In May the United States Court of Appeals for the Ninth Circuit ruled that California’s automatic enrollment IRA program known as CalSavers was not preempted by the federal law, ERISA.  See, Ninth Circuit Holds CalSavers Is Not Preempted By ERISA. . . 6/30 Deadline Approaching.  CalSavers mandates that California employers of a certain size must automatically deduct 5% of an employee’s pay and contribute it to CalSavers unless the employer maintains a retirement plan.  Failure to do so results in penalties to the employer.  The automatic contribution automatically escalates 1% per year up to 8% unless the employee opts out of the escalation.  CalSavers invests the contributions in Roth IRAs for the employee unless the employee opts out of the program or elects a traditional IRA.  The reason for the law was that not enough California employers offer retirement plans.  Currently, employers with 50 or more employees without a retirement plan must register with CalSavers.  That threshold goes down to 5 employees next June.

Contained in the Biden 3.5 trillion dollar budget proposal is a provision to enact a similar federal mandated program to be effective in 2023.  The House Ways & Means Committee approved the proposal on September 9.  It now goes to the Budget Committee to see if it will make the final version that goes to the House floor.  The provision requires employers with 5 or more employees that do not offer a retirement plan to pay a penalty of $10/day per employee.  Employers would have to deduct 6% of the employee’s pay unless the employee opts out.  The contribution escalates 1% per year until it reaches 10%.

A key difference in the federal proposal is that unlike CalSavers that is run by the state of California with limited employer involvement, the proposal requires the employer to adopt a plan which could be a deferral only 401(k) plan or an IRA based plan.  State mandated programs like CalSavers would also qualify.

The major reason for the proposal is that Americans are simply not saving enough for retirement.  Nearly half of people aged 55 or older have nothing saved for when they stop working, according to a 2019 U.S. Government Accountability Office report.  Of course, the fate of the budget proposal is uncertain with the politics on Capitol Hill.  Stay tuned for further developments.

 

On July 16, 2021, the IRS released its updated Employee Plans Compliance Resolution System (EPCRS) by issuing Rev. Proc. 2021-30 setting forth the parameters of the program and replacing the former governing revenue procedure, Rev. Proc.  2019-19.  EPCRS is a comprehensive system under which employers can save the favorable tax treatment of retirement plans intended to be qualified retirement plans under Internal Revenue Code (Code) section 401(a), 403(b) plans, or SEP and SIMPLE IRAs when they have failed to meet the requirements of the Code either in operation or in their plan document.  Changes to EPCRS include: expansion of the Self-Correction Program (SCP); the elimination of anonymous Voluntary Correction Program (VCP) submissions, but creation of free anonymous pre-submission VCP conferences; as well as other changes.

EPCRS establishes three distinct programs for correcting operational and documentary failures of retirement plans, allowing a plan to be corrected and maintain tax-favored status under the Code despite an otherwise disqualifying error.  These programs are the SCP, the VCP, and Audit-CAP.   SCP allows employers to voluntarily self-correct certain failures without having to file with the IRS and obtaining its consent.  The VCP allows employers, whose plans are not under examination by the IRS, to voluntarily bring errors in plan documentation or operation to the attention of the IRS, pay a user fee based on the plan’s assets, propose a correction method, and receive a compliance statement from the IRS stating if the corrections are made within 150 days of the date of the statement, the IRS will not disqualify the plan because of the error.  The Audit-CAP program allows the employer whose plan has been audited by the IRS and found to include a disqualifying failure to pay a sanction amount, correct the failure, and keep the plan qualified for participant employees.

Expansion of SCP.  Under prior versions of EPCRS, insignificant operational failures could be self-corrected at any time while significant failures could only be self-corrected if the correction was completed by the end of the second plan year after the plan year in which the failure first occurred.  Rev. Proc. 2021-30 provides, effective July 16, 2021, the period for self-correcting significant operational failures is extended to the end of the third plan year after the plan year in which the failure occurred.  This is a welcomed change as it give employers longer to discover and self-correct any such failures without having to submit to the VCP and pay a user fee.  Additionally, EPCRS now makes it easier to self-correct operational failures through retroactive plan amendments effective July 16, 2021, by eliminating a confusing and difficult requirement that all participants in the plan (not just those affected by the failure) benefit from the retroactive amendment.

