Into the Mystic . . . Employee Benefit Considerations for Returning Workers

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by Kevin Selzer

Many employers are venturing into uncharted waters as significant numbers of employees are being rehired or returning from extended leaves of absence (e.g., furloughed employees). In this environment, it can be easy to overlook the employee benefit plan implications of this workforce shift. Below are some best practices for employers faced with employees returning to work.

Ensure that retirement plans are crediting service for returning employees correctly. In most cases, employers will not be able to treat a rehired employee as a new employee for retirement plan purposes. This means that the employer will have to consider the employee’s prior service for purposes of determining proper eligibility and vesting credit. This is a good time for employers to check and confirm that any systems that track service (e.g., payroll systems and the retirement plan administrator’s systems) are configured correctly to credit prior service.

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Might as Well Face It… Your Annual Retirement Plan Audit is Not a Clean Bill of Health

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by Ben Gibbons

With calendar year-end Form 5500s due on July 31, or October 15 with an extension (and still no COVID-19 filing relief as of the date this blog was published), it’s that time of year where plan sponsors begin thinking about their annual retirement plan independent audits.  However, these are not the only audits companies should be thinking about.

Both the Internal Revenue Service (IRS) and the Department of Labor (DOL) routinely select qualified retirement plans for examination.  In the event of an audit by either agency, a plan’s records, procedures and processes will be examined.  If errors or deficiencies are found, at a minimum, corrections will be required, and in some instances, fines or sanctions will be levied.

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We Interrupt this Program – What in the SECURE Act Do Retirement Plan Sponsors Need to Pay Attention to in 2020?

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by Brenda Berg

After being on the verge of enactment last spring but failing to pass, the SECURE Act is now law. The Setting Every Community Up for Retirement Enhancement Act of 2019 – the SECURE Act – was enacted on December 20, 2019 as part of the Further Consolidated Appropriations Act, 2020.

Although this legislation is considered major retirement plan legislation, it doesn’t have many immediate impacts on most employer retirement plans. Plan sponsors need to pay attention to the following items – for the most part, the other changes (such as pooled employer plan opportunities and annuity payouts) do not require immediate action.

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I Want to Know, Have You Ever Seen…your plan documents?

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by Ben Gibbons

Owners and employees of smaller organizations often find themselves stretched in many directions.  With all of the demands on one’s time associated with operating a business, it is not uncommon to see attention to the organization’s medical and other benefit plans pushed to the back burner.  As a result, smaller organizations tend to rely heavily on their benefits broker for their employee benefit plan documentation.  While brokers can be an excellent resource, plan sponsors need to be aware that the services provided by a broker can vary widely from one broker to the next.

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We Interrupt This Program – Is a Multiple Employer Plan In Your Future?

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by Kevin Selzer

We interrupt our usual Benefits Dial programming – to take a closer look at developments affecting multiple employer plans (MEPs) as part of our series of posts on the recently enacted benefit plan legislation, including the SECURE Act (background here).  The reform to MEPs is seen by many as the biggest disruptor to the retirement plan industry.  Why?  It facilitates the banding together of retirement plan assets from unrelated employers, helping employers punch above their weight.  By combining together to form a larger plan, smaller employers can leverage assets with regard to plan services, and maybe most importantly, investment fees paid by participants. 

MEPs have long been permitted but many employers have been unwilling to participate in those plans.  The biggest deterrent has been the “one bad apple rule.”   That rule provides that a defect in any participating employer’s portion of the MEP can impact the tax qualification of the entire MEP for other participating employers.  In other words, if one participating employer in the MEP is unwilling (or maybe unable) to correct an error, the whole plan can be disqualified by the IRS.  The SECURE Act helps solve this issue with a special kind of MEP called a pooled employer plan (PEP).  PEPs have a specific procedure for dealing with tax qualification defects.  In short, a participating employer in a PEP who refuses to correct the error, can be discharged (spun off) from the PEP to isolate the disqualification impact. The SECURE Act grants relief under ERISA to boot.  Historically, MEPs were treated as a collection of separate plans unless the underlying employers met a commonality standard.  A PEP (called a “Group of Plans” under ERISA) is also treated as a single plan for ERISA purposes under the SECURE Act.  This means, for example, that such plans would be allowed to file a single Form 5500. 

