In light of the lingering COVID-19 pandemic and its impact on employee productivity and health care expenses, employers are considering imposing a premium surcharge on employees participating in the company’s health plan who are not vaccinated against COVID-19.

As we have discussed here, several federal laws must be taken into consideration when designing such a surcharge including the Affordable Care Act (ACA), the Americans with Disabilities Act (ADA), the Health Insurance Portability and Accountability Act (HIPAA), and wellness rules.  As employers engage in the requisite legal analysis, the opening question is, “How much can the surcharge be?”

Health insurance coverage must still be “affordable,” as defined by the ACA.  Under IRS regulations, when determining whether an employee’s cost of coverage is “affordable,” an employer generally may not consider any incentives offered under wellness programs.  The lone exception to this rule is a non-smoking incentive, where employers may use the premium amount for non-smokers in the affordability calculation. While the current administration’s policies point toward encouraging vaccination, at this time, there is no exception to complying with the ACA’s affordability rules for a vaccine surcharge.  As a result, health insurance must still be “affordable,” as defined by the ACA, or else penalties might apply, as we discussed earlier.

What is Affordable:  For plan years beginning in 2021, employer-sponsored coverage will be considered affordable if an employee’s required contribution for self-only coverage for the least-expensive plan option that meets ACA requirements does not exceed 9.83% of the employee’s household income for the year.  The IRS publishes the percentage rate each year; for 2022, the rate is 9.61%.  Because employers rarely have the household income information of their employees, the regulations under Internal Revenue Code Section 4980H provide three safe harbors under which an employer may determine affordability based on information readily available to the employer.

  1. The federal poverty line safe harbor.  This safe harbor provides employers a predetermined maximum amount of employee contribution that in all cases deems the coverage to be affordable.  The federal poverty line is $12,880 for an individual in 2021. (The amount is slightly different for any employees in Hawaii and Alaska.)  That amount divided by 12 and multiplied by 9.83% equals an allowable premium of $105.51 for 2021.
  1. The rate of pay safe harbor.  To calculate this amount, multiply 130 hours by the lower of (a) the employee’s hourly rate of pay as of the first day of the coverage period (generally the first day of the plan year) or (b) the employee’s lowest hourly rate of pay during the calendar month.
  1. The Form W-2 wages safe harbor.  Application of this safe harbor is determined after the end of the calendar year and on an employee-by-employee basis, taking into account the Form W–2 wages and the required employee contribution for that entire year.

Total Surcharges Cannot Exceed 30 Percent.  In determining the amount of a premium surcharge, employers must also consider the rule established under HIPAA (as amended by the ACA), which provides that it is allowable for employers to encourage participation in certain types of wellness programs by offering incentives of up to 30 percent of the total cost of an employee’s health insurance premiums for self-only coverage.  Thus, any surcharge imposed on an unvaccinated worker cannot be more than 30 percent of the total cost of an employee’s health insurance premiums for self-only coverage when combined with any existing surcharge.

What’s the Answer?  The allowable surcharge amount will vary for every employer depending on the cost of health insurance, any other surcharges or incentives under an existing wellness program, the level at which health insurance is currently subsidized, and the rate at which employees are compensated.

For more information about imposing a health insurance premium surcharge on unvaccinated employees or other health insurance related questions, please contact the author or the Jackson Lewis attorney with whom you regularly work.

Testing for COVID-19 certainly has evolved over the past 18 months or so. As supply and allocation continue to face challenges, guidance on serological/antibody versus viral testing, testing in the workplace, informed consent, among other things have emerged to help guide coronavirus testing in the workplace. President Biden’s Path out of the Pandemic (the “Path”) seeks to drive higher levels of COVID-19 vaccination, while allowing COVID-19 testing as an option under certain components of the Path. Testing as an option to vaccination is likely to create more demand for a product already in high demand, and organizations may need to think more carefully about how the President’s Path may change their current COVID programs. More at home testing may be what is needed to help get further down the Path.

