PPI in the News Compliance Corner - December 10, 2020 Archive
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On November 24, 2020, the IRS released Notice 2020-84, which announces that the adjusted applicable dollar amount for PCOR fees for plan and policy years ending on or after October 1, 2020, and before October 1, 2021, is $2.66. This is a $0.12 increase from the $2.54 amount in effect for plan and policy years ending on or after October 1, 2019, but before October 1, 2020.

As a reminder, PCOR fees are payable by insurers and sponsors of self-insured plans (including sponsors of HRAs). The fee does not apply to excepted benefits such as stand-alone dental and vision plans or most health FSAs. The fee, however, is required of retiree-only plans. The fee is calculated by multiplying the applicable dollar amount for the year by the average number of lives and is reported and paid on IRS Form 720 (which has not yet been updated to reflect the increased fee).

It is expected that the form and instructions will be updated prior to July 31, 2021, since that is the first deadline to pay the increased fee amount for plan years ending between October and December 2020. The PCOR fee is generally due by July 31 of the calendar year following the close of the plan year.

The PCOR fee requirement has been extended and is in place through the plan years ending after September 30, 2029.

IRS Notice 2020-84 »

The IRS recently released a revised version of Publication 5165, Guide for Electronically Filing Affordable Care Act (ACA) Information Returns for Software Developers and Transmitters, for tax year 2020 (processing year 2021). This publication outlines the communication procedures, transmission formats, business rules, and validation procedures for returns transmitted electronically through the ACA Information Return System (AIR). The updated version of this publication contains no major changes. The AIR system itself is quite technical; for example, the forms must be filed using the Extensible Markup Language (XML) schemas outlined in the publication.

Employers who plan to electronically file Forms 1094-B, 1095-B, 1094-C or 1095-C should review the latest guidance and make any necessary adjustments to their filing process. Because of the complexity, most employers partner with a payroll or software vendor to assist them with the electronic filing. Those employers still have a responsibility to review the forms for accuracy before submission to the IRS and distribute the forms to employees. Employers filing fewer than 250 forms may file with the IRS by paper.

As a reminder, the IRS previously announced a slight adjustment to the 2020 filing due dates (due in early 2021). Based on that announcement, Forms 1095-B and 1095-C would need to be distributed to employees by March 2, 2021 (instead of January 31, 2021), and those forms along with the Forms 1094-B and 1094-C would need to be filed with the IRS by March 31, 2021, if filing electronically and by March 1, 2021 (since the February 28, 2021, due date falls on a Sunday), if filing by paper.

Publication 5165 »

On September 8, 2020, the IRS issued Letter Number 2020-0024 that addressed a question concerning whether an employee can roll over unused transit benefits into a parking account.

The IRS stated that, as a general proposition, such a rollover is possible provided that the parking benefit is a qualified parking benefit that is offered by the employer’s plan and that the amount rolled over does not result in a total amount that exceeds the maximum monthly limitation established for the respective qualified transportation fringe benefit.

Information letters are not legal advice and cannot be relied upon for guidance. Taxpayers needing binding legal advice from the IRS must request a private letter ruling. While the letter does not provide any new guidance, this letter does provide general information that may be helpful to employers with questions on this topic.

Letter Number 2020-0024 »

On December 2, 2020, the DOL, IRS and PBGC (the “agencies”) published advance copies of the 2020 Forms 5500, and several related schedules. The following modifications were made to the new versions:

1. Electronic Filing of the Form 5500-EZ: Form 5500-SF can no longer be used by a one-participant plan or a foreign plan in place of filing the Form 5500-EZ with the IRS. Instead, one-participant plans and foreign plans can file the Form 5500-EZ electronically (effective for plan years beginning after 2019).
2. Administrative Penalties: The instructions now reflect an increase to $2,233 per day (as the maximum civil penalty amount assessed under ERISA, which is applicable for civil penalties assessed after January 15, 2020, for violations that occurred after November 2, 2015).
3. Schedule H Part III (relating to the Accountant’s Opinion): The instructions have been revised to align with the language in the new Statement on Auditing Standards 136, “Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA.”
4. Schedules H and I, Line 4l and Form 5500-SF, Line 10f: The instructions have been revised to increase the required minimum distribution age from 70.5 to 72 in accordance with the SECURE Act.
5. Schedules H and I, Line 5c: If the plan was covered by PBGC at any time during the plan year, then the instructions state that filers should check the “Yes” box on Line 5c.
6. Schedule R: Multiemployer plans now have a choice of three counting methods on Line 14 to count inactive participants and they must provide an attachment depending on the counting method chosen. In addition, plans must now provide an explanation for any difference between numbers reported on lines 14b or 14c and the numbers they reported in the immediately preceding plan year. Plans may no longer leave lines 14a, 14b and 14c blank.

