The recently enacted coronavirus economic relief package, the American Rescue Plan of 2021 (“ARPA”), contains the most significant changes in fifteen years to the funding rules of single employer pension plans.  These changes have largely has fallen under the radar of the national press – an outcome disappointing perhaps only to ERISA nerds.  The little press addressing the pension provisions of ARPA mostly has been focused on the financial relief the legislation provides to troubled multiemployer pension plans — which, as we discuss elsewhere, have major implications for employers that participate, or are considering whether to participate, in a multiemployer plan.

Nevertheless, the significant changes to the single-employer plan funding rules warrant the attention of any employer that sponsors a single-employer defined benefit plan.  While the new law may significantly reduce the amount of contributions to pension plans that are required by law, reducing contributions may have other consequences that employers may wish to weigh.

Continue Reading To Fund or Not To Fund: Considerations for Employers Impacted by Recent Changes to Pension Plan Funding Rules

Effective March 29, 2021, California employers with more than 25 employees must provide up to 80 hours of paid sick leave for certain COVID-19-related reasons.  The new law, Senate Bill 95 (adding Labor Code Sections 248.2 and 248.3), is retroactive to sick leave taken beginning January 1, 2021.  The law will expire on September 30, 2021.

Last year, California enacted a COVID-19 paid sick leave law that applied to employers with 500 or more employees, and which expired on December 31, 2020.  The new California COVID-19 supplemental paid sick leave law (“Supplemental Sick Leave”) requires any business with more than 25 employees to provide Supplemental Sick Leave that is in addition to paid sick leave that the employee is already entitled to under other applicable laws (or previously took under the prior California COVID-19 sick leave law).

Full-time employees are entitled to 80 hours of Supplemental Sick Leave, and part-time employees are entitled to an amount of leave that correlates with: (1) the number of hours the employee regularly works over a two-week period, or (2) if the employee works a variable number of hours, 14 times the average number of hours the employee worked each day in the six months preceding the date the employee took Supplemental Sick Leave.

Continue Reading California Employers Required to Provide COVID-19 Supplemental Paid Leave, Retroactive to January 1, 2021

Effective March 12, 2021, all public and private employers in New York must provide each employee with up to four hours of paid leave to obtain a COVID-19 vaccine injection.  The new law, which took effect immediately after being signed by Governor Cuomo, adds a new Section 196-c to the New York Labor Law and Section 159-c to the New York Civil Service Law.

Employees are entitled to paid leave, at their regular rate of pay, for a “sufficient period of time, not to exceed four hours per vaccine injection,” unless the employee is entitled to receive a greater number of hours under an existing employer policy or collective bargaining agreement.  Accordingly, employees who must take two doses of a COVID-19 vaccine are entitled to take up to eight hours (i.e., four hours per injection) of leave.  The paid leave provision expires on December 31, 2022.

Continue Reading New York Employers Now Required to Provide Paid Leave to Take COVID-19 Vaccine

Effective for taxable years beginning after December 31, 2017, section 4960 of the Internal Revenue Code imposes a tax at the corporate income tax rate (currently 21 percent) on two types of compensation paid by applicable tax-exempt organizations (ATEOs) to their covered employees.  An ATEO’s covered employees generally include its five highest paid employees for a year plus all individuals determined to be covered employees for a preceding year.

  • The two types of compensation are—
    • Remuneration (generally, wages for purposes of federal income tax withholding) in excess of $1,000,000 paid by an ATEO or its related organizations for a year with respect to employment of any covered employee.
    • Any “excess parachute payment” paid by an ATEO or related organization to any covered employee.
  • Granting a legally binding right to nonvested remuneration counts as “paying remuneration.”
  • See here for our previous blog post on the basics of the statute.

Treasury and the IRS published interim guidance on December 31, 2018 (Notice 2019-9), proposed regulations in June 2020, and final regulations in January 2021. In reponse to the interim guidance, several comments raised concerns about the treatment of an employee of a taxable employer who spends some of his or her time providing services to a related ATEO. Under one reading of the statute and interim guidance, such an employee might be treated as a “covered employee” whose compensation is subject to the excise tax under § 4960 even if the employee receives no compensation from the ATEO. The IRS and Treasury responded by including several helpful exceptions in the proposed regulations. The exceptions remain largely unchanged in the final regulations.

