New legislation focusing on retirement savings attempts to build on SECURE Act


As you probably remember, last year President Trump signed into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.  The SECURE Act was a far-reaching and bi-partisan effort aimed at increasing access to tax-advantaged accounts and preventing older Americans from outliving their savings.  A few of the major components of the SECURE Act included:

  • Pushing back the age at which retirement plan participants need to take required minimum distributions from 70 ½ to 72.
  • Repealing the maximum age for traditional IRA contributions.
  • Allowing individuals to use 529 plan money to repay student loans.
  • Allowing penalty-free withdrawals from retirement plans for birth or adoption expenses.

Securing a Strong Retirement Act of 2020

Just last month, Congressmen Richard Neal (D-Mass) and Kevin Brady (R-Texas) introduced the Securing a Strong Retirement Act of 2020.  This new legislation attempts to build on the momentum from last year’s SECURE Act to encourage retirement savings. A few highlights of this new bill include:

  • Promoting saving earlier for retirement by expanding automatic enrollment in retirement plans.
  • Pushing back further the age at which retirement plan participants need to take required minimum distributions from 72 to 77.
  • Increasing catch-up contributions for those age 60.
  • Treating student loan payments as elective deferrals for purposes of matching contributions.

A copy of the Securing a Strong Retirement Act of 2020 and section-by-section summary of the bill can be found in the attached press release by the Ways & Means Committee:

Moving forward

It is unclear if this legislation will pass next year in a possibly deeply-divided Congress.  But it appears there is consensus among both parties to help Americans save for retirement.   We will continue to monitor Congress’s progress with this new important piece of legislation.

Defined Contribution Plan Restatement Period Begins

The IRS has recently issued to document vendors opinion letter approvals for updated pre-approved defined contribution plan documents.  This starts the next cycle of required defined contribution plan document restatements.   If you are an employer that currently sponsors a 401(k) plan, profit sharing plan, money purchase plan or ESOP, and the plan document is currently on an IRS pre-approved document, you will need to restate your plan document on a newly approved document on or before July 31, 2022.

Rolling these new documents out to plan sponsors is of course a big undertaking for retirement plan document vendors, and they will be attacking this task in a very systematic way in the coming months so that their adopting employers can meet the deadline. The document vendors play the primary role in the plan restatement process. They will notify plan sponsors when their plan restatement process is scheduled and give plan sponsors a time period to review draft documents with legal counsel, obtain board of director approval, and execute and return the documents.  The documents will include the restated plan and usually an updated service agreement.

It is important to keep in mind that the plan sponsor/employer needs to be on top of the process.   The plan sponsor is responsible for reviewing, approving and adopting the restatement.  The document vendor will usually not accept responsibility for the timely completion of this process or the accuracy and correctness of the documents. Drafting mistakes are not uncommon, so it is critical for employer to not treat the restatement draft as a perfunctory “sign and return” task.   The plan sponsor should carefully review the draft to make sure that it is accurate. This process is also an opportunity to compare the plan provisions with the actual administration of the plan and to consider plan design changes.  When you receive the draft documents from your document vendor, we strongly urge you to devote adequate time and attention to getting this important task completed.

Oklahoma Employers Healthcare Alliance

Attorney Q&A with Brandon Long

What began as a roundtable discussion to share ideas and best practices has now become a movement. Earlier this year, McAfee & Taft played a key role in establishing a first-of-its-kind coalition of Oklahoma employers. The mission: To act in the collective best interests of employers to promote healthcare quality, cost-effectiveness, transparency and accountability.

In this LINC Q&A video, McAfee & Taft employee benefits lawyer Brandon Long discusses the catalyst of this emerging movement, its purpose and vision, who comprises the coalition, what has already been accomplished, and next steps for those interested in being a part of the alliance.

Under Final Rule, 401(k) Fiduciaries Be Careful About Green Investing

Earlier this year, the United States Department of Labor issued a proposed rule on environmental, social, corporate governance, or other similarly-oriented considerations (collectively, “ESG”) related to the investments in ERISA plans.  The Department appears to have issued the proposed rule out of a concern about the growing emphasis on ESG investing and the potential for some investment products to be marketed to ERISA fiduciaries on the basis of purported benefits and goals unrelated to financial performance.