These advance copies are informational only, and they cannot be used to file a 2020 Form 5500 or schedule. The agencies will eventually finalize the forms for actual use; when those forms are finalized, we will announce it in Compliance Corner . So, for now, there is nothing for employers to do other than familiarize themselves with the advance copy forms and changes.

Advance Copies of 2020 Forms 5500 and Related Schedules »
DOL News Release »

As required by law, the OCR provided Congress with a Compliance Report and a Breach Notification Report, in which the agency reported the results of complaints received and investigations conducted for the calendar year 2018. According to the Compliance Report, a significant number of these investigations began as a result of large breach notifications submitted by covered entities and business associates. OCR also resolved eleven investigations with resolution agreements or corrective action plans or the imposition of civil money penalties totaling more than $28 million.

According to the Breach Notification Report, these large breaches affected over 12 million people, and many of those people were affected by breaches at health plans and business associates. Hacking was the cause of many of these breaches, particularly of network servers, although OCR noted other large breaches in 2018, such as the theft of laptops and other electronic media, improper disposal of PHI (where records were simply abandoned in unsecure areas) and the loss of a binder full of PHI.

These reports also provide a primer on what to do in case of a breach, which may help employers in their efforts to comply with HIPAA regulations. Generally, the report reminds covered entities and business associates that they must notify the proper parties in the event of a breach. Covered entities must provide notification of the breach to affected individuals, the Secretary of HHS and, in certain cases, the media. Business associates must notify the covered entity of the breach.

Employers should find this information helpful when formulating and administering their own HIPAA policies.

Compliance Report »
Breach Notification Report »

On November 25, 2020, the IRS updated several FAQs to assist employers in assessing the health plan expenses eligible for a tax credit under the FFCRA. The guidance includes instructions for both insured and self-insured plans.

Under the FFCRA, covered employers are required to provide emergency paid sick leave and expanded FMLA leave to eligible employees who are unable to work or telework due to certain COVID-19-related reasons. The employers are eligible for a payroll tax credit for the amount of the qualified leave wages and the qualified health plan expenses allocable to those wages.

Qualified health plan expenses are amounts paid or incurred by the employer to provide and maintain a group health plan. According to the IRS, these expenses are properly allocated to the leave wages if the allocation is made on a pro rata basis among covered employees and then pro rata on the basis of the time periods of leave coverage.

The FAQs explain that the qualified health expenses generally include both the portion of the cost paid by the employer and the portion paid by the employee on a pre-tax basis. However, employee after-tax contributions are excluded.

The expenses are determined separately for each plan and allocated amongst that plan’s participants. If an employee participates in more than one plan, the allocated expenses of each are combined for that employee.

Employers who sponsor group health plans may use any reasonable method to determine and allocate the plan expenses. For insured plans, these methods may include the COBRA applicable premium for the employee, one average premium rate for all employees, or a substantially similar method that takes into account the average premium rate determined separately for employees with self-only and other than self-only coverage. For self-insured plans, these methods may also include the COBRA applicable premium for the employee or any reasonable actuarial method to determine the estimated annual plan expenses.

The FAQs include instructions and an example for determining the allocable expense amount per day for a covered employee under an insured plan. However, the guidance explains that the calculation would be similar for a self-insured plan using a reasonable actuarial method to assess plan expenses.

Contributions to an HRA (including an individual coverage HRA) or a health FSA may be included in qualified health plan expenses. To allocate contributions to an HRA or a health FSA, employers should use the amount of contributions made on behalf of the particular employee. Qualified health plan expenses do not include contributions to HSAs or QSEHRAs.

Employers may find this IRS guidance helpful in determining the FFCRA qualified health plan expenses eligible for a tax credit.

IRS FAQS on Determining the Applicable Amount of Allocable Qualified Health Plan Expenses »

On November 25, 2020, the IRS updated its FAQs related to the FFCRA tax credit available to employers whose employees receive qualified family leave wages. The term qualified family leave wages is defined as the wages paid to an employee who takes expanded FMLA leave to care for a child whose daycare center or school is closed for reasons related to COVID-19. An eligible employee may receive up to 10 weeks of qualified family leave wages. The employer must pay the employee two-thirds of their regular rate of pay up to $200 per day ($10,000 for the calendar year 2020).

The revised FAQs clarify that the amount paid to the employee is subject to deductions for the employee’s share of Social Security, Medicare and federal income taxes. The employer is eligible to claim a fully refundable tax credit equal to 100% of the wages paid to the employee, including the employer’s share of Medicare tax. Additionally, the employer may claim allocable qualified health expenses, which would include the prorated cost of health coverage provided to the employee during the employee’s leave. This includes the employer’s portion of premium, the employee’s portion of the premium that is paid with pre-tax salary reductions, health FSA contributions and HRA contributions. It does not include contributions to an HSA or QSEHRA. The IRS website includes examples and steps to calculating the allocable qualified health expenses.

