On April 29, the U.S. Department of Labor (the “DOL”) and the Department of the Treasury ( “Treasury”) issued a trio of guidance with respect to COVID-19 and employee benefit plans: (1) Employee Benefits Security Administration (“EBSA”) Disaster Relief Notice 2020-01 (the “Notice”); (2) Formal rules extending certain timeframes under ERISA and the Internal Revenue Code (the “Code”) applicable to welfare plans and participants and beneficiaries of these plans (the “Final Regulations”); and (3) a set of FAQs. The Notice and the Final Regulations are aimed at extending certain deadlines and relaxing certain enforcement provisions otherwise required under ERISA during the “Outbreak Period.” The “Outbreak Period” is defined as March 1, 2020 through a date that is sixty days after the “announced end of the National Emergency.” The FAQs provide general information to plan participants and beneficiaries regarding employee benefit plans and assistance during the pandemic.
EBSA Disaster Relief Notice 2020-01
The Notice was issued solely by the EBSA, the arm of the DOL that oversees retirement plan enforcement.
COBRA Election Notices
Under the Notice, plan sponsors are not required to provide COBRA election notices to qualified beneficiaries during the Outbreak Period. However, participants are permitted to elect COBRA continuation coverage during the Outbreak Period. It is unclear whether plan sponsors must update COBRA notices to include the relief provided by the Notice. However, just days after the Notice was published, the DOL published updated model notices that do not address the relief provided pursuant to the Notice.
Participant Disclosures and Notices
Generally, pursuant to Title I of ERISA, plan sponsors must provide participants and beneficiaries with notices, disclosures, and other documents within certain timeframes, including summary plan descriptions, Qualified Domestic Relations Order (“QDRO”) Notices, and notices regarding plan fees. The Notice provides that a plan sponsor will not be in violation of ERISA for the failure to timely provide notices and disclosures during the Outbreak Period; provided, that the plan and responsible fiduciary act “in good faith” to provide the delayed notices and disclosures “as soon as administratively practicable” following the end of the Outbreak Period.
In addition, ERISA has traditionally required adherence to strict rules for a plan sponsor to disseminate ERISA-required notices and disclosures electronically. The Notice relaxes those strict rules, permitting electronic dissemination of ERISA-required documents to individuals whom the plan sponsor “reasonably believes” have effective access to electronic communication (including email, text, and the internet).
Loan and Distribution Verification Procedures
The Notice also provides relaxed reinforcement for certain qualified retirement plan loan and distribution verification procedures during the Outbreak Period. The Notice provides that if a retirement plan fails to follow the procedural requirements for loans or distributions imposed by the terms of the plan, the plan will not be treated as violating ERISA if:
- the failure is related solely to the COVID outbreak;
- the plan administrator makes a good faith effort under the circumstances to comply with the procedural requirements; and
- the plan administrator makes a reasonable attempt to correct any procedural deficiencies as soon as administratively practicable.
This relief is limited to procedures required under Title I of ERISA. Thus, for example, the spousal consent rules with respect to qualified joint and survivor annuities under the Code are still applicable during the Outbreak Period.
Participant Loans Under the CARES Act
Participant loans are governed by both the Code (over which the Treasury has enforcement authority) and ERISA (over which the DOL has enforcement authority). The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) revises the Code to provide relief with respect to the mechanics of certain participant loans. Under ERISA, the DOL has enforcement authority over fiduciary obligations with respect to participant loans. The Notice provides that the DOL will generally not impose a fiduciary breach on a plan fiduciary who permits participant loans in accordance with the CARES Act.
Participant Contributions and Loan Repayments
ERISA provides strict rules for the timing within which plan fiduciaries must deposit participant contributions and loan repayments to a retirement plan. Generally, those amounts must be forwarded to the plan on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets, but in any event no later than the 15th business day of the month following the month in which those amounts are paid to the employer. The Notice provides that the DOL will not take enforcement action with respect to plan fiduciaries who do not pay participant contributions and loan repayments to a plan by the generally applicable payment date during the Outbreak Period. However, the plan fiduciary must act reasonably and prudently to comply as soon as administratively practicable under the circumstances.