While these changes to the SCP are welcomed, notably there was no change to how one determines whether an operational failure is significant.  The new EPCRS still lists the 7 factors to consider and only provides examples of how to apply them.  This means that in close cases a VCP submission is the only way to ensure the IRS won’t challenge the correction.

Anonymous VCP Submissions.  Under Rev. Proc. 2021-30, effective January 1, 2022, the ability to file an anonymous VCP submission is eliminated.  Currently, employers’ representatives can file under VCP without disclosing their identity until the IRS agrees the failures can be corrected under VCP.  This was very useful when the nature of the failures were such that it was unclear if they qualified or whether the employer’s proposed correction was acceptable.  Encouraging though is the creation of the anonymous pre-submission conference beginning next January.  Under this procedure, employers’ representatives can request a conference with the IRS to discuss a potential VCP submission without disclosing the identity of the employer or paying a user fee.  Failures for which there are safe harbor corrections described in EPCRS are not eligible.  The conferences are at the discretion of the IRS and, if granted, the IRS will provide advisory oral feedback that is not binding.  After the conference, if the employer wishes to file a VCP submission, it cannot be anonymous and the user fee must be paid.

Employers currently considering anonymous VCP submissions should consider whether they want to file before January 1, 2022, or file for a pre-submission conference in 2022, or just forgo filing anonymously.

Other Changes. Rev. Proc. 2021-30 contains other changes as well.  Effective July 16, 2021, it expands to defined benefit plans correction principles previously applicable only to defined contribution plans regarding overpayments to participants or beneficiaries.  Defined benefit plans may now be corrected without requiring the recipient to re-pay the plan by reducing future payments.  Under certain circumstances, the employer need not re-pay the plan either.

Rev. Proc. 2021-30 also extends a safe harbor correction method for missed elective deferrals for automatic enrollment contributions in a 401(k) or 403(b) plan.  The safe harbor provides that no QNEC is required for the missed deferral, provided correct deferrals begin within a certain time.  Matching contributions that would have been made had the missed deferrals been made must still be made, with earnings. The safe harbor sunset as of December 31, 2020 but is now extended through December 31, 2023.

Rev. Proc. 2021-30 also increases the dollar amount considered de minimis and not requiring correction for certain overpayments to a participant or excess amounts contributed on behalf of a participant from $100 to $250.  This change is effective July 16, 2021.

Conclusion.  EPCRS is a very beneficial program for keeping the favorable tax treatment of retirement plans when the plan has experienced a failure to comply with the Code.  The IRS continues to try to improve the program every couple of years with a new revenue procedure.  Employers who are aware of disqualifying failures in their plan should consult with legal counsel to see what Rev. Proc. 2021-30 means for their plans.

On June 17, the U.S. Supreme Court finally decided California v. Texas, the case challenging the constitutionality of the Affordable Care Act (ACA) after the penalty for not complying with the individual health insurance mandate was reduced to zero in the 2017 Tax Act.  Many believed the case would center around whether the rest of the ACA could be severed from the individual mandate if the Court found the mandate unconstitutional.  See, Could Severalbility Be The Treat That Foils Senate Republican’s ACA Supreme Court Trick? However, the Justices did not even reach that issue because they found in a 7-2 decision that the challengers lacked standing to bring the lawsuit in the first place.

The challengers’ (two individuals, Texas, and 17 other Republican states) argument was fairly straight forward.  In 2012 the Supreme Court upheld the constitutionality of the individual mandate under the taxing power of Congress.  In the 2017 Tax Act, Congress reduced the penalty for not complying with the individual mandate to zero.  Therefore, there was no longer a tax and the individual mandate is now unconstitutional.  A Texas District Court agreed in 2018 and also held the individual mandate was so integral to the ACA that the entire Act was also unconstitutional.  On appeal, the United States Court of Appeals for the Fifth Circuit agreed on the individual mandate but ordered the lower court to revisit whether any of the rest of the ACA could be saved.

California, the U.S. House of Representatives, and other Democratic states asked the high court to overturn the lower courts and again uphold the individual mandate.  Alternatively, they argued that if the mandate were unconstitutional, the rest of the ACA was severable and should be upheld.  Finally, they argued that neither the individuals nor the state challengers were injured enough by the ACA to have standing to bring the suit challenging it.

