New Relief for Employee Benefit Plans Includes Key Time Extensions for Individuals
***Information and guidance in client updates was up to date at time of publication. During the pandemic, information and guidance has been changing rapidly. If you have any questions about the information contained in a client update, please contact the author(s) or your Miller Johnson attorney.***
Individuals will have more time to request mid-year enrollments, exercise their COBRA rights, and exercise their claim and appeal rights under new regulations issued by the DOL and IRS (DOL/IRS regulations). These new regulations extend various deadlines related to employee benefit plans in response to the COVID-19 pandemic. On the same day that these regulations were issued, the DOL [in conjunction with the IRS and the Department of Health and Human Services (HHS)] issued EBSA Disaster Relief Notice 2020-01 (Notice 2020-01). Notice 2020-01 also provides relief from various ERISA requirements, including deadlines for distributing certain legally-required notices and disclosures. While the guidance broadly spans all employee benefit plans, the DOL/IRS final regulations primarily address health and welfare plans and Notice 2020-01 primarily addresses retirement plans.
DOL/IRS Final Regulations
The DOL/IRS final regulations provide significant extensions of various deadlines applicable to employee benefit plans, especially group health plans.
The DOL/IRS final regulations designate the period from March 1, 2020 until the date that is 60 days after the President’s national emergency declaration for COVID-19 expires as the “outbreak period” for purposes of these deadline extensions.
Extensions Applicable to Participants
The DOL/IRS final regulations provide that employee benefit plans (specifically group health plans) must disregard the outbreak period for plan participants, beneficiaries, qualified beneficiaries, or claimants in determining the following periods or deadlines:
- HIPAA Special Enrollment Periods. The 30-day period (or 60-day period, if applicable) to request special enrollment after an individual experiences an event that provides a HIPAA special enrollment right. For example, if an individual loses coverage under the group health plan of the individual’s employer, the individual typically has 30 days to enroll in the group health plan of his or her spouse’s employer (if eligible). That 30-day period begins after the outbreak period if the individual’s loss of coverage occurs during the outbreak period.
- COBRA Elections. The 60-day election period for COBRA continuation coverage after a qualified beneficiary experiences a COBRA qualifying event. For example, if an individual becomes eligible to elect COBRA continuation coverage during the outbreak period, his or her 60-day deadline to make a COBRA election will not start running until the end of the outbreak period.
- COBRA Premiums. The date for making COBRA premium payments. For example, if a qualified beneficiary fails to make his or her COBRA premium payment by a 30-day grace period deadline that falls within the outbreak period, the qualified beneficiary’s COBRA coverage cannot be terminated, unless the qualified beneficiary fails to make the required premium payment by the date that is 30 days after the end of the outbreak period.
- Participant Notices of COBRA Qualifying Events. The 60-day period in which an individual must notify the employer of a qualifying event that is the individual’s divorce, the individual’s child attaining the limiting age, or a qualified beneficiary receiving a disability determination from the Social Security Administration (for purposes of the 11-month COBRA coverage extension). For example, if an employee’s dependent child is no longer eligible for the employer’s group health plan on March 31, 2020 (e.g., due to turning age 26), the employee must usually notify the employer by May 30, 2020 of this qualifying event. Under this relief, the employee is not required to notify the employer of this qualifying event until 60 days after the end of the outbreak period.
- Benefit Claim Deadlines. The date by which individuals must file a benefit claim under the plan’s claims procedure. This relief applies to health and welfare plans, and retirement plans.
- Appeal Deadlines. The date by which claimants must file an appeal of an adverse benefit determination. For example, group health plans and disability plans must provide claimants with at least 180 days following receipt of an adverse benefit determination to file an appeal. Any portion of this 180-day period that falls within the outbreak period cannot be counted against the 180-day period. Again this relief applies to health and welfare plans, and retirement plans.
- External Appeals: For non-grandfathered group health plans, the following periods:
- The four-month period in which claimants must file a request for an external review after receiving an adverse benefit determination.
- The four-month period (or, if later, the 48-hour-period after the request is filed) in which claimants must correct any deficiencies in the claimant’s request for external review.
