DOL, IRS, EBSA Issue Guidance Further Expanding COVID-19 Relief for 401(k) Plans
On April 29, 2020, three key governmental agencies issued two separate pieces of official guidance further expanding COVID-19-related relief for 401(k) retirement plans and other employee benefit plans and arrangements.
First, the Department of Labor (“DOL”), acting through the Employee Benefit Security Administration (“EBSA”), and the Internal Revenue Service (“IRS”) jointly issued a final rule (“Final Rule”) entitled “Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak.” Second, EBSA issued “EBSA Disaster Relief Notice 2020-01” entitled “Guidance and Relief for Employee Benefit Plans Due to the COID-19 (Novel Coronavirus) Outbreak.”
Both pieces of guidance supplement and expand upon earlier official pronouncements that extended various deadlines with respect to 401(k) plans in response to the global crisis.
This blog does not address the number provisions in the Final Rule and Notice that do not apply to 401(k) plans – for information on health plans contained in the guidance, see our blog entitled “Departments Issue Further Guidance Expanding COVID-19 Relief for Health Plans” for more details.
Background. The IRS announced earlier this year that the Federal tax filing date for most US taxpayers would automatically be extended from April 15, 2020, to July 15, 2020. In conjunction with that extension, the IRS soon after announced in Notice 2020-18 that the deadline for making employer contributions to defined contribution pension plans (including 401(k) plans) would similarly be extended. (In other words, 401(k) plan sponsors would have until July 15, 2020, as opposed to April 15, 2020, to make their 401(k) employer contributions for the 2019 plan year.)
IRS Notice 2020-23, issued on April 9, 2020, expanded upon Notice 2020-18, extending the list of activities that previously were due on or after April 2020 that now are suspended until July 15, 2020. (See our previous blog, “IRS Extends Various Deadlines in Response to COVID-19 Crisis” for details.)
New Guidance Takes Things a Step Further. The Final Rule grants further deadline extensions, primarily concerning ERISA claims procedures for 401(k) plans, and EBSA Notice 2020-01 both relaxes other deadlines and generally grants temporary fiduciary relief with respect to certain notices, disclosures, and 401(k)-related actions taken during the COVID-19 pandemic.
401(k) Plan Provisions Contained in Final Rule. Under the Final Rule, the following deadlines relating to 401(k) plans are extended through the “outbreak period,” as explained below:
- The date within which individuals may file an initial claim for benefits under the 401(k) plan’s claims procedure;
- The date within which claimants may file an appeal of an “adverse benefit determination” under the 401(k) plan’s claims procedure;
- The date within which claimants may file a request for an external review after receipt of an adverse benefit determination, or receipt of a final internal adverse benefit determination; and
- The date within which a claimant may file information with the plan administrator to perfect a request for external review upon a finding that the initial request was not complete.
“Outbreak Period” Disregarded. The Final Rule provides that 401(k) retirement plans, in administering their ERISA claims procedures, generally must disregard the period from (i) March 1, 2020 until (ii) sixty (60) days following the announced end of the National Emergency that was declared by President Trump on March 13, 2020 (or until such other date as may be provided in a future notice). This is defined as the “outbreak period.”
EXAMPLE: Frank received a notice of “adverse benefit determination” from his 401(k) plan on April 15, 2020. The notification advised him that there are 60 days within which to file an appeal with the plan administrator. When determining the 60-day period within which Frank’s appeal must be filed, the “outbreak period” is disregarded. Assuming that the National Emergency ends on April 30, 2020, with the “outbreak period” ending on June 29, 2020 (the 60th day after the end of the National Emergency), then Frank’s last day to submit an appeal is 60 days after June 29, 2020, which is August 28, 2020.
OBSERVATION: So, you would take the date that the National Emergency ends (or such other date as may be provided in a future notice), add 60 days to determine the “outbreak period,” and then add an additional 60 days to determine the end of the appeal period.
Relief Applies to All Employers. Although the relief in the Final Rule is granted in response to COVID-19, unlike the 401(k) provisions contained in the CARES Act (see our previous blog, “Congress Passes CARES Act in Response to COVID-19 Crisis, Contains 401(k) Ease-of-Access and Other Provisions” for details), the deadline extensions contained in the Final Rule are available to all employers – not only to those which have been directly affected by the pandemic. Further, those deadline extensions are automatic – there is no need for employers to file for an extension.