Writing for the majority, Justice Breyer said that the two individuals challenging the law lacked standing because their past and future insurance payments necessary to meet the individual mandate was not fairly traceable to any allegedly unlawful conduct of which they complained.  Since there is no penalty for not complying with the mandate, it is unenforceable and the individuals have not shown any government action or conduct has caused or will cause the injury they attribute to the mandate.  Unenforceable statutory language alone is not sufficient to establish standing and standing requires identification of a remedy to redress the plaintiff’s injuries.  The only remedy requested was declaratory judgment that an unenforceable provision is unconstitutional which would amount to an advisory opinion.

Texas and the other states also failed to show the injuries they allege are traceable to the government’s alleged unlawful conduct.  Breyer rejected, the alleged indirect injury of increased cost to run state-operated medical insurance programs that provide the mandated minimum essential coverage and increase in enrollment in such programs due to the mandate.  He stated that without a penalty, the states failed to show how the mandate leads more individuals to enroll, “Neither logic nor intuition suggests that the presence of the minimum essential coverage requirement would lead and individual to enroll in one of those programs that its absence would lead them to ignore. . . without a penalty what incentive could the provision provide?”

Breyer further rejected the states’ argument they suffered direct injury from increased administrative and related expenses required by the mandate’s minimum essential coverage requirements, finding that it was other provisions of the ACA that impose those requirements not the individual mandate.  Further, those provisions are enforced without reference to the mandate.  Holding the mandate unconstitutional would not show that enforcement of these provisions was unconstitutional.  Therefore, the government’s conduct in question is not fairly traceable to the allegedly unlawful provision.

Justice Alito was joined by Justice Gorsuch in dissenting.  Interestingly, Justice Barrett, whose appointment to the high court was thought by many to doom the ACA,  joined the majority opinion.

The decision on procedural grounds means that the merits as to whether the individual mandate is constitutional was not reached.  This leaves open the possibility of it being challenged again, if a plaintiff with actual injury, and thus standing can be found by opponents of the ACA.  Of course, should the issue wind up at the Supreme Court again, it could still save the rest of the ACA by holding the unconstitutional mandate is severable.

 

On May 6, 2021, the United States Court of Appeals for the Ninth Circuit upheld a District court’s dismissal of a complaint filed by the Howard Jarvis Taxpayer’s Association (HJTA), challenging California’s state mandated IRA program, CalSavers, as being preempted by ERISA.

CalSavers is California’s mandated auto-enrollment payroll deduction IRA program that requires employers of a certain size, that don’t provide their employees with a retirement plan, to automatically withhold contributions from such employee’s pay and pay them into IRAs managed by CalSavers.  However, employees can opt out.  ERISA is a federal law that preempts any state law that “relates to any employee benefit plan” except for certain exceptions.   HJTA maintained that the CalSavers law was preempted because it required an employer to adopt an ERISA plan or enroll employees in CalSavers, which it maintained was itself an ERISA plan.  The lower court dismissed the complaint twice.  See, CalSavers Not Preempted By ERISA!.  HJTA appealed to the Ninth Circuit.

Originally the U.S. Department of Labor filed an amicus brief in support of preemption under the Trump Administration.  However, after President Biden won the election the Department withdrew its support of HJTA.  See, Will DOL Withdrawing Support Doom Revival Of ERISA Challenge To CalSavers?

The Ninth Circuit first held that the Department of Labor’s 2016 repeal of a safe harbor rule that would exempt CalSavers from ERISA did not resolve the preemption issue because it was merely a safe harbor meant to remove uncertainty and avoid costly litigation over preemption.  The repeal simply rejected the notion that state mandated and run programs like CalSavers were automatically exempt.

The court then held CalSavers is not preempted because it is not an ERISA plan nor does it “relate to” ERISA plans by imposing administrative obligations on employers.  The court found CalSavers is not an ERISA plan because it is established and maintained by the State of California, not employers, relying on Golden Gate Restaurant Association v. City & County of San Francisco.

To relate to ERISA plans a state law must either have “reference to” ERISA plans or have an “impermissible connection” with ERISA plans.  A law refers to ERISA plans if it acts immediately and exclusively on ERISA plans or where the existence of ERISA plans is essential to its operation.  The court found that since CalSavers specifically exempts employers that maintain ERISA plans, it does not act on ERISA plans at all.

