The CARES Act (Coronavirus Aid, Relief, and Economic Security) has a dramatic impact on employee benefit plans, providing relief to eligible plan members and plan sponsors and expanded benefits to health plan members collectives.
Relief for members of eligible pension plans
With regard to qualified pension plans, the CARES law:
- Provides for a special ‘coronavirus-related distribution’ that is exempt from the 10% early withdrawal penalty, can be repaid over a three-year period regardless of typical plan contribution limits, and is included in taxable income on a period of three years period insofar as it is not reimbursed. These distributions generally cannot exceed $ 100,000 in total for an individual. Coronavirus-related distribution means distribution made on or after January 1, 2020 and before December 31, 2020, to an individual:
- Who is diagnosed with COVID-19.
- Whose spouse or dependent is diagnosed with COVID-19.
- Who suffers negative financial consequences due to quarantine, discharge or layoff, reduction of working hours, inability to work due to lack of on-call children due to COVID-19, the closure or reduction of hours of a business owned or operated by the person due to COVID-19, or other factors as determined by the Secretary of the Treasury.
The plan administrator can rely on an employee’s attestation that the employee meets the above conditions.
- Provides some loan relief for a “Qualified Person” defined to include the persons mentioned in points 1 to 3 above, including:
- Offer a temporary increase in the plan’s loan limit (generally, to the lesser of the present value of the employee’s accrued non-refundable benefits under the plan or $ 100,000) for loans made during the period 180 days after the enactment of the CARES Act.
- Delay for an additional year any repayment of plan loan that matures during the period beginning with the enactment of the CARES Act and ending on December 31, 2020. Any subsequent repayments must be adjusted to reflect the late date due and interest accrued during the delay.
- Provides exemption from the minimum required distributions to be paid in calendar year 2020 from Qualified Pension Plans, Defined Contribution Plans under Section 403 (a) or 403 (b) of the Internal Revenue Code and deferred compensation plans eligible under section 457 of the Internal Revenue Code (b) (excluding those maintained by tax-exempt entities).
Under the CARES Act, plans would have until the end of the plan year beginning on or after January 1, 2022, to adopt a retroactive amendment to reflect these changes, and plans would not be considered non-responsive. not to the requirements of the Code section. 411 (d) (6) or Section 204 (g) of the Employees Retirement Income Security Act 1974 (ERISA) due to such an amendment. Government plans would have two more years to pass the amendment.
Extended benefits for group health plan members
The CARES law includes the following extended benefits under group health insurance plans:
- Group health plans and health insurance issuers are required to cover, without cost sharing, any eligible coronavirus prevention service. For this purpose, an “eligible coronavirus prevention service” means an item, service or vaccination that is intended to prevent or mitigate COVID-19 and which is (1) an evidence-based item or service that indeed has a rating of ” A ” or ” B ” in the current recommendations of the US Preventive Services Task Force; or (2) an immunization that in effect has a recommendation from the Centers for Disease Control and Prevention Advisory Committee on Immunization Practices with respect to the affected individual.
- The definition of COVID-19 diagnostic tests that must be covered by a group health plan or non-cost-sharing health insurance issuer under the Family First Coronavirus Response Act has been expanded, and the health plan of group or issuer must reimburse the supplier of the diagnostic tests as follows:
- At the negotiated rate, if the health plan has a negotiated rate for this service with the provider in effect before the public health emergency is declared in accordance with Article 319 of the Public Health Service Act.
- If there is no negotiated rate, the spot price for these services as stated by the provider on a public website, or that plan or issuer may negotiate a rate with that provider for a price lower than that. spot price. Each supplier of diagnostic tests for COVID-19 must make the cash price of these tests available on a public website. Failure to comply with this Internet posting may result in financial penalties of up to $ 300 per day.
- For plan years beginning on or before December 31, 2021, a health plan will not fail to be a high deductible health plan for Health Savings Account (HSA) purposes if the plan covers telehealth and health. ‘other remote care services without deductible application. .
- After December 31, 2019, amounts paid for drugs and over-the-counter drugs, as well as menstrual care products, are treated as medical expenses for HSAs, flexible spending accounts for healthcare, accounts Reimbursement Reimbursement and Archer Medical Savings Accounts.
Relief for companies sponsoring defined benefit pension plans
The CARES law gives companies with cash flow problems additional time to meet their funding obligations of the single employer plan by delaying the due date of âminimum required contributionsâ otherwise due in 2020 until January 1 2021, the date on which the 2020 contributions plus interest will be due. Interest accrues from the original due date to the actual payment date using the effective plan interest rate for the plan year that includes that payment date. Note, however, that this special rule allowing late payment only applies to âminimum required contributionsâ (as defined in Section 430 (a)) of the Internal Revenue Code); it does not provide for additional time to make contributions required for other reasons, such as contribution obligations associated with a business transaction or increase in plan sponsor debt or plan closure. Plan sponsors who are obligated by collective agreement or terms of an agreement with the Pension Benefit Guaranty Corporation to make contributions to the plan should discuss with appropriate legal counsel the possibility of delaying such contributions before making measurements.
The CARES Act also provides plan sponsors with the ability to use the funded status of the plan for the last plan year ending before January 1, 2020 to determine funding-based benefit limits under section 436 of the Internal Revenue Code for plan years that include the year 2020. This provision will allow plan sponsors to avoid restrictions on future benefit accruals and distributions in optional forms under the plan. ‘Section 436 of the Internal Revenue Code when a plan has a decline in funding as a result of the market downturn related to the COVID-19 pandemic.
Additional special relief is provided to pension plans sponsored by certain not-for-profit employers. Specifically, the CARES Act extends the special rules relating to charitable cooperative and small employer pension plans to plans sponsored by an employer that meets the following four conditions: (i) is exempt from tax under section 501 (c) (3) of the Internal Revenue Code, (ii) has been in existence since 1938, (iii) conducts medical research directly or indirectly through grants, and (iv) has the primary purpose of exemption to provide services for mothers and children.
Extension of the authority of the Ministry of Labor to postpone deadlines in the event of a public health emergency
The CARES Act amended section 518 of ERISA to allow the Secretary of Labor to extend certain ERISA compliance deadlines in the event of a “public health emergency declared by the Secretary of Health and Social Services” . Such compliance extensions would likely be akin to the types of compliance extensions authorized by the Secretary of Labor in response to disasters declared by the President, such as recently declared hurricanes and wildfires. ERISA Plan Sponsors, Administrators and Trustees should monitor the Ministry of Labor’s statements regarding the relief timeframe for compliance under the amended Section 518 of the ERISA in the coming weeks and months.