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Coronavirus Aid, Relief, and Economic Security Act – Summary of Retirement, Health Plans & Employee Benefit Changes

Please find below a summary of the changes to Retirement Accounts, Health Plans and other Employee Benefit under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed by President Trump on March 27.

Section 2202 – Eligible retirement plan emergency withdrawals:

Plans may permit individuals financially impacted by COVID-19 to withdraw up to $100,000 in emergency funds from their eligible retirement plan from January 1 through December 31. This is determined on a controlled group basis.

An individual is considered to be financially impacted by COVID-19 if:

  • the individual is diagnosed with COVID-19;
  • their spouse, or dependent is diagnosed with COVID-19; or
  • the individual experiences adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to COVID-19, or is unable to work due to lack of child care due to COVID-19, or a business owned or operated by the individual closes or reduces hours due to COVID-19.

An “eligible retirement plan” is a qualified plan, an individual retirement plan, a 403(b) plan, a 403(a) annuity plan, or an eligible 457 plan. An “individual retirement plan” is an individual retirement account or an individual retirement annuity, more commonly known as an IRA.

Section 2202 – 10% excess tax on certain early distributions not imposed:

A 10% excise tax is imposed on certain early distributions from eligible retirement plans. Tax does not apply to COVID-19 related distribution (CRD) up to $100,000 (determined on a control group basis).

CRD’s are defined as:

  • Distribution(s) made from eligible retirement plan on or after January 1, 2020 and before December 31, 2020
  • During 2020 to an individual diagnosed with COVID-19
  • Spouse or dependent diagnosed with COVID-19 furloughed, laid off, or unable to work because of COVID-19.

Recipient can avoid any income tax by repaying amount of CRD as a rollover within three years of distribution, To the extent not repaid, taxable ratably over three years.

Section 2202 – Emergency Plan Loans:

Qualified retirement plans may permit individuals financially impacted by COVID-19 (using the same definition as for plan emergency withdrawals) to take loans of up to $100,000 from their retirement accounts (instead of the usual limit of $50,000). Loan repayments, which can be spread out over five years, may be delayed up to one year. Loans can be taken up to 100 percent of the present value (increased from 50 percent) of the individual’s vested account balance or benefit.

Section 2202 – Qualified Plan Amendments:

Plans may operate to permit emergency withdrawals, emergency loans and waive required minimum distributions, without a formal amendment, so long as the plan is amended by the end of the 2022 plan year.

Section 2203 – Required Minimum Distributions:

Required minimum distribution requirements will not apply for calendar year 2020. To certain defined plans 403(a) 403(b),457(b) and IRAs.

Section 3601 – Limitation on Paid Leave:

An employer will not be required to pay more than $200 per day and $10,000 in the aggregate for each employee under this section.

Section 3602 – Emergency Paid Sick Leave Limitation:

An employer shall not be required to pay more than $511 per day and $5,110 in the aggregate for sick leave or more than $200 per day and $2,000 in the aggregate to care for a quarantined individual or child for each employee under this section.

Section 3605 – Paid Leave for Rehired Employees:

An employee who was laid off by an employer March 1, 2020, or later will be allowed to have access to paid family and medical leave in certain instances if they are rehired by the employer.

Employee would have had to work for the employer at least 30 days prior to being laid off.

Section 3606 – Advance Refunding of Credits:

An employer or a self-employed individual may offset on a dollar for dollar basis and on a payroll by payroll basis the amount the employer or the self-employed individual has paid to its employees for Emergency Paid Sick Leave and paid FMLA against the employer’s contribution for social security. If the amount of benefits paid exceeds the amount of the employer’s social security contribution, the IRS will establish a procedure under which the employer can apply for an expedited refund of those amounts.

Section 3607 – Expansion of DOL Authority to Postpone Certain Deadlines:

The Department of Labor shall have the ability to postpone certain ERISA filing deadlines for a period of up to one year in the case of a public health emergency.

Section 3608 – Pension Payments:

Employers maintaining single-employer pension plans can delay making minimum required contributions due this year until January 2021. Contributions would be due with interest, accrued at a plan’s effective rate.

Section 3701 – Health Savings Accounts for Telehealth Services:

A high-deductible health plan (HDHP) with a health savings account (HSA) will be allowed to cover telehealth services prior to an individual reaching the deductible, for plan years beginning on or before December 31, 2021, This allows HDHP participants to receive first dollar coverage for telehealth and other remote care services without disqualifying them from being eligible to contribute to a health savings account (HSA).

Section 3702 – Tax free reimbursement of OTC drugs and Feminine Hygiene Products without a Prescription:

Expenses incurred for non-prescribed over-the-counter medicine and medical supplies are covered expenses that can be reimbursed under health savings accounts, health flexible spending accounts, and health reimbursement arrangements. 

This change repeals the Affordable Care Act’s prohibition on reimbursement of such expenses under those arrangements. 

In addition, menstrual products are included as covered expenses that can be reimbursed under those arrangements.

This change applies to those expenses incurred after December 31, 2019.

Section 4004 –  Executive Compensation Limitations:

If a company accepts certain emergency direct lending relief under CARES, the company must agree to certain limitations on the compensation (including salary, bonuses, equity, and other financial benefits) paid to its officers and employees that remain in effect until one year after the loan or loan guarantee ceases.

These limitations are as follows:

No officer or employee whose total compensation in 2019 exceeded $425,000 (excluding certain collectively bargained employees:

  •  May receive compensation during any 12-month period greater than the amount received in 2019 or
  •  May receive severance pay or benefits upon termination which exceed two times the maximum total compensation received in 2019.

Additionally, no officer or employee whose total compensation in 2019 exceeded $3,000,000 may receive compensation during any 12-month period greater than $3,000,000 plus 50 percent of the amount greater than $3,000,000 received in 2019.