§ 1.1 Want to Put More Away in Your 401(k)? Qualified Plan Limits Generally Remain Constant in 2021
Seyfarth Synopsis: Many of the limitations that apply to tax-qualified plans, including 401(k) and 403(b) plans, are subject to cost-of-living increases. The IRS just announced the 2021 limits. The annual employee salary deferral contribution limits are not changing, but there are a few adjustments for 2021 that employers maintaining tax-qualified retirement plans will need to make to the plans’ administrative/operational procedures.
In Notice 2020-79, the IRS recently announced the various limits that apply to tax-qualified retirement plans in 2021. Notably, the “regular” 401(k) contribution limit and the “catch-up” contribution limit are not changing, and will remain at $19,500 and $6,500, respectively, for 2021. Thus, if you are or will be age 50 by the end of 2021, you may be eligible to contribute up to $26,000 to your 401(k) plan in 2021. These same limitations apply if you work for a governmental or tax-exempt employer and participate in a 403(b) plan.
The annual plan limits that did increase for 2021 include:
- the maximum that may be contributed to a defined contribution plan (e.g., 401(k) or 403(b) plan) in 2021, inclusive of both employee and employer contributions, will increase by $1,000 to $58,000; and
- the maximum annual compensation that may be taken into account under a plan (the 401(a)(17) limit) will increase from $285,000 to $290,000.
The Notice includes numerous other retirement-related limitations for 2021, including a $6,000 limit on qualified IRA contributions (unchanged) and adjustments to the income phase-out for making qualified IRA contributions. Other dollar limits for 2021 that are not changing include the dollar limitation on the annual benefit under a defined benefit plan ($230,000), the dollar limit used to determine a highly compensated employee ($130,000), and the dollar limit used when defining a key employee in a top-heavy plan ($185,000).
Individuals should check their plan contribution elections and consult with their personal tax advisor before the end of 2020 to make sure that they take full advantage of the contribution limits in 2021. Although many limits are not changing, employers who sponsor a tax-qualified retirement plan should still consider any necessary adjustments to plan administrative procedures and participant notices to ensure proper administration of the plan in 2021.
Employers who sponsor defined benefit pension plans (e.g., cash balance plans) also should be sure to review the new limits in the IRS Notice and make any necessary adjustments to plan administrative/operational procedures.
Sarah Touzalin and Richard G. Schwartz
§ 1.2 The Supreme Court Wrestles (Again) With The Constitutionality Of The Affordable Care Act (ACA)
Earlier today, the Supreme Court heard oral arguments on the most recent challenge to the Affordable Care Act. The case has the potential to invalidate the entire law. While the Court’s decision isn’t expected soon, the oral arguments may provide some clues as to which way the Justices are leaning. We stress, however, that statements made during oral argument are not binding, and Justices remain free to rule as they deem appropriate.
On November 10, 2020, the Supreme Court heard oral argument on the constitutionality of the ACA. The case is captioned California v. Texas, No. 19-10011.
The case was brought by a group of state attorneys general in the wake of the 2017 Tax Cuts and Jobs Act, which reduced the individual tax for failure to maintain health insurance coverage to $0. The Trump Administration chose not to defend the law, but the lower courts granted leave to other states’ attorneys general and to the House of Representatives to defend the law. The arguments in the case addressed the following three issues:
- Do the plaintiff states have standing to challenge the constitutionality of the individual mandate?
- If so, did Congress’s actions in “zeroing out” the penalty for the mandate render the mandate an unconstitutional exercise of Congressional power?
- If so, is the mandate severable from the remainder of the ACA, or should the entire law fall?
The Court had previously ruled in 2012 that the ACA’s individual mandate was constitutional, as it represented an exercise of the lawful power of Congress to tax, and provide citizens with a reasonable choice of purchasing approved health insurance or paying a tax as a penalty. In that ruling, however, five Justices found that Congress cannot rely on its Commerce Clause power to enact the ACA. In other words, the Court upheld the mandate only by finding that the mandate was a tax, not a penalty. So, the question before the Court at present is whether the mandate can truly be considered a tax if it generates no revenue.
The Court under Chief Justice Roberts has shown an aversion to wading into politically sensitive rulings, given the current politically polarized climate. And this case has a complicated political overlay. The Court’s ruling here takes on heightened significance in the wake of the recent election in which Republicans appear to have maintained control of the Senate, because that takes away the Democrats’ avenue to “cure” the challenged provision by simply implementing a tax above $0 to enforce the individual mandate.
There are two ways that the Court can avoid a finding of unconstitutionality.
First, there is the issue of Article III standing. As we have previously opined, https://www.beneficiallyyours.com/?s=california+texas, there is a substantial question whether there is a sufficient injury traceable to the actions of the defendants to justify a lawsuit on the merits. The November 10 oral argument focused on whether an injury could be said to have occurred because of increased reporting requirements, Medicaid payments by the state and the ACA restriction on what health policies an American can purchase in the marketplace. But a failure to purchase insurance does not directly cause injury -- the tax penalty is $0. Justice Thomas described this issue in terms that we all can understand given our COVID times. He asked whether an American could sue in federal court to challenge a mask mandate that is not enforced. Justice Gorsuch and some of the more liberal Justices, however, expressed some concern that if the Court were to grant standing in this case, it would open the door to more challenges to federal law.
Look for the Court to limit any finding of standing to the peculiar facts of California v. Texas, given the concern about the federal judicial chaos that could result from a broader ruling on standing.
Second, there is the issue of severability. It is true that the individual mandate remains a part of the ACA, and it does state that all Americans “shall” purchase compliant insurance. It is also true that the constitutionality of that mandate is based on Congress’s taxing power that now is exercised at $0. It is true as well that a future Congress might increase the tax above $0, which might explain why the 2017 reduction to that level was not accompanied with a repeal of the individual mandate.
Justice Thomas pressed the attorney for the House of Representatives on how he could argue that the mandate is severable when, in 2012, he had argued that it was the “heart and soul” of the law. On the other hand, many Court observers honed in on statements from Chief Justice Roberts and Justice Kavanaugh, both of whom seemed to express reservation at “reading into” Congressional intent rather than simply looking to the actions taken by Congress in zeroing out the individual mandate (while leaving the rest of the law intact). Justice Alito offered a hypothetical involving a plane that is presumed to be incapable of flight without a crucial instrument, but that then continues flying without issue once that instrument is removed.
While it is impossible at oral argument to discern how nine Justices will rule, hints from the arguments suggest the Court may have the votes to find standing (in a limited way) and declare only the individual mandate (and not the remainder of the law) to be unconstitutional as long as it is enforced by a $0 tax. We anxiously await the decision of the Court, and its reasoning.
