Disaster Planning and Employee Benefits

Persistent action on legislative compliance is critical to your organization. But compliance goes beyond filing specific
paperwork by specific deadlines. It means understanding how laws and regulations apply to your employee benefits
offerings and how to minimize the costs associated with noncompliance in order to maximize your organization’s
resources to ensure continuous operations, attracting and engaging employees, and overall organizational wellbeing.

Compliance Continuity is a monthly publication designed to help your organization sustain the total wellbeing and
engagement of your workforce, pursue your business goals, and help you achieve better results by providing ongoing
benefits and HR compliance guidance, key considerations, and action steps. While your best is finite, your better is never
finished. Natural disasters, such as hurricanes, flooding, forest fires, ice storms, and volcanic eruptions can result in
evacuations, work stoppages, and other disruptions that impact your employees. At such times, employee benefits can
play a powerful role in sustaining the overall wellbeing of your workforce. However, the most effective continuity plan
requires preparation well ahead of any disaster to be effective. Below, we offer key planning areas.

1. Communicate. Communicate. Communicate. An organization should have a plan in place to communicate with
employees before, during, and after a disaster occurs. Information employees need in advance may include reminders
about filling prescriptions and how to obtain contact information for their health plans. Employees should also be informed
of how the organization will communicate with them, such as via text or phone message. During a disaster, employers
should ensure that spouses and children can also access information on health insurance coverage and health providers.
Often, employers will provide that information to employees on their intranet sites, but spouses and children cannot
access those sites, so external webpages or mobile apps would be advantageous. After a disaster, it is important to make
sure that employees know that their employer-sponsored benefits are there to support them. For example, employee
assistance programs (EAPs) that provide mental health counseling sessions are often valuable resources after disasters,
and letting employees know about the benefits and how to use them can significantly help employee overall wellbeing
after a disaster. What is your organization’s benefits communication plan in case of a disaster?

2. Lift. Waive. Permit. In addition to reminding employees to obtain necessary prescriptions in advance of known
upcoming natural disasters, employers may wish to take steps to work with their insurers and third party administrators to
make sure that prescriptions can be filled regardless of the normal mechanisms to control prescriptions, such as “too soon
to refill” restrictions for recurrent medications. For example, if an employee is able to obtain a three-month supply of a
medication and the disaster would potentially hinder that employee’s ability to obtain the medication on a timely basis after
the disaster, a plan restriction could be lifted to allow the employee to refill the medication early to ensure that sufficient
doses are on hand after the disaster. Plans may also waive restrictions requiring prescriptions to be filled by mail order.
Wide-spread disasters can impact not only the ability for prescriptions to be filled, but also for mail to be delivered, so
lifting such restrictions would allow plan members to obtain their medications through local pharmacies. Employers should
also have methods, such as social media, text messaging, or webpages, to communicate waivers of restrictions. What
mechanism does your organization have in place to work with your insurer or third party administrator to obtain
waivers of restrictions that would inhibit plan members from obtaining necessary medications in times of
disaster?

3. Remove. Authorize. Establish. In the immediate wake of a disaster, medical and dental care can be two of the most
important benefits offered by an employer; however, mechanisms in place to control costs, such as tiered networks and
preauthorization penalties, may not be appropriate in such times. Indeed, in times of disaster, state departments of
insurance often encourage insurers to waive penalties and restrictions for individuals obtaining necessary emergency and
nonemergency health and dental services out of network. Insurers may waive prior authorization requirements for acute
medical care and behavioral health services and may authorize nonemergency out-of-network services at an in-network

2019 Arthur J. Gallagher & Co. All rights reserved

level when in-network services are not available because of a disruption caused by a natural disaster. Employers with
self-insured medical benefits should work with their third party administrators to obtain similar waivers. In addition,
employers may also wish to establish systems to communicate with employees on how to find operational locations (e.g.,
a hospital with emergency power running) to obtain health care. What steps can your organization take to remove
barriers to appropriate health care in times of disaster?

4. Install. Develop. Assist. According to the Federal Emergency Management Agency (FEMA), approximately 44% of all
power outages are caused by storm-related events. Power outages can impact your staff, your physical space, your
operating and information systems, and your services. Thus, you need a plan for how all should be addressed during and
after a disaster. With regard to systems, which may impact your communication with employees, consider how a loss of
power will disturb your phones and internet access, and what alternatives should be in place. For example, your
organization may wish to install at least one landline telephone, develop a plan for server or internet access with backup
power outside of the affected area, and install surge protectors for all-important equipment. How would a loss of power
impact your ability to assist your employees during a natural disaster?

5. Continue. Compensate. Claim. Many organizations can be physically impacted by a widespread natural disaster and
forced to close business operations for an extended period of time. Others may be forced to close because they cannot
obtain electricity or raw materials. Some businesses choose to continue to pay their workers during such business
disruptions even though they are not obligated to do so. For those employers, there may be a benefit in the form of tax
breaks. For example, the U.S. Disaster Tax Relief and Airport and Airway Extension Act of 2017 (the Relief Act) signed
into law on September 29, 2017 provided a broad array of relief measures aimed at assisting in the recovery efforts for
both individuals and businesses affected by Hurricanes Harvey, Irma, and Maria. The Relief Act was expanded to include
those impacted by the California wildfires. One key aspect of the Relief Act was a tax credit for 40% of qualified wages (up
to $6,000) paid during business disruptions due to those disasters. What consideration has your organization given to
whether it can continue wages in case of a business disruption due to a disaster and, therefore, claim tax relief?