A significant part of the Path for employers is the anticipated rule from the Department of Labor for employers with 100 or more employees. The Path explains:

The Department of Labor’s Occupational Safety and Health Administration (OSHA) is developing a rule that will require all employers with 100 or more employees to ensure their workforce is fully vaccinated or require any workers who remain unvaccinated to produce a negative test result on at least a weekly basis before coming to work. OSHA will issue an Emergency Temporary Standard (ETS) to implement this requirement. This requirement will impact over 80 million workers in private sector businesses with 100+ employees.

Employers’ struggle to get more of their workers vaccinated for COVID-19 continues. There are several reasons, more than can be identified and explained here. But some include the vaccine’s only having FDA Emergency Use Authorization (EUA) versus full FDA approval (although that is wearing away), required reasonable accommodations for disability and sincerely held religious beliefs, fears about complications from the vaccine, etc.

This has not stopped employers from rolling out a bevy of creative measures to drive vaccination levels higher – gift cards, paid time off, raffles, health plan premium surcharges, increase in paid holidays, and other perks for those who get the vaccination. Some of these efforts have helped. Delta Airlines recent announcement of a $200 health plan premium surcharge is reported to have moved 4,000 of its 20,000 unvaccinated employees to get the vaccination. Still, according to health experts, levels of vaccination are not where they should be and the Delta variant continues to spread.

It is likely, at least in the short run, that a significant segment of the population will remain unvaccinated, notwithstanding the President’s Path, DOL guidance, and employer incentives. So, as weekly testing is likely to become more common, employers will need to manage that cadence at a reasonable cost and with minimal administration, and at home testing may be the answer for a lot of organizations. As reported by the Washington Post:

Most take-home tests, including BinaxNOW and Quidel’s QuickVue test, are antigen tests that look for protein pieces of the virus. PCR tests detect the virus’s genetic material.

Home tests are less sensitive than PCR tests and tend to be better at turning up positive results in people who are symptomatic than those without obvious signs of illness. But they offer some key advantages. Results usually show up in 10 to 15 minutes. And they can be administered at the point of care — nursing homes, clinics, schools, private residences. Most PCR tests are administered at testing sites and need to be sent to labs, meaning turnaround time is almost always 48 hours or more.

There are still lots of issues that need to be considered, not the least of which are the anticipated guidance from the DOL/OSHA and cost. On the issue of cost, one question has been whether at home or other point-of-care tests have to be covered under a group health plan. CMS guidance from earlier this year provides some insight:

Q4. Do point-of-care tests for COVID-19 have to be covered without cost sharing under the FFCRA?

Yes. The FFCRA and the CARES Act make no distinction between point-of-care and other tests; all COVID-19 diagnostic tests that meet one of the criteria outlined in section 6001 of the FFCRA, as amended by section 3201 of the CARES Act, must be covered without cost sharing, prior authorization, or medical management (including for asymptomatic individuals with no known or suspected exposure to COVID-19). 

However, the same guidance clarifies “plans and issuers are not required to provide coverage of testing such as for public health surveillance or employment purposes. But there is also no prohibition or limitation on plans and issuers providing coverage for such tests.

Nonetheless, as employers begin to ramp up to get on the President’s Path, at-home antigen testing for employees may be a significant part of their plans.    

With the end-of-the-year hustle already around the corner, now is a great time to dust off your company’s ERISA fiduciary liability policy to ensure your plan fiduciaries have robust, comprehensive coverage.  Fiduciary liability policies provide coverage for claims related to the administration and operation of retirement and health and welfare plans.  Unlike D&O coverage, fiduciary liability policies rarely get much attention but can similarly provide significant protection to a company’s Board or other plan fiduciaries.

While renewing a fiduciary liability policy is one of the yearly items that employers often do automatically, it’s essential to know before the renewal what a policy covers—and what it excludes—to identify and address any gaps in protection. A review of a policy, to ensure it provides robust coverage, should consider issues such as whether the policy covers all plan fiduciaries (including a committee) and whether the level of coverage is adequate to cover full liability exposure for issues like statutory taxes/penalties (e.g., IRS penalties for retirement plans, HIPAA violations, ACA coverage, and reporting assessments), pre-claim investigations, audits, regulatory correction program participation, and cybersecurity, to name a few.

