Seyfarth Synopsis: Several deadlines established by the IRS to adopt amendments or restatements to employer-sponsored retirement plans, and in this instance specifically, to 403(b) plans maintained by tax-exempt entities and pre-approved defined benefit pension plans maintained by any employer, were fast approaching. On March 27, the IRS extended these upcoming deadlines giving employers who sponsor these plans additional time to adopt necessary amendments to, or restatements of, 403(b) plans and defined benefit pension plans. This gives impacted employers much needed breathing room in a point in time where employer-resources are being focused on COVID-19 issues. These extensions were widely expected, but at least in the case of the deadline applicable to 403(b) plans, the IRS waited until just four days before the deadline to let us know.

Pre-Approved Defined Benefit Pension Plans

Several years back, in order to control the flow of determination letter applications that were being sent to the IRS, the IRS established fixed remedial amendment cycles during which plans could be amended or restated to address recent legislation or regulatory guidance. The six-year remedial amendment cycle applicable to pre-approved defined benefit pension plans was scheduled to end on April 30, 2020. Late yesterday, the IRS announced that this deadline was being extended three months to July 31, 2020. Thus, if an employer adopts a defined benefit pension plan that the IRS “pre-approved” based on the 2012 Cumulative List of required amendments no later than July 31, 2020, the IRS will consider the plan timely amended. Employers eligible to submit an application for a favorable determination letter also have until July 31, 2020 to submit that application.

Note: While not an immediate concern, the start of the next remedial amendment cycle for pre-approved defined benefit pension plans also will be delayed to August 1, 2020, but will still end as previously scheduled on January 31, 2025.

403(b) Plans Sponsored by Tax-Exempt Employers

Of even more immediate impact, the IRS also granted a three month extension of the remedial amendment period applicable to 403(b) plans that was due to close on March 31, 2020. The deadline for making these amendments to or restatements of 403(b) plans, or the adoption of an IRS pre-approved 403(b) plan document is now June 30, 2020.

The upcoming end of this particular remedial amendment period was of great interest to tax-exempt employers who sponsored 403(b) plans (a 401(k)-like tax-preferred retirement plan available only to tax-exempt and governmental employers akin to a 401(k) plan).  Under this remedial amendment period, tax-exempt and governmental employers had the opportunity to amend or restate their 403(b) plans retroactive to January 1, 2010 (the date that having a written 403(b) plan document was finally effective pursuant to regulations issued by the IRS in 2007).  This means that a 403(b) plan sponsor has the ability to fix “document failures” (the failure of a 403(b) plan document to include a Code- or regulatory-required provision) retroactive to 2010.

Note: This ability to retroactively fix a 403(b) document failure did not extend to “operational failures” – a failure to have followed a provision of the plan document, or a required rule that was not properly included in the plan document.  For these operational failures, 403(b) plan sponsors would need to look to the IRS voluntary correction program.

As such, this particular remedial amendment period was a significant issue for sponsors of 403(b) plans.

For certain, impacted employers and employee benefit practitioners welcome the extension of these upcoming deadlines.  Note that the failure to timely adopt amendments to or restatements of defined benefit pension plans or 403(b) plans by the now-extended deadlines outlined above, does not preclude the plan sponsor from fixing a plan document failure that is not addressed until after the applicable deadline. In those cases, the plan sponsors would need to apply to the IRS voluntary correction program for an individual Compliance Statement, a process that can take time and will incur costs that are not necessary if the deadlines are adhered to.

Additional information and details of these extension will be provided by the IRS in future guidance. Of course, we are happy to help if you need any assistance in this regard.

Stay safe.

Seyfarth Synopsis: On March 27, 2020, the House of Representatives followed the Senate’s lead in voting overwhelmingly to pass the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The President signed the legislation into law shortly thereafter. This blog post highlights the health and welfare benefit provisions contained in the law. Click here to review the executive compensation provision contained in the law, and click here and here to review the retirement plan provisions.

