| I. RETIREMENT RELIEF PROVISIONS |
Coronavirus-related distributions (CRDs)
CARES Act § 2202
Effective January 1, 2020 through December 30, 2020
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- A CRD is a new category of distribution made from an eligible retirement plan or IRA to a qualified individual on or after January 1, 2020, and before December 31, 2020, up to an aggregate limit of $100,000.
- An individual is a "qualified individual" if:
- Either the individual or his or her spouse or dependent has a confirmed diagnosis of COVID-19; or
- The individual has experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, the inability to work due to a lack of childcare, the close or reduction of a business, or other factors determined by the Secretary of the Treasury.
- An individual who receives a CRD may repay the CRD within three years of the distribution in one or more payments to an eligible retirement plan to which the individual may make rollover contributions.
- Unless the individual elects otherwise, the amount of a CRD is taxed ratably over a three-year period.
- CRDs are not subject to the 10% early distribution penalty tax.
- CRDs made from a retirement plan are not subject to mandatory 20% withholding, nor is a 402(f) special tax notice required. Accordingly, 10% withholding will apply, unless the participant elects out of withholding.
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This provision is optional.
This provision applies to:
- 401(a) plans (including 401(k) plans)
- 403(b) plans
- Governmental 457(b) plans
- IRAs
This provision creates a new in-service distribution right for 401(k), 403(b), and governmental 457(b) plans. It does not create a new in-service distribution right for defined benefit plans and money purchase pension plans (MPPs) which are otherwise prohibited from allowing in-service distributions before age 59 ½.
However, CRDs can be made in-service from a defined benefit plan or MPP for participants who have attained age 59 ½.
Regardless of whether an eligible retirement plan offers CRDs, distributions that are otherwise permitted from the plan that meet the criteria of a CRD will receive the tax treatment afforded by this provision.
A plan sponsor could choose to permit CRDs under its retirement plan, but adopt a lower dollar limit than $100,000 or allow CRDs only from specific money sources, such as a participant's elective deferral account. However, some retirement plan vendors have indicated that they do not have the capacity to administer deviations from the general CRD rules. |
- Many retirement plan vendors took immediate action following enactment of the CARES Act to prepare their systems for administration of CRDs across all eligible retirement plans. Some vendors implemented an "opt-out" approach for the plans they administer, while others implemented a more conservative "opt-in" approach. Accordingly, it is possible that CRDs were permitted in operation from a retirement plan before a plan sponsor had time to consider whether to adopt this optional provision.
- The vendors' expedited implementation was in response to the anticipated demand by participants for access to retirement funds. However, in determining whether to "flip the switch" on CRDs, plan sponsors should consider the needs and concerns of their specific employee population.
- Employers should consider the risk of retirement leakage and a potentially severe impact on "retirement readiness" if CRDs are heavily utilized by their employees. Although employees have the option to repay CRDs over a three-year period, few employees may be in a financial position to do so. Even so, taking a distribution when account balances have taken significant market losses means that repayment later (when the market is presumably higher) will never fully make the employee whole. Plan sponsors may wish to consider including education on these issues with employee communications.
- Plan sponsors that initially chose to "out-out" can reevaluate and opt-in at any time during 2020.
- It is important that plan sponsors follow their regular procedures for plan amendments in choosing whether to add CRDs to their plans.
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Increased limits on plan loans
CARES Act § 2202(b)(1)
Effective March 27, 2020 through September 22, 2020
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- The CARES Act amends IRC § 72(p) to temporarily increase the maximum loan amount that a plan may permit with respect to qualified individuals ("qualified individuals" has the same meaning as with respect to CRDs, above).
- The provision increases the maximum loan amount to $100,000 (from $50,000) and permits loans up to 100% (from 50%) of the present value of the participant's account.
- The increased maximum applies to loans initiated from March 27, 2020 to September 22, 2020.
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This provision is optional.
This provision applies to:
- 401(a) plans (including 401(k) plans)
- 403(b) plans
- Governmental 457(b) plans
A plan sponsor could choose to adopt a lower maximum loan limit, such as $75,000 rather than $100,000. However, some retirement plan vendors have indicated that they do not have the capacity to administer deviations from the general increased loan limit rules. |
- A plan must offer loans, or the plan sponsor must amend the plan to allow loans, for this provision to apply.
- If a plan sponsor adopts this provision, it does not operate to override the plan's loan terms apart from the maximum limit. For example, if a plan limits participants to one outstanding loan at a time and restricts loans to employee contributions only, applying this provision to increase the maximum amount of a loan does not allow for additional loans or expanded contribution sources, unless the plan is amended.
