American Benefits Council
Benefits Byte


October 27, 2020

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

Click here to read past issues on the Benefits Byte Archive page.

Follow us on Twitter at @BenefitsCouncil

Council Urges Treasury and IRS to Provide Additional Flexibility for FSAs and Health Plans Related to COVID-19

In an October 23 letter to the U.S.Treasury Department and the Internal Revenue Service (IRS), the Council asked that certain relief previously provided for 2020 – regarding health and dependent care flexible spending arrangement (FSA) forfeitures and also changes in elections for health FSAs, dependent care FSAs and health coverage – be extended into 2021. Our request was based on ongoing feedback from members and to account for the ongoing nature of the pandemic and related economic crisis.

As described in the April 13 Benefits Byte, the Council previously sent a letter to Treasury and the IRS seeking:

  • Relief so that employees would not be forced to forfeit accumulated amounts in health FSAs and dependent care FSAs that were unable to be spent by employees and their families, through no fault of their own, due to the pandemic.
  • Additional flexibility for employers to allow mid-year election changes in dependent care FSAs, health FSAs and health coverage, due to the dramatic and unforeseeable changes in circumstances employees were facing.

We were pleased to see that Treasury and the IRS quickly issued Notice 2020-29, which meaningfully responded to our requests. As summarized in more detail in the May 12 Benefits Byte, the notice allowed employers the ability to provide an extended claims period, through the end of 2020, for health and dependent care FSA plan years/grace periods ending in 2020 and also allowed employers, in their discretion, to provide prospective cafeteria plan election changes during 2020, in health FSAs, dependent care FSAs and health plans, without regard to whether the election change satisfies the criteria under the current “change in status” rules.  

However, while we sought relief through plan years beginning in 2021, the notice provided relief on these issues only through the end of 2020. As it has now become clear that the effects of the pandemic and economic crisis will extend well into 2021, and based on member feedback, the Council’s latest letter follows up with Treasury and the IRS to request additional relief, both in ongoing conversations and through our recent letter. We have asked that any guidance be issued as soon as possible, in recognition of the fact that many employers and employees are already facing open enrollment for 2021 or will be soon.

The letter explains the challenges employees and employers are facing and essentially asks Treasury and the IRS to extend the relief provided in Notice 2020-29 through plan years beginning in 2021. The letter further explains that Treasury and the IRS have the authority for this extension of relief and also asks for special rules to protect the health savings account (HSA) eligibility of employees offered an extended claims period under a health FSA.

In addition, the letter reiterates our prior request that, during the crisis, employers be allowed to provide employees the ability to cash-out health and dependent care FSAs generally speaking, and, if a narrow request is more feasible, upon termination of employment. We also reiterate our prior request that employers be allowed to provide cash-outs of commuter benefits during the crisis.

As with our April letter and consistent with Notice 2020-29, we emphasize that the requests are for additional flexibility for employers. Whether and how to provide the relief to employees must be left to employers’ discretion, as we appreciate that allowing mid-year changes, in particular, can be burdensome and may not be the best course of action for all employers.

We continue to discuss these issues with staff at Treasury and the IRS and have confirmed these issues are “on their radar” and they are considering the requests. Our sense is that they understand the time sensitivity of any responsive guidance and we will report on any relevant updates.  

For more information on this recent request for relief, or other health policy regulatory matters, contact Katy Johnson, senior counsel, health policy.

ERISA Advisory Council Hears Testimony on Top Hat Plans, Diminished Capacity; Council Testifies

The ERISA Advisory Council (EAC) held virtual hearings on October 22 and 23, discussing their previously selected 2019 topics: Considerations for Recognizing and Addressing Participants with Diminished Capacity and Examining Top Hat Plan Participation and Reporting.

The EAC is a group of benefits experts established by Congress and appointed by the Department of Labor (DOL) to identify emerging benefits issues and advise the Secretary of Labor on health and retirement issues. The chair for the EAC’s 2020 term is Glenn Butash, managing counsel of U.S compensation and benefits at Nokia Corporation, a longtime member organization on the Council’s Policy Board of Directors. The vice chair for the 2020 term is David Kritz, assistant deputy general counsel for Norfolk Southern Corporation, also representing employers. Kritz has also served on the Council’s policy board of directors for many years.

Participants Exhibiting Diminished Capacity

Jan Jacobson, the Council’s senior counsel, retirement policy, testified before the panel on the topic of participants exhibiting diminished capacity, noting at the outset employer retirement plan sponsors share the widespread concern about participants or beneficiaries with diminished capacity and the desire not to make a distribution when it would not be in their best interest – either because they no longer have the capacity to make good financial decisions or they are being victimized.

