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Additional COVID-19 Extensions = Greater Administrative Headaches for Plan Sponsors

As any employer is keenly aware, the administration of an employee benefit plan (especially a group health plan) involves a number of different deadlines imposed under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (Code).  Amidst concerns that the current COVID-19 pandemic may cause individuals to lose benefits due to the failure to meet certain pre-established deadlines and in recognition of the challenges group health plans may face in complying with certain notice obligations, the Department of Labor and Internal Revenue Service (collectively, the “Agencies”) jointly published notice in the Federal Register of a significant extension in application of the following statutorily prescribed deadlines:

Special Enrollment Periods

  • 30-day deadline to request enrollment in the event of a loss of eligibility for other health coverage or the acquisition of a new dependent due to marriage, birth, adoption or placement for adoption
  • 60-day deadline to request enrollment in the event of either a loss of eligibility for coverage under Medicaid or a state children’s health insurance coverage (CHIP) or gaining eligibility for premium assistance through Medicaid or CHIP.

COBRA Continuation Coverage

  • 30-day period for employer to notify plan administrator of certain COBRA qualifying events
  • 14-day period for plan administrator to issue COBRA Election Notice to qualified beneficiary
  • 60-day period for qualified beneficiary to elect COBRA continuation coverage
  • 45-day period for qualified beneficiary to submit initial COBRA premium payment
  • 30-day period for qualified beneficiary to submit subsequent COBRA premium payments
  • Qualified beneficiary’s

COVID-19: CARES Act Limits Executive Compensation for U.S. Businesses Participating in CESA Relief

As part of the recently passed Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act), the Treasury Department will provide loans, loan guarantees, and other investments for U.S. businesses, states, and municipalities dealing with losses incurred as a result of COVID-19.  Among other requirements, businesses that enter into these loan agreements are subject to certain limits on executive compensation during the period beginning on the date the loan agreement is entered into and ending one year after the loan or loan guarantee is no longer outstanding (the “Restriction Period”).  Note that these limits are not applicable to businesses that participate in the small business relief that was also provided under the CARES Act.[1]  More information on the small business relief under the CARES Act can be found here. The rules described below apply to certain specialized industries (passenger air carriers, cargo air carriers, and businesses critical to maintaining national security) as well as other mid-sized businesses in any industry with between 500 and 10,000 employees. The restrictions on executive compensation are as follows:

  • No officer or employee of the business whose total compensation exceeded $425,000 in 2019 (other than an employee whose compensation is determined through an existing collective bargaining agreement entered into prior to March 1, 2020) may receive from the business:
    • Total compensation which exceeds, during any 12 consecutive months of the Restriction Period, the total compensation received by the officer or employee from the business in 2019; or

Unraveling U.S. Retirement Savings – How a Global Pandemic Threatens to Undo Decades of Planning

With the economy in a free-fall and the U.S. government scrambling to create a financial safety net for citizens, giving access to tax-qualified retirement savings was a natural piece of Congress’ plan to loosen the grip on needed funds.  And yet, plan sponsors should pause before adopting the new in-service withdrawal and loan options wholesale.  The options made available under the CARES Act are permissive, not required.  Implementing a thoughtful, needs-based, COVID-19 withdrawal/loan policy could protect employees’ financial security for decades to come.

Plan sponsors can adopt an incremental approach to COVID-19 in-service withdrawals or loans, and should consider doing so in the interest of helping participants not decimate hard-won savings in a panic.

What Options do Plan Sponsors Have?

COVID-WithdrawalsThe CARES Act allows a new category of withdrawals, COVID-19 Distributions, which allows participants to take a withdrawal of the lesser of 100% of their vested account balance or $100K, anytime between January 1, 2020 – December 31, 2020, if they satisfy certain requirements. Click here to read our summary of the CARES Act withdrawal rules.

Plan sponsors can design a COVID-19 withdrawal program within the parameters of the CARES Act without allowing the full $100K withdrawal at once – or at all.  The statute does not require that a plan go from 0 to 100!  Further, while the new law allows plan administrators to rely on the representation of participants that they qualify for the in-service withdrawals, plan sponsors can impose any reasonable substantiation

COVID-19: Emergency Leave-Sharing Plans for U.S. Employers

In addition to the paid sick leave and family leave U.S. employers must provide under the Families First Coronavirus Response Act (“FFCRA”), some employers are seeking additional ways to support employees affected by COVID-19. The IRS has published guidance on leave-sharing plans for employees affected by a major disaster or emergency, as declared by the President. President Trump issued such a declaration on March 13 (retroactive to March 1), so this guidance applies to employers who wish to implement an emergency leave-sharing plan at this time.

