Benefits Monthly Minute UPDATE: DOL and IRS Provide Extensive Relief for Employee Benefit Plans and Participants
The Department of Labor and IRS announced the broad extension of many employee benefit plan deadlines and compliance requirements in EBSA Disaster Relief Notice 2020-01 and a Final Rule. This new guidance applies from March 1, 2020, until 60 days after the announcement of the end of the COVID-19 National Emergency or such other date announced by the Department (the "Outbreak Period"). The relief relaxes certain retirement plan loan and distribution requirements, extends timeframes for providing required retirement plan notices, and delays deadlines applicable to COBRA elections, COBRA premium payments, HIPAA special enrollment, and claims and appeal procedures.
As detailed in the EBSA Notice, an employee benefit plan and responsible plan fiduciary will not violate ERISA for failing to timely furnish a notice, disclosure or document (e.g., benefit statements, annual funding notices and other ERISA notices and disclosures) that must be furnished during the Outbreak Period, if the plan and fiduciary act in good faith and furnish the notice, disclosure or document as soon as administratively practicable. Good faith acts include using electronic communication with plan participants and beneficiaries who the plan fiduciary reasonably believes have effective access to electronic communication (e.g., email, text, websites). KMK Comment: This relief appears to be available on a widespread basis without any specific COVID-19 reason being required.
Relief under this notice is also provided with respect to the following retirement plan operations:
- Plan Loans and Distributions: (1) Relief is provided for the failure to follow certain procedural verification procedures imposed by the terms of the plan for loans or distributions if the failure is solely due to the COVID-19 outbreak, good-faith diligent efforts are made to comply, and reasonable attempts to correct procedural deficiencies are made as soon as administratively practicable. Note: this relief does not extend to spousal consent requirements or other statutory or regulatory requirements. (2) Permitting a plan loan during the loan relief period to a qualified individual and a delay in making loan repayments in compliance with the CARES Act will not violate ERISA’s adequate security and reasonably equivalent basis requirements. (3) If a plan is amended to provide plan loan and coronavirus related distribution relief under the CARES Act, the amendment must be made on or before the last day of the 1st plan year beginning on or after January 1, 2022 (meaning by December 31, 2023, for calendar year plans), or such later date prescribed by the Secretary of the Treasury.
- KMK Comment: Plan sponsors may wish to adopt CARES Act amendments earlier than is required or otherwise clearly document the changes being made for administrative clarity. Participant communications should also be made on a more current basis.
- Participant Contributions and Loan Repayments: Amounts withheld from a participant’s wages by an employer for plan contributions or loan repayments generally must be forwarded to the plan on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets. During the Outbreak Period, the Department will not – solely on the basis of a failure attributable to the COVID-19 outbreak – take enforcement action with respect to a temporary delay in forwarding such payments or contributions to the plan. Employers and service providers must act reasonably, prudently, and in the interest of employees to comply as soon as administratively practicable.
- KMK Comment: This relief should be used with extreme caution given the strict rules and rigorous enforcement that typically govern the handling of plan assets.
- Blackout Notices: Blackout notice rules generally require 30 days’ advance notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, limited, or restricted by a blackout period and the rules include an exception when the inability to provide advance notice is due to events beyond the reasonable control of the plan administrator and a fiduciary so determines in writing. This deadline extension relief applies to blackout notices, including those required to be provided after the blackout period begins, and further, no written determination by a fiduciary will be required given pandemics are by definition beyond a plan administrator’s control.
- KMK Comment: This relief implies that any delay in the provision of blackout notices during the Outbreak Period will be presumed to be on account of the pandemic, but further clarification would be welcome.
- Form 5500 and Form M-1 Filing Relief: The notice does not provide additional relief for the filing deadlines, but refers to the previous guidance provided on the IRS COVID-19 emergency website at https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments.
- General ERISA Fiduciary Compliance: Finally, the notice acknowledges that the problems created by the COVID-19 pandemic make “full and timely compliance” difficult to achieve. The DOL states that the guiding principal for plans is to act “reasonably, prudently, and in the interest of the covered workers.” Further, the DOL approach to enforcement will “emphasize compliance assistance and include grace periods and other relief where appropriate” including where physical disruption makes compliance impossible.
- KMK Comment: It is unclear how broadly this provision will be interpreted and will vary depending on particular facts and circumstances.
Separately, in a Joint Notice issued by the Department of Labor and Department of the Treasury, the Departments released a Final Rule announcing the extension of certain timeframes under ERISA and the Code to provide additional time to comply with COBRA deadlines, HIPAA special enrollment periods, benefit claims and appeals, and external review. As more fully described in the Final Rule, the Outbreak Period must be disregarded in determining the following:
- the 30-day period (or 60-day period) applicable to HIPAA special enrollment,
- the 60-day COBRA election period,
- the date for making COBRA premium payments,
- the date for notifying the plan of a qualifying event or disability determination,
- the date within which to file a benefit claim, appeal or to request (or perfect a request for) external review, and
- the date for providing a COBRA election notice for group health plans.
The Final Rule includes a number of helpful examples that assumes the National Emergency ends on April 30, 2020, with the Outbreak Period ending June 29, 2020, and concludes the following:
- an individual who experiences a COBRA qualifying event and receives a COBRA election notice on April 1, 2020, will have until August 28, 2020, (60 days after June 29, 2020) to elect COBRA.
- an individual who had declined enrollment in her employer’s group health plan gives birth on March 31, 2020; she may exercise her special enrollment rights until 30 days after June 29, 2020, which is July 29, 2020, provided that she pays the premium for any period of coverage.
Additional examples are included in the Final Rule.
- KMK Comment: Plan sponsors should work closely with their plan administrators, claims administrators and COBRA service providers to implement these adjusted deadlines and consider best practices particularly with respect to tracking and collecting COBRA premiums, as well as managing delayed claim and appeal deadlines.
In addition to Notice 2020-01 and the Final Rule, the newly issued COVID-19 FAQs for Participants and Beneficiaries offers additional insights as to the effect of COVID-19 rulemaking on benefits and coverage. We will keep you apprised of additional guidance as it is released.
The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.
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