After receiving a number of comments on the proposed rule, the DOL issued its final rule this past Friday.  The final rule provides that ERISA plan fiduciaries must select investments and investment courses of action based solely on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action.  ERISA fiduciaries can never sacrifice investment returns, take on additional investment risk, or pay higher fees to promote non-pecuniary benefits or goals (including ESG goals).

The final rule states that it makes five changes to the applicable regulation under ERISA:

  1. Evaluate Investments Based Solely on Pecuniary Factors.  The rule adds provisions to confirm that ERISA fiduciaries must evaluate investments and investment courses of action based solely on pecuniary factors – that is, financial considerations that have a material effect on the risk and/or return of an investment based on appropriate investment horizons consistent with the plan’s investment objectives and funding policy.
  2. Can’t Sacrifice Returns to Promote Non-Pecuniary Goals.  The rule includes an express regulatory provision stating that compliance with the exclusive purpose (loyalty) duty in ERISA prohibits fiduciaries from subordinating the interests of participants to unrelated objectives, and bars them from sacrificing investment return or taking on additional investment risk to promote non-pecuniary goals.
  3. Consider Reasonably Available Alternatives.  The rule includes a provision that requires fiduciaries to consider reasonably available alternatives to meet their prudence and loyalty duties under ERISA.
  4. All Things Being Equal.  The rule sets forth required investment analysis and documentation requirements for those circumstances in which plan fiduciaries use non-pecuniary factors when choosing between or among investments that the fiduciary is unable to distinguish on the basis of pecuniary factors alone.
  5. Might Be Okay to Include Fund With Non-Pecuniary Goals, IF. . . .  The final rule expressly provides that, in the case of selecting investment alternatives for an individual account plan that allows plan participants and beneficiaries to choose from a broad range of investment alternatives, a fiduciary is not prohibited from considering or including an investment fund, product, or model portfolio merely because the fund, product, or model portfolio promotes, seeks, or supports one or more non-pecuniary goals, provided that the fiduciary satisfies the prudence and loyalty provisions in ERISA and the final rule, including the requirement to evaluate solely on pecuniary factors, in selecting any such investment fund, product, or model portfolio. However, the provision prohibits plans from adding any investment fund, product, or model portfolio as a qualified default investment alternative, or as a component of such an investment alternative, if the fund, product, or model portfolio’s investment objectives or goals or its principal investment strategies include, consider, or indicate the use of one or more non-pecuniary factors.

Update on Employer Healthcare Coalition

Many of you may recall that last year we created an employer healthcare coalition and hosted a series of luncheons on various healthcare topics.

Earlier this year before COVID, we had planned a meet and greet back in February to formally launch the coalition.  Then, the end of the world happened.

We would like to update you about a few things and request your feedback:

  1. The Coalition is Official.  The coalition is official.  In October of 2019, we filed a certificate of incorporation to create a formal legal entity that will be known as the “Oklahoma Employers Healthcare Alliance” or “OEHA.”
  2. Coalition’s Purpose.  The coalition’s basic purpose is to bring together leaders and decision-makers to share ideas and information and improve healthcare for Oklahoma employers and employees.  The coalition will likely host luncheons and educational seminars, and leverage our collective size to influence positive change.  There are large coalitions in other markets and the OEHA could also network with these other coalitions.
  3. We Have a Logo and a Website.  We have an initial logo and draft of a website, which you can access here:  The logo is at the top of the website.  The website is still in draft form.  (Once it is finalized, the wild apricot references will disappear.)
  4. We Have a Management Company.  We are using and working with the same All-Star management team that manages the Southwest Benefits Association and the DFW Business Group on Health.  These people know what they are doing and they will help us launch and keep the organization moving forward in a positive way.

Are You Interested?  Please send me an email if you are interested in learning more about being a part of the coalition.

Think About How Your 401(k) Policies and Procedures Might Prevent and Discover Fraud

This past week the United States Department of Labor issued a press release involving alleged fraud by a key employee that resulted in theft from her company and her company’s 401(k) plan.

