COVID-19 – E is for ERISA

April 29, 2021April 29, 2021

IRS FAQs Address COVID-19 Partial Plan Termination Issues

On April 27, 2021 the IRS supplemented its online FAQs on COVID-19 relief for retirement plans and IRAs with information related to relief from partial plan terminations. Under Division 33, Section 209 of the Consolidated Appropriations Act of 2021 (CAA), a plan is not treated as having a partial termination during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020. For employers with a calendar year, this buys them three months of additional time to recover and add back participants, as usually a partial termination would have been determined based on participant levels as of their plan year end on December 31, 2020. We reviewed the partial termination relief provisions of the CAA in this earlier post.

The new FAQs clarify the following issues:

Definition of Active Participants Covered by the Plan For purposes of the 80% retention rule, the FAQ advises that plan sponsors use a “reasonable, good-faith interpretation,” of the term “active participant covered by the plan,” applied in a consistent manner, when determining the number of participants covered by the plan on the March starting and ending dates. In 401(k) plans, participants who meet the eligibility requirements to make salary deferrals generally have been required to be counted as active participants covered by the plan (See Q&A 40), even if they do not actively defer. The FAQ does not address the distinction between “eligible” versus actively deferring. Plan sponsors with questions about counting active participants should consult benefit counsel or other benefit advisors.
Application of March to March Period to Calendar Plan Year The FAQ clarifies that if any part of the plan year falls within the March 13, 2020 to March 31, 2021 period, then the relief applies to any partial termination determination for that entire plan year. For a plan with a calendar plan year, the relief therefore applies to both the January 1 to December 31, 2020 plan year and the January 1 to December 31, 2021 plan year, because both years include a portion of the March 13, 2020 to March 31, 2021 determination period.
Impact of New Hires on 80% Test The FAQs make clear that the 80% test looks at the total population of active participants and not only at the pool of active participants who were covered on March 13, 2020. In other words, new hires that met eligibility under the plan by March 31, 2021 may be counted, and plan sponsors do not need to take a snapshot of active participants as of March 13, 2020 and ensure that 80% of those exact people were still employed on March 31, 2021, in order for the relief to apply. This is an expansion of normal rules for partial terminations, which would ordinarily require that a participant who is terminated be individually rehired in order not to count as having been affected by the partial termination.
Relief Not Limited to COVID-Related Staff Reduction The FAQs make clear that although March 13, 2020 happens to be the date that the COVID-19 national emergency was declared, the relief applies regardless of the reason for the reductions in active plan participants; the reductions need not be related to the COVID-19 pandemic.

Plan sponsors should take heed of the CAA partial termination relief and make use of it when possible. Form 5500 Return/Reports require plan sponsors to report the number of active participants at the beginning, and end, of each plan year, which permits IRS to IRS FAQs Address COVID-19 Partial Plan Termination Issues possible partial plan terminations. Armed with this data, IRS earlier this year announced a compliance check program focused on partial terminations. This is a form of soft audit that could lead to a more formal audit program in the future.

The above information is provided for general informational purposes only and does not create an attorney-client relationship between the author and the reader. Readers should not apply the information to any specific factual situation other than on the advice of an attorney engaged specifically for that or a related purpose. © 2021 Christine P. Roberts, all rights reserved.

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March 13, 2021March 13, 2021

Fast Facts About the COBRA Subsidy

The recently enacted American Rescue Plan Act of 2021 (ARPA) contains a number of financial aid measures to help Americans coping with the economic fallout of the COVID-19 pandemic, including a 100% subsidy of COBRA continuation coverage premiums for a period of up to six months. The subsidy provisions are set forth at Title IX, Subsection F of ARPA, Section 9501, titled “Preserving health benefits for workers.” The following fast facts on the COBRA subsidy will help employers and benefit advisors prepare for more detailed guidance and model notices that are soon to follow from the Department of Labor.

Subsidy Period

The subsidy is first available April 1, 2021 and ends, unless terminated earlier as described below, on September 30, 2021 (the “subsidy period,” as used herein). The subsidy covers 100% of COBRA premiums, including the 2% administrative fee, for medical, dental and vision coverage during that time. It does not apply to continuation coverage under a health flexible spending account.

Assistance Eligible Individuals

The subsidy applies to “assistance eligible individuals.” This means someone who is eligible for continuation coverage during some or all of the subsidy period, by reason of an involuntary termination of employment or a reduction of hours. The subsidy would also appear to apply to that person’s dependents.
The subsidy is not available to those who resign or voluntarily quit employment.
The change in employment status need not be directly related to COVID-19. The usual exception for termination due to gross misconduct applies, but remember that that exception is applied sparingly.

Extended Election Period

Under a special extended election period, the subsidy is available not only to assistance eligible individuals who newly become COBRA eligible as of April 1, 2021, but also to persons who earlier declined COBRA, or elected COBRA but let it expire. For instance, this group may include assistance eligible individuals who first became COBRA on or after November 1, 2019 (April 2021 would be the 18th month of COBRA coverage).
The subsidized continuation coverage would apply prospectively only, in such instance.
A notice of the extended election period must be provided, triggering a 60-day period to elect to re-instate COBRA . The Department of Labor is required to provide a model notice within 30 days of the March 11 ARPA enactment date.

