Clarifying Guidance on Cares Act: Retirement Provisions

Since the passage of “Coronavirus Aid, Relief, and Economic Security Act” or “CARES Act” the Retirement Industry has anxiously awaited guidance on a number of open questions.  During that time, regulators have issued additional relief measures designed to ease the burden on employers and their plan participants. For example, the IRS issued Notice 2020-23 on April 9, which extended many tax deadlines, including those deadlines applicable to qualified retirement plans.

EBSA Disaster Relief Notice 2020-01

On Wednesday, April 29, Employee Benefits Security Administration “EBSA” issued disaster relief Notice 2020-01 providing relief from various ERISA requirements and deadlines otherwise due from March 1, 2020, until 60 days after the announcement of the end of the COVID-19 National Emergency or such other date announced by DOL in future guidance. Please keep in mind that the Department of Labor has the authority to extend deadlines for up to one year, therefore the “relief period” granted in Notice 2020-01 may only extend to February 28, 2021, even if the COVID-19 National Emergency has not ended.

• Notice, Disclosure, or Document Delivery Relief – An employee benefit plan and the responsible plan fiduciary will not be in violation of ERISA for failure to timely furnish a notice, disclosure, or document that must be during the “relief period” if the plan and responsible fiduciary act in good faith and furnish the notice, disclosure, or document as soon as administratively practicable under the circumstances.
  • Good Faith – Includes the use of electronic alternative means of communicating with plan participants and beneficiaries who the plan fiduciary reasonably believes have effective access to electronic means of communication, including email, text messages, and continuous access websites. Note: This relaxation of the DOL’s stance on electronic delivery comes just prior to the publication of the DOL’s Electronic Delivery Final Rule and may be relied upon during an 18-month transition period following the effective date of the final regulations.
• Plan loans and distributions – The DOL will not treat a retirement plan as failing to follow procedural requirements for plans loans and distributions imposed by the terms of the plan if:

1. The failure is solely attributable to the COVID-19 outbreak;
2. The plan administrator acts in good faith; and
3. The plan administrator makes a reasonable attempt to correct any deficiencies as soon as administratively practicable.

The verification requirements relief provided in Notice 2020-01 is limited to provisions of Title I of ERISA that are within the interpretive and regulatory authority of the Department and does not apply to spousal consent or other requirements under the jurisdiction of Treasury and IRS.

• CARES Act Loans – The CARES Act allows plan sponsors to make loans available to qualified individuals between March 27 and September 22, subject to higher dollar limits (the lesser of 100% of the participant’s account balance or $100,000), and allows plans to suspend loan repayments for qualified participants for up to one year. The DOL has confirmed that it will not treat any person as having violated the provisions of Title I of ERISA, including the adequate security and reasonably equivalent basis requirements in ERISA 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.

• CARES Act Amendments – If an employee pension benefit plan is amended to provide the relief for plan loans and distributions described in the CARES Act, the Department will treat the plan as being operated in accordance with the terms of such amendment prior to its adoption if:

1. The amendment is made on or before the last day of the first plan year beginning on or after January 1, 2022, or such later date prescribed by the Secretary of the Treasury (or the Secretary’s delegate), and
2. The amendment otherwise meets the conditions outlined in the CARES Act.

• Participant Contributions and Loan Repayments – Under the terms of ERISA, participant payroll contributions and loan repayments that are withheld from the participant’s wages by an employer generally must be forwarded to the plan on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets, but in no event later than the 15th business day of the month following the month in which the amounts were paid to or withheld by the employer. 
  During the “relief period” the DOL will not solely on the basis of a failure attributable to the COVID-19 outbreak take enforcement action with respect to a temporary delay in forwarding such payments or contributions to the plan. 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 – The relief above regarding notices, disclosures, and documents applies to blackout notices that are required to be provided under the regulation, including those required to be provided after the blackout period begins. Further, the Department will not require the written determination by a fiduciary that the inability to provide a 30-day blackout notice is due to events beyond their reasonable control as pandemics are, by definition, beyond a plan administrator’s control.
• Items NOT Covered by Relief Provided in Notice 2020-01 – The good-faith relief described in EBSA Notice 2020-01 does not apply to all of a plan administrator’s responsibilities under ERISA. Specifically, Notice 2020-01 does not cover the following items:

1. Form 5500 and Form M-1 Filing – The IRS has already issued guidance providing an extended Form 5500 and Form M-1 deadline for plans required to file such forms on or after April 1, 2020, and before July 15, 2020. The extended filing deadline for those plans, pursuant to IRS Notice 2020-23, is now July 15, 2020.
2. Joint regulation – EBSA Notice 2020-01 does not apply to any notices or disclosures addressed in a joint regulation, also issued on April 29, addressing the timeframes that are relevant to HIPAA’s special enrollment periods, COBRA continuation coverage, and ERISA’s benefit claims processing deadlines.

