As businesses and governments scramble to keep up with the Coronavirus (also called “COVID-19”) and its effect on all aspects of life, the pace of change in the employee benefits world has been (and continues to be) profound. Two major pieces of federal legislation¹ were just signed into law, the IRS and Department of Labor (the “DOL”) have each issued multiple pieces of new guidance² and some local jurisdictions are also getting involved, e.g. by mandating paid leave.³ Plus, the financial impact from efforts to stop the virus is also leading many employers to review their benefit plans and related obligations.
To help employers through this process, we have created a checklist of issues to consider and possible actions to take. Note –this checklist is current as of April 10, 2020and is not meant to be a comprehensive list –it does, however, reflect the types of questions we are seeing in our practice today, as well as our view of those items that may need prompt action by employers with respect to their employee benefit plans. This is a rapidly developing area and more guidance (and possibly more legislation) is expected.
Qualified Retirement Plans
COVID-19 Distributions:“CRD” in-service distributions of up to $100,000 are available from 401(k) plans, 403(b) plans, governmental 457(b) plans for employees who are adversely affected by the Coronavirus –these are preferable to a regular hardship distribution in the following ways:
The distribution may be “repaid” to an eligible plan within 3 years
The 10% early distribution penalty does not apply
Income tax on the distribution may be spread over 3 years
The distribution is not subject to the mandatory 20% withholding.
Note -clarification is still needed with respect to these types of distributions from pension plans.
Action Item: Plan sponsors will need to decide if their qualified retirement plans are eligible for and will offer the special emergency distribution options created by the CARES Act and to what extent (e.g., whether from employer or employee contributions or both).
For plans that make such distributions available, the plan administrator will need to get a communication out to employees as soon as possible. These special distributions are available to participants affected by COVID-19 and participants may “self-certify” their own eligibility for the distribution. Plan sponsors who have not already been contacted, by the record keeper or third-party administrator, should reach out to them,as soon as possible to implement this decision and put in place procedures to properly cap the dollar amount within the plan.
2. Participant Loans: At the option of the employer, the limits for new participant loans has increased from $50,000 to $100,000 and the percentage of account balance limit has increased from 50% of the account balance to 100% of the account balance and loan repayments on existing participant loans may be extended for up to a year.
Action item: As with distributions, employers should make a decision about how to handle loans, communicate with plan service providers and participants accordingly, and watch for guidance (there is some concern that the payment delay is not optional and guidance from IRS is needed on this point).
3. Employer/Matching Contributions: Employers may wish to reduce employer contributions to defined contribution plans. However, reducing contributions to safe harbor 401(k) plans, can be tricky when done mid-year,as such changes are not generally permitted, and plans that call for fixed contributions or allocations may need to be amended in the next few weeks if a benefit freeze is needed.
Action item: Plan sponsors should act quickly if they anticipate that there will be a change to an employer or matching contribution in 2020. For example, if there is “1000 hour” requirement for an allocation or benefit accrual, the employer may want to provide notice and adopt an amendment freezing employer contributions, before any plan participant reaches that threshold. Employers will also want to carefully review how hours are counted for that purpose. See: What is a Safe Harbor 401(k) Plan?
4. Vesting: Affected participants must be treated as fully vested,in the event of a “partial plan termination.”
Action item: In situations where there are significant layoffs or furloughs, employers will need to watch for possible “partial plan terminations.” A temporary furlough should not result in a partial plan termination, but a temporary furlough that later results in a termination could. See: Partial Termination of Your Qualified Retirement Plan: Don't Let It Sneak Up on You.
5. Funding: Contributions to single employer defined benefit plans may be delayed to January 1, 2021.
Action item: Plan sponsors of defined benefit plans should check with their actuary,to determine the effect on their plan’s funding requirements.
6. Plan Amendments: Although plan amendments to make CARES Act changes do not have to be adopted until later (December 31, 2022 for calendar year plans and even later for governmental plans), other amendments such as a benefit accrual freeze may need to be adopted immediately.
Action Item: Plan for amendments and keep a good record of the operational changes being implemented now so that an appropriate amendment can be drafted later.
7. Plan Administration
Action item: Consult with your plan advisors regarding the following additional operational issues:
Notices/Communications: Participants will need to be notified about plan changes. If providing notices electronically, this may be complicated by the fact that some participants may no longer have access to work computers, generally a requirement for electronic disclosures under DOL rules.
