New Regulatory Guidance for Benefits Plans in Light of COVID-19May 22, 2020
In light of the COVID-19 pandemic, the Internal Revenue Service (“IRS”), an agency of the Department of the Treasury, and the Employee Benefits Security Administration (“EBSA”), an agency of the Department of Labor, issued guidance for benefit plans, sponsors, and participants. There were several major changes to the rules applicable to benefit plans in the CARES Act (for a complete summary, see our previous alert here). The new guidance summarized below clarifies some of the provisions of the CARES Act and extends certain deadlines.
Notification of Relief and Extension of Timeframes
The IRS and EBSA announced the extension of certain timeframes under the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “Code”) during the COVID-19 national emergency. Specifically, the agencies require that the period beginning March 1, 2020 and ending 60 days after the announced end of the national emergency, or such other date announced by the agencies in a future notification (the “Outbreak Period”), must be disregarded in determining the periods and deadlines discussed below.
HIPAA Special Enrollment Periods
In general, HIPAA requires a special enrollment period in certain circumstances (e.g., when a person becomes a dependent of an eligible employee by birth, marriage, adoption, or placement for adoption). During this special enrollment period, group health plans must permit such persons to enroll in the group health plan if they are otherwise eligible.
The new guidance indicates that group health plans must disregard the Outbreak Period in determining the HIPAA special enrollment period. Accordingly, employees or their dependents that experienced a HIPAA special enrollment event during the Outbreak Period will have 30 or 60 days, as applicable, after the Outbreak Period to enroll in coverage. For employees or their dependents that experienced a HIPAA special enrollment event prior to the Outbreak Period for which the special enrollment period had not yet expired as of March 1, 2020, the guidance clarifies that the remainder of the special enrollment period will resume after the Outbreak Period.
The Consolidated Omnibus Budget Reconciliation Act (“COBRA”) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances, such as voluntary or involuntary job loss, death, divorce, and other life events. Once coverage is elected, it will be effective retroactively to the date coverage was initially lost. The COBRA continuation coverage provisions generally provide a qualified individual a period of at least 60 days to elect COBRA continuation coverage under a group health plan. In addition, plans cannot require payment of premiums before 45 days after the day of the initial COBRA election and must provide a grace period of at least 30 days for payment of monthly premiums. Finally, the COBRA continuation coverage provisions set forth certain time periods during which a qualified individual must notify the plan of certain qualifying events or a determination of disability.
The new guidance indicates that the Outbreak Period will be disregarded in determining: the 60-day period for employees or other COBRA qualified beneficiaries to elect continuation coverage, the due dates for COBRA premium payments (including the 45-day period for the first premium payment following election of coverage), and the period to provide notice of a COBRA qualifying event or a determination of disability.
This means that if an individual becomes eligible for COBRA continuation coverage during the Outbreak Period (i.e., an employee is laid off and is no longer eligible for coverage under the health plan) and is provided with an election notice during the Outbreak Period, the individual will have until 60 days after the end of the Outbreak Period to elect coverage. For example, if the Outbreak Period ends on September 30, 2020, an individual who was laid-off and lost coverage on May 1, 2020 will have until November 29, 2020 to elect coverage. If COBRA continuation coverage is elected on or before November 29, 2020, the coverage will be retroactively effective to May 1, 2020 (when the coverage was lost). Because the deadline for paying premiums is also postponed until after the Outbreak Period, the individual would not have to pay the initial premium for coverage until January 13, 2021 (45 days after the COBRA election). The employee would be responsible for paying for all retroactive coverage. If only a partial payment were made, the employee would only be covered during the months for which payment was made.
This relief only applies to the federal COBRA continuation coverage provisions. As a result, employers may still be subject to different state continuation coverage deadlines.
Benefits Claims for ERISA Plans
Certain benefit plans must establish and maintain procedures governing the filing and initial disposition of benefit claims. These plans must also provide claimants with a reasonable opportunity to appeal an adverse benefit determination. The new guidance clarifies that the Outbreak Period must be disregarded in determining the deadline for filing benefit claims, appeals of adverse benefit determinations, and external review requests.
EBSA Notice 2020-01
In addition to the joint notice, EBSA separately issued another notice providing relief and clarifying enforcement policies for benefit plans due to COVID-19. The IRS, Treasury Department, and the Department of Health and Human Services also concurred with the relief specified in the notice in the application of the laws under their jurisdiction.
ERISA Required Notices
An employee benefit plan and the responsible plan fiduciary will not be in violation of ERISA for a failure to timely issue an ERISA notice during the Outbreak Period so long as the plan and responsible fiduciary act in good faith and issue the notice as soon as administratively practicable. The notice indicates “good faith” includes using electronic or other means to communicate the substance of the required ERISA notice.
Pension plans will not be penalized for a failure to follow procedural requirements for plan loans or distributions, so long as (i) the failure is solely attributable to the COVID-19 outbreak, (ii) the plan administrator makes a good faith diligent effort to comply, and (iii) the plan administrator makes reasonable attempts to correct any procedural deficiencies as soon as administratively practicable. This relief is limited to verification procedures imposed by the terms of the plan and, thus, it does not include spousal consent requirements or requirements imposed by the Treasury Department or IRS.
