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IRS Allows Electronic Signatures for Emergency 401(k) Withdrawals
IRS Defers Certain Tax-Advantaged Plan Filing Deadline to July 15
Congress Still Working on Next Coronavirus Response Bill, but Pace Slows
Congressional leadership and the White House say they expect to enact another coronavirus response bill by late July. Top-tier issues include business liability protection, help with health insurance costs for the unemployed, unemployment benefits, and funding for State and local government coronavirus response efforts.
Signs that the economy may be recovering more quickly than anticipated from the shock of the coronavirus-required nationwide shut-down have slowed legislative action aimed at cushioning people and businesses from the impact of the shut-down. However, there is bipartisan and widespread (but by no means unanimous) agreement that the federal government must do more to contain the adverse economic fall-out.
NAIFA’s priority issues include help for the 42 million newly-unemployed individuals with the cost of health insurance, improved retirement savings rules, and fixes to two life insurance rules—one would fix a tax code (section 7702) definition of life insurance interest rate issue, and the other would recharacterize insurer-held bonds as ordinary rather than capital assets. Also of importance is the issue of shielding businesses from lawsuits claiming the businesses are responsible when someone contracts COVID-19 from an unsafe business environment. Here is a rundown of how those issues seem to be developing currently.
Also, among NAIFA’s priorities is the proposal to recharacterize life insurer-held bonds as ordinary rather than as capital assets. This change is needed to match insurer-held assets with insurers’ liabilities from losses from investments hit hard by the coronavirus crisis. This provision is not in the House-passed Heroes Act, but lobbying continues to add it first to the Senate package, and then to include it in the compromise House-Senate final version of the next coronavirus response bill.
Congressional priorities include addressing the potential continuing need for unemployment benefits—the House-passed Heroes bill extends the CARES Act’s $600/week federal supplemental unemployment benefit through the end of the year. Senators and some House GOP lawmakers prefer some kind of “back-to-work” benefit rather than an extension of the current program.
President Trump wants the next bill to include a payroll tax cut—probably through a temporary suspension of the payroll tax, restoration of full deductibility for business meals and entertainment, and an infrastructure package.
Another set of topline issues includes funding for State and local governments—to address coronavirus response efforts and/or to pay for remote voting processes. There will also be debate about whether to include money for the struggling U.S. Post Office, for expanded broadband access, and for literally dozens of other special rules that are the subject of intense lobbying by affected industries and interests.
Prospects: It is very likely that current prospects on any given issue will change as economic numbers show the economy recovering or stalling over the next few weeks. But as of now, it appears that the new bill will total around $1 trillion, and that it will include business liability protection, help for the unemployed with health insurance, changes to the federal unemployment benefits program, and additional “emergency” funding for State and local governments. Prospects for the life insurance tax rules are murkier—it is possible one or both will be included in the final agreement, but far from certain. It is looking less likely that the next bill will include many, if any, of the retirement savings provisions.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
SBA and Treasury Announce New and Revised Guidance Regarding the Paycheck Protection Program
Protection Program Flexibility Act (PPPFA) and expands eligibility for businesses with owners who have past felony convictions.
The PPP Flexibility Act, signed into law on June 5, changes some PPP rules, including:
In addition, as an exercise of SBA’s policy discretion in furtherance of President Trump’s leadership and bipartisan support on criminal justice reform, the eligibility threshold for those with felony criminal histories has been changed. The look-back period has been reduced from 5 years to 1 year to determine eligibility for applicants, or owners of applicants, who, for non-financial felonies, have (1) been convicted, (2) pleaded guilty, (3) pleaded nolo contendere, or (4) been placed on any form of parole or probation (including probation before judgment). The period remains 5 years for felonies involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance. The application also eliminates pretrial diversion status as a criterion affecting eligibility.
SBA issued revised PPP application forms to conform to these changes. SBA will issue additional guidance regarding loan forgiveness and a revised forgiveness application to implement the PPPFA in the near future.
There is a loan forgiveness application currently available—on May 16, the SBA and Treasury released a form and instructions for applying for forgiveness of PPP loans. Updated guidance, covering how to calculate the reductions and exemptions that help determine the amount of a PPP loan that can be forgiven, and also the lender review process, was issued on May 23. The new loan forgiveness guidance will modify these rules to reflect the PPPFA changes.