A law has an impermissible connection if it governs a central matter of plan administration  or interferes with nationally uniform plan administration.  The court rejected HJTA’s argument that if these state run programs are not preempted, multi-state employers will be forced to comply with differing pension plan requirements in different states contrary to ERISA’s goal of nationally uniform plan administration.  The court stated that an employer’s own retirement plan is still subject to one uniform law, ERISA, and the ministerial obligations CalSavers imposes on employers do not resemble the establishment or maintenance of an ERISA plan.   The court also stated that while it’s ruling means that every state could now enact its own version of CalSavers, subjecting multi-state employers to many state laws, that is simply a function of our federal system and no different than varying state laws in other areas.

This ruling probably means that CalSavers is here to stay.  There has been no word from HJTA on an appeal to the Supreme Court.  Additionally, as it is the first Appellate Court case on preemption of these state run mandatory IRA programs no Circuit split exists.  California employers with more than 50 employees that do not provide a retirement plan for employees must register with CalSavers by June 30, 2021 or face penalties.

Under the federal health coverage continuation law, known as COBRA, a private employer with 20 or more employees that sponsors a group health plan must let individuals elect to continue their health coverage when it would otherwise end for certain reasons (such as job loss, divorce or the employee’s death). Qualified beneficiaries with COBRA continuation rights include employees, spouses and dependents who would lose coverage because of the event. Employers can charge individuals electing COBRA the full cost of coverage, plus an additional 2% to cover administrative costs. Individuals who lose employer coverage because of job loss (voluntary or involuntary) or a reduced work schedule can elect to continue COBRA coverage for up to 18 months (COBRA Continuation Period).

The American Rescue Plan Act signed by President Biden on March 12, 2021 contains relief  from paying COBRA continuation coverage premiums, known as the COBRA subsidy (Subsidy), for former employees who lost healthcare coverage due to an involuntary termination of employment (except for gross misconduct) or a reduction in hours.  Qualifying individuals can elect COBRA coverage and receive coverage without paying any premium.  The coverage is subsidized by the federal government by allowing the employer refundable credits against its Medicare taxes.  While the Subsidy is aimed at former employees who have lost health coverage due to the COVID-19 Pandemic, there is no requirement that the termination or reduction in hours be the result of the Pandemic.  Identifying and communicating with former employees eligible for the Subsidy and administering it presents challenges for employers who should be taking action now to comply.

Action Needed.  Any individual whether an employee or family member that has lost health coverage or will lose coverage during the period beginning April 1, 2021 and ending September 30, 2021 (Subsidy Period) are eligible for the Subsidy.  The Subsidy should automatically apply to individuals receiving COBRA continuation coverage on April 1.  Additionally, individuals who lost coverage prior to April 1 but did not elect COBRA coverage or elected such coverage but subsequently terminated it, who still have time on their COBRA Continuation Period within the Subsidy Period, may elect COBRA coverage with the Subsidy.

An otherwise eligible individual is not eligible for the Subsidy if he or she becomes eligible for Medicare or other group health coverage under another plan such as through a spouse or new employer’s plan.  However, individual market coverage such as through Covered California does not disqualify an otherwise eligible individual.

Additionally, employers can choose to have their group health plan permit individuals eligible for the Subsidy that are enrolled in COBRA coverage to switch to a different coverage option offered under the plan.  The COBRA premium for the new coverage option must be equal to or lower than the coverage the individual was enrolled in.  The plan must give individuals notice of their opportunity to switch coverage options and the individual has 90 days to make such election.  While the intent of this provision is to allow those already on COBRA coverage to elect a less expensive option, providing this election complicates compliance even more.  Additionally, because eligible individuals do not pay premiums during the Subsidy Period, there is no premium savings for switching to lower-cost coverage, unless their COBRA Continuation Period continues after the Subsidy Period ends on September 30.

Employers must give notice of the availability of the Subsidy to all eligible individuals by May 31, 2021.    However, this means employers must identify all eligible individuals, provide them notice of the availability of the Subsidy, and provide them 60 days to elect coverage.  Additionally, employers must provide such individuals with a notice when the Subsidy will end due to the end of the COBRA Continuation Period or due to the end of the Subsidy Period. Such notice must be provided no sooner than 45 days before the end of the applicable period but at least 15 days before the end of such period.  The Department of Labor has issued model notices that employers can use to be considered in good faith compliance.

