How COVID-19 is Impacting Retirement and Welfare Benefit Plans
COVID-19 has impacted nearly all aspects of an organization, including its’ retirement and welfare benefit plans. The past months have been a stressful time for all types of businesses and organizations, and even the most diligent employee benefit plan sponsors and fiduciaries are having a difficult time keeping up with the ever-changing employee benefits landscape. There have been significant legal changes to affect group health plans and retirement plans over the past year, many of which are discussed here, but also in a recent webinar . Plan sponsors still have fiduciary duties they are required to meet during these uncertain times, and business decisions may impact an organization’s benefit plans. We’ve compiled a list of a number of laws, acts, regulations and rules impacting welfare benefit plans and retirement plans.
- Families First Coronavirus Response Act (FFCRA): Enacted March 18, 2020; Generally requires group health plans to provide benefits for certain items and services related to diagnostic testing for COVID-19.
- Coronavirus Aid, Relief, and Economic Security Act (CARES Act): Enacted March 27, 2020; Amended FFCRA to include a broader range of diagnostic items and services related to COVID-19 that plans must cover.
- DOL and IRS Notification of relief and extension of timeframes: Published May 2020; Offers temporary relief, which is available until 60 days after the announced end of the national emergency. The end of this outbreak period has not yet been identified.
- Updated COBRA notices: May 2020; The DOL has published updated model COBRA general and election notices, which provide more information about the interaction of COBRA and Medicare and about other health coverage options if COBRA isn’t elected. FAQs and updated notices are also available.
- Mental Health Parity/Substance Use Disorder Updated Self-Compliance Tool: The DOL recently released (in October 2020) an updated Mental Health Parity and Addiction Equity Act (MHPAEA) self-compliance tool for group health plans. The older version of the self-compliance tool was updated to include integration of recent guidance, revised compliance examples, best practices for establishing an internal compliance plan and the addition of warning signs.
- 2020 ACA Reporting (IRS Notice 2020-76): The deadline for providing forms 1095-B and 1095-C to individuals has been extended from January 31, 2021 to March 2, 2021. IRS filings of forms 1094-B and 1094-C are due no later than March 1, 2021 for paper filings and March 31, 2021 for electronic filings. There is no extension for these filings to the IRS. Employers should be mindful of the penalties that may be assessed for failure to furnish various forms.
There have also been a number of legal changes affecting retirement plans. .
- Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act): Several changes made by the SECURE act include the required participation of long-term, part-time employees in a 401(k) plan, penalty-free distributions for a qualified birth or adoption from 401(k) plans that allow for those types of early distributions, and the Required Minimum Distribution (RMD) age was raised from 70 ½ to 72.
- Coronavirus Aid, Relief, and Economic Security Act (CARES Act): The CARES Act provided for some more changes to retirement plans, including the “coronavirus-related distribution,” which impacts participants who are diagnosed with coronavirus or COVID 19, their spouses or dependents, or those who experience adverse financial consequences as a result of being quarantined, furloughed or laid off due to COVID 19. The changes also impact plan loan relief, changes to the RMD rules, and a special rule for single-employer defined benefit pension plans.
- DOL Final Rule on Electronic Disclosure: Enacted May 27, 2020; This final rule provides a new voluntary safe harbor for retirement plan disclosures. The two options for methods for electronic delivery include website posting and email. The previous safe harbor from 2020 still remains in place. This final rule is not applicable to group health plans.
- Pension Benefit Statement Lifetime Income Illustrations Interim Final Rule: Effective September 18, 2021, and is applicable to retirement benefit statements furnished after that date. The goals associated with providing these lifetime income illustrations include strengthening retirement security by encouraging those currently contributing too little to increase their plan contributions and making lifetime income information readily available. The interim final rule contains assumptions that plan administrators must use to calculate the monthly payment illustrations of participants’ account balances as Single Life Annuities (SLAs) and Qualified Joint and Survivor Annuities (QJSAs).
- DOL Final Rule on Financial Factors in Selecting Plan Investments: Published in October 2020; The final rule makes some changes and additions to the current investment duties regulation, including the rule’s addition of a general restatement of the loyalty duty under ERISA section 404(a)(1)(A), a provision to confirm that ERISA fiduciaries must evaluate investments and investment courses of action based solely on pecuniary factors.
- Cost of Living Adjustments for 2021:
- The IRS imposes a limit on how much an employee can defer to their 401(k) account in a year. For those employees under age 50, the limit is the lesser of $19,500 or 100% of the employee’s gross compensation. For those employees who are age 50 or over, the catch-up contribution limit is an additional $6,500. The $19,500 contribution limit and $6,500 catch up contribution limits are effective for 2021, and remain unchanged from 2020.
- Effective January 1, 2021, the total limit on contributions to a participant’s 401(k) account (including elective contributions, after-tax employee contributions, employer matching contributions, and employer profit sharing contributions) has been increased from $57,000 to $58,000.
- Effective January 1, 2021, the limit on the annual benefit for defined benefit pension plans remains unchanged at $230,000.
- It is important to make sure that your retirement plan personnel are familiar with the applicable contribution limits each year to prevent administrative mistakes that can be a hassle for your office. In addition, ensuring that your employees understand the 2021 contribution limits will help them plan accordingly.
There have been a number of significant changes to the laws affecting employee benefit plans in 2020, many of which came as the result of the coronavirus pandemic. And, with the recent presidential election, there are likely many more changes to come as well. Organizations should also seek guidance, when needed, to ensure they are handling these situations appropriately.