Participant Action Not Required, For Now
Earlier this month, the Department of Labor/Employee Benefits Security Administration and the IRS (the “Agencies”) issued a Joint Rule to extend certain time frames as a result of the COVID-19 pandemic. As discussed in previous posts, the Joint Notice requires that all benefit plans subject to ERISA extend various participant deadlines, including participant deadlines in the claims and appeals process, that fall between March 1, 2020 and 60 days after the end of the National Emergency (or a later date if announced by the Agencies)(the “Outbreak Period”).
Plan sponsors of ERISA covered pension, health, and welfare plans must therefore take the necessary steps to ensure their plans comply with the Joint Rule. All required participant actions with deadlines that fall in the Outbreak Period will be deemed to be timely if completed prior to the extended deadline date. The extension will require plan sponsors to adjust their internal claims and appeals procedures and coordinate with any external claims administrators.
Unfortunately for plan sponsors, this relief only goes in one direction; however, the DOL did issue separate relief to plan sponsors if as long as any required disclosures during the Outbreak Period are provided in good faith as soon as administratively practicable. Given that it is unclear whether a court would consider a plan sponsor’s delayed response to a claim or appeal to be in strict compliance, we recommend that whenever possible the plan sponsor still comply with its end of the claims and appeals deadlines.
The extension of the claims deadline has a particularly wide reaching effect on Health FSAs. Health FSAs must annually administer claims for all participants and process forfeitures due to the use it or lose it rule (i.e., participants lose all rights to reimbursement from their health FSA accounts if not used by the plan year-end or grace period for plans with grace periods). Health FSA participants with remaining account balances will potentially be affected by the extension of the claims deadline. Not only will participants have more time to file claims in affected Health FSAs, but the extension of the claims deadline will also result in the indefinite suspension of participant forfeitures until the end of the Outbreak Period.
Only the Health FSAs with a claims deadline expiring during the Outbreak Period are affected by the new guidance. The claims deadline for all participants in a Health FSA is the last day a claim can be timely submitted. Most plans permit claims to be submitted anytime during the plan year and in the following plan year, up until the end of the plan’s run-out period. For example, a participant in a Health FSA with a calendar plan year end and a 3 month run-out period typically has a claims deadline of March 31 to submit a claim for the prior year. The claims deadline in this example expires during the Outbreak Period, and therefore the plan would have to process claims submitted after the March 31 plan deadline and is barred from processing forfeitures until a future, to be determined date.
For some plans, this extension will potentially put a large amount of strain on employer’s claims administration capabilities. For fiscal year plans or plans with a grace period ending in 2020, this relief may be a moot point if your plan has decided to implement the subsequently issued optional IRS guidance that permits an extension of the time that participants can actually incur claims, as discussed further in our previous post. It is recommended that you speak with your FSA vendor if you haven’t already done so in order to be prepared for both the mandatory and optional recent guidance.
If you have any questions about the impact of the Joint Rule or any COVID-19 related benefits matters, please contact any member of the Graydon employee benefits team.