Guidance and Relief for Retirement Plans Due to the COVID-19 Pandemic

Originally published by Randye Snyder and Regan Canfill.

The Department of Labor (the “DOL”), the Treasury Department (the “Treasury”), and the Internal Revenue Service (the “IRS”)  have recently issued guidance extending certain deadlines and providing certain relief for retirement plans in response to the current COVID-19 pandemic. Discussed below are (1) EBSA Disaster Relief Notice 2020-01, (2) DOL “COVID-19 FAQs for Participants and Beneficiaries,” (3) IRS Notice 2020-23, and (4)  IRS “Coronavirus-related relief for retirement plans and IRAs questions and answers.”

In addition, deadline and extension relief applicable to health and welfare benefit plans has also been issued by these governmental agencies and will be the subject of an upcoming Liskow & Lewis COVID-19 Industry Update.

1. EBSA Disaster Relief Notice 2020-01

EBSA Disaster Relief Notice 2020-01 (the “Notice”) extends certain deadlines for ERISA-required notifications so long as the plan and responsible fiduciary act in good faith and furnish such notices as soon as administratively practicable under the circumstances. The extensions/suspensions described below are applicable for the time period beginning on March 1, 2020 and ending 60 days after the to-be-announced end of the COVID-19 National Emergency (the “Outbreak Period”).

• Extensions for Notices and Disclosures Required Under Title I of ERISA
  • Retirement plans and fiduciaries will not be in violation of ERISA for a failure to timely furnish notices and disclosures required under Title I of ERISA as long as the fiduciary acts in good faith and furnishes the documents as soon as administratively practicable under the circumstances.
  • As examples, the following are the types of notices and disclosures that this relief applies to:  SPDs, SMMs, Summary Annual Reports, Annual Funding Notices, QDIA notices, participant fee disclosures, claims and appeals  procedure extension and denial notices, and responses to requests for plan documents.
• Good faith delivery includes use of electronic means where the plan fiduciary reasonably believes participants have effective access, including email, text messages, and continuous access websites.
• Plan Loans and Distributions
  • Verification Procedures
    • If an employee pension benefit plan fails to follow procedural requirements for loans or distributions imposed by the terms of the plan, the DOL will not treat it as a failure if :
      • Such failure is solely attributable to the COVID-19 outbreak;
      • The plan administrator makes a good faith effort to comply with the terms of the plan; and
      • The plan administrator makes a reasonable attempt to correct any procedural deficiencies, such as assembling any missing documentation, as soon as administratively practicable.
    • This does not include spousal consent or other requirements under the jurisdiction of the Treasury.
  • Participant Loans under the CARES Act
    • The DOL will not treat any person as having violated the provisions of Title I of ERISA, including the adequate security and reasonably equivalent basis requirements, solely because:
      • (1) the person made a plan loan to a qualified individual during the loan relief period in compliance with the CARES Act and the provisions of any related IRS notice or other published guidance; or
      • (2) a qualified individual delayed making a plan loan repayment in compliance with the CARES Act and the provisions of any related IRS notice or other published guidance.
  • More information on Participant Loans under the CARES Act can be found here.
• Participant Contributions and Loan Repayments
  • The DOL will not take enforcement action with respect to a temporary delay in forwarding contributions and loan repayments to a retirement plan.
    • The delay must be based on a failure attributable to the COVID-19 outbreak.
    • Employers and service providers must act reasonably, prudently, and in the interest of employees to comply as soon as administratively practicable under the circumstances.
• Blackout Notices
  • Under the Notice, Plan administrators are not required to provide advance Blackout Notices.
    • Generally, the administrator of an individual account plan is required to provide 30 days’ advance notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, limited, or restricted by a blackout period.
    • For example, a period of suspension, limitation, or restriction of more than three consecutive business days on a participant’s ability to direct investments, obtain loans, or obtain other distributions from the plan results in a blackout period and triggers the advance notice.

2. DOL COVID-19 FAQ

The DOL also issued “COVID-19 FAQs for Participants and Beneficiaries.” The FAQS were issued to help participants impacted by the COVID-19 pandemic understand their rights under ERISA with regard to retirement benefits. These FAQs will also be helpful for plan sponsors and employers.  It should be noted that the FAQS do not provide any new guidance. A complete list of the questions and answers can be found here.

