October 2020 Issue:
Government Funding Bill Passes
House and Senate negotiators agreed on a continuing resolution (CR) to fund the government through December 11, 2020. The agreement passed the House by a bipartisan 359 to 57 vote on September 22. The Senate approved it, by an 84 to 10 vote, on September 30. President Trump signed it into law shortly after midnight, on October 1. The CR includes a temporary extension of and funding for the National Flood Insurance Program (NFIP).
The CR keeps funding for federal agencies at fiscal year 2020 levels until mid-December. Thus, decisions on new spending policy and new funding levels were deferred until December 11, 2020. A new and likely to be hard-fought government funding bill will have to be passed by midnight December 11. Or, Congress will again have to approve a temporary funding measure (another CR) until some time in 2021. Failure to enact one or the other of these pieces of legislation would result in a government shut-down.
The scope and level of controversy surrounding the regular appropriations legislation for fiscal year 2021 will be in question until after the results of the November 3 election are known. And election results could take some time given the record number of mail-in ballots that election officials are currently anticipating.
Prospects: Enactment of this short-term CR guarantees a lame duck Congressional session. Republicans will still be in control of the Senate, and President Trump will still be in the White House for this session. But if Democrats grow their power for 2021—by winning more seats in the House, by taking control of the Senate, and/or by taking the presidency, the fireworks in November-December could be intense. Prospects are unpredictable until the election outcome is known.
NAIFA Staff Contacts: 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 Releases Proposed Worker Classification Rule
The Department of Labor’s (DOL’s) Wage and Hour Division (WHD has released a new proposed regulation regarding classification of a worker as an employee or as an independent contractor for purposes of the Fair Labor Standards Act (FLSA). The proposed reg significantly broadens the group of workers who can be independent contractors, contrary to the narrow test adopted by California law’s ABC test. This is good news for independent financial advisors.
Under the proposed rule, a worker would be found to be an independent contractor or an employee under an “economic reality” test. The test consists of two core factors—the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These two core factors shape the decision as to whether a worker is economically dependent on someone else’s business or is in business for him/herself, the proposed reg states.
The test also includes three other factors “that may serve as additional guideposts in the analysis,” WHD says. These factors include the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the service recipient, and whether the work is part of an integrated unit of production. In explaining the proposed regulation, WHD also states that “actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.”
This proposed regulation contrasts with California’s ABC test which finds that a worker is an employee unless the following three factors are all present:
- The worker is free from the control and direction of the hiring entity in connection with the work's performance, both under the contract for the performance of the work and in fact
- The worker performs work that is outside the usual course of the hiring entity's business
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
This proposed Federal regulation is open for public comment until October 25, 2020.
Prospects: This proposed regulation, which is significantly more employer-friendly than the ABC test and therefore is the object of substantial controversy, is on a fast track to finalization. This is because DOL is concerned about potential efforts, if partisan power shifts after the November 3 elections, to undo this broader approach to determining a worker’s status. Expectations are that the agency will finalize the regulation as soon as possible, although WHD officials assure observers that they will carefully consider all comments submitted.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
Final IRS Disability Account Rules Expand Contribution Option
On October 1, 2020, the Internal Revenue Service (IRS) posted final regulations for the NAIFA-backed Achieving a Better Life Experience (ABLE) accounts.
The ABLE Act of 2014 allows states to create tax-advantaged savings programs for eligible people with disabilities. Under new rules from the IRS, ABLE account beneficiaries can save more on their own and transfer unused college savings funds.
The final regulations adopt changes related to the 2017 tax law, which amended Section 529A to allow certain “designated beneficiaries” to contribute more than the annual gift tax limit of $15,000 to their ABLE accounts.
The new rules:
- Allow employed account holders to contribute, capped at the poverty line for a single-person household in their state, through 2025.
- Allow for tax-free rollovers from the same beneficiary’s 529 college savings plan to their ABLE accounts.
- Expand the “hierarchy” of people authorized to establish or sign off on changes to ABLE accounts. The additional types of people include any individual selected by the eligible ABLE account holder; the account holder’s agent under a power of attorney; a conservator or legal guardian; the account holder’s spouse, parent, sibling, or grandparent; or a representative payee appointed by the Social Security Administration.
- Require a qualified successor must be named before the account holder’s death; otherwise, any remaining assets in the account pass through the decedent’s estate, minus the corresponding estate taxes.
NAIFA continues to champion ABLE accounts for working-age people with disabilities who can use these savings accounts to cover qualified disability expenses and can lead to financial independence over time.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org.
IRS Extends Deadline for Reporting Health Insurance Information to Individuals
On October 2, the Internal Revenue Service (IRS) announced an extended deadline for reporting health insurance information to individuals. The new deadline has moved from January 31, 2021 to March 2, 2021. The announcement came in Notice 2020-76.