Having a robust fiduciary liability policy in place is a crucial element to an employer’s comprehensive benefits program.  And fully understanding the scope of coverage before a claim arises or renewing the policy is a best practice to avoid surprises later.

The attorneys at Jackson Lewis have deep experience working with fiduciary liability policies and helping employers negotiate new or renewed comprehensive fiduciary liability insurance coverage.  If you have questions or would like assistance in reviewing your company’s fiduciary liability insurance policy, please contact a team member or the Jackson Lewis attorney with whom you regularly work.

San Francisco’s Measure L, which passed with the overwhelming support of the voters, will be effective in 2022 for businesses operating in the City of San Francisco. Measure L, titled the “Overpaid Executive Gross Receipts Tax,” imposes an additional tax on gross receipts or payroll expenses of any business in which the CEO (or highest-paid managerial employee) earns more than 100 times the median compensation of its employees. Companies with a CEO pay ratio of 100:1 or more will be subject to the Measure L tax, and the tax rate will increase for every additional 100 times the CEO’s pay exceeds the median worker’s pay. The tax rate reaches its maximum level when the ratio reaches 600 to 1, with a maximum tax on payroll of 2.4% or a surcharge on the gross receipts tax of up to .6%. Businesses exempt from the City’s gross receipts tax due to being a small business enterprise are exempt from the pay ratio tax. Also exempt are some nonprofit organizations and businesses exempt from local taxation, such as banks and insurance companies. According to the City of San Francisco estimates, they expect the measure to generate between $60 million and $140 million a year in taxes starting in 2022. Revenue from the tax will become part of San Francisco’s general fund.

While, for the San Francisco tax purposes, the CEO of a business may be located anywhere, the pool of workers that San Francisco identifies for the median pay amount is limited to those workers based in San Francisco. Pay will include compensation made from stock awards, bonuses, commissions, property transferred, and other payment for services. The hospitality industry, already suffering from COVID-19-related restrictions, may be most susceptible to this tax because of the low-paid nature of its workforce. In contrast, the tax may not affect technology companies because most employees are highly paid engineers.

The stated objective of Measure L is to address income disparity. The intent is for companies subject to the new ordinance to address the pay gap between executives and the rest of the workforce. Businesses should include a review of executive total compensation as part of their analysis to address the effect of Measure L.

Jackson Lewis will continue to monitor local, state, and federal regulations regarding employee compensation. If you have questions about this or other local ordinances affecting employers, contact a Jackson Lewis attorney to discuss.

According to, more employers are considering imposing a premium surcharge on employees participating in the company’s health plan who are not vaccinated for COVID-19. Whether positioned as rewards or penalties, wellness program incentives have become vehicles of choice for encouraging behaviors believed to be healthy and reducing health plan costs. For years, tobacco users have faced health plan premium surcharges if they failed to cease using tobacco products (and if they also failed to comply with reasonable alternatives, such as completing a smoking cessation program). More COVID-19 “unvaccinated” employees may start facing similar surcharges if they choose to remain unvaccinated for COVID.

Implementing a COVID-19 premium surcharge wellness program to provide an incentive for more plan participants to get vaccinated comes with some compliance challenges. Those challenges depend largely on the design of the program and the administration of it. And, unfortunately, the guidance surrounding wellness programs, particularly from the Equal Employment Opportunity Commission (EEOC), remains less than clear. Check out a brief history of the EEOC’s position on wellness (prior to recent updated to its pandemic guidance).