Mark Casciari and Benjamin J. Conley
§ 1.3 No, You Cannot Invest Your Retirement Plan to Save the Planet!
Seyfarth Synopsis: On October 30, 2020, the Department of Labor (“DOL”) released a final regulation amending the fiduciary regulations governing investment duties under the Employee Retirement Investment Security Act of 1974 (“ERISA”). This final regulation is clear that an ERISA fiduciary should not consider “non-pecuniary” factors such as environmental, social or corporate governance (“ESG”) or sustainability factors when considering an investment or investment strategy. Under the final rule, investment fiduciaries must evaluate investments and investment strategies solely based on pecuniary factors. The final regulation is generally effective 60 days after it is published in the Federal Register.
The DOL proposed this regulation on June 23, 2020, which is discussed in our July 1, 2020 post, Can You Invest Your Retirement Plan to Save the Planet? ERISA investment fiduciaries have been faced with the dilemma of whether social investing concepts have a role when investing ERISA plan assets. It appears that the DOL has answered this question. Specifically, social investing concepts only have a role if they potentially impact the risk of loss or opportunity for return of the proposed investment.
The DOL received numerous comment letters and objections critical to its proposed regulation, including claims that it was unnecessary rulemaking, reflected antiquated views, and provided too short a comment period. Despite the extensive comments it received, the final regulation is substantially the same as the proposed regulation. References to ESG were removed from the final regulation because the DOL did not want to narrow or limit the application of the final regulation. Under the final regulation, challenges remain for fiduciaries who consider non-pecuniary factors when making investment decisions.
The final regulation limited pecuniary factors to those factors that a fiduciary prudently determines are expected to have a material effect on the risk and/or return of an investment in light of the plan’s investment horizon, investment objectives and funding policy. While many investors may believe that a company that incorporates ESG principles to manage its risks and create opportunities offers an inherently less risky investment, the DOL does not appear to be willing to accept the argument that ESG in and of itself could be a pecuniary factor.
The final rule continues to provide for “tie breakers,” even though the preamble questions whether there could be a true tie-breaker situation. In such a situation, fiduciaries must document: why pecuniary factors were not sufficient to select the investment or investment course of action; how the selected investment compares to available alternatives; and how the non-pecuniary factors considered were consistent with the interest of the participants in their plan benefits. The DOL indicated in the preamble that whether an investment could increase plan contributions — e.g., investing the assets of a multiemployer plan in projects that will employ union members and increase contributions to the plan — was not a pecuniary interest. The same is true for adding an investment in response to interest expressed by plan participants.
For individual account plans that allow plan participants to choose from a range of investment alternatives, the regulation prohibits a fiduciary from considering or including an investment fund solely because the fund promotes, seeks or supports one of more non-pecuniary goals — e.g., an ESG focused fund. But, it does not prohibit including an ESG focused fund in the investment line-up. The final regulation, however, prohibits qualified default investment alternatives (QDIAs) with investment objectives or principal investment strategies that “include, consider, or indicate the use of one or more non-pecuniary factors.” This prohibition could be interpreted to cast a wide net.
The regulations would make it difficult or impossible for plan fiduciaries to consider non-pecuniary factors (e.g., religious tenets, ESG factors, etc.) when selecting investment options under an ERISA participant-directed defined contribution plan. A potential solution could be offering a brokerage window, which can provide access to individuals who wish to invest their accounts according to non-pecuniary factors such as religious tenets. Brokerage windows have their pros and cons. In addition, a fiduciary’s duties and responsibilities with respect to a brokerage window are not settled.
Historically, the DOL’s position on the role of ESG in ERISA plan investing has shifted with changes in administrations. With these final regulations, there is no doubt that the DOL has clearly shifted against marketplace trends. But, with a Biden administration coming onboard, calls for the SEC to address ESG disclosures and a Senate task force aimed at overhauling corporate governance, questions remain on whether the door on the role of ESG investing is closed. For information on ESG in the broader marketplace and what it means from a company perspective, see our alert series here, here, here and here.
If you are concerned about an existing non-pecuniary investment or investment strategy (e.g., an ESG or sustainability investment) or are interested in such an investment or strategy, be sure to contact your Seyfarth employee benefits attorney.
Linda Haynes and Candace Quinn
§ 1.4 Happy New Year! The IRS Grants Permission to Celebrate New Year’s Eve
Seyfarth Synopsis: The IRS has announced that the due date for contributions to a single-employer defined benefit pension plan due in 2020, previously extended to January 1, 2021 by the CARES Act, will be considered timely if made no later than January 4, 2021.
Under the funding rules for qualified defined benefit pension plans, plan sponsors generally must make any minimum required contributions no later than 8-1/2 months after the plan year to which they relate. For calendar year plans, this means that the minimum required contribution is due no later than September 15th of the year following the applicable plan year. Plans with a funding shortfall for the prior plan year also must make quarterly minimum required contributions (for a calendar year plan, these contributions are due April 15th, July 15th, October 15th and the following January 15th).
The CARES Act, enacted in late March 2020 in response to the COVID-19 pandemic, delayed the timing of any annual and quarterly minimum required contributions due in 2020 (i.e., attributable to the 2019 plan year for calendar year plans) until January 1, 2021. As a practical matter, because January 1, 2021, is a national holiday and banks will not transfer funds on that date, the delayed contributions were actually due no later than December 31, 2020. IRS Notice 2020-82, just issued on November 16th, effectively extends the deadline to the first business day after the new year, i.e., January 4th. The guidance is welcome news for plan sponsors who wish to make contributions in calendar year 2021 rather than 2020.
Subsequent to the issuance of the IRS Notice, the PBGC followed suit and revised its guidance to incorporate the extension for contributions due in 2020 to January 4, 2021 for PBGC purposes.
§ 1.5 Final Rule regarding Transparency in Coverage for Health Care Services
Seyfarth Comments: The final Transparency in Coverage Rule was published jointly by the Departments of Health and Human Services, Treasury, and Labor on November 12, 2020. The Rule aims to increase transparency in cost-sharing for patients by requiring non-grandfathered group health plans and insurance issuers to publish certain healthcare price information estimates. The Rule takes effect January 11, 2021, with staggered effective dates for required disclosures through January 1, 2024.
The Transparency in Coverage Rule attempts to execute on the Trump Administration’s executive order on Improving Price and Quality Transparency in American Healthcare to Put Patients First, issued on June 24, 2019. The final Rule requires certain disclosures regarding prices and cost-sharing information for certain healthcare items and services provided by non-grandfathered group health plans and insurance issuers. The Rule generally applies to traditional health plan coverage, and does not apply to account-based group health plans (such as HRAs, including individual coverage HRAs, or health FSAs), excepted benefits, or short-term limited-duration insurance.
