Congress, White House Prep for Next Coronavirus Bill
Congressional leaders and Administration personnel are prepping for expected negotiations on a late July coronavirus crisis response bill. Issues in play include subsidies for health insurance for the unemployed, Paycheck Protection Program (PPP) modifications, employer liability protection, some tax issues, back-to-work pay, and unemployment benefits.
During the week prior to the Fourth of July and the beginning of a two-week Congressional recess, there were multiple hearings in both the House and Senate looking at how well the new coronavirus crisis response laws enacted are working. The hearings—held by the Senate Finance, House Financial Services, and Senate Health, Education, Labor and Pensions (HELP) Committees—also considered what additional new laws may be needed to help the U.S. dig out from the virus-triggered recession.
While Congressional support for another coronavirus crisis response bill is not universal, there does seem to be consensus that another new law should be enacted. However, there is considerable controversy about what the bill should (or should not) include. The key issues include:
Other likely issues that the negotiators will consider include an infrastructure package designed to create jobs, more stimulus payments to individuals, a payroll tax cut for individuals as well as for businesses, and more funds for State and local governments reeling from the cost of their own coronavirus response measures.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at email@example.com, or Michael Hedge – Director – Government Relations, at firstname.lastname@example.org.
PPP Loan Application Extension Enacted into Law
On July 4, President Trump signed into law an extension of the deadline for applying for a Paycheck Protection Program (PPP) loan. The new loan application deadline is August 8, 2020.
Both the House and the Senate passed the measure by unanimous consent (UC).
There are other PPP proposals also pending. One would extend through the end of the year the time during which PPP loans can be applied for. Also proposed is a provision that would allow small current PPP borrowers to apply for a second PPP loan. Another proposal is the Paycheck Program Recovery Draw Act, would make several changes to the program. In late June, that bill was subject to a UC request to pass it in the Senate, but UC was not forthcoming. So, the bill is still pending. It would:
The bill also addresses seasonal employment and lender issues relevant to the PPP. Its provisions would take effect as if they were originally enacted in the CARES Act (i.e., as of March 25, 2020).
Further, after the Treasury Department released information on current PPP loans and borrowers, Congressional eyebrows went way up at the number of loans granted to businesses owned by celebrities, law firms, lobby shops, and even lawmakers themselves. Insiders expect provisions to tighten PPP loan requirements to prevent these kinds of businesses from accessing PPP loans. The PPP still has about $130 billion to lend, so further funding is not a central part of PPP legislative change discussions.
Prospects: The next coronavirus crisis response bill will almost certainly contain PPP provisions. Negotiators – the leadership of Congressional Republicans and Democrats from both the Senate and the House, and the Administration – plan to start hammering out the next bill on or around July 20.
DOL New Fiduciary Rule Applicable to Retirement Advisors Triggers Reaction
On June 29, the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) proposed a new fiduciary rule applicable to retirement advisors that has triggered reaction from both opponents and supporters of the proposal. The proposed new rule is open to comment until the end of the month.
On June 29th, the Department of Labor (DOL) issued a proposed exemption to allow investment advice fiduciaries to receive compensation, including as a result of advice to roll over assets from a Plan to an IRA, that would otherwise violate the prohibited transaction provisions of ERISA and the Code. The proposed class exemption is open to comments for 30 days.
At the same time, the DOL issued a final rule to effect the vacatur of its 2016 fiduciary rule. As you know, NAIFA was one of the parties to the legal action that resulted in the DOL’s fiduciary rule being vacated in total. This final rule reinstates the 5-part test to define investment advice fiduciaries and returns PTE 84-24 to its prior form. This document takes the administrative steps necessary to conform the regulatory text and the text of the previously granted PTEs to the Fifth Circuit’s vacatur mandate.
The proposed exemption applies to properly licensed registered investment advisers, broker-dealers, banks, and insurance companies (Financial Institutions) and their employees, agents, and representatives (Investment Professionals) who provide fiduciary “investment advice” delivered to ERISA Plan (Plan) participants/beneficiaries with authority to direct investments account assets, IRA owners, and fiduciaries of Plans or IRAs (Retirement Investors).
A more complete analysis of the proposal is discussed in the June GovUpdate and in a Memo from NAIFA’s outside counsel, Steptoe & Johnson. Briefly, if the Impartial Conduct Standards (below) are met, the proposed exemption allows invest advice fiduciaries to receive third-party compensation, is product neutral, and allows proprietary products/limited menus with disclosure.
To be considered an investment advice fiduciary, one must satisfy all prongs of the “5-part test” for advice rendered:
Investment advisors must meet these Impartial Conduct Standards:
NAIFA is still reviewing the proposal and in discussions to focus our comments to the DOL. There are certain requirements on financial institutions, definitions surrounding the 5-part test language and acknowledgment of fiduciary status that will likely be addressed in our comments.