The deadline extension applies to Form 1095-B, the form used to report information required by the Affordable Care Act (ACA) to individuals covered by employer-provided health insurance. Form 1095-C, the ACA form used to report their employer mandate responsibilities, remains due on March 31, 2021. Also due on March 31 are Forms 1094-C and 1094-B, the forms used to file the information with the IRS. However, employers can request an automatic 30-day extension by using Form 8809. No explanation for a need for the automatic extension is required.
The IRS said it will not grant any extensions for information reporting to individuals for this year beyond the March 31 date. It also said that unless it receives comments justifying future year extensions (comments are due by February 1, 2021), the agency does not plan to extend the deadline in future years.
Prospects: Even though the Supreme Court (SCOTUS) is scheduled to determine the constitutionality of the ACA by the end of its current term (June, 2021), it is still the law now—including its reporting requirements—until and unless SCOTUS strikes it down. Thus, NAIFA members who are themselves employers or who are advising clients that provide ACA-compliant health insurance to their workers need to remain aware of these reporting requirements.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org.
NAIFA-NJ Fights Proposed Financial Transaction Tax
NAIFA-NJ is fighting two bills that establish a tax on high quantity processors of financial transactions, S-2902, and A-4402. NAIFA’s opposition is strengthened by coalition partners that consist of other trade associations representing 200,000 workers in the financial services industry in New Jersey, throughout the U.S., and other business groups in the state. On October 6, the coalition sent a letter to John McKeon, Chairman of the General Assembly, and Senate President Stephen Sweeney. The letter encouraged the lawmakers to consider the following as they debate moving forward with the legislation:
- Effect on investors
- Revenue decline
- Unsuccessful experience with a financial transaction tax in countries in Europe, including Sweden and France
- Several constitutional limitations that may apply to the tax
"The tax proposed by S-2902/A-4402 would significantly increase the costs of executing trades in New Jersey,” the letter stated. “In the immediate short-term, these costs would be passed on to many New Jersey residents, including middle-class pensioners. Longer-term, concerns about best execution requirements would force most securities firms to execute future trades on non-New Jersey exchanges. If enacted, the legislation is far more likely to harm New Jersey savers and investors and the state’s overall economy than to raise significant revenue.”
Dozens of other associations that signed onto the letter including, American Council of Life Insurers, American Securities Association, Insured Retirement Institute and Financial Planning Association.
NAIFA Staff Contacts: Julie Harrison – State Chapter Director – Government Relations, at jharrison@naifa.org.
Treasury, SBA Release Interim Final Rule to Streamline Small PPP Loan Forgiveness
On October 8, the Treasury Department and the Small Business Administration (SBA) released an interim final rule that allows small Paycheck Protection Program (PPP) borrowers to use a streamlined loan forgiveness process. The new process is available to single loans of up to $50,000, or aggregate loans of $2 million or less.
The interim final rule offers an alternative Loan Forgiveness Application, SBA Form 3508S. The rule states, “When a borrower submits SBA Form 3508S or lender’s equivalent form, the lender shall confirm receipt of the borrower certifications contained in the SBA Form 3508S or lender’s equivalent form; confirm receipt of the documentation the borrower must submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the SBA Form 3508S or lender’s equivalent form. Providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower, and the borrower attests to the accuracy of its reported information and calculations on the Loan Forgiveness Application. The borrower shall not receive forgiveness without submitting all required documentation to the lender. As the First Interim Final Rule 3 indicates, lenders may rely on borrower representations.”
The interim final rule also clarifies that costs in excess of the PPP loan—even if they might otherwise be forgivable costs—will not be forgiven. No more than the amount of the PPP loan may be forgiven.
Prospects: As PPP borrowers begin seeking forgiveness of their loans, the process for doing so becomes ever more important. This new interim final rule may well be followed by additional rules to ease the process. The new rules may come from the SBA and/or Treasury, or as a result of legislative changes. Those legislative changes—widely supported by both Republicans and Democrats in both the Senate and the House—are pending, but have not yet been enacted.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
House Judiciary Committee Approves Bankruptcy Bill
On September 29, the House Judiciary Committee approved a bankruptcy reform bill, H.R.7370, that provides protection of retirement benefits when a business files for bankruptcy. The vote to advance the measure to the House floor was 20 to 10.
H.R.7370 increases the maximum amount of a priority claim for each employee for each employee benefit plan to $20,000. It also eliminates current law’s rule that restricts priority benefit claims to benefits earned within 180 days of the bankruptcy filing. Further, the bill would allow plan participants to assert claims for losses in defined contribution (DC) plans when the losses result from employer fraud or breach of fiduciary duty. And, the bill creates new rules for priority payment of worker severance pay.
