Benefits Alerts

Benefits Issues in the Wake of Hurricane Katrina

For Employers and Plan Administrators
For Employees

Benefits Issues in the Wake of Hurricane Katrina
Information and Updates to Assist Employers and Plan Administrators

Due to the evacuation and displacement of numerous workers and families because of recent hurricanes, Congress and various regulatory agencies have revamped laws affecting employee benefits to provide assistance to employees, employers, and plan administrators who are facing significant hardship. These new regulations will bolster the recovery effort following the aftermath of Hurricane Katrina. Hitesman & Wold, P.A. hopes the information provided is useful and will help you achieve a prosperous and successful future. If we can be of any assistance, please feel free to call our Lee's Summit office.

Tip for plan sponsors: review carefully the eligibility criteria for all relief measures. To keep up to speed, check the agencies’ websites frequently.

Employee Retirement Income Security Act (ERISA)

• Extension for Annual Form 5500 Filing
  The Department of Labor extended the filing date for the 2004 Form 5500 to January 3, 2006. This extension applies to Plan Administrators, Employers, and other entities located in areas directly affected by the hurricane, as identified by FEMA. The extension also applies to firms located outside the affected areas that are unable to obtain the necessary information from service providers, banks, or insurance companies whose operations were directly affected by the hurricane.
  
• Hardship Distributions
  
  • No 10% Early Distribution Penalty – “Qualified Hurricane Katrina distributions” are defined as distributions from an eligible retirement plan made on or after August 25, 2005, and before January 1, 2007, to an individual whose principle place of abode on August 28, 2005, is located in the Hurricane Katrina disaster area and who has sustained an economic loss by reason of Hurricane Katrina. These qualified distributions are not subject to the 10% early distribution penalty.
    
  • No 20% withholding – Another benefit to participants is that qualified Katrina distributions are not subject to the 20% withholding that normally applies to eligible rollover distributions.
    
  • $100,000 Limit – Qualified Hurricane Katrina distributions are limited to $100,000 regardless of whether they are received in one or more taxable years.
    
  • Recontribution to Plan – The six-month ban on 401(k) contributions that normally affects employees who take hardship distributions will not apply.
    
• Plan Loans
  
  • The Internal Revenue Service increased the monetary limit on loans from qualified plans to qualified individuals to the lesser of $100,000 or 100% of the vested account balance. But, the relief act does not change the ERISA requirement that loans be adequately secured. Most plans are designed to use the participant’s vested account balance as security and therefore, loans are typically limited to 50% of the vested balance. Without relief from this requirement, plans will need to obtain outside security for loans over 50% of the vested balance.
    
  • Qualified individuals with outstanding plan loans on or after August 25, 2005, can delay for one year due dates of loan repayments that occur during the period beginning on August 25, 2005, and ending on December 31, 2006. Subsequent repayments should be adjusted to reflect the delay. This one year period is disregarded in determining the Code’s maximum loan term and level amortization requirements.
    
• Plan Amendments
  Plans may be amended retroactively to allow for plan loans and to incorporate these updates. The amendment must be adopted on or before the last day of the first plan year beginning on or after January 1, 2007.
  
• Extension for Filing a Benefit Claim or Appeal
  For affected individuals, the period from August 29, 2005, through January 3, 2006, must be disregarded when determining the time frame for filing a benefit claim or an appeal of an adverse benefit determination under a Plan’s claims procedure. In essence, when establishing deadlines, the time period mentioned above must be treated as if it did not exist.
  
• Participant Contributions and Loan Repayments
  Amounts withheld from employee wages for contribution to ERISA pension plans become “plan assets” as soon as the amounts reasonably can be segregated from the employer’s general assets and must be deposited in the plan’s trust at that time. Under the relief measures, the Department of Labor will not enforce this requirement solely on the basis of a “temporary delay” in depositing participant contributions and loan repayments if the delay is caused by Hurricane Katrina and if the affected employers and service providers “act reasonably, prudently and in the interest of employees to comply as soon as practical under the circumstances".

Health Insurance Portability and Accountability Act (HIPAA)

• Delayed Notice Requirement
  The period from August 29, 2005, to January 3, 2006, is disregarded when determining the date by which an affected plan must provide an automatic certificate of credible coverage under the HIPAA certification rules.
• Limitations on Imposing Pre-existing Conditions Exclusion
  Under the general HIPAA rules, prior credit may be disregarded and pre-existing condition limitations applied if a person has more than a 63 day break in creditable coverage. Under the relief act, the period from August 29, 2005, through January 3, 2006, must be disregarded when figuring this 63 day period. This is to allow Katrina victims more time to secure health coverage without losing coverage for pre-existing conditions.
• Extended Special Enrollment Rights
  Normally, special enrollment rights into another plan are only available if an individual requests enrollment within 30 days of a triggering event. However, under the relief act, the period from August 29, 2005, to January 3, 2006, must also be disregarded to allow Katrina victims more time to request enrollment in other group health coverage.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

• Delayed Notice Requirements
  For affected plans, the period from August 29, 2005, through January 3, 2006, must be disregarded when:
  
  • Determining the date by which affected Plans must provide COBRA election notices to qualified beneficiaries.
    
