On June 22, 2020, the United States Department of Labor (the “DOL”) submitted a proposed regulation (the “Proposal”) regarding the use of Environmental, Social and Governance (“ESG”) factors in selecting investments for plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Proposal generally cautions plan fiduciaries against considering ESG factors when making investment decisions, unless such factors are relevant to the plan’s pecuniary goals.

Interest in ESG-themed investments has surged in popularity in recent years. One 2020 survey showed that nearly 74% of global investors intend to increase their allocation to ESG-oriented ETFs. However, ESG-themed investments have also captured the attention of regulators, including the DOL. The Securities and Exchange Commission recently listed ESG investments in its list of examination priorities with respect to the accuracy and adequacy of disclosures in the marketing of such investments. In addition, President Trump issued an Executive Order on April 10, 2019, which included a section on ESG investments. The Executive Order required the DOL Secretary to complete a review of trends with respect to ERISA plan investment in the energy sector.

Continue Reading DOL Proposed Rule Urges Caution Regarding the Use of ESG Factors for ERISA Plans

Many plan administrators and participants have struggled with how to satisfy certain qualified plan spousal consent rules while social distancing guidelines have been in effect. The Internal Revenue Service (IRS) provided much-needed relief on that topic in Notice 2020-42, published on June 3, 2020 (the Notice).

By way of background, IRS regulations require that in the case of a participant election that is required to be witnessed by a plan representative or a notary public (such as a spouse’s consent to the waiver of a qualified joint and survivor annuity), the individual making the election must sign in the physical presence of a plan representative or a notary public. While the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides tax breaks for certain coronavirus-related distributions from both defined benefit and defined contribution plans, it did not liberalize the distribution requirements for defined benefit plans. The combination of social distancing and the continued physical presence requirement has proved to be a hindrance for married participants seeking distribution of pension plan benefits in a form other than a qualified joint and survivor annuity.

Weighing the need for relief during the pandemic with the importance of protecting spouses’ interests in retirement plan benefits, the IRS has provided temporary relief from the physical presence requirement. The relief is effective only for elections made during calendar year 2020, and is available only if certain requirements are satisfied.

Under the Notice, for now, the physical presence requirement may be satisfied by an electronic presence, using live audio-video technology that otherwise satisfies the requirements for an electronic election. If a notary public will witness the election, applicable state law must allow the notary to perform his or her services remotely.

As an alternative (and regardless of whether or not state law allows notarization to be accomplished remotely), a plan representative may witness a spouse’s signature using live audio-video technology if the following requirements are met:

  • The individual signing the election must present valid photo identification to the plan representative during a live audio-video conference;
  • The live audio-video conference must allow for direct interaction between the individual and the plan representative;
  • The individual who signed must send a legible copy of the signed document directly to the plan representative on the same date it was signed, by fax or other electronic means; and
  • After receiving the signed document, the plan representative must acknowledge that the signature has been witnessed by the plan representative in accordance with the requirements of the Notice and transmit the signed document, including the acknowledgement, back to the individual using a system that satisfies the applicable notice requirements under the IRS regulations’ standards for the use of an electronic medium.

On May 21, 2020, the US Department of Labor (DOL) and the Employee Benefits Security Administration (EBSA) issued final regulations expanding the use of electronic disclosures for retirement plans. The regulations provide a new safe harbor that will substantially ease the use of electronic delivery by retirement plan administrators to satisfy the disclosure requirements of Title I of the Employee Retirement Income Security Act of 1974 (ERISA). The new regulations were published in the Federal Register on May 27, 2020, and they take effect on July 27, 2020 (though the DOL will not take enforcement action against a plan administrator that relies on the regulations’ new safe harbor before that date).

Continue Reading The DOL Embraces Wider Use of Electronic Notices for ERISA Disclosures

The Department of Labor’s recent pronouncement on the permissibility of investing 401(k) and other defined contribution plan assets in private equity has gotten wide-spread attention. Yet the guidance, which was issued in the form of an information letter, does not establish any new fiduciary principles, or provide any exemptions under the Employee Retirement Income Security Act of 1974 (“ERISA”). Nevertheless, the guidance is of great significance to the industry and this blog discusses why. Continue Reading DOL Issues Guidance about Private Equity Investments in 401(k) Plans

The IRS and the Treasury Department, acknowledging the widespread impact of COVID-19, have issued Notice 2020-29 and Notice 2020-33, granting much-sought flexibility for flexible spending accounts (“FSAs”) and health plans.  Though the Section 125 cafeteria plan rules applicable to FSAs and health plans already permitted some limited election changes in the case of changes in status (for example, in the event of significant cost or coverage changes), they did not address the wide array of changes that many participants have wanted to make based on the ripple effects of the COVID-19 crisis.  In addition, the existing Section 125 rules required that any change to the election be consistent with (as determined under the rules) and on account of the applicable change in status.

Continue Reading Flexibility for Flexible Spending Accounts in Light of COVID-19

During the economic downturn associated with the COVID-19 pandemic, some 401(k) plan sponsors may be considering a mid-year reduction or suspension of matching contributions or nonelective contributions to their 401(k) plans as a cost-saving measure. Generally, whether the matching or nonelective contributions may be reduced or suspended will depend on the specific terms of the plan. In addition, in the case of  a plan that is intended to be a safe harbor plan under sections 401(k) or 401(m) of the Internal Revenue Code of 1986 as amended (the “Code”), the Code imposes particularly restrictive rules limiting mid-year changes. The following summarizes steps that a plan sponsor must take to reduce or suspend matching or nonelective contributions to its safe harbor plan during the plan year without jeopardizing the plan’s tax-qualified status.

Continue Reading Reducing or Suspending Matching or Nonelective Contributions Under a Safe Harbor Plan

The Department of Labor (together with the Treasury Department) has issued helpful deadline relief for participants and beneficiaries in health, disability, other welfare and pension plans, as well as for plan sponsors and administrators of such plans, during the COVID-19 National Emergency.  The guidance came just in time for plan administrators at risk of missing the deadline for distributing annual funding notices, which was April 29 this year.

Continue Reading DOL Issues COVID-Related Deadline Relief

In addition to addressing the benefit and compensation provisions of the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) for their general employee population, most company boards of directors (or applicable board committees) are also grappling with the unique issues relating to compensation and benefits of their executive employees at an uncertain time when such employees are critical to the company’s ability to weather the storm. See our blog post on Mayer Brown’s COVID-19 blog (republished by the Harvard Law School Forum on Corporate Governance here) for a summary of some of the key executive compensation issues that boards and executives may want to consider during these trying times.

In the third and final of a series, our employment and benefits teams take an in depth look at the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act” or the “Act”) affecting employment, compensation, payroll taxes and paid leave. Read more on the Mayer Brown COVID-19 Blog.

In the second of a series, our benefits team takes an in depth look at the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) affecting retirement plans. Changes include new coronavirus-related distributions, modified plan loan rules, and a temporary waiver of required minimum distributions.  Read more on the Mayer Brown COVID-19 blog.