A major disaster leave-sharing plan as applied to the current COVID-19 emergency is a written plan that meets the following requirements:

  • The plan allows employees to voluntarily deposit accrued leave in an employer-sponsored bank for use by other employees who have been adversely affected by COVID-19. An employee is considered to be adversely affected by a COVID-19 if it has caused severe hardship to the employee or a family member of the employee that requires the employee to be absent from work.
  • The plan does not allow employees to deposit leave for a specific leave recipient.
  • The amount of leave that may be deposited by an employee in any year generally does not exceed the maximum amount of leave that the employee normally accrues in a year. Under this requirement, employees likely cannot donate emergency sick leave provided under the FFCRA.
  • An employee may receive paid leave, at his or her normal rate of compensation, from leave deposited

COVID-19: U.S. Employee Benefit Considerations

March 27, 2020


COVID-19: U.S. Employee Benefit Considerations

March 27, 2020

Authored by: benefitsbclp

As the Coronavirus continues to spread and businesses face financial challenges, U.S. employers may look to the impact that a temporary reduction in their business has on their existing U.S. employee benefit programs, adjust those benefits to meet the needs of both employers and employees and consider the impact of the newly created obligations under recently enacted and pending federal legislation.  Many employers are grappling with significant reductions in force, the furloughing of employees and/or reducing hours and compensation for employees as a result of this crisis.  All of these consequences significantly impact employee benefit plans and policies.  In addition, employers may need to make temporary or permanent changes to these employee benefit plans and policies.  It is important for employers to review all of their employee benefit plans and policies and service provider contracts to assess the impact these actions may have on employee benefit programs.

With this in mind, we prepared an Alert which includes a summary of issues related to the following areas for you to consider during these uncertain times:

  • Service provider contracts;
  • Emergency paid sick leave, family leave and related tax credits;
  • Health and welfare plans;
  • Qualified retirement plans; and
  • Incentive compensation and non-qualified deferred compensation plans.

Please click here to read the full Alert.

COVID-19: Considerations for U.S. Contributing Employers to Multiemployer Plans

The COVID-19 pandemic has had a significant financial impact on business and individuals around the globe, with global financial markets seeing significant drawbacks in March 2020 alone.  That impact has also been felt by U.S. employers who contribute to multiemployer pension plans, as well as the plans themselves.  Below are a few issues that U.S. contributing employers to multiemployer pension plans should keep in mind in these volatile times:

  1. Consequences of Changes in Funded Status. Even before the COVID-19 pandemic, many multiemployer pension plans were operating in critical or critical and declining funded status, and the market fluctuations as a result of the COVID-19 pandemic will only exacerbate those funding shortfalls.  Contributing employers should anticipate that those shortfalls may result in additional surcharges becoming payable on their monthly contributions (as a result of the Pension Protection Act of 2006) as well as increased estimates of potential withdrawal liability.
  2. Withdrawal Liability. With many contributing employers implementing layoffs or other workforce reductions, there may be questions as to whether such reductions may result in withdrawal liability under the applicable multiemployer pension plan.  Withdrawal liability is due upon a complete or partial withdrawal from a multiemployer pension plan.  A complete withdrawal occurs when a contributing employer permanently ceases all operations covered by the plan or no longer has an obligation to contribute under the plan.  Therefore, layoffs and/or temporary shutdowns should not trigger complete withdrawals unless and until those layoffs and shutdowns become permanent.  Partial withdrawal occurs upon a 70% contribution decline

COVID-19: Mid-Year Changes to 401(k) Plans

U.S. employers looking to reduce operating costs in the short term in response to the disruption caused by the COVID-19 pandemic may seek to reduce or suspend their matching or nonelective contributions in their 401(k) plan. The following summarizes the key issues facing employers in making the determination to suspend or reduce safe-harbor contributions.

Suspending or Reducing Employer Contributions in Non-Safe-harbor Plans

Discretionary employer matching and nonelective contributions generally may be immediately suspended or reduced through appropriate corporation action.  Employers should consider the following in connection with a suspension or reduction of employer contributions:

  • Does the Plan have Discretionary Employer Contributions?

