On March 11, 2021, President Biden signed into law the American Rescue Plan Act (“ARPA”). The ARPA mandated several important changes for both employers and employees. One of these is potentially significant for both: full subsidies for employer-paid COBRA premiums. The ARPA requires employers to provide temporary, fully subsidized COBRA continuation coverage premiums for certain individuals for up to six months. Employers will be able to recover the subsidized premiums by claiming a tax credit.
The benefits provided to employers and employees are available to COBRA ...
In response to the COVID-19 pandemic, the Internal Revenue Service and the Pension Benefit Guaranty Corporation extended many deadlines for retirement plans, discussed below.
Remedial Amendment Period Extensions
In the first set of extensions, on March 27, 2020 the IRS announced an extension of the remedial amendment period for 403(b) plans from March 31, 2020 to June 30, 2020, and also extended the remedial amendment period for preapproved defined benefit plans from April 30, 2020 to July 31, 2020. These extensions provide welcome relief to employers trying to amend plans in a new ...
“Employer securities” in retirement plans have been the source of a significant amount of litigation under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). In general, “employer securities” are common stock issued by an employer of the employees covered by the retirement plan. In many cases, “employer securities” are traded on a national exchange which is registered with the U.S. Securities and Exchange Commission (the “SEC”).
In relevant part, ERISA Section 404 contains an exclusive purpose requirement which requires a ...
Most blog entries focus on new developments or recent legislation. This one’s a bit different. Its subject matter, fiduciary responsibility, is as old as ERISA itself. In today’s environment of increased litigation risks for plans, it’s critically important to dust off these rules and review these fundamental obligations applicable to all ERISA plan fiduciaries.
ERISA imposes a few specific duties on fiduciaries:
- Loyalty (also called the “exclusive benefit” rule) – the duty to act solely for plan participants and beneficiaries
- Prudence – the obligation to act ...
A December 27, 2019 post to this blog by Jon Nason provided an overview of the many changes affecting retirement plans made by the SECURE Act, which was enacted as part of the Further Consolidated Appropriations Act of 2020 on December 20, 2019. Today’s post takes a deeper dive into one of the key changes.
Division O § 112 of the SECURE Act requires that 401(k) plans extend eligibility for making elective deferral contributions to certain long-term part-time employees. Because this change is mandatory, it is important for employers to understand how it will affect their 401(k) plan as ...
In the summer of 2019, I wrote a short blog on the death of the PCORI fee -- Ding, Dong, the PCORI Fee is Dead!. When enacted as part of the Affordable Care Act, the fee was set to expire with plan/policy years ending after September 30, 2019.
The Further Consolidated Appropriations Act, 2020, signed by President Trump on December 20, 2019, extended the PCORI fee for another ten years. The fee is now set to expire with plan/policy years ending after September 30, 2029.
So, Ding, Dong, the PCORI Fee is NOT Dead!
On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act, 2020 (the “Appropriations Act”) that includes the “Setting Every Community Up for Retirement Enhancement Act of 2019” (the “SECURE Act”). The SECURE Act contains 27 provisions which are intended to modernize and expand the availability and effectiveness of retirement plans (including Individual Retirement Accounts or IRAs).
Unfortunately, due to the number of provisions in the SECURE Act, this Article will be limited to provisions with a significant impact on retirement ...
Since 2015, employers and health insurers have been required to report health plan coverage information to the IRS and to individuals. Why? The information is necessary in order for the IRS to administer certain portions of the Affordable Care Act (“ACA”), such as whether (1) a “pay or play” penalty is assessable for noncompliance with the coverage requirements, (2) an individual is eligible for a premium tax subsidy, and (3) the individual mandate penalty is assessable.
Recently issued Notice 2019-63 contains three gifts from the IRS in the form of limited relief to ...
The Treasury Department and the Internal Revenue Service (collectively referred to hereafter as “IRS”) on September 23, 2019 published the final regulations on hardship distributions, finalizing the regulations proposed in November 2018. The plans primarily affected are 401(k) and 403(b) plans. The final regulations reflect changes in the Internal Revenue Code dating back to the Pension Protection Act of 2006 through the Bipartisan Budget Act of 2018. The preamble states that the regulations are substantially similar to the proposed regulations and, notably ...
On July 17, 2019, the Internal Revenue Service (the “IRS”) released Notice 2019-45 which expands the list of permissible preventive care benefits for high deductible health plan (“HDHP”) purposes. Among other requirements, an individual must be covered by a HDHP in order to establish a Health Savings Account (“HSA”).
A HDHP is a health plan with certain minimum deductible and maximum out-of-pocket expense requirements. Under a HDHP, the plan typically does not provide any benefits until the minimum deductible for the year is satisfied. However, certain preventive ...
