To address growing concerns over an increase in ERISA litigation claims related to the COVID-19 pandemic, Faegre Drinker’s ERISA litigation team developed the “Preventing an ERISA Litigation Outbreak After COVID-19” alert series to help clients navigate the fiduciary and plan liability issues associated with COVID-19. Part Two of our series examines the potential for fraudulent 401(k) distributions as an unexpected result of the Coronavirus Aid, Relief and Security Act (CARES Act), and highlights steps plan sponsors and recordkeepers can take to mitigate the risk of these cybercrimes.
View Part One of this series, which provides guidance to assist ESOP fiduciaries in carrying out their duties during the pandemic.
In light of the COVID-19 pandemic, the federal government recently issued guidance extending various benefits-related deadlines. The guidance includes a Notification of Relief that essentially tolls the timeframes associated with various rights until after the COVID-19 National Emergency. In this alert, we focus on what the tolling means with respect to plan sponsor obligations and participant rights under the Consolidated Omnibus Budget Reconciliation Act (COBRA) and the Health Insurance Portability and Accountability Act (HIPAA) special enrollment provisions.
For the full alert, visit the Faegre Drinker website.
As described in our May 1 blog post, in response to the COVID-19 pandemic, the Employee Benefits Security Administration, the Department of Labor (DOL), and the Internal Revenue Service, the Department of the Treasury (Agencies) recently issued guidance (Extension Guidance) providing emergency relief to employee benefit plans, participants, and beneficiaries for complying with certain deadline and notice requirements under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code. As part of this guidance, the Agencies released a notification of relief (Joint Notice), which significantly affects administration of all ERISA-governed health, welfare and retirement plans by tolling certain claim-related deadlines throughout the duration of the National Emergency declared by President Trump. This alert, which can be read in its entirety on the Faegre Drinker website, describes the impact of those deadline extensions and provides practical guidance for plan sponsors and fiduciaries to consider in complying with the Joint Notice. For analysis of the Extension Guidance’s implications on retirement plans, see part one of this series of alerts.
On May 12, 2020, the Internal Revenue Service (IRS) issued Notice 2020-29 (the Notice), an important piece of guidance for employers that sponsor health & welfare plans.
The Notice provides much-needed flexibility for employers who are dealing with unexpected requests and circumstances as a result of the 2019-nCoV (COVID-19) pandemic. As discussed below, the Notice permits – but does not require – cafeteria plans to provide additional opportunities for mid-year election changes for health coverage, health flexible spending account (health FSA) coverage and dependent care FSA (dependent care FSA) coverage. It also permits plans to extend the claims periods for health FSA and dependent care FSA expense reimbursement, and it clarifies earlier guidance regarding coverage of telehealth and COVID-19-related items under a high deductible health plan (HDHP).
Continue reading “IRS Issues Welcome Guidance on Mid-Year Cafeteria Plan Election Changes and Other Health & Welfare Matters”
As the COVID-19 pandemic continues, our clients are dealing with rapidly evolving compliance issues with respect to health and welfare benefit plans and the implementation of existing and new regulatory requirements. Below is a chart providing links to guidance issued by various government agencies with respect to health and welfare plan issues related to COVID-19. This chart is current as of May 12, 2020. There are a number of questions and issues outstanding, and we expect further guidance. Please contact your Faegre Drinker attorney with questions and/or updates regarding this guidance.
Continue reading “Agency Guidance on Health & Welfare Issues Related to COVID-19”
On March 27, Congress enacted the Coronavirus Aid, Relief and Economic Security (CARES) Act, a massive stimulus package in response to the global coronavirus pandemic. Section 2202 of the CARES Act provides certain individuals who are affected by the pandemic – referred to as “qualified individuals” – with special distribution options from 401(k), 403(b) and governmental 457(b) plans and IRAs, and expands permissible retirement plan loans.
On Monday, May 4, the Internal Revenue Service published answers to commonly asked questions regarding section 2202.