Steps employers must take include the following:

1.  If the group health plan provides more than one option of coverage, decide whether to permit individuals on COBRA continuation to switch options.

2.  Review the employment records of all COBRA eligible employees that lost health coverage due to involuntary termination (other than for gross misconduct) whose COBRA continuation coverage would reach April 1, 2021.  This generally goes as far back as October 1, 2019.  Likewise, the same review must be done for those eligible for COBRA coverage for an involuntary reduction of hours.

3.  Provide the notice of the availability of the Subsidy and opportunity to elect such coverage to all such former employees and their family members who lost coverage as a result of the employee’s loss of coverage.

4.   Receive the elections to provide the coverage.

5.  Provide the notice of the termination of the Subsidy or COBRA continuation coverage period.

Employers need to develop their compliance strategy now.

 

I just published, on March 1, my article “New President, New Hope, New ESG Policy. . . Maybe.”  discussing how the Biden administration would be reviewing the Department of Labor regulations finalized on November 13, 2020 (under the Trump administration) and effective January 12, 2021, regarding the investment duties of fiduciaries under ERISA plans and the factors to consider when making decisions.  The article discussed how the Biden administration would be reviewing the new rules and changes are likely but changing a final regulation could take a year or more.  Now on March 10, the Department of Labor announced in an enforcement policy statement that it will not be enforcing the new regulation against any fiduciaries until it publishes further guidance.   The statement also states that the Department will not be enforcing the final regulation on proxy voting that was finalized on December 16, 2020 which adopted amendments regarding investment duties and obligations of fiduciaries when voting proxies for plan investments.  Both actions are to comply with President Biden’s Executive Order titled “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis” issued January 25, 2021, according to the statement.

A lot has happened in 2021 already.  The election of Joe Biden as President was certified by the Senate after an unprecedented attack on the Capitol on January 6.  The House of Representatives impeached former President Donald Trump one week later.  Biden was inaugurated on January 20 at a heavily secured ceremony.

The inauguration was the final step in the most contentious election in American history.  One where before votes were cast, the incumbent President signaled that if he didn’t win, the election was fraudulent.  A sentiment that he continued after his loss, through dozens of lawsuits challenging results and was only silenced by the certification and social media companies suspending his accounts.

Through all this it might have been easy to miss that before the election, the Department of Labor had finalized a regulation relating to ERISA plan fiduciary’s consideration of environmental, social, and governance (ESG) factors when making investment decisions for ERISA plans.   The final regulation significantly changed the DOL’s proposed rule that was issued in June of 2020.  The final regulation became effective January 12, 2021.  However, it appears that the Biden administration will attempt to reverse the regulation because it is not very climate friendly, but that effort will take considerable time.

The ESG Issue.  The issue is to what extent plan fiduciaries can consider how a mutual fund or company that the plan might invest in addresses ESG factors in deciding whether to invest or offering the investment for participants to invest.  Fiduciaries owe a duty of loyalty and a duty of prudence to plan participants.  In a nutshell the duty of loyalty requires fiduciaries to act solely in the interest of plan participants and beneficiaries for the exclusive purpose of providing benefits and defraying expenses of administering a plan.  The duty of prudence requires the fiduciary to act in the same manner that a reasonable expert would.  That is, with the care, skill, prudence, and diligence that a prudent person acting in a like capacity and familiar with such matters would use.

Thus, a plan fiduciary should not invest in electric cars because he/she thinks its good for the environment if doing so is putting his/her concern for the environment above the interests of plan participants.  Likewise, if a reasonable expert fiduciary would not make the investment, doing so would not be prudent.

The Proposed Regulation.  The proposed regulation was fairly hostile toward ESG investments.  It generally provided that a fiduciary should only consider economic or pecuniary factors and cannot consider ESG factors in an investment decision except in the case when all pecuniary factors between alternative investments were equal.  A fiduciary cannot subordinate the interests of participants by forgoing return or accepting higher risk due to a noneconomic factor such as ESG factors.  Further, if ESG factors are considered to break a tie, the fiduciary was required to document why it found the pecuniary factors equal and why it chose the investment.  Additionally, the proposed regulations provided that an ESG investment could not be a qualified default investment alternative (QDIA) where a participant’s account would be invested if they don’t make an affirmative election.