Additional Resources:
Prospects: It will likely take at least a couple of weeks before the loan forgiveness forms are released.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org or Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
DOL Sends New Fiduciary Rule to White House for Review
The Department of Labor (DOL) has sent to the Office of Management and Budget (OMB) for review its long-awaited proposed new fiduciary rule. DOL has indicated that it will align, at least to a considerable degree, with the Securities and Exchange Commission’s (SEC’s) investment advice rules, including Regulation Best Interest, (Reg BI).
There is no firm information on what the new rule will contain, but conversations with agency personnel (the Employee Benefits Securities Administration (EBSA). There are also indications that EBSA was considering a reversion to rules substantially similar to the old five-part test rules that date back to 1975. Modifications that may be made to those rules include rollover situations. It is unclear whether the new proposed rule will encompass IRAs—a sore point in the now-dead fiduciary rule promulgated by EBSA in 2017 and killed by the courts in 2018.
Prospects: EBSA’s newly-proposed fiduciary rule must be approved by the Office of Management and Budget’s (OMB’s) Office of Information and Regulatory Affairs (OIRA) before EBSA can release it. It usually takes OIRA a month to six weeks to complete its review process, but there is no set deadline by which OIRA must finish and send the proposed regulation back to DOL. Once OIRA approves the proposed rule, it goes back to EBSA for release.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org
DOL Releases Final Rule Allowing Electronic Delivery of Benefits Statements
On May 21, the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) finalized an electronic disclosure rule. The new final reg will allow plan participants to choose to receive their benefits statements on paper, but in the absence of such a choice, plan sponsors may now deliver required benefits statements via email or by publishing them online.
EBSA officials say the new electronic disclosure guidance “enables employers to make better use of modern technology,” while preserving plan participants’ right to choose to receive their benefits statements on paper by mail instead of by email or website delivery. EBSA estimated that the electronic delivery rule will save plan sponsors $3.2 billion (over 10 years) in material, printing and mailing costs.
The final regulation states that if plan administrators cannot resolve issues with invalid email addresses, the affected plan participants must be treated as if they had opted out of electronic delivery (thus requiring sending benefits statements and other disclosures and notices on paper by mail).
The final rule takes effect August 21.
Prospects: Additional electronic delivery guidance covering participant notices is expected from the Treasury Department in the near future.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org
DOL OKs Private Equity Option for 401(k) Plans
On June 3, the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) released an information letter that allows 401(k) plans to include private equity in diversified investments such as target-date funds. The information letter resolves plan sponsor concerns that such investments could create fiduciary issues for them.
The information letter was written to a Washington, DC law firm (the Groom Law Group), who had sent in an inquiry on behalf of clients on the use of private equity investments in designated investment alternatives in individual account plans, like 401(k) plans. The inquiry noted that the private equity investments were to be within professionally managed asset allocation funds and offered as collective investment trusts that invest in private equity and have a liquidity component to manage the participant-directed deposits and withdrawals from the fund. It went on to describe the facts applicable to the plan and to the investments themselves, noting that these facts are important in determining whether a plan sponsor has met its fiduciary duty in selecting investment options available to plan participants.
Based on the facts as described, EBSA said, “The Department believes that a plan fiduciary of an individual account plan may offer an asset allocation fund with a private equity component of the type you describe in a manner consistent with the requirements of Title I of ERISA.” The letter went on to point out “important differences” between investment choice decisions related to defined benefit plans and those that relate to a participant-directed individual account plan. The letter noted that in offering an investment with a private equity component in an individual account plan the plan fiduciary must consider investment timeline, diversification issues, the impact of fees, plan participant profiles, etc. The information letter is quite fact-specific.
The letter concludes by stating, “…A plan fiduciary would not, in the view of the Department, violate the fiduciary’s duties under section 403 and 404 of ERISA solely because the fiduciary offers a professionally managed asset allocation fund with a private equity component as a designated investment alternative for an ERISA covered individual account plan in the manner described in this letter.”
The letter can be read at https://aboutblaw.com/Rea.
Prospects: This EBSA guidance is sensitive to the exact facts of the situation described. Thus, anyone wishing to use it must make sure their facts are not materially different. Further, other pension attorneys point out that helpful though this information letter is, it is not complete protection. Some say the letter will not shield a plan sponsor from lawsuits brought by plan participants who are unhappy with their investment returns. However, pension law experts agree that the information letter does provide a road map to use in situations where a plan sponsor wants to offer an ERISA-compliant investment option that includes a private equity component.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
IRS Allows Electronic Signatures for Emergency 401(k) Withdrawals
The IRS has issued a Notice that allows a temporary easing of rules like the requirement that certain benefit elections must be conducted in front of an official witness (notarization). The eased rules, a result of the social distancing requirements imposed by the coronavirus crisis, will be in effect through December 31, 2020.