  • Determining the date by which individuals must notify a plan of a qualifying event or determination of disability.
    
  • Determining the COBRA election period of a qualified beneficiary. Normally, the qualified beneficiary would have only 60 days from receipt of the COBRA election notification to elect continuation coverage.
    
• Grace Period Allowed for Employee Payment of COBRA Premiums
  For affected individuals, the period from August 29, 2005, through January 3, 2006, must be disregarded when determining the timeliness of a qualified beneficiary’s COBRA premium payments.

Other Assistance Available

• Loans through the Small Business Association (SBA)
  The Small Business Association is offering loans of up to $1.5 Million to businesses affected by the Hurricane. Loans carry a 4% interest rate and have terms of up to 30 years. These loans can be used to pay business expenses, cover property damage, and other relevant uses. To learn more about how to apply contact the SBA at 1-800-659-2955 or at http://www.sba.gov/localresources/disasteroffices/disaster_recov/loaninfo/phydisaster.html.
  
• Katrina Recovery Job Connection
  This service connects workers impacted by the devastation caused by the Gulf Coast hurricanes with employers who want to hire them. To learn more visit www.jobsearch.org/katrinajobs.

Helpful Links and Contacts

• www.dol.gov
• www.irs.gov
• www.fema.gov
• www.shrm.org
• Your Retirement Plan Administrator
• Your Health Plan Administrator

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Benefits Issues in the Wake of Hurricane Katrina
Information and Updates to Assist Employees

Due to the evacuation and displacement of numerous workers and families because of recent hurricanes, Congress and various regulatory agencies have revamped laws affecting employee benefits to provide assistance to employees, employers, and plan administrators who are facing significant hardship. These new regulations will bolster the recovery effort following the aftermath of Hurricane Katrina. Hitesman & Wold, P.A. hopes the information provided is useful and will help you achieve a prosperous and successful future. If we can be of any assistance, please feel free to call our Lee's Summit office.

Employee Retirement Income Security Act (ERISA)

Congress passed relief acts to allow affected employees that have vested balances in a qualified pension plan to more easily use the money to aid in recovery following the Hurricanes. The act amplifies two ways to utilize the money in your retirement fund: a hardship distribution and a plan loan.

• Hardship Distributions
  
  • Many plans offer hardship distributions. These funds may be a valuable asset during your evacuation and rebuilding.
    
  • Normally, hardship distributions are only allowed for certain limited purposes. However, part of the relief act allows those purposes to be expanded to any hardship arising from Hurricane Katrina.
    
  • The relief act applies to employees or former employees whose:
    
    • principal residence on August 29, 2005, was located in an area designated as a disaster area by FEMA; or
      
    • place of employment was located in one of these counties or parishes on such date; or
      
    • lineal ascendant or descendant, dependent or spouse had a principal residence or place of employment in one of these counties or parishes on such date. This means that a person living in another part of the country can receive a hardship distribution or take out a plan loan (see below) and use it to assist a son, daughter, parent, grandparent, or other dependent that lived or worked in the disaster area.
      
  • Distributions are limited to $100,000.
    
  • Normally, there would be a 10% early distribution penalty applied to distributions occurring before age 59 ½. However, under the relief act, the penalty is waived for distributions made between August 25, 2005, and January 1, 2007.
    
  • Also, on normal eligible rollover distributions there is a 20% withholding. However, this has also been waived for Hurricane Katrina distributions.
    
  • Employees who take a hardship distribution will be able to begin re-contributing to the plan without facing the usual six-month ban that normally applies to employees who take hardship distributions.
    
  • Qualified Hurricane Katrina distributions remain subject to ordinary income taxation unless you elect to repay the distribution in one of two ways:
    
    • You can repay all or part of the distribution within three years by making contributions to any eligible retirement plan (does not have to be the same plan you took the distribution from); or
      
    • You can spread the tax resulting from a distribution over a three-year period.
      
• Plan Loans
  
  • Many plans also permit plan loans. Like a hardship distribution, a plan loan may assist in your evacuation and rebuilding.
    