- A plan sponsor can choose to permit CRDs and not choose to increase the loan limits, or vice versa.
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Delayed repayment of plan loans
CARES Act § 2202(b)(2)
Effective March 27, 2020 through December 31, 2020
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- The CARES Act extends the due date for loan repayments scheduled to be made from March 27, 2020 to December 31, 2020, with respect to qualified individuals ("qualified individuals" has the same meaning as with respect to CRDs, above).
- The due date for any payment scheduled for the relief period is delayed for up to one year.
- Payments after the suspension period are required to be adjusted to reflect the delayed due date plus any interest accruing during such delay.
- The delay is disregarded in determining compliance with the five-year term limit and amortization rules.
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This provision is optional.
This provision applies to:
- 401(a) plans (including 401(k) plans)
- 403(b) plans
- Governmental 457(b) plans
Although the CARES Act reads as if this provision is mandatory, the IRS issued FAQs on May 4, 2020, which state that this provision is optional. |
- A participant with an existing loan will need to self-certify that he or she is a qualified individual before loan payments are suspended. Because an employee must take affirmative action to request suspension of loan repayments, a qualified individual who does not request this relief could choose to default on a loan in order to claim the deemed distribution as a CRD on his or her personal income tax return. As a CRD, the distribution would be exempt from the 10% early withdrawal penalty and can be repaid to the plan within three years. If this is a viable option, some participants may prefer to default on their loan this year, rather than have loan payments suspended.
- Regardless of whether or not a plan permits relief under this provision, Notice 2020-23 automatically extends plan loan repayments that are due on or after April 1, 2020 and before July 15, 2020. Such extended loan repayments are due on July 15, 2020. Accordingly, all participants with outstanding plan loans—not only qualified individuals—have loan repayment relief through July 15, 2020. More information on Notice 2020-23 is provided below.
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Suspension of required minimum distributions (RMDs) paid in 2020
CARES Act § 2203
Effective January 1, 2020 through December 31, 2020
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- The CARES Act waives RMDs for calendar year 2020.
- The waiver applies to:
- RMDs required to be paid in 2020 by December 31, 2020; and
- RMDs required to be paid for 2019 by April 1, 2020, which were not paid by December 31, 2019.
- The five-year distribution period that applies to certain beneficiaries will be determined without regard to calendar year 2020.
- If an eligible rollover distribution paid in 2020 would have been a RMD for 2020 but for the waiver, the distribution is not subject to the direct rollover rules, 20% mandatory withholding does not apply, and the 402(f) special tax notice is not required. Accordingly, 10% withholding will apply, unless the participant elects out of withholding.
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Plan sponsors have options regarding implementation of this provision.
This provision applies to:
- Defined contribution 401(a) plans (including 401(k) plans)
- 403(b) plans
- Governmental 457(b) plans
- IRAs
Plan sponsors that are subject to the RMD waiver may choose to:
- Suspend payment of 2020 RMDs unless the participant elects to receive payment;
- Continue payment of 2020 RMDs unless the participant elects to suspend payment; or
- Take approach #1 with respect to all participants except those who are receiving their RMD as part of scheduled installment payments, in which case take approach #2.
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- Not all retirement plan vendors are giving plan sponsors a choice as to how to implement the RMD waiver. Rather, some vendors have made decisions as to when they will suspend and when they will continue RMD payments, and plan sponsors cannot deviate from those decisions. Accordingly, plans with multiple vendors may in actual operation be implementing the RMD waiver in different ways.
- If a participant receives a withdrawal in 2020 that would otherwise be a RMD, he or she may be able to roll over the amount to an eligible retirement plan.
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| II. HEALTH PLAN PROVISIONS |
Mandatory Coverage of COVID-19 Diagnostic Testing
FFCRA § 6001; CARES Act §§ 3201, 3202
Effective March 18, 2020, for the duration of the public health emergency, as declared by the Secretary of HHS. The Secretary of HHS declared a public health emergency for the entire United States regarding the coronavirus. The declaration is retroactive to January 27, 2020.
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- The FFCRA, as amended by the CARES Act, requires coverage for the following items and services without any cost-sharing, prior authorization, or other medical management requirements:
- In vitro diagnostic tests for the detection of SARS-CoV-2 or the diagnosis of the virus that causes COVID-19, and the administration of such a test, that:
- Is FDA approved, cleared, or authorized;
- The test developer has requested, or intends to request, emergency use authorization under the Food, Drug, and Cosmetic Act;
- Is developed in and authorized by a state that has notified HHS of its intention to review tests intended to diagnose COVID-19; or
- HHS otherwise has approved in guidance.