Option to Change Coverage

Assistance eligible individuals may receive the subsidy for the same coverage they were enrolled in at the time of their qualifying event, or they may elect a different coverage option so long the applicable premium does not exceed the premium for the coverage they had at the time of the qualifying event. This is an optional feature of the subsidy provisions and an employer may choose not to extend the option to change coverage.

Termination of Subsidy Period

The subsidy period will end prior to September 30, 2021 in the event the assistance eligible individual’s maximum COBRA period ends (for instance, with regard to someone who made a special extended COBRA election).
Alternatively, it will end when an assistance eligible individual becomes eligible for coverage under another group health plan, or becomes eligible for Medicare.
Eligibility under other group coverage or Medicare triggers a duty to notify the group health plan providing the COBRA subsidy. The Department of Labor will further define the form and timing of the notice.
A $250 penalty applies to each failure to provide the notice, and a higher penalty, equal to 110% of the applicable COBRA premium, may apply to an intentional failure to notify. An exception to the penalty applies in the case the failure to notify was due to reasonable cause and not willful neglect.

Notification Duties

ARPA requires an update to COBRA notices sent to assistance eligible individuals who first became eligible for COBRA before the subsidy period, describing the premium assistance and the option to enroll in different coverage, if that latter option is extended by the employer, as well as the duty to provide notice of eligibility for other group coverage or Medicare. The deadline to provide the new information is 60 days from April 1, 2021.
This information must also be added to new COBRA qualifying event notices for assistance eligible individuals. The new information may either be provided as part of amended qualifying event notices or in a separate document provided with the qualifying event notice.
As mentioned above, a special notice about the extended election period must be provided, and triggers a 60-day election period. If the option to choose different coverage of an equal or lower premium is extended, an additional 30-day election period, for a total of 90 days, applies.
Advance notice of the expiration of the subsidy period is also required to be provided. The Secretary of Labor will provide a model notice no later than 45 days from the March 11 enactment date.

Subsidy is Not Taxable Income

The dollar value of the COBRA subsidy is excluded from the gross income of assistance eligible individuals.

Payment for Subsidy: Credit Against Medicare Taxes

The person to whom COBRA premiums are payable will be entitled to reimbursement for the subsidy, in the form of a credit against the Medicare component of Social Security taxes.
The employer is the person to whom premiums are payable, and who may claim the credit, in the case of a self-insured plan or an insured plan subject to federal COBRA It is the plan itself in the case of a multiemployer plan.
If the credit exceeds taxes payable the excess is treated as a refundable overpayment.

DOL Outreach

ARPA allots $10 million to the Department of Labor to help implement the COBRA subsidy, enabling it to provide outreach in the form of public education and enrollment assistance to employers, group health plan administrators, and other stakeholders.

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January 29, 2021

In Rehire Mode? Keep March 31, 2021 in Mind for Your 401(k) Plan

If your business is one of the many that reduced employees in the early days of the COVID-19 pandemic, you need to keep March 31, 2021 marked on your calendar, particularly if you are fortunate enough to be ramping up activity and adding workers back to your payroll.

As explained in our earlier post, when employer action, including as the result of an economic downturn, results in 20% or more of the population of an employee retirement plan being terminated from employment, a presumption arises that a “partial plan termination” has occurred, with the result that everyone affected by the partial termination must be fully vested in their plan accounts.

The partial termination rule is therefore relevant to plans that include employer contributions that are subject to a vesting schedule.

March 31, 2021 comes into play because it is the date set under Division EE, Section 1, Title II, Section 209 of the Consolidated Appropriations Act, 2021 as the snapshot date on which a partial plan termination may be avoided through rehires that restore earlier plan participation levels. Specifically, a plan will not be treated as having experienced a partial plan termination if on March 31, 2021, the number of active plan participants is at least 80 percent of the number covered by the plan on March 13, 2020 (the beginning of pandemic-related stay at home orders). For purposes of this rule, “active” status relates to the plan, not payroll, meaning that the individual maintains a plan account but may or may not be actively employed. Clearly, however, adding new hires who establish accounts under the plan will result in increased plan participant numbers as the March 31, 2021 date approaches.

The partial plan termination relief applies during any plan year which includes March 13, 2020 to March 31, 2021 period. If you have questions about application of this new rule to your 401(k) or other benefit plan, don’t hesitate to contact us.

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December 3, 2020February 10, 2021

COVID-19 Vaccines: Employer Mandate & Incentive Issues UPDATED

Regular readers of this blog know that I limit my practice to ERISA and employee benefit issues. However, my partner Paul Wilcox has stepped in as a guest co-author to address the employment law issues around COVID-19 vaccines and your workforce (Q&A 1 – 4, below). I follow up below with a few questions on using wellness incentives to encourage employees to get vaccinated. This updated post reflects EEOC guidance on COVID-19 vaccinations that was issued on December 16, 2020.