Employers considering a health plan premium surcharge for plan participants who remain unvaccinated have some issues to consider in structuring the program, such as:

  • How much will the surcharge be?
  • How does a vaccination surcharge interact with other wellness incentives the employer offers?
  • Will the surcharge apply only with respect to employees who remain unvaccinated? What about spouses and dependents (assuming a COVID-19 vaccination is available)?
  • How long should plan participants have to get fully vaccinated?
  • What proof will be required to establish vaccination? There has been a rise in fake vaccination cards, and a warning from the FBI that making or buying such cards is a crime. What are the consequences under the plan for a participant who submits a fake card?
  • Is the vaccination requirement “participatory,” or is it “health-contingent”? If health contingent, and considered “activity only,” what reasonable alternative standard will be made available should vaccination be medically inadvisable for the participant?
  • What protections are in place for the handling of vaccination data and, in some cases, medical data supporting a reasonable alternative standard, all of which constitute protected health information under HIPAA?
  • Does the Americans with Disabilities Act apply even if vaccination does not constitute a disability-related inquiry or a medical examination? In other words, what reasonable accommodations need to be made available, if any?
  • As COVID-19 variants continue to emerge along with more talk of vaccine boosters, should the program also include boosters, if available?

On May 28, 2021, the EEOC updated its pandemic guidance to clarify that employers may offer employees an incentive if the confirm they have been vaccinated on their own from a pharmacy, public health department, or other health care provider. According to the same guidance, employers may even offer an incentive to employees for voluntarily receiving a vaccination administered by the employer or its agent, so long as the incentive (a reward or penalty) is not “so substantial as to be coercive.” However, the incentive may not extend to the employee’s family members receiving a vaccination administered by the employer or its agent as that could violate Title II of the Genetic Information Nondiscrimination Act, according to the EEOC.

Prior to its May 2021, guidance, the EEOC had issued a notice of proposed rulemaking (NPRM) attempting to clarify its position on wellness program. Withdrawn by the incoming Biden Administration, the NPRM is summarized here. Notably, the general rule that would have permitted only de minimis incentives, came with an exception for health-contingent wellness programs that (i) are part of, or qualify as, group health plans and (ii) are subject to and comply with the applicable provisions of the ACA/HIPAA wellness rule. Such programs would have been able to provide more than de minimis incentives, provided there were not greater than what is permitted under the ACA/HIPAA wellness rules.

Some employers are moving beyond incentives, including surcharges, to simply mandate COVID-19 vaccinations on the condition of employment. That approach comes with its own set of issues and risks. However, organizations choosing a health plan premium surcharge wellness program approach will want to consider these and other related issues carefully.

The American Rescue Plan Act of 2021 (“ARPA”) kept many practitioners busy this spring/summer, as may be evident by our discussions here, here, here, and here.

Under one of ARPA’s most impactful provisions, employees who were involuntarily terminated or had their hours reduced (and who met certain other criteria) became eligible for fully subsidized COBRA coverage from April 1, 2021, through September 30, 2021.   This led to a bit of a scramble for plan sponsors, COBRA administrators, insurers (and their counsel!) to understand the new law’s many nuances and properly inform outgoing (and some already exited) employees of their ARPA rights in a timely manner.

Now, with the September 30 end date approaching, there is one final action item.  Under ARPA, those assistance eligible individuals (or AEIs) receiving subsidized coverage must be sent notice of the end of their subsidy no less than 15 days and no more than 45 days in advance.  The Department of Labor has provided a sample Notice of Expiration of Period of Premium Assistance.

While this requirement has applied all along (for example, to any AEI whose maximum COBRA coverage period ended this summer), these notices must be sent to the vast majority of the AEIs between August 16 and September 15 to reflect the end of the COBRA subsidy period generally on September 30, 2021.

After an unprecedented 18 months – and with a lot of moving pieces involved in all of the benefits and work-place related COVID-19 relief guidance – it would be easy to let this one fall through the cracks.  This post serves as a friendly reminder to plan sponsors to check in with their COBRA administrators (or their internal team, if they self-administer COBRA) to ensure the ball is rolling on these additional required notices.

