ERISA News

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for victims of severe storms, flooding, and landslides in Puerto Rico. The tax relief postpones various tax filing deadlines that began February 4, 2022. Affected individuals and households who reside or have a business in municipalities of Cataño, Dorado, Toa Baja, Vega Alta, and Vega Baja as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1). Affected taxpayers with a covered deadline on or after February 4, 2022, and before June 15, 2022, will have until June 15, 2022, to complete the acts. This includes filing Form 5500 series returns that are required to be filed on or after February 4, 2022, and before June 15, 2022.

"Affected taxpayer" automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS to request relief.

The House has passed the Affordable Insulin Now Act (the “Act”) to limit the cost of insulin to either $35 or 25 percent of the plan’s negotiated price, whichever is less. Group health plans or health insurance issuers of group or individual insurance would be required to implement the coverage of insulin products beginning January 1, 2023. In addition, the Act caps the cost-sharing limit under Medicare to $35 in 2023, even if the individual has reached the annual out-of-pocket limit and to $35 in 2024 for those who have not yet reached their annual out-of-pocket limit. The legislation must still pass the Senate before it is enacted.

Representative Peter Sessions introduced the Health Care Equality and Modernization Act of 2022 (the “Act”) in the House of Representatives. The Act contains various provisions that would amend the Affordable Care Act (ACA), redefine individual health coverage HRAs (“ICHRAs”), limit premium tax credits, and improve health savings accounts (HSAs).

The Act would repeal the ACA employer mandate and related information reporting, limit consumer protections, and impose a 20 percent penalty assessed as a premium increase for any individual that does not have continuous health insurance coverage for a period of 12 months. The Act would redefine ICHRAs to no longer treat them as group health plans pursuant to the ACA, ERISA, or the IRC. In addition, the Act would not require ICHRAs to comply with various federal laws, including ERISA, the IRC, the ACA, COBRA, and HIPAA. The Act would also limit premium tax credits to those individuals in states that have expanded the Exchange to all areas. Premium tax credits may also be used, at the discretion of the individual, to fund an HSA. Related to HSAs, the Act would increase the individual contribution limit to $5,000 and the family limit based on the number of individuals enrolled in family coverage. Upon the death of the account holder, the Act would also permit for easier transfer by treating the surviving spouse as the named account holder.

Representative Lucy McBath (D-GA) and five other Democratic co-sponsors have introduced the Protecting America’s Retirement Security Act in the House of Representatives. The bill proposes fee disclosure improvements, increasing spousal protections, and automatic reenrollment for defined contributions plans. Additionally, the bill would direct the creation of a personal finance education portal as well as a rainy-day refund savings program that would allow taxpayers to elect deferment of 20 percent of their tax refund to an interest-bearing account that would be available for distribution at a later date.

The House of Representatives has passed the Securing a Strong Retirement Act of 2022 (which lawmakers are coining SECURE 2.0) by a 414-5 vote. H.R. 2954 was first introduced by House Ways and Means Committee Chairman Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) in October 2020, and subsequently amended by the Ways and Means Committee last year. The bill now includes provisions from the Retirement Improvement and Savings Enhancement (RISE) Act that came out of the House Education and Labor Committee last November.

Several key provisions are highlighted below.

• Requires automatic enrollment of eligible employees in 401(k) and 403(b) plans with certain exceptions and grandfathering provisions
• Enhances the three-year small retirement plan start-up credit, with a maximum credit of 100 percent (vs. the current 50 percent) for employers with no more than 50 employees, and phasing out for employers that have between 51 and 100 employees
• Provides a new credit for employer contributions to defined contribution plans of up to $1,000 per employee
• Enhances the saver’s credit by replacing the three-tier formula with a single 50 percent credit percentage on contributions up to $2,000, with phase outs beginning at certain AGI thresholds
• Increases the age for required minimum distributions (RMDs) from age 72 to age 73 in 2023, then age 74 in 2030, and finally age 75 in 2033
• Increases the catch-up contribution limit for plan participants who have attained ages 62-64 to $10,000 ($5,000 for SIMPLE plans)
• Clarifies pooled employer plan (PEP) trustee duties by indicating that any fiduciary of a pooled employer plan may be responsible for collecting contributions
• Permits 403(b) plans to participate in multiple employer plan (MEP) arrangements, including PEPs
• Reduces from three years to two years the period of service requirement for long-term, part-time workers, and disregards pre-2021 service for vesting purposes
• Reduces excise tax from 50 percent to 25 percent for failures to take RMDs, and further reduces tax to 10 percent if an RMD from an IRA is corrected within a certain time frame
• Establishes a national online “lost and found” database to connect individuals with unclaimed retirement account benefits
• Increases the cash-out limit from $5,000 to $7,000
• Requires defined contribution plan sponsors to provide paper benefit statements at least once annually, unless a participant elects otherwise
• Allows employers to permit employees to elect Roth treatment of both employee and employer contributions to SIMPLE and SEP plans
• Requires catch-up contributions made to a 401(k), 403(b), or 457(b) plan to be made on a Roth basis
• Permits defined contribution plan sponsors to provide participants with the option of receiving match contributions on a Roth basis

Additional proposals include the following.