  1. Who are an ATEO’s employees under the final regulations?

Under the final regulations, an ATEO’s employees generally include its common-law employees and its officers. Whether an individual providing services to an ATEO is a common-law employee of the ATEO depends on the facts and circumstances, most significantly the type and degree of control the ATEO has over the individual’s performance of services. An officer of an ATEO is treated as its employee regardless of the common-law standard. This definition generally would pick up any employee of a taxable employer who serves as an officer of a related ATEO or who performs services for the ATEO as a common-law employee.

  1. Who are an ATEO’s covered employees under the final regulations?

Subject to certain exceptions, described below, the “covered employees” of an applicable tax-exempt organization are the organization’s five highest compensated employees for the taxable year and any employees who were covered employees for any preceding taxable year beginning after December 31, 2016. This means that if an employee is a covered employee for one year, the employee will be a covered employee for all future years. This is sometimes referred to as the “once a covered employee, always a covered employee” rule. Compensation paid to an ATEO’s employee by related organizations is aggregated with any compensation paid by the ATEO for purposes of determining whether an individual is a covered employee of an ATEO.

  1. What exceptions do the final regulations provide for determining an ATEO’s covered employees that might apply to an employee of a related taxable entity?

The final regulations allow certain employees to be disregarded in determining an ATEO’s five highest-compensated employees for a year. These exceptions apply only to the current-year prong of the definition of “covered employee.” They do not preclude an individual from being a covered employee under the “once a covered employee, always a covered employee” rule.

  • Limited hours exception. This exception applies to an individual in determining an ATEO’s five highest compensated employees for a year if all of the following remuneration and service requirements are met:
    • Neither the ATEO nor any related ATEO paid remuneration to the individual for services the individual performed as an employee of the ATEO during the applicable year. (For this purpose, a payment from a related organization that is not an ATEO would be treated as a payment from an ATEO if the non-ATEO is entitled to reimbursement or other consideration from the ATEO for the payment.)
    • The individual performed services as an employee of the ATEO and all related ATEOs for no more than 10 percent of the total hours the individual worked as an employee of the ATEO and any related organizations during the applicable year. This determination can be based on days worked instead of total hours worked. This requirement is deemed to be satisfied if the individual performs no more than 100 hours of service as an employee of the ATEO and all related ATEOs during the applicable year.
  • Nonexempt funds exception. This exception applies to an individual in determining an ATEO’s five highest compensated employees for a year if all of the following requirements are met:
    • Neither the ATEO , nor any of certain related organizations, paid remuneration to the individual for services the individual performed as an employee of an ATEO during the applicable year and the preceding applicable year. (For this purpose, a payment from a related organization that is not an ATEO would be treated as a payment from an ATEO if the non-ATEO is entitled to reimbursement or other consideration from the ATEO for the payment.)
    • The individual performed services as an employee of the ATEO and any related ATEOs for 50 percent or fewer of the total hours worked as an employee of the ATEO and any related organizations during the applicable year and the preceding applicable year (i.e., a rolling two-year measurement period). This determination can also be based on days worked instead of total hours.
    • No related organization that paid remuneration to the individual during the applicable year and the preceding applicable year provided services for a fee to the ATEO, to any related ATEO, or to any taxable related organization controlled by the ATEO or by one or more related ATEOs, either alone or together with the ATEO, during the applicable year and the preceding applicable year.
  • Limited services exception. This exception applies to an individual in determining an ATEO’s five highest compensated employees for a year, even though the ATEO paid remuneration to the individual, if all of the following requirements are met:
    • The ATEO did not pay 10 percent or more of the individual’s total remuneration for services performed as an employee of the ATEO and all related organizations during the applicable year.
    • Either (1) a related ATEO paid at least 10 percent of the remuneration paid by the ATEO and any related organizations during the applicable year, or (2) no related ATEO paid at least 10 percent of the total remuneration paid by the ATEO and any related organizations and the ATEO paid less remuneration to the individual than at least one related ATEO during the applicable year.
  1. For which taxable years do the final regulations apply?

The final regulations apply to taxable years beginning after December 31, 2021. Taxpayers are permitted to apply the final regulations for earlier taxable years if they apply them in their entirety and in a consistent manner.

Section 9501 of the American Rescue Plan Act, 2021 (“ARPA”) provides for a complete COBRA premium subsidy for all Assistance Eligible Individuals beginning on April 1, 2021, and ending on September 30, 2021. This article discusses who qualifies as an Assistance Eligible Individual, the impact of the relief on such individuals, the impact of the relief on the COBRA maximum coverage period, the additional requirements imposed on employers in connection with the relief, and how employers may receive reimbursements for the subsidy from the federal government.

