The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans for 2021. Nearly all of the dollar limits currently in effect for 2020 will remain the same, with only a few amounts experiencing minor increases for 2021.
With mass layoffs commonplace during the COVID-19 pandemic, employers asked the Internal Revenue Service for advice on how to deal with the partial termination rule relating to employer contributions to their employees’ 401(k) workplace retirement accounts.
It’s an obscure issue, but it’s a big deal for the employees that it affects: It could mean thousands of dollars more credited to an employee’s 401(k) account. It’s also important that employers get it right. In a recent article by Forbes, McDermott Will & Emery partner Jeff Holdvogt advises that IRS auditors can catch this issue looking back at prior years.
“This is a complicated rule, and it’s not top of mind, so we could absolutely see employers realizing, ‘Hey, it turns out we incurred a partial termination. We have to go back and provide additional vesting,’” Holdvogt says.
The Coronavirus Aid, Relief and Economic Security (CARES) Act, passed by US Congress in March in response to the COVID-19 pandemic, permits a “qualified individual” to increase the amount they can borrow from a 401(k). Such individuals may borrow 100% of their account balance up to $100,000 (less any outstanding loans).
The deadline for taking enhanced loans is September 22. In a recent article by Forbes, McDermott Will & Emery partner Jeff Holdvogt highlights some of the tax implications individuals should consider.
What do unused paid-time-off (PTO) days, student loan debt and the coronavirus have in common? An opportunity for employers to provide financial relief to employees who are increasingly putting off vacations due to the COVID-19 pandemic.
In a recent article by the Society of Human Resource Management, Jeff Holdvogt, a partner in McDermott’s Chicago office, explained that more employees, particularly Millennials, are telling employers that benefits to help pay off student loan debt would go a long way to attracting and retaining them.
Prior to the pandemic, ultra-low unemployment at roughly 3.3% put a spotlight on ‘lifestyle benefits’ for employees such as gym memberships and pet sitting. When the COVID-19 crisis hit, the focus immediately shifted for many plan sponsors.
Some employers are now offering high-deductible health plans (HDHPs) paired with health savings accounts (HSAs). Scaling back on company matches to 401(k) plans and contributions to profit sharing accounts are two other areas where employers are trying to save money, said Lisa Loesel, an employee benefits partner at McDermott.
“Depending on what kind of plan they have and the terms set forth for them, we have seen plan sponsors delay the timing of their contributions, change the amount, move from a fixed to a discretionary amount or even cut their contributions indefinitely,” Loesel said in a recent article for PLANSPONSOR Magazine.
Among sponsors offering a pension plan, more are de-risking their plans. “The market happens to be favorable for doing this right now,” she says.
The Employee Retirement Income Security Act of 1974 (ERISA) requires plan fiduciaries to act prudently and loyally when making decisions about the plan. In Martin v. CareerBuilder, LLC, a federal district court held that the complaint’s allegations about expensive recordkeeping costs and imprudent investment options failed to give rise to an inference that the defendants violated their ERISA obligations.
The US Supreme Court took up several Employee Retirement Income Security Act (ERISA) cases this term, handing down both a major loss and a substantial win to employees looking to sue their employers over retirement plan mismanagement. In a recent Law360 article, McDermott Partner Chris Nemeth discusses these decisions.
“It’s going to be really interesting to see how this plays out,” said Nemeth.
New Internal Revenue Service (IRS) guidance expands the availability of Coronavirus Aid, Relief and Economic Security Act (CARES Act) distributions and loans under eligible retirement plans, and it provides important clarifications regarding how to administer and report CARES Act distributions and loans. The guidance also provides welcome relief for a participant who receives a CARES Act distribution, allowing the participant to revoke an otherwise irrevocable salary deferral election under a nonqualified deferred compensation plan. Finally, consistent with prior guidance, the new IRS guidance confirms that CARES Act provisions are optional, meaning that plan sponsors may choose whether to implement CARES Act changes.
In the ongoing effort to help individuals impacted by COVID-19, Congress passed the Coronavirus Aid, Relief, and Economic Securities Act (CARES Act) on March 27, 2020. The President signed the CARES Act into law the same day. The historic stimulus package provides wide-ranging relief for both employers and employees. This includes rules that impact health and welfare, retirement and executive compensation plans and programs.
For more information about the impact of the CARES Act on employer-provided benefits, access our On the Subject articles on the:
In addition, for information about the frequently asked questions regarding health and welfare, retirement and executive compensation issues in the COVID-19 era, access our FAQs.
The US Supreme Court handed workers a big win by preserving a six-year deadline to file ERISA class actions as the standard, but employers have already seized on language in Justice Samuel Alito’s opinion as a road map for how to impose a shorter deadline.
Justice Alito ended the unanimous opinion—which affirmed the Ninth Circuit’s ruling that ERISA grants workers six years to sue except under special circumstances—by listing several tactics employers can use to invoke a three-year statute of limitations.
McDermott’s Richard Pearl contributes to a Law360 article discussing the decision, including how employers should respond.
Originally published on Law360, February 2020
See Richard Pearl’s January 2019 On the Subject on this case: Ninth Circuit Clarifies ‘Actual Knowledge’ for ERISA’s Statute of Limitations
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