The Final Regulation.  The final regulation departs from the proposed regulation and softens the rule a bit.  This was likely due to the fact that the DOL received thousands of negative comments on the proposed regulation.  The final regulation eliminates using the term “ESG” because the DOL found that it lacks a precise definition.  Instead, the final rule emphasizes pecuniary factors over non-pecuniary factors.  A pecuniary factor is defined as a factor that a fiduciary prudently determines will have a material effect on the risk or return of an investment based on appropriate investment horizons consistent with the plan’s investment objectives and policies.  The DOL acknowledged that ESG factors could be compatible with a purely financial analysis of an investment option or strategy.

The final rule eases the tie breaker scenario by changing the language to allow non-pecuniary factors to be considered when a fiduciary is unable to distinguish between investment options based on pecuniary factors alone.  The decision must still be documented.  However, when choosing an investment option for an individual account plan the decision to include an investment option that contains ESG factors in its investment goals need not be documented if the decision is made on only pecuniary factors.  An investment whose objectives, goals, or strategies use non-pecuniary factors still cannot be made the plan’s QDIA investment.  Plans have until April 30, 2021 to remove any such investments considered QDIAs.

Biden Administration.  Within hours of taking office the new President signed an Executive Order on “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis” ordering an immediate review of all federal regulations issued in the last four years, and, as appropriate and consistent with applicable law, take action to address regulations and other actions that conflict with the important national objectives of listening to the science to improve public health, protect the environment,  and bolster resilience to the impacts of climate change.

The ESG final regulation is among the regulations to be reviewed.  It is clear that the Biden administration is in favor of policies that protect the environment.  Therefore, there is likely to be yet another change in these rules.  Proponents would like to see guidance issued clarifying what ESG criteria are pecuniary or to rewrite the regulation completely.  While the former might be able to be accomplished relatively soon, revising the final regulation could take over a year to accomplish.

Better guidance is clearly needed in this area.

 

On February 5, 2021, the United States Department of Labor withdrew its amicus brief supporting the Howard Jarvis Taxpayers Association’s (HJTA) appeal of the dismissal of its lawsuit challenging CalSavers as being preempted by ERISA.  See No Fooling HJTA Appeals Dismissal Of CalSavers Preemption Decision.  CalSavers is California’s payroll deduction IRA program requiring employers, who don’t otherwise offer a retirement plan to employees, to automatically deduct amounts from employees’ pay and contribute such amounts to the state-run IRAs.   The notice was filed with the United States Court of Appeals for the Ninth Circuit that is hearing the appeal of the lower court’s dismissal of HJTA’s claim that CalSavers is preempted by ERISA.  See CalSavers Not Preempted By ERISA!   The notice simply says:

“After the change in administration, the acting Secretary of Labor has reconsidered the matter and hereby notifies the court that he no longer wishes to participate as amicus in this case and that he does not support either side.”

In June of last year, the Trump administration’s Labor Department filed the amicus brief supporting the preemption argument.  The move by the Biden administration is not surprising as President Biden voiced support for auto-IRA type programs during the 2020 Presidential race.  Seven states in total have adopted some type of payroll deduction IRA programs.

While the notice says the Labor Department is not taking sides, it is difficult to believe that the withdrawal of support from the federal government agency charged with enforcing ERISA won’t negatively impact HJTA’s chances of prevailing.

Happy Holidays!  You may have a pep in your step with the news that the FDA has approved the Pfizer vaccine to combat COVID-19.  This is certainly a reason for optimism.  However, 2021 promises to be quite PEPPY for another reason.  Pooled Employer Plans (or PEPs) can begin operating in 2021.  PEPs are Multiple Employer Plans (or MEPs) that were authorized as part of the SECURE Act enacted in 2019.  See 2020 Appropriations Bill.  They are individual account retirement plans adopted and maintained by more than one employer where the employers need not be related by geography or industry.