Serological tests for COVID-19 are included in this mandate. These tests are used to detect antibodies against the SARS-CoV-2 virus, and are intended for use in the diagnosis of the disease or condition of having current or past infection with SARS-CoV-2, the virus which causes COVID-19.
- Items and services furnished during a visit to a provider's office (including via telehealth), urgent care, an emergency room, drive-up testing site, or other (even nontraditional) provider visit that results in an order for or administration of an in vitro diagnostic test described above, but only to the extent the item or service relates to: (1) the furnishing or administration of the diagnostic test or (2) the evaluation of the individual to determine need for the diagnostic test.
- In addition, the CARES Act generally requires plans and issuers providing coverage for these items and services to reimburse any provider of COVID-19 diagnostic testing an amount that equals the negotiated rate or, if the plan or issuer does not have a negotiated rate with the provider, the cash price for such service that is listed by the provider on a public website.
- Under the CARES Act, all testing providers must post the cash price for a COVID-19 diagnostic test on their website. The penalty for failing to do so is up to $300 per day. There is not a similar provision requiring posting of the cash price for related items and services.
- Employers should encourage plan participants to use in-network providers, when possible, to reduce out-of-pocket expenses to participants and costs to the plan.
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This provision is mandatory.
Except as specifically excluded below, the provision applies to:
- All group health plans (including grandfathered health plans)
- All health insurers of individual or group health insurance policies
This includes:
- Both self-funded and fully-insured group health plans
- Group health plans sponsored by private companies (ERISA plans)
- Group health plans sponsored by non-federal governmental entities
- Group health plans sponsored by religious employers (church plans)
- Coverage offered in the individual market through or outside of an Exchange
- Student health insurance coverage
The provision does not apply to:
- Short-term limited duration insurance
- Excepted benefits (these include benefits such as on-site medical clinics, limited scope vision or dental benefits, and benefits for long-term care, nursing home care, home healthcare, community-based care, and many EAPs)
- Retiree-only group health plans
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- Most health plans and insurers likely already cover the services needed for testing COVID-19, but now they must do so without any cost-sharing or medical management requirements. Prohibited cost-sharing includes deductibles, copayments, and coinsurance. A plan amendment may be required and self-insured plans should consult with stop-loss carriers to ensure coverage.
- Covering these mandatory benefits will not cause a plan to lose its grandfathered status under the ACA.
- These mandated benefits must be provided both in-network and out-of-network.
- All items and services provided during a visit that results in an order for or administration of an in vitro diagnostic test must be covered without cost-sharing, prior authorization, or medical management requirements if the item or service relates to: (1) the furnishing or administration of the diagnostic test or (2) the evaluation of the individual to determine need for the diagnostic test. This might include influenza tests or blood tests to rule out other illnesses before ordering a COVID-19 test.
- HDHPs may provide health benefits associated with testing for and treatment of COVID-19 without a deductible which will allow individuals covered under such an HDHP to remain eligible to make HSA contributions.
- Guidance issued on April 11, 2020, by the Departments of Labor, Treasury and HHS in the form of FAQs provided several helpful explanations related to this coverage requirement, which are discussed in more detail in our closer look.
- The FAQs clarify that states may impose additional standards and requirements that are not incompatible with the federal requirements.
- It is unclear whether the addition of this mandated testing, or any other plan enhancements made in connection with COVID-19, constitutes a significant change in coverage that would allow employees to make mid-year election changes to add coverage under the cafeteria plan rules. Employers should consult with legal counsel to determine whether to allow employees to make mid-year election changes.
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Rapid Coverage of Preventive Services and Vaccines for Coronavirus
CARES Act § 3203
Effective with respect to each qualifying coronavirus preventive service within 15 business days after the date on which a recommendation is made relating to the service.
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- Group health plans and issuers of group and individual policies must cover any "qualifying coronavirus preventive service" without cost-sharing.
- A "qualifying coronavirus preventive service" includes an item, service, or immunization intended to prevent or mitigate the coronavirus disease and that is:
- An evidence-based item or service that has in effect a rating of "A" or "B" in the current recommendations of the U.S. Preventive Services Task Force; or
- An immunization that has in effect a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the individual involved.
- The coverage requirement applies 15 business days after the date on which a preventive coverage recommendation is made.
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This provision is mandatory.