Please contact a Jackson Lewis Employee Benefits Practice Group member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

An employer’s permanent cessation of contributions to a multiemployer pension plan can trigger withdrawal liability. This liability may reach affiliated trades or businesses with sufficient common ownership to be under “common control” with the employer. The affiliates would be jointly and severally liable for withdrawal liability incurred and unpaid by the withdrawing affiliate.

Courts often struggle with the complex and fact-intensive distinction between a trade or business (liable for control group members’ withdrawal liability) and a passive investment (not liable). However, for the Seventh Circuit, the result is clear where commonly owned real estate is leased to or used by the withdrawing employer. In Local 705 Int’l Bhd. of Teamsters Pension Fund v. Pitello, (7th Cir. 2021), it reaffirmed the rebuttable presumption that leasing real property to a withdrawing employer is a trade or business.

The Pitello brothers owned a unionized business, another operating company, and a parcel of real property on which both companies operated. Neither company had a written lease agreement nor paid any rent. Shortly after the unionized company ceased all covered operations in 2018, the brothers (through their non-union company) leased the property to a third party. The Local 705 Pension Fund assessed withdrawal liability against the brothers and their companies, but the Pitellos ignored the demand. The Fund sued the defunct union company, the non-union company, and the Pitello brothers individually as trades or businesses under common control with the union company.

The Pitellos unsuccessfully argued that the property was a passive investment, not a “trade or business,” and, therefore, they were not liable for the debts of the defunct union entity.

The appeals court first noted there was no statutory definition of “trade or business.” It then used the test developed for tax purposes by the Internal Revenue Service, Commissioner v. Groetzinger, (1987), which focuses on “two questions: (1) whether the activity is for the primary purpose of income or profit; and (2) whether the activity is undertaken with continuity and regularity.”

The Groetzinger test is simplified, the Court said, when it comes to leasing property, since “leasing property to a withdrawing employer is categorically a ‘trade or business.’” Circuit precedent provides that a fact-specific inquiry is not needed in the leasing context because, “where the real estate is rented to or used by the withdrawing employer and there is common ownership, it is improbable that the rental activity could be deemed a truly passive investment.” Central States, Southeast and Southwest Areas Pension Fund v. Messina Prod., LLC, (7th Cir. 2013). The Pitello Court explained there is a rebuttable presumption that leasing real property to a withdrawing employer is a trade or business. It had no trouble disposing of the brothers’ attempts to rebut the presumption and affirming the district court’s judgment in favor of the Local 705 Pension Fund.

Where the property at issue is both commonly owned and used by the withdrawn employer, under Pitello, arguing that leasing property to an affiliated employer is not a trade or business is difficult at best. The other potential avenue would have been to structure the property ownership so that the real estate entity would not be a control group member. Depending on the facts, this structure might result in an “evade or avoid” claim under ERISA Section 4212(c).

Real property is often the withdrawing employers’ most valuable asset. Understanding your potential withdrawal liability and making informed decisions before an assessment of withdrawal liability is paramount to limiting exposure for liability.

Please contact the authors or the Jackson Lewis attorney with whom you work if you have questions.

Employers in Illinois with at least 5 employees must soon comply with the Illinois Secure Choice Savings Program Act (Secure Choice) or offer employees an employer-sponsored retirement plan.


Secure Choice requires employers to automatically withhold five percent of an employee’s compensation (up to the annual maximum allowed for IRA contributions each year as provided by the IRS), unless the employee elects a different amount or opts out of the program, and to remit those contributions to the Secure Choice program.

Under the original program, employers that satisfy these criteria are subject to the Secure Choice program:

  1. Have at least 25 employees as reported to the Illinois Department of Employment Security (IDES) for unemployment insurance payments;
  2. Have been operating in Illinois for at least two years; and
  3. Do not offer a qualified retirement plan to any Illinois employees. (A qualified retirement plan under sections 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b).)

You can find more detailed information about the originally-enacted Secure Choice program on our blog (available here).

