The IRS, DOL and PBGC recently provided various forms of relief intended to help employees and employers impacted by Hurricanes Harvey and Hurricane Irma. In this second blog post we review funding and reporting relief and take a brief look at Vacation/PTO donation programs. To read our first post on loans and hardship distributions from qualified plans, click here.
Defined-Benefit Plan Funding Relief
IRS Notice 2017-49 provides single defined-benefit plan sponsors or employers covering more than 50% of active participants with a principal place of business are in a Hurricane Harvey or Irma covered disaster area may be eligible to make delayed funding contributions, postponed AFTAP certification, an extended deadline for providing notice of benefit restriction and an extended period of time for applying for a funding wavier. This relief also apply if the relevant office of the plan or plan administrator, primary record keeper or enrolled actuary is in a covered disaster area. Limited funding relief is also available for multiemployer plans.
- PBGC. PBGC Disaster relief notices 17-09 and 17-10 provides employers in Hurricane Harvey or Hurricane Irma covered disaster areas additional time to pay PBGC premiums without penalty (although interest will accrue), file post-reportable event notices and extends single plan termination filing deadlines. However, types of required filings involving particularly important or time-sensitive information, such as pre-reportable event notices, will not be automatically extended but will be determined on a case by case basis.
- IRS. Taxpayers who live, and employers whose principal place of business, in the Hurricane Harvey or Hurricane Irma covered disaster area (or whose record-keeper or bank may be in a covered disaster area) may be eligible for extended reporting (e.g. Form 5500, remedial amendment periods, Form 83(b) elections) required minimum distribution, etc.) and may be eligible for additional time, until January 31, 2018. Please note, that not all reporting requirements (e.g., Form W-2, Form 1099 ACA reporting (i.e., Forms 1094 and 1095), etc.) have been extended. Additional information about available IRS relief can be found at: https://www.irs.gov/newsroom/help-for-victims-of-hurricane-harvey and https://www.irs.gov/newsroom/help-for-victims-of-hurricane-irma.
- DOL. The DOL indicated will not treat an employer as having violated ERISA for relying on IRS hurricane guidance. In addition, in a recent news release and FAQs, the DOL noted that while it expects plan sponsors to act reasonably and prudently, it will not penalize employers for temporary delays in transmitting participant contribution and loan repayments or require strict compliance with deadlines for blackout notices or cobra notices if the delay is a result of the employer being in a covered disaster area.
Vacation and PTO
Under general tax principals a vacation donation program would result in a tax to the employee making the donation as the IRS would view this amount as being constructively received. However, there are certain arrangements that allow employees to donate vacation and PTO without incurring negative taxation.
- Employee Donation of Cash Value of Leave to Charitable Organizations. Notice 2017-48 allows employees to donate vacation sick or personal leave in exchange for cash payment that the employer makes to eligible charitable organization. Under general tax principals this type of arrangement would result in the tax to the employee making the donation as the IRS would view this amount as being constructively received. However, under the IRS Notice as long as certain requirements are met, the employee is not subject to tax on the valuate of the leave and it will not be included in income for purposes of Form W-2. The employee is not entitled to a charitable deduction; however, the employer may be eligible for a deduction for the donation.
- Employee Donation to Affected Employees. Many employers have policies that allow employees to donate vacation or other leave to co-workers (such as when an employee needs medical leave, parental leave, or other). It is possible to structure these programs so that the employee who donates the leave is not taxed (the employee who uses the leave will be subject to ordinary income tax on the value of the leave). However, to be tax advantaged the employer donation program needs to be certain requirements such as it be used for a declared natural disaster or medical emergency, the plan must be in writing, etc.