The Internal Revenue Service has issued Notice 2020-23, which automatically postpones certain deadlines affecting employee benefit plans. Specifically, any deadline that would ordinarily fall on or after April 1, 2020, through July 14, 2020, is now automatically extended to July 15, 2020. Highlights include the following:
Plan Loan Repayments. When plan participants borrow from their defined contribution plan accounts, they generally must repay the loan within five years, usually on a monthly installment basis. Participants with monthly loan repayments that are otherwise due during the delay period (April 1, 2020 through July 14, 2020), now have until July 15, 2020, to make those repayments. However, plan sponsors are not required to implement the delay in loan repayments, and may choose not to do so, particularly for participants who continue to be actively employed and who are repaying loans through payroll deductions.
Form 5500 Filings. Employee benefit plans with plan years ending on or after June 30, 2020, through November 30, 2020, now have until at least July 15, 2020, to file their Forms 5500.
Sec. 83(b) Elections. When an individual receives property (such as restricted stock or a similar equity interest) as compensation for the performance of services, and that property is subject to a substantial risk of forfeiture (i.e., the property is non-vested), the individual is not subject to tax on the compensation until the property becomes vested. However, the individual is entitled to make a Section 83(b) election to close the compensation element and be subject to ordinary income tax immediately. By doing so, the individual will have capital gains treatment (which is taxed at a lower rate) on all future appreciation in the property. Section 83(b) elections typically must be filed with the IRS within 30 days following the date on which the restricted property is received by the individual, but if the end of the 30-day period would fall within the delay period, the end of the 30-day period is automatically extended to July 15, 2020.
Refunding Excess Elective Deferrals. In section 401(k), 403(b) and governmental 457(b) plans, employee elective deferrals are limited to an annual dollar amount. For 2019, the limit was $19,000 (plus an additional $6,000 for participants who are age 50 or older). To the extent that employee elective deferrals exceeded that limit for 2019, the plan is required to refund the excess elective deferrals (and any related investment income) back to the participant by April 15, 2020. Under the IRS guidance, the deadline for refunding excess elective deferrals is extended to July 15, 2020.
Sixty-Day Rollover Period. When an individual receives an eligible rollover distribution from a qualified retirement plan or an IRA as an indirect rollover, that distribution may be rolled over in a tax-free rollover to an eligible retirement plan, including an IRA, no later than the 60th day following the day the individual received the distribution. If the end of the 60-day period would fall within the delay period, the end of the 60-day period is automatically extended to July 15, 2020.
ESOP Put Options. In employee stock ownership plans (ESOPs) maintained by many private employers, participants are entitled to receive distributions of their ESOP accounts in the form of employer stock, and are entitled to sell that stock back to the employer pursuant to a “put option.” The put option must be available for a period of at least 60 days following the date of distribution of employer stock from the ESOP, and if the put option is not exercised, for an additional 60-day period in the following plan year. If the end of the 60-day period would fall within the delay period, the end of the 60-day period is automatically extended to July 15, 2020.
Section 1042 Transactions and Qualified Replacement Property. If a taxpayer sells employer securities to an ESOP, the taxpayer may defer including the proceeds of the sale in income under section 1042 of the Internal Revenue Code by investing the proceeds in “qualified replacement property.” Qualified replacement property must be purchased within the replacement period, which is defined as the period beginning three months before the date of the sale of qualified securities to an ESOP and ending 12 months after the date of such sale. If the end of this period would fall within the delay period, the end of the period to purchase qualified replacement property is automatically extended to July 15, 2020.
Withdrawals from Eligible Automatic Contribution Arrangements (“EACAs”). A section 401(k), 403(b) or governmental section 457(b) plan may provide for automatic enrollment of participants. If certain conditions are satisfied, such a plan may allow an automatically enrolled participant to withdraw amounts that were automatically deducted and contributed to his or her account under the plan. The withdrawal must take place within 90 days of the date of the employee’s first contribution under the EACA. If the end of the 90-day period would fall within the delay period, the end of the 90-day period is automatically extended to July 15, 2020.
Extended Deadline for the Initial Remedial Amendment Period. IRS Revenue Procedure 2019-39 provides a system of recurring remedial amendment periods for correcting form defects for both individually designed and pre-approved 403(b) plans. The IRS extended the deadline for the initial remedial amendment period for Section 403(b) plans from March 31, 2020, to June 30, 2020.
Extended Deadline for PBGC Premiums. Additionally, the Pension Benefit Guaranty Corporation (PBGC) recently announced that it will extend deadlines to July 15, 2020, for upcoming PBGC insurance premium payments and certain other required filings that would otherwise have been due on or after April 1, 2020, through July 14, 2020.
Click here to read our client alert on PBGC’s Pandemic Relief for Pension Plans.
The attorneys within Ballard Spahr LLP’s Employee Benefits and Executive Compensation Group can assist plan sponsors in identifying situations where these modified deadlines apply. They also can provide advice on how to remain compliant with various laws governing employee benefit plans.
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