Except as specifically excluded below, the provision applies to:
- All non-grandfathered group health plans
- All health insurers of individual or group health insurance policies
This includes:
- Both self-funded and fully-insured group health plans
- Group health plans sponsored by private companies (ERISA plans)
- Group health plans sponsored by non-federal governmental entities
- Group health plans sponsored by religious employers (church plans)
- Coverage offered in the individual market through or outside of an Exchange
- Student health insurance coverage
The provision does not apply to:
- Grandfathered group health plans
- Short-term limited duration insurance
- Excepted benefits (these include benefits such as on-site medical clinics, limited scope vision or dental benefits, and benefits for long-term care, nursing home care, home healthcare, community-based care, and many EAPs)
- Retiree-only group health plans
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- Under the ACA, non-grandfathered group health plans are already obligated to cover without cost-sharing both evidence-based items and services with ratings of "A" or "B" and immunizations with recommendations from the Advisory Committee on Immunization Practices. However, under the ACA, plans normally have a year or more to implement newly recommended preventive services. The effect of the new provision is to require health plans to cover these services within 15 business days after the date a recommendation is made if the services are intended to prevent or mitigate the coronavirus. This means that health plans must stay alert and informed throughout the COVID-19 public health emergency, as preventive services can be expected to receive approval on a rolling basis as new evidence emerges.
- The ACA regulations permit a plan that has a network of providers to limit first dollar coverage of preventive services to in-network coverage only. This rule should apply to coverage of qualifying coronavirus preventive services as well, unless the circumstances are such that obtaining coverage for these services is so difficult that limiting the coverage to in-network providers creates access issues. We believe that guidance would be necessary to specifically extend this coverage out-of-network.
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Temporary Safe Harbor for HDHP Coverage of Telehealth and Remote Services
CARES Act § 3701
Effective March 27, 2020 through the last day of the plan year that begins on or before December 31, 2021 (through December 31, 2012 for calendar-year plans)
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- The CARES Act provides a temporary safe harbor for HDHPs to cover "telehealth and other remote care services" without a deductible.
- Telehealth visits do not have to be connected with COVID-19 to be eligible for this relief.
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This provision is optional.
This provision applies to group health plans and health insurance issuers that offer HDHPs. |
- This change is statutory and follows sub-regulatory guidance from the IRS in Notice 2020-15 that allowed testing and treatment for COVID-19 to be covered under HDHPs without a deductible.
- In Tri-Agency Guidance issued in the form of FAQs on April 11, 2020, the Departments of Labor, Treasury, and HHS strongly encouraged all plans and issuers to promote the use of telehealth and other remote care services.
- A plan amendment may be required and self-insured plans should consult with stop-loss carriers to ensure coverage.
- Employers should use caution if they consider implementing a full-scale telehealth program for all employees outside of their group health plan. Such a program could be subject to the full range of requirements under ERISA, the ACA, and other employee benefit laws.
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Expansion of Qualified Medical Expenses Under Account-Based Health Plans
CARES Act § 3702
Effective January 1, 2020
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- The CARES Act expands the types of medical care for which individuals may be reimbursed from HSAs, FSAs, HRAs, and Archer medical savings accounts (MSAs) ("Account-Based Health Plans") to include:
- over-the-counter medicines and drugs; and
- menstrual care products.
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This provision is optional with respect to health FSAs and HRAs, although in practice, many employers allow these accounts to reimburse for all qualified medical care allowed under the law.
This provision is automatic with respect to HSAs and Archer MSAs. Employers cannot design limitations on qualified medical expenses for purposes of these accounts. |
- Prior to the CARES Act, qualified medical expenses for purposes of Account-Based Health Plans excluded medicines or drugs unless they were prescribed or were insulin. This was an ACA change. The CARES Act effectively reverses the ACA restriction to once again allow over-the-counter medicines and drugs to be reimbursed from Account-Based Health Plans.
- Most employers will need to amend their FSA and HRA plan documents to allow for the reimbursement of these expenses.
- Although the effective date of this provision is January 1, 2020, FSAs may only be amended prospectively, thus it appears that over-the-counter medicines and drugs and menstrual products may not be eligible for reimbursement from FSAs until plan documents are amended to include them in eligible medical expenses.
- The expansion of qualified medical expenses under this provision does not qualify as a change in status that would permit an employee to make a mid-year election change to his or her health FSA contributions.
- An employee may make prospective changes to his or her HSA contributions at any point in the plan year, even with respect to HSA contributions made by salary reduction on a pre-tax basis. As a result, HSA participants may wish to increase HSA contributions in response to this expanded coverage.
- Debit card vendors, pharmacies, and retail stores may take some time to update software so that these expenses can be paid with a debit card. Until then, participants may have to submit manual claims.