Continue Reading Special Mandatory COBRA Subsidy in 2021 for Involuntarily Terminated Employees

As we discussed in our previous blog post, Temporary Relief Allows Flexible Spending Arrangements to be More Flexible, Section 214 of the Consolidated Appropriations Act, 2021, Pub. L. 116-260 (the “Act”), allows employers to offer an extended use-it-or-lose-it and/or extended spend-down periods during which participants in a health flexible spending arrangement (“ health FSA”) may have access to unused health FSA amounts until the end of the subsequent plan year and/or after they terminate participation in the health FSA mid-year, respectively. In certain cases, access to unused health FSA amounts can make an individual ineligible to contribute to a health savings account (an “HSA”).

Continue Reading Preserving HSA Eligibility With An Extended Health FSA Use-It-Or-Lose-It Period

Section 214 of the Consolidated Appropriations Act, 2021, Pub. L. 116-260 (the “Act”), allows sponsors of health and dependent care flexible spending arrangements (“FSAs”) to delay forfeitures of unused account balances for 2020 and 2021 plan years and grant participants, including former participants, more time to spend down account balances. Section 214 and implementing guidance also give employers another opportunity to allow participants to change their elections with respect to FSAs and health plans. On February 18, 2021, the Internal Revenue Service (“IRS”) issued IRS Notice 2021-15 to help explain and expand the parameters of this relief.

Continue Reading Temporary Relief Allows Flexible Spending Arrangements to be More Flexible

On January 12, 2021, the Employee Benefits Security Administration (“EBSA”) of the Department of Labor (“DOL”) announced new guidance on a range of issues related to missing participants:

  • In Missing Participants – Best Practices for Pension Plans, EBSA has provided examples of best practices that it has identified as being effective at minimizing and mitigating the problem of missing or nonresponsive participants.
  • This new guidance also includes Compliance Assistance Release No. 2021-01, which provides a roadmap of investigative processes and case-closing practices of EBSA investigators who conduct Terminated Vested Participants Project (“TVPP”) audits of defined benefit pension plans. One purpose of these audits is to assess whether defined benefit plans have taken appropriate steps to locate missing participants and beneficiaries.
  • EBSA also issued Field Assistance Bulletin No. 2021-01, which announced the DOL’s temporary enforcement policy on a terminated defined contribution plans’ use of the Pension Benefit Guaranty Corporation’s expanded missing participants program.

This article focuses on the guidance for ongoing plans (and not Field Assistance Bulletin 2021-01 for terminated plans).

Continue Reading Five New Ways That Plan Fiduciaries May Locate Missing Participants

Effective January 1, 2021, California employers will be required under Assembly Bill (AB) 685 to provide detailed notices to employees when there is a COVID-19 case in the workplace and to notify local public health departments of COVID-19 “outbreaks” in the workplace.  California employers should begin assessing their practices now to ensure that they will be ready to comply with AB 685 come January 1.

Below is a summary of the key requirements under AB 685 and recent California Department of Public Health (CDPH) guidance on AB 685, including FAQs and definitions.

Continue Reading California’s AB 685 Expands Employers’ COVID-19 Notification Requirements, Effective January 1

On November 30, 2020, emergency temporary COVID-19 workplace standards (“ETS”) issued by the California Division of Occupational Safety and Health (“Cal/OSHA”) took effect.  The ETS, which requires stringent workplace protocols intended to curb the spread of COVID-19, applies to all California employers, other than those subject to the Cal/OSHA Aerosol Transmissible Disease standard or those with only one employee at the workplace who does not have contact with others.  Under the ETS, employers must adopt and implement a comprehensive COVID-19 prevention program that includes identification and correction of COVID-19 risks, employee screening, investigation of cases, use of face coverings and other protective equipment, exclusion of exposed employees, and provision of free COVID-19 testing in certain circumstances, among other requirements.  The ETS also mandates testing and other action when there are multiple infections or an “outbreak” in a workplace.

Cal/OSHA promptly published a “Frequently Asked Questions” document (“FAQs”), a one-page summary of the ETS, and a Model Prevention Plan.  These documents shed additional light on the ETS and how it might be enforced.

Below is an overview of the key takeaways from the new ETS and subsequent Cal/OSHA publications.

Continue Reading California Employers Must Comply with New Cal/OSHA COVID-19 Workplace Safety Standards