For years industry experts have believed that open MEPs could encourage more employers to adopt retirement plans by permitting smaller employers to join together to get economies of scale in the administrative costs of operating retirement plans.  A major drawback to such plans was that unless the MEP was “closed” such that it could only be adopted by employers in a common industry or geographic area, it wasn’t treated as a single plan for 5500 return purposes.  In addition, even in a closed MEP, the qualification failure of a single employer, could disqualify the plan for all employers under the “one bad apple” rule.  The one bad apple rule doesn’t apply to PEPs.

A PEP must be sponsored by a Pooled Plan Provider (or PPP) that agrees to be the named fiduciary of the plan responsible for all administration and Tax and Labor law compliance, and registers with the Treasury and Labor Departments as a PPP.  On November 12, the Department of Labor finalized regulations on PPP registration.

PPPs are required to register with the Department of Labor at least 30 days before beginning operations by electronically filing new EBSA Form PR.  However there is an exception for the period Nov. 25, 2020 to Jan. 31, 2021.  During this period, the 30-day requirement is waived and the registration must be made no later than the day operation of the PEP begins.  Registering with the Department of Labor also satisfies the requirement to register with the Treasury Department.  The final regulations also clarify that operation of the PEP begins when the first employer executes or adopts an agreement specifying that the plan is a PEP, or, if earlier, when the PEP’s trustee first holds any asset in trust.

The Department of Labor estimates that 3,200 PPPs will initially register.  PEPs may become popular with smaller employers, particularly in states like California that have state mandated payroll deduction IRA programs for employers that don’t otherwise offer a retirement plan.  See CalSavers Not Preempted By ERISA.  A PEP may offer a lower cost and better benefit option than the state IRA program.  Time will tell whether PEPs are popular and successfully encourage more employers to adopt retirement plans but if the Department of Labor’s estimates are correct there should be plenty of PEPs to choose from in the new year.

The Republican Senate has confirmed President Trump’s nomination of Amy Coney Barrett to the United States Supreme Court.  The confirmation is record breaking in a couple of ways.  First, it was the fastest confirmation of a Supreme Court Justice in history.  Second, it was the most partisan vote to confirm a Supreme Court Justice as no Senate Democrats voted to confirm.  It was also the first such hearing or confirmation to take place while citizens were voting in a Presidential election.  Democratic Senators protested the appropriateness of the hearings up to the deciding vote, maintaining that the next President should be the one to fill the vacancy on the high court left by the death of Justice Ruth Bader Ginsburg.

Many believe that this confirmation of another conservative to the high court means the Affordable Care Act (ACA) will be declared unconstitutional in the case of Calfornia v. Texas which will be heard on November 10.  See Death of RBG Could be Death of ACA.  In a case brought by Republican Attorneys General and supported by the Trump administration, a Texas District Court held that now that the penalty tax for failing to have health coverage under the individual mandate has been reduced to zero and the Supreme Court upheld the ACA as constitutional under Congress’ taxing power, the individual mandate is unconstitutional.  The court then also held that the individual mandate was so integral to the ACA that the entire statute must also be unconstitutional because no provisions could be severable from the mandate.   The United States Court of Appeals for the Fifth Circuit upheld the district court on the individual mandate but remanded the case to the lower court to go through the Act with a “finer tooth comb” to see if any part of it could be saved.  However, Democratic Attorneys General then appealed the case to the High Court.

Of course, severability is the big issue.  The Court could agree that the individual mandate is now unconstitutional but that the rest of the ACA is severable, and therefore, still law.  During her confirmation hearing Judge Barrett intimated that she might rule that the individual mandate is severable because the ACA “is obviously a very long statute” and answered “That is true” to Senator Graham’s question, “If you can preserve a statute, you try to, to the extent possible?”  She also stated that while she has been critical of prior decisions upholding the ACA, she does not believe that she has ever written on how she feels about severability.

Importantly, President Trump has said during the Presidential campaign and debates that he will “protect pre-existing conditions”.  However, if the entire ACA is declared unconstitutional by the Supreme Court, the protection for pre-existing conditions in the ACA disappears.  Legislation would be required to reinstate such protections.

The only way the Supreme Court can preserve the protection of pre-existing conditions in California v. Texas, is to uphold the entire ACA by finding the zeroed out individual mandate tax still constitutional or upon striking down the individual mandate, finding it severable from the rest of the ACA.

Wouldn’t it be a treat if that is how Trump keeps his campaign promise.