From the Compliance Manager: COVID Pandemic Relief and Related Legal Challenges

June 21, 2021

In the current environment of fast-changing laws and regulations impacting employer-sponsored benefits, it is increasingly necessary for employers to conduct a critical review of benefit plan changes that have been offered or mandated during the pandemic. Several key areas require focused attention and prompt proactive consideration to maintain plan compliance. Here are some important questions to ask:

Were employees terminated, furloughed, or forced to take early retirement due to business decline or closure?

If so, these former employees (and possibly others) are considered Assistance Eligible Individuals (AEIs) and are entitled up to six months of subsidized COBRA coverage with few exceptions. Employers are responsible for performing a review of terminated employees as far back as October 2019 to refine the reasons for COBRA eligibility in view of an involuntary end to employment or even a reduction in hours. Failure to notify individuals who qualify as AEIs of their rights and options to elect (or possibly re-elect) coverage in a timely manner may subject you, as the plan sponsor, to fines and penalties.

Were employees allowed to change their contributions to a flexible spending account (FSA) or dependent care flexible spending account (DCFSA)?

If so, nondiscrimination testing rules must still be met. The mixed classification of participants taking advantage of these benefits must still meet the rules and guidelines for Section 125 Cafeteria plans that qualify for safe harbor. If non-highly compensated employees significantly reduced their contributions due to daycare closures or reduced hours leaving a higher percentage of highly compensated employees (HCEs) participating in the benefit, midyear nondiscrimination testing should be completed to assess needs to adjust taxable contributions for HCEs.

Have you amended your plan documents to reflect COVID-related benefits changes?

Due to COVID-related legislation and new regulations, some important employer benefit plan changes have been mandated and others made available at the choice of the plan sponsor. These affect benefits from plan year 2019 (which may have had a carryover or grace period that extended into 2020) as well as 2020 and 2021 plan years. All changes that impact plan participants must be amended to the plan documents even if the plan year would normally have ended. This could require retroactive adjustments with current or prior benefits administrators, insurers, and stop-loss carriers. A thorough review of all plan designs and communication in the form of Summary of Material Modifications must be completed.

As your partner in employee benefits administration, Chard Snyder is here to assist you in reviewing and executing COVID-related employee benefits changes to ensure your compliance and help prevent any adverse consequences. Please do not hesitate to reach out with any questions to health.compliance@ascensus.com.