COVID-19 Employee Benefits FAQs for Employers – Focus on ...
UPDATE:COVID-19 Employee Benefits FAQs for Employers – Focus on Retirement PlansCARES ActThe Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which was signed into law on March 27, adds to the list of adjustments that employers may need (or want) to make to their retirement plans. Troutman Sanders Employee Benefits & Executive Compensation attorneys have joined forces with our future colleagues at Pepper Hamilton to put together this FAQ to highlight new planning opportunities raised by the CARES Act, as well as recent guidance issued by the IRS that impacts the timing of employer-paid contributions to qualified retirement plans. If you have any questions, require plan amendments or assistance with employee communications, please contact any member of the Troutman Sanders or Pepper Hamilton Employee Benefits and Executive Compensation Practice Groups or the COVID-19 Response Team. We are here to help you in any way that we can. This FAQ is current as of April 3, 2020. We will make every effort to update it as pertinent information becomes available.1. Does the CARES Act provide relief from RMDs for participants who might otherwise be required to take RMDs in 2020 based on a larger December 31, 2019 account balance?The CARES Act waives required minimum distributions (“RMDs”) from defined contribution plans that are otherwise required for 2020, as well as any 2019 RMD for which the required beginning date is April 1, 2020 (individuals who attained age 70? in 2019) and has not been made before January 1, 2020. This will allow participants to avoid 2020 RMDs (which would have been calculated based on December 31, 2019 account values), especially since most participants’ accounts have a lower value due to the coronavirus impact on financial markets.In addition, the 5-year period and 10-year period (under a change set forth in the Setting Every Community Up for Retirement Enhancement, signed into law in December 2019), as applicable, for death benefit RMDs will be determined without regard to 2020. This essentially allows an extra year for such RMDs.2. Does the CARES Act expand the availability of withdrawals from defined contribution 401(k) plans, 403(b) plans and governmental 457(b) plans for participants impacted by COVID-19?In addition to withdrawals under existing rules, employers can adopt the CARES Act provisions for coronavirus-related distributions:A participant is eligible for a coronavirus-related distribution if (i) the participant or the participant’s spouse or dependent is diagnosed by a CDC-approved test with SARS-CoV-2 or COVID-19, or (ii) the participant experiences adverse financial consequences due to a coronavirus-related impact on employment. Employers can rely on a participant’s self-certification of eligibility.Coronavirus-related distributions must be made between January 1, 2020 and December 31, 2020, and cannot exceed $100,000.Coronavirus-related distributions will not be subject to the 10% tax that is otherwise applicable to distributions from 401(k) and 403(b) plans before a participant attains age 59? or the 20% mandatory federal income tax withholding on “eligible rollover distributions.”Participants can recognize income on coronavirus-related distributions over a 3-year period.Participants can contribute an amount up to the amount of any coronavirus-related distributions as a rollover contribution to an eligible retirement plan or IRA within 3-years of the distribution.Coronavirus-related distributions can be provided for active or inactive participants. If an employer wants to provide for coronavirus-related distributions, an amendment to their plan will be needed, but the distribution provisions can be implemented immediately and the amendment adopted later, with retroactive effect. 3. Does the CARES Act expand limits and ease repayment provisions on defined contribution plan loans during the COVID-19 crisis?The CARES Act:Increases defined contribution plan (such as 401(k) plan) loan limits to the lesser of $100,000 or 100% of a participant’s vested account balance (increased from $50,000 or 50% of a participant’s vested account balance under existing rules) for a loan issued to a qualified participant within 180 days after the CARES Act enactment date (March 27, 2020); andFor any plan loan to a qualified participant that is outstanding on or after March 27, 2020, delays for one year the due date of any loan repayment that is otherwise due between the CARES Act enactment date and December 31, 2020.A “qualified participant” is a participant who (i) is diagnosed or whose spouse or dependent is diagnosed by a CDC-approved test with SARS-CoV-2 or COVID-19, or (ii) experiences adverse financial consequences due to a coronavirus-related impact on employment. Employers can rely on a participant’s self-certification of eligibility as a “qualified participant.”Employers can implement these changes immediately. Employers who implement these loan provisions should communicate them to participants, and will need to also amend their plans or loan procedures. 4. What is the deadline for amending retirement plans for the CARES Act provisions?Although changes under the CARES Act may be implemented immediately, plan sponsors have until the last day of the first plan year beginning on or after January 1, 2022 (December 31, 2022 for calendar year plans) to adopt necessary amendments to their retirement plans and loan procedures, with retroactive effect. The deadline for governmental plans is the last day of the first plan year beginning on or after January 1, 2024.5. Do the relief provisions under the CARES Act also apply to single employer defined contribution plans that cover collective-bargained employees?Yes. The relief provisions of the CARES Act are also available for collective-bargained employees that are covered under retirement plans that provided benefits to both collective-bargained employees and non-union employees, as well as plans that solely cover collective-bargained employees.6. Does the CARES Act provide any relief for employer minimum funding contributions to single employer defined benefit pension plans?The CARES Act allows employers to delay required contributions to single employer defined benefit pension plans otherwise due in calendar year 2020; provided, that the delayed payments are made with interest no later than January 1, 2021.Also, employers may elect to treat the plan’s adjusted funding target attainment percentage (“AFTAP”) for the last plan year ending before January 1, 2020 as the AFTAP for the plan year which includes calendar year 2020. This relief can help plans avoid restrictions on lump sum payments and benefit accruals that would otherwise apply under Internal Revenue Code Section 436 due to any adverse impact on the plan’s funded status in the current economic environment.7. Can employers delay payment of employer contributions to a qualified retirement plan during the COVID-19 crisis?IRS Notice 2020-18, issued March 13, extends the due date for corporate Federal tax returns and tax payments from April 15, 2020 to July 15, 2020. This also extends the due date by which employer contributions must be paid to a qualified retirement plan and still qualify for a deduction. (Note: this extension is not applicable to any employee contributions. Employee contributions must still be remitted to the plan in accordance with the Department of Labor’s timing requirements.)8. Are participants still subject to the April 15, 2020 deadline for refunds of 2019 excess elective 401(k) deferrals?Although the IRS has extended the Federal income tax return filing date for individuals from April 15, 2020 to July 15, 2020, participants are still required to receive refunds of any 2019 excess elective 401(k) deferrals by April 15, 2020. ................
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