According to the DOL’s press release, the controller for a company in Kentucky allegedly created a scheme whereby she issued unauthorized checks made payable to herself and others.  She also used multiple company debit and ATM cards to withdraw cash and pay her own personal expenses; and made fraudulent payments from the company to an insurance company for the purpose of obtaining and maintaining health insurance for her family.  The controller’s fraud also resulted in a failure to remit 401(k) deferrals into the company’s 401(k) plan totaling $31,882.  The DOL’s press release indicates the controller stole the 401(k) deferrals and fraudulently altered the Company’s bank account statements to make it appear that proper remittances were made to the plan.  Her actions led to a total loss to the company of $633,044.

As a result of her bad actions, the controller was recently sentenced by a federal court to 94 months in prison, 36 months of supervised release, and $838,804 in restitution.

Unfortunately, great employers who try to do the right thing and work hard to properly manage their benefit plans can sometimes still nonetheless become the victim of a bad actor.  If someone wants to intentionally violate the law for their own benefit, it can be very difficult to be aware of this and/or to catch them.

Many employers have a 401(k) plan committee that reviews and monitors the plan’s investments on a quarterly basis, as well as other plan administrative matters.  Perhaps your committee might consider adding to its quarterly review some kind of a report or analysis that compares (a) your payroll information showing 401(k) deferrals and plan contributions; with (b) independent information from your recordkeeper that shows deposit information into the plan.  There may be a better idea.  But you might consider thinking about what policies and procedures you could put in place that might prevent, or at the very least quickly discover, fraud impacting your plan.

On a related note, during this audit season we received a number of questions about how quickly 401(k) deferrals should be deposited into a 401(k) plan’s trust.  The answer is:  As soon as possible.  For annual audit purposes, your auditor might tell you that they only consider 401(k) deferrals late if they are deposited beyond five or seven business days after payroll.  This may be the standard your auditor uses for audit purposes, but the DOL will expect 401(k) deferrals to go in much faster:  basically immediately coinciding with or after payroll.  Please do your best to ensure that 401(k) deferrals and loan repayments are deposited into your plan’s trust on the same day as payroll, or maybe – if you have a good documented reason why – a few business days after payroll.  If you have been depositing 401(k) deferrals later than that (e.g., one week after payroll), you should consider putting earnings into your plan to correct this and you should work to improve your process to get your employees’ money into the plan sooner.

IRS Announces Relief for Certain Form 1094/1095 Reporting Requirements

In a similar move as in previous years, the IRS has issued relief from certain Form 1094-C and 1095-C reporting requirements under the Affordable Care Act (the “ACA”) relating to employee health plans, as well as relief from certain reporting-related penalties.

As a refresher, the ACA generally requires four forms to be produced each year, and the names are anything but intuitive:

  • Form 1094-B: This is essentially a transmittal form used by insurance carriers to report the individual statements (Form 1095-B) to the IRS.
  • Form 1095-B: This form is used to report certain statutorily-required information to the employee under a fully-insured policy about his or her coverage.
  • Form 1094-C: This is used by applicable large employers (“ALEs”) to report whether the employer offered minimum essential coverage and to transmit the employee statements (Form 1095-C) to the IRS.
  • Form 1095-C: Finally, this form is used by ALEs to report certain statutory-required information to employees about their employer-sponsored health coverage.

Which form your plan would be required to file or furnish depends on whether you are an ALE., and how you fill out the form and whether you offer fully-insured or self-insured coverage. Large employers who are self-insured are typically going to use just Forms 1094-C- and 1095-C.

Extended Deadline for Participant Statements:

The IRS has extended the deadline for furnishing Forms 1095-B and 1095-C to individuals. The typical deadline to report 2019 plan information is January 31, 2021. However, the new relief extends the deadline to March 2, 2021. The extension is automatic, and the IRS has indicated that no further extensions will be granted, and it will not respond to such requests.

No Extension for IRS Filings:

Be aware that this extension does not apply to the 1094-B and 1094-C filings with the IRS. The deadline for submitting these filings to the IRS will remain March 1, 2021 (since the original due date of February 28 falls on a Sunday), for paper filings and March 31, 2021, for those filing electronically. However, while the automatic extension does not apply to these deadlines, filers may still request an extension from the IRS.

