(Another) Massive Stimulus Bill Includes (More) RMD Relief, PPP Clarity & More

A $3 trillion stimulus bill released by House Democrats includes retirement provisions advocated by the American Retirement Association—and a whole lot more—though its passage is anything but certain.

 

The mammoth 1,800-page bill runs the gamut from providing nearly $1 trillion to state and local governments to additional funding for Coronavirus testing, additional direct payments to families, extending unemployment benefits, and housing and food assistance.

 

Also included among the retirement-based provisions in the “Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act” (H.R. 6800) are clarifications to the retirement provisions enacted under the CARES Act, funding relief for single-employer pension plans, relief for troubled multiemployer pension plans and an assortment of other changes.

 

 

The HEROES Act builds on the relief provided in the CARES Act, waiving required minimum distributions for 2019 for DC plans and IRAs. The CARES Act, enacted March 27, waived RMDs for 2020, allowing individuals to keep funds in their retirement plans. A summary notes that, due to the market downturn resulting from the COVID-19 pandemic, the balances in these accounts have decreased, and, in many instances, this has reduced taxpayers’ accounts by more than what their RMD would have been.

 

The legislation also expands the RMD relief in the CARES Act by providing that RMDs made for 2019 and 2020 would be permitted to be rolled back to a plan or IRA without regard to the 60-day requirement if the rollover is made by Nov. 30, 2020. The bill also waives the once per-year limitation for these 2019 and 2020 rollovers if rolled back within the specified time frame.

 

 

While the CARES Act permits eligible retirement plans to rely on an employee’s certification that the employee qualifies to receive a Coronavirus-related distribution, it appears that, technically, a plan cannot rely on such a certification for purposes of determining whether an employee is eligible for the special loan rules. H.R. 6800 provides a statutory clarification permitting plans to rely on an employee’s certification for purposes of the special loan rules.

 

In addition, the CARES Act provided for early distribution and loan relief for retirement plans during the coronavirus relief period—and while this relief was intended to apply to all qualified retirement plans, there were questions as to whether it would apply to money purchase pension plans (MPPP). The HEROES Act clarifies that MPPPs would benefit from the legislation.

 

 

Ever since the Paycheck Protection Program (PPP) was enacted under the CARES Act, the program has been subject to various controversies. One such issue was a recent notice by the IRS advising that the agency will not allow a tax deduction for an expense that is otherwise deductible under Code Sections 162 and 163 if the payment of the expense results in forgiveness of a covered loan under the PPP. In fact, the congressional tax-writing committee chairmen wrote to Treasury Secretary Steve Mnuchin expressing opposition to the IRS’ position.
 

In response, the House bill clarifies that expenses paid or incurred with proceeds from PPP loans that are forgiven pursuant to the CARES Act and certain loan forgiveness by the Small Business Administration that are not included in gross income do not result in a denial of any deduction or basis of any asset for federal tax purposes. The provision also clarifies the order in which section 1106(i) of the CARES Act and relevant provisions of the Internal Revenue Code apply.

 

Additionally, the bill provides that businesses receiving PPP loan forgiveness can defer payment of payroll taxes under section 2302 of the CARES Act.

 

Single-employer DB Plan Relief
 
The current requirement to amortize funding shortfalls over seven years is no longer appropriate, considering the ongoing pattern of interest rate and market volatility due to the COVID-19 crisis, according to the House bill.

 

To provide plan sponsors and participants more stability and a longer period over which to pay for long-term liabilities, the following rules would apply to all single-employer pension plans, effective for plan years beginning after Dec. 31, 2019:

 

The bill also extends pension funding stabilization percentages for single employer plans. Lawmakers note that, because of the previously enacted phaseout ranges, pension smoothing would soon cease to have much effect. To preserve the stabilizing effects of smoothing:

 

This provision would be effective for plan years beginning after Dec. 31, 2019.

 

 

House Ways & Means Committee Chairman Richard Neal (D-MA) notes that the stabilization of pensions for more than 1 million Americans who participate in multiemployer plans that are more rapidly approaching insolvency due to the COVID-19 crisis, and that, without action, these plans will threaten to bankrupt the Pension Benefit Guaranty Corporation (PBGC) and shutter thousands of businesses.

 

Under current law, PBGC has limited authority to partition certain troubled multiemployer pension plans, whereby the agency takes on the financial responsibility of some of the benefits of an eligible plan, so that the plan can stay solvent. To alleviate the problem, the legislation creates a special partition program that would expand PBGC’s existing authority and increase the number of eligible plans.

 

Other multiemployer plan relief measures include:

 

 

The House of Representatives is expected to approve the legislation later this week, but the bill faces an uphill battle in the Senate, where the leadership, so far, has been resistant to acting on a fifth stimulus bill. Nevertheless, this bill will serve as an opening bid if, and when, the Senate and President Trump want to begin negotiations in earnest.

 

The draft text of the HEROES Act (H.R. 6800) is here; a 70-page section-by-section summary is here.