Employers that made available COVID-19 relief and benefit enhancements in 2020 – such as the increased carry over limit and extended grace period for health flexible spending accounts – need to amend their plan documents to incorporate those changes by the end of the 2021 plan year. For calendar year plans (i.e., most health and welfare plans) this means amendments incorporating the optional COVID-19 relief and benefit enhancements must be adopted by no later than December 31, 2021. Employers should work with employee benefits legal counsel and their third-party administrators or other document vendors to ensure that plan documents are timely amended to include any optional relief.

Click here to access a table that provides an overview of the COVID-19 relief available for health and welfare benefit plans. If an employer implemented any of the optional provisions described in the table, a plan amendment is required.

401(k) and 403(b) Plans

401(k) plans and 403(b) plans that offer hardship distributions must be amended to comply with the IRS’s 2019 final regulations on hardship distributions by the end of the 2021 plan year. For calendar year plans, this means that plan documents must be amended by December 31, 2021.

The final regulations include several changes to the rules governing hardship distributions, including prohibiting the suspension of elective deferrals or employee contributions following receipt of a hardship distribution, creating a single standard for determining whether a distribution is necessary to satisfy an immediate and heavy financial need, and providing opportunities to expand the availability of hardship distributions. Plans that previously required a 6-month suspension of elective deferrals or employee contributions should have eliminated that requirement in practice as of January 1, 2020, and an amendment to reflect that change must be adopted by no later than December 31, 2021. If an employer chose to implement any of the optional changes, the plan document must be amended to reflect these changes as well.

For detailed information about the final regulations, see our blog post here.