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The massive appropriations bill enacted by Congress on December 21 and signed into law on December 27 contained helpful provisions for employers sponsoring retirement, welfare and fringe benefit plans. This alert highlights the key employee benefit plan provisions contained in the Tax Certainty and Disaster Relief Act (Act) division of the appropriations bill.
Health Care Flexible Spending Accounts (Health FSAs) and Dependent Care Flexible Spending Accounts (Dependent FSAs) are subject to the "use it or lose it" rule which can result in employees forfeiting amounts they do not use by the end of a plan year. Employees impacted by COVID -19 had hoped to be able to withdraw unused funds in their 2020 FSAs. Although the relief provided by the Act does not permit return of unused funds, it does allow employers to amend FSAs to provide continued access to funds already contributed.
Adoption of any of the temporary relief provisions is optional. Amendments reflecting the optional relief selected will need to be adopted by a delayed amendment deadline and the plan will need to be operated in accordance with the amendment.
The Act allows employers to amend their retirement plans to provide access to retirement funds for participants residing in federally declared disaster areas (excluding disasters solely related to COVID-19) during the period beginning January 1, 2020, and ending 60 days after enactment of the Act. Specifically:
Employers who decide to implement the disaster-related relief must amend their plans by the delayed amendment deadline, i.e., on or before the last day of the first plan year beginning on or after January 1, 2022 (January 1, 2024, for governmental plans) or such later date as the secretary of the Treasury may prescribe.
A retirement plan—e.g., 401(k) plan—is not treated as having a partial termination (which would require immediate vesting for affected participants) during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021, is at least 80 percent of the number of the active participants covered by the plan on March 13, 2020. Thus, if sufficient numbers of plan participants are rehired before March 31, 2021, a partial termination is avoided.
The definition of educational assistance under an educational assistance program is expanded to include employer payments made through December 31, 2025, of principal or interest on a qualified education loan incurred by an employee. Prior to the Act, employer payments had to be made by December 31, 2020, to constitute educational assistance.
Employers should determine if they wish to adopt any or all of the changes permitted to be made to their Health FSAs, Dependent FSAs and retirement plans. Additionally, they should coordinate with their plan administrators to implement these changes as well as any changes necessitated by the partial termination relief and the student loan repayment relief. Any changes will need to be communicated to plan participants. Employers will also need to be sure amendments implementing any relief provisions are timely adopted.
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If you have any questions regarding the above or need assistance preparing plan amendments or employee communications, please reach out to any of the attorneys in Day Pitney's ERISA and Executive Compensation group.
Francine Esposito, Rachel Gonzalez and Laura Schuman co-authored the article, "Negotiating a Successor Collective Bargaining Agreement During a Pandemic," for the New Jersey Law Journal.
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Stephen Ziobrowski was quoted in an article, “C-Corp. Conversions Not Attractive To All Pass-Throughs,” published by Law360.
Heather Weine Brochin was quoted in an article, "Confidentiality Disqualifies Harassment Settlement Tax Deductions," published on the Society for Human Resource Management (SHRM) website.