US Labor Department issues compliance guidance for employee benefit plans in wake of the Louisiana storms, flooding and related disruptions

WASHINGTON – In light of the devastation following recent storms and flooding in Louisiana, the U.S. Department of Labor’s Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi announced today an update on compliance with employee benefit plan rules for those adversely impacted in the state since Aug. 11, 2016.

The department understands that plan fiduciaries, employers, labor organizations, service providers, and participants and beneficiaries may encounter compliance-related issues over the next few months in connection with employee benefit plans covered by the Employee Retirement Income Security Act as the implications of the Louisiana storms unfold.

The guidance provided in this statement generally applies to employee benefit plans, plan sponsors, employers and employees, and service providers to such employers who were located – as of Aug. 11, 2016 – in a parish identified as covered disaster area due to storms’ devastation. The parishes are identified in a news release issued by the U.S. Internal Revenue Service found at: www.irs.gov/uac/tax-relief-for-victims-of-severe-storms-flooding-in-louisiana.

The relief provided under this announcement is in addition to the Form 5500 Annual Return/Report filing relief already provided by the IRS in accordance with LA-2016-20 Tax Relief for Victims of Severe Storms, Flooding in Louisiana. (See the regulations under § 7508A and Section 8 of Rev. Proc. 2007-56, 2007-34 I.R.B. 388.)

Verification Procedures for Plan Loans and Distributions

IRS Announcement 2016-30 provides relief from 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. The department will not treat any person as having violated the provisions of title I of ERISA solely because they complied with the provisions of the IRS announcement. More information on IRS Announcement 2016-30 is available at www.irs.gov/uac/retirement-plans-can-make-loans-and-hardship-distributions-to-louisiana-flood-victims.

Participant Contributions and Loan Repayments

In keeping with 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 assets must be forwarded to the plan on the earliest date on which such amounts can reasonably be segregated from the employer’s general assets – no later than the 15^th 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 the Louisiana storms – 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. The IRS has informed the department that – subject to the foregoing conditions – it will not seek to assess an excise tax with respect to a prohibited transaction under Section 4975 of the code resulting solely from such a temporary delay.

Blackout Notices

In general, Section 101(i) of the 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 the Louisiana storms, 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 storms and flooding, 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 timeframes.

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. Our 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 timeframes for certain claims’ decisions or disclosures impossible. 

Contact Information

The Labor Department and IRS will continue to monitor the situation to address those issues that are most important in helping individuals, employers and plan sponsors recover from this tragedy. For more information on Louisiana storms relief under the ERISA, see “FAQs for Participants and Beneficiaries Following Louisiana Storms” at https://www.dol.gov/sites/dolgov/files/legacy-files/ebsa/about-ebsa/our-activities/resource-center/faqs/for-participants-and-beneficiaries-following-louisiana-storms.pdf or contact the department’s Employee Benefits Security Administration online at https://www.dol.gov/agencies/ebsa/about-ebsa/ask-a-question/ask-ebsa

or by calling 1-866-444-3272. Questions about IRS guidance should be directed to the IRS at 1-877-829-5900.