Public companies maintaining deferred compensation arrangements for their executive officers should consider how recent changes to the regulations under Section 162(m) of the Internal Revenue Code (the Code) may impact the timing of payments to be made to participants and their beneficiaries under such plans – if action is required, the affected plans must be amended before December 31, 2020 to avoid complications or penalties.
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IRS, EBSA and PBGC Provide Further COVID-19 Relief for Benefit Plans
As part of the federal government’s response to the COVID-19 pandemic, the Internal Revenue Service (IRS), the Employee Benefits Security Administration (EBSA), and Pension Benefit Guaranty Corporation (PBGC) have recently provided relief to benefit plan sponsors by moving back certain upcoming plan compliance deadlines. See further below for a detailed list of the specific relief. IRS Notice 2020-23 provides that if any deadline would occur between April 1 and July 14, that deadline is automatically moved back until July 15, 2020, and this extension applies to a list of 44 employee benefit plan-related deadlines. The IRS notice triggered the PBGC’s disaster relief policy, which automatically extends certain PBGC deadlines that occur in the same April 1 to July 14 time period to July 15, 2020.
Additional relief was announced on April 28, in the form of a joint notice ( Joint Notice) issued by EBSA, IRS and the Treasury Department, which extended a number of deadlines for benefit plans and participants in accordance with CARES Act changes to ERISA Section 518. The Joint Notice’s relief applies to the “Outbreak Period,” the length of time beginning on March 1, 2020, and ending 60 days after the announcement that the COVID-19 National Emergency is over. On the same day, EBSA issued Disaster Relief Notice 2020-01 (Disaster Relief Notice). The Disaster Relief Notice clarified EBSA’s enforcement stance on certain fiduciary duties that plan sponsors have by extending deadlines. The Disaster Relief Notice also stated that the Outbreak Period extension, described in the Joint Notice, also applies to the distribution timelines for notices, disclosures, and other documents that Title I of ERISA requires plans to distribute to participants and beneficiaries. EBSA also released an FAQ which explains some of the relief provided by the Joint Notice and Disaster Relief Notice.Continue Reading IRS, EBSA and PBGC Provide Further COVID-19 Relief for Benefit Plans
The IRS Provides Updated Guidance on Hardship Distributions
The Internal Revenue Service (IRS) recently issued updated audit guidelines for its agents regarding the substantiation requirements for hardship withdrawals from 401(k) and 403(b) plans. This guidance is welcome news for plan sponsors who rely on third party administrators to process participants’ requests for hardship withdrawals, as it relaxes previous IRS guidance which (1) required plan sponsors to obtain and store copies of the actual source documents (e.g., medical bills, cancelled checks, etc.) that established a participant’s request for a hardship withdrawal and (2) did not permit participant self-certification of hardship withdrawal requests.
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Recent IRS Guidance Under Section 83 of the Internal Revenue Code Clarifies the Definition of a “Substantial Risk of Forfeiture”
Under Section 83, of the Internal Revenue Code (the “Code”) restricted stock and other property that is transferred to a service provider (e.g., an employee or director) for services is taxable when the service provider’s rights in the property are no longer subject to a substantial risk of forfeiture. The Department of Treasury recently issued final regulations under Section 83 that clarify what events constitute a “substantial risk of forfeiture.” The final regulations provide that a substantial risk of forfeiture may be established only if a service provider’s rights in transferred property are either (i) conditioned on the performance, or refraining from performance (e.g., as a result of a non-competition agreement), of substantial services, or (ii) subject to a condition related to the purpose of the transfer (e.g., performance-based awards). In addition, to determine if a substantial risk of forfeiture exists, both the likelihood that a forfeiture event will occur and the likelihood that it actually will be enforced must be established by the underlying facts and circumstances.
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