IRS FAQS on Determining the Amount of the Tax Credit for Qualified Family Leave Wages »

On December 8, 2020, the DOL finalized the rollover rules for qualified plan loan offset amounts. As background, when a plan loan must be paid immediately (usually due to default or termination of employment) and goes unpaid, the loan is treated as a deemed distribution or a loan offset. The deemed distribution would occur if the participant is able to take a distribution under the plan terms. An offset, or a reduction of the account balance by the unpaid portion of the loan, would occur if the participant is not yet able to take a distribution. Offsets are treated like an actual distribution for rollover purposes, meaning that the offset must generally be rolled over to a qualified retirement plan within 60 days to avoid taxation of the offset amount.

The finalized rule essentially adopted the proposed rule, with one major modification. Specifically, the final rule changes the applicability date of the rule to apply to plan loan offset amounts treated as distributed on or after January 1, 2021. The proposed rule would’ve allowed for applicability immediately following the publication of the final rule. This gives employers additional time to come into compliance with the new regulations since they would first apply when employers file the 2021 Forms 1099-R in early 2022.

Employers should work with their accountant or other service providers to adequately address plan loan offsets for the 2021 year.

Rollover Rules for Qualified Plan Loan Offset Amounts (Final Rule) »

On November 12, 2020, the DOL issued the final rule on pooled plan provider registration requirements. As background, the SECURE Act allows for pooled employer plans (PEPs), which are multiple employer retirement plans that are administered by pooled plan providers (PPPs). PPPs are fiduciaries and are therefore subject to ERISA’s prohibited transaction provisions. (We discussed the proposed rule in the September 3, 2020, edition of Compliance Corner .)

Like the proposed rule, the final rule establishes a registration process for entities that want to offer PEPs. Specifically, entities that are seeking to become PPPs would have to register through an initial registration, supplemental filings in the event of specific events and a final filing after the provider’s PEP has terminated. The final rules clarify a number of requirements, including the following:

• Initial registration must still be filed at least 30 days before the PEP begins operations. However, the final rules got rid of the requirement that registration occur no earlier than 90 days before operations begin. Additionally, filings that are submitted before February 1, 2021, can be filed at any time before operations begin (vs. having to do so at least 30 days in advance).
• PPPs merely have to identify a “responsible compliance official” instead of a “primary compliance officer.” This clarification means that a PPP would not need to create a new position; instead, they could just identify a person who would answer any status or compliance questions posed by the government.
• The deadline for supplemental filings has been extended to the later of 30 days after the calendar quarter in which the reportable event occurred or 45 days after the event.
• The deadline for final filings will be the later of 30 days after the calendar quarter in which the final Form 5500 is filed or 45 days after that filing.

The final rules also highlight the newly provided Form PR and instructions, which PPPs will use for filings. The DOL provided the Form PR and Instructions on November 19, 2020.

The rule took effect on November 16, 2020, upon being published in the federal register. The electronic filing system for pooled plan providers to register became available on November 25, 2020.

Although this rule will not directly affect employer plan sponsors’ responsibilities, they should know PEPs will begin soon. Entities that are looking to operate PEPs should review this finalized rule in preparation of filing. Employers that may be interested in joining a PEP should consult their advisor for more information.

Registration Requirements for Pooled Plan Providers »
DOL News Release »
Form PR and Instructions »

On November 20, 2020, the IRS issued Notice 2020-83, which is the 2020 Required Amendments List (RA List) for qualified retirement plans. The yearly RA Lists provide changes in retirement plan qualification requirements that could result in disqualifying provisions and require a remedial amendment. A disqualifying provision is a required provision that isn’t listed in the plan document, a provision in the document that does not comply with the qualification requirements, or a provision that the IRS defines as such.

The RA List applies to both §401(a) and §403(b) plans and is divided into two parts: Part A and Part B. Part A lists changes in qualification requirements that will require affected plans to be amended under most circumstances. Part B lists changes that would not require amendments to most plans but might require an amendment because of an unusual plan provision in a particular plan.

Notably, there are no Part A changes this year. There are two Part B entries addressing the SECURE Act’s treatment of difficulty of care payments as compensation and the CARES Act’s expansion of the definition of “cooperative and small employer charity pension plan.”

The remedial amendment deadline for disqualifying provisions resulting from items on the 2020 RA List is December 31, 2022 (or later, for certain governmental plans). Therefore, plan sponsors should determine whether amendments are necessary for their retirement plan and work with their service providers to adopt any such amendment.

IRS Notice 2020-83 »