single employer DB plans were provided relief under the CARES Act to extend any required contributions due during 2020 (both quarterly and year-end contributions) to January 1, 2021.
30th
Deadline for certification of the Annual Funding Target Attainment Percentage (AFTAP) for DB plans for the 2020 plan year.
1st October 2020
401(k) Plan Safe Harbor Notice (must be provided between October 1 and December 1 for plans with a 12/31 plan year-end).
15th
Extended due date for the filing of Form 5500 and Form 8955.
Due date for filing 2020 PBGC Comprehensive Premium Filing.
Contribution deadline for deducting 2019 employer contributions for those sponsors who filed a tax extension for C-Corporation or Sole-Proprietor returns for the April 15, 2020 deadline.

Covered Individuals

The final rule allows the use of electronic media to furnish retirement plan disclosures to “covered individuals.” Covered individuals include plan participants (employees or former employees covered by the plan), beneficiaries (e.g., spouses and dependents covered by the plan), and other persons entitled to documents under Title I of ERISA who have provided the plan administrator or other appropriate designee with an email address or smartphone number. Electronic addresses previously provided to the plan administrator may be used without verifying the address if such reliance is in good faith and otherwise complies with the new safe harbor rule.

Covered individuals must be able to globally opt out of electronic delivery and receive paper copies at no cost to the individual. For administrative ease, the plan sponsor may continue to provide electronic copies in tandem with paper delivery. When a participant who has elected electronic delivery terminates employment, administrators must “take measures reasonably calculated to ensure the continued accuracy and availability” of electronic addresses used to deliver required documents, or take steps to obtain new, valid electronic addresses from plan participants.”

Additionally, the plan administrator must have a system for identifying bounce backs or delivery attempts to a covered individual that have been returned as “undeliverable.” If a bounce back is received, the plan administrator must promptly take reasonable steps to cure the problem by sending the NOIA or email to a secondary electronic address on file, obtaining a new valid and operable electronic address, or treating the covered individual as having globally opted out of electronic disclosures and distributing paper notices from that point forward.

Pre-existing Electronic Delivery Rule

The new safe harbor is an additional option for electronic disclosure and does not replace the prior DOL e-disclosure rule that allowed for electronic delivery to those employees that were “wired at work.” The new safe harbor rule only applies to retirement plans (and is voluntary) and not employee welfare benefit plans, such as plans providing group health or disability benefits. ■

“A 2019 survey found that 90% of U.S. adults use the internet, representing a substantial increase from 2000 when 52% of U.S. adults reported using the internet.” — Pew Research Center, “10% of Americans don’t use the internet. Who are they?” (Apr. 22, 2019)

IRS Issues Additional Pandemic Relief

On June 29, 2020, the IRS issued Notice 2020-52 in response to the COVID-19 pandemic providing welcome relief to plan sponsors who are considering suspending safe harbor contributions and also to those who may already have regardless of whether the employer is suffering an economic loss. The notice is significant in that it permits employers who sponsor 401(k) plans to reduce or suspend their safe harbor contributions and redirect those funds to other, more urgent needs. However, plan sponsors must act quickly to take advantage of the relief by adopting the appropriate amendments and issuing participant notices by August 31, 2020.

As a general rule, regulations require a plan’s safe harbor provisions to remain in effect for an entire 12-month plan year and prohibit mid-year plan amendments to those provisions that would reduce or suspend contributions. However, there are two exceptions:

1. If the employer is operating at an economic loss, or
2. If the plan’s safe harbor notice (due 30 days prior to the beginning of the plan year) includes a statement that the plan may be amended during the plan year to suspend or reduce safe harbor contributions (sometimes referred to as a “safe harbor maybe” notice).

In either event, a supplemental notice must be provided to all participants at least 30 days in advance of the effective date of the reduction/suspension. The plan then becomes subject to the normal non-discrimination testing for the year.