Representatives of consumer groups are expressing concern about whether the proposed rules adequately protect retirement investors. They are also questioning whether DOL Secretary Eugene Scalia, who (prior to becoming DOL Secretary) represented the industry in the lawsuit challenging the now-dead DOL fiduciary rule issued in 2016, has a conflict of interest that would require a redo of this proposed rule. These groups are considering challenging this proposed rule, in court or in Congress or both.
Prospects: Comments on the proposed new rule will provide more clarity about whether this rule, like its predecessor, will be challenged in the coming months. And, comments will shed light on whether there are still questions that must be addressed, either in modifications to the proposed rule or in new rulemaking in the future. Further, it is likely that the outcome of the 2020 November elections could turn out to have a significant influence on the possibility of changing this proposed new rule.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at email@example.com
Treasury, SBA Issue Interim Final Rule on PPP Flexibility Act
On June 10, the Small Business Administration (SBA) and Treasury issued an interim final rule governing the new Payroll Protection Program (PPP) Flexibility Act. The new rule fleshes out the modifications and clarifications contained in the PPP Flexibility Act that was signed into law on June 5.
The interim final rule interprets the language of the Act by saying it requires that a maximum of 40 percent of a forgivable PPP loan can be used for non-payroll costs. It further states that where a borrower uses less than 60 percent of the loan proceeds for payroll costs, the borrower will be entitled to partial forgiveness of the loan. This addresses criticism of the Act’s language which appears to require that none of the loan will be forgivable if more than 40 percent of it is used for non-payroll costs. However, there are some that question whether the agencies have the authority to interpret the statute’s language this way. They say that the plain language of the Act requires that no amount of the loan be forgivable if more than 40 percent of the loan amount is used for non-payroll expenses.
The interim final rule also allows a borrower and its lender to mutually agree to extend a PPP loan’s repayment term to five years when the borrower got its loan prior to June 5, 2020. For loans issued after June 5, the loan term is five years. Further, the rule states that post-June 5 PPP borrowers will only be able to use the 24-week covered period, while borrowers who received their loans before June 5 may choose to use either an eight-week covered period or a 24-week covered period.
The rule also clarifies when repayment must begin. For borrowers who apply for loan forgiveness within ten months of the end of their covered period (which can now be up to 24 weeks) no payment of principal or interest is due until the SBA remits the forgiven amount to the lender (or informs the lender that no loan forgiveness is allowed). If the borrower does not submit a forgiveness application within ten months after the end of the covered period, the borrower must begin making payments toward principal and interest at the end of that ten-month period.
Per the interim final rule, the 24-week covered period begins on the date of the loan disbursement (which may be before the date the funds are received by the borrower). The rule also says borrowers that received their PPP loans before June 5 may choose to use the original eight-week covered period, or the newly-enacted 24-week covered period.
The rule also makes clear that borrowers must certify that they are using the funds to “retain workers and maintain payroll.” Further, the rules state that borrowers must state that they understand that a knowing use of the funds for an unauthorized purpose means the government can hold the borrower liable for fraud.
Prospects: More Treasury/SBA regulatory guidance is expected as borrowers transition from applying for loans to applying for forgiveness of the loans. And, Congress is likely to address lingering PPP issues in upcoming legislation.
House Passes ACA Expansion Bill
On June 29, the House passed an Affordable Care Act (ACA) expansion bill, H.R.1425. The bill passed on a partisan vote of 234 to 179. It is a partisan “message” bill that is unlikely to see any Senate action (in fact, Senate Majority Leader Sen. Mitch McConnell (R-KY) said the Senate will not take up the measure).
Among other things, H.R.1425 would restrict short-term limited-duration (STLD) health insurance to three months, overturning the STLD regulation that allows such insurance available for up to one year. It would also bar future regulations that are substantially similar to the STLD regulation the bill overturns.
H.R.1425 would also:
The bill highlights a key election campaign issue. The Supreme Court (SCOTUS) is currently considering a case alleging that the ACA is unconstitutional, due to the repeal of the penalty (a tax, SCOTUS ruled) for failure to comply with the ACA’s individual mandate. Plaintiffs are arguing that because SCOTUS ruled that the ACA’s constitutionality is grounded in Congress’ power to tax the repeal of the individual mandate penalty/tax destroys the constitutional grounds on which the ACA rests. Thus, the States bringing the lawsuit say, SCOTUS must find the entire ACA is unconstitutional.
Prospects: SCOTUS will not resolve the question of the ACA’s constitutionality prior to the November elections, and so access to affordable health care will likely remain an important political issue for the rest of the year. The issue is polling as among the top issues on the minds of voters, who in November will vote to elect both the next President and a new Congress. So, expect considerable debate, although probably no legislative action, on health care access and affordability issues between now and the fall, when Congress adjourns for the elections.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at firstname.lastname@example.org.
