The COVID-19 pandemic has brought about a staggering number of changes for employers in the past few months, requiring them to make significant changes to workplace processes and policies virtually on the fly. In this environment, it’s important to review employee benefits plans to ensure these changes have not triggered any adverse consequences.
Employers are encouraged to review their actions related to benefits plans during the COVID-19 crisis for these potential areas of concern:
Did employee layoffs trigger a partial termination of your plan that requires accelerated vesting?
Some plans may include a partial termination clause that is triggered by furloughing a large number of employees (typically 20% or more) in any one year.
Under the law, affected employees must be fully vested in their whole account balance as of the date of a partial or full plan termination, regardless of a particular plan’s vesting schedule. Employers will need to determine which employees qualify, how these layoffs affect this calculation, and if a plan amendment is necessary to track the accelerated vesting.
Were there any changes to investments during the COVID-19 pandemic period and, if so, were those actions documented?
Given the erratic financial markets, many fiduciaries may have opted to stay the course and not make any changes to their plans. All investment decisions—whether they involve changes or not—should be thoroughly documented. While it is certainly prudent to review investment decisions during this time, your review should be documented in order to adhere to ERISA rules on prudent process.
Were decisions whether or not to continue benefits to laid off or furloughed employees made consistently and uniformly?
Employers may not discriminate in favor of any particular group of employees when determining plan eligibility. Any decisions made about whether to continue benefits to laid off or furloughed employees should ensure the uniform treatment of both highly paid and non-highly paid employees; otherwise, the plan’s favorable tax treatment may be jeopardized.
Were separating employees timely notified of their COBRA rights and continuation of other benefits?
Plan administrators are required to provide separating employees with timely notice of COBRA or other state-mandated continuation coverage benefits via a continuation coverage election notice for each affected beneficiary, including the covered employee, spouse, and any dependent child. While the U.S. Department of Labor has extended the time that a health plan administrator or sponsor has to provide a COBRA election notice, careful attention should be paid to when and how election notices are provided and tracked.
In addition, employers need to provide timely notice of any other post-employment continuation of benefits, including those that offer limited windows of time for separating employees to take action.
Have you recorded any changes to your COVID-19-related benefits strategy in plan documents?
Layoffs and furloughs due to the COVID-19 pandemic may have caused some employers to change course when it comes to the continuation or discontinuation of benefits for affected employees. Any changes to eligibility rules or other benefits strategies call for amending plan documents so they align with the new practices. Employers also need to check in with benefits administrators, insurers, and stop-loss carriers to be sure they are aware of and concur with these changes.
Anne Tyler Hall is the owner and principal attorney of Hall Benefits Law. HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.