As if 2020 was not strange enough, the Internal Revenue Service (“IRS”) and Department of Labor (“DOL”) issued guidance and regulations relative to health care plans and retirement plans to a degree which is unprecedented. This activity is interesting given the existence of the pandemic. In any event, here we are. The below identifies some of the new developments, and serves as a reminder of overall beginning year reminders for employers.
In the interest of your time, here is a brief (certainly non-exhaustive) listing of recent developments and reminders, in no particular order. Most of these issues will require employer action.
- The DOL issued final regulations regarding environmental, social, and governance investing. In short, in terms of fiduciary prudence, such investments must be evaluated the same as any other.
- The two year restatement cycle for defined contribution plans began over the summer. Generally, preapproved 401(k) plans (and profit sharing and money purchase plans) must be amended onto a new generation IRS approved plan document in the next two years (and apply for a determination letter, if desired and eligible).
- The DOL issued regulations allowing retirement plans to more easily deliver ERISA required notices by electronic means than was previously permitted. This does not mean an email or text can simply be shot out with an SPD or fee disclosure — certain other conditions still must be fulfilled. The new rules do not apply to health plans yet.
- The PCORI fee for health plans came to an end, and is now back.
- The IRS issued guidance allowing carryover amounts from cafeteria plans to be increased beyond $500 ($550 for 2021). In this regard, at the end of December, as part of the Consolidated Appropriations Act (“CAA”), new laws were passed generally allowing (but not requiring):
- Carryover of all amounts from a flexible spending account (“FSA”) (including a dependent care FSA) from 2020 to 2021, and from 2021 to 2022.
- Plans that allow for grace periods relative to FSAs may extend a grace period relative to 2020 and/or 2021 to 12 months after the close of the plan year (the maximum is otherwise 2 ½ months).
- Mid-year election changes may be made to FSAs for any reason (effective prospectively).
- Terminated employees may have a longer time to receive FSA reimbursements.
- Dependent care FSA age may be raised from 13 to 14.
- The normal deadlines for filing Form 5500s remain in place. There remain potentially massive penalties for not filing a Form 5500 or in connection with an incomplete filing. As a reminder, filings with suspect responses will have a tendency to trigger DOL and/or IRS examination). Accordingly, review with counsel prior to filing is strongly encouraged.
- The U.S. Supreme Court ruled that business decisions based on sexual orientation are unconstitutional. The decision did not specifically discuss employee benefits; however, it seems relatively clear that such includes benefit plan design and decisions. Employers should take care to avoid being the test case.
- The DOL revised fiduciary rule is back in play after ten years in the making with final rules issued in 2016, which were then shot down by the courts in 2018.
- The DOL issued revised model COBRA notices.
- From time to time, all qualified retirement plans suffer from qualification failures of varying degrees; most notably, plan operations not comporting with plan terms. There is a right way and a wrong way to correct those failures in order to avoid creating larger problems and liabilities.
- The DOL issued guidance allowing defined contribution plan involvement with private equity funds relative to plan investments.
- The DOL issued proposed rules regarding lifetime income disclosures and illustrations for retirement plans (most notably, 401(k) plans).
- The DOL has been aggressive in its enforcement activities. The DOL issues a fact sheet every year summarizing its recovery efforts and results. Reportedly, they recovered over $3.1B from plan sponsors (mostly as a result of fiduciary breaches). It was about $2.5B and $1.5B in prior years. Here is a link to the fact sheet – EBSA Restores Over $3.1 Billion to Employee Benefit Plans, Participants and Beneficiaries. As an overall reminder in this regard, it is important for plan fiduciaries to engage in and document a fiduciary process to mitigate and/or avoid potential liabilities.
- Lawsuits against companies and plan fiduciaries continue to pile up and result in multimillion dollar judgments and settlements. The main allegation being that a plan paid unreasonable expenses to service providers such as recordkeepers and investment managers. This class action litigation has so far mostly involved large plans, but is primed to involve smaller plans.
- On the COVID front (most of which we have previously covered in other newsletters):
- There will probably be much more to come, and there remain questions and uncertainty regarding some of the relief. Actions needed to be taken (such as changing operations and issuing notices), and will need to be taken (such as putting plan amendments in place).
- Cafeteria plans had relaxed rules regarding election changes through 2020. And, as noted above, much of that has been extended by way of the CAA.
- Retirement plans were permitted to allow coronavirus related distributions and increased plan loan limits. They were/are required to delay repayments of certain loans. Plan amendments will need to be in place in 2022 for the most part, but in the meantime, operational compliance should be a priority. Notably, this relief has not been extended into 2021.
- Several plan related deadlines have been extended – special enrollments, COBRA elections, and claims and appeals.
- Plans are required to provide COVID testing without cost sharing.
- Plans are required to pay for COVID vaccines.
- There is relief available for retirement plans that experienced partial terminations as a result of reducing workforces on account of the pandemic.
It’s certainly a lot to keep on the radar. The purpose of this alert is to do just that, which is to provide reminders of some issues to keep in mind and address as appropriate.