Extensions Applicable to Employers
The DOL/IRS final regulations also provide some relief for employers. The DOL/IRS regulations delay the 14-day period in which the plan administrator must provide a qualified beneficiary with a COBRA election notice after receiving a notice of a qualifying event. The 14-day period resumes running after the outbreak period ends.
COBRA requires employers to notify the plan administrator within 30 days of a COBRA qualifying event if the qualifying event is: (a) the employee’s death; (b) the employee’s termination of employment, or reduction in hours; (c) the employee becomes entitled to Medicare; or (d) in the case of retiree coverage, the employer’s bankruptcy. In most single employer plans, the employer is also the plan administrator so this is likely a distinction without a difference. This is because the employer has 44 days (14 + 30) to provide the qualified beneficiary with the COBRA election notice. In other words, the deadline for employers to provide qualified beneficiaries with an election notice is delayed until 14 days after the end of the outbreak period (even though the 30-day period is not extended).
The regulations provide helpful examples of the deadline extensions, which are available here. But we suspect that this will make COBRA administration more difficult for employers (and their COBRA administrators) since it will essentially allow qualified beneficiaries a significantly longer time to notify employers of qualifying events, elect COBRA, or pay the COBRA premium without negatively impacting the qualified beneficiary’s COBRA eligibility or enrollment.
Notice 2020-01 provides a broad range of relief for retirement plans, including temporary relief from notice and disclosure obligations, verification procedures for plan loans and distributions, and remittance deadlines for participant contributions and loan repayments. Notice 2020-01 also provides limited relief related to the Form M-1 filing requirement, which is generally required to be filed by group health plans that are multiple employer welfare arrangements (“MEWAs”).
Similar to the DOL/IRS final regulations, Notice 2020-01 designates the period from March 1, 2020 until the date that is 60 days after the President’s national emergency declaration for COVID-19 expires as the “outbreak period” for purposes of providing relief.
Distribution of Required Notices and Documents
Employee benefit plans have numerous notice and disclosure obligations, many of which are required under ERISA and DOL regulations. These notice and disclosure obligations include providing summary plan descriptions, summaries of material modifications, summary annual reports, QDRO notices, annual funding notices, quarterly statements, “black out” notices, and “qualified default investment alternative” notices, among other things. Notice 2020-01 provides temporary relief for many of these notice and disclosure obligations.
So long as the employer acts in “good faith” by distributing the required notices and disclosures as soon as practicable, a delay in distribution during the outbreak period will not be treated as a violation of ERISA. Acting in “good faith” includes using electronic methods of distribution when the employer “reasonably believes” that the recipient has “effective access” to electronic means of communication, including email, text messages, and continuous access websites.
In short, Notice 2020-01 allows employers who have lost their ability to mass mail compliance notices during the pandemic to delay distribution, or distribute the notices electronically, in many cases. However, this relief does not apply to notices addressed in the final regulations (discussed above) or to separate notices required by the IRS (e.g., a 401(k) plan’s “safe harbor” notice).
Plan Loans and Distributions – Verification Procedures
Under Notice 2020-01, the DOL will not treat the failure to follow the plan’s “procedural requirements” for verification of plan loans or distributions as a compliance failure if:
- that failure is solely attributable to the COVID-19 outbreak;
- the plan administrator makes a good-faith diligent 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 documentation, as soon as administratively practicable.
It’s not entirely clear what “verification procedures” are covered by the relief, but the DOL emphasized that anything outside its interpretative authority under Title I of ERISA is not included. For example, accidentally departing from the plan’s loan policy should qualify for relief. But the relief does not apply to spousal consent requirements, or to any other statutory or regulatory requirements under the jurisdiction of the Treasury Department and IRS.
The lack of guidance from the IRS regarding the spousal consent requirement has been particularly frustrating to plan sponsors. Except in limited situations, the spouse of a married participant in a defined benefit pension plan must consent to a participant’s distribution that isn’t in the form of a qualified joint and survivor annuity. Some defined contribution plans (including 401(k) plans), have the same spousal consent rule.