New Requirements

The newly enacted law makes several notable changes to Secure Choice, including:

  • The 25-employee threshold is reduced to 5 employees. Now, the program will apply to employers with at least 5 employees in the state during every quarter of the previous calendar year. The employer determines the total employee count using the annual average from the employer-reported quarterly data.
  • Secure Choice now includes annual, automatic increases to the contribution rates up to a maximum of 10% of an enrollee’s wages. The Illinois Department of Revenue will establish a schedule for the automatic increase.
  • The changes clarify that the second year of non-compliance need not be consecutive for applying the $500 noncompliance penalty.
  • Employers now have 120 days (rather than 90 days) after issuance of a notice of proposed penalty assessment for noncompliance to file a protest with the department or come into full compliance.
  • The changes allow providing notices electronically rather than only by first class mail.

When Effective

The program will notify employers before their scheduled start time to allow them time to register. The schedule is:

Wave 1: The enrollment deadline for employers with fewer than 25 employees and more than 15 employees will be no sooner than September 1, 2022

Wave 2: The enrollment deadline for employers with at least 5 employees but not more than 15 employees will be no sooner than September 1, 2023.

The Illinois Secure Choice website provides additional information, including FAQs.

If you have questions or would like assistance in understanding your company’s obligations under Illinois Secure Choice, don’t hesitate to contact a team member or the Jackson Lewis attorney with whom you regularly work.

In April, we posted about the U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) issuing cybersecurity guidance for employee retirement plans. That is, April 14, 2021. Shortly thereafter, the DOL updated its audit inquiries to include probing questions for plan fiduciaries about their compliance with “hot off the press” agency guidelines.

So, what do those inquiries look like?

In short, the DOL is asking plan sponsors to produce:

all documents relating to any cybersecurity or information security programs that apply to the data of the Plan, whether those programs are applied by the sponsor of the Plan or by any service provider of the Plan

For plan fiduciaries that are new to cybersecurity and have not received a DOL audit in the last few months, it may not be clear what documents or materials the DOL is expecting. The DOL fleshes out its general inquiry with a laundry list of items. Here are some examples of those more specific requests:

  • All policies, procedures, or guidelines relating to such things as:
    • The implementation of access controls and identity management, including any use of multi-factor authentication
    • The processes for business continuity, disaster recovery, and incident response.
    • Management of vendors and third party service providers, including notification protocols for cybersecurity events and the use of data for any purpose other than the direct performance of their duties.
    • Cybersecurity awareness training.
    • Encryption to protect all sensitive information transmitted, stored, or in transit.

The list above is not complete, but it makes clear the DOL is looking for information about what plan fiduciaries are doing to safeguard their own information and systems to address privacy and security, not just that of their service providers. Some plan fiduciaries might be wondering what should policies, procedures, or guidelines look like to protect plan data. There are many frameworks to consider when adopting reasonable safeguards. Examples include guidance published by the National Institute of Standards and Technology, the New York SHIELD Act, the Massachusetts data security regulations, the privacy and security standards under HIPAA, etc.

In addition to policies, procedures, and guidelines summarized above, the DOL also seeks in its audit request copies of other materials, some of which are listed below.

  • “All documents and communications relating to any past cybersecurity incidents.”

So, evidently, the DOL would like to discover whether the plan had a prior cybersecurity incident. It is unclear whether this request refers only to “breaches of security” or similar terms as defined under state breach notification laws which require notification, or mere “incidents” that do not rise to the level of a reportable breach.

  • “All documents and communications describing security reviews and independent security assessments of the assets or data of the Plan stored in a cloud or managed by service providers.”

Here the DOL makes a distinction between plan “assets” and plan “data,” seeking security reviews and assessments relating to both. Recent litigation called into question whether plan data could be considered a “plan asset.” In one of the most recent cases, Harmon v. Shell Oil Co., 2021 WL 1232694 (S.D. Tex. Mar. 30, 2021), the U.S. District Court for the Southern District of Texas rejected the argument that plan assets include plan data.

  • “All documents describing security technical controls, including firewalls, antivirus software, and data backup.”