The CARES Act allows plans to provide loans of up to $100,000 to qualified participants and defers due dates of existing loan payments for qualified participants. EBSA further clarifies in the notice that no person will be considered to have violated the provisions of Title I of ERISA, including the adequate security and reasonably equivalent basis requirements, solely because (1) the person made a plan loan to a qualified individual in compliance with the CARES Act and any IRS guidance or (2) a qualified individual delayed making a plan loan repayment in accordance with the CARES Act or any IRS guidance. Plans will have until the end of 2022 if using a calendar plan year (or the end of the plan year beginning in 2022 if using a non-calendar plan year) to make amendments for the CARES Act, so long as the plan is administered in accordance with the CARES Act requirements.
Participant Contributions and Loan Repayments
Employers are usually required to forward participant withholdings to the plan as soon as they can be segregated from the employer’s general assets. During the Outbreak Period, employers will not be penalized for failing to timely forward withholdings for contributions or repayments of loans if the failure to do so is related solely to the COVID-19 outbreak. Employers are required to act reasonably, prudently, and in the interest of employees and such amounts must be forwarded as soon as administratively practicable.
Administrators of individual account plans must issue advance notice of any blackout period during which the rights of participants and beneficiaries will be temporarily suspended, unless the plan administrator is unable to provide notice due to events beyond the reasonable control of the plan administrator as determined by a fiduciary in writing. During the Outbreak Period, blackout notices will not be required in advance of a blackout period if a plan administrator is unable to provide advance notice due to the COVID-19 outbreak. EBSA has further clarified that it will not require a written determination by a fiduciary that the inability to provide notice is out of the administrator’s reasonable control because “pandemics are by definition beyond a plan administrator’s control.”
Form 5500 and M-1 Filings
The EBSA notice also clarifies the annual deadline for Form 5500 filings and form M-1 filings has been extended to July 15, 2020 in accordance with the other recently issued IRS deadline extensions.
The notice indicates that benefit plans should act reasonably, prudently, and in the interest of employees and their families who rely on plan benefits. As such, employers and administrators should make reasonable accommodations to prevent loss of benefits or undue delay in payments, including attempting to minimize the possibility of employees losing benefits because of a failure to comply with established timeframes. EBSA also acknowledged that plans and service providers may not be able to timely comply with ERISA requirements and stated that EBSA will consider grace periods and other relief when appropriate from an enforcement perspective.
IRS Notice 2020-29
The IRS separately issued additional guidance allowing greater flexibility for cafeteria plans, health flexible spending arrangements (“FSAs”), and dependent care assistance programs (“DCAPs”). The guidance also clarifies provisions of the CARES Act with respect to coverage for high-deductible health plans (“HDHPs”).
Mid-Year Election Changes
Cafeteria plan elections are generally irrevocable during the plan year unless a participant experiences a qualifying change in status. IRS Notice 2020-29, however permits employers to amend one or more of their cafeteria plans to allow eligible employees to make prospective election changes for employer-sponsored health coverage (including self-insured and insured plans), health FSAs (including limited purpose health FSAs), and DCAPs during the 2020 calendar year even if such employees have not experienced a qualifying change in status. This guidance applies to all employees whether or not they have been impacted by the COVID-19 outbreak.
The guidance clarifies that employees may elect for coverage if they previously declined coverage, change to different health coverage offered by the employer, or change to non-employer sponsored coverage. If an employee chooses to change to non-employer sponsored coverage, the employer must receive a written attestation that the employee is enrolled (or will immediately enroll) in other non-employer sponsored comprehensive health coverage.
Employees may also make certain new elections with respect to health FSA and DCAPs. Specifically employees may revoke an election, make a new election, or decrease or increase an existing election on a prospective basis. Employers may limit mid-year elections to amounts no less than amounts already reimbursed.
Employers are not required to permit election changes. If they choose to permit such changes, employers may limit the number of changes they allow an employee to make. Any changes must be made on a prospective basis only and the changes cannot result in the plan violating any applicable non-discrimination rules.
Extended Claims Period for Health FSAs and DCAPs
The notice also allows cafeteria plans to provide employees with an extended period to apply unused amounts remaining in their health FSAs or DCAPs. Specifically, an employer may amend its cafeteria plan to permit employees to apply unused amounts remaining in a health FSA or a DCAP as of the end of a grace period ending in 2020 or a plan year ending in 2020 to pay or reimburse expenses incurred for the same qualified benefit through December 31, 2020.
The extension of time for incurring claims provided by the notice is available to plans that have a grace period and to plans that provide for a carryover. The guidance notes, however, that the requirement that health FSAs either adopt a grace period or provide for a carryover amounts otherwise continues in effect.
Employers wishing to extend grace periods or allow employees to make election changes pursuant to the relief provided by the notice must adopt a plan amendment. Employers have until the end of 2021 to adopt the necessary amendments so long as the plan is operated in accordance with the relief in the meantime.
Clarification for High-Deductible Health Plans
The notice clarifies that the relief provided in Notice 2020-15 regarding HDHPs and expenses related to COVID-19, and in the CARES Act regarding an exemption for telehealth services, may be applied retroactively to January 1, 2020. As a result, an otherwise eligible individual with coverage under an HDHP who also received coverage beginning February 15, 2020 for telehealth and other remote care services under an arrangement that is not an HDHP, and before satisfying the deductible for the HDHP, will not be disqualified from contributing to a health savings account during 2020.
Our attorneys are closely monitoring these developments as they occur and will make regular updates to our COVID-19 Resource Center. If you have any questions about the CARES Act or how it could impact your benefits plans, please reach out to one of the authors above or another member of the Task Force.