Notice 2020-52 provides guidance in three main areas. First, it provides relief related to COVID-19, allowing plan sponsors to adopt mid-year amendments between March 13, 2020 and August 31, 2020 to eliminate safe harbor matching contributions or mid-year nonelective contributions for the remainder of the year and be deemed to have satisfied the threshold for “operating at an economic loss” or providing the “safe harbor maybe” notice. The amendment must be adopted no later than the date that the reduction/suspension occurred. It is important to note that this special relief regarding the suspension of safe harbor contributions does not eliminate the requirement that the plan will become subject to non-discrimination testing for the entire plan year.

Secondly, it provides helpful clarification that sponsors can eliminate safe harbor 401(k) contributions for highly compensated employees (HCEs) only and retain the plan’s safe harbor status provided that the safe harbor 401(k) contributions continue to be made for non-highly compensated employees (NHCEs). A revised safe harbor notice should be delivered to the affected HCEs.

Finally, the Notice provides temporary relief to the 30-day advance notice requirement for suspensions or reductions to safe harbor nonelective contributions as long as the updated safe harbor notice is provided no later than August 31, 2020 and the plan amendment is adopted prior to the effective date of the suspension. Plan sponsors should keep in mind that the IRS continues to require at least 30 days advance notice for mid-year suspensions or reductions to safe harbor matching contributions; whether or not these contributions are provided can influence the employee’s decision to make elective deferrals. ■

“A 2018 study concluded that 93% of households owning defined contribution accounts had access to, and used, the internet in 2016.” — Peter Swire and DeBrae Kennedy-May, “Delivering ERISA Disclosure for Defined Contribution Plans: Why the Time has Come to Prefer Electronic Delivery – 2018 Update,” (April 2018)

This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

© 2020 Benefit Insights, LLC. All Rights Reserved.

Understanding the CARES Act

Understanding the CARES Act, Upcoming Compliance Deadlines for Calendar-Year Plans, Ask the Experts

Spring 2020 Newsletter

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• Understanding the CARES Act
• Upcoming Compliance Deadlines for Calendar-Year Plans
• Ask the Experts

Understanding the CARES Act

On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a massive relief bill for those suffering as a result of the Coronavirus pandemic, was signed into law. Besides the generalized financial relief afforded to individuals, as well as loans and other concessions for businesses, the bill includes the following provisions to help participants and employer sponsors of retirement plans.

Coronavirus-Related Distributions

The bill permits “coronavirus-related” distributions of up to $100,000 without being subject to the 10% penalty typically applied to distributions made prior to age 59 ½. The distributions must be made to a “qualified individual” who self certifies the following conditions:

• The participant has been diagnosed with COVID-19 (as confirmed by a CDC- approved test);
• The participant’s spouse or dependent has been diagnosed with COVID-19; or
• The participant has suffered financially from the pandemic because:
  • The participant was laid off, furloughed, quarantined, or has had hours reduced;
  • The participant cannot work due to the lack of childcare because of the pandemic; or
  • The participant’s own business has had to close or reduce hours.

The Act permits the Plan Administrator to rely on the participant’s self-certification that he/she qualifies for the distribution. Distributions would also be available for beneficiaries of deceased participants and for alternate payees.

While the distribution is exempt from the 10% penalty tax, it is still subject to ordinary income tax. Affected participants may spread the taxes over a three-year period and may repay all or part of the distribution to the plan or any plan that can accept rollovers within the three-year period. Such repayment is treated as a tax-free rollover of the funds to the plan. Following procedures developed in connection with very similar relief for major hurricanes, participants who repay distributions can file an amended return to recover any tax paid on the distribution reported in earlier years.

The bill permits any “eligible retirement plan,” including qualified plans, IRAs, 403(b) plans, and governmental 457(b) plans, to make a coronavirus-related distribution. The bill makes it clear that the provisions in Code sections 401(k), 403(b), and 457(b) that limit distributions will not be violated by coronavirus-related payments but provides no such relief for defined benefit or money purchase plans (which cannot make in-service distributions prior to age 59 ½).

The coronavirus-related distributions are not eligible rollover distributions meaning that they are not subject to the 20% mandatory withholding typically applied to such distributions. The rules provide for 10% withholding that can be waived by the participant. Keep in mind that taxes will ultimately be due within the three-year window unless the distribution is repaid as permitted in the law. Participants must receive a notice that they can waive the withholding. Failure to provide that notice after the SECURE Act is subject to a $100 penalty per participant, up to a maximum of $50,000.

