Responding to the ongoing COVID-19 pandemic, the Employee Benefits Security Administration ("EBSA") of the Department of Labor (the "DOL"), the Internal Revenue Service (the "IRS") and the Department of the Treasury (the "Treasury") recently issued guidance for employee benefit plans, including welfare benefit plans and 401(k) plans, that extends deadlines and relaxes requirements under the Employee Retirement Income Security Act ("ERISA") and the Internal Revenue Code (the "Code"). Provided below is an overview of the relief provided by the agencies:
EBSA Notice 2020-01
EBSA Disaster Relief Notice 2020-01 ("EBSA Notice 2020-01") delays or postpones due dates for certain required ERISA notices and filings for employee benefit plans as provided under ERISA Section 518, as amended by Section 3607 of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").
Relief for Required Notices and Disclosures
EBSA Notice 2020-01 provides that an employee benefit plan and the responsible plan fiduciary will not be in violation of ERISA for failure to timely furnish a notice, disclosure, or document that must be furnished between March 1, 2020, and 60 days after the announced end of the COVID-19 National Emergency (the "Outbreak Period"), if the plan and responsible fiduciary act in good faith and furnish the notice, disclosure, or document as soon as administratively practicable under the circumstances. The notice explains that good faith includes the use of electronic alternative means of communicating with plan participants and beneficiaries who the plan fiduciary reasonably believes have effective access to electronic means of communication, including email, text messages, and continuous access websites. Should there be different Outbreak Period end dates for different parts of the country, additional guidance will be issued regarding the application of the relief to those different areas.
The relaxed compliance standards and relief period applies to summary plan descriptions, summary of material modifications, summary annual reports, periodic pension benefit statements, ERISA Section 404(c) plan disclosures, annual funding notices, and other notices and disclosures required by Title I of ERISA, with the exception of notices and disclosures addressed in the Joint Notice (described below). See DOL's Reporting and disclosure guide for employee benefit plans for a comprehensive list.
The relief provided under EBSA Notice 2020-1 does not automatically extend the filing or notice dates addressed by the notice (unlike, for example, the extension provided in the Joint Notice for the COBRA election and payment timeframes discussed below). Instead, plan fiduciaries are to act in good faith and furnish the notice, disclosure, or document as soon as administratively practicable under the circumstances, which may be, under certain facts and circumstances, prior to the end of the Outbreak Period.
Relief for Verification Procedures for Participant Loans and Distributions
EBSA Notice 2020-01 provides that if an employee pension benefit plan fails to follow procedural requirements for plan loans or distributions imposed by plan terms, the DOL will not treat it as a failure if:
- The failure is solely attributable to the COVID-19 outbreak;
- The plan administrator makes a good-faith diligence effort under the circumstances to comply with those requirements; and
- The plan administrator makes a reasonable attempt to correct any procedural deficiencies such as assembling any missing documents, as soon as administratively practical.
While not expressly addressed, it appears that a reasonable reading of EBSA Notice 2020-1 is that plan loan relief applies to loans made during the Outbreak Period. The notice also states that such relief does not extend to statutory or regulatory requirements under the jurisdiction of the IRS and the Treasury, for example, spousal consent procedures.
Relief for Participant Loans Under the CARES Act and Retroactive Plan Amendments
As discussed in our prior Client Update (see CARES Act - Employee Benefit and Executive Compensation Implications), Section 2202 of the CARES Act:
- Increases the maximum loan amount that can be taken by qualified participants from a qualified plan during the period beginning on March 27, 2020 and ending on September 22, 2020 (the "loan relief period"); and
- Delays repayment due dates occurring during the period beginning on March 27, 2020 and ending December 31, 2020 for up to one year for outstanding plan loans taken by qualified participants, with the repayment amount being adjusted to reflect the delay when repayments recommence.
However, the CARES Act failed to address the adequate security and reasonably equivalent basis requirements in ERISA Section 408(b)(1), creating a potential conflict between these ERISA requirements and Section 2022 of the CARES Act. EBSA Notice 2020-01 addresses this potential conflict.
