Additional COVID-19-Related Guidance for Employee Benefit Plans

The Department of Labor (DOL) and the Internal Revenue Service (IRS) have recently issued guidance with respect to COVID-19-related matters affecting employee benefit plans. This guidance provides needed relief for employers and plan sponsors, as well as plan participants, while also, in some cases, creating additional administrative burdens for employers and plan sponsors. 

The guidance includes a joint notice (Joint Notice) from the DOL and IRS (available here), EBSA Disaster Relief Notice 2020-01 (EBSA Notice 2020-01) from the DOL (available here), COVID-19 FAQs for Participants and Beneficiaries from the DOL (COVID-19 FAQs) (available here), and Coronavirus-related Relief for Retirement Plans and IRAs Questions and Answers (IRS Q&A) (available here). Both the Joint Notice and EBSA Notice 2020-01 state that the Department of Health and Human Services has reviewed and concurs with the guidance provided. The DOL and the IRS have indicated that additional guidance may be forthcoming as they continue to review the impact of COVID-19 on employee benefit plans.

Joint Notice

The Joint Notice tolls various time limits with respect to employee benefit plans during the period from March 1, 2020, the date that the national emergency related to COVID-19 (National Emergency) began, until the date 60 days after the conclusion of the National Emergency (Outbreak Period). Notably, this relief is retroactive to March 1, 2020. The Outbreak Period is ignored in computing various time periods relating to employee benefit plans for purposes of:

• COBRA
• Special enrollment under group health plans
• Claims procedure and external review process

These changes will require plan sponsors and their third-party administrators to review their systems to make sure they have a process to determine where and how long the time periods will need to be extended.

COBRA Continuation Coverage. COBRA continuation coverage generally provides qualified beneficiaries specific election periods, periods for timely payment of premiums and periods under which employers are required to notify participants of their right to elect COBRA continuation coverage. All of these time periods have been extended, as the Outbreak Period will be disregarded for purposes of all of the periods described above. More specifically:

• Plan sponsors have a 14-day period in which to notify plan participants of their entitlement to COBRA coverage. The Outbreak Period will be disregarded in calculating this 14-day period.
• Plan participants generally have a 60-day period (from the later of the date the individual loses coverage and the date the employer notifies the individual of his or her right to COBRA coverage) in which to elect COBRA. The 60-day period now refers to the 60 days following the end of the Outbreak Period. By way of example, if the National Emergency ends on April 30, 2020, the Outbreak Period will end on June 29, 2020. If an employee experienced a termination of employment on April 1, 2020, resulting in a loss of health coverage, even if the individual received a COBRA election notice on April 1, 2020, the individual has until Aug. 28, 2020, to elect continuation coverage (60 days following the end of the Outbreak Period). Similarly, if an employee terminated employment and received a COBRA election notice on Feb. 1, 2020, the individual has until July 31, 2020, to elect continuation coverage (28 days before the Outbreak Period and 32 days following the end of the Outbreak Period).
• Premium payments are generally considered timely if made, for the initial premium payment, within 45 days of electing coverage and, subsequently, within 30 days of the start of the period (generally, the month) for which the premium is being paid. As with the other COBRA-related windows, these periods are suspended during the Outbreak Period. By way of example, and assuming the same Outbreak Period as provided above, if an individual elects COBRA continuation coverage on March 1, 2020, and timely pays for March but makes no subsequent premium payments during the Outbreak Period, payments made by July 29, 2020 will be considered timely. If by July 29, 2020, the individual has only paid for April and May, benefits or services after May 31 would not be covered by the plan. This may impose administrative as well as financial burdens on plan sponsors. For example, for an insured plan, insurers may require plan sponsors to front the premium payments.

In addition, although not COVID-19-related, the DOL released updated model COBRA notices (available here). The updated COBRA notices, however, do not address the suspension of the time periods during the Outbreak Period. Whether plan sponsors should revise their COBRA notices to reflect the extended deadlines remains an open question.

Special Enrollment Periods. Pursuant to Section 701(f) of ERISA and Section 9801(f) of the Code, individuals have 30 days (60 days in the case of a loss of CHIP or Medicaid coverage) from certain specified events, such as the birth or adoption of a child or the loss of other health coverage, to elect coverage under their employer’s plan (outside of the annual enrollment period). The Joint Notice extends this time period to 30 days (60 days in the case of a loss of CHIP or Medicaid coverage) following the end of the Outbreak Period. As with the COBRA notices, it is unclear what requirements plan sponsors have to notify plan participants of the additional time periods.

Benefit Claims and Appeals. ERISA requires that plans include specific deadlines for filing internal claims for benefits, appeals of adverse benefit determinations as well as requests for an external review of certain adverse benefit determinations. The Outbreak Period is disregarded for determining whether the appeals have been timely filed.

EBSA Notice 2020-01

EBSA Notice 2020-01 addresses several issues related to retirement plans. As with the Joint Notice, EBSA Notice 2020-01 extends several time periods during the Outbreak Period, however, EBSA Notice 2020-01 generally only extends the time periods to the extent needed due to  the COVID-19-related circumstances.