If the plan does not include provisions setting out a formula or specific amount of employer contributions, the board simply needs to take action to change the amount of the employer matching contribution, which could include suspending the contribution until the board takes further action.

  • Does The Plan have a Set Formula for Determining Matching or Nonelective Contributions?

If the retirement plan or related documents set out a formula for determining the employer contributions (that is, the amount of the contributions are “hard-wired” into the plan), the plan will need to be amended to change the formula.  Companies may also consider removing specific formulas entirely and replacing them with provisions stating that the amount of the employer nonelective or matching contributions is discretionary and will be determining by the board from time to time.

  • When may the Reduction or

CARES Act Expands U.S. Retirement Plan Access and Provides Additional Relief and Changes to Employer-Provided Benefits

The Coronavirus, Aid, Relief and Economic Security Act (“CARES Act”) provides legislative relief to participants impacted by the Coronavirus pandemic.  A summary of key provisions of the CARES Act, based on the current draft, is included below. These provisions are, of course, still subject to approval by both houses of Congress and the President’s signature.

Provisions Applicable to Retirement Plans

Coronavirus-Related Distributions

Tax-favored coronavirus-related distributions (“CRD’s) which do not exceed $100,000 will not be subject to the 10% early distribution tax.  A CRD means any distribution from a plan made on or after January 1, 2020 and before December 31, 2020 to an individual who is one of the following:

  • An individual who is diagnosed with COVID-19 or SARS-CoV-2;
  • An individual whose spouse or dependent is diagnosed with COVID-19 or SARS-CoV-2; or
  • An individual who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, experiencing a reduction of work hours, inability to work due to lack of child care caused by COVID-19 or SARS-CoV-2, the closing or reduction of hours by a business owned or operated by such participant due to COVID-19 or SARS-CoV-2, or other factors determined by the Treasury Secretary.

Notably, the plan administrator may rely on the individual’s certification that he/she has experienced a CRD.  Tax on the CRD shall, unless the individual elects to the contrary, be spread pro-rata over a three year period.  The individual may repay the CRD to the plan without regard to contribution

DOL Rolls Out Public Search Engine for Top-Hat Plan Statements

Top-Hat plans are unfunded plans for a select group of management or highly compensated employees that are exempt from a number of ERISA provisions (such as reporting, funding, testing, and certain fiduciary obligations).  In order to ensure that a plan is exempt from those provisions of ERISA, a plan sponsor must file a one-time “top-hat statement” with the Department of Labor within 120 days of the plan’s effective date.

The Department of Labor has rolled out a top-hat plan statement search engine, which is available to the public generally.  The engine is searchable by looking up employer names, plan names, and/or employer identification numbers (EINs).  Sponsors of top-hat plans that have previously filed a statement should consider searching the database to ensure that the statement shows up in the Department of Labor’s records.  If a statement is not found for a plan, review internal records for filing confirmations previously received.

If a top-hat statement has not been timely filed, an application may be made to the Department of Labor’s Delinquent Filers Voluntary Compliance Program to correct the error.

COVID-19 U.S.: Collected Employee Benefits Blog Posts

We have published a number of COVID-19/coronavirus related blog posts for our U.S. clients and friends over the past couple of weeks.  In an effort to consolidate the flurry of guidance and keep you up-to-date in these fast-changing circumstances, we are posting the links to all of our COVID-19 related blog posts here.  We will update the list below as additional blog posts are added.

  • IRS relief for high deductible health plans covering testing and treatment: click here
  • ERISA fiduciary responsibilities in an uncertain market: click here
  • HIPAA compliance during the COVID-19 pandemic: click here
  • Aggregated links to federal government guidance: click here
  • Compensation considerations fr public and private U.S. companies: click here
  • Emergency paid sick leave and family leave under the Families First Coronavirus Response Act (FFCRA): click here and here
  • Proposed legislative relief for participant access to retirement plan funds under the Coronavirus, Aid, Relief and Economic Security Act (CARES Act): click here
  • FFCRA paid sick and family leave tax credits for small employers: click here
  • FFCRA COVID-19 diagnostic testing mandate for most group health plans: click here
  • Providing employee assistance through interest-free loans: click here
  • Summary of the CARES Act retirement plan access and employer-sponsored health plan provisions: click here
  • Key Issues for employers
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