Jacobson’s testimony centered on the results of a brief survey the Council conducted of its membership on this subject. One the key findings was that while 32 percent of respondents had encountered participants exhibiting signs of diminished capacity, and another 41 percent were not sure it they had countered such participants, 61 percent did not have set policies, guidelines or procedures for interacting and handling participants who exhibit diminished capacity. 

Jacobson concluded by recommending that DOL issue guidance including best practices relating to (1) identifying and taking steps to address participants that exhibit signs of diminished capacity or financial exploitation, (2) supporting the use of trusted contacts and powers of attorney and (3) educational training opportunities.  It is also important for the DOL to provide liability relief for putting reasonable restrictions on participant plan accounts temporarily preventing the distribution of assets where participants exhibit signs of diminished capacity or financial exploitation.

Appearing alongside Jacobson was Christine Hanna, senior legal counsel for Fidelity Investments, whose testimony focused on Fidelity’s processes and procedures for addressing diminished capacity and included many of the same themes, calling for DOL guidance to assist plan sponsors.

In the subsequent discussion of this topic, EAC panelists considered how these issues intersect with plan fiduciary responsibilities and the various types of guidance DOL could provide, including tips and frequently asked questions. It remains possible that such guidance and education could be applied to health and welfare arrangements as well as retirement plans.

Top Hat Plans

A “top hat” plan is a type of unfunded, employer-sponsored retirement plan designed to offer deferred compensation to an eligible employee) and how they are reported and administered. After the EAC heard testimony from stakeholders – including Council board member organization Principal Financial Group and former board member Mark Poerio, now with The Wagner Law Group – the panel discussed the lack of clear eligibility criteria for top hat plans and whether a safe harbor is warranted. Given the apparent lack of clear agreement from EAC members, it is possible that they recommend the development of a regulatory project without providing detailed suggestions for what it should include.

The EAC will have additional conference call discussions of the two issues, followed by a formal presentation of its recommendations to the DOL and a written report, likely to be released in early 2021. For more information on the EAC hearings, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

House Committee Urges Administration to Support Pension Funding Stabilization; White House Weighs in on PBGC

With time running out before the end of the calendar year, the American Benefits Council continues to build support for congressional action to stabilize defined benefit pension plan funding.

As we have frequently reported, the U.S. House of Representatives has approved pandemic stimulus measures including a package of critical funding reforms originally proposed by the Council, specifically, single-employer defined benefit pension plan funding relief in the form of:

  • Extended and enhanced interest rate smoothing, starting in 2020.
  • Modified seven-year amortization to 15-year amortization, with a “fresh start” in 2020 (prior year funding shortfalls would be disregarded and the plan’s funding status would be recalculated in 2020, with any shortfall amortized over 15 years).

While still somewhat unlikely, the best hope for enactment of these provisions is a compromise economic stimulus bill passed in a “lame duck” legislative session.

On October 23, 11 House Republicans – including six members of the House Ways and Means Committee, which shares jurisdiction over retirement policy matters – wrote a letter to U.S. Treasury Secretary Steve Mnuchin urging the Administration’s support for “a proposal designed to provide predictability and stability for single-employer … pension plans.”

Referencing data provided by the Council, the letter explains how and why funding relief is essential for supporting American companies that are experiencing revenue losses in light of the pandemic.

Meanwhile, on October 22 the White House issued a presidential memorandum calling for a thorough review of the Pension Benefit Guaranty Corporation’s (PBGC) financial position. As we reported in the September 15 Benefits Byte, the agency’s Fiscal Year (FY) 2019 Projections Report reported that the single-employer pension insurance program “is projected to continue to improve and remain out of deficit over the next decade,” while the struggling multiemployer program is very highly likely to run out of money in FY 2026 with insolvency “a near certainty” by the end of FY 2027.

The president’s memo signals the Administration’s interest in (1) revisiting the Obama-era decision to terminate pension plans of non-union and salaried autoworkers of the Delphi Corporation and (2) addressing the multiemployer pension plan funding crisis by soliciting input from cabinet officials on solutions by April 20, 2021. This long-term approach to the multiemployer crisis suggests a lack of urgency to take up the issue before the end of 2020.

Unfortunately, in citing the PBGC’s financial struggles, the memo inappropriately groups its healthy single employer program with its struggling multiemployer program and does not raise the topic of excessive PBGC premiums.

The Council recognizes the importance of addressing the multiemployer plan system challenges and continues to advocate that Congress not finance any portion of the multiemployer program’s deficit through the single employer system. Doing so would accelerate the rate at which single-employer sponsors are exiting the system, exacerbating a decline in companies participating in the PBGC’s single-employer insurance program and thereby worsening the PBGC’s problems.

For more information on defined benefit pension matters, contact Lynn Dudley, senior vice president, global retirement and compensation policy, Diann Howland, vice president, legislative affairs, or Jan Jacobson, senior counsel, retirement policy.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).