The Rule requires two categories of disclosures: disclosures to the public, and disclosures to plan participants.
For plan years beginning on or after January 1, 2022, group health plans and insurance issuers will be required to publicly disclose health care pricing information on an internet website, which must be updated monthly. In general, plans and issuers will have to disclose:
- In-network provider negotiated rates for covered items and services;
- Historical data showing billed and allowed amounts for covered items or services, including prescription drugs, furnished by out-of-network providers; and
- Negotiated rates and historical net prices for prescription drugs furnished by in-network providers.
Under the participant disclosure requirements, group health plans and issuers must provide certain personalized cost-sharing information to participants and beneficiaries in advance and upon request. The disclosures must be available both using an internet-based self-service tool and on paper if requested. The required disclosures must include the following information:
- The estimated cost-sharing liability for a requested covered item or service;
- Accumulated amounts, including unreimbursed amounts the participant or beneficiary has paid toward meeting his or her individual deductible and/or out-of-pocket limit (and if enrolled in other than self-only coverage, amounts incurred toward meeting the other than self-only coverage deductible or out-of-pocket limit);
- In-network negotiated rates for covered items and services;
- Out-of-network allowed amounts, or any other rate that provides a more accurate estimate of what the plan or issuer will pay for the requested covered item or service;
- Lists of covered items and services that are part of a bundled payment arrangement;
- Notice of items and/or services subject to a “prerequisite,” which is defined as concurrent review, prior authorization, and step-therapy or fail-first protocols that must be satisfied before the plan or issuer will cover the item or service (not including medical necessity determinations or other medical management techniques); and
- A disclosure notice that includes: balance billing provisions, possible variations in actual charges, a disclosure that the estimated cost-sharing liability is not a guarantee, the application of copayment assistance and/or third-party payments, and any other information deemed appropriate. A model notice is available on the Department of Labor’s website: https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/transparency-in-coverage-draft-model-disclosure.pdf
- Due to the extensive nature of the required disclosures, the Departments include a staggered schedule for providing the required participant disclosures under the Rule. For plan years beginning on or after January 1, 2023, plans must make this information available for 500 items and services listed in the Rule, and for plan years beginning on or after January 1, 2024, plans must make the information available for all items and services.
A group health plan may satisfy the disclosure requirements by entering into a written agreement with its third-party administrator (TPA), whereby the TPA will provide the information required by the Rule. Notably, if the TPA fails to provide the information required by the Rule, the plan remains responsible for noncompliance.
A plan or issuer will not fail to comply with the disclosure requirements if, while acting in good faith and with reasonable diligence: (i) it makes an error or omission and corrects the information as soon as practicable; or (ii) its internet website is temporarily inaccessible, provided it makes the information available as soon as practicable.
The extensive disclosures required by the Rule have been greeted with much criticism, in particular by the insurance industry. Litigation and other challenges to the Rule are anticipated. In particular, there are concerns that the Rule will impede the ability of service providers and drug companies to negotiate prices. Accordingly, the final Rule contains a severability clause so if a court holds any provision of the Rule to be unlawful, the remaining provisions will survive.
Seyfarth will continue to track further developments regarding the Rule. Also, be sure to sign up for our blog, Beneficially Yours, for further discussion of employee benefits topics and updates at https://www.beneficiallyyours.com/.
§ 1.6 SCOTUS Upholds Arkansas PBM Law Against ERISA Preemption Arguments
Seyfarth Synopsis: The Supreme Court unanimously upheld Act 900, an Arkansas law regulating Pharmacy Benefit Managers (PBMs). The opinion could be used as a framework for states to attempt to indirectly regulate ERISA plans via statutes or regulations that affect plan costs.
We previously addressed the Supreme Court’s consideration of Rutledge v. PCMA, which featured a pharmaceutical industry group’s challenge to Arkansas Act 900. The Act (a) regulated the price PBMs paid for certain prescription drugs, (b) created an appeal process whereby pharmacies could challenge a PBM’s rate of reimbursement, and (c) permitted pharmacies to decline to sell drugs at reimbursement rates below acquisition cost. As noted in our prior posts, PCMA (as supported by many amicus briefs from ERISA groups) argued that the law “relate[s] to an employee benefit plan” and, insofar as it applies to self-funded ERISA plans is preempted and thus impermissible. These ERISA groups argued that piecemeal state regulation undermines a central purpose of ERISA: to create one national private sector benefit plan jurisprudence, resulting in administrative savings and ultimately more plan benefits.
In an 8-0 Opinion (Justice Amy Coney Barrett not participating), the Court unanimously ruled in favor of Arkansas. The Court found that, while the Act can be said to be connected to increased plan costs and operational inefficiencies, “ERISA does not pre-empt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.” The Court added: “[C]ost uniformity was almost certainly not an object of pre-emption.” Finally, the Court said that ERISA plans are not essential to the Act’s operation, meaning that it has no exclusive reference to ERISA plans.
Justice Thomas alone concurred in the Opinion. He continued his disagreement with the Court’s ERISA preemption “connection with or reference to” standard. He would replace that standard with one that addresses whether any ERISA provision governs the same matter as the state law, and has a “meaningful,” presumably direct, relationship to the plan in light of ERISA’s text.
Implications for ERISA Plan Sponsors
The Court’s Opinion could be problematic for ERISA plan sponsors, who typically prefer a uniform administrative scheme across state lines. Many PBM agreements contain provisions permitting PBMs to charge additional fees or limit the scope of their services where states impose more restrictive regulations or guidelines. The Opinion will embolden states and localities to be more aggressive in their regulation of pharmacy benefits. We should expect these jurisdictions to argue that, after Rutledge, there is no preemption because they are simply regulating plan costs.
In any event, Rutledge leaves open the possibility that preemption will apply if the cost regulation is “so acute that it will effectively dictate plan choices.” And, state law that provides a cause of action or additional state remedies for claims allowed by ERISA, or directly amends ERISA plan terms or the ERISA scheme that governs plan administration, remain preempted.
Stay tuned to this blog for further updates on this important issue of benefit plan administration.
Mark Casciari, Benjamin J. Conley and Michael W. Stevens
§ 1.7 Changes to HIPAA Privacy Rules on the Horizon
Seyfarth Synopsis: The Department of Health and Human Services (HHS) has proposed changes to the required Privacy Notice under the HIPAA privacy regulations. If finalized, these would be the first significant changes to the HIPAA rules since the HITECH changes effective back in 2013.
