The U.S. Departments of Labor (DOL), Treasury, and Health and Human Services have issued guidance (here and here) extending deadlines for COBRA, special enrollment periods, benefit claims/appeals, employer notices and other disclosures. The extended deadlines apply to plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), and governmental plans. The DOL also issued guidance on fiduciary compliance.
The new guidance covers the time period between March 1, 2020, and at least 60 days after the announced end of the COVID-19 National Emergency or other date announced by the DOL (Outbreak Period). More information on other benefit plan-related provisions of the CARES Act can be found in our prior advisories here and here.
While some of the guidance helps plan sponsors, much of it affects deadlines for plan participants, sometimes in ways that may pose additional burdens on plan administration and funding. This advisory discusses some of those challenges as well as previously issued regulatory relief.
Fiduciaries – Act Prudently!
Many plan fiduciaries have raised concerns about being forced to decide whether to permit COVID-19-related distributions and plan loans authorized by the CARES Act. While this issue is not directly addressed by the new guidance, it recognizes that affected plan participants and beneficiaries may encounter problems due to COVID-19.
The DOL reminds plan sponsors that the guiding principle must be to act reasonably, prudently and in the interest of covered workers and their families for health, retirement and other employee benefit plans. Therefore, plan fiduciaries are encouraged to make reasonable accommodation to prevent loss of benefits or undue delay in payments and should minimize the possibility of individuals losing benefits because deadlines are missed. The DOL also recognizes there may be delays in claims processing and other ERISA requirements.
The takeaway for plan sponsors seems to be “do your best, but remember you are a fiduciary so that is a pretty high bar.” The DOL still expects plan sponsors to act prudently, and this is not an excuse to relax controls. If the DOL believes a plan sponsor is acting as a reasonable fiduciary, it will be lenient and assist with compliance (e.g., by offering grace periods).
Relief for Retirement Plans
The guidance provides the following relief for ERISA retirement plans:
Required Disclosures Under Title I of ERISA to Plan Participants, Beneficiaries, and Other Persons
(e.g., SPDs, SMMs, employee benefit statements, information requests, blackout period notices, 204(h) notices, annual funding notices, distribution notices, QDRO receipt notices, and automatic contribution arrangement notices.)
The DOL confirms that a plan and its fiduciaries will not violate ERISA for failing to timely furnish any required Title I disclosures during the Outbreak Period, as long as the plan and responsible fiduciary act in good-faith and furnish the disclosure as soon as administratively practicable under the circumstances.
“Good faith” acts include use of electronic alternative means of communicating with plan participants and beneficiaries the plan fiduciary reasonably believes have effective access to such means of communication, including email, text messages, and continuous access websites. This is a significant (and welcome) departure from the current e-delivery rules (although new guidance on e-delivery is expected shortly).
Failure to Follow Procedural Requirements for Plan Loans and Distributions
The DOL will not take action where a plan fails to follow certain procedural requirements (such as verification procedures) for plan loans and distributions during the Outbreak Period if:
- The failure is solely attributable to COVID-19;
- The plan administrator makes a good-faith diligent 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.
Plan sponsors should understand how their recordkeepers are administering the changes to avoid operational errors. However, spousal consent requirements have not been relaxed, and plan sponsors should continue to follow plan document requirements for spousal consent.
CARES Act Loans
The DOL will not treat any person as violating ERISA solely because a loan is made or a participant delays making a loan repayment, per the CARES Act. As discussed in a previous advisory, the CARES Act allows plans to increase loan limits to $100,000 or 100 percent of the vested benefit, and repayments for existing loans can be delayed for up to one year.
This appears to be the DOL’s way of saying that it will not take any fiduciary breach actions against sponsors for including these enhanced loan provisions.
Other Loan Repayment Relief
In Notice 2020-23, the Internal Revenue Service (IRS) extended all loan repayments due between April 1 and July 14 to July 15, 2020. This applies to all loans, unlike the relief in the CARES Act for individuals affected by the pandemic.
The guidance provides that plan amendments adopted to provide COVID-19-related distributions or loans enacted under the CARES Act (as discussed in a previous advisory) will be deemed to be timely if they are made on or before the last day of the plan year beginning in 2022, as long as the amendment complies with the enacting CARES Act provision.
This means that amendments adopted in 2023 by certain non-calendar year plans will be deemed to be timely as long as they are adopted no later than the last day of the plan year that began in 2022.