Spousal Consents: For plans that require notarized spousal consents to distributions or alternative beneficiaries, new creative arrangements may need to be made for a mobile notary; although, some states do not allow remote notarizations, and plan representatives may not be available.
Black-Out Periods: Plans that contemplate black-out periods, in the near future, should consult with their investment and legal advisors whether,any black-out period should be delayed, or if additional notices or explanations of the risks, during a blackout period, are needed, due to the volatility of the markets.
Paid Leaves/Definition of Compensation: Review plan documents,to determine if a leave or furlough is a severance from employment, and to determine if paid leave is treated as compensation under the plan and implement appropriate processes to implement paid leave.
Beneficiary Designations: This may be a good time to remind participants,to update their beneficiary designations.
QDROs: Some are predicting an increase in divorces,due to “stay-at-home” orders. Plan administrators should review and update the plan’s QDRO procedures.
Disaster Declarations: Several states have been declared federal disaster areas and more may follow; plan sponsors should review the plan document, to see if the plan already incorporates disaster relief provisions.
Elimination of RMDs for 2020: Take steps to stop required minimum distributions in 2020.
Form 5500 Reporting: The DOL has been granted authority to extend filing deadlines,but to date has not done so-plan administrators should be prepared to file on time or explore use of voluntary late filer programs. See:Correcting Late or Missing Form 5500s.The IRS has extended the Form 5500 deadline for non-calendar year plans.
Pre-Approved Documents/Plan Amendments: IRS has extended the deadline to restate 403(b) plans onto a pre-approved document from March 31, 2020 to June 30, 2020, and to restate defined benefit plans onto a pre-approved document from April 30, 2020 to July 31, 2020.
Non-Qualified Retirement Plans/Section 409A
The CARES Act does not make any specific changes related to non-qualified deferred compensation plans, but questions are already being raised.
Action item: Plan administrators may want to review the provisions of their plans,regarding the following:
Some employees may be entitled to in-service distributions, based on experiencing an “unforeseeable emergency.”
Others may have seen their account balances drop below the small account balance dollar limit.
For employers experiencing an economic downturn, the ability to make distributions based on a plan termination may be limited.
Some employees will likely want to limit deferrals;however,mid-year changes to elective deferrals,in non-qualified plans,are not generally permitted,unless there is also a distribution due to an unforeseeable emergency
Health and Welfare Plans
Additional Time for Making HSA Contributions:Based on IRS Notice 2020-18,in which the IRS postponed the April 15, 2020 deadline for filing federal income tax returns and other deadlines, the IRS announced in FAQs on its website that taxpayers may make contributions to their Health Savings Accounts (HSAs) at any time up to July 15, 2020.
Action Item: Employers that offer high deductible health plans (HDHPs) allowing employees to contribute to HSAs may want to notify their employees of this additional time for making contributions.
2. HDHPs Can Pay for COVID-19 Related Testing and Treatment: The IRS has advised that HDHPs will not jeopardize their status merely because they pay for COVID-19 related testing and treatment before plan deductibles have been met. See: IRS Notice 2020-15.
Action Item: Employers with HDHPs should consider what amendments need to be made to the plan document and should notify their employees of any changes.
3. FFRCA Requires Group Health Plans to Cover COVID-19 Testing and Related Items and Services: Group health plans must provide coverage for testing and related items and services and not impose cost sharing requirements, prior authorization or other medical management. The Departments of Labor, Health and Human Services, and Treasury(collectively, the Departments) have issued guidance in the form of FAQs providing further information about this coverage requirement. See: FAQs About Families First Coronavirus Response Act and Coronavirus Aid, Relief, And Economic Security Act Implementation Part 42.
The coverage requirement does not apply to short-term, limited duration insurance, excepted benefits or retiree only plans.
Plans are required to provide this coverage even if the items and services are provided by out of network providers.
The coverage requirement extends only during the public health emergency related to COVID-19.
The Departments will not enforce the rule requiring that a notice of modifications be issued at least 60 days prior to the effective date of a coverage change that will affect the content of a summary of benefits and coverage (SBC) if the change is to provide greater coverage related to the diagnosis and/or treatment of COVID-19.