Continue reading “IRS Releases Coronavirus-Related FAQs for Retirement Plans and IRAs – Some Guidance Still Forthcoming”
Employers considering layoffs during this period of economic uncertainty should be aware that extensive layoffs could inadvertently cause a partial termination of their company’s qualified retirement plan. Employers should monitor their employee turnover rate and consult with benefits counsel to determine the potential impact on their retirement plans.
Partial plan terminations can occur where a significant change to the plan or a significant event affects the rights of employees to vest in their plan benefits, such as termination of a large group of employees.
Continue reading “COVID-19 Layoffs Could Trigger Partial Plan Terminations”
On April 28, 2020, the U.S. Department of Labor (DOL) and the Internal Revenue Service issued a new final rule and additional guidance that together extend numerous deadlines under ERISA and the Internal Revenue Code (Code) that apply to group health plans, retirement plans, and participants in those plans (Extension Guidance). The extensions, which are being enacted in response to the COVID-19 pandemic and pursuant to the authority granted to the DOL by the CARES Act, promise to have a significant impact on employers’ administration of various benefit plan requirements, such as administration of benefit plan claims and appeals, COBRA continuation coverage and mid-year special enrollment in group health plan coverage.
Continue reading “Agencies Provide COVID-19-Related Extension for Numerous Benefit Plan Deadlines”
In addition to raising a host of regulatory issues for employee benefit plans, including compliance with the Coronavirus Aid, Relief and Economic Security (CARES) Act, the COVID-19 pandemic is likely to cause a sharp rise in ERISA litigation in the coming months. Faegre Drinker’s ERISA litigation team will be issuing a series of alerts designed to help clients navigate the fiduciary and plan liability issues associated with COVID-19. Part One of our series provides helpful guidance for ESOP fiduciaries carrying out their duties during this uncertain time.
Continue reading “Preventing an ERISA Litigation Outbreak After COVID-19 – Part 1: ESOPs”
The Coronavirus Aid, Relief, and Economic Security (CARES) Act suspended 401(k) loan repayments for qualified individuals that are due between March 27, 2020, and December 31, 2020. Qualified individuals include plan participants (1) who have been diagnosed with COVID-19, (2) whose spouse or dependents have been diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of COVID-19. The CARES Act allows the loan period to be extended to account for the suspension, and prior IRS guidance in Notice 2005-92 allows the loan to be reamortized.
There is another loan provision included in Notice 2020-23 that effectively delays repayment of all 401(k) loans. Notice 2020-23 Section III.A. defines affected taxpayers to include anyone performing a “time-sensitive action” listed in Revenue Procedure 2018-58, which applies to any taxpayer affected by a federally declared disaster and includes in the list of actions payment of 401(k) plan loans.
COVID-19 is a federally declared disaster in every state, so Notice 2020-23 delays any 401(k) plan loan payments that are due between April 1, 2020, and July 14, 2020. But unlike the CARES Act loan suspension, under Notice 2020-23 taxpayers only have a delay and potentially will have to pay all missed loan repayments as of July 15, 2020 (additional guidance from the IRS on this point would be very helpful). As of the date of publication of this alert, it does not appear that the term of the loan can be adjusted to include the Notice 2020-23 delay period (unlike the CARES Act loan suspensions). It is likely that the loan still will be subject to the original loan term.
If the Notice 2020-23 payment delay applies, then it will impact 401(k) plans because of the timing of when a loan default occurs. For example, generally if a participant stopped making loan repayments in May, the latest default period allowed under the Code would be the end of the third quarter (although a 401(k) plan may specify a shorter period). But if the loan repayment due date is delayed until July 15, 2020, then the loan will end up missing a repayment in Q3 and defaulting in Q4. Based on the July 15, 2020, delayed payment date, it is unlikely any loan recipients will have any tax issues that span into 2021 as a result of Notice 2020-23.
Note that 401(k) plan sponsors and their recordkeepers should be aware of this issue and properly administer plan loans in light of Notice 2020-23.