401(k) Plan Provisions Contained in EBSA Notice 2020-01. EBSA Notice 2020-01 accomplishes a number of objectives for 401(k) plans. First, it generally extends certain deadlines for notices or disclosures to 401(k) plan participants, beneficiaries, and other persons in order to give plan sponsors and fiduciaries additional time to meet their obligations under Title I of ERISA during the COVID-19 outbreak. Specifically, EBSA Notice 2020-01 provides that a 401(k) plan and its responsible plan fiduciary will not be considered to be in violation of ERISA for a failure to timely furnish a notice, disclosure, or document between March 1, 2020, and 60 days after the announced end of the COVID-19 National Emergency – provided that the plan and responsible fiduciary act in good faith, and that they furnish the notice, disclosure, or document as soon as administratively practicable under the circumstances.
EBSA Notice 2020-01 applies to all notices, disclosures and documents required to be furnished to participants and beneficiaries under ERISA Title I, other than those notices or documents specifically addressed in the Final Rule (see above). Examples of documents required to be furnished to 401(k) plan participants under ERISA Title I include summary plan descriptions (“SPDs”), summaries of material modifications (“SMMs”), and annual reports.
In addition, EBSA Notice 2020-01 grants the following relief:
Participant Loans and Plan Distributions — A 401(k) plan will not be treated as being in violation of the plan’s procedural requirements for participant loans or plan distributions (such as verification requirements) if:
- The failure is solely attributable to the COVID-19 outbreak;
- The plan administrator makes a good-faith, diligent effort under the circumstances to comply with those requirements; and
- The plan administrator makes a reasonable attempt to correct any procedural deficiencies, such as assembling any missing documentation, as soon as administratively practicable.
CAUTION: This relief does not extend to spousal consents or other statutory or regulatory requirements that are specifically under the jurisdiction of the IRS.
Participant Loans Under the CARES Act – The CARES Act temporarily increased the $50,000 maximum loan amount under 401(k) plans to $100,000, and the 50 percent of a participant’s account balance limit up to 100 percent of the account balance, for participants directly affected by COVID-19. Further, if a plan loan repayment is due between March 27, 2020 and the end of the year 2020, then the repayment due date is delayed for one year, as measured from the original due date. See our previous blog, “Congress Passes CARES Act in Response to COVID-19 Crisis – Contains 401(k) Ease-of-Access and Other Provisions” for details.
EBSA Notice 2020-01 states that no person will be treated as having violated Title I of ERISA, including the requirements that loans be adequately secured, and that they be made available on a reasonably equivalent basis, solely because:
- The person made a plan loan to a “qualified individual” during the loan relief period in compliance with the CARES Act (and the provisions of any related IRS notice or other published guidance); or
- A “qualified individual” delayed making a plan loan repayment in compliance with the CARES Act (and the provisions of any related IRS notice or other published guidance).
CARES Act Plan Amendments – Under EBSA Notice 2020-01, if a 401(k) plan is amended to incorporate the CARES Act provisions relating to plan loans and/or expanded hardship-like distributions, the plan will be treated as being operated in accordance with the terms of the amendment prior to its adoption if:
- The amendment is made on or before the last day of the first plan year beginning on or after January 1, 2022 (or such later date as may be prescribed in IRS regulations); and
- The plan is operated in accordance with the terms of the amendment in the interim.
Elective Deferrals and Loan Repayments – Under DOL regulations, 401(k) elective deferrals and other employee contributions under a 401(k) plan, along with any loan repayments, must be forwarded to the plan’s trust on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets. In no event may this be later than the 15th business day of the month following the month in which the amounts were transferred to, or withheld by, the employer. The DOL looks upon this matter seriously – and late deposits of employee money are considered to be prohibited transactions, requiring corrective action, and invoking excise taxes.