• Requires the IRS to promote the saver’s credit
• Permits 403(b) plans to invest in collective investment trusts
• Provides for indexing of IRA catch-up contributions
• Permits certain student loan repayments to qualify for employer retirement plan matching contributions
• Allows a small employer joining a MEP or PEP arrangement to potentially claim a small plan start-up credit during the first three years of the MEP/PEP arrangement’s existence
• Provides a new small employer tax credit for enhanced plan eligibility for military spouses
• Permits immediate de minimis financial incentives, in addition to a matching contribution, to individuals for contributing to a retirement plan
• Enhances options for correcting employee salary deferral errors
• Defers tax for certain sales of employer stock to an employee stock ownership plan sponsored by an S Corporation
• Expands securities treated as publicly traded in the case of employee stock ownership plans
• Removes RMD barriers for life annuities by updating applicable actuarial test
• Reforms qualifying longevity annuity contract rules by repealing 25 percent limit for premiums and addressing spousal survivor rights after a divorce
• Directs agencies to review reporting and disclosure requirements and report to Congress
• Exempts defined contribution plans from sending otherwise required notices to certain individuals who are eligible but do not participate in the plan
• Expands failures eligible for self-correction under the Employee Plans Compliance Resolution System
• Eliminates “first day of the month” deferral election requirement for governmental 457(b) plans
• Expands types of distributions that can be considered IRA qualified charitable distributions and excluded from income
• Adds private sector firefighters to those qualified public safety employees eligible for distribution penalty exception at age 50
• Excludes certain disability-related first responder retirement payments from income after retirement age
• Clarifies the statute of limitations for taxes on prohibited transactions with regard to IRAs to include the date such return would have been due
• Allows otherwise excludable employees from a defined contribution plan to be excluded from determination of whether top-heavy requirements are met
• Limits repayment of qualified birth or adoption distributions to three years
• Permits participants to self-certify that deemed hardship distribution conditions are met in certain circumstances
• Permits participants who self-certify that they have experienced domestic abuse to withdraw the lesser of $10,000 or 50 percent of their account without being subject to the 10 percent early distribution penalty tax. The funds could be repaid to the plan over three years.
• Makes changes to stock attribution rules under family attribution for coverage and nondiscrimination testing
• Permits discretionary amendments that increase benefits to participants to be adopted by the due date of the employer’s tax return
• Permits new 401(k) plans established after the end of the taxable year but before the employer’s tax filing date to receive elective deferrals up to the due date of the employee’s tax return for the initial year when they are sponsored by sole proprietors and single-member LLCs
• Limits only the portion of an IRA used in a prohibited transaction to be treated as distributed, as opposed to current rules disqualifying and treating the entire IRA as distributed
• Directs the DOL to review pension risk transfer interpretive bulletin relative to conditions for discharging defined benefit plan liabilities

The legislation also includes minor technical corrections to the SECURE Act. One such correction clarifies that defined benefit plan participants other than 5 percent owners who retire after the year they turn 70½ are entitled to actuarial adjustment for the period in which they do not receive distributions. Plan amendments would be required by the last day of the first plan year beginning on or after January 1, 2024 (2026 for governmental and collectively bargained plans), and would extend these new deadlines to the SECURE Act, CARES Act, and the Taxpayer Certainty and Disaster Tax Relief Act.

The bill will now head to the Senate for consideration. Senator Patty Murray (D-WA) who chairs the Senate HELP committee indicated that she and ranking member Senator Burr intend to advance companion legislation later in the spring.

The IRS has released a new proposed rule providing for an exception, if certain requirements are met, to the application of the “unified plan rule” for multiple employer plans (MEPs) when there is a failure by one or more participating employers to take actions necessary to satisfy requirements of the Internal Revenue Code. The unified plan rule (also referred to as “one bad apple rule”) specifies that the failure by one participating employer to satisfy an applicable qualification requirement would result in the disqualification of the MEP for all employers maintaining the plan. The release also withdraws prior proposed regulations that were published in the Federal Register on July 3, 2019.

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) created a statutory exception to the unified plan rule for certain types of MEPs and directed the Secretary to issue guidance to carry out that provision. The exception applies to defined contribution plans maintained by employers that have a “common interest” or have a “pooled plan provider” and failed to take action required to meet qualification requirements, subject to the following conditions.

