US Department of Labor issues compliance guidance for employee benefit plans in wake of Hurricane Sandy

WASHINGTON – The Assistant Secretary of Labor for Employee Benefits Security, Phyllis C. Borzi, today provided the following information about compliance with employee benefit plan rules for those adversely impacted by Hurricane Sandy:  

The U.S. Department of Labor understands that, as the practical and personal implications of the Hurricane Sandy natural disaster unfolds, plan fiduciaries, employers, labor organizations, service providers, as well as 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 (ERISA).  The guidance provided in this statement applies to employee benefit plans, plan sponsors, as well as service providers to such employers, located on October 26, 2012 in one of the counties or Tribal Nations that have been identified as covered disaster areas because of the devastation caused by Hurricane Sandy.  Covered disaster areas are identified as federally declared disaster areas in the News Releases issued by the Internal Revenue Service (IRS) for Victims of Hurricane Sandy, which are found on IRS.gov at: www.irs.gov/uac/Newsroom/Help-for-Victims-of-Hurricane-Sandy.

The relief provided under this announcement is in addition to the Form 5500 Annual Return/Report filing relief already provided by the IRS pursuant to News Release IR-2012-83 under § 7508A of the Internal Revenue Code (Code) for victims of Hurricane Sandy.  (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

The IRS, in IRS Announcement 2012-44, provided 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.

Participant Contributions and Loan Repayments

In accordance 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, and thereby are required to 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 designated affected 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 Sandy, 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 practicable 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 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 advance 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 Sandy, 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 timeframes.

Moreover, the Department acknowledges that there may be instances when full and timely compliance by group health plans and issuers may not be possible. As stated previously, see www.dol.gov/ebsa/faqs/faq-aca.html, our approach to enforcement continues to be marked by an emphasis on compliance assistance and includes grace periods and other relief, where appropriate, including when physical disruption to a plan or service provider’s principal place of business by the Hurricane 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.  Further guidance will be forthcoming. For more information on Hurricane Sandy relief under ERISA, contact the Department's Employee Benefits Security Administration online at www.askebsa.dol.gov or by calling 1-866-444-3272. Questions about IRS guidance should be directed to the IRS at 1-877-829-5900.

U.S. Department of Labor news materials are accessible at www.dol.gov. The information above is available in large print, Braille, audio tape or disc from the COAST office upon request by calling 202-693-7828 or TTY 202-693-7755.