1. How should we handle benefits for employees who are not working?

If you are temporarily suspending normal business operations or some employees are going to be on an unpaid leave of absence or furlough for an unspecified period of time, you should follow the policies in your Employee Handbook, which should be compliant with insurance regulations. Furloughed employees are still employed and eligible for benefits.

If employees remain eligible during the reduction in hours/furlough, the employer will most likely want to collect the employee’s share of the premiums.

Your handbook may have a requirement for employees on leave to make arrangements to pay their portion of health premiums while they are not working.  Depending on the circumstances, your options range from requiring someone to pay weekly, monthly, when they return, or forgive it entirely.  The coverage will remain in place as long as you do not notify your broker or the carrier that the employee has been terminated.

For example, you pay your premiums in advance of each month and if you terminate someone before the end of the month, state law mandates their coverage to remain in place through the end of the month.  If you fail to inform your carrier that an employee terminated in the prior month in less than three days into the following month, the insurance carrier will not refund your premium and will keep their coverage in place until the last day of the following month.

 

2. Because all of this COVID-19 is going on, we have some of our employees who are on a leave.  I have 2 so far who have a 401K loan, and I need know what will happen with their loans.  Do they need to keep paying on it while on leave?  Does the payment stop until they return?

Currently, a 401(k) Plan loan must be paid according to (or more rapidly than) the loan’s specified payment schedule. The loan will be considered in default at the end of the calendar quarter following the calendar quarter in which the participant misses a scheduled payment.  So, if an employee stops payments on 4/8/20, he/she would be in default as of 9/30/2020.  Under certain circumstances, a defaulted plan loan may be considered a distribution; the outstanding loan balance and accrued interest could be considered taxable income to the plan participant who borrowed the funds.

You could allow the employee to refinance the loan to reduce the payments, which would require the employee to pay another loan processing fee as well as some continuous payments.

Alternately, the new CARES Act allows employees to defer retirement plan loan payments up to one year from 12/31/2020; but it will probably require a plan amendment. If clients would like, we can check with the TPA to determine the cost of the amendment.

 

3. How do recent laws affect retirement plans?

Distributions from Retirement Accounts

The CARES Act creates Coronavirus-Related Distributions, which are defined as penalty-free distributions up to $100,000 made from IRAs, employer-sponsored retirement plans, or a combination of both.   These distributions need to be made in 2020, and the individual must have been impacted in one of the following ways:

• Have been diagnosed with COVID-19
• Have a spouse or dependent who has been diagnosed with COVID-19
• Experienced adverse financial consequences as a result of being quarantined, furloughed, being laid-off, or having work hours reduced because of the disease
• Are unable to work because they lack childcare as a result of the disease
• Own a business that has closed or operates under reduced hours because of the disease
• Or based on other factors as determined by the IRS

The tax benefits of Coronavirus-Related Distributions include individuals being able to spread the taxation of the withdrawn amount over the next three tax years (2020 to 2022), rather than including the full amount as taxable income in 2020. Individuals may also recontribute any amounts withdrawn under this provision at any time over the three-year period, tax free, even if the amount being returned exceeds the annual plan contribution limit.

 

Loans from Employer-Sponsored Retirement Plans

Many employer-sponsored plans (for example, 401(k), 403(b)) offer participants the option to take a loan on a portion of their retirement assets.  For those individuals who have been impacted by the coronavirus (as defined in the section above), the CARES Act has modified the plan loan rules as follows:

• The CARES Act doubles the amount that may be borrowed from $50,000 to $100,000.
• 100% of the Vested Balance may be used.  This differs from the normal rule which allows an individual with a vested balance that exceeds $20,000 to take a loan up to 50% of the amount with a maximum limit of $50,000.
• Loan payments taken in 2020 may be delayed for up to one year.

 

Temporary Waiver of Required Minimum Distribution for Certain Retirement Plans and Accounts

Under the CARES Act, all RMDs for 2020 are suspended. This applies to Traditional IRAs, SEP IRAs, SIMPLE IRAs, as well as 401(k), 403(b), and Government 457 plans.  It also includes individuals who turned age 70½ in 2019 and were waiting until April 1, 2020, to take their first RMD.  These individuals will also miss taking their second RMD which would normally be due before December 31, 2020. 