On June 13, the Departments of Labor, Treasury and Health and Human Services jointly released final regulations dealing with health reimbursement accounts (“HRAs”). These regulations fulfill the Trump administration’s directive to “increase the usability of HRAs, to expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with nongroup coverage.”
Background.
HRAs are employer-funded account-based plans from which employees may be reimbursed for qualifying medical expenses. HRAs, like other account-based plans ...
On April 29, 2019, the United States Department of Labor (the “DOL”) released a policy statement providing transitional relief from the potential adverse consequences arising from a District Court’s vacating portions of the DOL’s regulations on the alternative test of the definition of “employer” for Association Health Plan (“AHP”) purposes.
By way of background, on June 21, 2018, the DOL published regulations which established an alternative test that described in prior DOL guidance as to who can sponsor an ERISA-covered AHP as an “employer” (the ...
The Internal Revenue Service (IRS) issued Revenue Procedure 2019-19 on April 19, 2019, updating the Employee Plans Compliance Resolution System (EPCRS) to expand the types of plan errors that can be corrected under EPCRS. EPCRS is available to correct plan document errors, plan operational errors, demographic errors and employer eligibility errors for qualified plans, 403(b) plans, SEPs and Simple IRAs. All of these errors put the plan at risk of tax disqualification. By utilizing EPCRS, a plan sponsor is able to put errors in the past and move forward from them knowing the ...
Employers face a constant struggle to attract and retain quality employees. This is especially true in a strong economy where jobs are plentiful and the demand for well-qualified workers is high. Historically, employer contributions to 401(k) plans have been viewed as an effective and efficient recruitment and retention tool. Unfortunately, many employers are finding this inadequate in today’s market because some employees, especially younger employees, prioritize other financial needs ahead of saving for retirement. For many young employees, student loan debt is a ...
Many employers began to receive notices from the IRS in 2018 proposing the assessment of a payment against the employer for the tax years 2015 and 2016 under Section 4980H of the Internal Revenue Code. The issuance of these notices by the IRS has now increased through 2019 to-date, and where employers may have received an initial notice in 2018 for the 2015 tax year, and now a second and additional notice proposing the assessment of a payment under Section 4980H for the 2016 tax year. Additional IRS notices for 2017 are certainly to follow.
Section 4980H(a) imposes an “assessable ...
A health wellness program is broadly defined as any program of health promotion or disease prevention. My recent article entitled "Taxonomy of Health Wellness Programs - Part I" reviewed the classification of health wellness programs (hereinafter referred to as "Wellness Programs") under the Health Insurance Portability and Accountability Act ("HIPAA"). In this article, I am going to review an alternative way of classifying Wellness Programs that is contained in the "2018 Employer Guide: FINDING FIT: IMPLEMENTING WELLNESS PROGRAMS SUCCESSFULLY" (the "Guide").
In February ...
A health wellness program is broadly defined as any program of health promotion or disease prevention. In a recent article entitled "Health Wellness Programs - An Introduction and a Resource", I reviewed certain characteristics common to health wellness programs (hereinafter referred to as "Wellness Programs"). In this article, I am going to review the classification of Wellness Programs under the Health Insurance Portability and Accountability Act ("HIPAA").
From a legal perspective, Wellness Programs are initially divided into two classes: (1) programs that are part of (or ...
With increasing employee health costs, many employers are adopting or expanding their health wellness programs. In the retirement plan area, some employers are also adopting programs to assist their employees with managing their finances and planning for retirement (sometimes referred to as "financial wellness programs"). This article is limited to health wellness programs and such programs will herein be referred to as "wellness programs".
A wellness program is broadly defined as any program of health promotion or disease prevention. Wellness programs encompass a wide ...
On April 23, 2018, the U.S. Department of Labor (the "DOL") released Field Assistance Bulletin No. 2018-01 ("FAB 2018-01") which provides guidance regarding (1) the exercise of shareholder rights and written statements of investment policy (addressed in Interpretation Bulletin 2016-01); and (2) economically targeted investments ("ETIs"; addressed in Interpretation Bulletin 2015-01). I have previously discussed certain issues arising with respect to the exercise of shareholder rights. See my article "DOL Updates Guidance on Proxy Voting by Plan Fiduciaries", January 19 ...
Section 403(b) of the Internal Revenue Code of 1986, as amended (the "Code") authorizes a type of retirement plan that can be sponsored by certain tax exempt organizations (e.g., a Code Section 501(c)(3) organization, including a church), certain educational organizations (as described in Code Section 170(b)(1)(a)(ii), including colleges), and certain state or local governmental organizations. In many cases, a 403(b) plan's assets are held in either annuity contracts or custodial accounts (with participant direction of the investments) which may limit the plan sponsor's ...