Other provisions in H.R.7370 change the rules under which retiree benefits can be reduced or eliminated and a requirement that the bankruptcy court must consider in a bankruptcy sale preserving existing jobs and retiree pension and health benefits. There are also provisions that prohibit some bonus and other compensation programs for highly compensated employees, and a restriction that prevents company insiders from maintaining their retirement benefit programs unless rank-and-file workers retain their retirement and health benefits.
Prospects: H.R.7370 was introduced and cosponsored only by Democrats. Thus, even though there is a companion measure pending in the Senate—also sponsored solely by Democrats—chances for enactment in this highly partisan environment are relatively slim. Nevertheless, as worry grows over pandemic-caused bankruptcies, it is possible that this measure could be included in a coronavirus crisis relief agreement if one comes together.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
Study Shows Employer-Provided Health Insurance Premiums Rise 4 Percent
An October 8 study by the Kaiser Family Foundation found that employer-provided health insurance premiums rose four percent last year. The rate of increase was higher than wage growth and the inflation rate, the study found.
According to the study, average annual premiums for employer-provided health insurance are now $7,470 for individual coverage and $21,342 for family coverage. These amounts include both employee and employer contributions to the premiums. This compares to average wage increases of 3.4 percent and to a 2.1 percent inflation rate.
The study also pointed out that some 157 million people are covered for their health costs through their employer, and that the cost of family health insurance through work has gone up 22 percent over the past five years, and 55 percent over the past 10 years. In 2020, according to the study, employees paid about 17 percent of the individual coverage cost (about $1243) and 27 percent (about $5588) for family coverage.
Prospects: The cost of health care and health insurance coverage is likely to be a key issue in 2021, especially if the Supreme Court finds the Affordable Care Act (ACA) unconstitutional, in whole or in part. NAIFA anticipates that Congress will be turning its attention to this issue relatively early in 2021, regardless of who wins the November 3 elections.
NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org
NAIFA Joins Letter Supporting Remote Notarization of Certain Retirement Plan Elections
NAIFA has joined with several retirement savings industry allies in a letter to the Treasury supporting its recent proposal to allow for virtual notarization of certain retirement plan participant elections. The remote notarization is needed due to the coronavirus crisis with its attendant limited personal contact and social distancing necessities. The proposal came in Notice 2020-42.
On October 1, NAIFA signed a letter to the Treasury along with the American Bankers Association, the American Benefits Council, the American Council of Life Insurers, the American Financial Services Association, the Committee of Annuity Insurers, the ERISA Industry Committee, the Financial Services Institute, Finseca, the Insured Retirement Institute, the Investment Company Institute, the Retirement Industry Trust Association, the Securities Industry and Financial Markets Association, the Small Business Council of America, the SPARK Institute, and the U.S. Chamber of Commerce.
Notice 2020-42 provides relief for the 2020 calendar year from the requirement of physical presence for any participant election witnessed by a notary public of a state that permits remote electronic notarization or any participant election (or consent) witnessed by a plan representative. Certain conditions must be met. For example, if a participant election is being witnessed by a notary, the physical presence requirement can be satisfied with an electronic system that uses remote notarization if executed via live a/v technology (consistent with state notary public law).
If the participant election is being witnessed by a plan representative, the physical presence requirement can be satisfied with an electronic system using live a/v technology if the individual signing the election presents a valid photo ID to the plan representative during a live a/v conference that allows for direct interaction between the person signing and the plan representative. The person signing the election must also fax or email a copy of the signed document to the plan representative on the same day it is signed, and the plan representative must acknowledge witnessing the signature per the rules of Notice 2020-42
Prospects: Remote notarization is an important accommodation during this pandemic. United industry support will help make sure the accommodation takes effect as planned.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
IRS Issues Final Reg on Annuity Payment Withholding
The Internal Revenue Service (IRS) has finalized its proposed regulation of May 27 that set the default withholding rate for periodic (annuity) payments for 2018, 2019 and 2020. The rate—equal to the withholding for a married person with three dependents—applies when the payments recipient has not filed a certificate of withholding that designates the withholding rate chosen by the recipient.
The final regulation took effect on October 1, 2020. The regulation was promulgated as a result of changes made in the SECURE Act, which modified Section 3405. Section 3405 governs withholding on periodic payments, nonperiodic distributions and eligible rollover distributions.
Prospects: There were only two comments on the proposed default rate annuity withholding regulation. Neither of those comments triggered a change in the proposed regulation. Accordingly, it was finalized without change.
NAIFA Staff Contact: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org.
