Better Late Than Never: IRS Issues Guidance Clarifying COBRA Premium Subsidy Rules

S&W Insight: The IRS clarified several trailing issues with respect to COBRA premium subsidies under the American Rescue Plan Act, including extended election periods, eligibility for other coverage, and rules about allocating premium credits among employers. In addition, a notice deadline is on the horizon.

Many employers have been grappling with the ramifications of the American Rescue Plan Act (“ARPA”) since it was enacted earlier this year. Among other provisions, ARPA provided a temporary subsidy for certain insurance premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”).

We previously summarized this relief in the following SW Benefits Updates: “Help Is on the Way – Important Changes to COBRA under the American Rescue Plan Act,” “DOL Clarifies Key Provisions, Issues Model Notices for COBRA Relief under ARPA,” and “Ironing Out the Wrinkles – IRS Answers 86 Questions about COBRA Relief under the American Rescue Plan Act. Read More ›

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IRS Clarifies SECURE Act Changes to Qualified Automatic Contribution Arrangements

The IRS recently published Notice 2020-86 (the “Notice”), which provides clarification with respect to certain changes made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”). In particular, the Notice answers several outstanding questions related to the maximum default deferral rate for qualified automatic contribution arrangements.

As previously reported here, the SECURE Act raised the maximum permissible deferral rate for qualified automatic contribution arrangements to 15% of compensation from 10% of compensation for the second plan year and all subsequent plan years. The maximum deferral rate through the end of the first year remains set at 10% of compensation. Read More ›

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IRS Confirms Major Disaster Leave-Sharing Program Use for COVID-19 Pandemic

On August 3, 2020, the IRS posted a short set of frequently asked questions for leave-sharing programs which confirm that major disaster leave-sharing programs under IRS Notice 2006-59 can be used for employees who have been adversely affected by the COVID-19 pandemic.  As a reminder, major disaster leave-sharing programs under Notice 2006-59 permit employees to donate paid leave to their co-workers who are adversely affected by a “major disaster.”  When properly structured, the donated leave is excluded from the gross income of the donor and included in the gross income of the recipient.  President Trump has declared major disasters due to COVID-19 for all 50 states and the District of Columbia. Read More ›

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IRS Approves Additional Leave-Based Donation Programs for COVID-19 Relief

We previously posted about two leave-sharing programs available to employers during the COVID-19 pandemic: major disaster leave-sharing programs and medical emergency leave-sharing programs.  These leave-sharing programs may allow employees to donate paid leave to co-workers affected by COVID-19.  When properly structured under Internal Revenue Service (“IRS”) guidance, the donated leave is excluded from the gross income of the donor employee. 

On June 11, 2020, the IRS published Notice 2020-46, which permits employers to establish an additional type of leave-sharing program: a leave-based donation program under which employees can donate vacation, sick, or personal leave in exchange for cash payments that the employer makes to a charitable organization described in Internal Revenue Code (the “Code”) Section 170(c) (a “Section 170(c) Organization”). Read More ›

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Retirement Plan Dreams May Go Up in Smoke for Marijuana Companies

Companies in the medical and recreational marijuana industry continue to face an uphill battle for access to financial services.   Although a number of states have legalized the medicinal and/or recreational use of marijuana, marijuana remains classified as a Schedule I drug subject to the federal Controlled Substances Act.  As such, financial services companies that wish to serve the marijuana industry could find themselves subject to the Bank Secrecy Act and the criminal money laundering provisions.  Those challenges are well documented.  However, do the same types of challenges exist if a marijuana company wants to sponsor a qualified retirement plan for its employees?  Read More ›

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IRS Letters 226J: Having the Right Section 4980H Records Can Be Worth a Small Fortune

As reported in our 2018 End of Year Plan Sponsor “To Do” List (Part 1) Health & Welfare, the Section 4980H penalties are still in effect and the IRS is enforcing them.  Employers continue to receive Letters 226J, which the IRS uses to propose employer shared responsibility payments. During the Letter 226J process, the IRS has been allowing employers to challenge proposed penalties and to correct reporting errors. However, the IRS will not necessarily accept an employer’s word at face value.

Recordkeeping is key

One of the biggest problems employers may face is finding records to prove they satisfied the 95% offer of coverage test (to avoid the subsection (a) penalty) or that they offered a specified employee minimum value affordable coverage (to avoid the subsection (b) penalty).  Read More ›

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IRS Changes Course on Lump Sums to Retirees

In Notice 2019-18, the Internal Revenue Service (the “IRS”) changed its position and now will permit employers to offer lump sum payments to retirees who are currently receiving annuity payments from a defined benefit plan.  This is a reversal from its position in Notice 2015-49, in which the Treasury Department and the IRS stated that they intended to propose amendments to the required minimum distribution regulations to address the payment of lump sums to replace ongoing annuity payments under a defined benefit plan.  Prior to the issuance of Notice 2015-49, a number of defined benefit plans started offering retirees who were receiving annuities an opportunity to elect to convert their annuities into lump sum benefits during a limited period of time in what became known as “de-risking” transactions.  Read More ›

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Seeing the Big Picture – How Proposed Health Reimbursement Arrangements Might Harmonize with Existing Law

On October 29, 2018, proposed regulations were published in the Federal Register that would permit employers to offer two new types of health reimbursement arrangements (“HRAs”) that align with the requirements of the Affordable Care Act (the “ACA”). The proposed HRAs are designed to expand the availability of account-based group health plans. A summary of the proposed regulations – and the HRAs that they would permit if finalized – can be found in our November 7, 2018, blog, “Zombie Benefits – Are Health Reimbursement Arrangements Back from the Dead?

As an addendum to the proposed regulations, the IRS published Notice 2018-88, which considers the interaction of the new HRAs with the employer shared responsibility mandate set out in Code Section 4980H and the non-discrimination rules contained in Code Section 105(h). Read More ›

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IRS Issues Updated Tax Notice for Qualified Retirement Plan Distributions

The Internal Revenue Service (“IRS”) recently released guidance that contains two updated safe harbor notices that retirement plans may use to satisfy the requirements of the Internal Revenue Code (the “Code”) to provide an advance notice to a participant prior to the date on which the participant receives a distribution that meets the requirements for an eligible rollover distribution.  This notice is commonly referred to as the “402(f) Notice” after the relevant section of the Code that requires the notice to be provided.

The IRS guidance contains two model notices, one that may be used when distributions are not from a Roth account and a second model notice that may be used for distributions that are from a Roth account. Read More ›

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The 95 Percent Test: Gearing up for Another Round of Employer Shared Responsibility Penalties

Late last year, the Internal Revenue Service (the “Service”) began enforcing penalties with respect to failures to comply with the employer shared responsibility provisions of Section 4980H of the Internal Revenue Code.  In the coming months, the Service is expected to begin assessing penalties with respect to such failures occurring in calendar year 2016.  These penalties are of two varieties:

  1. Section 4980H(a) penalties are assessed for any month in which an applicable large employer (“ALE”) does not offer minimum essential coverage to substantially all (95% for 2016 and future years) of its full-time employees and their dependents and at least one full-time employee receives a premium tax credit. 
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