How Does the CARES Act Impact My Employee Benefit Plans?
April 20, 2020
On March 27, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. In addition to including various provisions providing financial relief to businesses and individual taxpayers, the CARES Act also relaxes various rules applicable to employee benefit plans and enhances others to provide greater access to benefits and more flexibility for individuals directly affected by the Coronavirus (COVID-19).
Here are some of the highlights:
Coronavirus-Related Distributions and Expanded Plan Loans
The CARES Act has made the following discretionary options available effective immediately that can be incorporated into existing retirement plans:
- Coronavirus-Related Distributions. An employer can permit “qualifying individuals” to take a distribution of up to $100,000 from plan accounts. Any such distribution is exempt from the 10 percent early distribution penalty that would normally apply and can be taken on or before December 31, 2020. An employee must be able to self-certify that the distribution is related to the COVID-19 pandemic. The amounts may be re-contributed to a retirement plan within three years, and are eligible for amortized taxation over a three-year period. Note that this $100,000 limit applies to just Coronavirus-related distributions. So, if a qualified individual is otherwise able to take a plan distribution from an employer plan, such as a hardship distribution or regular in-service distribution, such other distribution will not count towards the $100,000 limit on Coronavirus-related distributions.
- Larger Plan Loans. For “qualifying individuals”, the CARES Act temporarily increased the participant plan loan limit from $50,000 and 50 percent of vested benefits to $100,000 and 100 percent of vested benefits. A “qualified individual” has until September 23, 2020 to take advantage of the increased loan limits.
- Suspension of Loan Repayments. For “qualifying individuals”, new and existing loan repayment due dates before December 31, 2020 are extended by one year under the CARES Act. This delay period is not included in the maximum five-year repayment period for plan loans.
A “qualifying individual” is a participant who meets any of the following:
- is diagnosed with SARS-CoV-2 or COVID-19 with a test approved by the Centers for Disease Control and Prevention;
- has a spouse or dependent diagnosed with SARS-CoV-2 or COVID-19; or
- experiences adverse financial consequences from being quarantined, furloughed or laid off, having work hours reduced, being unable to work due to lack of child care, closing or reducing the hours of a business owned or operated by the individual or from other factors, as determined by the Treasury secretary.
An employer who is interested in taking advantage of these provisions may implement its decision immediately. The deadline for an employer to adopt plan amendments reflecting any changes is the last day of the first plan year beginning on or after January 1, 2022.
2020 Required Minimum Distributions (RMDs) Suspended
The CARES Act waives all 2020 RMDs from defined contribution plans. That waiver includes initial payments to participants who turned age 70½ in 2019 and who did not take their initial RMD last year because they had a grace period until April 1, 2020. Employers can immediately implement the provisions provided by the CARES Act but generally have until the end of the first plan year beginning on or after January 1, 2022 to amend their plans for this relief.
HEALTH AND WELFARE PLANS
Use of FSA/HSA Funds for Over-the-Counter Products
The CARES Act allows employees to use funds in health care flexible savings accounts (FSAs) to purchase over-the-counter (OTC) medical products, including those needed in quarantine and social distancing, without a prescription. This change also applies to Health Savings Accounts (HSAs). Employers must generally have a “high deductible health plan” (HDHP) to have an HSA for their employees. Several years ago, the Affordable Care Act (ACA) eliminated the ability to use health care FSAs for OTC products, so the CARES Act rolls back that prohibition. The CARES Act also provides that menstrual products qualify as OTC products that can be purchased with health care FSA or HSA funds.
Coverage for COVID-19 Related Health Care Services
The CARES Act requires employer-sponsored group health plans (and health insurers) to address several health care services related to COVID-19, including the following:
- COVID-19 Testing. Group health plans and insurers are required to cover approved diagnostic testing for COVID-19, including in vitro diagnostic testing, without any cost-sharing to participants, at their in-network negotiated rate (or if no negotiated in-network rate, an amount that equals the cash price for such tests as publicly listed by the provider).
- COVID-19 Prevention. Group health plans and insurers are required to cover any qualifying preventative services related to COVID-19 without cost-sharing to participants. Plans are required to cover these services within 15 days after the date that a recommendation is made regarding the preventative service. Preventative services includes (1) any item, service, or immunization that is intended to prevent or mitigate COVID-19 and is evidence-based with an “A” or “B” rating in the U.S. Preventive Services Task Force’s recommendations or (2) an immunization with a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention.
- Expanded Telehealth Benefits. The CARES Act also established clarity with regard to Health Savings Accounts (HSAs) and telehealth services. In response to COVID-19, many health plans and health insurers began waiving the cost of telehealth services to encourage members to use telehealth services in lieu of visiting a provider’s physical location for care. This raised concern with sponsors of qualified high-deductible health plans (“QHDHPs”) who were concerned as to whether this would impact the eligibility of plan members to contribute to their HSAs. Effective March 27, 2020, the CARES Act established a temporary safe harbor, permitting QHDHPs to offer telehealth services with no application of the deductible for plan years beginning on or before December 31, 2021.
For more resources and LP's response to COVID-19, visit this webpage.