Loan Limit Increases and Delays in Repayment

The CARES Act modified the rules pertaining to participant loans by allowing loans up to 100% of a qualified individual’s vested account or benefit, up to $100,000 (previously limited to 50% and $50,000, respectively). This provision covers loans made until September 23, 2020. In addition, any loan payment due on any outstanding loan between March 27, 2020 and December 31, 2020, is delayed up to one year. The five-year repayment period is also extended for one year. Interest accrues on the loan during the delay period. All service providers and plan sponsors should be vigilant to ensure that participant loans are not reported on Form 1099R as in default during this extended repayment period.

“Because of the uncertainty about how repayment of coronavirus-related distributions will be handled, and the tax impact of such repayment, it may be advisable for participants to take loans first.”— Ferenczy Benefits Law Center

Required Minimum Distribution Requirements for 2020

Just a few months ago, the SECURE Act changed the age at which required minimum distributions (RMDs) began from age 70 ½ to age 72 for distributions required to be made after 12/31/2019. The CARES Act effectively does away with RMDs due in 2020 from defined contribution qualified plans, 403(b) plans, IRAs, and governmental 457(b) plans. This guidance should prevent effected participants from having to liquidate deflated investments during this period, permitting them time to recover value. The 2021 distributions will be based on account values at December 31, 2020. It follows that if the market is not fully recovered, RMDs at that time should be lower.

Single Employer DB Funding Delay

The due date for any required contributions to defined benefit plans (including quarterly contributions) during 2020 is extended to January 1, 2021. The minimum amount is increased by the plan’s rate of interest for the interim period. Furthermore, the plan sponsor is permitted to consider the AFTAP for 2020 to be the same as it was for the last plan year ending before 2020.

DOL Authority to Postpone Deadlines

The CARES Act gives the Department of Labor authority under ERISA to delay deadlines due to public health emergencies. This will hopefully give rise to some extensions of Form 5500 filing deadlines.

Remedial Amendment Period Extended to 2022

Plans that utilize the provisions offered under the CARES Act do not have to be amended until the end of the 2022 plan year (or such later date as the Secretary of the Treasury provides). Governmental plans will have until the end of the 2024 plan year. The amendment must be retroactively effective and detail the plan’s operations in the interim. So, if amendments are not adopted immediately, it is important that good records are kept regarding the plan’s changed operations until written amendments are completed.

Other Coronavirus-Related Issues

Safe Harbor 401(k) Plan Suspension or Modification

Safe harbor contributions, either matching or non-elective, can be suspended mid-year if one of two conditions apply:

• The plan provided a notice containing the “maybe not” language at least 30 days prior to the beginning of the plan year advising participants that the safe harbor contribution might be suspending during the year; or
• The plan sponsor is operating at an economic loss for the plan year.

If the employer sponsor wishes to suspend contributions, participants must be given a 30-day advance supplemental notice and the plan must pass ADP testing for that year. This only allows the suspension of safe harbor contributions 30 days after the notice is given.

Hardships

The regulations to section 401(k) were changed last year to permit safe harbor hardship distributions if there is a declared FEMA emergency that permits individual assistance. A review of the FEMA website indicates that not all states have been provided with the “individual assistance” eligibility. If your state has been given this individual assistance, then the plan can permit this type of hardship distribution. Normally, this would be part of the hardship amendment most document sponsors are providing. If there is not an individual assistance declaration, hardship distributions can still be made to 401(k) and 403(b) participants under the non-safe harbor rules and plans can be amended before the last day of the plan year to use those rules.

Partial Plan Termination Rules

As a result of the lay-offs and temporary business closings associated with the pandemic, some plan sponsors may be subject to partial plan termination rules. A partial plan termination generally is deemed by the IRS to occur when 20% of total plan participants are terminated for reasons other than routine annual turnover. For example, a large fast food operation may experience annual turnover of 30% historically. This would not necessarily trigger a partial plan termination. However, if more than 20% of total plan participants are terminated due to the current state of emergency caused by the coronavirus, that presumably would trigger a partial plan termination. If a partial plan termination is deemed to have occurred, the plan must provide accelerated 100% vesting to the affected plan participants – that is, those who terminate employment.