No Cost Coverage for COVID-19 Screenings and Vaccines

Screenings and Related Costs at No Charge to Participants

The CARES Act amended (and expanded) the screening mandate under the Families First Coronavirus Response Act (FFCRA). As a refresher, the FFCRA requires insured and self-funded group health plans to provide coverage for COVID-19 screenings, as well as any items and services furnished during the office visit (including telehealth visit), urgent care center visit, and emergency room visit that results in an order for or administration of a COVID-19 screening. Plans may not impose any cost-sharing (deductibles, copays, coinsurance, etc.) for such screening or associated visit.

The CARES Act amends the FFCRA to clarify that plans must also cover such services in the non-network setting at the rate of reimbursement publicized by the provider on its website (the Act requires providers to do so), or a lower rate negotiated with the provider. Presumably, the intent of this provision is to ensure the plan pays a sufficient rate for non-network coverage to avoid participant balance billing, while limiting the plan’s upside liability through the internet price publishing obligation.

To be clear, neither the FFCRA nor the CARES Act mandate that plans cover (with or without cost-sharing) coronavirus-related services following a COVID-19 diagnosis.

Vaccine at No Charge to Participants

The CARES Act further sets the stage to require plans to cover COVID-19 vaccinations at no cost (once available). As most are aware, the ACA requires that preventive services must be provided at no cost. For these purposes, preventive services include recommendations by the US Preventive Services Task Force no earlier than the first plan year beginning one year after the recommendation is added. The CARES Act creates a special rule for COVID-19 vaccines, requiring coverage within 15 days of the date the recommendation is released.

Permits Free Telehealth with no Impact on HDHPs through 2021

The CARES Act also strikes new ground in allowing telehealth services to be covered under a High Deductible Health Plan (HDHP) before the deductible is met, thus not impacting coverage for Health Savings Accounts (HSAs). This is temporary relief, however, and only allows for the first dollar coverage of such telehealth services for plan years beginning before 2022. To be clear, neither the FFCRA nor the CARES Act mandates no-cost telehealth coverage (except for COVID-19-related screening), but it does permit such no-cost coverage for participants in an HDHP.

Tax-Free Coverage for OTC Products

The CARES Act repeals the long-loathed ACA prohibition on reimbursement for over-the-counter drugs from HSAs, health FSAs, HRAs and Archer MSAs. In addition, it expands the scope of these reimbursement vehicles to permit tax-free reimbursement for menstrual care products, with all provisions taking effect as of January 1, 2020.

Privacy Clarifications

The CARES Act more closely conforms the federal law governing the confidentiality and sharing of substance use disorder (SUD) treatment records, implemented at 42 C.F.R. Part 2 (Part 2), with the Health Insurance Portability and Accountability Act (HIPAA). Because Part 2 imposed stricter requirements on the use and disclosure of Part 2 records than HIPAA, this alignment has been long advocated for by various stakeholders in the health care sector. These changes should simplify the process of sharing Part 2 SUD records between Part 2 programs, group health plans and their business associates for treatment, payment and health care operations. The new rules are effective for uses and disclosure of Part 2 records 12 months after the date of enactment of the CARES Act, with the Secretary of Health and Human Services directed to issue implementing regulations in the interim.

Student Loan Repayment Benefit through 2020

The CARES Act allows employers to contribute up to $5,250 toward an employee’s qualifying student loans. The employer’s student loan payments may be made directly to the lender or via reimbursement to the employee, and are excludable from the employee’s income up to the $5,250 cap for all employer-provided educational assistance benefits during 2020. Previously, employers could only provide assistance for ongoing tuition payments but could not provide assistance for previously incurred loans on a tax-preferred basis. This is another temporary provision, only applying to an employer’s student loan payments after the date of enactment of the CARES Act through December 31, 2020.

Seyfarth Synopsis: On March 27, 2020, the House of Representatives followed the Senate’s lead in voting overwhelmingly to pass the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “Act”), which the President immediately signed into law. This post highlights the defined contribution retirement plan provisions contained in the law. Click here to review the executive compensation provision contained in the law; click here to review the health and welfare plan provisions; and click here to review the defined benefit plan provisions.

  • Tax-Favored “Coronavirus-Related” Withdrawals. Coronavirus-related distributions (“CV Distributions”) from defined contribution retirement plans (including IRAs) will not be subject to the 10% penalty that normally applies to early withdrawals. An individual may elect to include the amount of the qualified CV Distribution(s) in income over a three-year period.

