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Retirement Plan Coronavirus Distributions Requirements

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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.

Can you provide us with a quick summary of IRS Notices 2020-50 and 202-51?

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.

For employers that have added coronavirus-related distributions or loan enhancements, what should their actions be from a compliance perspective?

  • They should make plan participants aware of the new distribution and loan rules, if that has not already been done.
  • Confirm that the plan recordkeeper/third party administrator is using a certification form that meets the requirements set forth in Notice 2020-50.
  • Confirm with its recordkeeper that the recordkeeper is able to do tax reporting (Form 1099-R) for CRDs in accordance with the new relief.
  • Confirm the recordkeeper can handle re-contributions of CRDs for those who choose to make them.
  • Confirm that the recordkeeper can adjust loan recordkeeping to reflect coronavirus-related loan repayment suspensions through December 31, 2020 and can re-amortize the loans after this period has expired.  The guidance provides an additional year for repayment.

What steps do employers need to make with respect to changes to their Non-qualified Deferred Compensation Plans?  

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.

Can you describe what the term “actual knowledge” means with respect to an employee obtaining a COVID-19 related distribution?

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.

Any updates on employee sponsored plans and CRD’s?

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.

Are there any additional ERISA compliance issues that have arisen in the last few months with respect to COVID-19?

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 croberts@mullenlaw.com | (805) 966-1501.

      Christine’s Firm Bio |  ERISA blog, www.eforerisa.com

The above information is provided for general informational purposes only and does not create an attorney-client relationship between the author and the reader. Readers should not apply the information to any specific factual situation other than on the advice of an attorney engaged specifically for that or a related purpose.
© 2020 Christine P. Roberts, all rights reserved.

The information above is provided for general informational purposes only and does not constitute financial advice. Individuals should not apply information to a specific situation and should consult their financial professional. Charlesworth & Rugg, Inc. is not responsible for any errors in or omissions to this information, or for any consequences that may result from the use of this information. © 2020 Charlesworth & Rugg, Inc.