IRS Publishes More Guidance Related to COVID-19:

The IRS has issued three new pieces of guidance for retirement plan sponsors, as a result of COVID-19.

First, the IRS issued Notice 2020-50 (“2020-50”) on June 19, 2020. 2020-50 expands on the distribution and loan provisions set forth in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. (See the April edition of this newsletter for a summary of CARES Act provisions that relate to retirement plans.) Here are the highlights of 2020-50:

• Several types of individuals have been added to the list of plan participants who can receive a special distribution or plan loan under the CARES Act. Specifically, participants who experience adverse financial consequences as a result of: (1) their own pay reduction, job offer being rescinded, or job start date being delayed because of COVID-19; (2) their spouse or household member being quarantined, furloughed or laid off, having work hours reduced, being unable to work because of lack of childcare, having a pay reduction, or having a job offer rescinded or a job start delayed because of COVID-19; and (3) the closing or reduced hours of a business owned or operated by the participant’s spouse or household member because of COVID-19. Plan sponsors that have added, or will add, CARES Act distribution and/or loan provisions to their plan should notify participants about these new eligibility rules.   
• Certain distributions cannot be treated as CARES Act distributions (e.g., excess elective deferrals under section 402(g) of the Internal Revenue Code (the “Code”); excess contributions resulting from an ADP or ACP test failure; loans that are treated as deemed distributions).
• CARES Act distributions can be made to qualified participants without regard to the participants’ need for funds. In other words, the distribution amount does not have to correspond to the extent of participants’ adverse financial consequences resulting from COVID-19.
• Any CARES Act distribution paid to a qualified individual as a beneficiary of a participant or an IRA owner (other than the surviving spouse of the employee or IRA owner) cannot be recontributed to an eligible retirement plan.
• The rules for eligible rollover distributions do not apply to CARES Act distributions. For example, the plan administrator is not required to provide a Code section 402(f) notice. As another example, the payor of the distribution is not required to withhold an amount equal to 20% of the distribution.
• Per May 4, 2020 IRS Q&As, the administrator of an eligible retirement plan can rely on an individual’s certification that he or she satisfies the conditions to be a qualified individual in determining whether a distribution is a coronavirus-related distribution, unless the administrator has actual knowledge to the contrary. 2020-50 provides that such “actual knowledge” requirement does not mean that the administrator must inquire into whether an individual has satisfied those conditions. Rather, that requirement “is limited to situations in which the administrator already possesses sufficiently accurate information to determine the veracity of a certification.”
• A plan administrator that accepts the recontribution of a CARES Act distribution can rely on an individual’s certification that the individual is eligible to make that recontribution, unless the administrator has actual knowledge to the contrary.
• The CARES Act states that if a participant has an outstanding plan loan on or after March 27, 2020, and if the due date for any repayment occurs from March 27, 2020 to December 31, 2020, the due date shall be delayed for 1 year. Per 2020-50, plan administrators do not have to require a delay in such plan loan repayments.

Second, the IRS issued Notice 2020-51 (“2020-51”) on June 23, 2020. 2020-51 provides guidance regarding the CARES Act’s waiver of 2020 required minimum distributions (“RMDs”) by:

• Allowing rollovers of waived RMDs and certain related payments. In particular, the following distributions from a plan (other than a defined benefit plan) can be rolled over: (1) distributions to a plan participant paid in 2020 (or paid in 2021 for the 2020 calendar year, for an employee with a required beginning date of April 1, 2021) if the payments equal the amounts that would have been RMDs in 2020 (or for 2020) but for the CARES Act; (2) for a plan participant with a required beginning date of April 1, 2021, distributions that are paid in 2021 that would have been an RMD for 2021 but for the CARES Act. 
• Answering questions relating to the waiver of 2020 RMDs (e.g., the CARES Act does not affect an individual’s required beginning date; the CARES Act waives the RMD for 2020 even if an employee’s required beginning date is April 1, 2021).
• Providing a sample plan amendment for defined contribution plans that, if adopted, would provide participants with a choice of whether to receive waived RMDs and certain related payments. The amendment’s design generally follows the design of pre-approved plans, but it can be modified for individually designed plans.
• Providing transition relief for plan administrators and payors in connection with the change in required beginning date for RMDs under the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”), which was enacted on December 20, 2019. (See the January 2020 edition of this newsletter for a summary of the SECURE Act.) In this connection, to assist participants who have already received distributions in 2020 that would have been RMDs but for the SECURE Act or the CARES Act, 2020-51 extends the 60-day rollover period for certain payments so that the deadline for rolling over such a payment will not expire before August 31, 2020.

Third, the IRS issued Notice 2020-52 (“2020-52”) on June 29, 2020. 2020-52 addresses mid-year reductions or suspensions of contributions to safe harbor 401(k) and 403(b) plans.

Under 2020-52, a mid-year change that reduces safe harbor contributions only for “highly compensated employees” (“HCEs”), as defined in Code section 414(q), does not constitute a reduction or suspension of safe harbor contributions. However, such a mid-year change would constitute a mid-year change to a plan’s required safe harbor notice content. Therefore, an updated safe harbor notice and deferral election opportunity must be provided to HCEs to whom the mid-year change applies. That is determined as of the date the updated safe harbor notice is issued.

2020-52 also provides temporary relief with respect to a reduction or suspension of safe harbor contributions, in order to “provide employers with more flexibility during the COVID-19 pandemic, while retaining certain existing participant protections.” Under that relief:

• If a plan amendment that reduces or suspends safe harbor matching or nonelective contributions during a plan year is adopted between March 13, 2020 and August 31, 2020, the plan will not be treated as failing to satisfy the requirement that the employer either: (1) is operating at an economic loss for the plan year; or (2) included certain language in the plan’s safe harbor notice for that plan year (e.g., a statement that the plan can be amended during the plan year to reduce or suspend the safe harbor contributions). However, at least 30 days before the reduction or suspension becomes effective, safe harbor matching contribution plans must provide a revised safe harbor notice explaining the reduction or suspension.    
• If a plan amendment that reduces or suspends safe harbor nonelective contributions during a plan year is adopted between March 13, 2020 and August 31, 2020, the plan will not be treated as failing to satisfy specific notice requirements merely because a supplemental notice is not provided to eligible employees at least 30 days before the reduction or suspension becomes effective. For that relief to apply, however, the supplemental notice must be provided to eligible employees no later than August 31, 2020, and the plan amendment that reduces or suspends safe harbor nonelective contributions must be adopted no later than the effective date of those contributions’ reduction or suspension.

Note that 2020-52 does not provide relief from the following rule: if safe harbor contributions are reduced or suspended, the plan must pass ADP testing (and ACP testing, if applicable) for the plan year in which the reduction or suspension occurs.