The rules changes were announced on June 3 in Notice 2020-42. Under the new, temporary rules plan participants (in plans that allow for hardship/emergency withdrawals) will no longer have to give in-person consent or sign paperwork in the presence of a notary public or plan representative, as required under current law. Rather, plan participants will be allowed to sign documents electronically in states that allow remote notarization, or indicate their preferences in teleconference calls.
These eased rules are subject to certain conditions: plan participants must have access to the technology needed to make electronic changes, be given a reasonable opportunity to review, confirm, modify or cancel prior to the transaction taking effect; and receive confirmation either by hard copy or email once the transaction has gone through. The Notice also states that there must be safeguards in place to prevent fraudulent participation in the process.
The IRS said these more flexible rules will “facilitate the payment of coronavirus-related distributions and plan loans” to plan participants who are in quarantine during the pandemic, the IRS said. “Regulators want people who need emergency loans from their retirement plans to easily access them.”
Prospects: This remote consent guidance is in effect only through December 31, 2020. It is solely a response to stay-at-home orders in effect during the coronavirus crisis.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
IRS Defers Certain Tax-Advantaged Plan Filing Deadline to July 15
In Notice 2020-35, the Internal Revenue Service (IRS) delayed certain tax-advantaged account filing deadlines to July 15, 2020. The deadline was delayed to accommodate business hardships resulting from the coronavirus pandemic and the national economic shut-down it triggered.
The announcement makes the July 15 deadline applicable to “time-sensitive actions” involving IRAs, health savings accounts (HSAs), medical savings accounts (MSAs), defined benefit (DB) pension plans, and other tax-advantaged vehicles with deadlines, without this notice, between March 30 and July 14.
The Notice gives single-employer defined benefit (DB) plans more time if they need to seek a waiver of their minimum funding requirements. The Notice also extends the deadline for multiemployer (labor union) plans to certify their funded status and notify affected parties about adopting funding improvements or rehabilitation if insolvency seems likely within ten years.
Finally, Notice 2020-35 also delays interest or penalties for failing to file Form 5330, the form qualified employee benefit plans use to report excise taxes or failure to pay associated taxes.
Prospects: The IRS said the deadlines were delayed as part of the agency’s ongoing coronavirus relief efforts.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
NAIFA Supports Registered Index-Linked Annuity Bill
In conjunction with its partners in the retirement savings community, NAIFA has written to key lawmakers encouraging support of the Registration for Indexed Linked Annuities Act (RILA), S.3795/H.R.6996. The letter notes that RILA “will serve consumers by reducing regulatory barriers, facilitate the offering of innovative annuity products such as Registered Index-Linked Annuities (RILAs), and ensure pertinent information is provided to consumers to make knowledgeable decisions about an annuity product they may choose to purchase.”
RILA would require the Securities and Exchange Commission (SEC) to design a form for the filing of RILAs rather than relying on existing forms that require disclosure of financial information in line with generally accepted accounting principles (GAAP). The new form would remove the requirement to provide information that is not relevant to RILAs. These forms have created a barrier, the letter points out, for companies that are not otherwise required to prepare GAAP financials. That has stifled entry into a growing RILA market and has inhibited the development of RILAs and other innovative annuity products, the letter says.
RILAs are long-term investment products used, especially by individuals who are currently retired or planning to stop working in the near future. They are designed to accommodate needs for financial security when less time exists for recovery from a significant downturn in the markets, the letter said.
The letter is addressed to the sponsors of this bipartisan, bicameral bill. They are Sens. Tina Smith (D-MN) and Thom Tillis (R-NC); and Reps. Dean Phillips (D-MN) and Steve Stivers (R-OH).
Prospects: In these times of economic insecurity, annuities have caught the attention of policymakers. Combine that with the significant industry support behind the bill, and it is possible it could find its way into one of the must-pass pieces of legislation that Congress will consider this year.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org
Arizona Annuity Sales Standards Bill Signed into Law
Arizona Governor Doug Ducey signed into law SB 1557 on Friday, June 5, 2020. The measure will amend the state’s requirements governing annuity recommendations and sales by requiring producers and insurers to act in the best interest of annuity purchasers and not to put personal financial interests ahead of the consumers’ interest. These revisions match amendments that the National Association of Insurance Commissioners added to its Suitability in Annuity Transactions Model Regulation. The model aligns well with the SEC’s Regulation Best Interest and will raise the standard of care required of financial professionals while preserving consumers’ access to valuable financial advice, services, and products.