Importantly, EBSA recognizes that the COVID-19 crisis might present difficulties in this regard. Accordingly, EBSA Notice 2020-01 provides that the DOL and EBSA will take no enforcement action against an employer with respect to a temporary delay – solely attributable to the COVID-19 outbreak – in forwarding such payments or contributions to the plan’s trust during the period beginning on March 1, 2020, and ending on the 60th day following the announced end of the National Emergency. Nevertheless, employers and service providers still must act reasonably, prudently, and in the interest of employees to comply as soon as administratively practicable under the circumstances.
OBSERVATION: Unfortunately, what constitutes a “temporary delay” is unclear from the guidance; for instance, is the 15th business day of the month following the month in which the amounts were first withheld still the absolute drop-dead date?
Blackout Period Notices – ERISA requires that 401(k) plan administrators provide 30 days’ advance notice to participants whose ability to direct investments, or take certain distributions, under the plan will be temporarily suspended, limited, or restricted during a “blackout period.” EBSA Notice 2020-01 specifically states that a 401(k) plan and the responsible plan fiduciary will not be considered to be in violation of ERISA for a failure to timely furnish a blackout notice between March 1, 2020, and 60 days after the announced end of the COVID-19 National Emergency, so long as:
- The plan and responsible fiduciary act in good faith; and
- They furnish the notice as soon as administratively practicable under the circumstances.
Further, plan administrators will not be required to provide a written determination that the COVID-19 pandemic was a circumstance beyond their control.
Form 5500 Series Filings – IRS Notice 2020-23 extended the deadline for filing a 401(k) plan’s annual Form 5500 report, if the deadline otherwise would fall on or after April 1, 2020 and before July 15, 2020, until July 15, 2020. (See our previous blog entitled “IRS Extends Various Deadlines in Response to COVID-19 Crisis” for details.)
Since the IRS and the DOL share authority with respect to the submission of the Form 5500 annual report (in fact, the reports are actually submitted electronically to the DOL), it was important that the DOL itself grant an extension that mirrored the extension granted by the IRS. Accordingly, EBSA Notice 2020-01 reflects IRS Notice 2020-23; in other words, under EBSA Notice 2020-01, if a 401(k) plan’s Form 5500 series filing would otherwise fall on or after April 1, 2020 and before July 15, 2020, then the filing is delayed until July 15, 2020.
NOTE: Ironically, this relief does not automatically extend the deadline for 2019 calendar year plans, because the due date for calendar year 2019 Form 5500 filings for such plans is July 31, 2020 — which is after the July 15, 2020 cut-off point. The extension does automatically apply to Form 5500 filings for plan years that end in September, October, or November 2019, because the routine due dates for these filings would be, April 30, June 1, and June 30, 2020, respectively. Note that 401(k) plan sponsors may always obtain a regular extension by timely filing Form 5558, where such extension does not occur automatically.
Fiduciary Compliance – Finally, according to the wording of EBSA Notice 2020-01, the guiding principle for plan fiduciaries is “to act reasonably, prudently, and in the interest of covered workers and their families” under the 401(k) plan. Accordingly, fiduciaries are urged to make reasonable accommodations to prevent loss of benefits or undue delay in benefit payments, always attempting to minimize the possibility that plan participants might lose benefits due to failures to comply with pre-established timeframes. With this in mind, EBSA pledges an enforcement strategy that emphasizes compliance assistance, including focusing on grace periods and providing other appropriate relief.
OTHER COVID-19 RESOURCES:
For more information about how the COVID-19 crisis may affect your 401(k) plan and health & welfare plan, please visit our previous blogs below:
- IRS Extends Various 401(k) Deadlines in Response to COVID-19 Crisis
- Families First Coronavirus Response Act, Impact on Employers
- Coronavirus (COVID-19) Regulatory Resources for Employee Benefit Plans
- 401(k) Plans in the Age of COVID-19: Hardship Withdrawals, Loans, and Other Issues
- Congress Passes CARES Act in Response to COVID-19 Crisis, Contains 401(k) Ease-of-Access and Other Provisions
- The CARES Act and its Impact on Health Plans
- HIPAA Reminders During COVID-19
- HIPAA IQ: “Work-From-Home” Edition
The information and content contained in this blog post are for general informational purposes only, and does not, and is not intended to, constitute legal advice. As always, for specific questions concerning your 401(k) retirement plan, or for help in operating your plan during the current COVID-19 crisis, please consult your own ERISA attorney or professional advisor.