Delayed Notices. Any notice, disclosure or document that is required to be furnished under ERISA during the Outbreak Period may be delayed to the extent that the plan and responsible fiduciary (1) act in good faith and (2) furnish the notice, disclosure or document as soon as administratively practicable under the circumstances. Among other items, this includes the requirement to provide a summary plan description, a summary annual report, annual funding notices, qualified default investment alternative notices, notices of adverse benefit determinations and blackout notices. Acting in 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.

Blackout Notices. EBSA Notice 2020-01 provides additional relief with respect to blackout notices for individual account plans. Under DOL regulations, the requirement to provide at least 30 days’ advance notice of a blackout period does not apply when a plan fiduciary determines in writing that the inability to provide the notice is beyond the control of the plan administrator. The DOL has deemed the COVID-19 pandemic to be a circumstance beyond the control of the plan administrator, such that a written determination by the plan fiduciary is not required.

Participant Contributions and Loan Repayments. Amounts withheld from an employee’s compensation (or paid) for contribution to a plan or for repayment of a plan loan are considered plan assets and generally must be remitted to the plan within a brief period after being withheld from compensation (or paid). If solely on the basis of a failure attributable to the COVID-19 outbreak the amounts are remitted to the plan later than otherwise would be required, the DOL will not take enforcement action, provided that the applicable employer acts reasonably, prudently and in the interest of employees to comply as soon as administratively practicable under the circumstances.

Note that delayed remittances to a plan also are subject to excise taxes; to date, the IRS has not issued comparable relief for this issue.

Plan Loans and Distributions — Verification Procedures. The DOL will overlook a failure to follow a plan’s procedural requirements for loans or distributions, provided that:

• The 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
• The plan administrator makes a reasonable attempt to correct any procedural deficiencies, such as assembling any missing documentation, as soon as administratively practicable

This relief does not apply to spousal consent or other statutory or regulatory requirements that are under the jurisdiction of the IRS.

CARES Act–Participant Loans. During the period beginning on March 27, 2020, and ending on Sept. 22, 2020, with respect to plan loans to certain “qualified individuals,” the CARES Act provides that the $50,000 aggregate limit is increased to $100,000 and the aggregate limit of an employer's vested accrued benefit is increased from 50% to 100%. In addition, any repayment of a plan loan made to a qualified individual that is due between March 27, 2020, and Dec. 31, 2020, may be delayed for up to one year if subsequent repayments are appropriately adjusted to reflect the delay.

EBSA Notice 2020-01 provides that the DOL will not treat any person as having violated the provisions of Title I of ERISA, including the “adequate security” and “reasonably equivalent basis” requirements in ERISA Section 408(b)(1), solely because (1) the person made a plan loan to a qualified individual during the loan relief period in compliance with the CARES Act and any related guidance or (2) a qualified individual delayed making a plan loan repayment in compliance with the CARES Act and any related guidance.

Plan Amendments for CARES Act Loans. A plan may be retroactively amended to allow for plan loans and distributions under the CARES Act if the amendment is made on or before the last day of the first plan year beginning on or after Jan. 1, 2022, and the amendment meets the conditions of the CARES Act.

General Compliance. The guiding principle for plans must be to act reasonably, prudently, and in the interest of the covered workers and their families who rely on their health, retirement and other employee benefit plans for their physical and economic well-being. EBSA Notice 2020-01 provides that plan fiduciaries should make reasonable accommodations to prevent the loss of benefits or undue delay in benefits payments in such cases and should attempt to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established time frames. The DOL acknowledges that there may be instances when plans and service providers may be unable to achieve full and timely compliance with claims processing and other ERISA requirements. The notice provides that the DOL’s approach to enforcement will emphasize compliance assistance and include grace periods and other relief where appropriate, including when physical disruption to a plan or service provider’s principal place of business makes compliance with pre-established time frames for certain claims’ decisions or disclosures impossible.

COVID-19 FAQs 

The COVID-19 FAQs issued by the DOL do not provide any new relief or guidance. However, the FAQs are a useful summary of the rights of plan participants, particularly with respect to situations that may arise during the COVID-19 pandemic. For example, Q9 addresses what a participant receiving COBRA coverage should do if the office to which he or she sends premium payments has closed, and Q17 discusses the possible downsides of taking a pre-retirement distribution from a retirement plan.

IRS Q&As

The IRS Q&As address several points with respect to the coronavirus-related loans and distributions permitted under Section 2202 of the CARES Act. While the Q&As summarize the applicable provisions, they do not currently provide any new guidance.

The IRS indicates in the Q&As that it may issue guidance that expands the list of factors taken into account to determine whether an individual is a “qualified individual” under the CARES Act as a result of experiencing adverse financial consequences and therefore be eligible for certain loans and distributions under Section 2202 of the CARES Act.

The Treasury Department and the IRS also anticipate that future guidance related to Section 2202 of the CARES Act will apply the principles of IRS Notice 2005-92, which provided guidance on the tax-favored treatment of distributions and plan loans under the Katrina Emergency Tax Relief Act of 2005.

Conclusion

Some of this guidance will come as a relief to plan sponsors and administrators who may have difficulty meeting the required deadlines during this time, while other elements of the guidance (particularly with respect to COBRA) may impose administrative or financial burdens. Even with the current relief and guidance, plan administrators may face challenges in the present circumstances. Plan administrators should continue to adhere to the DOL’s direction to “act reasonably, prudently, and in the interest of the covered workers and their families” when administering plans during the COVID-19 pandemic.