NAIFA’s Gary Sanders worked closely with the NAIC Annuity Suitability Working Group during the development of the amendments, providing testimony and submitting comment letters on issues of particular concern to NAIFA members. Sanders’ involvement helped shape the working group’s final model, which included many of his recommendations.
Throughout Arizona’s legislative progress on SB 1557, NAIFA utilized its grassroots strength in the state. Dozens of NAIFA members personally reached out to legislators and the governor, urging the final passage of the bill.
“NAIFA did an amazing job locating members that sell annuities, and these members offered to personally meet with senators to communicate the importance of this bill,” said Julie Harrison, NAIFA State Government Relations Director. “Our partnership with ACLI and the expertise of our co-counsel in Arizona all helped to drive this bill through.”
Arizona and Iowa are the first states to introduce and adopt the NAIC model amendments. The adoption by the states of these amendments is a top advocacy priority for NAIFA.
NAIFA Staff Contact: Julie Harrison – Government Relations State Chapter Director, jharrison@naifa.org
Colorado Set to Pass Secure Savings Bill
The Implementation of Colorado Secure Savings Program Bill, SB 200, is on a trajectory to pass the House following smooth sailing through the Senate. Despite a strong showing of opposition from NAIFA and coalition partners, there are factors that make the bill all but impossible to defeat. These factors include the limited time for debate and the urging of passage from the House Speaker.
Although the bill is set to pass, the enactment will come with a few positives for NAIFA members. First, there will not be a proposal for the implementation of a plan until midway through next year’s session at the earliest, meaning full implementation is at least 1 to 2 years away. Also, State Treasurer Dave Young is welcoming input from NAIFA as the plan develops.
“The treasurer made a point to acknowledge our steadfast participation in the work of the study board and stated that we were the only industry group in the room beside the board members,” said Carl Larson, NAIFA-CO’s lobbyist. “This gives us credibility and standing as we move forward in the process.”
NAIFA teamed up with the American Council of Life Insurers, Insured Retirement Institute, and National Federation of Independent Business, to counter the measure. The coalition sent a joint letter of opposition to senators and coordinated grassroots efforts.
“NAIFA Colorado is fortunate to have so many of our industry partners rally their support of our efforts to push back against this well-meaning but misguided public policy,” said Larson.
NAIFA Staff Contact: Julie Harrison – Government Relations State Chapter Director, jharrison@naifa.org
House Introduce Pandemic Risk Insurance Bill
On May 26, Congresswoman Carolyn Maloney (D-NY), the Chair of the House Oversight and Reform Committee and a senior member of the House Financial Services Committee, introduced legislation that would create a federal backstop for insurers regarding risks that stem from pandemics. The legislation, called the Pandemic Risk Insurance Act (PRIA) of 2020 (H.R. 7011), would establish a federal reinsurance program that mirrors the Terrorism Risk Insurance Act (TRIA), but for pandemic risks. Just like TRIA, PRIA would have insurers provide the first level of coverage for the program and then have the federal government step in to recoup losses once a certain aggregate threshold is met.
Most property-casualty insurance companies in the U.S. have specifically excluded coverage for communicable diseases, as the price of covering this risk is astronomical. The type of risk is almost impossible to underwrite, as the pandemics and epidemics are infrequent and difficult to calculate. Many experts believe that if pandemic insurance was included in insurance contracts that it would increase the price of premiums so much that it could be out of reach for many small businesses.
However, most property-casualty insurers and trade associations have apprehension about this legislation. Many in the industry are still concerned that pandemics are uninsurable since they cause economic harm on an astronomical scale, and also believe that overtime, particularly after memories of the pandemic diminish, policyholders will tire at paying the rates needed to make the program sustainable. There are concerns that Maloney’s $750 billion cap might not be enough for a pandemic as massive and as widespread as COVID-19 has been. There are also concerns that having the option for insurers to enter the market to cover pandemic risk could pressure others through consumer demand to enter the market even if they don’t have the resources to do so and increase average premiums for policies to the point where small businesses would not purchase the coverage.
Prospects: Passing legislation as complicated as this cannot be done easily or quickly. It took Congress almost 16 months after the September 11th attacks to adopt the Terrorism Risk Insurance Act. The insurance industry has said that the inherent nature of pandemics, that unlike all other risks are not separated by time and space, makes them inherently uninsurable.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org
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