The Department of Labor is easing the regulatory burden for 401k plan sponsors and participants in areas affected by Hurricane Harvey.
Expressing sympathy for the storm’s victims, labor secretary Alexander Acosta said, “Our deepest and most immediate concern is for those who are in harm’s way, and for the first responders who will work tirelessly to help those affected.
“We also realize that employers and employees impacted by Hurricane Harvey will need assistance in dealing with employee benefits issues arising from disruptions in banking and payroll processing,” he added.
In a statement, the DOL said it understands that plan fiduciaries, employers, labor organizations, service providers, participants and beneficiaries may encounter issues complying with the Employee Retirement Income Security Act (ERISA) in the foreseeable future as the effects of Hurricane Harvey become apparent.
It explained that its guidance applies generally to employee benefit plans, plan sponsors, employers and employees, and service providers to such employers who are located in a county identified for individual assistance by the Federal Emergency Management Agency (FEMA) due to the effects of Hurricane Harvey.
This relief is in addition to Form 5500 Annual Return/Report filing relief already provided by the Internal Revenue Service (IRS) in accordance with the Hurricane Harvey news release listed on the IRS disaster relief website page at https://www.irs.gov/newsroom/tax-relief-for-victims-of-hurricane-harvey-in-texas.
See the Treasury regulations under Internal Revenue Code § 7508A and Section 8 of Rev. Proc. 2007-56, 2007-34 I.R.B. 388.
Verification Procedures for Plan Loans and Distributions
The Department is working with the IRS to provide relief regarding certain verification procedures that may be required under retirement plans with respect to plan loans to participants and beneficiaries, hardship distributions and other pension benefit distributions.
Additional information will be made available in the near future at https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/disaster-relief.
Participant Contributions and Loan Repayments
Under 29 CFR § 2510.3-102, amounts that a participant or beneficiary pays to an employer, or amounts that a participant has withheld from his or her wages by an employer, for contribution or repayment of a participant loan to an employee pension benefit plan constitute plan assets.
These amounts must be forwarded to the plan on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets, but in no event later than the 15th business day of the month following the month in which the amounts were paid to or withheld by the employer.
The Department recognizes that some employers and service providers acting on employers’ behalf, such as payroll processing services, located in identified covered disaster areas will not be able to forward participant payments and withholdings to employee pension benefit plans within the prescribed timeframe.
In such instances, the Department will not – solely on the basis of a failure attributable to Hurricane Harvey – seek to enforce the provisions of Title I with respect to a temporary delay in the forwarding of such payments or contributions to an employee pension benefit plan to the extent that affected employers, and service providers, act reasonably, prudently and in the interest of employees to comply as soon as practical under the circumstances.
Blackout Notices
In general, Section 101(i) of ERISA and the regulations issued thereunder, at 29 CFR § 2520.101-3, provide that the administrator of an individual account plan is required to provide 30 days advance notice to participants and beneficiaries whose rights under the plan will be temporarily suspended, limited or restricted by a blackout period (i.e., a period of suspension, limitation or restriction of more than three consecutive business days on a participant’s ability to direct investments, obtain loans or obtain other distributions from the plan).
The regulations provide an exception to the advance notice requirement when the inability to provide the notice is due to events beyond the reasonable control of the plan administrator and a fiduciary so determines in writing.
Natural disasters, by definition, are beyond the control of a plan administrator. With respect to blackout periods related to Hurricane Harvey, the Department will not allege a violation of the blackout notice requirements solely on the basis that a fiduciary did not make the required written determination.
ERISA Group Health Plan Compliance Guidance
The Department recognizes that plan participants and beneficiaries may encounter an array of problems due to the hurricane, such as difficulties meeting certain deadlines for filing benefit claims and COBRA elections.
The guiding principle for plans must be to act reasonably, prudently and in the interest of the workers and their families who rely on their health plans for their physical and economic well-being.
Plan fiduciaries should make reasonable accommodations to prevent the loss of benefits in such cases and should take steps to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established time frames.
In addition, the Department acknowledges that there may be instances when full and timely compliance by group health plans and issuers may not be possible.
Its approach to enforcement will be marked by an emphasis on compliance assistance and include grace periods and other relief where appropriate, including when physical disruption to a plan or service provider’s principal place of business makes compliance with pre-established time frames for certain claims’ decisions or disclosures impossible.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