3. IRS Notice 2020-23

IRS Notice 2020-23, which amplifies Notices 2020-18 and 2020-20, provides additional relief to affected taxpayers by postponing certain IRS deadlines. For plan sponsors, administrators and certain participants, IRS Notice 2020-23 provides relief regarding certain time sensitive actions  described in Revenue Procedure 2018-58 that are due to be performed on or after April 1, 2020 and before July 15, 2020. Certain of these timing items are referenced below.  For a full listing of the time sensitive actions related to employee benefit plans see those listed in Section 8 of the Revenue Procedure.  Unless the IRS provides subsequent additional relief, the actions described below must be performed by July 15, 2020.

• Form 5500
  • The IRS Notice extends the Form 5500 filing deadline for any benefit plan whose plan year ended in September, October or November 2019 (which would have ordinarily been due in April, May and June 2020), as well as other plans that were permitted a filing extension during the April 1 and July 15 time frame, to July 15, 2020.
    • It is important to note that the EBSA Notice and IRS Notice 2020-23 do not provide any additional relief for calendar year plans with a regular due date of July 31, 2020.
• Excess Contributions and Deferrals
  • The deadline for plans to correct excess retirement plan contributions in connection with nondiscrimination testing failures for a plan year and excess deferrals in excess of IRS limits is extended to July 15, 2020.
• Plan Loan Repayment
  • Participants in defined contribution retirement plans can delay the repayment due on an existing plan loan, that was originally due between April 1, 2020, and July 14, 2020, until July 15, 2020.
    • This applies to all borrowers, not just those affected by COVID-19.
• 60-Day Rollover Period
  • Any participants rolling over funds from one eligible retirement plan, including an IRA, into another, where the regular 60-day timeline falls between April 1, 2020, and July 14, 2020, may roll over those funds into the new plan until July 15, 2020.
    • This would generally provide relief, through an extended rollover deadline, for eligible rollover distributions (including RMDs, which are waived for 2020) that were received between February 1, 2020 and May 15, 2020, but distributions taken before or after that window would not qualify for the relief under Notice 2020-23.
• 83(b) Elections
  • Ordinarily, an 83(b) election must be made no later than 30 days after the date the restricted property was transferred. Notice 2020-23 extends this deadline to July 15, 2020 if the 30-day election period would end between April 1, 2020, and July 14, 2020.
• Certain Distributions to Avoid the 10% Additional Tax
  • This includes the deadlines for making distributions to satisfy the substantially equal periodic payment exception and the deadline to distribute certain nondeductible contributions to a qualified employer plan.
• Self-Correction
  • The correction period for self-correction of certain insignificant plan operational failures (normally the last day of the second plan year following the plan year in which the failure occurred) is postponed.

4. IRS “Coronavirus-Related Relief for Retirement Plans and IRAs Questions and Answers”

On May 4, the IRS released a set of FAQs providing additional guidance on the special coronavirus-related distributions and plan loan options under the CARES Act. To review, section 2202 of the CARES Act provides for expanded distribution options and favorable tax treatment for up to $100,000 of coronavirus-related distributions from certain eligible retirement plans to qualified individuals, as well as special repayment and rollover rules with respect to such distributions. It also increases the limit on the amount a qualified individual may borrow from certain eligible retirement plans (specifically not including IRAs) and permits a plan to provide qualified individuals an extended period of time to repay their plan loans. More information on CARES Act section 2202 can be found here.

The following are a few highlights from the FAQs:

• The IRS and the Treasury anticipate releasing additional guidance “in the near future.”
• In the meantime, the IRS suggests referring to IRS Notice 2005-92 as it anticipates the guidance on the CARES Act will apply the principles of the Notice.
  • Notice 2005-92 provided guidance on the tax-favored treatment of distributions and plan loans under the Katrina Emergency Tax Relief Act of 2005 (“KETRA”).
• The coronavirus-related distributions and CARES Act loans are optional. A plan may choose whether and to what extent to offer the distributions and loans available under the CARES Act.
• Plans may rely on a participant’s self-certification that he or she is eligible for a CARES Act distribution or loan. A misrepresentation by a participant will not disqualify the plan.
• The IRS anticipates that the relief-eligible retirement plans will accept repayments of coronavirus-related distributions, but a plan is not required to change its terms or procedures to accept repayments.

A complete list of the questions and answers can be found here.

For more information, contact Randye Snyder or Regan Canfill.

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