EBSA Notice 2020-01 states that the DOL will not treat any person as having violated the adequate security and reasonably equivalent basis requirement in ERISA Section 408(b)(1) and 29 CFR § 2550.408b-1 solely because the person made a plan loan or delayed plan loan repayment; provided that each such action is in compliance with the CARES Act and the provision of any related IRS notice or other published guidance. Further, if an employee pension benefit plan retroactively amends the plan to provide the relief for plan loans (and the coronavirus-related distributions) described in Section 2202 of the CARES Act, the DOL will treat the plan as being operated in accordance with the terms of such amendment prior to its adoption in accordance with the plan amendment requirements under the CARES Act (i.e., the amendment is made on or before the last day of the first plan year beginning on or after January 1, 2022 (or such later date prescribed by the Secretary of the Treasury).
Relief for Forwarding of Participant Contributions and Loan Repayments
EBSA Notice 2020-01 provides that during the Outbreak Period the DOL will not take enforcement action with respect to a temporary delay in forwarding participant payments and withholdings to employee pension benefit plans within timeframes prescribed under ERISA if:
- The failure is solely attributable to the COVID-19 outbreak; and
- Employers and service providers act reasonably, prudently, and in the interest of employees to comply as soon administratively practicable under the circumstances.
This relief does not extend to enforcement action by IRS. Thus, as it stands now, delays in forwarding participant payments and withholdings may still result in prohibited transaction excise taxes under the Code. However, it is anticipated that IRS will take the same approach, as, prior to its issuance, the IRS advised EBSA that its concurs with the relief specified in EBSA Notice 2020-01.
Relief for Blackout Notices
Blackout notices are generally required to be provided to participants and beneficiaries 30 days in advance of a temporary suspension of certain rights of participants and beneficiaries under an individual account plan. EBSA Notice 2020-01 points to the regulations under 29 CFR § 2520.101-3 that provides an exception to the advance notice requirement when
- The inability to provide the notice is due to events beyond the reasonable control of the plan administrator; and
- A fiduciary so determines in writing.
During the Outbreak Period, the DOL states that the ongoing COVID-19 pandemic will generally be sufficient to satisfy the first requirement and the second requirement is waived.
Form 5500 and Form M-1 Filing Relief
EBSA Notice 2020-01 provides filing due date relief for Form 5500 Annual Return/Reports and Form M-1 for multiple employer welfare arrangements and certain entities claiming exception in accordance with guidance issued by the IRS and the Treasury. Recently issued IRS Notice 2020-23 extends to July 15, 2020 the filing date for various filings, including Form 5500, that have deadlines that would otherwise be due between April 1, 2020, and July 14, 2020. Thus, the relief in Notice 2020-23 does not delay the regular July 31, 2020 filing due date for the 2019 Form 5500 for a calendar year plan since that date is after July 14, 2020. (However, plan administrators for calendar year plans are still able to obtain an automatic 2½ month filing extension by timely filing a Form 5588.)
General ERISA Fiduciary Compliance Guidance
EBSA Notice 2020-01 concludes with a general guiding principle: Plans must act reasonably, prudently, and in the best interest of the covered workers and their families. The DOL expects plan fiduciaries to make reasonable accommodations to prevent the loss of benefits or undue delay in benefit payments and to attempt to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established timeframes. That said, the DOL acknowledges that plans and service providers may at times be unable to achieve full and timely compliance with claims processing and other ERISA requirements. In such cases, the DOL will take the approach of providing "compliance assistance" and may grant grace periods and other relief when they feel it is appropriate to do so.
While this notice may provide some relief for technical failures, the DOL's general fiduciary compliance guidance highlights the fact that the relief provided is limited and subject to the DOL's discretion. Plan administrators should keep careful and contemporaneous records of the circumstances surrounding the relief relied upon in EBSA Notice 2020-10 to be able to demonstrate good faith compliance.