• The plan assets attributable to employees of the employer that failed to take action will be transferred to a plan maintained only by that employer
• The employer (and not the plan or any other employer in the plan) will generally be responsible for liabilities with respect to the plan attributable to employees of that employer
• The pooled plan provider performs substantially all of the administrative duties for which it is responsible for any plan year

The proposed regulations provide that the terms of the MEP document must include language describing the procedures that will be followed to address a participating employer failure, including a description of the notices that the plan administrator will send and when such notices will be sent. The plan terms must also describe the actions that the plan administrator will take if by the end of the 60-day period following the date the final notice is provided, the unresponsive participating employer does not take appropriate action with respect to the failure or initiate a spinoff to a separate plan maintained by the employer. The IRS intends to publish model language for this purpose in connection with a final rule.

Under the proposal, a MEP plan administrator may be required to provide up to three notices to an unresponsive participating employer regarding a failure—with the final notice also being provided to affected participants and the Department of Labor. The unresponsive participating employer can either take appropriate remedial action or initiate a spinoff. The proposal delineates notice requirements for both “a failure to provide information” and a “failure to take action”, and in situations where a failure by a participating employer is initially a failure to provide information, but becomes a failure to take action, more than three notices may be necessary.

If an unresponsive participating employer neither takes appropriate action or initiates a spinoff within 60 days after the final notice is provided, the MEP plan administrator must 1) stop accepting contributions from the unresponsive participating employer and participants, 2) provide notice to affected participants of the unresponsive participating employer, and 3) provide participants with an election regarding treatment of their accounts.

Comments may be submitted within 60 days of publication in the Federal Register. A public hearing on the proposed rule has been scheduled for Wednesday, June 22.

Representative Ann Wagner (R-MO) has introduced the Long-Term Care Affordability Act to allow distributions from retirement accounts for the payment of long-term care insurance coverage. The bill is the House companion to S.2415 introduced in the Senate by Senator Patrick Toomey (R-PA) last year.

The proposal would permit tax-free retirement saving distributions of up to $2,500 per year—indexed for inflation—that are used to purchase long-term care insurance. The arrangements to which the legislation applies would include qualified retirement plans, 403(a) and 403(b) plans, governmental 457(b) plans, and IRAs. These distributions would also be exempt from the 10 percent early distribution penalty tax. The bill would also create new distribution triggers for employee deferral amounts that have been contributed to 401(k), 403(b), and governmental 457(b) plans.

Representative Brad Wenstrup (R-OH) has introduced the Enhancing Emergency and Retirement Savings Act of 2022 to provide flexibility and access for those who experience unexpected emergencies. The bill is the House companion to S. 1870, introduced by Senator James Lankford (R-OK) and Senator Michael Bennet (D-CO) last year.

The legislation would provide a penalty-free “emergency personal expense distribution” option from employer-sponsored retirement plans and IRAs. The proposal would allow for one emergency distribution per calendar year of up to $1,000 from the individual’s total nonforfeitable accrued benefit under the plan. The bill requires that the withdrawn funds be paid back to the plan before an additional emergency distribution from that same plan is allowed. The amount can be recontributed within a three-year period to any eligible plan to which a rollover contribution can be made.

An emergency personal expense distribution is defined as a distribution for purposes of meeting unforeseeable or immediate financial need relating to necessary personal or family emergency expenses. The plan sponsor of an employer-sponsored retirement plan may rely on an employee’s certification that the conditions are satisfied in determining whether the distribution is an emergency distribution.

The SEC has issued a proposed rule that would require publicly traded companies to include certain climate-related disclosures in their registration statements and periodic reports, such as the annual Form 10-K.

The proposed rule would in part require disclosure about the following.

• The registrant’s governance of climate-related risks and relevant risk management processes.
• How any climate-related risks identified by the registrant have had or are likely to have a material impact on its business and consolidated financial statements.
• How any identified climate-related risks have affected or are likely to affect the registrant’s strategy, business model, and outlook.
• The impact of climate-related events (such as severe weather and other natural conditions) and transition activities on the line items of a registrant’s financial statements and estimates used in financial statements.

The rule would also require disclosures about direct greenhouse gas admissions and indirect emissions from purchased electricity or other forms of energy, as well as disclosure of greenhouse gas emissions from upstream and downstream activities in its value chain if material or if the registrant has set an emissions target. Accelerated filers would be required to include an attestation report from an independent attestation service provider covering emission disclosures.

A fact sheet provides an overview of requirements and the applicable phase-in period—depending on the type of registrant and type of emission disclosure required. The comment period will remain open for the longer of 1) 30 days after publication in the Federal Register, or 2) 60 days after the date of issuance and publication on sec.gov.

The IRS has issued Notice 2022-14, which contains updated guidance on factors used in certain defined benefit (DB) pension plan minimum funding and present value calculations. Updates include the corporate bond monthly yield curve, the corresponding spot segment rates used under Internal Revenue Code Section (IRC Sec.) 417(e)(3), and the 24-month average segment rates under IRC Sec. 430(h)(2). IRC Sec. 417 contains definitions and special rules for minimum survivor annuity requirements in DB plans. IRC Sec. 430 addresses minimum funding standards for single-employer DB plans.