The press release issued by HHS on December 10, 2020, states its intention to empower patients, improve coordinated care, and reduce regulatory burdens in the health care industry. HHS notes that the medical crises brought on by the opioid and COVID-19 epidemics have heightened the need to make these updates. While many of the changes directly affect health care providers and their patients, several provisions will also have an impact on employer-provided health plans. The Notice of Proposed Rulemaking is voluminous, but includes such things as an expansion of the definition of health care operations and the minimum necessary rule, changes to the required HIPAA Privacy Notice, shortened time frames to respond to individuals requests regarding their rights to their PHI, and disclosures of applicable fees for access to PHI. The Notice also provides long-awaited additional guidance on Electronic Health Records.
For more detailed information on the impact of these proposed changes on covered entity health plans, please see our Legal Update here. Also, click here for our Legal Update discussing these proposals and health care providers.
§ 1.8 HHS Proposes Changes to HIPAA Privacy Rules Affecting Group Health Plans
Seyfarth Synopsis: The Department of Health and Human Services (HHS) has issued a Notice of Proposed Rulemaking (NPRM) to modify the HIPAA Privacy Rule that protects the privacy and security of individuals’ protected health information (PHI) maintained or transmitted by or on behalf of HIPAA covered entities, such as employer-sponsored health plans. One of the stated purposes of the NPRM is to address some of the HIPAA Privacy Rule provisions that may limit care coordination and case management communications among individuals and healthcare providers.
Click here for our related blog post on this topic. While this Update will focus on the NPRM’s impact on health plans, click here for our separate Legal Update addressing some of the changes that apply to health care providers.
Under the NPRM, some of the changes that would affect employer-sponsored health plans include:
- Individual Care Coordination and Case Management. A health plan is permitted to use or disclose PHI for its own health care operations. (In addition, a health plan may disclose PHI to another covered entity for that entity’s health care operations in certain situations.) In order to encourage better, lower cost health care, the NPRM would revise the definition of “health care operations” to clarify that health plans can conduct care coordination and case management activities not only at the population level across multiple enrolled individuals, but also at the individual level. The NPRM also adds an exception to the minimum necessary rule for disclosures to, or requests by, a health plan for care coordination and case management activities that are at the individual level.
- Business Associate Disclosures of PHI. The NPRM would clarify that a business associate is required to disclose PHI to the covered entity so the covered entity can meet its access obligations. However, if a business associate agreement provides that the business associate will provide access to PHI in an electronic health record (EHR) directly to the individual or the individual’s designee, the business associate must then provide such direct access.
- Limited Disclosure When Individual is Not Present. The HIPAA Privacy Rule provides that if an individual is not present, or the opportunity to agree or object to the use or disclosure of PHI cannot be provided because of the individual’s incapacity or emergency circumstance, the health plan may disclose PHI that is directly relevant to the person’s involvement with the individual’s care or payment if the covered entity determines in its professional judgment that disclosure is in the best interest of the individual. The proposed rule would modify the standard under which that the determination is made, to be based on a good faith belief that the disclosure is in the best interests of the individual. This standard will allow health plan administrators to be better able to rely on this permitted disclosure circumstance by removing the inference that it only applied to providers when using a “professional” standard.
- Privacy Notice. The proposed rule would require changes to the notice of privacy practices. The NPRM requires a notice of privacy practices to include the following header:
“This Notice Describes:
- How Medical Information About You May Be Used and Disclosed
- Your Rights With Respect to Your Medical Information
- How to Exercise Your Right to Get Copies of Your Records at Limited Cost or, in Some Cases, Free of Charge
- How to File a Complaint Concerning a Violation of the Privacy, or Security of Your Medical Information, or of Your Rights Concerning Your Information, Including Your Right to Inspect or Get Copies of Your Records Under HIPAA.
You Have a Right to a Copy of This Notice (in Paper or Electronic Form) and to Discuss It With [enter Name or Title at [phone and Email] if You Have Any Questions.”
In addition, the notice would have to describe the right of access to inspect and obtain a copy of PHI at limited cost or, in some cases, free of charge.
- Faster Access to PHI. Under the NPRM, a health plan would have to act on a request for access to inspect or obtain a copy of PHI in a shorter timeframe, namely 15 days after receipt of the request. Other time frames would be shortened as well.
- Electronic Health Record (EHR). The NPRM adds (i) a definition of EHR, (ii) requirements applicable to EHRs, including the right of an individual to direct his or her health plan to submit a request to a health care provider for electronic copies of PHI in an EHR; and (iii) a documentation requirement for EHRs.
- Fee Disclosures. Finally, the NPRM would require health plans to post fee schedules on their website for common types of requests for copies of PHI and, upon request, provide individualized estimates of fees for copies.
Comments on the NPRM will be due on or before 60 days after the NPRM is published in the Federal Register, which means comments will likely be due in mid-February.
§ 1.9 I Am Not Throwing Away My [COVID] Shot!
COVID-19 vaccines are finally here! Employers have a lot to think about in how this new tool in the fight against COVID-19 applies in the workplace, and whether it should be a mandatory aspect of employment. Check out the labor and employment considerations about the extent to which an employer should implement a vaccine policy, here and here.
Employers offering vaccine programs can also implicate ERISA as well when paying for (or mandating) the vaccine distributed to those employees not already covered under the employer’s group health plan. Check out this Legal Update here for thoughts on the benefits considerations employers face with their COVID-19 vaccine programs.
Getting the vaccines is the first step, but employers have decisions to make about what to do next. Keep tuned to our blog for future updates.
Benjamin J. Conley, Diane Dygert and Jennifer Kraft
§ 1.10 Yes, I Know it’s a Pandemic, But What About ERISA?!?!?!?
Benefits Implications in Employer-Sponsored COVID Vaccine Programs
Synopsis: Now that we have two approved vaccines (and several more on the horizon) employers are starting to explore whether they should require their employees to get vaccinated in order to report to work. There has been a lot of discussion on this topic by our labor & employment brethren and we direct you to those articles here and here for information about the extent to which an employer should implement a vaccine policy. This update explores the significance of mandating a vaccine versus offering voluntary vaccine coverage, and how that distinction may implicate additional requirements under ERISA.
Background: Why ERISA May Apply to Vaccination Programs
When employers pay for the provision of medical care to their employees, they are offering group health plan coverage (insured or self-funded) and they create an ERISA-governed welfare benefit plan. Group health plans are also subject to other federal statutes such as the Internal Revenue Code, the Affordable Care Act and the recent CARES Act. [See our post here on the CARES Act and vaccine requirements.] This framework leads to two critical questions in analyzing a vaccination program under ERISA:
- Is an Employer-Paid Vaccine Program “Medical Care”?
