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. 

I can’t drive 55 – or classify my workers

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by John Ludlum

Making correct classifications between independent contractors and employees is not getting simpler with flexible, geographically-distributed workforces.  For those with long memories, a key case in the area of worker classification was issued by the Ninth Circuit in Vizcaino v. Microsoft Corporation, 97F.3d 1187 (CA-9, 1996).  Vizcaino v. Microsoft held that certain workers, originally hired as independent contractors, were actually employees who were entitled to benefits under Microsoft’s 401(k) plan and Microsoft’s Employee Stock Purchase Plan.  Determinations like this can lead to substantial corrections costs to fix tax-qualified benefit plans as well as to make the contributions required under plan terms to the improperly excluded employees. 

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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.

Ch-ch-ch-changes . . . cafeteria plan change in status rules are sometimes surprisingly restrictive

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by Beth Nedrow

The IRS issued a ruling earlier this summer that serves as a reminder of how important it is to maintain the distinction between an election for health plan coverage and an election on how to pay for such coverage.

In practice, virtually all employees (and frankly, many employers) forget there is a distinction between electing coverage and electing how to pay for it. It is usually automatically assumed that when an employee elects medical coverage, they will pay for that coverage pre-tax under a Section 125 cafeteria plan. Indeed, IRS guidance and proposed regulations permit the employer to default an employee into paying for medical coverage pre-tax under a cafeteria plan. But if an employee makes this election (either affirmatively or by default), they may come to regret it, as demonstrated in the IRS Chief Counsel letter issued May 8, 2019.

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Come together, right now . . . and join a MEP?

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by Beth Nedrow

In late July, the Department of Labor released a rule allowing small businesses to more easily band together in a joint retirement plan. The idea is that a larger plan will have more leverage to obtain better pricing and better service from vendors. Equally important is the ability of employers to offload some or all of the responsibility for maintaining retirement plans.

The final rule alters the definition of “employer” in ERISA for purposes of who may establish and maintain an individual account defined contribution retirement plan. Under the new rule, a group or association, or a PEO (professional employer organization) can sponsor what the DOL refers to as a “MEP” – a “multiple employer plan.” The regulation is limited to “bona fide” groups, associations and PEOs – which means they must have a business purpose or other common connection, and not merely have the purpose of providing the retirement plan. In this way, the new rule mirrors the DOL’s regulations intended to expand the availability of association health plans (“AHPs”), which is currently stalled due to litigation.

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