A recent Tax Court decision suggests that employers may want to review their 401(k) plan loan programs and payroll practices. In Louelia Salomon Frias and Mervyngil Salomon v. Commissioner, TC Memo 2017-139 (July 11, 2017), the Tax Court held that an employee on maternity leave: (1) defaulted on her 401(k) plan loan; (2) failed to cure the default within the applicable cure period; and (3) as a result, there was a "deemed distribution" of the outstanding balance of the loan plus accrued interest which was taxable to the employee.
As described below, the loan default language in the ...
The United States Department of Labor (DOL) recently announced its Wage and Hour Division (WHD) is reinstating its practice of issuing opinion letters with respect to the application of the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA). Generally, the FLSA establishes minimum wage, overtime, recordkeeping and employment standards, and the FMLA makes unpaid leave available to certain eligible employees upon the occurrence of certain family events (i.e., birth or adoption of a child, care of a child, spouse or parent with a serious health condition, or a ...
On March 24, 2017 the vote to repeal the Affordable Care Act ('Obamacare') was cancelled when it became clear there were not enough Republican votes to move it past the House of Representatives. All eyes have now turned to the President's plan to reform the tax code. However, the two issues are not exclusive. Part of the strategy to focus on the repeal and replacement of Obamacare was to create savings that would further support the later tax cuts without increasing the deficit. Tax reform is still on the table and appears to be a priority for the administration and Republicans. It is likely ...
On March 6, 2017, the Ways and Means Committee of the U.S. House of Representatives released a section by section summary of the tax related sections of the American Health Care Act (the "AHCA"). On March 9, 2017, the Ways and Means Committee completed its markup of the AHCA's tax provisions with no changes. The AHCA is the legislation that is intended to repeal and replace the Patient Protection and Affordable Care Act (commonly referred to and hereinafter referred to as "Obamacare").
While it is still very early in the process and the AHCA is expected to be substantially modified during ...
On December 29, 2016, the U.S. Department of Labor (the "DOL") released Interpretive Bulletin 2016-1 ("IB 2016-1") relating to the voting of proxies on securities held in employee benefit plans. IB 2016-1 withdraws the current Interpretive Bulletin dealing with the voting of such proxies (Interpretive Bulletin 2008-2 or "IB 2008-2") and reinstates the prior Interpretive Bulletin dealing with the proxy voting (Interpretive Bulletin 94-2) with updates.
In the background to IB 2016-1, the DOL noted that IB 2008-2 "has been read by some stakeholders to articulate a general rule that ...
The Internal Revenue Code (IRC) provides that distributions from certain retirement arrangements (e.g., qualified retirement plans, individual retirement accounts (IRAs), §403(a) annuity plans, §403(b) tax-sheltered annuities, and §457 eligible governmental plans) will not be taxed (the tax is deferred) if the distribution is transferred to an eligible retirement plan (typically one of the above-described arrangements) within 60 days of receipt (i.e., a rollover distribution). The 60 day transfer requirement is commonly referred to as the "60 day rollover ...
A recent case reminds us that people need to be careful when dealing with their retirement plans, particularly if those accounts are used as investment vehicles to fund business activities relating to the plan participant or owner of an IRA or 410(k) plan account. Although for many people their IRA or 401(k) account may appear to be a ready source of capital for launching a second career or finally moving that business out of the garage, if investments involving these accounts are not carefully and thoughtfully structured, adverse income tax consequences and other losses can occur.
Section 501(c)(4) of the Internal Revenue Code ("IRC") exempts from the federal income tax certain nonprofit corporations that are operated exclusively for the promotion of social welfare (commonly referred to as "Social Welfare Organizations") and certain local employee organizations (the characteristics of local employee organizations are beyond the scope of this blog). Generally, Social Welfare Organizations are organizations that promote the common good and general welfare of the community as a whole.
An organization that primarily benefits a private group typically ...
A qualified retirement plan (hereinafter a "Plan") must satisfy the requirements of the Internal Revenue Code ("IRC") in form and in operation. In other words, the documents establishing and governing the Plan must satisfy the IRC requirements and the Plan must be operated in a manner that complies with the IRC requirements. Many plan sponsors confirm a Plan's compliance with the form requirements by obtaining a determination letter from the Internal Revenue Service ("IRS") through the IRS Determination Letter Program.
Based on the form of the documents used to establish the Plan ...
Most people are familiar with the significant income tax benefits of contributing to a qualified retirement plan such as a 401(k) plan, or individual retirement accounts (IRAs) and the deferral of the income earned by the retirement account is a material income benefit. However, as we have previously discussed, there are very specific rules that require annual distributions from these plans. Unless certain limited exceptions apply, these distributions must begin by April 1 following the year in which the employee attains age 70 1/2. These annual distributions are typically ...