An important note here is that it may not be enough to say, “we are doing this,” or “we have implemented antivirus and firewalls to protect our information systems.” The DOL is looking for documents that describe those safeguards and controls.

  • “All documents and communications from service providers relating to their cybersecurity capabilities and procedures.”
  • “All documents and communications from service providers regarding policies and procedures for collecting, storing, archiving, deleting, anonymizing, warehousing, and sharing data.”
  • “All documents and communications describing the permitted uses of data by the sponsor of the Plan or by any service providers of the Plan, including, but not limited to, all uses of data for the direct or indirect purpose of cross-selling or marketing products and services.”

The DOL would like to see how plan fiduciaries are communicating with their service providers to assess service provider cybersecurity risk, as well as the documents and other materials from service providers concerning the processing of plan data. Importantly, the DOL is not just looking for cybersecurity related information. The agency apparently wants to know how service providers are permitted to use plan data. Plan fiduciaries will want to think carefully about their current practices, including their communications, when selecting and working with service providers.

No plan fiduciary wants to experience a DOL audit of their retirement plans, or any other audit for that matter. But cybersecurity clearly is a new and important area of interest for the DOL and plan fiduciaries need to be prepared to respond. Feel free to contact us if you would like to discuss audit readiness concerning cybersecurity for your plans.

Every few years, the IRS enhances its popular correction program for qualified retirement plans (the Employee Plans Compliance Resolution System, or EPCRS) to continue to encourage plan sponsors to correct any plan failures and bring their plans into compliance.  Revenue Procedure 2021-30 reflects this latest enhancement of IRS correction guidance.  Here is a summary of some of its helpful changes:

Anonymous Submissions.  The IRS will replace its anonymous Voluntary Correction Program (VCP) submission process with a no-fee VCP pre-submission conference, effective January 1, 2022.  Many practitioners already bypass the cumbersome anonymous VCP submission process by having informal discussions about a proposed correction with IRS VCP staff before deciding whether to use the VCP.  The new revenue procedure entirely eliminates the anonymous VCP submission in favor of an anonymous no-fee pre-submission conference.  The sponsor’s representative will receive verbal feedback from the IRS about the failure and proposed correction method.  Although the new, less formal process is helpful, there are drawbacks — the pre-submission conferences are granted at the IRS’s discretion and the guidance is advisory and non-binding.

Self-correction — Extended Correction Period for Significant Failures.  The Self-Correction Program (SCP) allows plan sponsors to correct significant operational failures without filing with the IRS, but only until the end of the second plan year following the plan year in which the failure occurred.  After that, the sponsor would have to correct the failure under the VCP.  The new revenue procedure extends the SCP deadline for significant operational failures until the end of the third plan year following the year in which the failure occurred.  (Most insignificant failures can still be self-corrected at any time.) It also extends by three years (until December 31, 2023), the period during which certain “elective deferral failures” in plans with an automatic contribution features are correctable without requiring the employer to make contributions for “missed deferrals” on behalf of affected participants.  This popular safe harbor provision for plans with automatic contributions was originally set to expire on December 31, 2020.

Plan Amendments Under SCP.  The new revenue procedure also relaxes the rules about when a plan sponsor may use the SCP to correct certain failures by retroactive plan amendment.  Under Rev. Proc. 2021-30, self-correction by retroactive plan amendment is available if the amendment increases a benefit, right, or feature in the plan, even if the amendment does not apply to all employees eligible to participate in the plan (as was previously required to use the SCP).

Recoupment of Pension Plan Overpayments.  Certain operational failures cause overpayments to participants, and plan sponsors may find it difficult or unpleasant to recoup those payments.  Under the new guidance, the IRS clarifies and expands the options for recoupment available to defined benefit plan sponsors.

Although plan sponsors may have wished for more, these changes to the IRS correction program are welcome and likely to be highly utilized.  The Employee Benefits group at Jackson Lewis remains available to help navigate the new guidance and any other retirement plan issues that may arise.   Please contact a team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.