Benefits Bryan Cave

Benefits BCLP

Other Posts

Main Content

COVID-19: Highlights from the IRS FAQs on Emergency Paid Sick and Family Leave Tax Credits for U.S.-based Small and Mid-sized Employers

We recently summarized the provisions from the Families First Coronavirus Response Act (“FFCRA”) that provide for tax credits for small employers to offset costs associated with paid sick leave and emergency FMLA benefits (see here). The IRS has been compiling a set of FAQs regarding these tax credits, which covers a number of topics. Here are a few of the highlights:

  • To claim the credits, eligible employers will report their total qualified leave wages and the related credits for each quarter on their federal employment tax returns (usually Form 941). In anticipation of the credits, employers may fund qualified leave wages, allocable qualified health plan expenses, and the employer’s share of Medicare tax on the qualified leave wages by either using federal employment taxes the employer has set aside for deposit with the IRS or by requesting an advance from the IRS.
  • To substantiate eligibility for the medical and family leave credits, employers should obtain a statement from the employee requesting leave in which the employee provides:
    • The employee’s name;
    • The date(s) for which leave is requested;
    • A statement that the employee is not able to work (including telework) for that reason.
    • If the leave is requested due to a quarantine order or self-quarantine medical advice, the statement should include the governmental entity ordering quarantine or medical professional advising self-quarantine.
    • If the leave is due to school closing or lack of childcare availability, the statement should include the name(s) and

CARES Act Would Expand U.S. Retirement Plan Access to Participants Impacted by the Coronavirus Pandemic

The proposed Coronavirus, Aid, Relief and Economic Security Act (“CARES ACT”) would, if enacted, provide legislative relief to participants impacted by the Coronavirus pandemic.  This relief is expected to be agreed upon and enacted – although likely with some modifications.  We will update this post and provide additional detail at that time.

As currently drafted, the CARES ACT would provide the following relief with respect to hardship distributions and loans.

Hardship Distributions

The 10% early distribution tax would be waived for the following virus related hardships:

  • Participant is diagnosed with COVID-19;
  • Participant’s spouse or dependent is diagnosed with COVID-19;
  • Participant experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, experiencing a reduction of work hours, inability to work due to lack of child care caused by COVID-19, the closing or reduction of hours by a business owned or operated by such participant due to COVID-19; or
  • Other circumstances as determined by the Treasury Secretary.

The CARES Act would provide additional tax relief in the form of a three-year period for (i) payment of tax on the distribution and (ii) tax-free repayment of the distribution to the plan.

Plan Loans

The maximum loan that could be taken would be increased to the lesser of $100,000 or 100% of a participant’s vested account balance.  This limit would be double the current limit of the lesser of $50,000 or 50% of a participant’s vested account balance.  In addition, qualifying participants with outstanding loan

Avoiding Beneficiary Befuddlement

Challenges AheadRetirement plans are complicated creatures to administer so it perhaps is not surprising that the process of determining the beneficiary of a deceased participant can present its own set of challenges and, if things go awry, expose a plan to paying twice for the same benefit.

These risks were recently highlighted in an 11th Circuit Court of Appeals decision decided in the aftermath of the Supreme Court case of Kennedy v. Plan Administrator for DuPont Savings and Investment Plan.  In that 2009 decision, the Supreme Court ruled that a beneficiary designation naming a spouse had to be given effect even though the spouse had subsequently waived her interest in any of her husband’s retirement benefits in a divorce agreement.

In the 11th Circuit case, Ruiz v. Publix Super Markets, the question was whether a deceased participant’s prior designation of her niece and nephew as beneficiaries would trump the participant’s considerable efforts to change that designation shortly before her death.  In deciding the case upon Publix’s motion for summary judgment, the Court assumed as true statements from the deposition of Arlene Ruiz, the partner of the deceased participant, who was asserting a right to the benefits as the newly intended beneficiary of Ms. Ruiz.  According to the deposition, Ms. Ruiz spoke with a Publix representative who advised her that the beneficiary designation could be changed if the participant wrote a letter and delivered

IRS Views on Self-Certification of Financial Hardship

IRS Views on Self-Certification of Financial Hardship

March 15, 2017

Authored by: Richard Arenburg and Denise Erwin

DesolationIn today’s virtual world, we suspect most plan sponsors rely upon the self-certification process to document and process 401(k) distributions made on account of financial hardship. The IRS has recently issued examination guidelines for its field agents for their use in determining whether a self-certification process has an adequate documentation procedure.  While these examination guidelines do not establish a rule that plan sponsors must follow, we believe most plan sponsors will want to ensure that their self-certification processes are consistent with these guidelines to minimize the potential for any dispute over the acceptability of its practices in the event of an IRS audit.