Generally, plan administrators are required to provide 30 days’ notice to plan participants and beneficiaries whose rights under an individual account retirement plan will be temporarily suspended. (For example, if a participant will not have the ability to direct investments for more than three business days due to a change in investment platforms.) To the extent a blackout notice would otherwise be required during the Outbreak Period, the failure to provide such notice will not be considered a violation of ERISA; provided, that the plan administrator acts in good faith to distribute the notice as soon as possible.
General ERISA Fiduciary Compliance
The Notice provides that compliance with claims processing and other ERISA requirements may be difficult during the Outbreak Period. The DOL will emphasize compliance assistance and provide relief where appropriate, as opposed to emphasizing penalties; provided, that plan fiduciaries are acting prudently and in the interest of participants and beneficiaries.
The Final Regulations
The DOL and Treasury jointly issued the Final Regulations tolling certain timeframes otherwise applicable to health plan participants, including:
- The 30-day period (or 60-day period, if applicable) to request special enrollment;
- The 60-day period to elect COBRA continuation coverage;
- The date for making COBRA premium payments pursuant to the Plan, including the 30-day grace period;
- The date for individuals to notify the plan of a qualifying event or determination of disability for the purposes of the COBRA disability extension;
- The date within which individuals may file a benefit claim or an appeal of an adverse benefit determination under the plan’s claims procedures;
- The date within which claimants may file a request for an external review after receipt of an adverse benefit determination or final internal adverse benefit determination; and
- The date within which a claimant may file information to perfect a request for external review upon a finding that the request was not complete.
Under the Final Regulations, the timeframes for the above actions are tolled until the end of the Outbreak Period. For example, with respect to the tolling of COBRA premium payments under the COBRA regulations, a participant generally has a 30-day grace period in which to make a COBRA payment. Therefore, if a COBRA payment is due on January 1, the participant has until January 30 to make the payment. Under the general COBRA rules, a plan sponsor can terminate the participant’s coverage January 1 for failure to pay the COBRA premium when due. If the participant pays the COBRA premium within the 30-day grace period, the plan must then retroactively cover any costs incurred by the participant from January 1 through January 30. The Final Regulations toll the due date for the payment of COBRA premiums until the last day of the Outbreak Period. Therefore, if a participant’s COBRA payment is due March 1, the participant has until the end of the Outbreak Period, plus the 30-day COBRA grace period, to make the payment. It is not completely clear under the Final Regulations whether, if the participant fails to make COBRA continuation payments during the Outbreak Period, (i) the plan sponsor must continue the participant’s COBRA coverage during the Outbreak Period, or (ii) the plan sponsor can cancel the participant’s coverage, and retroactively provide coverage if the participant pays the COBRA premiums within 30 days of the last day of the Outbreak Period.
The FAQ’s provide guidance to participants during the pandemic. The questions are general in nature and do not necessarily provide new legal information. (“Can my employer terminate my health benefits at any time?” “My employer did not pay the insurance premium on my group coverage. Can I pay the premium for coverage?”)
The DOL and Treasury guidance is aimed at providing employee benefit plan participants and beneficiaries the time and resources necessary to contribute their premiums and elections to receive needed benefits during the global pandemic, while also ensuring that plan sponsors and fiduciaries can manage time-sensitive aspects of plan administration. The guidance relaxes otherwise strict timelines, but the guidance is only applicable if fiduciaries are otherwise in good faith compliance with the applicable deadlines. Accordingly, fiduciaries should continue to administer plans in accordance with applicable deadlines to the extent possible.
If you have any questions regarding the guidance issued by the DOL and Treasury, please contact a member of Arnall Golden Gregory’s Employee Benefits team.