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| III. OTHER EMPLOYEE BENEFIT RELATED PROVISIONS |
Employer-Provided Student Loan Repayments
CARES Act § 2206
Effective March 27, 2020 through December 31, 2020
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- The CARES Act expands tax-free education assistance programs to include student loan repayments, on a temporary basis for the remainder of 2020.
- The provision expands the education assistance that may currently be provided tax-free to employees under an education assistance program pursuant to IRC § 127 to include qualified student loan debt incurred by the employee for the education of the employee.
- The maximum amount of tax-free education assistance an employer may provide under an education assistance program is capped at $5,250 annually.
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This provision is optional.
This provision applies to employers that offer education assistance benefits under IRC § 127. |
- This change gives employers an additional avenue of relief to employees who are working to pay off student loans related to their own education (it does not apply to student debt incurred by the employee for education of the employee's spouse or dependent).
- Separately, Section 3513 of the CARES Act temporarily suspends payments on federal student loans through September 30, 2020. These two provisions together provide significant short-term relief options to employees with student debt.
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IRS Extends Time-Sensitive Deadlines to July 15, 2020 Due to COVID-19
IRS Notice 2020-23
Extensions apply to a number of deadlines that fall between April 1, 2020 and July 15, 2020
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- IRS Notice 2020-23 provides a broad range of relief to extend numerous deadlines that fall between April 1, 2020 and July 15, 2020. The extended deadline applies to (among other items):
- Making 2019 contributions to qualified retirement plans
- Correcting 2019 excess contributions
- The 60-day timeframe for completing an indirect rollover
- Timeframes for correcting errors under the IRS's correction procedures (EPCRS)
- Making plan loan payments
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The relief is automatic, and applies to any person with a specified time-sensitive action due to be performed during the applicable time period.
A "person" includes any individual, trust, estate, partnership, association, company, and corporation. |
- Plan sponsors should be aware that several significant IRS deadlines for retirement plans that fall between April 1, 2020 and July 15, 2020 have been extended until July 15, 2020.
- The loan payment relief under Notice 2020-23 applies regardless of whether the individual is a "qualified individual" for purposes of CARES Act loan relief, and regardless of whether the plan has adopted the CARES Act loan relief provisions. Individuals who request suspension of their loan payments pursuant to this relief should not be placed in default. Moreover, interest should not accrue on the missed loan payments during such period.
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Relief for Retirement and Health Plans and Participants Due to COVID-19
Joint Notice, IRS and Employee Benefit Security Administration (EBSA)
EBSA Disaster Relief Notice 2020-21
Extensions apply to a number of deadlines that fall between March 1, 2020 and 60 days after the national emergency is lifted
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- The Joint Notice requires plans to disregard the period beginning March 1, 2020 and ending 60 days after the COVID-19 national emergency terminates (the "Outbreak Period") in determining deadlines for:
- Special enrollment;
- COBRA 60-day election periods;
- COBRA premium payments;
- COBRA election notices;
- Making claims pursuant to the plan's claim procedures;
- Appealing adverse benefit determinations; and
- Requesting external review.
- During the same Outbreak Period defined above, EBSA Notice 2020-21 granted delays and other relief related to:
- Notices, disclosures, and documents due under ERISA Title I;
- Failures to follow verification procedures for plan loans and distributions;
- Loans provided pursuant to the CARES Act;
- Forwarding loan repayments to a plan;
- Blackout notices; and
- Form 5500 and Form M-1 filings.
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The relief is automatic to applicable plans and participants. The plans include:
- Group health plans
- Disability plans
- Other employee welfare benefit plans
- Employee pension benefit plans (both defined contribution plans and defined benefit plans)
The Joint Notice technically applies only to plans subject to ERISA and the IRC, and Notice 2020-21 technically applies only to plans subject to ERISA. However, HHS, which has jurisdiction over non-federal governmental plans, intends to adopt a policy of measured enforcement to extend the same timeframes to non-federal governmental plans. |
- The Joint Notice requires plan sponsors to disregard the Outbreak Period when applying deadlines for HIPAA special enrollment and COBRA elections and payments. Because the Outbreak Period begins March 1, plan sponsors will need to consider whether some participants whose enrollment windows closed or deadlines expired are entitled to more time to complete an election.
- Because many participants will likely be unaware that they have an extended timeframe to take certain actions, we believe that plan sponsors have a fiduciary obligation to communicate this extension to employees and COBRA participants.
- The Joint Notice operates to extend the run-out period for FSAs, which for many calendar year plans occurs in the first 90 days of the following plan year. Run-out periods that ended after March 1, 2020 should be tolled – and FSA administrators should continue to accept 2019 FSA claims – through the end of the Outbreak Period, plus any additional days left in the run-out period after the Outbreak Period began.
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