Since the start of the COVID-19 pandemic, we have gotten daily calls and emails from our clients asking how furloughs, layoffs, the CARES Act, and a host of other pandemic-related changes affect the benefit plans that they offer to their employees. Those conversations inevitably lead to the question, “Do we need a plan amendment for that?” This article outlines some of the top questions we are receiving in the health and welfare and retirement plan area relating to the need for plan amendments. While the answer is often “it depends,” at a minimum, this article will help you – plan sponsor – determine what information is needed to decide whether a plan amendment is required.
We have added CARES Act distributions and 2020 required minimum distribution suspension to our 401(k) plan. Do we need an amendment for that?
- Yes. You will need to amend your plan to reflect any of the CARES Act 401(k) Plan features that you have added to your 401(k) plan. However, you have until the end of the plan year beginning on or after January 1, 2022 to adopt that amendment (subject to an additional 2-year delay for governmental plans).
- If you have an individually designed plan, you will want to work with your legal counsel to prepare that amendment. If you have a prototype or volume submitter plan, your document provider will prepare that amendment for you.
- Side Note: For companies with individually designed plans in particular, we recommend documenting your decisions and passing them on now to legal counsel that will be responsible for amendment drafting. That should be a lot easier than retracing your steps two or more years from now.
We are suspending company matching 401(k) plan contributions. Do we need an amendment for that?
- Yes for almost all plans. If your plan only has a discretionary, year-end company match, you may not need a plan amendment. Otherwise, you will need a formal plan amendment to suspend (or reduce) company matching contributions. In addition, unless your company provides matching contributions at year-end and only for participants who are employed on the last day of the year, you will need to adopt this plan amendment in advance of the suspension.
- Side Note: 401(k) plans that rely on a safe harbor to satisfy nondiscrimination testing are required to give at least 30 days’ advance notice of any reduction to company matching contributions (and Internal Revenue Service (IRS) rules sometimes limit a plan sponsor’s ability to modify matching contributions in a safe harbor plan).
The CARES Act allows employees to use their medical flexible spending account (FSA) and health reimbursement account (HRA) funds to pay for over-the-counter (OTC) drugs. Do we need a plan amendment to reflect that change?
- Probably not but it depends. Most cafeteria plans (the plan that includes a medical FSA benefit) and HRA plan documents simply refer to expenses allowed under the relevant Code Section (Section 213(d)) and do not include the detail on specific types of expenses that are covered. If your company’s cafeteria plan/HRA is written that way, then you do not need a plan amendment. If your plan is written to specify types of eligible expenses or contains a prohibition on reimbursement of OTC drugs, then you will want to adopt a plan amendment by year-end to change that.
- If you have an individually designed plan, you will want to work with your legal counsel to identify and prepare any needed plan amendment. If you have a “check-the-box” plan from your third-party administrator (TPA), then your TPA should be able to help you with any needed plan amendment.
- Regardless of whether you need a plan amendment, you or your TPA will likely want to update your summary plan description (SPD) and other plan communications to reflect this permanent change.
- Side Note: Medical FSAs and HRAs are not required to allow reimbursement of OTC drugs, but so far most companies we have talked to want to allow this.
I read that the Department of Labor (DOL) and Internal Revenue Service extended deadlines for COBRA elections, COBRA payments, HIPAA special enrollment events, and ERISA plan claims and appeals. Do we need to amend our plans to change those deadlines?
- Most likely not. DOL guidance indicates that a plan will not be treated as failing to operate in accordance with its terms solely as a result of complying with the postponement of a deadline. This gives us a good amount of comfort that companies do not need to amend their plans to reflect the various deadline extensions. However, …
- We recommend that companies communicate these changes to their employees and affected former employees. This will likely require coordination with your COBRA administrator, TPAs, and insurers. We also recommend that companies distribute a summary of material modifications (SMM) that describes these changes to help defend any “If you had told me, I would have…” claims. This could be in the form of a single SMM that covers all affected benefit plans. For a bit of good news, the DOL has temporarily relaxed its rules on electronic communications and will allow “good faith” efforts that could include communication via email, website posting, or text where that would not otherwise be permitted under ERISA.
- Side Note: There are many tricky issues related to these deadline extensions, which apply retroactively to deadlines that occurred on and after March 1. For example, if former employees have many months to pay for COBRA coverage, will the plan pend claims until payment is past due? If so, for self-funded plans, how will this affect stop loss insurance and network provider agreements, among other things? For insured plans, will a company have to cover the premiums in order to preserve the coverage? What about situations where a company has already denied COBRA coverage because an election was late or denied coverage of a new spouse because the employee did not request the change within 30 days of the marriage?
We have placed employees on unpaid leave of absence (a/k/a furlough) and want to continue their medical benefits during this leave. Do we need a plan amendment for that?
- It depends. The starting point is to review your existing plan documents to see what they say.
- For self-funded plans, you may have a wrap plan document that spells out eligibility criteria and that could require a formal plan amendment to change the rules. Some self-funded plans only set forth eligibility rules in the SPD. Those plans would not require a formal plan amendment – just a SPD update or a SMM. However, in any event, for a self-funded plan with stop-loss insurance, you will want to notify your stop-loss insurer of any change to the plan’s eligibility rules and obtain the stop-loss insurer’s approval of any amendment or change in writing to ensure that the stop loss insurer will honor that change.
- For insured plans, you will want to review applicable insurance policies (the “plan document”) and related certificates of insurance (typically, also the SPD) to determine whether they already provide for coverage for the applicable leave situations. If they do not, or if you are not sure, you will want to talk to the insurers about any planned coverage changes and obtain their approval in writing.
Also, as long as we are talking about plan amendments, let’s not forget that qualified retirement plans (401(k) and pension) will need amendments to comply with the SECURE Act (e.g., required minimum distributions beginning at age 72 instead of 70 ½, part-time employee participation). The deadline is the last day of the first plan year beginning on or after January 1, 2022, unless extended. For more information, click here.