The EEOC has recently opined that the vaccine itself is not a medical examination. Fair enough; we didn’t think so. But, the questions that inevitably accompany the administration of the vaccine -- for example, questions about allergies or auto-immune disorders -- would constitute a medical examination and, therefore, must be job related. This doesn’t directly impact the analysis of whether we are dealing with a health plan here, but does highlight the government’s view that there is some aspect of the delivery of medical care present.
- If the Vaccine Program is for the Employer’s Benefit (i.e., mandatory) does ERISA still apply?
Arguably though, a mandatory program, as opposed to a voluntary inoculation program, is not offered for the employee’s own health. Section 3(1) of ERISA defines the term “employee welfare benefit plan” as a plan maintained by an employer to the extent it “is established or is maintained for the purpose of” providing medical benefits or benefits in the event of sickness. If an employee is receiving a COVID-19 vaccine through a mandatory program, arguably, it is not “for the purpose of” providing a medical benefit. That is an incidental benefit. Instead the vaccine is being provided to ensure the health and safety of those around the employee -- co-workers, clients, customers or vendors. Under this argument, employers providing the vaccine through a mandatory program would not need to do so through an ERISA benefit plan. The DOL adopted this view in a nearly 25-year-old advisory opinion, albeit on the topic of mandatory workplace drug testing programs.
Why this Matters: Significance of ACA Requirements
The above questions are significant because the Affordable Care Act requires that all group health plans comply with certain requirements, including offering no-cost preventive services (e.g., colonoscopies, mammograms, etc.). A stand-alone COVID vaccination program, if offered on a voluntary basis, would not comply with those mandates. Accepting that the regulatory agencies might afford enforcement discretion given the circumstances, the IRS/DOL and HHS did provide a potential roadmap to “cure” this (technical) noncompliance in guidance issued earlier this year involving COVID testing.
There, the agencies seemed to suggest that COVID testing would be considered a group health plan, subject to the ACA mandates. This should not matter for employees enrolled in the employer-sponsored medical plans, because those individuals already have access to such free preventive care (as the health plan is required to offer it). So under earlier agency guidance, the two benefits could be considered a compliant, bundled offering.
For all other employees though, the agencies offered another “fix”. This informal guidance indicated that if such testing were to be “offered under” another type of benefit that is exempt from these ACA requirements, it would also benefit from the exemption. The two examples offered included an Employer Assistance Program (EAP) or an onsite clinic. This should, for most employers, offer a relatively simple solution. First, we would expect that once vaccines are available, many employers will offer an onsite vaccination program. For those that do not, most employers offer some form of EAP to their entire workforce (without regard to whether such persons are enrolled in the employer’s health coverage).
While the agency guidance was in the context of testing (not vaccinations), we believe it would be reasonable to assume the same exemption applies. Further, we assume this “bundling” could be offered without extensive additional efforts. Assuming a summary plan description already exists for the EAP (or onsite clinic), this could be as simple as adding a few lines to such document noting that the COVID vaccination program is a component of the offering.
Parting Shots (Pun Intended)
While uncertainty remains about whether the government would consider a mandatory COVID-19 vaccine program to be an ERISA plan, it is clear that the CARES Act mandates all group health plans to provide coverage for the COVID-19 vaccine. So, employer health plans will need to start covering the vaccine. Providing a COVID-19 vaccine program as an extension of the employer’s EAP should be permitted assuming the agencies carry forward COVID testing guidance (and we believe they would as they have every incentive to do so). While it is unclear whether such an approach would be necessary only for voluntary programs, or for mandatory programs as well, this offers a simple solution for employers to provide this benefit to the greatest number of its employees, while still ensuring compliance with ERISA.
Keep your eye on this space for developing news about vaccine programs.
Benjamin J. Conley, Diane Dygert and Jennifer Kraft
§ 1.11 Paycheck Protection Program Update: Additional COVID Relief under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
On December 27, 2020, President Trump signed into law the $2.3 trillion coronavirus relief and government funding bill. In addition to other provisions, the law specifically adds $284 billion to the already successful Paycheck Protection Program (“PPP”) previously enacted under the CARES Act. PPP loans will be available both to first-time borrowers and some second-time borrowers, but different criteria apply to each group.
While the Small Business Administration (“SBA”), the federal agency principally responsible for administering the PPP, has yet to announce details and guidance specifically relating to this supplemental funding, the following key details of the program are described in the new law, itself:
- The following groups of first-time borrowers are eligible for PPP loans:
- borrowers that had been eligible for PPP loans are expected to be eligible
- not-for-profits (including churches and, for the first time, trade associations and other organizations exempt from tax under section 501(c)(6) of the Internal Revenue Code), subject to satisfaction of certain criteria (such as, employing no more than 300 employees, not being primarily engaged in political or lobbying activities)
- businesses that previously elected to take the Employee Retention Tax Credit
- news organizations (which were not previously eligible), subject to satisfaction of certain criteria (such as, employing no more than 500 employees per physical location or otherwise meeting the applicable SBA size standard, certifying that the proceeds of the PPP loan will be used for the business involved in production or distribution of locally focused or emergency information)
- certain hotel and food service operators with fewer than 300 employees per location and that fall within NAICS code 72
- A borrower that received funding in the initial round is eligible to receive a second round of funding if it meets the following eligibility criteria: (i) has fewer than 300 employees, (ii) has used or will use the full amount of the first PPP loan, and (iii) has experienced a 25% decline in gross receipts in at least one 2020 quarter when compared to the same quarter in 2019. The maximum loan size for second time borrowers is limited to $2,000,000.
- Borrowers that returned PPP loans in the first round may reapply for a PPP loan in this second round.
- Funds have been earmarked for distribution to (i) live venues, independent movie theaters and cultural institutions, (ii) “very small businesses” through community-based lenders like Community Development Financial Institutions and Minority Depository Institutions, and (iii) low income and underserved communities.
- Emphasis will be placed on minority and women owned businesses.
- Proceeds from PPP loans will be forgiven if not less than 60% of the loan proceeds were used to pay qualifying expenses which (in addition to employee wages, mortgage interest, rent and utility costs previously approved under PPP1) now include expenditures for worker protection and facility modification to comply with COVID-19 health guidelines, certain qualifying supplier costs and specified software and cloud computing costs and accounting payments.
- Reversing the IRS, the new law makes it explicit that businesses that had their PPP loan forgiven can continue and deduct the business expenses that were paid with the loan proceeds (this applies both to new PPP loans and outstanding PPP loans).