Plan sponsors might ask about the status of the partial termination if the employer rehires the workers. The 20% test creates a presumption that a partial termination has taken place, but facts and circumstances can be used to show that a partial termination, in fact, has not occurred.

There is a great deal of information to digest from the CARES Act and there will surely be clarification and possible additional changes as Congress continues to find ways to help employers and stimulate the economy. We are available to help and answer questions so please feel free to contact us.

Article written in collaboration with Ferenczy Benefits Law Center

www.ferenczylaw.com

Upcoming Compliance Deadlines for Calendar-Year Plans

The CARES Act gives the DOL the authority to delay deadlines due to public health emergencies. The dates below are in effect as of the date of this publication.

April 2020
1st	Required Minimum Distributions – Regulations require that a participant must receive a required minimum distribution (RMD) by April 1st of the year following the year in which the participant attains age 70 ½ (changed to age 72 for 2020). WAIVED per the CARES Act for 2020.
15th	Excess Deferral Amounts – Salary deferral contributions in excess of the IRS-issued limits in any calendar year ($19,000 for 2019), must be returned to the participant (plus earnings) by April 15 of the year following the year in which the excess occurred. Deadline currently NOT extended. Employer Contributions – Deadline for contributing employer contributions for amounts to be deducted on 2019 C corporation and sole proprietor returns (unless extended). Deadline extended by the CARES Act to July 15, 2020.
May 2020
15th	Deadline to supply participants with the quarterly benefit/disclosure statement including plan fees and expenses charged to individual plan accounts during the first quarter. Deadline currently NOT extended.
June 2020
30th	EACA ADP/ACP Corrective Testing – ADP/ACP refunds are due to highly compensated employees (HCEs) to avoid a 10% excise tax on the employer for plans that have elected to participate in an Eligible Automatic Enrollment Arrangement. Deadline currently NOT extended.
July 2020
15th	Defined Benefit Contributions – Single employer DB plans were provided relief under the CARES Act for any required contributions (both quarterly and year end contributions) during 2020. Extended to January 1, 2021.
28th	Summary of Material Modifications (SMM) – A SMM is due to participants no later than 210 days after the end of the plan year if a change or amendment was adopted in that year. Deadline currently NOT extended.
31st	Due date for calendar-year plans for the filing of Form 5500, Form 5558, Form 5330, and Form 8955. Deadline currently NOT extended.

Ask the Experts

Question: When is my 2019 employer contribution due to be funded to our plan?

Answer: For deduction purposes, the general deadline for all employer contributions for a plan year is the tax return deadline for the company including extensions. For most entity types, this would be either March 15th or April 15th of the following year. An extension could provide up to another 6 months beyond those dates.

No relief was given to tax returns due on March 15, 2020. If your tax return deadline was March 15, 2020, and you did not file an extension, your 2019 contributions were due to the plan by March 15, 2020. Otherwise, your deposit deadline for all 2019 employer contributions is your extended due date.

The IRS has provided relief for taxpayers (including business returns) due on April 15, 2020 to July 15, 2020. This also automatically extends the due date for contribution funding for such entities to July 15, 2020 with a normal company tax return deadline of April 15, 2020.

Unfortunately, no such relief has yet been provided for tax returns due on May 15, June 15, or any other date besides April 15. This includes tax returns currently on extension beyond April 15. The extension deadlines are still applicable, barring any further relief announced by the IRS.

Question: What other ways is the CARES Act helping businesses?

Answer: If you are a small business, you should talk to your accountant or banker about the CARES Act Payroll Protection Program. Under that program, you may be eligible to receive a very low interest loan from the government to help you fund your payroll (including taxes, health premiums, and retirement plan contributions) for a 2 ½ month period. In addition, if you meet other conditions, the entire loan may be forgiven. For small companies, this can be the difference between keeping doors open and not. The funds available for this are limited and the government has indicated that it will respond on a first come, first served basis. So, you should jump on this if you are interested.

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This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

© Benefit Insights, LLC. All Rights Reserved.

How the SECURE Act is Changing Retirement | Upcoming Compliance Deadlines