The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) and the U.S. Department of the Treasury’s Internal Revenue Service (IRS) (collectively, the Agencies) recently issued guidance that substantially impacts employee benefit plans. This guidance extends deadlines for participants and beneficiaries and provides limited relief to employee benefit plans. The guidance consists of:

1. New Regulations, promulgated jointly by the Agencies, that went into effect on May 4
2. IRS Q&As issued on May 4
3. EBSA Disaster Relief Notice 2020-01, issued on April 28 (EBSA Notice 2020-1 or the Notice)
4. EBSA COVID-19 FAQs for participants and beneficiaries
5. EBSA press release

The guidance is retroactive, applying during the period beginning March 1 and ending 60 days after the announcement of the end of the national emergency or “such other date announced by the Agencies in a future notification” (the “Outbreak Period”). While as of this writing there is one national emergency (proclaimed by President Trump on March 13), the guidance contemplates multiple national emergencies varying by state and from time to time. Below is a summary of the highlights addressed by the Agencies.

New Regulations

The New Regulations provide participants and beneficiaries of health and welfare and retirement plans with additional time to meet the following deadlines, based on when an Outbreak Period ends:

1. The 30-day period (or 60-day period, if applicable) to request special enrollment under the Health Insurance Portability and Accountability Act (HIPAA)
2. The 60-day election period for Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage
3. The date for making COBRA premium payments
4. The date for individuals to notify the plan of a COBRA qualifying event (e.g., divorce) or determination of disability
5. The date within which individuals may file a benefit claim under the plan’s claims procedure
6. The date within which claimants may file an appeal of an adverse benefit determination under the plan’s claims procedure
7. 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
8. 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

For example, for a COBRA qualifying event, an individual has 60 days following the end of the Outbreak Period to elect COBRA continuation coverage. COBRA is subject to adverse selection, meaning that the individuals who elect COBRA are generally those who have very high healthcare costs. (The Patient Protection and Affordable Care Act’s healthcare insurance exchanges and elimination of preexisting condition provisions largely eliminated the incentive for healthy individuals to purchase COBRA.) The ability to elect coverage retroactively puts the healthcare plan at even greater risk, because individuals can wait and see whether or not it is cost effective to purchase the coverage. Accordingly, these retroactive, indefinite extensions (which could be very long) put healthcare plans and employers at risk of substantial financial burdens, in additional to administrative burdens. The New Regulations raise many questions. For example:

• These requirements apply to benefit plans, and these requirements are presumably not covered under the terms of existing insurance policies and stop-loss policies for self-insured plans. Will the insurers and any other relevant service providers honor these requirements, including the retroactive requirements, or will employers be left with fully self-insured liabilities?
  • Will insurers treat individuals who make retroactive premium payments as still properly covered as COBRA participants?
  • Will a claim that is submitted and paid later than provided for under policy provisions be treated as covered by stop-loss coverage?
• How does a plan administer different national emergencies /Outbreak Periods, e.g., if each state has a different time frame?
• The examples in the New Regulations did not address the retroactive date. Is the retroactive date enforceable, and if yes, how does a plan address this?
  • What happens with respect to an individual who was properly terminated from COBRA coverage in March or April, based on the then-existing guidance?
  • What happens to healthcare flexible spending account balances that were set to be forfeited on April 30?
• How does a plan administrator manage its fiduciary responsibility to operate the plan in accordance with its terms and manage costs for participants, given these delays?
  • What if an individual delays notifying the plan that a person is no longer eligible (e.g., ex-spouse) but continues to submit claims for that person that are paid – how does the plan recoup the improper payment?
  • How long can claims submitted for an individual who has not elected COBRA or paid COBRA premiums be pended? If the plan administrator is considering paying any of these claims, how does it ensure sufficient cash flow to do this, and how does it protect the other participants from the risk that the individual will not pay the COBRA premiums?
• How do individuals learn about these provisions – is a plan administrator required to modify any forms or provide any special notices, either based on specific statutory or regulatory requirements, or to prevent claims such as breach of fiduciary duty? Are notices required when Outbreak Periods end?
  • On April 1, EBSA released new model COBRA election notices that do not set forth the special provisions contained in the New Regulations. Therefore, at least as of the date of this writing, it does not appear that employers are technically required to notify employees of these special provisions.
  • Are plan amendments required?
  • Does any of this need to be communicated in summaries of material modifications or modifications to summaries of benefits and coverage?
  • The New Regulations provide a bit of relief to group health plans, disregarding the Outbreak Period for purposes of timeliness of COBRA election notices. Because delayed notices typically exacerbate adverse selection, it is unclear why an employer would delay.

Hopefully, many of these issues will be addressed in future guidance. In the interim, employers will need to work with their insurers, third-party administrators, pharmacy benefit managers, legal counsel and other plan service providers to do their best to comply with these new requirements and to try to monitor their financial exposure.

IRS Q&As Address CARES Act Questions

The IRS Q&As address some questions relating to retirement plan changes under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and explain, among other things, that the adoption of coronavirus-related distribution and loan provisions is optional, at the discretion of the employer. This came as a surprise to many practitioners, who read the CARES Act as requiring suspension of loan repayments. We would advise employers who are intending to treat the provisions as optional to keep an eye on this issue.

The IRS Q&As also provide that a qualified individual may treat a distribution that meets the requirements to be considered a coronavirus-related distribution as such, regardless of whether the retirement plan treats the distribution as a coronavirus-related distribution, and clarify that the last day to obtain a coronavirus-related loan with the increased limits is Sept. 22.