IRS Eases Certain Cafeteria Plan, FSA Rules for 2020
Internal Revenue Service (IRS) Notices 2020-29 and 2020-33 allow mid-year election changes to health flexible spending arrangements (FSAs) and dependent care spending accounts (DCFSAs). The Notices also cover high deductible health plans (HDHPs) and also increase the FSA rollover amount.
Generally, Notice 2020-29 allows a plan sponsor to amend its plan to permit mid-year changes in employee elections to contribute to FSAs and DCFSAs. The Notice also extends the end date of health FSA or DCFSA grace periods for using account amounts left over from the 2019 plan year. Further, it allows retroactive relief for HDHP insureds using telehealth services.
Notice 2020-33 increases from $500 to $550 the amount a health FSA account holder can roll over from 2020 to 2021. It also specifies that health plans may reimburse individual policy premium expenses for the current plan year that are incurred prior to the beginning of the plan year.
Prospects: Plans must be amended, if necessary, in order to take advantage of these eased rules. Plan amendments can be retroactive, but must be made by December 31, 2021.
IRS Allows Companies to Reduce Safe Harbor Plan HCE 401(k) Contributions
On June 29, the Internal Revenue Service (IRS) issued Notice 2020-52, guidance allowing companies dealing with coronavirus-related financial hardship to reduce employer matching contributions to safe harbor plans on behalf of highly-compensated employees (HCEs). Generally, Notice 2020-52 allows sponsors of safe harbor 401(k) plans to suspend or reduce HCE contributions by August 31 without violating the plans’ notification requirements.
The Notice says that companies operating at an economic loss after March 13 can adjust their HCE contributions even if the HCEs were not given prior notice, so long as they send out a supplemental notice by August 31. This relief applies to plans that adopted amendments affecting non-elective and matching contributions dating back to March 13. However, impacted HCEs must be provided notice of the reduction or suspension at least 30 days prior to the reduction or suspension taking effect.
Prospects: Note that this relief does not apply to safe harbor plans’ non-highly compensated employee (NHCE) contributions. And further note that notice is still required, at least 30 days in advance, for plans that reduce or suspend non-elective and matching contributions for HCEs.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at email@example.com.
Democrats Introduce Bill to Protect Workers at Bankrupt Companies
On June 25, Sen. Dick Durbin (D-IL) introduced S.4089, a bill to protect employees at companies filing for bankruptcy. A companion bill, H.R.7370, was introduced in the House by Rep. Jerry Nadler (D-NY).
The legislation would restrict executive compensation programs and clarify that “the principal purpose of Chapter 11 bankruptcy is the preservation of jobs to the maximum extent possible,” Sen. Durbin said. It would also establish new rules for payment of workers’ severance pay.
The bill is now pending before each chamber’s Judiciary Committee, the committees with jurisdiction over this legislation. Rep. Nadler chairs the House Judiciary Committee. Sen. Durbin, part of Senate Democrats’ leadership, is a member of the Senate’s Judiciary Committee.
Prospects: Despite sponsorship by key and powerful members of the committees of jurisdiction, this legislation does not appear to have much of any chance for enactment, at least this year. That could change if Democrats win broader power – more votes in the House and/or control of the Senate and/or White House – after the November elections.
NAIFA Staff Contacts: NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at firstname.lastname@example.org, or Michael Hedge – Director – Government Relations, at email@example.com.
IRS Releases Guidance on Claiming FFCRA-Covered Paid Sick Leave
On July 8, the Internal Revenue Service (IRS) issued new guidance on how to report (and claim a payroll tax credit for) Families First Coronavirus Response Act (FFCRA)-paid sick and family leave. Generally, the amount of qualified paid sick leave that is reimbursable to employers (including self-employed persons) under the FFCRA must be reported on Form W-2, Box 14, or on a separate statement.
The FFCRA allows a refundable payroll tax credit as the way to reimburse employers for FFCRA-required coronavirus-related paid sick and Family and Medical Leave Act (FMLA) leave.
Notice 2020-54 states, “Employers must separately state the total amount of qualified sick leave wages paid pursuant to paragraphs (1), (2), or (3) of section 5102(a) of the [Emergency Paid Sick Leave Act (EPSLA)], qualified sick leave wages paid pursuant to paragraphs (4), (5), and (6) of section 5102(a) of the EPSLA, and qualified family leave wages paid pursuant to section 3102(b) of the [Emergency Family and Medical Leave Expansion Act (EFMLEA)]. Employers must separately state each of these wage amounts either on Form W-2, Box 14 or on a separate statement. Self-employed individuals claiming qualified sick leave equivalent or qualified family leave equivalent credits must then report these qualified sick leave and qualified family leave wage amounts on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with their income tax returns, and reduce (but not below zero) any qualified sick leave or qualified family leave equivalent credits by the amount of these qualified leave wages."
