DOL and IRS issue COVID-19 timeframe extensions for health, welfare and retirement plans

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Employee Benefits Alert

COVID-19 Alert

By:

The Department of Labor and Internal Revenue Service (the “Departments”) on April 28, 2020 issued a final rule that extends certain time frames under ERISA and the Internal Revenue Code (the “Final Rule”). The extensions apply to group health and welfare plans and retirement plans. The Final Rule provides additional time to comply with certain deadlines affecting COBRA continuation coverage and to make claims for benefits and appeal denied claims. The Department of Labor also released EBSA Disaster Relief Notice 2020-1 (the “Notice”) to provide certain additional guidance and relief for employee benefit plans affected by the COVID-19 outbreak. The extensions provided in the Final Rule create administrative complexity for plan administrators.

FINAL RULE: EXTENSION OF CERTAIN TIMEFRAMES FOR PARTICIPANTS AND PLANS

The new Final Rule jointly issued by the Departments of Labor and Treasury imposes mandatory timeframe extensions for several employee benefits requirements.

Outbreak Period

The extensions apply with respect to the period from March 1, 2020 until 60 days after the announced end of the national emergency period (or a later date to be announced in subsequent guidance).  This period of time is referred to in the Final Rule as the “Outbreak Period.”  The Final Rule states that the Departments will monitor the effects of the COVID-19 pandemic and provide additional relief in the future as they deem necessary.

Extensions granted for employees

HIPAA Special Enrollment Period

Under HIPAA, employees have either a 30-day or 60-day special enrollment period to request enrollment in the employer’s group health plan upon experiencing certain special enrollment events.  For example, employees have a 30-day special enrollment period following the loss of eligibility for group health coverage or individual health insurance coverage or upon acquisition of a new spouse or dependent by marriage, birth, adoption, or placement for adoption, and a 60-day special enrollment period following loss of Medicaid/CHIP eligibility or becoming eligible for a state premium subsidy under Medicaid/CHIP.  The Final Rule extends those 30-day and 60-day HIPAA special enrollment timeframes by disregarding the Outbreak Period.

COBRA election period

Under COBRA, employees and dependents who lose active coverage as a result of a qualifying event (eg, termination of employment) have 60 days to elect continuation coverage from receiving the COBRA election notice.  The Final Rule extends the 60-day COBRA election period by disregarding the Outbreak Period.  It should be noted that the COBRA continuation period was not extended by the Final Rule.  The Final Rule provides an example of how the election extension will work:

  • The example assumes that the national emergency ends on April 30, 2020.Thus, the Outbreak Period extends from March 1, 2020 until June 29, 2020 (60 days after the end of the national emergency).
  • A participant in a group health plan experiences a qualifying event for COBRA purposes as a result of a reduction of hours and has no other coverage.
  • The individual is provided a COBRA election notice on April 1, 2020.
  • The individual is eligible to elect COBRA coverage, but the Outbreak Period is disregarded for purposes of determining the election period.
  • The last day of the individual’s COBRA election period is 60 days after June 29, 2020, which is August 28, 2020.

Employers are encouraged to work with their COBRA administrators to ensure they are applying the COBRA election extension correctly.

Cobra premium payment period

Under COBRA, certain individuals who were covered under the employer’s group health plan upon loss of coverage (“qualified beneficiaries”) have 45 days from the COBRA election to make the first premium payment, and subsequent monthly payments must be made by the end of the 30-day grace period that starts at the beginning of each month of COBRA continuation coverage.  The Final Rule extends the 45-day initial premium payment and 30-day grace period for subsequent premium payment timeframes by disregarding the Outbreak Period.  The Final Rule gives an example of how the extensions work:

  • The example assumes that the national emergency ends on April 30, 2020.Thus, the Outbreak Period extends from March 1, 2020 until June 29, 2020 (60 days after the end of the national emergency).
  • A COBRA qualified beneficiary is receiving COBRA continuation coverage under a group health plan on March 1, 2020.The individual made a timely February payment, but makes no premium payments for March, April, May or June.
  • Because the Outbreak Period is disregarded for purposes of determining whether monthly COBRA premium payments are timely, premium payments made by July 29, 2020 (30 days after the end of the Outbreak Period) are timely, and the qualified beneficiary is entitled to COBRA continuation coverage for the months of March, April, May and June if she makes payment by July 29, 2020.
  • If payments for the four months are made by July 29, 2020, the insurer or plan may not deny coverage and may make retroactive payments for benefits and services received by the participant during this time.

