On December 20, 2019, President Donald Trump signed into law the Further Consolidated Appropriations Act, 2020 (Act). After years of delayed effective dates, the Act finally repeals the 40% excise tax on high-cost health coverage, often referred to as the “Cadillac tax.” Furthermore, the Act extends the Patient-Centered Outcomes Research Institute (PCORI) fee scheduled to originally sunset at the end of 2019.
The SECURE Act—potentially the most impactful benefits legislation since the Pension Protection Act of 2006—was included in the bipartisan spending bill signed into law on December 20, 2019. The SECURE Act includes provisions that affect tax-qualified retirement plans and individual retirement accounts. Other provisions of the spending bill affect executive compensation and healthcare benefits.
We will continue to update you on the effects of the SECURE Act. Our current publications include the following:
- SECURE Retirement Legislation Becomes Law: Overview of Provisions Affecting Retirement Plans
- SECURE Act Increases Access to Retirement Plans with ’Pooled Employer Plans’
- The Good News and Really Bad News for IRA Owners Under the SECURE Act – Next Steps for IRA Providers
Keep an eye out for upcoming LawFlashes on other key aspects of the SECURE Act and how the spending bill impacts employee benefits and tax-deferred savings.
The Internal Revenue Service (IRS) has released IRS Notice 2019-63, which provides a 30-day automatic extension to furnish to employees/covered individuals the 2019 IRS Forms 1095-B (Health Coverage) and 1095-C (Employer-Provided Health Insurance Offer and Coverage) from January 31, 2020 to March 2, 2020. This extension is similar to the extension issued in earlier years and does not impact the deadline to furnish transmittal Forms 1094-C and 1094-B and copies of the individual forms to the IRS. The deadline to file these forms remains February 28, 2020 (March 31, 2020, if filing electronically).
Morgan Lewis associate Samantha Kapnek co-authored this article.
On December 4, the Internal Revenue Service (IRS) issued Notice 2019-64, which contains the 2019 Required Amendments List for individually designed tax-qualified retirement plans. As background, the IRS issues its Required Amendments List each year to identify statutory and administrative changes to the tax qualification rules that may require sponsors of individually designed retirement plans to amend their plans to comply with the changes. In general, the deadline for adopting any required amendments on the list is the end of the second calendar year after the list is issued.
The 2019 list identifies the following changes that may require amendments to an individually designed retirement plan:
As concerns continue regarding the possibility of an economic downturn, plan sponsors should be aware of the effects that two potential downturn events could have on their qualified plans.
Substantial Cessation of Operations (Section 4062(e) Event)
Where there is a substantial cessation of operations at a facility, an employer maintaining a qualified defined benefit plan may be subject to certain notice requirements and termination liability rules. A substantial cessation of operations occurs when a permanent cessation of operations at a facility results in the loss of employment by employees at the facility who constitute more than 15% of all employees who are eligible under the plan.
The outsourcing of retirement plan recordkeeping and other administrative responsibilities has increased in recent years for both defined contribution and defined benefit plans. Although there is no overarching privacy law governing retirement plans, fiduciaries must adhere to the “prudent expert” standard of care in fulfilling their duties, and be continuously diligent and attentive to the privacy and security of participant data.
This diligence extends to the structuring of outsourcing agreements for administrative responsibilities. Read this post from our Tech & Sourcing @ Morgan Lewis blog for more data security considerations in plan administration outsourcing agreements.
Closed defined benefit plans—i.e., defined benefit plans that are frozen to new participants but that allow existing “grandfathered” participants to continue to accrue benefits—are nearly certain to face challenges in passing nondiscrimination testing. This is because, over time, the grandfathered group that continues to accrue benefits is likely to become disproportionately highly compensated as a result of their longer service and the absence of shorter-service employees participating when they are first hired.
Congratulations to employee benefits partner Daniel Salemi, who was recently named to the 2019 40 Under Forty List in the Chicago Daily Law Bulletin. The Chicago Daily Law Bulletin and Chicago Lawyer selection committee chooses the honorees from a pool of recommendations submitted by peers to recognize those attorneys who have demonstrated intelligence, passion, success in the office, and a desire to help the community through civic or pro bono efforts. Honorees were recognized at a September 19 ceremony celebrating the 20th anniversary of the 40 Under Forty list in Chicago.
As we look forward to 2020, we bring you a few key takeaways on the hot topics and trends that individuals operating in the employee benefits space are watching in health and welfare, plan sponsor considerations, executive compensation, fiduciary, and fringe benefits.
The Internal Revenue Service (IRS) announced today cost-of-living adjustments affecting dollar limitations for retirement plans that will take effect for 2020. (Read the IRS Notice.) Highlights from the announcement include the following:
- The contribution limit for elective deferrals to 401(k), 403(b), and 457(b) plans increases from $19,000 to $19,500
- The catch-up contribution limit for elective deferrals to such plans for employees age 50 and older increases from $6,000 to $6,500
- The annual compensation limit for amounts taken into account under a tax-qualified retirement plan increases from $280,000 to $285,000
- The overall annual limitations on benefits set forth in Section 415 of the Internal Revenue Code increases from $56,000 to $57,000 for defined contribution retirement plans and $225,000 to $230,000 for defined benefit retirement plans
- The compensation threshold used to define highly compensated employees increases from $125,000 to $130,000
If you have questions about this announcement, please reach out to Randy Tracht or your Morgan Lewis contact.