6. Pay. Benefit. Exclude. Section 139 of the Internal Revenue Code allows employers to make qualified disaster relief
payments to affected employees without having to include those payments in employee gross income. Section 139(b)
defines a qualified disaster relief payment as any amount paid to, or for the benefit of, an individual: (1) to reimburse or
pay personal, family, funeral or living expenses, (2) to reimburse or pay expenses incurred for the repair of a personal
residence or replacement of its contents, (3) by a common carrier because of the death of the individual or physical
injuries sustained by the individual, or (4) by a federal, state or local government to promote the general welfare.
Importantly, the payment must be connected with a “qualified disaster,” which includes any “federally declared disaster.”
What consideration has your organization given to establishing a qualified disaster relief payment program?

7. Allow. Bank. Share. Even after the immediate impact of a natural disaster is over, some employees may not be able to
return to work when business operations resume, or may need additional time off, for example, to make extensive
physical repairs to personal property. To help employees who need additional time off, employers may establish leave-
sharing programs to allow employees to donate accrued hours of paid vacation or personal leave and, potentially, paid
sick leave to benefit other employees who need more leave than they have available. This type of program can arise as a
leave-sharing program for medical emergencies or as a leave-sharing program during major disasters. A program created
for major disasters must meet specific standards to avoid creating taxable income for the donor-employee, including
having a written plan, allowing a donor-employee to contribute unpaid accrued leave to a “bank” sponsored by the
employer, prohibiting a donor-employee from specifying a recipient-employee, maintaining reasonable time limitations for
use of the banked leave, and meeting other specified limitations. IRS Notice 2006-59 provides specific details on how
such programs must be established. How could your organization make a leave-sharing program useful to your
employees?

2019 Arthur J. Gallagher & Co. All rights reserved

8. Relieve. Allow. Withdraw. Frequently, Congress will grant special relief for 401(k) hardship withdrawal requirements in
disaster situations. For example, the Relief Act made it easier for retirement plan participants to access their retirement
funds to use them for their recovery efforts, such as for repairs. The Relief Act (1) waived the 10% additional tax on
certain early distributions; (2) allowed recipients to include qualified hurricane distributions in their income over a three-
year period; (3) allowed participants to repay their distributions to the plan; (4) expanded availability of plan loans; (5)
extended the normal loan repayment period under the plan; and (6) extended the period for plans to make amendments.
When permitted, what relief should your retirement benefits offer individuals to help them recover from a natural
disaster?

9. Receive. Allocate. Distribute. In the wake of widespread disasters, there is often an outpouring of support, including
charitable donations of monies, goods, and services. Organizations may wish to set up crowdfunding sites to receive
monetary donations to help employees impacted by a disaster. Other organizations may receive donations in the form of
furniture, clothing, and other household items. Typically, those contributions are considered to be “personal gifts” and do
not result in taxable income to a recipient; however, it is important for employers to understand that a crowdfunding site
must issue a Form 1099 if a campaign receives more than $20,000 in donations or has more than 200 transactions. If an
organization has a number of employees disrupted by a particular disaster, it will need a mechanism to determine need
and distribute either money or goods. For example, your organization may set up a committee to determine how
donations should be distributed. What action plan does your organization need in order to distribute charitable
donations after a disaster?

10. Act. Accommodate. Ease. Disasters may cause participants and beneficiaries to miss deadlines for benefit claims
and COBRA elections. Plan fiduciaries must then determine how they will respond to those missed deadlines. The
Department of Labor (DOL) generally encourages plan sponsors “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” and thus encourages
plan fiduciaries to “make reasonable accommodations to prevent the loss of benefits in such cases and take steps to
minimize the possibility of individuals losing benefits because of a failure to comply with pre-established timeframes.” For
example, annual enrollment may be interrupted for a few days or a few weeks due to a natural disaster; therefore, a plan
sponsor may wish to extend benefits election deadlines (so long as other applicable laws are followed). Because of the
risk that a natural disaster may impact employees’ ability to meet deadlines, plan sponsors should develop processes to
ease the burden of potential denials of benefits that may occur simply because of timing issues arising due to a natural
disaster. What plan deadlines may be impacted by a disaster?

Compliance is a series of actions, not a final destination. As a trusted advisor, Gallagher has developed this Compliance
Continuity series to help you pursue a path through employee benefits compliance issues as part of an overall continuing
compliance plan. Employers should carefully evaluate their health and welfare plans to determine if they are in
compliance with both federal and state law. If you have any questions about one or more of the compliance destinations
listed above, or would like additional information on how Gallagher constantly monitors laws and regulations impacting
employee benefits in order to support employers in their compliance efforts, please contact your Gallagher representative.

----------------------------------------

The intent of this analysis is to provide you with general information. It does not necessarily fully address all your organization’s specific
issues. It should not be construed as, nor is it intended to provide, legal advice. Questions regarding specific issues should be
addressed by your organization’s general counsel or an attorney who specializes in this practice area.

2019 Arthur J. Gallagher & Co. All rights reserved