The examination guidelines describe three required components for the self-certification process:

(1)        the plan sponsor or TPA must provide a notice to participants containing certain required information;

(2)        the participant must provide a certification statement containing certain general information and more specific information tailored to the nature of the particular financial hardship; and

(3)        the TPA must provide the plan sponsor with a summary report or other access to data regarding all hardship distributions made during each plan year.

The notice provided to participants by the plan sponsor or TPA must include the following:

(i)         a warning that the hardship distribution is taxable and additional taxes could apply;

(ii)        a statement that the amount of the distribution cannot

Will the ACA Get Trumped?

Will the ACA Get Trumped?

November 9, 2016

Authored by: Chris Rylands and Richard Arenburg

Now that the historic election between the two most unpopular candidates in recent memory has been called for Donald Trump, the questions (of which there are many) now facing the President-Elect and the rest of us are how a President Trump will govern.  One of his campaign promises (and a favorite Republican talking point) was the repeal of the Affordable Care Act and replacing it with something else.  (Its recent premium hikes were even cited by his campaign manager as a reason voters would choose him.)  So is that going to happen?

At this point, we cannot know for sure (and given the beating that prognosticators took this election cycle, we’re not sure we want to guess).  However, we can identify a few hurdles that might make it harder.

Republicans Need a Plan First.  One of the major hurdles is Republicans themselves have yet to completely agree on a coherent alternative.  Speaker Ryan released a thumbnail sketch of a proposal in June which looked more like “pick and choose” than “repeal and replace.”  However, it is often said the devil is in the details and that will certainly prove true here.

And Then They Have to Agree On It. The other challenge is getting enough Republican votes to get the plan through (and maybe some Democratic ones as well).  As of now, the GOP is still projected to retain majorities in both the House and Senate.  However, some races are

Cautionary Observations from the Proposed 457 Regulations

Governmental Buildings and MoneyAfter more than nine years of deliberations, the IRS has finally released proposed regulations governing all types of deferred compensation plans maintained by non-profit organizations and governmental entities.

In issuing these regulations, the IRS reiterates its long-standing theme that these regulations are intended to work in harmony with, and be supplemental to, the 409A regulations. However, the IRS provides little guidance on how these regulations interact with each other.  The following discussion focuses on 3 key aspects of the new guidance: the severance exemption, the substantial risk of forfeiture requirement, and leave programs.

As with the 409A regulations, the 457 regulations exempt severance pay plans from the rules and taxes applicable to deferred compensation. The 457 regulations apply similar criteria with one notable exception: they do not apply the 401(a)(17) compensation limit in determining the “two times” dollar cap on amounts that can be paid pursuant to an exempt severance pay plan.  Practitioners in the for-profit arena currently believe they enjoy wide latitude in restructuring severance arrangements that are exempt from 409A.  It would not appear that practitioners will have that same latitude for severance arrangements that are exempt from 457, unless the arrangements also satisfy the severance pay exemption under 409A, particularly with regard to the dollar cap limit.

Historically, the proposed 457 rules afforded

Department of Labor Fiduciary Rule: Employers Should Not Overlook Impact on HSAs

HSAThe new Department of Labor rule defining the scope of who is an ERISA fiduciary (see our prior post here) has caused much consternation among investment professionals.  Much of the new rule is focused on reworking the outer fringes of the ERISA landscape capturing those in the investment industry offering IRA and annuity products.

Given that investment professionals appear to be the primary target of the new fiduciary rule, employers may believe that this is one room in the ERISA house of horrors that they do not have to enter.  To a large extent that is true because the concept of fiduciary status and the fee disclosure rules, as applied to traditional retirement plans, are already well entrenched.  Still, employers need to consider whether certain providers to their retirement plans are newly covered by the revised fiduciary rule and determine whether those relationships are being conducted in accordance with the new rules.

