As a result of COVID-19’s disruption to the U.S. economy and to many plan sponsors’ business operations, the IRS and DOL recently published several pieces of guidance providing a wide array of relief to retirement plan sponsors.
First, on April 29, 2020, the DOL published Disaster Relief Notice 2020-01 (the “Notice”). The Notice applies to the period beginning on March 1, 2020 (the beginning of the national emergency declared by President Trump) and ending sixty days after the announcement of the end of the COVID-19 national emergency or such other date which the DOL may announce (the “Relief Period”). The IRS has advised the DOL that they concur with the Notice’s relief. The Notice provides that:
- Employee benefit plans and plan fiduciaries will not be in violation of ERISA for a failure to timely furnish a notice, disclosure, or document that must be furnished during the Relief Period if the plan and fiduciaries act in “good faith” and furnish the notice, disclosure, or document as soon as administratively practicable under the circumstances. “Good faith” here includes using electronic methods of communicating with plan participants and beneficiaries whom the fiduciaries reasonably believe have effective access to electronic communications such as email, text messages, and websites.
- If a retirement plan fails to follow the plan document’s procedural requirements for plan loans and/or distributions, the DOL will not treat it as a failure if: (1) that failure is solely attributable to COVID-19; (2) the plan makes a good-faith effort to comply with those requirements; and (3) the plan makes a reasonable attempt to correct any procedural deficiencies (e.g., assembling any missing documentation) as soon as administratively practicable.
- The DOL recognizes that some employers and service providers may not be able to forward participants’ salary deferrals and loan repayments to plans “within prescribed timeframes” during the Relief Period. (In broad terms with respect to those timeframes, small plans – generally, those with fewer than 100 participants at the beginning of the plan year – must forward those amounts to the plan within seven business days of their withholding from participants’ pay. Large plans – generally, those with 100 or more participants at the beginning of the plan year – must forward those amounts to the plan as soon as they can reasonably be segregated from the plan sponsor’s assets.) Under the Notice, if the failure results solely from COVID-19, the DOL will not take enforcement action “with respect to a temporary delay in forwarding such payments or contributions to the plan.” However, plan sponsors and plan service providers “must act reasonably, prudently, and in the interest of employees to comply as soon as administratively practicable under the circumstances.”
- Under ERISA, retirement plan sponsors must provide 30 days’ notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, limited, or restricted by a blackout period. ERISA’s regulations provide an exception to that 30-day requirement when the inability to provide the notice is caused by events beyond the plan administrator’s reasonable control. The Notice confirms that such exception applies to blackout notices that are required to be provided during the Relief Period.
Here is a link to the Notice: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/disaster-relief/ebsa-disaster-relief-notice-2020-01
Second, on April 29, 2020, the DOL and IRS issued a joint notice. This guidance extends certain timeframes under ERISA and the Internal Revenue Code for group health plans, disability and other welfare plans, retirement plans, and participants and beneficiaries of those plans during the COVID–19 national emergency. Retirement plans must disregard the period from March 1, 2020 until sixty days after the announced end of the national emergency, or such other date announced by the IRS and/or DOL in a future notification, for all plan participants and beneficiaries when determining the following:
- The date within which individuals may file a benefit claim under the plan’s claims procedures; and
- The date within which claimants may file an appeal of an adverse benefit determination under the plan’s claims procedures;
The IRS’s and DOL’s stated goal here is to “minimize the possibility of individuals losing benefits because of a failure to comply with certain pre-established timeframes.”
You can access the joint notice via the following link: https://www.govinfo.gov/content/pkg/FR-2020-05-04/pdf/2020-09399.pdf
Third, on April 28, 2020, the DOL issued Frequently Asked Questions (“FAQs”) to “help employee benefit plan participants and beneficiaries, as well as plan sponsors, and employers, impacted by the COVID-19 outbreak understand their rights and responsibilities” under ERISA. For retirement plans, this guidance advises participants and beneficiaries that:
- With respect to employers temporarily closing their business or plan service providers being adversely affected by COVID-19, participants and beneficiaries should contact their plan administrator for actions such as filing a claim for benefits, inquiring about pension payments that have not been received, and changing their investment elections.
- They can only borrow or withdraw funds if their plan allows it, and they “should carefully consider the financial consequences before doing so,” although “under recently enacted COVID-19 legislation, [they] may be able to take advantage of temporary liberalized plan loan and distribution rules.”
- Because a pre-retirement distribution may be considered “income,” it could affect their eligibility to receive unemployment compensation. The DOL recommends that they review their state’s latest updates on unemployment insurance changes.
- They should read their plan’s Summary Plan Description and other plan documents to see if the plan offers lump sum distributions and to review any spousal consent requirements.
This guidance is available here: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/covid-19.pdf
Fourth, on May 4, 2020, the IRS issued Q&As addressing COVID-19-related relief for retirement plans and IRAs. Highlights of the Q&As are as follows:
- The IRS anticipates releasing additional guidance “in the near future” regarding the CARES Act’s distribution and loan provisions.
- The IRS is considering expanding the list of individuals who qualify for the CARES Act’s distribution and loan features.
- If a qualifying loan under the CARES Act is outstanding on or after March 27, 2020, and any repayment on the loan is due from March 27, 2020, to December 31, 2020, that due date may be delayed under the plan for up to one year. (Some people in the benefits community thought that this provision was mandatory.) In addition, it is optional for employers to adopt any or all of the CARES Act’s distribution and loan rules.
- Even if an employer does not treat a distribution as coronavirus-related, a participant can treat a distribution that meets the requirements for coronavirus-related distributions as such a distribution on his or her federal income tax return.
- A pension plan (i.e. a defined benefit plan or a money purchase pension plan) cannot make a distribution before an otherwise permitted distributable event merely because the distribution, if made, would qualify as a coronavirus-related distribution. In other words, such plans cannot permit an in-service distribution under the CARES Act unless another applicable law allows it (e.g., an age 59½ in-service distribution). Also, a pension plan cannot make a distribution under a distribution form that is not a qualified joint and survivor annuity without spousal consent merely because the distribution, if made, could be treated as a coronavirus-related distribution.
- The administrator of an eligible retirement plan can rely on an individual’s certification that he or she satisfies the conditions to be a qualified individual in determining whether a distribution is a coronavirus-related distribution, unless the administrator has actual knowledge to the contrary.
- Individuals will use Form 8915-E (which is expected to be available before the end of 2020) to report any repayment of a coronavirus-related distribution and to determine the amount of any coronavirus-related distribution includible in income for a year. Plan administrators will report the payment of a coronavirus-related distribution to a qualified individual via Form 1099-R, even if the individual repays the coronavirus-related distribution in the same year.
This guidance can be viewed here: https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers
Please note that none of the four pieces of guidance discussed above extends the 2019 Form 5500 deadline for calendar-year plans. That is likely because such plans can still extend that deadline to October 15, 2020 by filing Form 5558 with the IRS on or before July 31, 2020.