Month: July 2020

As you probably already know, the Supreme Court issued several important decisions during this year’s term. One of the most ground-breaking was their decision in Bostock v. Clayton County holding that Title VII of the Civil Rights Act of 1964 protects transgender, gay and lesbian employees from workplace discrimination based on their sexual orientation or sexual identity. You can find the decision here: https://www.supremecourt.gov/opinions/19pdf/17-1618_hfci.pdf

While Bostock applied to the termination of a LGBT employee, we should carefully consider its potential impact on employee benefit plans.  To get a sense of where this rapidly evolving nondiscrimination law may be headed, this blog post provides of a snapshot of the legal framework prior to Bostock and some specific considerations for benefit plan professionals after Bostock.

Pre-Bostock background:

As you may recall, in 2016 the HHS issued nondiscrimination regulations under Section 1557 of the ACA that generally prohibited discrimination on the basis of race, color, national origin, sex, age or disability under health programs or activities that receive HHS funding. These regulations interpreted Section 1557 to prohibit discrimination “on the basis of sex” to include discrimination based on transgender status, gender identity or gender expression in healthcare to include certain health plans.

But just this June, HHS issued revised the Section 1557 nondiscrimination regulations and significantly changed the prior regulations. Importantly, the regulations repealed the prior regulations that defined discrimination “on the basis of sex,” to include discrimination based on gender identity. Further, these new regulations made clear that Section 1557 does not apply to employer-sponsored group health plans that do not receive HHS funding and are not principally engaged in the business of providing healthcare.

Post-Bostock considerations:

Now that the U.S. Supreme Court has ruled that employers violate Title VII (of course, different and separate from 1557 under the ACA) when they discharge employees based on sex, the impact that this decision could have on employee benefit plans remains to be seen. It is clear that employers should use caution when considering benefit plan provisions that may treat employees differently based on sex, including their sexual orientation or transgender status. At a minimum, special care should be made to review relevant plan/coverage terms, including those pertaining to gender dysphoria, gender-affirmation surgery or mental health benefits, as well as plan terms covering same-sex spouses and same-sex domestic partners.

Please let us know if you have any questions.

And just as we thought that the new coronavirus guidance was beginning to slow down, the IRS proved us wrong.

On June 23, 2020, the IRS issued new guidance on the waiver of required minimum distributions (“RMDs”) from certain qualified retirement plans.

I. General Background

As a refresher, section 401(a)(9) of the Internal Revenue Code requires certain qualified retirement plans, including 401(k) plans, to make RMDs starting on the employee’s required beginning date. Back in December, the SECURE Act made a change to when RMDs are required to be made:

• OLD RULE: Under the old rule, participants were generally required to start taking RMDs from a retirement plan by April 1 following the later of (a) the calendar year they reach age 70 ½; or (b) the calendar year they retire.

• NEW RULE: Under the new SECURE Act rule, for people who attain age 70 ½ after December 31, 2019, the age for RMDs increases to 72. Individuals who attain 70 ½ on or before December 31, 2019 are not affected (i.e., the old rule continues to apply).

II. CARES Act Relief for RMDs

As you might remember, on March 27, 2020, the CARES Act waived RMDs otherwise required in 2020. However, because the CARES Act was not enacted until March 27 of this year, some people who took their RMD earlier in the year may have missed the boat on the waiver. However, as we were expecting, on June 23 the IRS issued guidance to provide relief for those individuals.

In the June 23 guidance, the IRS permits anyone who already who took an RMD in 2020 from certain plans to roll those funds back into the plan. Under the normal rules, rollovers must be made within 60 days from the date of a distribution, but last week’s new guidance extends this 60-day window for any RMD already taken this year to August 31, 2020. For example, if a participant received a single-sum distribution in January 2020, part of which was treated as ineligible for rollover because it was considered an RMD, that participant will now have until August 31, 2020 to roll over that part of the distribution. You probably should notify anyone who falls into this category of this extended deadline.

The waiver applies to the typical defined contribution plans, such as 401(k) and 403(b) plans, as well as IRAs. The relief does not apply to defined benefit plans.

The notice also provides rollover relief for additional payments that would not otherwise be eligible for rollover:

• Distributions to a plan participant paid in 2020 (or paid in 2021 for the 2020 calendar year in the case of an employee who has a required beginning date of April 1, 2021) if the payments would have been RMDs in 2020 (or for 2020) if it weren’t for the 2020 waiver.
• For a plan participant with a required beginning date of April 1, 2021, distributions that are paid in 2021 that would have been an RMD for 2021 but for the RMD waiver.

Therefore, the guidance waives the RMD for 2020 even if the employee’s required beginning date is April 1, 2021. For example, if an employee attained age 70 ½ before January 1, 2020, and retires in the 2020 calendar year, that employee’s required beginning date is April 1, 2021. Because of the CARES Act, the employee is not required to receive an RMD for 2020 before April 1, 2021 but nonetheless must still receive the RMD for the 2021 calendar year by December 31, 2021. If the employee receives a distribution during 2021, then that distribution is treated as an RMD for the 2021 calendar year to the extent the total RMD for 2021 has not been satisfied even if the distribution is made on or before April 1, 2021 (and, accordingly, is not eligible for rollover). However, because of the June 23 guidance, once the RMD for 2021 has been satisfied, any subsequent amounts distributed in 2021 that would otherwise not be eligible rollover distributions may be rolled over consistent with the rules provided in the guidance.