  • Qualified employees can take a loan from a qualified plan to help pay for hurricane recovery expenses. Normally, loans are limited to the lesser of $50,000 or 50% of the vested account balance. Under the relief act, the limit has been increased to the lesser of $100,000 or 100% of the vested account balance.
    
  • Qualified individuals with outstanding plan loans on or after August 25, 2005, can delay for one year due dates of loan repayments that occur during the period beginning on August 25, 2005, and ending on December 31, 2006. Subsequent repayments should be adjusted to reflect the delay. This one year period is disregarded in determining the Code’s maximum loan term and level amortization requirements.

Health Insurance Portability and Accountability Act (HIPAA)

HIPAA provides rights and protections for participants and beneficiaries in group health plans. HIPAA includes protections for coverage under group health plans that limit exclusions for preexisting conditions; prohibit discrimination against employees and dependents based on their health status; and allow individuals in certain circumstances a special opportunity to enroll in a new plan.

• Increased Time Period to Enroll in New Health Plan Without Preexisting Conditions Exclusion
  
• Under the general HIPAA rules, if you have a break in creditable health coverage for longer than 63 days, your new health plan can refuse to cover claims arising out of a preexisting condition. However, under the new relief act, the period from August 29, 2005, through January 3, 2006, must be disregarded when figuring this 63 day period. This is to allow Katrina victims more time to secure health coverage without losing coverage for preexisting conditions.
  
• For example, if your health coverage terminated on September 1, 2005, you would have 63 days after January 3, 2006 (i.e. on March 7, 2006) to obtain new coverage and not be limited by health conditions that you already have.
  
• Extended Special Enrollment Rights
  
• Normally, special enrollment rights into another plan are only available if you request enrollment within 30 days of a triggering event. Failing to do so would require you to wait for an open enrollment period. However, under the relief act, the period from August 29, 2005, through January 3, 2006, must be disregarded to allow Katrina victims more time to request enrollment in other group health coverage.
  
• For example, if you lose coverage on September 1, 2005, you would have 30 days past January 3, 2006 (i.e. on February 2, 2005) to request enrollment in another group health plan without having to wait for the normal open enrollment period.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Employers with more than 20 employees are required to offer continuation health coverage to qualified employees after losing coverage due to certain qualifying events. Qualifying events include: the death of a covered employee, termination or reduction of hours, divorce or legal separation, a covered employee becoming entitled to Social Security benefits, a child losing dependency status, or a bankruptcy proceeding under Title 11 with respect to the employer of a retired covered employee.

• Delayed Notice Requirement
  
• Under the relief act, the period from August 29, 2005, through January 3, 2006, must be disregarded when determining the date by which your employer has to provide you with a COBRA election notice.
  
• Also, that same time period must be disregarded when determining the date by which you must notify a plan of a qualifying event.
  
• Increased Time Period for Employees to Elect Continuation Coverage
  
• For affected individuals, the period from August 29, 2005, through January 3, 2006, must be disregarded when determining when an election for COBRA coverage must be made. Normally, you would have only 60 days from COBRA election notification to elect coverage.
  
• For example, if you receive an election notice on September 1, 2005, you have until March 4, 2006 (60 days after January 3, 2006) to have your election paperwork postmarked.
  
• Grace Period Allowed for Employee Payment of COBRA Premiums
  
• For affected individuals, the period from August 29, 2005, through January 3, 2006, must be disregarded when determining the timeliness of a qualified beneficiary’s COBRA premium payments.
  
• For example, a payment that is due on December 1, 2005, would not be considered late if paid by January 3, 2006.

Other Assistance Available

• Katrina Recovery Job Connection
  
• This service connects workers impacted by the devastation caused by the Gulf Coast hurricanes with employers who want to hire them. To learn more visit www.jobsearch.org/katrinajobs.
  
• Health and Human Services Programs
  
• All children from birth to 18 years of age displaced by Katrina are eligible to receive free vaccines under the Vaccines for Children program regardless of where they are staying or previous health insurance coverage status.
  
• A toll-free hotline has been established for people in crisis following the aftermath of Katrina. The hotline is committed to crisis counseling and mental health. You can reach a counselor at 1-800-273- TALK (8255).

Helpful Links and Contacts

• www.dol.gov
• www.irs.gov
• www.fema.gov
• www.shrm.org
• Finding Information About Your Plan:
  
  Federal law requires that plans provide you with complete information about the plan including a Summary Plan Description (SPD), Annual Reports, and account statements. Unfortunately, those documents may have remained at your damaged home or place of business. Here are some other ways to obtain information about your plan:

• Your ID card
• Your company Human Resources website
• Your Plan’s insurance carrier or third party administrator
• Your Retirement Plan Administrator

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