On March 29, 2016, the United States Tax Court released another case illustrating the hazards associated with investing individual retirement account ("IRA") assets in "non-traditional" investments. Upon retirement, some retirees consider starting a second career. In these situations, the retiree may be tempted to fund this second career through the purchase of a business with IRA assets. Thiessen v. Commissioner, 146 T.C. No. 7, illustrates the bad tax results that can happen.
Background
James Thiessen studied metal fabrication in high school and worked at a metal ...
Most people are familiar with the significant income tax benefits of contributing to a qualified retirement plan such as a 401(k) plan, or an individual retirement accounts (IRA). One advantage of these types of arrangements is the taxpayer has significant flexibility and control on the timing of the receipt of income from the qualified retirement plan or IRA. However, this flexibility is not unlimited and Congress has enacted very specific rules that require annual distributions from these plans.
Unless certain limited exceptions apply, annual distributions must begin by April ...
Most health plans subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), include a subrogation clause which requires a participant to reimburse the plan if the participant later recovers money from a third party for injuries (which were treated by medical benefits provided by the health plan). In Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, No. 14-723, 2016 WL 228344 (January 20, 2016), the United States Supreme Court ruled, that when a participant expends the whole recovery on nontraceable expenditures, the ...
As organizations are ramping up for 2016, it is increasingly important they have their administrative ducks in a row for the year to come. This is especially true for tax-exempt organizations operating under a model using local chapters or affiliates (as opposed to wholly-owned organizations), and even more so if those local chapters or affiliates are relying on their central organization for tax-exempt status. If the local chapter or affiliate does not comply with IRS regulations governing such a structure, it may lose its tax-exempt status and be taxed on its income as if it were a ...
Beginning in 2018, certain employers were going to be liable for a 40% federal excise tax on the value of excess benefits provided through their health plan. Health plans providing high cost benefits are referred to as "Cadillac" plans, and the new federal excise tax on high cost plans has come to be known as the "Cadillac tax".
On December 18, 2015, President Obama signed into law the Consolidated Appropriations Act, 2016, H.R. 2029 (the "2016 Appropriations Act"). The 2016 Appropriations Act includes the following three provisions relating to the Cadillac tax:
I. Cadillac Tax ...
Beginning in 2018, certain employers will be liable for a new 40% federal excise tax on the value of excess benefits provided through their health plans. Health plans providing high cost benefits are referred as "Cadillac" plans, and the new federal excise tax on high cost plans has come to be known as the "Cadillac tax".
Under the Cadillac tax, if the aggregate cost of "applicable employer-sponsored coverage" provided to an employee exceeds a statutory dollar limit (revised annually), the excess is subject to a 40% excise tax.
In a prior post, I reviewed who is liable for and who must ...
Beginning in 2018, certain employers will be liable for a new 40% federal excise tax on the value of excessive benefits provided through their health plans. Health plans providing high cost benefits are referred to as "Cadillac" plans, and the new federal excise tax on high cost plans has come to be known as the "Cadillac tax".
- Background.
The Cadillac tax (found in Section 4980I of the Internal Revenue Code - the "Code") was adopted as part of the 2010 Patient Protection and Affordable Care Act. The Cadillac tax is intended to provide employers with an incentive to restrain the growth of ...
On January 2, 2014, the Internal Revenue Service (the "IRS") issued an advance copy of Revenue Procedure 2014-11 which updates the procedures for an organization to request retroactive or non-retroactive reinstatement after having its tax-exempt status automatically revoked under Section 6033(j) of the Internal Revenue Code (the "Code") for failure to file required annual returns or notices for three consecutive years. Revenue Procedure 2014-11 will be published in the Internal Revenue Bulletin 2014-3, dated January 13, 2014.
Generally, Section 6033(a) of the Code requires ...
Many individuals and business entities create charitable organizations to serve the needs of a specific group of persons or a specific community with a need for a type of service. Most charitable organizations undertake the arduous task of applying for tax-exempt status with the Internal Revenue Service in order to be exempt from paying corporate income taxes and to solicit charitable donations from public and private patrons. In June of 2011, the IRS revoked the tax-exempt status of approximately 275,000 organizations because these organizations failed to file the required ...
To minimize the risk of engaging in an excess benefit transaction related to compensation paid in connection with an organization exempt from income tax under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (an "Exempt Organization"), the compensation should be (1) approved by a committee of the board of directors composed of persons who have no conflict of interest with respect to the disqualified person; (2) determined and based upon specific data that establishes that the compensation is reasonable; and (3) documented in the committee's minutes. If these ...
Many of us have both the privilege and the responsibility of serving as a board member or as a trustee of a charitable organization. Many of these charitable groups are organizations exempt from income tax as organizations described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, (an "Exempt Organization"). Because these Exempt Organizations are exempt from tax and receive other income tax benefits, they are generally held to a higher standard of care and are subject to strict compliance rules in certain areas.
One example of this higher standard of care are the ...