If an individual has taken an RMD within the last 60 days, you may be able to return it to your retirement account without penalty before the expiration of 60 days. If you took your RMD more than 60 days ago, then it is likely you will need to qualify for a COVID-19-related distribution (as defined in the section above) in order to be able to return the distribution to the account without penalty.

The CARES Act suspension of RMDs for 2020 also impacts the 5 Year Rule that applies to Non-Designated Beneficiaries (e.g., charities, estates, trusts) who inherit a retirement account prior to the decedent reaching their required beginning date.  Normally these beneficiaries would have to distribute the entire account balance within 5 years.  The CARES Act, however, allows 2020 to be ignored for those beneficiaries provided the decedent died in any year between 2015 and 2019.  

 

4. How do recent laws affect employee benefits?

COVID-19 Testing and Preventative Services

The Families First Coronavirus Response Act (FFCRA) requires that the costs of COVID-19 testing be covered by health insurance, and that no cost-sharing be imposed on the individuals receiving such tests, so long as the tests met certain requirements.

The CARES Act expands the testing that must be covered by health insurance without cost-sharing, and also includes rules about reimbursing testing providers. In addition, the CARES Act now requires health insurance to cover, without cost-sharing, any qualifying coronavirus preventative service, which is intended to prevent or mitigate COVID-19 and meets certain standards.

 

Certain Over-the-Counter Medical Products Now Qualified Medical Expenses

Many over-the-counter medical products are now considered qualified medical expenses and can be purchased using health savings accounts, Archer medical savings accounts, health flexible spending arrangements and health reimbursement arrangements.

 

5. Has the DOL granted any extensions for benefit plans?

The DOL’s EBSA Disaster Relief Notice 2020-01 provides some extensions and relief for plan sponsors.  The following is reported by the National Association of Health Underwriters:

For group health plans subject to ERISA or the Internal Revenue Code, the relief provides additional time to comply with certain deadlines affecting COBRA-continuation coverage, special enrollment periods, claims for benefits, appeals of denied claims and external review of certain claims. With regard to disability, retirement and other plans, the joint notice provides additional time for participants and beneficiaries to make claims for benefits and appeal denied claims. As we noted in our letter, without the extension, individuals might miss key deadlines during the COVID-19 outbreak that could result in the loss or lapse of group health coverage or the denial of a valid claim for benefits.

In addition, the DOL announced an extension of deadlines for furnishing other required notices or disclosures to plan participants, beneficiaries and other persons so that plan fiduciaries and plan sponsors have additional time to meet their obligations under Title of I ERISA during the COVID-19 outbreak. NAHU provided this suggestion as many groups may need to adjust their plans due to the pandemic but may not be able to comply with traditional notice requirements. This extension applies to the furnishing of notices, disclosures and other documents required by provisions of Title I of ERISA that are overseen by the DOL. An employee benefit plan and the responsible plan fiduciary will not be in violation of ERISA for a failure to timely furnish a notice, disclosure or document that must be furnished between March 1, 2020, and 60 days after the announced end of the COVID-19 National Emergency, if the plan and responsible fiduciary act in good faith and furnish the notice, disclosure or document as soon as administratively practicable under the circumstances. Good-faith acts include use of electronic alternative means of communicating with plan participants and beneficiaries who the plan fiduciary reasonably believes have effective access to electronic means of communication, including email, text messages and continuous access websites.

Another concern of NAHU was the deadline for Form 5500 filings. The Administration is providing Form 5500 Annual Return/Report filing relief in accordance with IRS Sec. 7508 that allows for an extension in filing during a presidentially declared disaster. In addition, Form M-1 filings required for multiple employer welfare arrangements (MEWAs) and certain entities claiming exception (ECEs) are provided relief for the same period of time as the Form 5500 Annual Return/Report filing relief.

 

6. Do I need to take any action for my employees to be able to take advantage of a COVID-19 loan or other change?

Because the coronavirus-related distribution and loan limit increase provisions are optional, they will not go into effect unless the plan sponsor opts to affirmatively add them to their plan. A Plan Sponsor may implement and begin using a feature or option of the CARES Act at any time; however, they need to inform their third party administrator that they would like to add these provisions to their plan first.

Potential changes include in-service COVID-19 withdrawals, increase loan limits and delayed loan payments, and waived RMDs.