The IRS and the Department of Labor (DOL) have provided welcome relief to plan sponsors who are unable to meet plan deadlines due to the coronavirus, including those whose vendors and third-party administrators (TPAs) may have been closed or have been working at reduced capacity due to lockdowns or illness.
This relief is time-limited. The IRS relief applies to returns due and time-sensitive actions required to be taken between April 1 and July 15. The DOL’s relief applies during the period from March 1 until 60 days after the end of the national emergency, called the “outbreak period” in the relief. A specific end date was not specified in the DOL guidance because the national emergency is still in effect.
The IRS extensions are automatic, and they presume that all taxpayers are affected by the coronavirus until July 15. The DOL extensions are fact specific. To qualify for the DOL extensions to the usual deadlines as a result of the coronavirus, plans sponsors and their vendors must make reasonable efforts to comply as soon as administratively practicable.
So far, the IRS and the DOL have extended the deadline for Form 5500 filings due between April 1 and July 14 to July 15. While further extensions may be granted, there is no relief yet for 2019 calendar year plan filings that are due on July 31. It still remains necessary for plan sponsors with calendar year plans to file Form 5558 by July 31 in order to obtain an extension to file their 2019 5500s by October 15. Plan sponsors who received the automatic extension to July 15 may also request an additional extension (but not beyond 2 1/2 months past the due date that applied without regard to the automatic extension) by submitting Form 5558.
Refunds of Contributions
The extensions apply to deadlines for distributing excess contributions to defined contribution (DC) plans and refunds of nondeductible contributions.
Deposit of Employee Contributions
The DOL requires that employee contributions and loan repayments be segregated from corporate assets and deposited in a plan’s trust as early as possible, but no later than the 15th day of the succeeding month. A safe harbor for plans with fewer than 100 participants deems those plan sponsors to be in compliance if they deposit employee contributions within seven business days. The failure to comply is a prohibited transaction. The DOL announced that it will not take enforcement action against plan sponsors who miss the otherwise applicable deadlines provided that they comply as soon as practicable.
Minimum Funding Extension for Defined Benefit Plans
The Coronavirus Aid, Relief and Economic Security (CARES) Act extended to January 1, 2021, the deadline to make contributions to single employer defined benefit (DB) plans that would have been due in 2020. The contributions must be adjusted for interest and, for purposes of determining whether the plan’s distributions of lump sums and annuity contracts must be restricted because the plan is underfunded, the plan may look to its funded status for the 2019 plan year. Late last week, the IRS also added requests for funding waivers due to temporary business hardship, normally due by the 15th day of the third month following the end of the plan year, to the actions permitted to be taken by July 15 if the regular deadline is within the relief period.
General relief has been provided by the IRS for deducting employer plan contributions. Contributions that would otherwise have been deductible if made by the plan sponsor’s tax return due date between April 1 and July 1 may now be made until July 15. Unless an additional extension has been obtained up to the date that would apply without regard to the IRS relief (October 15 for a calendar year C corporation), a contribution made after July 15 would have to be carried over to be deducted in a succeeding year to the extent permitted by the Internal Revenue Code’s deduction limits.
Plan sponsors that delay contributions to plans beyond the deadline for deducting contributions for a plan year should be aware that this may create inadvertent compliance problems such as exceeding the Section 415 maximum contribution limit.
Participant Notices and Communications
The DOL has provided relief for distribution of required notices and communications, such as blackout notices, annual funding notices and summary plan descriptions (SPDs), which may be provided as soon as administratively practicable by using email, text messages and continuous access websites. New final regulations on electronic disclosure, which make electronic disclosure the default, may also be used now.
Required Minimum Distributions
The CARES Act provided that defined contribution plans are not required to make required minimum distributions (RMDs) in 2020. Depending on when they received their distributions, participants who already received RMDs may be able to recontribute them by taking advantage of the IRS extension of the 60 day deadline to make a rollover. The CARES Act provision did not address defined benefit plans, but the IRS relief appears to cover distributions required by April 1.
Claims and Appeals
The DOL guidance gives additional time for participants to file claims and appeals. For example, a participant must usually file a pension plan appeal within 60 days of a benefit claim denial but, under the new relief, a later appeal would be timely. In addition, plan sponsors may have good faith extensions if they cannot send notices of benefit determinations, including denials and appeals, by the otherwise applicable deadlines.
The DOL confirmed that it will not take action against plan sponsors and administrators for failure to follow plan terms if they fail to follow verification procedures for loans or if they operate their plans in accordance with the CARES Act loan and distribution provisions prior to the amendment deadline in 2022. The DOL guidance does not relieve plan sponsors of applicable IRS loan requirements such as spousal consent.
The IRS, DOL and Congress may provide further deadline relief. Among the additional changes that would benefit plan sponsors are relaxation of the IRS 30-day advance notice requirement for suspending safe harbor 401(k) plan contributions and additional automatic extensions of time to file the 2019 plan year form 5500 and to make plan contributions that are deductible on 2019 tax returns.
Carol Buckmann is a co-founding partner of Cohen & Buckmann P.C. As a highly regarded employee benefits and ERISA [Employee Retirement Income Security Act] attorney, Buckmann deals with the foremost issues in ERISA, including pension plan compliance, fiduciary responsibilities and investment fund formation.
She has 40 years of practice in this area of the law and a depth of experience on complex pension law and fiduciary problems. She regularly shares her thoughts on new developments in the benefits industry on Insights, Cohen & Buckmann’s blog, and writes and speaks on ERISA topics. Buckmann has been recognized by Martindale-Hubbell as an AV Pre-eminent Rated Lawyer, was selected for inclusion in the Best Lawyers in America and was named one of the Super Lawyers in Employee Benefits.This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.
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