2020 Stimulus Invoice Brings Extra Adjustments To Employee Profit Plans – Employment and HR

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Posted in NH Bar News (02/17/2021)

On December 27, 2020, President Trump signed the 2020 COVID-related Tax Relief Act, which is part of HR 133, the Consolidated Appropriations Act of 2021 (the “Act”). Although the initial political focus was on whether the law’s $ 600 per single direct payment was enough, the 5,593-page piece of legislation contains numerous provisions that will affect employer-sponsored retirement plans for years to come. The law follows the SECURE Act of 2019 and the CARES Act of 2020 by making material changes to the Tax Code and other federal laws that affect benefit plans. Below are some of the key provisions related to social plans, retirement plans, and other employer-provided benefits.

Welfare plans

The Act provides a number of temporary changes to the rules for the Section 125 Flexible Spending Agreements for Cafeteria Plans (“FSAs”) and the Flexible Spending Agreements for Dependent Care (“DCSAs”). The law codifies and expands the rules set out in IRS Notice 2020-29 for 2020 and expands them through 2021. Employers may allow employees to withdraw unused benefits or contributions that remain in FSAs and DCSAs from 2020 through 2021 and from Transfer from 2021 to 2022 Employers are also permitted to extend the grace period for a plan year ending in 2020 or 2021 to 12 months after the end of the respective plan year, specifically with regard to unused services or contributions that are based on a FSA or DCSA accounts remain. Employers are also allowed to allow employees to change the FSA or DCSA elections in 2021 without a change of status, and reimbursement of unused FSAs for former employees who stop participating in a plan in calendar year 2020 or 2021 – Services or contributions through the end of the plan year in which participation was discontinued (including any grace period). The law also includes a special carryover rule for DCSAs where the dependents have aged during the pandemic. Cafeteria plans require retrospective changes to incorporate the FSA and DCSA changes. However, changes must be made at the earliest at the end of the planning year 2021.

In addition to the changes to the FSAs and DCSAs, the law contains numerous changes to the social security plan to ensure greater cost transparency and improve the results of the employee health plan. For example, the law contains several provisions prohibiting health insurers and insurers from entering into contracts that receive the cost and quality of care information from plan participants, employers, or referring providers. The law requires the disclosure of direct and indirect compensation to brokers and consultants to employer-sponsored health plans and participants in individual market plans. In addition, Section 9816 of the Tax Code has been added, which stipulates that group plan plans for plan years beginning January 1, 2022 must implement procedures to prevent surprise medical bills normally associated with medical providers outside the network in the event of an emergency or in Other cases encountered issue forcing the provider to use outside the network.

retirement provision

The act gives employers an exemption from the rules for partial termination of the plan under Section 411 (d) (3) of the Tax Code, which requires that the pension plan accounts be completely blocked if the plan is partially terminated. Typically, a partial termination determination is a factual and circumstance determination made after the plan year, assuming partial termination, when a plan experienced a 20% drop in attendance. The law provides that a plan will not be treated as partially canceled during a plan year that includes the period beginning March 13, 2020 and ending March 31, 2021 if the number of active participants covered by the plan on March 31, 2020. March 2021 represents at least 80% of the number of active participants who were covered by the plan on March 13, 2020.

The law also enacted rules for the distribution, loan, and reimbursement of disaster control plans for retirement plans previously incorporated into the tax code in response to previous disasters. According to this version of disaster relief, “qualified disasters” include those that occur after December 28, 2019 and are declared as disasters by the President. Individuals residing in a disaster area can make plan distributions up to US $ 100,000 without being subject to 10% early distribution tax laws and can repay the amount distributed over a three-year period. In addition, the credit limit for qualifying plan loans will be increased from $ 50,000 to $ 100,000 for those living in a disaster area, and the repayment period will also be extended by one year for new and outstanding pension plan loans. The COVID-19 pandemic is not a qualified disaster for these purposes.

Student loan payments and paid family and sick leave

The act extends the previous provision of the CARES Act that allows employers to make tax-free payments of up to $ 5,250 on student loans from employees through the end of 2025. To take advantage of this provision, an employer must adopt a plan that complies with Section 127 tax legislation. The law extends the tax credit for paid family and sick leave, which expires on December 31, 2020 through 2025. The credit is 12.5% ​​of the eligible wage if the payment rate is 50% of this wage and is increased by 0.25 percentage points (but not more than 25%) for each percentage point at which the payment rate exceeds 50%. The maximum amount of family and medical leave that can be taken into account in relation to a qualified worker is 12 weeks per tax year.

In summary, the act continues the recent trend in Congress in the SECURE Act and the CARES Act to enact new rules and benefits that will benefit affected employees. Employers need to review these regulations to determine which optional regulations should be implemented for their workforce and to understand the implications of any new mandatory regulations.

The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.

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