In reviewing existing arrangements, employers having group health plans supplemented by health savings accounts should be aware that health savings accounts are specifically covered by the new fiduciary rule.  As ERISA welfare plans, health savings accounts were outside the reach of the earlier fee disclosure rules.  The rationale for covering health savings accounts under the new fiduciary rule is presumably the belief that a number of employees maintaining these accounts are using them as a

Termination of a Nonqualified Retirement Plan with a Traditional Defined Benefit Formula

A recent case from a federal court in the Northern District of Georgia provides an interesting perspective on the termination of a nonqualified retirement plan with a traditional defined benefit formula offering lifetime annuity payments. In Taylor v. NCR Corporation et. al., NCR elected to terminate such a nonqualified retirement plan. The termination decision not only precluded new entrants to the plan and the cessation of benefit accruals for active employees, but it also affected retirees in payout status receiving lifetime payments. Those retirees received lump sum payments discounted to present value in lieu of the lifetime payments then being paid to them.

At the time NCR terminated the plan, its provisions apparently provided that the plan could be terminated at any time provided that “no such action shall adversely affect any Participant’s, former Participant’s or Spouse’s accrued benefits prior to such action under the Plan. . . ” The plaintiff was a retiree receiving a lifetime joint and survivor annuity of approximately $29,000 annually. As a result of the plan’s termination, NCR calculated a lump sum benefit for the plaintiff of approximately $441,000, with the plaintiff ultimately receiving a net payment of approximately $254,000 after federal and state income tax withholdings.

The key allegations made by the plaintiff, as recited by the court, were (1) that the lump sum payment caused the plaintiff to incur a significant taxable event and (2) that the plaintiff objected to the use of a discount factor to reduce the value of the lump

Overpayments to Participants

Hand Over the MoneyThe IRS has clarified its correction guidance recently to say that errors made in overpaying participants for their benefits can be cured by employer make-up contributions, rather than by pursuing participants and beneficiaries for the overpayments they have received. In issuing this clarification, the IRS has aligned itself with the views of the Department of Labor, which has issued advisory opinions that date back to the 1970s that essentially take the same position.

This avenue of correction is particularly welcome given the apparent reluctance of at least some courts to require repayments by overpaid participants. A federal district court recently allowed a participant to use equitable estoppel as a basis to prevent a pension plan from recovering overpayments and to prevent the plan from reducing future benefit payments. In Paul v. Detroit Edison Co., Case No. 13-14256 (March 30, 2015), the United States District Court for the Eastern District of Michigan found in favor of the plaintiff-participant on the strength of statements by the participant that he questioned a company representative about the accuracy of his benefit computation during his retirement interview and received assurances from the company representative that the calculation was correct. As it turns out, the company representative was mistaken in the assurances he provided to the participant. In reaching its decision, the

Discretionary Clawback Policies: Risk of Variable Stock Plan Accounting

ChartCompanies should be aware that at least some major accounting firms are questioning whether discretionary aspects of clawback policies trigger variable accounting for compensatory equity awards granted by those companies. Existing accounting guidance (ASC 718-10-30-24) would seem to suggest that clawback features should not disrupt fixed accounting treatment because of their contingent nature.

Now, however, PricewaterhouseCoopers and KPGM, at least, are publicly expressing concerns about clawback policies focusing on their discretionary, rather than contingent, nature. A 2013 PricewaterhouseCoopers survey of 100 companies indicated that nearly 80% of those companies had clawback policies that had problematic discretionary provisions. A clawback policy could involve discretion as to what circumstances it may apply; whether it should be applied; and, if applied, how severely it should be applied. It seems that all aspects of discretion may be problematic. Companies adopting or modifying existing clawback policies should evaluate the potential risks of discretionary provisions and consider consulting with their independent accountants before adopting or revising those policies. This will be particularly true for public companies when it comes time to evaluate compliance with the much-anticipated SEC guidance on clawbacks that will finally implement the Dodd-Frank legislation of 2010.

The attorneys of Bryan Cave Leighton Paisner make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.