HHS will not enforce the rule prohibiting issuers from modifying health insurance coverage mid-year, so long as the change is to provide increased coverage for services related to the diagnosis and/or treatment of COVID-19.
The non-enforcement policies referenced in d and e above only apply to changes made during the COVID-19 public health emergency⁴
An EAP may include benefits for diagnosis and testing for COVID-19 during the COVID-19 public health emergency without causing the EAP to lose its status as an excepted benefit.
Action Item: Employers should determine whether amendments are required to be made to their plans to incorporate the changes. If the plan is amended, notice will need to be provided to the participants.
4. CARES Act Caps the Amount that May Be Paid for COVID-19 Testing:If the health care plan does not have a negotiated rate for the cost of COVID-19testing, then the plan must pay the provider the cash price or negotiate for a lower payment. Providers must post the cash price on their websites.
Action Item: Employers should familiarize themselves with this rule in the event participants call to ask about the cost of testing. Plan amendments may be required.
5. CARES Act Accelerates COVID-19 Vaccines as Preventive Services: Group health plans are required to cover without cost sharing any qualifying coronavirus preventive services, including any item, service or immunization intended to prevent or mitigate COVID-19 if the item or service is recommended by the United States Preventive Services Task Force or the immunization is recommended by the Advisory Committee on Immunization Practices of the CDC. The coverage must be made within 15 days following the applicable recommendation.
Action Item: Employers should be on the look-out for these recommendations when made, so that they may follow up with their third-party administrators or carriers to make sure that the coverage is in place for the plan. Employers should also consider whether a plan amendment is required for this change, and if so, provide the appropriate notice to participants.
6. HIPAA Guidance:The Office of Civil Rights (OCR) of the Department of Health and Human Services (HHS) has issued guidance. See:HIPAA Privacy and Novel Coronavirus.
The purpose of the guidance is to make covered entities and business associates aware of the ways that patient information may be shared under the HIPAA Privacy Rule in light of the COVID-19 pandemic.
Action Item: Employers should make sure that they have this guidance handy if there is a need to disclose protected health information to public health authorities, for example, a disclosure required to be made to the CDC about patients exposed to,or suspected of, or confirmed to have COVID-19.
7. New Telehealth Rules:
The Cares Act exempts HDHPs from imposing a deductible for telehealth services for plan years beginning before 2021. The Departments Guidance clarifies that the telehealth services are not limited to coverage for COVID-19-related telehealth.
The Departments Guidance extends the non enforcement policies for the SBC notice of modifications and mid-year plan changes (described in 3d and e above) to situations where a plan adds benefits or reduces or eliminates cost sharing for telehealth and other remote care services. These non enforcement policies extend only during the COVID-19 public health emergency. Plans and issuers are required to provide notice of the changes as soon as reasonably practicable.
In a notice issued on March 17, 2020 Notification of Enforcement Discretion for Telehealth Remote Communications During the COVID-19 Nationwide Public Health Emergency OCR announced that it would not exercise its enforcement power to impose penalties for failure to comply with the HIPAA rules against health care providers that provide telehealth services in good faith during the COVID-19 nationwide public health emergency.
In a series of FAQs issued on March 24, 2020,the Center for Medicare and Medicaid Services(CMS) revealed that in light of the COVID-19 public health emergency, it will allow issuers in the individual and small group market to make mid-year changes to health insurance products to provide greater access to telehealth services. Amid-year change ordinarily is not permitted.
California Governor Gavin Newsom has issued an order suspending certain civil penalties that would apply for violations of various statutes, regulations and local ordinances that regulate the use of telehealth services. See: Executive Order N-43-20.
Both the California Department of Insurance and the California Department of Managed Health Care have issued guidance facilitating the use of telehealth services.
The Departments Guidance strongly encourages all plans and issuers to promote the use of telehealth by notifying consumers of its availability, by ensuring access to telehealth, and by covering telehealth without cost sharing or other medical management requirements.
Action Item: Employers that have fully insured group health plans should check with their carriers to determine whether telehealth services will be covered during the COVID-19 public health emergency. Employers with self-insured plansshould consider amending their plans to provide telehealth and other remote care services without cost sharing or other medical management requirements but should check with their stop loss insurers before doing so. Employers should notify their employees when telehealth is available.
