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COVID-19 and Retirement Plans – Partial Plan Termination Issues and New Fiduciary Relief

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Potential Partial Termination of Retirement Plan.  A partial retirement plan termination may occur when there is a significant reduction (generally more than 20%) in plan participation due to employer-initiated terminations or layoffs during the plan year.  If a partial termination occurs, affected participants (those who are terminated) become 100% vested in their plan benefit, even if they have not yet satisfied the vesting schedule under the plan.  Employers that are down-sizing or terminating employees due to COVID-19 need to be aware of this issue, because the failure to vest participants correctly can potentially disqualify the plan or subject the employer to additional claims from affected participants.

Fiduciary Relief.  The Department of Labor (DOL) has just issued a relief notice (EBSA Disaster Relief Notice 2020-01) that gives benefit plan fiduciaries additional time to provide certain required ERISA notices and disclosures to plan participants.  The relief is available from March 1, 2020 until 60 days after the end of the COVID-19 National Emergency, whenever that is announced.  The relief is available for:  

  1. quarterly benefit statements;
  2. 30-day blackout notices required when a 401(k) plan changes investment or administrator service providers;
  3. annual pension plan funding notices;
  4. plan documents required to be provided to new participants or upon request within required time periods (SPDs, plan documents, etc.);
  5. reasonable employer failures to deposit employee contributions to plan accounts within 15 days; and
  6. employer failures to credit plan loan repayments on the exact loan schedule, that otherwise may result in violation of the level amortization requirement or other deadlines in the loan documents. 

The relief is available provided plan fiduciaries are trying to act in good faith to provide plan information as soon as administratively possible under the circumstances which can include providing disclosures electronically where possible.

Employee Benefit Plan Deadlines Extended.  In conjunction with this relief, the DOL and IRS have jointly announced the extension of certain heath plan election and coverage deadlines so participants have additional time to make important health plan coverage decisions affecting benefits impacted by COVID-19.  These include deadlines applying to:

  1. COBRA continuation coverage elections;
  2. HIPAA special enrollment periods; and
  3. benefit claims and appeals.

The employer will not be treated as failing to operate its plan in accordance with its terms despite the violation of these time periods.  The various deadlines are extended from March 1, 2020 until 60 days after the end of the COVID-19 National Emergency.  Otherwise, impacted participants could miss specific deadlines during the COVID-19 period that could result in the loss of group health coverage or a benefit claim denial. 

We will continue to keep you advised on updates as they apply to employee benefit plans.  Please contact Vandeventer Black LLP if you have any questions or would like additional information on these issues.

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