An excerpt from the Money Talks podcast hosted by our own Hugh Meyer and prior blog post guest writer, ERISA Attorney expert, Chris Roberts, Partner at Mullen & Henzel, L.L.P on the latest requirements every business owner or plan sponsor needs to follow in for their retirement plans and coronavirus-related distrubutions. If you have questions regarding how your retirement plan responsibilities may be impacted, we encourage you to visit Chris's ERISA blog, or you can contact her directly below.
Notice 2020-50 expands the listing of “qualified individuals” entitled to take coronavirus-related distributions (CRDs) from retirement plans and IRAs and benefit from liberalized plan loan rules. It also provides guidance on the tax relief applicable to CRDs.
Notice 2020-51 details the 2020 waiver of “required minimum distributions” and provides rollover relief, through August 31, 2020, for people who took RMDs before the coronavirus crisis hit, and want to restore those funds to their accounts and avoid taxation on same.
If their plan is subject to the “Enron” rules under Section 409A of the Internal Revenue Code they should know that it is usually impermissible to terminate a deferred compensation plan as a result of a downturn in business conditions.
It should also determine whether unforeseeable emergency provisions under the plan are triggered for ceasing employee deferrals or allowing distributions. This will be a case-by-case determination, COVID-19 impact is not one size fits all. Any deferral cancellation will generally have to remain in place for the balance of the plan year.
If payments to departing executives would jeopardize the ability of the business to continue as a going concern, then the employer can delay making the payment as long as the payment is made during the first taxable year in which making the payment will not jeopardize the business’s health.
Determine whether any promises being made about future restoration of temporary pay cuts constitutes a non-qualified deferred compensation arrangement itself.
Actual knowledge means that the employer “already possesses sufficient accurate information to determine the veracity of the employee’s certification.” There is no duty to inquire further. It will likely be quite rare that the employer would have independent knowledge of the employee’s circumstances, unless of course the employee and the business owner and the employee/qualified individual are one and the same.
Reports are that some recordkeepers are incorporating the CRD provisions automatically whereas others are giving each employer the choice as to whether to implement. There is some talk of these distributions in terms of their negative impact on long-term retirement preparedness, but generally employers are welcoming any opportunity they have to help out their employees during these difficult times.
The pandemic is impacting even the largest US employers with Exxon announcing that it would suspend its employer matching contribution in October.
Employers must still make every effort to get their employees’ salary deferrals and loan repayments deposited with their recordkeeper as soon as reasonably possible. The Department of Labor announced limited relief for delays in deposit that are solely due to COVID-19, but this should be interpreted very narrowly and any such delay should be documented at the time it occurs.
CalSavers rollout for employer of over 100 employees has been delayed due to COVID-19 from June 30, 2020 to September 30, 2020. CalSavers is an auto-IRA savings program applicable to employers who do not offer any retirement plan, including a SEP or SIMPLE plan. Employers may want to give thought to setting up a retirement plan, even a salary-deferral only 401(k), SIMPLE, or SEP plan over the next 10 weeks or so to avoid coming under the CalSavers mandate.
Christine is a partner at Mullen & Henzell L.L.P, in Santa Barbara, California, which since 1953 has been helping individuals and business owners in the areas of employment law, estate planning, and business/real estate transactions. For over 20 of those years, Christine has helped employers steer a clear path to ERISA compliance, de-mystifying the jargon, and providing practical advice to clients in language that they can understand and act on with assurance. To learn more about Christine and her benefits practice, check the following links or reach out to her at email@example.com | (805) 966-1501.