Penalty Relief:

Recognizing that the main purpose of Forms 1095-B and 1095-C was to allow an individual to compute his or her tax liability relating to the individual mandate, and because the individual mandate has been reduced to zero, the IRS has granted relief from furnishing certain documents to individuals.

The IRS indicated that it will not assess penalties for failure to furnish a Form 1095-B if two conditions are met. First, the reporting entity must post a prominent notice on its website stating that individuals may receive a copy of their 2020 Form 1095-B upon request, along with an email address, physical address, and phone number. Second, the reporting entity must furnish the 2020 Form 1095-B to the responsible individual within 30 days of receipt of the request. The statements may be furnished electronically if certain additional requirements are met.

The same reporting relief does not extend to ALEs who are required to furnish Form 1095-C. This form must continue to be furnished to full-time employees, and penalties will continue to be assessed for a failure to furnish Form 1095-C. However, the relief does generally apply to furnishing the Form 1095-C to participants who were not full-time employees for any month of 2019 if the requirements above are met. This would typically include part-time employees, COBRA continuees, or retirees.

Note that while these requirements for furnishing the 1095-B and 1095-C to individuals has been modified, these forms must still be transmitted to the IRS along with their Form 1094 counterparts.

Good-Faith Relief for Errors in Reporting:

In the final piece of good news from the IRS, it announced relief from penalties for incorrect or incomplete information on any of these forms. This relief applies to both missing and inaccurate taxpayer identification numbers and birthdays, as well as other required information.

The reporting entity must be able to show that it made a good faith effort to comply with the reporting requirements. A successful showing of good faith will show that an employer made reasonable efforts to prepare for the reporting requirements and the furnishing to employees, such as gathering and transmitting the necessary information to the person preparing the forms.

However, the relief does not apply to reporting entities that completely fail to file or furnish the forms at all.

Finally, and importantly, the IRS has indicated that this will be the last year that it will provide this good faith reporting relief.

DOL Proposes New Proxy Voting Rule Affecting Retirement Plan Fiduciaries

On September 4, 2020, the Department of Labor (“DOL”) published a proposed regulation addressing the proxy voting responsibilities of retirement plan fiduciaries and exercises of other shareholder rights.  The proposed rule would affect any employee benefit plan that owns equity securities that require voting, which can include defined benefit plans, defined contribution plans, and even some welfare benefit plans.  If the proposed rule is promulgated in its current form, it would materially change the fiduciary practices and recordkeeping requirements for such plans.

The DOL’s longstanding view has been that proxy voting is a fiduciary obligation that is part of managing plan assets, and the general view has been that the plan fiduciaries may not simply choose to not vote proxies.  Under the proposed regulation, a fiduciary must vote a proxy when the issue could have an economic impact on the plan but must not vote a proxy where the matter would not have an economic impact on the plan.  The DOL’s rationale is that the expenditure of plan resources is generally warranted only when the proposals have a meaningful bearing on share value or when plan fiduciaries have determined that the interests of the plan are not aligned with the positions of a company’s management.  It is important to note that application of this new standard would have a significant impact on the voting of proxies on shareholder proposals dealing with economic, social and governance issues because it would be difficult to demonstrate that those types of proposals have an economic impact on the plan.

In order to assist fiduciaries to comply with the difficulty of determining a proxy vote’s economic impact on a plan, the proposed regulation would allow fiduciaries to establish certain “permitted practices” in their proxy voting policy.  For example, a permitted practice may include voting proxies only on specific types of proposals that the fiduciary has prudently determined are likely to have a significant impact on the value of the plan’s investment, such as corporate mergers and acquisitions, corporate repurchases of shares and contested elections for directors. If the plan fiduciary has delegated responsibility for voting proxies to an investment manager or other service provider, the proposed regulation would require the fiduciary to ensure and document that the investment manager or service provider satisfies the conditions of the rule.

Because the DOL’s proposal is not final, it does not require plan fiduciaries to take any action at this time.  However, we recommend that plan fiduciaries continue to monitor this issue for future developments.

