On April 28, 2020, the Department of Labor (DOL), in coordination with the Department of the Treasury, the Internal Revenue Service (IRS), and the Department of Health and Human Services (HHS), issued the Employee Benefits Security Administration Disaster Relief Notice 2020-01 (the Notice). DOL also released, in coordination with the IRS, a joint final rule extending timeframes for employee benefit plans, participants, and beneficiaries affected by the COVID-19 pandemic (the Joint Rule). The Notice and the Joint Rule provide relief for plan administrators, participants, and beneficiaries from some of the deadlines and requirements under the Employee Retirement Income Security Act of 1974 (ERISA) that they may be struggling to satisfy in the face of the COVID-19 pandemic. In addition, the IRS has released a Q&A that provides some much-needed guidance to help plan administrators understand and apply the new loan and distribution rules under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).
Relief for Disclosures and Notices to Participants
DOL has provided some flexibility in distributing certain disclosures and notices, such as participant statements, funding notices, and blackout notices, required under ERISA. DOL states in the Notice that it will not take action against a plan fiduciary for failing to timely provide these required notices as a result of the COVID-19 pandemic, as long as the fiduciary acts in good faith and provides the required notice to participants as soon as administratively practicable. The Notice also permits plan fiduciaries to provide notices to participants or beneficiaries by electronic means as long as the fiduciary reasonably believes those participants or beneficiaries have effective access to those electronic means. This is a noticeably lower standard than the electronic disclosure rules that would otherwise apply.
Recognizing that the COVID-19 pandemic may lead to service interruptions that will affect participants’ rights, the Notice also waives the requirement that a plan administrator must make a determination in writing that its inability to timely provide a blackout notice was due to circumstances outside of its control. DOL states in the Notice that the COVID-19 pandemic is deemed to be outside of the administrator’s control, so no written determination is necessary.
Plan administrators who may need to take advantage of these relief options should document that the delay was due to the COVID-19 pandemic. In addition, they should make sure they take reasonable means to minimize the effect on participants, and work to provide the required notices or disclosures as soon as possible.
Loosened Requirements Relating to Contributions, Distributions, and Loans
The Notice acknowledges that plan administrators may encounter difficulties depositing employee contributions or processing loans and distributions from plans in light of the COVID-19 pandemic. DOL has stated that it will not bring enforcement action against a plan administrator for a failure to timely deposit employee contributions to the plan or failure to follow the plan’s procedural requirements for issuing loans or distributions if the failure is attributable solely to the COVID-19 pandemic, as long as the plan administrator makes reasonable, diligent, and good faith efforts to comply.
DOL also confirmed in the Notice that, to the extent a loan permitted under the CARES Act would violate certain requirements under ERISA, DOL will not treat those loans as violating the ERISA requirements so long as the loan is permitted under the CARES Act.
Although the Notice grants relief from some of the rigid requirements under ERISA, we caution plan administrators and other fiduciaries against relying too heavily on this relief. DOL has historically allowed very little flexibility with respect to when employee contributions must be deposited, and only offers exceptions in extreme cases. Plan fiduciaries who do need to take advantage of this relief should document that the delay was due to the COVID-19 pandemic, and should make a reasonable effort to comply with the plan terms to the extent possible, and to correct any procedural deficiencies as soon as possible (for example, by assembling missing documentation).
Deadlines Extended for Participants and Plans
The relief provided in the Notice and the Joint Rule applies to any deadline that occurred or occurs between March 1, 2020, and until either 60 days after the national COVID-19 state of emergency is declared to be over, or another date that the DOL determines appropriate (the Relief Period). The DOL reserves the right to apply different Relief Periods to different areas of the country as appropriate, depending on how those areas are affected by the COVID-19 pandemic.
The Joint Rules extend certain minimum claims procedure timelines established under ERISA. For purposes of calculating the dates by which a participant must notify the plan of a qualifying event, make a benefit claim, or appeal an adverse benefit determination, the Joint Rules require that the Relief Period be disregarded. Plan fiduciaries should be aware that this gives participants what is currently an indefinite extension to request benefits or appeal benefit determinations.
Certain Non-Calendar Year Form 5500 Extension
Although addressed separately from the Notice and the Joint Rule, DOL and IRS have extended deadlines for certain non-calendar year plans to file their 2019 Form 5500 Annual Returns. Filing deadlines that would otherwise have fallen between March 1, 2020, and July 14, 2020, have been extended to July 15, 2020. Plan administrators should note that this extension is independent of the Relief Period discussed in the Notice and the Joint Rule. It is also important to note that the filing deadline for plans that use the calendar year as the plan year are not currently extended, as the filing deadline for those plans falls on July 31, 2020.
CARES Act Guidance from the Internal Revenue Service
The Q&A released by the IRS answers a number of questions that plan participants and plan administrators alike have been facing since the CARES Act was signed into law. One important clarification is that employers are not required to permit coronavirus-related distributions (CRDs), expand availability of plan loans, or suspend participant loan repayments as permitted under the CARES Act. Employers concerned with plan leakage may not want to increase the availability of loans or distributions from their plans, and this new guidance from the IRS makes it clear that employers are free to choose which CARES Act changes to adopt, if any. Employers should note, however, that repayments of CRDs to retirement plans are treated as rollover contributions. As a result, if the plan document accepts rollovers, these repayments must be accepted—even if the CRD did not come from the plan, or if the plan did not allow CRDs at all. Conversely, a plan can only accept repayments of CRDs if it permits rollover contributions—even if the plan permits CRDs.
The IRS also confirmed that, while CRDs are deemed to meet the distribution requirements for 401(k) plans, 403(b) plans, or governmental section 457(b) plans, this change only applies to those types of plans. Therefore, 401(k) plans, 403(b) plans, or governmental section 457(b) that permit CRDs can permit CRDs even if the eligible participants would not otherwise be eligible for distributions from the plan. However, CRDs cannot be made from other types of plans (such as defined benefit plans or money purchase pension plans) unless the participant is otherwise eligible for a distribution under the plan.
In addition, the IRS clarified in the Q&A that CRDs will be taxed over three years unless the participant elects to have the full CRD taxed in the 2020 tax year. Plan administrators should confirm whether distribution request forms permit such an election from participants, and should ensure that where an election is not obtained, the distributions are taxed over three years.