We urge employers to confirm that their third-party administrators are prepared to implement these changes.  The Final Rule suggests that an insurer or self-insured plan may wait to see if an individual will make required premium payments by the revised deadline. The insurer/plan can "make retroactive payments for benefits and services" received by the individual during the extended timeframe, but this approach would be subject to any plan or contractual provisions requiring earlier benefit payments or reimbursements.  Employers are encouraged to consider whether COBRA notices should be updated or whether communications with individuals about the updated premium payment rules should be prepared.

COBRA notices

Under COBRA, an employee or dependent is responsible for notifying the employer’s group health plan within 60 days of the following qualifying events:

  • A divorce or legal separation causing the spouse to lose eligibility;
  • A child losing eligible dependent status (e.g., upon reaching age 26).

Additionally, for a COBRA qualified beneficiary to qualify for a disability extension of the maximum coverage period from 18 to 29 months, a qualified beneficiary must notify the employer’s group health plan within 60 days of the date that the U.S. Social Security Administration makes a determination of disability.  The Final Rule extends the 60-day employee COBRA notification timeframes by disregarding the Outbreak Period.

Benefit claim filing deadline

In general, an employee benefit plan states what timeframe an employee will have for filing a benefit claim.  The Final Rule extends an employee benefit plan’s deadline to file a benefit claim under the plan’s claims procedures by disregarding the Outbreak Period. The Final Rule contains the following  example of how this would work:

  • An employee is covered by an employer group health plan which includes a provision that requires benefit claims be submitted within one year of any covered treatment or service.
  • The employee receives a covered treatment on March 5, 2020, but does not submit the benefit claim to the plan until June 5, 2021.
  • The standard one-year benefit claim filing deadline is extended by disregarding the Outbreak Period.  Assume the Outbreak Period ends on June 29, 2020.  The employee’s last day to file the benefit claim is one year after the end of the Outbreak Period (by June 29, 2021), so the benefit claim on June 5, 2021 is timely submitted.

ERISA adverse benefit determination appeal deadline

ERISA establishes a fixed set of deadlines for appeals in its claims and appeals procedures rules.  For example, there is a 180-day timeframe to appeal an adverse benefit determination under a group health plan or disability plan, and a 60-day timeframe to appeal an adverse benefit determination under any other type of plan.  The Final Rule extends the deadline to file an appeal of the plan’s adverse benefit determination by disregarding the Outbreak Period. This extension could pose significant challenges for plans, including flexible spending accounts.

ERISA external review request deadline

Under the ERISA appeals procedures (for non-grandfathered health plans), claimants have four months after the date of receipt of an adverse or final benefit determination to request an external review if the claim involves medical judgment or rescission of coverage.  The Final Rule extends the deadline to file an external review request by disregarding the Outbreak Period.

Deadline to submit additional information

Upon a finding that a claimant’s external review request was not completed as required, the claimant has until the end of the four-month filing period to correct the request for external review by submitting additional information.  The Final Rule extends the period to submit additional information related to the external review request by disregarding the Outbreak Period.

Extension granted for employers

Under COBRA, an employer’s group health plan generally must provide a COBRA election notice to individuals who experience a qualifying event.  These rules generally provide 30 days for the employer to provide notice to the plan administrator, and 14 days for the plan administrator to provide the election notice to the qualified beneficiary (the DOL typically enforces a combined 44-day limit).  The Final Rule extends the deadline for the plan to provide the COBRA election notice to the qualified beneficiary by disregarding the Outbreak Period.  COBRA administrators whose systems are programmed to comply with the normal COBRA election notice rules may not wish to take advantage of this extension.

DISASTER RELIEF NOTICE 2020 (THE “NOTICE”)

Relief for Required Notices and Disclosures

In addition to the extension of certain time frames, the Department of Labor also provided an extension of deadlines for providing retirement and welfare plan notices and disclosures in which it has interpretive and regulatory authority under Title 1 of ERISA.  The Notice provides that if a plan fiduciary acts in good faith to provide a notice, disclosure or plan document that is required to be furnished between March 1, 2020 and 60 days after the end of the COVID-19 National Emergency, it will not be found to have violated ERISA.  Good faith includes a plan fiduciary attempting to communicate with participants and beneficiaries who it believes has access to e-mail, text, and continuous access to websites.