Despite pushback from employers over at least the last decade, the IRS takes the position that the spouse’s consent must be witnessed in the “physical presence” of a notary or plan representative. Ironically, this requirement only appears in the IRS’s final regulations regarding electronic transmission of the spousal consent (e.g., signing the consent on an electronic signature pad). While perhaps inconvenient in normal times, the IRS’s position has effectively prevented participants (and their spouses) from receiving distributions during the pandemic as plan sponsors and recordkeepers debate whether some form of “remote” witnessing is acceptable.
Notice 2020-01 directs plan sponsors to the IRS’s general coronavirus relief page for more information regarding any applicable IRS relief. We hope that the IRS will issue guidance addressing spousal consent requirements, which would be helpful given the expansion of remote notarization in many states.
Participant Loans and Plan Amendments Under the CARES Act
The CARES Act expands the amount participants may borrow from a qualified retirement plan. (See our previous client alert here.) However, the CARES Act does not specifically refer to the loan provisions in Title I of ERISA, including requirements in Section 408(b)(1) of ERISA that require plan loans to be based on “adequate security” and issued on a “reasonably equivalent” basis. Under Notice 2020-01, the DOL will not find that a loan violates Title I of ERISA solely on the basis that the loan was issued in compliance with the CARES Act.
Additionally, Notice 2020-01 confirms that a plan sponsor may make operational changes to its retirement plan to include the relief available under CARES Act and then retroactively amend the plan to conform to the new operations. The deadline for this amendment is the last day of the first plan year beginning on or after January 1, 2022.
Participant Contributions and Loan Repayments
In general, participant contributions and loan repayments must be forwarded to the plan on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets. The DOL recognizes that some employers and service providers may not be able to timely forward participant contributions and repayments to retirement plans during the outbreak period. As a result, the DOL will not take enforcement action for temporary delays in forwarding such contributions and repayments to the plan if (i) the failure is solely attributable to the COVID-19 pandemic, and (ii) the employer acts reasonably in remitting the funds as soon as administratively practicable under the circumstances. While late contributions and loan repayments (plus lost earnings) should be contributed to the plan as soon as possible, Notice 2020-01 appears to relieve employers from filing an application under the DOL’s Voluntary Fiduciary Correction Program for the late contributions and loan repayments during the outbreak period.
Administrators of individual account retirement plans (e.g., 401(k) and 403(b) plans) are generally required to provide 30 days’ advance notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, limited, or restricted by a blackout period. For example, if a participant will be unable to direct investments, obtain loans, or obtain other distributions from the plan for more than three business days, a blackout notice is required. Similar to late participant contributions and loan repayments, the DOL will not take enforcement action for temporary delays in providing blackout notices during the outbreak period, if the delay is solely attributable to the COVID-19 pandemic. Plan sponsors should provide the required blackout notices as soon as possible.
Form 5500 and Form M-1 Filing Relief
With respect to Form 5500, Notice 2020-01 incorporates previous guidance from IRS Notice 2020-23. Under this earlier IRS notice, Form 5500 filings that would otherwise be due on or after April 1 and before July 15, 2020, are now due July 15, 2020. (This relief is not applicable to the Form 5500 deadline for calendar year plans. The non-extended deadline for the 2019 calendar year remains July 31, 2020.)
Notice 2020-01 provides the same relief to Form M-1 filings (for MEWAs) required to be filed between April 1, 2020 and July 15, 2020. Since the annual M-1 is due March 1, this relief only applies to M-1 filings due when the MEWA is established or in the event a special mid-year filing is required due to a MEWA change.
The DOL will continue to monitor the effects of the COVID-19 pandemic and may provide additional relief in the future. Also, to the extent that there are different outbreak period end dates for different parts of the country, the DOL will issue additional guidance regarding the application of the relief to those different areas.
While the extensions in the DOL/IRS regulations and the relief in Notice 2020-01 are currently set to end 60 days after the national emergency declaration expires, that end date could be later adjusted by the DOL/IRS.
If you have any questions, please contact one the authors or a member of the Miller Johnson employee benefits attorneys listed to the left.