Benefits Monthly Minute

Outbreak Period Relieves Employers | Adopt Cafeteria Plan Changes Before Year End | EBSA Digs Deep (Into Plan Pockets)

The December Monthly Minute reviews a recent district court case upholding an employer’s successful reliance on the Outbreak Period relief to defeat a participant’s COBRA notice complaint, summarizes year-end cafeteria plan amendment deadlines, and also touches on the EBSA’s FY 2021 enforcement roundup.

Outbreak Period Relieves Employers

A Nebraska district court recently ruled that the COVID-19 “Outbreak Period” relief – as reported in the February 2021 Monthly Minute UPDATE -- operated to relieve an employer of its duty to provide a terminated employee with a COBRA notice within the normal 44 day timeframe. In granting the employer’s summary judgment motion, the court in Anglim v. Sharp Medical Staffing, LLC pointed to the final rule jointly issued by IRS and DOL under which COBRA notice requirements are disregarded until the earlier of one year after the qualifying event or sixty days after the announced end of the COVID-19 National Emergency. Considering the employer provided the terminated employee with her COBRA notice eight months after her termination, the court found that the COBRA notice requirement was satisfied in accordance with the applicable Outbreak Period relief. Thus, the employee’s claim for violations of the COBRA notice requirements failed as a matter of law.

KMK Comment: Although the flexibility afforded by the Outbreak Period relief is more commonly viewed as a shield for employees confronted with COBRA election and payment delays, this case is a helpful reminder that the Outbreak Period relief can also serve to protect employers’ interests.

Adopt Cafeteria Plan Changes Before Year End

In connection with the COVID-19 National Emergency, cafeteria plans were permitted to implement numerous, discretionary changes to provide relief to plan participants in terms of relaxed election change rules and enhanced access to health FSA and DCAP contributions under IRS Notice 2020-29 and the Consolidated Appropriations Act, 2021 (CAA, 2021), as reported in the May 2020 Monthly Minute and the December 2020 Monthly Minute UPDATE (see also the February 2021 and March 2021 Monthly Minute). While many plans opted to implement these changes throughout 2020 (and 2021), year end plan amendments are also required to bring plan documents into compliance. Relief highlights are described below:

2020 midyear election changes: IRS Notice 2020-29 provided a means for employees to make various prospective midyear election changes during calendar year 2020. If implemented, plan amendments must be adopted on or before December 31, 2021, to utilize this discretionary 2020 election change relief. Notably, this relief provided for prospective midyear changes with respect to:

  • new elections for employer health plan coverage that was initially declined;
  • elections to enroll in different health coverage by the same employer (e.g., a change from self-only to family coverage);
  • revocation of existing elections for employer health plan coverage, on the condition that the employee provided a written attestation as to enrollment in other “comprehensive” health coverage; and
  • various health FSA or DCAP election changes.

Extended period to use health FSA and DCAP amounts: IRS Notice 2020-29 also allowed plans to permit employees to use health FSA or DCAP amounts remaining at the end of a plan year or grace period ending in 2020 to reimburse expenses incurred through December 31, 2020. If elected, amendments are required by December 31, 2021, and may generally be effective retroactively to January 1, 2020.

Enhanced carryover: Under the Consolidated Appropriations Act, 2021 (CAA, 2021), cafeteria plans may allow a carryover (in excess of the normal $500 carryover limit for health FSAs and despite the rules against carryover for DCAPs) to the next plan year of all or part of the unused amounts remaining in a health FSA or DCAP at the end of a plan year ending in 2020 or 2021. The plan amendment deadline for a calendar-year plan adopting a carryover from the plan year ending in 2020 is December 31, 2021.

FSA grace period relief: Instead of adopting the enhanced carryover relief, the CAA, 2021 permits cafeteria plans to allow health FSA or DCAP amounts remaining at the end of a plan year ending in 2020 or 2021 to be used to reimburse expenses incurred for up to 12 months after the end of the plan year (normally, grace period rules require a 2 ½ month time limit). Amendments must be adopted by the end of the first calendar year beginning after the end of the plan year in which the amendment is effective.

Health FSA spend down: Health FSAs may allow employees who ceased participation during 2020 or 2021 to be reimbursed from (“spend down”) unused benefits or contributions through the end of the plan year in which participation ceased; however, employers must adopt the spend down amendment by the end of the first calendar year beginning after the end of the plan year in which the amendment is effective. Calendar year 2020 plan amendments must generally be adopted by December 31, 2021.

DCAP age increase: CAA, 2021 generally allows DCAPs to temporarily raise the maximum age from 12 to 13 when reimbursing dependent care expenses and permits certain employees with unused balances to submit claims for reimbursement the following plan year. Calendar year 2020 plan amendments must generally be adopted on or before December 31, 2021.

DCAP maximum and health FSA indexing: Depending on the plan document language, amendments may be needed to implement the discretionary (temporary) DCAP maximum contribution increase to $10,500, and to apply auto-increases for health FSA contributions and carryovers.

KMK Comment: It’s not too late to work with your legal counsel and TPA to timely adopt required amendments. Also, be aware that certain plan changes will necessitate participant communications and/or SPD updates.

EBSA Digs Deep (Into Plan Pockets)

Touting its oversight authority which extends to nearly 734,000 retirement plans, 2 million health plans, and 662,000 other welfare benefit plans, according to a recently released EBSA Fact Sheet, in FY 2021, EBSA recovered over $2.4 billion as a result of its enforcement efforts. The Fact Sheet reports that almost $2 billion was recovered in connection with investigations (69% of civil investigations resulted in monetary results or other corrective action), and EBSA investigations also resulted in 72 criminal indictments. In addition, EBSA recovered $499.5 million in benefits through informal resolution of individual complaints. On a less punitive note, EBSA’s Voluntary Fiduciary Correction Program (VFCP) and Delinquent Filer Voluntary Compliance Program (DFVCP) are said to successfully encourage the correction of ERISA violations by providing incentives for fiduciaries to self-correct considering in FY 2021, 1,201 VFCP applications and 22,553 DFVCP applications were received.

KMK Comment: The EBSA’s sizeable monetary recoveries (and concerning indictments) serve as an important reminder of EBSA’s tenacity when it comes to ERISA enforcement. Our takeaway is that in addition to taking DOL audits and inquiries seriously, it’s equally important to manage participant concerns before they can develop into EBSA inquiries of individual complaints. Similarly, taking a proactive approach via use of the VFCP and DFVCP to manage plan corrections can save time, money -- and angst -- in the long run.

The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.

Lisa Wintersheimer Michel

John F. Meisenhelder

Antoinette L. Schindel

Kelly E. MacDonald

Rachel M. Pappenfus

KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.

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