Generally, if an employer-sponsored group health plan makes a material modification to coverage midyear that would affect the content of the plan’s Summary of Benefits and Coverage (“SBC”), the plan administrator must provide participants with 60 days’ prior notice of the modification. The U.S. Departments of Labor, Treasury, and Health and Human Services have issued a FAQ stating that they will not take any enforcement action against any plan for not providing such notice when the modification is to provide greater coverage related to the diagnosis and/or treatment of COVID-19 or to add benefits or reduce or eliminate cost sharing for telehealth and other remote care services. However, the plan administrator must still provide notice of the changes to participants as soon as reasonably practicable. This non-enforcement policy only applies while there is a public health emergency declaration or national emergency declaration related to COVID-19 in effect. The FAQs are… Continue Reading
The DOL and the IRS Jointly Provide Relief from Certain Timeframes Applicable to Health and Welfare and Pension Plans
On April 28, 2020, the IRS and DOL issued a Final Rule extending certain timeframes under ERISA and the Internal Revenue Code for group health, disability and other welfare plans, pension plans, and the participants and beneficiaries under those plans. The timeframe extensions include, among other things, the time to elect COBRA and pay premiums, special enrollment timeframes under HIPPA and CHIPs, claims procedure timeframes, and certain external review process timeframes. Applicable plans must disregard the period from March 1, 2020 until 60 days after the announced end of the COVID-19 National Emergency for all plan participants, beneficiaries, qualified beneficiaries, or claimants wherever located in determining the enumerated time periods and dates and for providing COBRA election notices. In addition, Disaster Relief Notice 2020-01 was issued addressing the timeframe relief and addressing certain other COVID-19 relief. The Final Rule is available here: https://www.dol.gov/sites/dolgov/files/ebsa/temporary-postings/covid-19-final-rule.pdf. Disaster Relief Notice 2020-01 is available here: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/disaster-relief/ebsa-disaster-relief-notice-2020-01.
The Paycheck Protection Program and Health Care Enhancement Act (the “PPP/HCE Act”), signed into law on April 24, 2020, clarified how the affiliation rules apply to businesses that sponsor employee stock ownership plans (“ESOPs”). According to the PPP/HCE Act, for purposes of the Paycheck Protection Program, a business’s participation in an ESOP will not result in an affiliation between the business and the ESOP (or with the participants in the ESOP). A copy of the PPE/HCE Act can be found here.
Businesses that received a loan under the Paycheck Protection Program (“PPP”) are eligible for forgiveness of that loan if, among other things, the loan proceeds are used to cover “payroll costs” incurred over the eight-week period after the loan is made. Payroll costs, capped at $100,000 on an annualized basis for each employee (i.e., $15,384 over the eight-week period), are broadly defined to include, among other things: Salary, wages, commissions, or tips; Employee benefits costs, such as for vacation or paid family or medical leave (other than wages for which a credit is received under the Families First Coronavirus Response Act), group health care costs, retirement plan contributions, and severance benefits; and State and local taxes assessed on employee compensation. As of the date of this posting, no guidance has been issued by the IRS or the Department of Treasury to further clarify what specific items qualify as payroll costs.… Continue Reading
Although the CARES Act permitted the DOL to delay the deadline for distributing defined benefit plan Annual Funding Notices (“AFNs“), the DOL has not done so. For calendar year plans, that deadline is April 29, 2020 (because 2020 is a leap year). While AFNs generally can be distributed electronically, if there are participants or beneficiaries (including alternate payees) for whom electronic distribution is not possible, those AFNs must be mailed and postmarked no later than April 29.
Generally, a spouse must consent to a retirement plan participant’s waiver of a qualified joint and survivor annuity or the designation of an optional form of benefit or an alternate beneficiary. The applicable regulations require this consent, even if signed electronically, to be witnessed in the physical presence of a plan representative or a notary public. Neither the IRS nor the DOL has issued guidance permitting the physical presence requirement to be satisfied by electronic means (for example, via webcam) even though numerous states now permit electronic notarizations. Employers should use care and consult with legal counsel when determining how to handle participants who are unable to satisfy the plan’s current physical presence notarization requirements.
CARES Act: Additional Guidance on the Interplay Between Social Security Tax Deferrals and Forgiveness of PPP Loans
In a new set of FAQs, the IRS clarifies that an employer who receives a loan under the Paycheck Protection Program (“PPP”) may also defer payment of the employer portion of Social Security taxes due on eligible wages until the employer receives notice from its PPP lender that the loan has been forgiven. Under the CARES Act, employers of all sizes may defer payment of their portion of Social Security taxes due on wages earned between March 27, 2020 and December 31, 2020, until December 31, 2021 (50% of the deferred taxes are due) and December 31, 2022 (the remaining deferred taxes are due), subject to certain restrictions. One of those restrictions is that an employer may not defer its Social Security taxes if it has taken out a PPP loan and all or any portion of the loan is forgiven. The new FAQs clarify that, once an employer receives… Continue Reading
Boards and compensation committees will be reevaluating their incentive compensation arrangements in light of the COVID-19 pandemic and the resulting market uncertainty. Both long-term and short-term incentive plans can lose motivational and retention value if the performance goals are unachievable or if they do not align with market reality. Companies that have not yet established performance goals for their 2020 equity and bonus awards should carefully consider market conditions and shareholder perception before establishing goals, focusing on motivating their executives with pay for performance that aligns with shareholders’ interests, while giving the company flexibility to navigate through uncharted territory. To the extent possible, companies should also consider delaying the issuance of incentive compensation awards until there is more stability in the business and in the financial markets. Companies that have already established goals for their 2020 awards (or that are evaluating the continued effectiveness of performance goals for prior year… Continue Reading
On March 26, 2020, Glass Lewis released its governance report discussing its approach to corporate governance in light of the COVID-19 pandemic. According to the report, Glass Lewis expects all governance issues to be impacted by COVID-19 and will be taking a pragmatic approach to corporate governance and voting on affected proposals, prioritizing disclosure and timing and certainty on such matters, and exercising discretion as appropriate. Glass Lewis states in the report that: “The stark reality is that for many workers, including executives, they should not expect to be worth as much as they were before the crisis, because their free market value as human capital has now changed. There is a heavy burden of proof for boards and executives to justify their compensation levels in a drastically different market for talent . . . Trying to make executives whole at even further expense to shareholders and other employees is… Continue Reading
Health and Welfare Issues and COVID-19: Reminder: Decrease in Pay/Hours Does Not Permit Dropping Health Plan Coverage If There is No Loss of Eligibility
As many employers reduce employees’ work hours, employers should consider that employees will remain responsible for their health plan contributions even though their pay is decreasing. As long as eligibility for coverage does not change, an employee is not permitted to change his or her health plan elections due solely to the decrease in pay or hours. One exception to this general rule is a change in status event created in connection with the Affordable Care Act, which provides that, in certain circumstances, an employee with reduced work hours may drop health plan coverage if the employee enrolls in other health plan coverage. Because the reduced pay may not cover all payroll deductions, employers should consider adopting a priority order for payroll deductions (e.g., health plan deductions are made before 401(k) plan deductions). In addition, an employer may want to consider a waiver of premiums, which is permitted if done… Continue Reading