- The law provides for a simplified forgiveness process on loans of up to $150,000.
- The amount forgiven does not have to be reduced by the amount of any Economic Injury Disaster Loan Advance (up to $10,000) received.
While most borrowers remain eligible to borrow up to a maximum of 2.5 times average monthly payroll costs, hotel and food service operators that fall within NAICS code 72 are now eligible to borrow up to 3.5 times monthly payroll costs.
PPP loans will be made available until March 31, 2021. Borrowers will be able to choose a covered period of eight to twenty-four weeks during which to spend PPP loan proceeds on qualified expenses.
In addition, the law provides $20 billion for new Economic Injury Disaster Loans for businesses in low income communities, $43.5 billion for SBA debt relief payments and increases the refundable employee retention credit from $5,000 per employee for all of 2020 to $7,000 per employee per calendar quarter through the second quarter of 2021 by changing the calculation from 50% of wages paid up to $10,000 per employee for all 2020 calendar quarters to 70% of wages paid up to $10,000 per employee for any quarter through the second quarter of 2021.
Regulations are directed to be issued within 10 days of passage of the law. Seyfarth is actively monitoring all aspects of federal COVID-19 business stimulus funding legislation. Additional updates will be provided as guidance becomes available and is published. Visit our Beyond COVID-19 Resource Center for more information.
Edward J. Karlin, Stanley S. Jutkowitz, and Suzanne L. Saxman
§ 1.12 Stimulus Redux: What It Means for Welfare Benefit Plans
Seyfarth Synopsis: On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 which includes several provisions affecting employer-sponsored benefit plans, and provides voluntary relief related to the COVID-19 public health emergency that employers may choose to offer. Given the length and complexity of the Act, this Legal Update summarizes some of the key provisions affecting health and welfare plans.
Flexible spending arrangements (FSAs)
The Act contains several provisions intended to provide flexibility for participants in flexible spending account programs.
- Mid-year election changes. For plan years ending in 2021, a plan may allow participants to change the amount of their contributions to health or dependent care FSAs prospectively, without regard to any change in status.
- Carryover of account balances. A plan may allow participants to carry over any unused amounts or contributions remaining in a health or dependent care FSA from the 2020 plan year to the 2021 plan year, or from the 2021 plan year to the 2022 plan year.
- Grace Period Extension. For plan years ending in 2020 or 2021, plans may extend their grace period to 12 months after the end of the plan year.
- Unused Health FSA Account Balances. A plan may allow an employee who terminates his or her participation in a health care FSA during the 2020 or 2021 calendar year to continue to receive reimbursements from unused account balances through the end of the plan in which such participation ended (including any applicable grace).
- Dependent Care FSA & Aging Out. To qualify as an employment-related expense which is reimbursable from a dependent care FSA, the expense must be for care for a “qualifying individual” - which means a dependent who has not attained age 13. For dependents who aged out of eligibility during the pandemic (specifically, during the last plan year with a regular enrollment period ending on or before January 31, 2020), plans may extend the maximum age from 13 to 14.
Plan sponsors that want to take advantage of any of these relief provisions must adopt a plan amendment by the end of the first calendar year beginning after the end of the plan year in which the change takes effect. (For example, if mid-year election changes are allowed in 2021, a calendar year plan must be amended by December 31, 2022.) In addition, the plan must be operated in accordance with the amendment terms as of the effective date of the amendment.
A section of the Act called the “No Surprises Act” protects plan participants from surprise medical bills for certain emergency and non-emergency services rendered by out-of-network providers.
Emergency Services. If a plan provides any benefits with respect to “emergency services”, then the plan must cover such emergency services without the need for any prior authorization, regardless of whether the provider is in-network or out-of-network. With respect to services provided by out-of-network providers:
- The cost-sharing amounts for such services cannot be greater than if the services were provided by an in-network provider, and are calculated as if the total amount charged was equal to the median of contracted rates;
- A plan must make an initial payment or issue a notice of denial of payment to the provider within 30 days after receiving the provider’s bill, and must pay a total amount equal to the amount by which the out-of-network rate exceeds the cost-sharing; and
- Any cost-sharing payments made by the participant or covered beneficiary must be counted toward the plan’s in-network deductible or out-of-pocket maximum.
- With respect to an item or service furnished by an out-of-network provider, the Act provides for a 30-day open negotiation period to agree on the out-of-network rate to be paid, and an independent dispute resolution (IDR) process to resolve disputes. The IDR process will be run by independent entities with no affiliation to the plan or provider.
Non-Emergency Services. If a plan provides any coverage of non-emergency services performed by out-of-network providers at an in-network facility, the plan must cover such services under requirements similar to the emergency services requirements described above. The participant shall only be required to pay the in-network cost for out-of-network care provided at in-network facilities, unless the out-of-network provider notifies the patient of its out-of-network status and estimated charges 72 hours prior to receiving the out-of-network services, and the patient consents. In this case the out-of-network provider may balance bill the patient.
Air Ambulances. If a plan would cover air ambulance services from an in-network provider, the plan must cover such services provided by an out-of-network provider, under the parameters set forth above for emergency services.
Mental Health and Substance Use Disorder Benefits
In an attempt to strengthen parity between medical benefits and mental health benefits, plans and insurers that provide both medical/surgical benefits and mental health or substance use disorder (“mental health”) benefits and that impose non-quantitative treatment limitations (NQTLs) on mental health or substance use disorder benefits are required to perform and document comparative analyses of the design and application of NQTLs. Beginning February 10, 2021, these analyses must be made available to the DOL, HHS or IRS upon request.
The Act also requires the agencies to issue a compliance program guidance document to help plans comply with the mental health benefit requirements and to finalize guidance and regulations relating to mental health parity no later than 18 months after enactment (i.e. by June 27, 2022).
Gag Clauses. The Act prohibits “gag clauses” regarding price or quality information. Plans may not enter into agreements with health care providers (or a network of providers), third-party administrators or other service providers that would restrict the plan from:
- providing provider-specific cost or quality of care information to referring providers, plan sponsors, participants, beneficiaries or individuals eligible to become participants or beneficiaries;
- electronically accessing de-identified claims information for each participant or beneficiary in the plan, upon request and consistent with the HIPAA privacy rules, GINA and the ADA; or
- sharing this information, or directing that such information be shared, with a business associate, consistent with the HIPAA privacy rules, GINA and the ADA.
The Act requires group health plans to submit an annual attestation to HHS that the plan is in compliance with these requirements.