EBSA Notice 2020-1: Relief for Employee Benefit Plans on Deadlines for Notices and Disclosures

EBSA Notice 2020-1 is helpful for employers. The Notice provides that an employee benefit plan and the responsible plan fiduciary will not be in violation of the Employee Retirement Income Security Act of 1974 (ERISA) for failure to timely furnish a notice, disclosure or document that must be furnished during the Outbreak Period if the plan and responsible fiduciary act in good faith and furnish the notice, disclosure or document as soon as administratively practicable under the circumstances.

For this purpose, good faith acts include use of electronic alternative means of communicating with participants and beneficiaries who the plan fiduciary reasonably believes have effective access to electronic means of communication, including email, text messages and continuous access websites. This is a welcome relief from existing guidance on electronic communications, though employers need to keep in mind that this guidance is temporary.

The extension applies to the furnishing of notices, disclosures and other documents required by provisions of Title I of ERISA over which EBSA has interpretive and regulatory authority, such as the following (not an exhaustive list):

• Benefit Statements
• Summary Plan Descriptions and Summaries of Material Modifications
• Annual Funding Notices
• Qualified Domestic Relations Order Notices
• Qualified Default Investment Alternative Notices
• Automatic Contribution Arrangement Notices
• Blackout Notices
• Responses to Requests for Plan Documents

The extension and relief regarding electronic communication do not apply to notices and disclosures for which the IRS has primary authority, such as spousal consent and benefit reduction notices. This is an important distinction, as employers do not typically think about notices in the context of whether they are required by the IRS versus being required by EBSA. In addition, a participant could argue that notwithstanding this guidance about timeliness, a fiduciary caused harm to the participant by failing to provide timely notice.

The extension also does not apply to Form 5500 filings. In IRS Notice 2020-23, the IRS provided that Form 5500 filings otherwise due on or after April 1 and before July 15 are now due by July 15. The IRS extension automatically applies to Form 5500 filings for plan years that ended in September, October or November 2019. The Notice extended the due date for Form M-1 for such plans to align with the July 15 date.

For calendar year plans, the due date for the 2019 Form 5500 filing remains July 31. This may become problematic particularly for plans that are required to be audited, e.g., if auditors are doing fieldwork later than normal.

Retirement Plan Loans and Distributions Relief for Employee Benefit Plans

EBSA Notice 2020-1 extends relief to certain procedural verification requirements for plan loans or distributions imposed by a plan’s terms if (1) the failure to comply with the plan’s procedures is solely attributable to the COVID-19 outbreak, (2) the plan administrator made a good faith, diligent effort under the circumstances to comply with applicable plan terms and procedures, and (3) the plan administrator makes a reasonable attempt to correct procedural deficiencies as soon as practicable thereafter. Importantly, the relief does not apply to requirements outside EBSA’s jurisdiction, such as the spousal consent rules or other statutory or regulatory requirements under the jurisdiction of the IRS. Thus, as much as employers may want to be flexible to assist their employees, they will need to be careful in relying on this limited relief.

In addition, EBSA will not treat any person as having violated plan loan requirements and limitations under Title I of ERISA solely because (1) such person made a loan to a qualified individual during the loan relief period in compliance with the CARES Act and any related IRS guidance or (2) a qualified individual delayed making a loan repayment in compliance with the CARES Act and related guidance.

Delayed Remittance of Retirement Plan Contributions and Loan Payments

EBSA Notice 2020-1 provides that during the Outbreak Period, EBSA will not take enforcement action against plan sponsors and fiduciaries due to a temporary delay in forwarding participant contributions and loan repayments caused by COVID-19 so long as the plan administrator acts reasonably, prudently and in the best interest of plan participants to forward such payments as soon as is reasonably practicable under the circumstances. The relief is available only to the extent needed due to the COVID-19 outbreak. Given that timeliness of contributions is typically scrutinized in investigations, and that delinquent contributions are subject to excise taxes, employers relying on the relief should very carefully document and be able to demonstrate to the plan’s auditors (if applicable) and to EBSA specifically how the COVID-19 pandemic impacted plan operations.

General ERISA Fiduciary Compliance Guidance

EBSA Notice 2020-1 provides some fiduciary compliance guidance and explains EBSA’s general approach to enforcement during the COVID-19 emergency. The Notice highlights that the guiding principle for plans, administrators and fiduciaries should be to act reasonably, prudently and in the best interests of the covered workers and their families who rely on their health, retirement and other employee benefit plans for their physical and economic well-being. To prevent loss of benefits or undue delay in benefits payments due to failure to comply with preestablished time frames, plan fiduciaries are expected to make reasonable accommodations for participants and beneficiaries adversely affected by the COVID-19 emergency. EBSA notes that it understands that plans and service providers may not be able to fully comply with requirements for claims processing and other actions required by ERISA because of the COVID-19 emergency, and therefore will emphasize compliance assistance (rather than enforcement penalties) and provide grace periods and other relief when appropriate.

Employers should exercise caution in relying on this guidance, particularly in the area of claims and appeals. Most plan documents provide that the claims administrator has discretion with respect to claims determinations, which should entitle the claims administrator to an arbitrary and capricious standard of review by the court of its adverse benefit determination. But a plaintiff may argue that a claims administrator failed to comply with the regulatory requirements, and should lose its right to the arbitrary and capricious standard of review as a result, requiring the court to apply a more challenging de novo standard of review.