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A Little Less Conversation, a Little More Action: Major retirement plan legislation is finally signed into law

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by Brenda Berg

After being on the verge of enactment last spring but failing to pass, the SECURE Act will become law after all. Congress included the Setting Every Community Up for Retirement Enhancement Act of 2019 (H.R. 1994) (the SECURE Act) in the year-end spending legislation needed to keep the government running. The House passed the Further Consolidated Appropriations Act, 2020 (H.R. 1865) – which included the SECURE Act provisions – on December 17, 2019. The Senate followed on December 19, 2019, and President Trump signed it on the last day possible for the spending bill – December 20, 2019.

For a summary of the major SECURE Act provisions that impact retirement plans, see our previous article. In addition to including the SECURE Act provisions, the year-end legislation adds a few other provisions impacting retirement plans and other benefits. Defined benefit plans such as cash balance plans can now allow in-service withdrawals once a participant reaches age 59-1/2, instead of age 62. The minimum age for in-service withdrawals from 457(b) plans is also lowered to 59-1/2.

For welfare benefits, the year-end legislation repeals the “Cadillac Tax” which would have otherwise taken effect in 2022. The Cadillac Tax was part of the Affordable Care Act (ACA) and would have imposed a 40% excise tax on the insurer or employer for any “high cost” employer-provided health plan coverage.

Many of the benefits provisions are effective in 2020, although some are optional. The legislation generally provides time to amend retirement plans until the last day of the plan year that begins in 2022, and some governmental plans and collectively bargained plans have later deadlines until as late as 2024.

We will be covering many of the specific changes in more detail in upcoming blog posts. Sign up to regularly receive our blog posts (which come more often and on more varied topics than our Alerts).

Walk this way…to avoid the pitfalls of ERISA

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by John Ludlum

Companies implement bonus plans to meet a variety of business objectives:  retention, specific company business goals, change of control, and others.  In designing bonus plans, there are a variety of legal fields that must be understood for exemption or compliance including securities, tax, ERISA, and employment.  Many times, bonus plans that pay only in cash for achieving specific corporate objectives and which require services through the date of payment are exempt from onerous compliance mandates; however, if a bonus plan is found to provide retirement income or “results in a deferral of income by employees for periods extending to the termination of covered employment or beyond,” then that arrangement may be found to be a “pension plan” under ERISA Section 3(2) (29 U.S.C. § 1002(2)(A)).  Once a bonus plan is subject to ERISA, it must comply with ERISA’s annual reporting, participant communications, funding, participation, vesting, and fiduciary duty requirements. 

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Friends in Low Places . . . IRS focusing on late contributions too

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by Kevin Selzer

“I was the last one you’d thought you’d see there…”

We tend to think of untimely remittances to retirement plans as primarily an ERISA issue, and certainly, the cause of many DOL audits. Lately, however, it seems the IRS also sees late contributions as an invitation to examine the plan. 

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It’s been a hard day’s night: final hardship distribution rules issued

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by Brenda Berg

If you are one of those plan sponsors who was waiting for the final hardship regulations to be issued before making any changes to hardship distributions in your plans – your time has come. The Treasury Department and IRS issued the final regulations on September 19, 2019 for publication today, September 23, 2019.

These regulations finalize the proposed regulations issued on November 14, 2018, and they are essentially the same with some clarifications. Plans that made changes in compliance with the proposed regulations will be deemed to have complied with the final regulations. Overall the rules – which generally apply to 401(k) plans, 403(b) plans, and 457(b) plans – ease some of the restrictions on taking hardship distributions.

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Wake me up when September ends

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by Lyn Domenick

Final rules released by the Departments of Labor, Health and Human Services and Treasury on June 13, 2019 have the potential to transform how employers pay for health care coverage for employees.  The rules permit the use of a new type of health plan called an individual coverage health reimbursement arrangement (“ICHRA”).   Under an ICHRA, the employer provides an amount that can be used by the workers to pay for all or some of health coverage obtained in the individual market.  These plans will presumably be utilized by employers that want to offer a health benefit to employees without maintaining a full (major medical) group health plan.  However, an important notice deadline is approaching.   Employers that want to adopt an ICHRA for 2020 (effective January 1, 2020) must provide a notice to employees by no later than October 3, 2019.  The new ICHRA guidance is complex and includes rules related to enrollment, classes of employees, opting out, substantiation of expenses and the annual notice requirement described above.   Given the short time frame to analyze whether to proceed under the new rules, work out the details and issue the required notice, many employers may take a wait and see approach and defer this decision to the 2021 plan year or beyond.  Early adopters, however, need to act soon if this is on their agenda for 2020. 

If you have questions about the new ICHRA health plans, reach out to a member of the Benefits Law Group and we will be glad to assist.