Cost Sharing Disclosure. For plan years beginning January 1, 2022, plans must include the following information on any identification card issued to participants and beneficiaries:
- Any applicable deductibles and out-of-pocket maximum limits.
- A telephone number and website address through which participants can obtain plan-related information.
Good Faith Estimates. For plan years beginning January 1, 2022, plans that receive a health care provider’s good faith estimate of expected charges for providing a service to a participant must furnish the participant a notice - in most cases within one business day of receiving the provider’s notice - that contains specified coverage information. For example, the plan’s notice to a participant must state:
- Whether the provider is a participating provider with respect to the scheduled service and, if so, the contracted rate for the service based on relevant billing and diagnostic codes.
- A good faith estimate of how much the health plan will pay for the items and services included in the provider’s estimate.
Loss of Network Provider Status. For plan years beginning January 1, 2022, if a plan has a contractual relationship with a health care provider or facility and either the contract or benefits provided under the contract are terminated while the individual is a “continuing care patient”, the plan must notify each such patient of the termination and permit the patient to elect to continue receiving benefits from the provider. Continuing care patients include those who are: undergoing a course of treatment for a pregnancy or serious condition, scheduled to undergo non-elective surgery or receive postoperative care, or receiving treatment for a terminal illness.
Reporting on Pharmacy Benefits
By December 27, 2021, and annually thereafter, plans will be required to submit to the DOL, IRS and HHS a report with specific information on the benefits paid for prescription drugs provided to participants and beneficiaries, including:
- The dates of the plan year, number of participants and beneficiaries, and each state in which coverage is offered.
- The 50 brand prescription drugs most frequently dispensed and the total number of paid claims for each drug.
- The 50 most costly prescription drugs by total annual spending.
- The 50 prescription drugs with the greatest increase in plan expenditures over the preceding plan year.
- Average monthly premium paid by the employer and by participants and beneficiaries.
- Impact of rebates, fees and other remuneration paid by drug manufacturers on premiums and out-of-pocket costs.
Within 18 months after the first pharmacy drug reports are received, the agencies will post a report on the internet on prescription drug reimbursement under group health plans, with pricing and premium trends.
Student Loan Repayments
Although the Act did not extend further relief for the actual repayment of student loans, it did extend the ability for employers to provide tax-preferred payments to employees for student loans. [See link here for our earlier post about the CARES Act relief on this.] The Act extends the ability of employers to make these payments under IRC Section 127 of up to $5250 per employee for five more years through December 31, 2025.
Disclosure of Compensation for Service Providers
Effective in 2012, employee benefit plan fiduciaries were required to get fee disclosures from service providers pursuant to ERISA Section 408(b)(2). However, service providers for welfare plans were temporarily exempt from that requirement until further guidance was issued. The Act ends that reprieve and extends the fee disclosure rules to group health plans, which means that service providers will have to comply with the fee disclosure rules, effective December 27, 2021.
Deductible Medical Expenses
Expenses incurred for medical care are deductible on an individual’s income tax return to the extent they exceed 7.5% of adjusted gross income. That was scheduled to increase to 10% beginning in 2021. The Act makes the 7.5% threshold permanent.
Plans will likely need assistance from their TPAs and pharmacy benefit managers complying with the new reporting and disclosure requirements. Please feel free to reach out to your Seyfarth benefits attorney for help with appropriate amendments to plans and service agreements. Also watch for additional Legal Updates addressing specific employee benefit provisions of the Act and related guidance.
Diane V. Dygert and Joy Sellstrom
§ 1.13 Stimulus Redux: What It Means for Retirement Plans
Seyfarth Synopsis: On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (the “Act”), which includes several changes that impact tax-qualified retirement plans (both defined benefit and defined contribution plans, including certain multiemployer plans). This Legal Update summarizes the key changes impacting retirement plans. See our parallel Legal Update for a description of the health and welfare-related provisions of the Act.
Partial Plan Terminations
Typically, whether a partial termination has occurred (which would require a plan to fully vest affected participants) is based on applicable facts and circumstances, and there is a rebuttable presumption that a turnover rate of at least 20% creates a partial termination. Under the Act, however, a plan will not experience a partial termination under the Code during any plan year that occurs during the period that begins on March 13, 2020 and ends on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021 is at least 80 percent of the number of active participants covered by the plan on March 13, 2020.
Observation. The Act’s bright line rule should be helpful to plan sponsors who experienced high turnover, furloughs and layoffs among its employee population in 2020 due to the COVID-19 pandemic.
Disaster Relief Provisions
The Act includes a number of disaster relief provisions that allow defined contribution plan participants who reside in a qualified disaster area and who have sustained an economic loss by reason of a qualified disaster to take a tax-favored withdrawal or distribution from a retirement plan, borrow more money from a plan or suspend loan repayments on new or existing plan loans.
A “qualified disaster area” under the Act is generally any area where a major disaster was declared by the President during the period beginning on January 1, 2020, and ending on February 25, 2021, if the period during which such disaster occurred (the “incident period” as specified by FEMA), began on or after December 28, 2019, but on or before December 27, 2020 (i.e., the date of the enactment of the Act). Notably, the disaster relief under the Act does not apply where the President has declared a disaster only on account of the COVID-19 pandemic.
- Tax-Favored Disaster Withdrawals. A participant may take a tax-favored withdrawal from defined contribution plan (including an IRA) of up to $100,000, free from the 10% penalty that normally applies to early withdrawals. When determining whether the $100,000 limit has been exceeded, you take into account all plans maintained by the employer and members of its controlled group. For an individual affected by more than one qualified disaster, these limits apply separately to each qualified disaster.
A qualified disaster distribution must be made on or after the first day of the incident period of a qualified disaster and before June 25, 2021 (180 days after the date of the enactment of the Act). A participant who takes a tax-favored disaster withdrawal may elect to include the distribution in taxable income ratably over a three-year period and/or re-contribute the distribution to an eligible retirement plan within such three-year period. A participant who chooses to repay is treated as having received the distribution in an eligible rollover distribution, and then directly transferring it tax-free to the eligible retirement plan.
- Re-contribution of Certain Hardship Withdrawals. The Act allows a defined contribution plan participant who took hardship withdrawal that was intended to be used to purchase or construct a principal residence to re-contribute the distribution to an eligible retirement plan in the event that it could not be used for such purpose on account of the occurrence of a qualified disaster in the area where the home was located or was to be constructed.
In order to be eligible for this relief, the participant must have received the hardship withdrawal during the period beginning on the date that is 180 days before the first day of the incident period of the qualified disaster, and ending on the date that is 30 days after the last day of the incident period. A participant who meets the requirements for this relief must re-contribute the hardship withdrawal during the period that begins on or after the first day of the incident period of a qualified disaster and before June 25, 2021 (i.e., 180 days after the date of the enactment of the Act).
