Blogs October 2019

The Employee Benefits Security Administration of the Department of Labor (DOL) recently announced a proposal for new “safe harbor” guidelines governing electronic distribution of important ERISA disclosures. 

Under current DOL and IRS regulations, employees must affirmatively agree to receive ERISA and other welfare and retirement plan disclosures electronically.  Plan sponsors incur varying degrees of financial and administrative burden in obtaining such agreements, or in using non-electronic methods to deliver these important disclosures. 

The proposed safe harbor rules would allow participants to opt-out of electronic distribution and continue receiving paper notifications, rather than having to opt-in.  Importantly, plan sponsors will be required to notify plan participants of their right to opt-out before defaulting to an electronic distribution protocol.  

The new safe harbor rules intend to simplify employee benefit plan disclosures and alleviate some of the financial and administrative burden.  DOL estimates that expanded use of web and cloud-based technology will save employers over $2 billion in the next ten years.   

DOL has invited interested parties to provide feedback and additional information regarding this proposal. Vita will provide updates as the proposal moves through the review process. 

A new California law requires that employers provide two different forms of notification of the deadline to withdraw funds (submit claims) to employees participating in flexible spending accounts.   

The Actual Law – Just 96 Words

Section 2810.7 is added to the Labor Code, to read:

(a) An employer shall notify an employee who participates in a flexible spending account, including, but not limited to, a dependent care flexible spending account, a health flexible spending account, or adoption assistance flexible spending account, of any deadline to withdraw funds before the end of the plan year. Notice shall be by two different forms, one of which may be electronic.

(b) Notices made pursuant to subdivision (a) may include, but are not limited to the following:

(1) Electronic mail communication.

(2) Telephone communication.

(3) Text message notification.

(4) Postal mail notification.

(5) In-person notification.

Current Vita Process

Vita’s current process includes sending two emailed reminders of the claims incurred deadline, as well as two additional reminders of the claim submission deadline. Previously, paper reminders were only mailed to those plan participants who did not have an email address on file, or if the email address on file was invalid. To comply with this new law, employers will be required to provide at least two notices of different methods to each employee. Vita is in the process of amending our procedures to accommodate full compliance with the law.  Unfortunately, additional charges for paper mailings will need to be passed through to employers. 

ERISA Preemption

As ERISA preempts state law, it’s likely this new requirement doesn’t affect Health FSAs. We are currently working out details with the sponsoring legislator and committee to confirm this assumption. That said, Dependent Care FSAs and Adoption Assistance Programs are not typically ERISA plans and thus are subject to this new California law.

Effective Date and Timing

This law goes into effect January 1, 2020.  While the law doesn’t specify the plan years to which it applies, the conservative approach will be to operate under this new law for any deadline occurring after the effective date. This means that notification should be sent even for 2019 Plan Years because claims filing deadlines fall in 2020. Based on this, Vita will mail a paper notification to all Dependent Care FSA and Adoption Assistance Program participants. This is in addition to the emailed notices described above.

Administrative Complexities

There is a concern regarding employees who do not have an email address on file, as they would only receive the mailed notice. As a rule, it is assumed that telephone outreach (as allowed by the bill) would be prohibitively expensive, and the concept of documenting compliance for in-person notification is rather untenable. In many cases this will leave employers and administrators unable to comply since two forms of communication would not be available. We are continuing to work with the sponsoring legislator and committee to clarify answers to the administrative challenges of the bill. Specifically, we have proposed amendments to the bill to allow for communicating deadlines via member web portals and/or workplace posters as methods to satisfy the requirement.

Stay Tuned

Both the legal realities and the administrative processes necessary to comply with this new law are still developing. Vita is working on both and will keep you informed as further information unfolds. 

Administration

7 Days Left to File Your Form 5500!
For calendar-year plans currently on extension, Tuesday, October 15, 2019 is the deadline to file the Form 5500 and Form 8955-SSA.  Please note, the DOL website is subject to high traffic on October 15^th, so be sure to file as soon as you are able and avoid the last minute rush!  If you are unsure as to the status of your Plan’s Form 5500 or Form 8955-SSA, you are invited to contact our team for assistance.

Year-End Participant Notifications 
As we wrap up 2019, we would like to remind you of some important annual notices that may need to be delivered to Plan participants, depending on the provisions of your Plan.  Below is an outline of these notices, along with the corresponding due dates, based on a calendar-year Plan.

View our Compliance Calendar to see what other important dates are approaching.

Market Update

Asset markets were largely range-bound in the third quarter of 2019.  Any positive economic news was quickly overshadowed by continuing uncertainty over trade and economic policy.  The S&P 500 Index ended the quarter up 1.18%, by far the slowest quarter year-to-date (“YTD”), while overseas, the MSCI EAFE Index lost 0.67% after having shown positive returns in the first two quarters.  The best performing sector was US fixed income, where the US Aggregate bond Index rose 2.22% due to the expectation of continued easing by the Fed. 

Revised US GDP growth figures for 2018 showed that US economic growth may have peaked in Q2 2018 at 3.1% YOY, falling to 2.0% YOY in Q2 2019.  US GDP growth is expected to be moderate for the rest of the year and into 2020 at or slightly below a 2.0% YOY pace.  It is primarily the US consumer that is providing this growth in the US economy.  Consumer spending rose 4.7% in Q2 and is expected to post a 2.5% gain in Q3.  The growth in consumer spending has more than offset the decline in business spending.  Business capacity and infrastructure spending has fallen for all of 2019: down 0.3% in Q1, 2.0% in Q2.  While the trade war may be hurting overseas economies more directly than the US economy, the uncertainty around trade and its impact at home and abroad would seem to be a large contributing factor in the decline in US business spending and the pallor over overseas economies.

As US and overseas GDP growth slows, Central Banks at home and abroad have moved to lower interest rates.  This looks to be a rather knee-jerk reaction as the current low, and even negative, interest rate environment has not been an impediment to economic growth either in the US or overseas.  Contributing factors in the Fed’s actions in lowering US interest rates may be in part a desire to spark inflation as a way of maintaining economic growth and an attempt to maintain its independence by acceding to political pressure from the Executive Branch.  In either case, there seems precious little that these actions will do to stimulate economic growth until and unless there is more certainty around global trade and economic policy (such as Brexit).

The real danger to the US economy is that the consumer stops spending and business stops hiring.  Research has shown that that business freezing hiring is a much stronger leading indicator of a possible recession than layoffs.  US unemployment is holding steady at 3.7%; wage growth is running at a 3.2% YOY pace, still well below the historical average of 4.1%.  These two figures and the residual impact of recent tax cuts may be contributing to consumer confidence.  What will be important to watch are the non-farm payroll numbers, currently running at between 120,000 to 150,000 per month.  A significant decrease in non-farm payrolls may well be the trigger that eventually causes the US consumer to stop spending and the American economy to decline from current levels and even turn negative.        

Until that time, asset markets seem likely to see continued volatility but without a sustained sell off.  US equities are trading at historic P/E ratios (approximately 16x earnings) and corporate earnings are expected to continue to grow at mid- to low-single digits into 2020 (S&P 500 earnings per share currently 4.9% YOY).  Bond prices are rising due to Central Bank easing, but yields are poor - the 10 yr US Treasury is at 1.5% - or non-existent - 10 yr German Bunds at -0.70%.  In times like these, it is important to remain focused on the long term and invest through any short-term uncertainty.