Q.1: Now that COVID-19 vaccines are coming, can I require employees be vaccinated as a condition of employment?
A.1: The Equal Employment Opportunity Commission (EEOC) has recently issued guidance indicating that requiring vaccination of employees is generally permissible. However, the EEOC also says that employer must consider accommodation of disabilities and sincerely held religious beliefs that are inconsistent with vaccination. Additionally, some commentators have questioned whether the fact that the current COVID-19 vaccine was approved by the FDA on an Emergency Use Authorization (EUA) might limit the employer’s authority to mandate vaccination. Whether there is any merit to that argument has yet to be resolved, but the EEOC guidance indicating the mandating vaccination is generally permissible mentions the EUA status of the current vaccine but says nothing that directly indicates that EUA authorization by the FDA limits the right of employers to require vaccination. This is an open question.

Q.2: Do we have to treat all employee objections to vaccination equally or do some types of objections trigger legal duties of accommodation, etc.?
Q.2: The law requires employers to consider reasonable accommodations for persons with disabilities who may be particularly impacted by vaccination and for people with religious beliefs that are inconsistent with vaccination. Whether an accommodation of a disability or religious belief is required depends on the circumstances, but the employer generally must consider the issue even if the ultimate answer is that the requested accommodation will not be granted. In its recent guidance on mandatory vaccinations, the EEOC noted that, however, accommodations which would result in a direct risk of harm to other persons are not required.

Q.3: Will I get in trouble if I only require some employees, such as customer-facing workers, get vaccinated but not other employee groups?
A.3: No, not necessarily. Making distinctions between employees based on job duties is generally permissible.

Q.4: Will my company face potential liability if an employee has a bad reaction to the vaccination? Does it matter that the current vaccine was approved by the FDA on an EUA?
A.4: The law also does not provide a clear answer to this question, although the general answer is that employer liability for work-related injuries is confined to the workers’ compensation system, so any liability might be covered by workers’ compensation insurance. Workers’ compensation is a “no fault” system, meaning that whether the injury was caused by negligence or in the absence of negligence is not a relevant issue.

Q.5: Can I offer wellness program incentives to encourage employees to get a COVID-19 vaccine?
A.5: Yes. The incentive could take the form of a cash reward or gift card, for instance. Note that cash and cash equivalent rewards are taxable to employees and are generally compensation counted under 401(k) and other retirement plans.

Q:6: Is there a dollar limit on the incentive I could offer?
A.6: Not a flat dollar amount or percentage, but the incentive must be reasonable in amount. As Paul noted above, vaccinations are characterized as medical examinations and therefore you must abide by ADA regulations governing wellness plans. Those regulations are aimed at insuring, among other things, that employee participation in work-related wellness programs that include medical examinations, such as health risk assessments, is voluntary on the part of the employee. In past years the EEOC has sued employers whose wellness rewards it deemed to be excessive. On January 7, 2021, the EEOC issued proposed regulations that would permit only de minimis incentives for participatory wellness programs such as a vaccination program. Examples of de minimis incentives include a water bottle or small gift card. The regulations will be reviewed by the Biden Administration and may not be finalized as currently drafted, but employers whose wellness programs include COVID-19 vaccinations should consult with counsel as to whether or not they should limit incentives to de minimis amounts or items. Employers that are offering an incentive to employees to obtain COVID-19 vaccinations from public agencies or third party vendors who are not part of the employer’s wellness program or group health plan may not be subject to the de minimis incentive limitation, but should confirm with independent legal advice.

Q.7: If employees have a disability that makes the vaccination inappropriate for them, do we still need to offer a way for them to earn the vaccination incentive?
A.7: Yes. Reasonable accommodation provisions in the ADA wellness regulations remain in effect, such that you must modify or adjust your wellness program for persons with disabilities that make the COVID-19 vaccine medically inadvisable. Examples might be virtual/remote attendance at a class on COVI9-19 mitigation measures such as mask wearing, hand washing, and social distancing.

Q.8: Do I have to notify employees about the special incentive offered for getting a COVID-19 vaccine?
Q.8: That is not clear at the present time. Notification duties under ADA wellness regulations form 2016 would have required a notice be provided when employees’ medical information is gathered, such as in a vaccination process. The 2016 regulations required that the notice be written in a language reasonably likely to be understood by the participating employees, describe the type of information that will be gathered, and describe the confidentiality measures that are in place to protect this information. In its proposed 2021 wellness regulations the EEOC waives the notice requirement as unnecessary when the de minimis incentive applies. Employers with participatory wellness programs that would be subject to the de minimis incentive limit, if enforced, should consult counsel as to whether or not to comply with the notice requirements from the 2016 EEOC wellness regulations.

Note: The above information is a brief summary of legal developments that is provided for general guidance only and does not create an attorney-client relationship between the author and the reader. Readers are encouraged to seek individualized legal advice in regard to any particular factual situation.

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