- Plan Loans: Increase in Limit and Extension of Period to Repay. Certain “qualified individuals” (defined below) may now borrow more from their defined contribution retirement plans, and have additional time to repay new or existing plan loans if the requirements below are satisfied.
- Increase in Limit for New Loans. For a qualified individual, the limit on plan loans is increased to the lesser of $100,000, or 100% of the participant’s vested account balance, instead of the $50,000 and 50% vested account balance limits that normally apply under law. This applies for loans made from December 27, 2020 to June 25, 2021 (the 180-day period beginning on the date of the Act’s enactment).
- Extension of Period to Repay for New and Existing Loans. The Act also provides some relief for new and existing loans, delaying repayments for plan loans outstanding on or after the first day of the incident period of the disaster by one year (or if later, June 25, 2021), provided the payment is otherwise due on or before and ending on the date which is 180 days after the last day of such incident period. This additional year is disregarded for purposes of applying the maximum 5-year term that applies to a general purpose loan, or the maximum term that applies to a home loan (pursuant to the terms of the plan and loan agreement). When payments recommence, they are reamortized to reflect the delay in repayment and any interest accrued during the suspension period.
A “qualified individual” is defined under the Act as an individual whose principal place of residence at any time during the incident period of a qualified disaster is located in the qualified disaster area, and such individual has sustained an economic loss by reason of the qualified disaster.
- Plan Amendment Deadline. Plan sponsors have at least until the last day of the first plan year beginning on or after January 1, 2022 (i.e., December 31, 2022 for calendar year plans) to amend their plans to provide for this disaster relief. Plan sponsors of governmental plans would have an extra two (2) years to amend their plans to provide for this relief (i.e., until December 31, 2024 for calendar year governmental plans). (These are the same amendment deadlines that apply under the CARES Act).
- Observations. The disaster relief provisions under the Act are reminiscent of distribution and loan relief issued for prior disasters, including the relief provided recently under the CARES Act, which made it easier for certain individuals to access retirement plan money in light of the coronavirus pandemic. Similar to the loan relief issued for past disasters, these provision appears to be optional. However, it would be helpful if we heard from Treasury and/or IRS with respect to whether these provisions are optional, and also with respect to the type of certification/documentation that may be necessary for plan administrators to obtain from participants requesting the disaster relief provided for under the Act.
Pension Plan Asset Transfers for Retiree Medical
Under Code Section 420, sponsors with overfunded pension plans may transfer excess pension assets to a Code Section 401(h) account in the pension plan to prefund retiree medical benefits. A “qualified future transfer” under Code Section 420 can prefund up to 10 years of future medical benefits, but these transfers must meet a number of requirements, e.g., the plan must be 120 percent funded at the outset and it must remain 120 percent funded throughout the transfer period. The Act allows employers to make a one-time election during 2020 and 2021 to end any existing transfer period for any taxable year beginning after the date of election. Assets previously transferred to a Code Section 401(h) account that were not used as of the election effective date are required to be transferred back to pension plan within a reasonable amount of time. Assets transferred back to plan are treated as a taxable employer reversion, unless the amount is transferred back to the applicable Code Section 401(h) account before the end of the five-year period beginning after the original transfer.
Observation. The market changes due to the COVID-19 pandemic may have caused plans that have been consistently over 120 percent funded to fall below 120 percent, and plan sponsors may face a requirement to address large market losses in order to get back to the 120 percent funding threshold. The Act may be welcome relief for pension plans that are using surplus assets to offset retiree welfare costs.
Money Purchase Pension Plan CARES Act Distributions
The Act amends the CARES Act to reflect that the in-service coronavirus distributions allowed under the CARES Act are also permitted to be made from money purchase pension plan assets. See our prior blog post and legal update for information on coronavirus distributions under the CARES Act.
Observation. Under the Act, this treatment is retroactive to the date of the passage of the CARES Act (i.e., March 27, 2020). However, because coronavirus distributions under the CARES Act must be made before December 31, 2020, this provision was likely enacted too late in the year to allow for many plans and participants to take advantage of the clarification. The Act did not extend the deadline for taking a coronavirus distribution beyond 2020.
In-Service Distributions from Certain Multiemployer Plans
The Act allows in-service distributions at age 55 from certain multiemployer plans in the construction industry for employees who were participants in the plans on or before April 30, 2013. (The general rule for pension plans is that in-service distributions are permitted at age 59-1/2.) In order for this provision to apply, the multiemployer plan trust must have (1) been in existence before January 1, 1970, and (2) received a favorable determination letter before December 31, 2011, at a time when the multiemployer plan provided that in-service distributions may be made to employees who have attained age 55.
The Act is lengthy and there is a lot to digest. We hope that Treasury and IRS will issue additional guidance pertaining to these provisions. For further information and updates, continue to follow our blog.
Christina M. Cerasale and Sarah J. Touzalin
§ 1.14 You May Even Get a Vaccine Before Needing to go to the Notary; the IRS Has Extended Remote Witnessing of Participant Elections
Seyfarth Synopsis: The IRS has extended the remote notarization relief that gives plans and participants greater flexibility for participant elections, including spousal consents, that must be signed in person and witnessed by a notary or plan representative in order to be valid. The IRS has also requested comments on this relief, including comments as to whether this relief should be made permanent.
As described in our prior post, Notice 2020-4 provides relief from the rule in Treasury Regulation Section 1.401(a)-21(d)(6) that requires the signature of an individual making an election to be witnessed in the physical presence of a plan representative or a notary public. That relief was set to expire on December 31, 2020. In recognition of the continued public health emergency caused by the COVID-19 pandemic, the IRS has issued Notice 2021-3, which extends relief from this physical presence requirement through June 30, 2021.
This extended relief means that physical presence is not required for any participant election witnessed by:
- A notary public in a state that permits remote notarization; or
- A plan representative using live audio technology, provided the requirements detailed in our prior post are satisfied.
Notably, Notice 2021-3 also requests comments on this relief, including comments as to whether this relief should be made permanent, and what, if any, procedural safeguards are necessary in order to reduce the risk of fraud, spousal coercion, or other abuse in the absence of a physical presence requirement.
Plan administrators that have already taken advantage of this guidance can continue to benefit from the changes that were put in place through June 30, 2021. Meanwhile, plan administrators that have not yet adopted remote witnessing procedures may consider making these administrative changes in light of the continuing pandemic and indications from the IRS that this guidance may be made permanent.
Irine Sorser and Liz J. Deckman