8. Clarification on COVID-19 Diagnosis and Treatment as anEssential Health Benefits (EHB):In a set of FAQs issued on March 12, 2020 CMS clarified that EHB generally includes coverage for the diagnosis and treatment of COVID-19, although coverage details and cost-sharing amounts may vary by plan. The EHB benchmark plans for all 50 states and the District of Columbia currently provide coverage for diagnosis and treatment of COVID-19.
Action Item: Employers with self-insured plans should review their plan documents to determine if any plan amendments are required.
9. Tax Free Over-the-Counter Drugs: Previously, only prescription drugs and insulin could be reimbursed through an HSA, a health flexible spending account (Health FSA), or a health reimbursement arrangement (HRA). The CARES Act now permits the cost of over-the-counter drugs and menstrual care products to be reimbursed.
Action Item: Employers with Health FSAs and HRAs will need to decide whether to amend their plan documents to permit reimbursement of these costs. An employer has no authority to amend an HSA, so no action is required by the employer.
10. Dependent Care Flexible Spending Accounts: If an employer offers a dependent care flexible spending account (DCFSA), employees who have elected to make contributions may choose to change their election when they experience a change in work schedule.
Action Item: If an employer changes its employees’ work schedules changing the hours of child care needed and thus the amount of eligible dependent care expenses, for example, on account of a stay-at-home order, the employer may want to communicate with employees whose need for day care may have changed to let them know that they may be eligible to make a change to their elections.
11. Premium Holiday for Health Care Coverage:
Action Item: To ease the pain of a reduction in salary or wages because of the COVID-19 health emergency, employers may want to consider providing a premium holiday for health coverage. Employers should review their cafeteria plans to make sure that employees will be permitted to change their elections. An employer that maintains a self-insured plan should check the plan document to determine whether a premium holiday is permissible.
12. Furloughed Workers on Unpaid Leave:
Action Item: Employers with furloughed workers on unpaid leave may want to consider the following:
Check the group health plan document to see whether health coverage is continued during an unpaid leave. If not, consider extending health coverage when a worker is furloughed. If the plan is self-insured, the employer might need to amend the plan document, but in any event, check with the stop loss carrier and make sure any subsidy does not discriminate in favor of highly compensated participants under Code Section 105(h). For a fully insured plan, check with the carrier to get approval. Plan amendments will likely be required.
How will furloughed workers pay the cost of their health coverage when they are not being paid? Check the plan documents to determine which payment options are permitted (e.g., pay by check, prepay or employer pays and then recoups the cost from the employee upon the employee’s return).
Be prepared for furloughed workers who will stop paying their share of the cost and determine in advance whether, when, and the circumstances under which, the plan is permitted to terminate coverage for non-payment.
Consider COBRA issues. If the reduction in hours that occurs on account of the furlough results in loss of coverage under the eligibility provisions of the plan, then COBRA would be triggered. Be sure to provide the required COBRA notice and offer COBRA coverage.
If the employer is subject to the ACA employer mandate tax under Internal Revenue Code Section 4980H, make sure to consider the consequences under 4980H when an employee suffers a reduction in hours and as a result loses health coverage. If the employer uses the look-back measurement method for determining full-time status, and the furloughed worker is in a stability period when the furlough begins, locking in full-time status, then terminating coverage and offering unsubsidized COBRA during the stability period could result in a tax under 4980H.
13. Life Insurance
Action Item: Review, and possibly redistribute, participant communications regarding conversion of life insurance policies following termination of employment.
¹ Families First Coronavirus Response Act (“FFCRA”) and Coronavirus, Aid, Relief and Economic Security Act (“CARES Act”).
² See, e.g., links to multiple pieces of new guidance found at Department of Labor and Internal Revenue Service.
³ See, e.g., L.A. expands sick leave amid coronavirus —but only for employees at big companies.
⁴ For purposes of this article, the term “COVID-19 public health emergency” means the period during which a public health emergency declaration under section 319 of the PHS Act related to COVID-19 or a national emergency declaration under the National Emergencies Act, related to COVID-19 is in effect.
© Boutwell Fay LLP 2020, All Rights Reserved. This handout is for information purposes only and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us. The information contained in this article is effective as of April 10, 2020
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