In the past couple of weeks, there has been additional guidance and relief due to COVID-19 that impacts both pre-tax plans and COBRA.
Many Benefit Plan Deadlines Must Be Extended
On April 28th, 2020, the DOL and IRS announced extended deadlines beginning on or after March 1st, 2020 for plans subject to ERISA. See the notice in Employee Benefits Security Administration (EBSA) Disaster Relief Notice 2020-01. The notice extends many deadlines to 60 days after the end of the ‘Outbreak Period.’ The Outbreak Period ends when the President declares an end to the COVID-19 National Emergency. For example, if the national emergency ends on June 30th, these deadlines will be August 29th, 2020. As of today, the end date is unknown.
Following are some of the key deadlines impacted by the notice:
- Claim Run-Out Deadline: The 2019 claim run-out deadline for the Health Care Flexible Spending Accounts (FSA) and most Health Reimbursement Arrangements (HRAs) are extended.
- Appeal Deadline: The 180-day deadline for filing an appeal for an adverse benefit selection is extended.
- HIPAA Special Enrollment Deadline: The timeframe by which participants and eligible employees must request a HIPAA special enrollment in a group health plan is extended. Note that this extension does not apply to stand-alone dental or vision plans or most FSAs.
What This Means for Your Plan
- If your plan’s claim run-out deadline ended before March 1st, 2020, you are not impacted. For example, if your run-out deadline was February 29th, 2020, you do not need to extend the deadline, even if your plan is subject to ERISA.
- If your plan is subject to ERISA and your pre-tax claim run-out deadline was on or after March 1st, 2020, you must extend the deadline for your Health Care FSA.
- If your plan is not subject to ERISA but follows ERISA rules and your pre-tax claim run-out deadline was on or after March 1st, 2020, you will need to extend the deadline for your Health care FSA. This includes city, county, and state government plans, and these plans often follow ERISA rules.
- If you have an HRA, including an HRA/VEBA that is not an excepted benefit, or a retiree plan that covers fewer than two current employees, you must extend the deadline. For example, if you sponsor an HRA for Retirees for reimbursement of Medicare and individual premiums, this HRA is considered an excepted HRA and not subject to the run-out deadline extension.
- If you sponsor other non-ERISA benefits such as a Limited Purpose or Dependent Care FSA, you may extend the deadline for these plans as well, but you are not obligated to do so.
Note the Following Regarding Governmental Plans: Unless your plan follows ERISA rules, you are not impacted. However, HHS is encouraging sponsors of governmental plans to adopt all deadline extensions. Furthermore, they have let the DOL and IRS know that it ‘will exercise enforcement discretion to adopt a temporary policy of measured enforcement to extend similar deadlines applicable to governmental group health plans and their participants under the appropriate provision of the Public Health Service Act (PHSA).’ This means that if you are a governmental employer, it is a good idea to adopt the extensions now.
On May 12th, 2020, the IRS released two additional notices (Notice 2020-29 and Notice 2020-33) to provide relief for cafeteria plans, health savings accounts (HSAs), flexible spending accounts FSA) and health reimbursement arrangement (HRAs). Note that these provisions are optional, and as the employer and plan sponsor, you may choose to adopt all, some, or none of these exceptions.
Following are the three key provisions impacted by these notices:
1. Temporary Relief to the Status Change Rules:
The following rules are effective through the end of the 2020 calendar year and must be applied on a prospective basis:
- Employees may enroll in, make changes to, or revoke coverage for their employer-sponsored health coverage.
- Employees may enroll, change, or cancel their Health Care, Limited Purpose, and/or Dependent Care FSA election. Keep in mind that any election decrease may not be less than the year to date (YTD) contributions or YTD claims paid, whichever is greater.
2. Extended Grace Periods for the Health Care, Limited Purpose & Dependent Care FSA:
This provision applies to any calendar year plans that had a Grace Period for the 2019 plan year that expired or for mid-year plan years (fiscal plan years) that have a plan year that ends in 2020.
- If you offer a Grace Period, you may allow participants to incur claims through the rest of the 2020 calendar year and apply them to unused balances in the previous plan year. For example, if your plan allows participants to incur claims no later than March 15th of one year and apply them to unused balances in the previous year, you may now allow participants to incur claims through the rest of 2020.
- Keep in mind that if you sponsor a Health Savings Account and offer a Grace Period for the Flexible Spending Accounts, extending the Grace Period could have tax consequences for employees who have been making or receiving Health Savings Account contributions. Most likely, these employees will be considered to have over contributed for 2020 and will need to take a corrective distribution, subject to additional taxes and a 20% penalty.
3. Additional Carryover Amount:
If you offer the carryover feature of up to $500, the IRS has changed the maximum allowable amount to $550 for plan years starting in 2020. For calendar year plans, the additional $50 will be carried over into 2021.
- For plan years beginning in 2021, the maximum carryover amount will be 20% of the limit on salary reduction contributions to the Health Care FSA. This means that as the new Health Care/Limited Purpose limits are indexed (increased) for inflation, the carryover amount will also be indexed for inflation.
Additional Relief for Health Savings
Notice 2020-29 provides relief for the following prior changes regarding HSA eligibility, and High Deductible Health Plans retroactive to January 1st, 2020:
- Notice 2020-15 allowed HDHPs to cover COVID-19 testing and treatment prior to satisfying the minimum HDHP deductible without disqualifying the plan’s status as a qualifying HDHP.
- Under the CARES act, a participant may receive telehealth services prior to satisfying the minimum HDHP deductible while remaining eligible to receive HSA contributions.
EBSA DISASTER RELIEF NOTICE 2020-01: COBRA UPDATES
EBSA Disaster Relief Notice 2020-01 announced that the deadlines for providing the COBRA Election Notice, the COBRA Election Period, and the Payment of COBRA Premiums have all been extended. In addition, the deadline for notifying the Plan Administrator of a COBRA Qualifying Event or Disability Determination is extended.
Note: The extensions only apply to Federal COBRA
The extensions apply to events that may have occurred on or after March 1st, 2020, and will continue until 60 days after the date the National Emergency, declared by President Donald Trump, is officially declared as over. At the time this article was published, this date was still to be determined.
Specific grace periods affected are:
- The COBRA 60-day election period.
- The COBRA 45-day grace period for initial payment.
- The COBRA 30-day grace period for payments after the initial payment.
- The special enrollment period for the addition of new dependents to your plan due to marriage or birth/adoption of a child or loss of other group health coverage. Special enrollment rights are further addressed in your COBRA election notice.
- The deadlines by which qualified beneficiaries must notify a plan of a qualifying event (e.g., divorce), a second qualifying event, and a determination by the Social Security Administration that the qualified beneficiary is disabled.
For more information including frequently asked questions, you may visit the Department of Labor website.
In addition to continuation coverage, other health coverage options may be available, such as coverage through the Health Insurance Marketplace at www.healthcare.gov or (800) 318 – 2596.