Joint Notice and DOL FAQs
On April 28, 2020, EBSA issued a set of frequently asked questions ("FAQs"), COVID-19 FAQs for Participants and Beneficiaries ("DOL FAQs"), and the DOL, IRS and Treasury issued a joint notice, Final Rule: Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak, on May 4, 2020, 85 Federal Register 26,351 (the "Joint Notice"), addressing the extension of timeframes for certain required notices with respect to group health plans, disability and other welfare plans and pension plans during the Outbreak Period.
The DOL FAQs and Joint Notice provide that all group health plans, disability and other employee welfare benefit plans and employee pension benefit plans subject to ERISA or the Code must disregard the Outbreak Period for all plan participants, beneficiaries, qualified beneficiaries, or claimants wherever located in determining the periods and dates of actions relating to:
- Special enrollment for group health plans;
- COBRA continuation coverage elections and premium payments; and
- Claims procedures and external review processes.
Basically, for these purposes, the period of time that covers the Outbreak Period is ignored and treated as if it never existed.
The Joint Notice provides several examples of how the extended timeframes work, assuming, hypothetically, that the National Emergency ends on April 30, 2020, such that, the Outbreak Period would end 60 days later on June 29, 2020.
One of the examples in the Joint Notice (Example 1) assumes that Individual A works for Employer X and participates in X's group health plan and due to the National Emergency Individual A experiences a qualifying event for COBRA purposes as a result of a reduction of hours below the hours necessary to meet the group health plan's eligibility requirements and has no other coverage. Individual A is provided a COBRA election notice on April 1, 2020. However, the Outbreak Period is disregarded for purposes of determining Individual A's COBRA election period. As a result, the last day of Individual A's COBRA election period is August 28, 2020, which is 60 days after June 29, 2020 (the hypothetical end of the Outbreak Period under this example).
In another example in the Joint Notice (Example 3), it is assumed that on March 1, 2020, Individual C was receiving COBRA continuation coverage under a group health plan. More than 45 days had passed since Individual C had elected COBRA. Monthly premium payments are due by the first of the month and the plan does not permit longer than the statutory 30-day grace period for making premium payments. Individual C made a timely February payment, but did not make the March payment or any subsequent payments during the Outbreak Period. As of July 1, Individual C has made no premium payments for March, April, May, or June. Since the Outbreak Period is disregarded for purposes of determining whether monthly COBRA premium installment payments are timely, if premium payments for March, April, May, and June 2020 are made no later than 30 days after June 29, 2020 (the hypothetical end of the Outbreak Period under this example), then Individual C has timely paid the premiums and has COBRA continuation coverage for these months.
Note that the Joint Notice doesn't require the employee or other qualifying beneficiary to delay making the election and/or paying the premiums during the Outbreak Period on the plan's normal payment dates. It is that individual's choice. However, the longer the Outbreak Period, the larger the ultimate premium payment, which an individual may have difficulty paying when due.
The longer election/premium payment period increases the risk to a plan of adverse selection, as terminated employees would delay making the decision whether or not to elect COBRA coverage based on the medical claims incurred during the extended period versus the cost of the premium payments for that period. (Also, employers should note that the rules under Code Section 4980H (commonly referred to as the employer mandate) refer to the COBRA rules for premium payment due dates in the context of whether an employee has been offered affordable healthcare and confirm that any actions to terminate coverage for non-payment of premiums by a furloughed employee does not cause an issue under the employer mandate.)
The Joint Notice does not address when a summary of material modifications ("SMM") or notice of the delay periods are required to be provided to employees regarding the extended timeframe. However, based on EBSA Notice 2020-01 and the general SMM distribution timing rules, it appears an SMM is not required to be provided earlier than the normal timeframe required under the DOL regulations. However, a notice to employees regarding the delayed period may be appropriate and perhaps required from a fiduciary standpoint.
Finally, the DOL FAQs are designed to assist employee benefit plan participants and beneficiaries, as well as plan sponsors, and employers, impacted by COVID-19, in understanding their rights and responsibilities under Title I of ERISA. They address practical questions with respect to health and retirement benefits, including the continuation of benefits during a period when an employer's place of business has temporarily closed, a participant's rights and options upon termination of employment, steps to take in the event an employer fails to pay an insurance premium or make a distribution and where to go (and who to contact) for more information.
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