Deposit Timing for Participant Contributions and Loan Repayments
The DOL generally requires employers to deposit participant deferrals or loan repayments into the plan’s trust as soon as they can reasonably be segregated from the employer’s general assets. However, the DOL recognizes this may not be possible during the Outbreak Period and confirmed it will not take enforcement action against an employer for a temporary delay in depositing such amounts, but only if:
- The failure is solely attributable to COVID-19; and
- Employers and service providers act reasonably, prudently, and in the interest of employees to comply as soon as administratively practicable under the circumstances.
Under ERISA, defined contribution plan administrators must provide 30 days’ advance notice to plan participants whose rights under the plan will be temporarily suspended, limited, or restricted by a blackout period (e.g., limitations on directing investment assets due to a change in the plan’s recordkeeping). Existing regulations provide an exception to the advance notice requirement when the inability to provide the notice is beyond the reasonable control of the plan administrator and a fiduciary so determines in writing.
The guidance provides that during the Outbreak Period, plans are relieved from the advance notice requirement applicable to blackout notices without a fiduciary making such written determination (since, per the DOL, pandemics are by definition beyond a plan administrator’s control).
Extension of Plan Deadlines Under ERISA and the Code
The guidance essentially disregards the Outbreak Period when determining certain plan deadlines and provides extensions for the following:
- The 30-day period (or 60-day period, if applicable) to request special enrollment in a group health plan;
- The 60-day election period for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA);
- The due date for making COBRA premium payments;
- The date for individuals to notify the plan of a qualifying event or determination of disability for the COBRA-qualifying events of divorce, disability, and dependents losing eligibility;
- The deadline for plan administrators to provide COBRA election notices. Note, the guidance does not extend the maximum duration of COBRA coverage (which remains 18 months for participants and 36 months for dependents);
- The deadline for filing a benefit claim under a plan’s claims procedures (both retirement and welfare plans);
- The deadline for filing an appeal of an adverse benefit determination under a plan’s claims procedures (both retirement and welfare plans);
- The deadline for filing a request for external review after receipt of an adverse benefit determination (welfare plans);
- The deadline for filing information to perfect a request for external review upon an initial finding that the request was not complete (welfare plans); and
- Deadlines to distribute excess deferrals and deferrals or match es that fail the ADP/ACP test were extended in Notice 2020-23 until July 15.
Examples of Tolling Relief
Here are two examples illustrating how this tolling relief for plan deadlines under this guidance would work. For purposes of these examples, assume that the National Emergency’s end date is May 31, 2020. The Outbreak Period would therefore end on July 30, 2020 (60 days after May 31, 2020) based on this guidance.
Example 1: Adam works for X-ray, Inc., and participates in X-ray, Inc.’s group health plan. Due to the National Emergency, Adam 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. Adam is provided a timely COBRA election notice on May 1, 2020. What is the deadline for Adam to elect COBRA?
Conclusion: The Outbreak Period is disregarded for purposes of determining Adam’s COBRA election period (which is generally 60 days). The last day of Adam’s COBRA election period is 60 days after July 30, 2020 (the end of the Outbreak Period), which is September 28, 2020. Note that even though the COBRA notice was not delayed, this gives Adam almost three additional months to decide, retroactively, whether to elect COBRA coverage.
Example 2: Eve received a notification of an adverse benefit determination from her disability plan on January 24, 2020. The notification advised Eve that there are 180 days within which to file an appeal. What is Eve’s appeal deadline?
Conclusion: When determining the 180-day period within which Eve’s appeal must be filed, the Outbreak Period is disregarded. Therefore, Eve’s last day to submit an appeal is 144 days (180 – 36 days following January 24 to March 1) after July 30, 2020. The last day for Eve to file an appeal is therefore December 21, 2020.
Impact on Employers
Although much of the relief provided in this guidance will be welcomed by plan sponsors, there remain open questions. For example, the tolling of COBRA election deadlines means that terminated participants will have several months (instead of 60 days) to decide whether to elect COBRA. This gives participants much longer to assess whether they are likely to incur high-dollar claims to justify the cost of electing COBRA (imposing potential heavy burdens on self-insured plans).
While participants still must pay COBRA premiums for any months they elect coverage, they can limit the premiums paid to the months they need coverage. In Example 1 above, suppose Adam knows in September that he incurred significant medical expenses only in June. He can elect COBRA coverage and pay the premiums for just two months of coverage.
Join us for our webinar on May 18 (link forthcoming), where we will discuss benefits issues employers should consider during post-pandemic operations.
The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.
DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.