DOL, IRS provide relief for benefit plans affected by Hurricane Harvey

The Labor Department has issued ERISA compliance guidance that applies generally to employee benefit plans, plan sponsors, employers and employees, and service providers to employers located in a county identified for individual assistance by the Federal Emergency Management Agency (FEMA) due to the effects of Hurricane Harvey.

IRS relief.

The relief given is in addition to Form 5500 Annual Return/Report filing relief already provided by the IRS that postpones the filing of certain 5500 returns to January 31, 2018. For victims of Hurricane Harvey, the IRS is also easing rules applicable to retirement plan loans and hardship distributions, and the six-month ban on 401(k) and 403(b) contributions normally in effect for employees that take hardship loans will not apply. The IRS is also stating that persons living outside the Hurricane Harvey disaster area can take out retirement plan loans or hardship distributions in order to assist certain family members who lived or worked in the disaster area. Questions about IRS guidelines are being directed to 877-829-5900.

Health coverage issues.

The Labor Department’s Employee Benefits Security Administration (EBSA) has also posted a set of frequently asked questions (FAQs) on Hurricane Harvey relief with regard to health benefit plans. In the FAQs, the EBSA states that many employers affected by Hurricane Harvey have set up temporary work quarters or have made other provisions that would allow their employees to contact them. If employees cannot locate their employer’s contact person, they are instructed to either call 866-444-3272 or contact a Labor Department benefits advisor via www.askebsa.dol.gov.
Employees that lose health insurance as a result of Hurricane Harvey are advised in the FAQS to consider several options, including special enrollment in another family member’s group health plan, COBRA continuation coverage, individual health coverage through the Health Insurance Marketplace at healthcare.gov (or 800-318-2596), and health coverage through a government program, such as the Children’s Health Insurance Program (CHIP).

COBRA.

One question in the FAQ addresses possible effects on COBRA coverage in a situation in which someone might lose a spouse in Hurricane Harvey, and the spouse’s employer has agreed to pay premium for health coverage for 12 months. Individuals in these situations must clarify with the employer exactly what is being offered, says the EBSA. For example, the EBSA points out that an employer could be making this offer only if COBRA is declined, in which case electing this option would make that person ineligible for COBRA coverage, which is more expensive, but lasts longer.
An employer could also be making this offer in the form of paying for the first 12 months of COBRA coverage, in which case the individual could continue coverage at his or her own expense for up to 24 additional months. Finally, an employer might be delaying the individual’s loss of coverage in order to enable him or her to have COBRA coverage (at their own expense) for up to 36 additional months.
The EBSA also advises that people may be able to obtain coverage from healthcare.gov that costs less than COBRA continuation coverage. Those seeking more information are being directed to www.healthcare.gov/coverage-outside-open-enrollment/special-enrollment-period/.
The EBSA also reminds employees that health benefits are offered by employers on a voluntary basis, and that nothing in federal law prohibits employers from cutting or eliminating those benefits to retirees.

Verification procedures for plan loans and distributions.

The DOL said it is working with the IRS to provide relief related to certain verification procedures that may be required under retirement plans with respect to plan loans to participants and beneficiaries, hardship distributions, and other pension benefit distributions. Additional information will be made available in the near future at https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/disaster-relief.

Participant contributions and loan repayments.

Normally, under 29 CFR § 2510.3-102, amounts that a participant or beneficiary pays to an employer, or amounts that a participant has withheld from his or her wages by an employer, for contribution or repayment of a participant loan to an employee pension benefit plan constitute plan assets. These amounts must be forwarded to the plan on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets, but in no event later than the 15th business day of the month following the month in which the amounts were paid to or withheld by the employer.
The DOL said it recognizes that some employers and service providers acting on employers’ behalf, such as payroll processing services, located in identified covered disaster areas will not be able to forward participant payments and withholdings to employee pension benefit plans within the prescribed timeframe. In those cases, the DOL will not, solely on the basis of a failure attributable to Hurricane Harvey, seek enforcement of the Title I provisions with respect to a temporary delay in forwarding of payments or contributions to an employee pension benefit plan to the extent that affected employers and service providers act reasonably, prudently, and in the interest of employees to comply as soon as practical under the circumstances.

Blackout notices.

Generally, ERISA Section 101(i) and the corresponding regulations at 29 CFR § 2520.101-3 provide that the administrator of an individual account plan is required to provide 30 days’ advance notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, limited, or restricted by a blackout period (i.e., a period of suspension, limitation, or restriction of more than three consecutive business days on a participant’s ability to direct investments, obtain loans, or obtain other distributions from the plan). The regulations provide an exception to the advance notice requirement when the inability to provide the notice is due to events beyond the reasonable control of the plan administrator and a fiduciary so determines in writing.
The DOL noted that natural disasters, by definition, are beyond the control of a plan administrator. As to blackout periods related to Hurricane Harvey, the DOL said it will not allege a violation of the blackout notice requirements solely on the basis that a fiduciary did not make the required written determination.

ERISA group health plan compliance guidance.

The Labor Department said it recognizes that plan participants and beneficiaries may encounter various problems due to the hurricane, such as difficulties meeting certain deadlines for filing benefit claims and COBRA elections. The guiding principle for plans must be to act reasonably, prudently, and in the interest of the workers and their families who rely on their health plans for their physical and economic well-being. Plan fiduciaries should make reasonable accommodations to prevent the loss of benefits in such cases and should take steps to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established timeframes.
The DOL also acknowledged that there may be instances when full and timely compliance by group health plans and issuers may not be possible. The department’s approach to enforcement will be marked by an emphasis on compliance assistance and will include grace periods and other relief where appropriate, including when physical disruption to a plan or service provider’s principal place of business makes compliance with pre-established timeframes for certain claims’ decisions or disclosures impossible.

SOURCE: IRS News release IR-2017-138, August 30, 2017, EBSA “FAQs for Participants and Beneficiaries Following Hurricane Harvey,” August 29, 2017, and EBSA news release No. 17-1216-NAT, August 30, 2017.
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