Notice 2020-54 is posted at https://www.irs.gov/pub/irs-drop/n-20-54.pdf.
Prospects: Notice 2020-54 reporting requirements must be followed in order to claim the payroll tax credit that will reimburse employers for leave taken for specified coronavirus-related reasons. Accordingly, this Notice is necessary help in the process of claiming these reimbursements.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at firstname.lastname@example.org
Agencies Issue Notice of Proposed Rule Increasing Flexibility for Grandfathered Health Plans
On Friday, July 10, the Department of the Treasury, Department of Labor and Department of Health and Human Services will release a Notice of Proposed Rulemaking (NPRM) to increase flexibility for Grandfathered Group Health Plans with a comment period lasting until August 14, 2020.
In February of 2019, the Departments issued a Request for Information (RFI) regarding grandfathered group health plans and group health insurance coverage in order to understand the challenges that group health plans and group health insurance issuers face in avoiding the loss of grandfather status and determine whether opportunities exist for the Departments to assist plans and issuers in preserving grandfather status.
The comments received, from NAIFA and others, led to the Departments developing a proposed rule that would provide more flexibility for grandfathered group health plans and issuers of grandfathered group health covered. If finalized, the NPRM would make the following changes:
The flexibility that NPRM provides would only be available changes made to plans that are effective on or after the effective date of any final rule issued by the Department of the Treasury, Department of Labor or Department of Health and Human Services.
The agencies are seeking public comment on the NPRM by August 14, 2020.
Prospects: Generally, NAIFA supports any flexibility provided to Grandfathered Group Health Plans. We will review the proposed rules further and plan to submit comments by the August 14 deadline. A favorable final rule is anticipated in the last quarter of 2020.
Ohio Proposes Updates to Suitability in Annuity Transactions
Ohio’s Department of Insurance recently proposed updates to its “3901-6-13 Suitability Annuity Transactions” rule. The proposal is similar to the NAIC’s Suitability in Annuity Transactions Model Regulation that establishes a new standard of conduct that goes beyond the rule’s current suitability standard, but it is not a fiduciary standard.
Under Ohio’s proposed standard of conduct, when making a recommendation of an annuity, a producer or insurer must act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s financial interest. Additionally, the updates set forth four obligations that must be met, amend the supervision requirements for insurers, and extend safe harbor provisions to individuals that meet a comparable standard of conduct – including the SEC’s Regulation Best Interest.
NAIFA submitted a comment letter to the Department of Insurance on June 23. The letter commends Ohio’s leadership role in developing the model revisions. NAIFA was an active participant in the development of the NAIC revisions, and the adoption by the states of these revisions is a top advocacy priority for NAIFA.
The letter asked the DOI to consider two revisions to the Ohio proposal. The first is the deletion of or revisions to the existing exemption for certain direct response solicitations. NAIFA fails to see any public policy rationale for this exemption, as it would allow direct response entities to make certain recommendations of annuities without being required to comply with the rule.
NAIFA also suggested the department revises language regarding how producers are compensated. NAIFA believes the language in Appendix A titled “How I’m Paid for My Work” stating that commissions are paid by the insurer while fees are paid by the consumer will be confusing to consumers and give them the incorrect impression that under one of the scenarios the consumer plays no part in compensating the agent.
NAIFA Staff Contact: Gary Sanders – Counsel and Vice President, at email@example.com
Georgia Senate Passes Bill to Positively Impact Agent Commission Rates
The Georgia State Senate recently passed HB 716 which rectifies one of the unintended consequences of the Medical Loss Ratio provisions of the Affordable Care Act - the degradation and even elimination of health insurance agents’ commissions.
Rep. Shaw Blackmon, a small business owner, sponsored the bill. Blackmon has worked for years to protect health insurance agents following the lead on legislation carried by the late John Meadows (R-Calhoun), a NAIFA member.
This bill requires carriers to file their commissions as part of their rate filings and gives the Insurance Commission the power to enforce them.
“NAIFA-Georgia was extremely pleased to see HB 716 pass the Senate unanimously,” said Brad Carver, NAIFA-Georgia’s lobbyist. “It is a win for our health insurance agents who badly needed relief until we can get bipartisan federal health care reforms done in Washington, DC. We at NAIFA-Georgia are proud of Rep. Blackmon for his leadership on this important issue.”
NAIFA Staff Contact: Julie Harrison – State Chapter Director – Government Relations, at firstname.lastname@example.org