Notices and disclosures include but are not limited to the following:

  • Summary plan descriptions
  • Summary of material modifications
  • Summary annual reports
  • Summary of material reductions in covered services or benefits
  • Summary of benefits and coverage
  • Statement of accrued and nonforfeitable benefits
  • Notice of failure to meet minimum funding standards
  • Annual funding notice
  • Participant plan and investment fee disclosures

Good faith includes a plan fiduciary attempting to communicate with participants and beneficiaries who it believes has access to email, text, and continuous access to websites.  The Notice doesn’t specifically waive the Department of Labor or the Treasury’s electronic disclosure rules.  If electronic disclosure is utilized without obtaining participant consent we recommend providing a mechanism to guarantee actual receipt (eg, tracking delivery or utilizing “read receipt” messages). 

Plan loans and distributions

The Department of Labor and the Treasury Department share jurisdiction over the regulations governing participant plan loans.  The CARES Act modified the loan provisions in the Internal Revenue Code by increasing the aggregate dollar amount of a participant’s plan loans to $100,000 and allowing loans in excess of 50% of the present value of a participant’s plan account balance. 

As a result of these changes, the Department of Labor announced that it will not treat a plan sponsor as failing to follow a plan’s stated loan procedures if a failure occurs that is:

  • Attributable to the COVID-19; and
  • The plan administrator makes a good faith effort to comply, and a reasonable effort is made to correct procedural defects or compile missing documents.

The Department of Labor also provided that it will not treat a plan administrator of violating ERISA’s reasonable equivalent basis and adequate security requirements  by approving loans in accordance with the terms of the CARES Act, during the compliance period.  This pronouncement does not require plan administrators to allow loans to be made to former employees nor waive its duty to monitor loan fees for reasonableness. 

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, but no later than the 15th business day of the month following the month in which the amounts were paid to or withheld by the employer.  Under the Notice, the Department of Labor will not take enforcement action with respect to a temporary delay in forwarding such payments or contributions to the plan that would otherwise be due during the Outbreak Period.  The relief is only available if the failure is solely attributable to the COVID-19 outbreak.  Employers and service providers must act reasonably, prudently and in the interest of employees to comply as soon as administratively practicable under the circumstances. It should be noted that the Notice only addresses enforcement relief by the Department of Labor, and does not address excise tax liability under the Internal Revenue Code.

Blackout notices

Under ERISA, the administrator of an individual account plan like a 401(k) plan must 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.  The Notice provides that a responsible plan fiduciary will not be in violation of ERISA if a blackout notice that would otherwise be due during the Outbreak Period is not furnished in a timely fashion.  In addition, the Department of Labor will not require a written determination by a fiduciary with regard to the delay, as pandemics are by definition beyond a plan administrator’s control.  The relief is available if the fiduciary acts in good faith and furnishes the notice as soon as practicable under the circumstances.

Form 5500 and Form M-1 relief

The Notice refers to the previously granted Form 5500 and Form M-1 filing relief, but does not grant any additional Form 5500 filing extensions for calendar year plans.

General ERISA fiduciary compliance

The Notice acknowledges that plans and service providers may be unable to achieve full and timely compliance with claims processing and other ERISA requirements.  In its approach to enforcement, the Department of Labor states that it will emphasize compliance assistance and include grace periods and other relief where appropriate.  This will include situations where physical disruption to a plan or service provider’s principal place of business makes compliance with timeframes for claims decisions or disclosures impossible.

Additional extensions

The Notice states that the guiding principle for plans during the COVID-19 outbreak is to act reasonably, prudently and in the interest of employees.  The Department of Labor expects plan fiduciaries to make reasonable accommodations to prevent the loss of benefits or a delay in benefit payments.

The Notice also states that the Department of Labor will continue to monitor the effects of the COVID-19 outbreak and may provide additional relief.  To the extent there are different outbreak periods for different parts of the country, the Department will issue additional guidance regarding the application of the relief to those different areas.

FAQs

The Department of Labor also issued a set of COVID-19 FAQs designed to assist benefit plan participant and beneficiaries, as well as plan sponsors, in understanding their rights and responsibilities during the COVID-19 outbreak.

We strongly encourage employers and plan administrators to review [the Final Rule and the Notice] and take appropriate action to ensure their plans remain in compliance.

For advice on these and other employee benefit questions or implications in light of the COVID-19 pandemic, please contact a member of the DLA Piper Employee Benefits and Executive Compensation group or your DLA Piper relationship attorney.

Please visit our Coronavirus Resource Center and subscribe to our mailing list to receive alerts, webinar invitations and other publications to help you navigate this challenging time.

This information does not, and is not intended to, constitute legal advice. All information, content, and materials are for general informational purposes only. No reader should act, or refrain from acting, with respect to any particular legal matter on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction.