By Emily Brill

Law360 (April 20, 2020, 7:21 PM EDT) -- In this installment of Coronavirus Q&A, one of the leaders of Littler Mendelson PC's benefits practice discusses why employers should contact their insurers when furloughing workers, ensure their 401(k) plan oversight strategies are solid and familiarize themselves with the retirement-related consequences of mass layoffs.

Mark Grushkin, the co-chair of Littler's employee benefits practice group, shared the insights as part of a series of interviews Law360 is conducting with attorneys about the legal risks and business impacts inflicted by the coronavirus outbreak.

Grushkin has used his 30 years of legal experience to help clients of all sizes with employee benefits matters involving mergers and acquisitions, early retirement programs, severance plans and pension plans, according to Littler.

This interview has been edited for length and clarity.

What kinds of questions are you getting from employers about benefits right now?

There are lots of areas of confusion with respect to what happens with various benefits when people are furloughed. Generally speaking, furloughs are unpaid leave, and plans often don't talk about that. Then the question is, OK, if they're silent, what do you do? How do you deal with it?

The first thing you have to do is to make sure your documents are properly amended. If you have an insured plan, you have to notify the carrier. For a self-insured plan, you have to contact your stop-loss carrier. You have to go to the carrier and say, 'We want to continue them on coverage even though they're not going to work for six weeks.' We're going to see a lot of litigation down the road on these issues.

What will that litigation look like? Will it be brought under [the Employee Retirement Income Security Act]?

Yes, it'll be brought under ERISA. Let's say Mary Smith is an employee and her employer says, 'While you're on leave, you're still going to be covered under our life insurance policy.' If the policy has an active work requirement, and the carrier has not been notified, and Mary Smith dies, then the carrier will say, 'You're not covered.' Her estate will sue the employer and insurance company. The insurance company will cross-sue the employer and say, 'You didn't follow the terms of your contract.'

Do you think a lot of employees will be signing up for COBRA coverage right now, considering the number of layoffs that are occurring?

What you need to understand about COBRA is that the portion of the premium the employee pays as an active, full-time employee is usually anywhere from 10% to 25% of the actual cost of coverage. The employer subsidizes the rest. Under COBRA, you're charged something called the applicable premium. That's 102% of the actual cost. When people get laid off, they often can't afford that.

So what are they going to do? If they're in a state with a reasonably good insurance exchange, they're going to get covered under that exchange, because it's going to be cheaper. There's going to be a lot of COBRA activity that will require notices, but there aren't going to be as many COBRA enrollees as one might think.

As for employers, they have been dealing with COBRA administration since 1985. Most employers have a third party that handles their COBRA notices.

The economy is in trouble right now. Should employers make changes to their 401(k) plans?

Many employers have an investment adviser who's been monitoring the investment menu. The menu is designed to try to limit losses in down markets and to get a reasonable share of investment return in better markets. Most investment professionals — and I'm not one — design retirement portfolios to be more conservative than if they were advising an individual.

This commentary that companies should do this or shouldn't do that is (a) probably unlikely to be accurate most of the time, (b) it's not something that, candidly, I'm qualified to give advice on because I'm not an investment professional.

The whole issue for the employer is, have you sought appropriate assistance by getting an investment adviser involved to manage or assist in the management of your company's retirement plan investments? That starts with the investment adviser developing an investment policy statement. To the extent they manage the plan's investments according to the investment policy statement and document the actions they take, then they're satisfying their fiduciary duties under ERISA.

Should employees make changes to their 401(k) accounts?

With respect to investments, that's not a question employers should be answering for the employee. You don't want to incur fiduciary liability. Some plans have outside financial advisers who assist the employee. There's a difference between providing education to employees and providing advice. If you decide you're going to provide advice, you will be deemed to be a fiduciary. I don't think most employers are going to give advice to employees about whether they should be making deferrals — nor should they, because, frankly, they're not qualified.

Most retirement plans are record-kept by large firms. Those large firms will provide, sometimes for a fee, investment advice. Also, some large employers that have investment advisers will sometimes contract with the investment advisers to provide investment advice directly to employees. You have to make sure there's an investment advisory relationship directly with the participant. As an employer, you ought not to be in the middle of it.

I think most employees do not get appropriate investment education. Obviously, folks that are wealthier have access to more resources, and they're able to get that advice. But that's a problem — most employees are not getting appropriate investment education.

What should employers do to minimize litigation risk right now?

What you see when markets drop is a lot of litigation, because people will look for someone to blame as to why they've lost money. The issue is, what were you doing at the time of the loss? Were you properly managing the plan at the time of the loss?

We had the economy drop like a shot. We don't know what things are going to look like six months from now. There are a lot of things employers should be doing. If they don't have a qualified investment adviser, they need to get one. They need to make sure the investment policy statement is followed — that when investments are changed, the reasons for the change in the investment are tied to the investment policy statement. They need to have regular and periodic retirement committee meetings where the investment policy adviser is present and minutes of those meetings are recorded. It's all about process. If they don't have a process or they're not following it, now would be a really good time to start. They need to understand that they have responsibilities as fiduciaries.

What else should the federal government be doing for benefit plans right now?

There's going to be a need for further guidance with respect to defined-benefit pension plans. A lot of employers that maintain a defined-benefit pension plan are going to be severely impacted by the downturn in the stock market and the fact that interest rates are very low.

The employers who maintain these plans are going to need some help. There's going to have to be additional funding relief for single employers. There was a little bit in the [Coronavirus Aid, Relief and Economic Security, or] CARES Act. There's a provision in the act that allows pension plans to delay contributions due in 2020 until Jan. 1, 2021. That helps, but I think we're going to need something far bigger than that. There will be a need for legislation to ease the financial burden on private employers that operate pension plans.

The CARES Act lets employers make tax-free contributions to employees' student loans for the first time. Do you recommend employers take advantage of that?

I haven't had anybody ask me about it. Right now, employers are generally in layoff mode. When they're in layoff mode, they're not looking to spend any more money. They're making plans to do terminations and provide severance benefits.

The student loan problem is a huge problem. It would be helpful for employers to help with student loan payments, and there are some employers who are doing that. But I don't think it's a topic that's going to get a lot of attention now because employers are too worried about other things to spend their money on, like staying open.

Is there anything you wanted to address that I didn't bring up?

One thing you should know is when you have a large reduction in force, that can create what's called a partial termination for a qualified retirement plan. If you have a partial termination — a corporate event where there's a 20% reduction in plan participation — the people who are terminated need to be fully vested. If I had 5,000 employees and I lay off 1,500 and my plan has a vesting schedule, I now have to fully vest those 1,500 employees. That's an important fact that sometimes gets overlooked.

If the employer doesn't vest those employees, it now has exposure. It's an issue that could result in a very large fine or sanction from the [Internal Revenue Service] in the event of an audit. If they got audited by the Department of Labor, the DOL would request the employees be fully vested. You could draw a lawsuit from the plan participants — a class action lawsuit to get their full plan benefits.

Are you getting any other questions about benefits issues arising during the coronavirus crisis that you wanted to mention?

We've gotten questions about [paid time off] donation programs. Companies have workers who want to help their fellow employees who have run out of PTO or are otherwise adversely impacted — maybe their family members are ill, maybe a family member's laid off and they need money.

An employer can set up a PTO bank where the employee donates some of their accrued PTO. It gets converted into dollars in this bank, and employees who have exhausted their PTO can apply to the PTO bank to get additional paid time off. I received half a dozen questions in the last week about this.

--Editing by Kelly Duncan and Alanna Weissman.

Check out Law360's previous installments of Coronavirus Q&A.

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