IRS Coronavirus-related relief questions and answers

On Monday, May 4, the IRS posted fourteen FAQs to its website that address several CARES Act questions. This informal guidance provides a number of helpful confirmations to the retirement industry. 

• The addition of Coronavirus-related distributions (CRDs) and Cares Act Loans is optional.
• The 180-day period during which a qualified participant may request a loan, subject to the CARES Act increased loan limits, ends on September 22. Given the wording of the CARES Act, there had been some confusion as to whether the deadline for processing a Corona Loan was September 22 or 23. The FAQs have put that confusion to rest. 
• In the absence of guidance specific to the CARES Act, the Treasury has pointed to Notice 2005-92, which was issued in 2005 providing guidance on hurricane disaster relief that was offered to qualified plans under the Katrina Emergency Tax Relief Act of 2005 (KETRA). The IRS has indicated that future guidance specific to the CARES Act will apply the principles of Notice 2005-92. 
  • Notice 2005-92 contains a Safe Harbor that plans may follow regarding when the resumption of loan repayments and amortizations may occur following a KETRA Loan Suspension.
  • Notice 2005-92 also confirms that disaster distributions are to be reported on Form 1099-R, with a code 2. However, the notice also indicates that code 1 is also acceptable.
• The IRS has confirmed that they received a number of comments and requests on the CARES Act seeking clarification or expansion of the criteria that a participant must meet in order to be eligible for a CRD or CARES Act Loan, and that they are reviewing those requests. However, they have not committed to any such expansion at this time.
• The CARES Act does not allow a CRD in-service withdrawal right for Pension plans. For example, a pension plan (such as a money purchase pension plan) is not permitted to make a distribution before an otherwise permitted distributable event merely because the distribution, if made, would qualify as a CRD. Additionally, the FAQs confirm that a CRD distribution from a pension plan will be subject to the QJSA rules and Spousal Consent.
• The repayments of CRDs are to be treated as rollover contributions. Additionally, the FAQs confirm that although the IRS anticipates that plans will accept CRD repayments, they have indicated that plans are not required to accept rollover contributions and that plans that do not otherwise allow rollover contributions and to the extent that a plan is amended to allow CRDs, they are not required otherwise to add a repayment option.
• Plan Administrators may rely on an individual's certification that the individual satisfies the conditions to be a qualified individual in determining whether a distribution is a Coronavirus-related distribution unless the administrator has actual knowledge to the contrary. This actual knowledge language does not appear in the text of the CARES Act, and therefore is a new requirement.

IRS Notice 2020-23 Additional Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic

On April 9, the IRS issued Notice 2020-23, which extends a number of deadlines to July 15, 2020, that were otherwise due to be performed on or after April 1, 2020, and before July 15, 2020. This relief is automatic and applies to all taxpayers. Specific to retirement plans, this extension applies to the retirement plan deadlines listed in section 8 of Revenue Procedure 2018-58. The following is a list of some, but not all, of the impacted deadlines:

• The due dates for making plan loan repayments.  Any loan repayments due between April 1 and July 15 are now due by July 15. This is separate from the loan relief provided in the CARES Act and impacts any individual who misses a loan repayment during the relief period. This will have an impact on the application of cure periods.
• The April 15 deadline for distributing 402(g) excess deferrals. 
• The deadline for returning Actual Deferral Percentage excess contributions.
• The deadline for distributing excess aggregate contributions to correct a failed ACP test. 
• The 60-day deadline for completing rollovers. 
• The deadline for removing excess IRA contributions.
• The June 1 deadline for filing and furnishing Form 5498. 
• The deadline for filing Form 5500.
• The EPCRS deadline for self-correction.

As the industry continues to navigate the CARES Act, turn to SS&C Retirement Solutions for guidance and support. With deep expertise across all aspects of plan administration and operations, from accounting to compliance, SS&C Retirement Solutions can scale and custom-configure our capabilities to your needs. Contact us to discuss how SS&C can help.