Relief . . . Just a Little Bit – IRS Notice 2020-23: Limited Extensions of Form 5500

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By Kevin Selzer and Lyn Domenick

In the midst of everything going on, we wanted to point out a few “under the radar” implications of IRS Notice 2020-23.  The Notice, issued on April 9th, provides that tax-related deadlines that fall between April 1, 2020 and July 14, 2020 (the “delay period”) are automatically extended to July 15, 2020. 

Delayed 5500s.  Most plan sponsors hoping for Form 5500 relief will have to wait for additional guidance since only a small group of plans have Form 5500 deadlines fall during the delay period.  For example, the regular Form 5500 due date for calendar year plans (July 31st) falls just outside of the delay period.  We note that the DOL has authority under the CARES Act to provide additional Form 5500 relief.

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We Interrupt 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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Time keeps on slippin’, slippin’, slippin’… into the future with an extended deadline for Form 1095-C and Form 1095-B reporting

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by Becky Achten and Bret Busacker

The Internal Revenue Service has extended the due date for providing the 2019 Form 1095-C (applicable to large employers as explained below) and the Form 1095-B (generally applicable to insurance carriers) to participants from January 31, 2020 to March 2, 2020.  The deadlines for filing the 2019 Forms 1094-B, 1095-B, 1094-C and 1095-C with the IRS remain at February 28, 2020, for paper submissions, or March 31, 2020, if filing electronically.

In addition, the IRS has issued relief for insurance carriers generally required to provide the Form 1095-B.  Because there is no individual penalty for not having minimum essential coverage in 2019, individuals don’t need the 1095-B in order to calculate a tax penalty or file an income tax return.  Therefore, the IRS will not assess a penalty to entities that do not provide a Form 1095-B if they meet the following conditions:

  • The reporting entity must post a prominent notice on its website stating that individuals may receive a copy of their 2019 Form 1095-B upon request, along with contact information to make such a request; and
  • The reporting entity must furnish the 2019 Form 1095-B within 30 days of a request.
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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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Take it to the limit one more time…IRS announces cost-of-living adjustments for 2020!

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by Becky Achten & Lyn Domenick

The Internal Revenue Code imposes dollar limitations on various compensation, benefit and contribution levels under qualified retirement plans. Today, the Internal Revenue Service announced the 2020 cost-of-living adjustments affecting dollar limitations for qualified retirement plans. Check out our chart for easy reference!

Start spreading the news…student loan 401(k) match revenue ruling in the works

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by Ben Gibbons

As you may recall, Private Letter Ruling 201833012 (the “PLR”), concerning the IRS’ approval of Abbott Laboratories’ plan to implement 401(k) matching contributions on student loan repayments, was released to much fanfare in the summer of 2018.  We’ve learned that at last week’s annual NASPP conference in New Orleans, Stephen Tackney, Deputy Associate Chief Counsel of the IRS Office of Chief Counsel (and author of the Section 409A deferred compensation regulations) announced that the IRS is working on converting the PLR into a revenue ruling that can be relied upon by all employers.

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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. 

She works hard for the money, so you’d better … help her afford to buy company stock

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by Beth Nedrow and Kevin Selzer

Employee Stock Purchase Plans (ESPPs) are a program offered by many companies (particularly those with publicly traded stock) as a way for all of their employees to buy company stock. In their most robust format, employees can buy stock at a discount. You’d think employees would jump at the chance to capitalize on this immediate value opportunity. Not so! Employee participation rates are typically fairly low (often below 50%). Employers who offer ESPPs strive for ways to engage employees to appreciate and participate in this valuable benefit. Those employers may be interested to hear that a startup company is making headlines for its product aimed at boosting ESPP participation.

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Somebody get me a (juris) doctor . . . increased IRS activity on healthcare reform

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by Kevin Selzer

You may be hearing from the IRS soon on penalties related to the Affordable Care Act (“ACA”). 

We have seen increased ACA-related enforcement activity from the IRS, particularly with respect to taxes owed under the employer mandate (which requires large employers to provide group health coverage meeting certain requirements to full-time employees). In our experience, the employer mandate assessments often contain errors in calculating the penalty and/or originate from inadvertent mistakes made by the taxpayer on the Form 1094-C or Form 1095-C and can often be eliminated or reduced.

The IRS is also assessing penalties on large employers that fail to file ACA-related tax forms.  We recently helped a large employer obtain full abatement of a proposed penalty exceeding $200,000 for failure to file and transmit Forms 1094-C and 1095-C. In this case, we were able to show that the failure was due to reasonable cause and persuade the IRS to abate the entire penalty. If you receive proposed ACA-related taxes or penalties, please reach out to a member of the Holland & Hart Benefits Law Group.