Ask Your Consultant for Mental Health Parity Certification Each Year

If you only read this first paragraph, that is okay. One of the most common issues we face with DOL investigations of employer health plans involves mental health parity compliance.  For those of you who sponsor a qualified retirement plan like a 401(k) plan, you likely receive some kind of a compliance testing report each year from your recordkeeper or third-party administrator that tells you that your plan passed the relevant nondiscrimination tests.  I recommend that you ask your health plan consultant to start providing something like that for you every year – which confirms that your plan passes mental health parity, so that you (a) know your plan complies; and (b) have proof that your plan complies if you ever go through a DOL investigation/audit.  This may require the consultant to involve the network provider and/or the actuary.  Regardless, this is critically necessary, especially for those of you who are self funded.

Here is some background for you:

Group health plans are not required to provide benefits for mental health or substance use disorders, but if they do, the “mental health parity” rules require there to be parity between the plan’s (a) medical/surgical benefits (“Medical Benefits”); and (b) mental health or substance use disorder benefits (“Mental Health Benefits”).

Think of “parity” as generally requiring “equality.” In my opinion, these rules are unnecessarily complicated but they generally require:

  1. Parity as to Financial Requirements. Plans must provide parity between Medical Benefits and Mental Health Benefits as to financial requirements, such as deductibles, copays, coinsurance, and out-of-pocket maximums. For example, if a plan has a $25 copay for a typical doctor office visit but a $50 copay for a mental health office visit, this could violate the parity rules.
  2. Parity as to Quantitative Treatment Limitations. Plans must provide parity between Medical Benefits and Mental Health Benefits as to quantitative treatment limitations, such as number of visits, days, or treatments. Quantitative treatment limitations are limits that can be expressed numerically (e.g., number of covered visits per day, per episode, annually, or during the participant’s lifetime).
  3. Parity as to Nonquantitative Treatment Limitations. Plans must provide parity as to any nonquantitative treatment limitations, such as medical management standards (think non-financial requirements). For example, if a plan required a participant to go through some kind of a pre-certification process for treating anorexia (a mental health condition) that is stricter than the process required for Medical Benefits, this could be a violation of the parity rules. Or if a group health plan required participants to use employer-provided EAP benefits before accessing the plan’s Mental Health Benefits but did not require the same for Medical Benefits, that would likely violate the parity rules.

If you are not asleep yet and are interested in even more details, the parity rules as to the financial requirements and treatment limitations (#1 and #2 above) are particularly complex and often require a series of Wizard-of-Oz math calculations, which are probably impossible for you to run on your own. Generally, to run the testing, the benefits offered by a plan must first be divided into six separate classifications:

  1. inpatient, in-network;
  2. inpatient, out-of-network;
  3. outpatient, in-network (Note: office visits can be placed in a separate subclassification from all other outpatient items and services);
  4. outpatient, out-of-network;
  5. emergency care; and
  6. prescription drugs.

Within each of these classifications, the financial requirements and treatment limitations that apply to Mental Health Benefits must be compared to the financial requirements and treatment limitations that apply to Medical Benefits in that same classification so that they pass the following two tests:

  1. “Substantially All” Test. A financial requirement or treatment limitation must first be demonstrated to be applicable to “substantially all” of the Medical Benefits in a classification. This is a math test that means the requirement or limitation must apply to at least two-thirds of all Medical Benefits in the classification. This calculation is determined based on the dollar amount of all plan payments for Medical Benefits in the classification that are expected to be paid under the plan for the plan year.  For example, if we were looking at the copay structure of your health plan, we might need to determine if the plan requires a copay of any kind for at least two-thirds of the Medical Benefits in the outpatient, in-network classification, before a copay could be imposed on Mental Health Benefits in the outpatient, in-network classification.
  2. “Predominant Level” Test. If and only if a financial requirement or treatment limitation does apply to “substantially all” of the Medical Benefits in a classification, that financial requirement or treatment limitation may be applied to Mental Health Benefits in that classification, but only if the “level” of that requirement or limitation is no more restrictive than the “predominant level” of that requirement or limitation when applied to Medical Benefits. A good example of a “level” would be two copayment levels of $25 and $50.  A financial requirement or treatment limitation is considered to be “predominant” if it is the most common or frequent of such type of limit or requirement – that is, if it applies to more than one half of the Medical Benefits in the classification.  Carrying forward my example above involving a plan’s co-pay structure, if we determined that your plan does require a copay for at least two-thirds of the Medical Benefits in the outpatient, in-network classification (i.e., you pass the “substantially all” test), then we would need to determine what is the permitted/predominant copay level. This is easy if you only have one copay (e.g., $25 for everything). But if you have different copays within the outpatient, in-network classification (e.g., $25 for general and $50 for specialty), we would need to determine what copay level applies to more than half of the Medical Benefits in that classification – and only that copay level could be charged to Mental Health Benefits in that classification.

