The Washington Report
August 12, 2020
Note to subscribers: Due to the current environment, information is changing at a rapid rate. While we do our best to provide timely updates, it is possible that the information shared in the newsletter may change or be revised after our publication deadline. Stay healthy and safe! ~The Washington Report team
President Authorizes Payroll Tax Deferral and Extended Unemployment Benefits
President Trump issued a number of Executive Actions on August 8, 2020, including two that would defer payroll taxes and extend unemployment benefits. The Executive Action on the payroll tax directs the Treasury Secretary to defer payroll taxes during the period of September 1, 2020, through December 31, 2020, for employees who earn less than $100,000 a year. The Treasury Secretary is also ordered to issue guidance on the payroll tax deferral. The Executive Action on unemployment benefits authorizes a lost wages assistance program that would provide a $400 payment per week, $300 of which would be paid by the federal government and $100 of which would be paid by states.
The Executive Actions are available here.
IRS Provides Guidance on Pension Funding Relief Under CARES Act
On August 6, 2020, the Internal Revenue Service (IRS) issued guidance (Notice 2020-61) on the pension funding relief rules applicable to single-employer defined benefit pension plans under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act provided an extended due date of January 1, 2021, for cash contributions that would otherwise be due during calendar 2020 for single-employer pension plans subject to Internal Revenue Code Section 430. It also enables sponsors of such plans to apply the funded status for the last plan year beginning before 2020 to plan years including 2020 for purposes of certain benefit restrictions under Internal Revenue Code Section 436.
The guidance, which is in Question and Answer (Q&A) form, addresses a number of issues arising under the funding relief. For instance, Notice 2020-61 provides examples of how to compute applicable interest amounts due, and notes that if less than the minimum required contribution plus applicable interest is paid for a plan year, the unpaid balance will be subject to the 10% excise tax under Internal Revenue Code Section 4971. Other Q&As discuss whether the extended due date would apply to contributions in excess of the amount needed to satisfy the minimum required contribution, how to determine the amount of a quarterly installment for purposes of the extended due date, and a number of other considerations related to the CARES Act pension plan funding relief.
IRS Notice 2020-61 is available here.
IRS Updates Rollover Safe Harbor Explanations to Reflect Changes Under SECURE Act
On August 6, 2020, the IRS issued guidance (Notice 2020-62) modifying safe harbor explanations that satisfy the requirements for disclosures to the recipients of eligible rollover distributions (402(f) notices). The IRS has updated the safe harbor explanations to reflect:
- Payments up to $5,000 received from a defined contribution plan for purposes of eligible birth or adoptions, as permitted under the Setting Every Community Up for Retirement Enhancement (SECURE) Act;
- The increase in the age for required minimum distributions to age 72 for employees born after June 30, 1949, which was also a change made under the SECURE Act; and
- Other modifications to improve clarity, such as adding that payments of certain premiums for health and accident insurance are not eligible rollover distributions.
In addition, the IRS indicated that even though a coronavirus-related distribution may be recontributed to an applicable eligible retirement plan, since a coronavirus-related distribution is not an eligible rollover distribution, neither the notice requirement under Section 402(f) nor the mandatory withholding rules apply.
IRS Notice 2020-62 is available here.
IRS Provides Guidance on COVID-19 Employee Layoffs and Rehires Under Partial Plan Termination Rules
In a Q&A (Q15) posted on its website on July 30, 2020, the IRS provided guidance on whether employees who are laid off because of COVID-19 and then subsequently rehired by the end of this year would be treated as having undergone an employer-initiated severance from employment and therefore counted towards employee turnover rates for purposes of determining whether a partial plan termination has occurred. If a partial plan termination occurs, certain requirements for accelerated vesting may apply. Under IRS Revenue Ruling 2007-43, a 20% or greater turnover rate would create a presumption that a partial plan termination has occurred. However, according to Q15, employees who are laid off because of COVID-19 and subsequently rehired by the end of the year will generally not be treated as having an employer-initiated severance from employment, subject to the facts and circumstances of each case.
Q15 is available here.
IRS Posts Guidance on Leave-Sharing Plans for Employees Affected by COVID-19
The Internal Revenue Service (IRS) has posted frequently asked questions (FAQs) on leave-sharing plans set up by employers that allow employees to deposit their leave into an employer-sponsored leave bank, which can then be used by other employees who are adversely affected by the COVID-19 pandemic. The FAQs address whether employers may set up such leave-sharing plans and the income tax considerations for employees who deposit leave, including whether income tax deductions can be taken.
The guidance is available here.
Court Strikes Down Portion of Rule Exempting Health Care Providers From FFCRA Leave
On August 3, 2020, a New York Federal District Court judge struck down as “vastly overbroad” the definition of “health care provider” under Department of Labor (DOL) regulations that exempted employers from providing emergency job-protected paid sick leave and family leave to health care providers. The Court also vacated several other provisions of a temporary DOL regulation implementing the Families First Coronavirus Response Act (FFCRA) emergency paid sick leave and paid family leave programs. As a result, employers of fewer than 500 employees may have improperly denied FFCRA leave to employees who were deemed “health care providers” under the now vacated regulations.
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