I have made a number of generalizations here to try to break down the rules and the testing for you, but to me this falls into the category of tasks that you should have someone else do for you (probably your consultant). I would ask them to give you something every year that clearly states that your plan passes mental health parity testing, preferably something signed off on by an actuary.  If they tell you that your plan “passes automatically” because of its design, please ask them to explain that to you (in part to make sure they understand) and put that in writing anyway.  This will save you a great deal of trouble and stress later.

Of course, please let us know if you have any questions.

Thank you,


New Guidance Regarding Birth or Adoption Distributions from Retirement Plans

You may recall that the SECURE Act was signed into law last December. The SECURE Act made a number of changes to the rules governing qualified retirement plans.  One change created a new type of a distribution from certain retirement plans, including 401(k) plans, following qualifying births or adoptions.  The SECURE Act allows a plan participant to take a distribution of up to $5,000 following a qualified birth or adoption (“Birth/Adoption Distribution”).

Even though plan sponsors were allowed to add the Birth/Adoption Distribution feature to their plan on or after January 1, 2020, most plan sponsors have not yet added this feature because there were initially too many unanswered questions. Fortunately, the Department of the Treasury and the Internal Revenue Service recently issued additional guidance (Notice 2020-68) that may make plan sponsors more likely to turn on this new feature.  Here is what we now know from the SECURE Act and the recent guidance:

  1. A Birth/Adoption Distribution must be made during the one-year period beginning on the date when a child is born or the legal adoption is finalized.
  2. A Birth/Adoption Distribution may be made from 401(k) plans, profit sharing plans, 403(b) plans, governmental 457(b) plans, IRAs, and certain other plans. They do not apply to defined benefit plans.
  3. An “eligible adoptee” includes any individual who has not attained age 18 or is physically or mentally incapable of self-support. However, an eligible adoptee does not include an individual who is the child of the taxpayer’s spouse.
  4. A Birth/Adoption Distribution is includible in gross income, but is not subject to the 10% excise tax.
  5. Even though a Birth/Adoption Distribution is includible in the participant’s gross income, the plan is not required to withhold the normal 20%.
  6. The individual must include the name, age, and the Taxpayer Identification Number (TIN) of the child or eligible adoptee on the individual’s tax return for the taxable year in which the distribution is made.
  7. Each parent may receive a Birth/Adoption Distribution up to $5,000 with respect to the same child. This means two parents may each take $5,000 from their qualifying retirement plan following the birth or adoption of the same child.
  8. An individual may receive a Birth/Adoption Distribution with respect to the birth of more than one child (e.g., twins). For example, Employee A gives birth to twins in October 2020. Employee A may take a $10,000 distribution from her 401(k) plan in January 2021, assuming she includes the TINs of her twins and other required information on her 2021 tax return.
  9. An individual generally may recontribute a Birth/Adoption Distribution to an applicable eligible retirement plan in which the individual is a beneficiary and to which a rollover can be made.
  10. Plans are not required to permit Birth/Adoption distributions. It is an optional feature for the plan sponsor.
  11. If a plan permits a Birth/Adoption Distribution to a participant, the plan is generally required to accept a recontribution of that same amount from that individual.

Now that we have some additional guidance, I suspect many plan sponsors will turn on this feature and that it will be very popular with plan participants. You might consider discussing this with your recordkeeper and/or third-party administrator.

Please let us know if you have any questions.