Observation. While it looks like this is probably intended to be a new distribution type, we think that it is a little unclear based on the language in the Act. Some additional guidance would be helpful with respect to whether this is a new distribution right, or if it is just an exception from the penalty tax for otherwise eligible distributions that fit the criteria, with repayment rights. There is language in the Act indicating that a CV Distribution would be deemed to satisfy the 401(k), 403(b) and 457 plan distribution timing rules, which seems to support the position that this is a new distribution right. If this is a new in-service distribution right, then it should be an optional provision. Plan sponsors are not required to make in-service withdrawals available (e.g., age 59½ or hardship), so we would expect the same to apply here.

Similar to the disaster relief withdrawals provided in the past for other types of disasters, an individual may choose to repay all or a portion of the CV Distribution(s) to a defined contribution retirement plan or IRA within three years. A participant who chooses to repay is treated as having received the CV Distribution in an eligible rollover distribution, and then directly transferring it tax-free to the eligible retirement plan.

Observation. It appears that repayments are made to the plan or IRA by a participant on an after-tax basis, but until the IRS issues additional guidance, we do not know for sure how the repayment will be able to be made. If repaid to an IRA, it is not clear whether the repayment is considered a rollover for purposes of the one rollover limit per year that applies to IRAs, although the repayment of other types of disaster distributions have historically not counted toward the rollover limit.

There are a number of conditions that must be met in order to qualify for this relief:

    • CV Distributions may be taken no earlier than January 1, 2020, but before December 31, 2020.

Observation. This relief may be adopted retroactive, applying to CV Distributions occurring back to January 1, 2020. When communicating this relief to participants, plan administrators may want to consider informing participants that they may be entitled to relief in 2020 for the 10% penalty tax, provided that they can certify that a distribution made earlier in 2020 was a CV Distribution.

    • Total CV Distributions may not exceed $100,000, and may not be rolled over. When determining whether the limit has been exceeded, you take into account all plans maintained by the employer and members of its controlled group.

Observation: This will require coordination among various plans in an employer’s controlled group.

    • CV Distributions must be made to an individual who is diagnosed with the SARS-CoV-2 virus or with coronavirus disease 2019 (COVID-19), or to an individual whose spouse or dependent is diagnosed with the virus or disease. Alternatively, an individual is eligible for this relief if he or she experiences adverse financial consequences stemming from the virus or disease as a result of being quarantined, furloughed, laid off, having reduced work hours, being unable to work due to lack of child care, the closing or reduction of hours of a business owned or operated by the individual or other factors determined by Treasury.

Similar to earlier versions of the Act, diagnosis of the virus or COVID-19 must be made pursuant to a test approved by the CDC.

Observation. This would appear to exclude other types of FDA-approved tests that are being fervently developed in light of the shortage of CDC-approved test kits. However, the Act provides that plan administrators may rely on the employee that these conditions are satisfied, so it appears that actual documentation showing diagnosis of the virus or COVID-19, or of adverse financial consequences is not required. Plan administrator’s may want to discuss how this certification process will work with the plan’s third party recordkeeper. In addition, the Act refers to an “employee” when describing the certification requirement. Based on other language in the Act, it appears that CV Distributions are available to both active participants as well as terminated participants, but it would be helpful if this was clarified. Continue Reading CARES Act Relief: Defined Contribution Plan Provisions

Seyfarth Synopsis: After the Senate failed to secure the needed votes for a comprehensive coronavirus rescue package over the prior weekend, on Friday, Congress finally passed a $2 trillion package (the “CARES Act”) amidst classic drama between Republicans and Democrats in both houses. The President signed the legislation into law shortly thereafter. This blog post highlights the executive compensation provisions contained in the law. Click here to review the health and welfare plan provisions contained in the law; click here to review the defined benefit plan provisions; and click here to review the defined contribution retirement plan provisions.

One provision that delayed a quicker resolution concerned oversight, transparency and accountability on a fund designed to provide loans and loan guarantees to corporations. Democrats affectionately referred to it as a “slush fund,” as the Treasury Secretary held the solitary power to decide which companies received loans and for how much. Democrats also took issue with what they saw as relatively weak restrictions on executive compensation for companies receiving loans.

The final provisions of the CARES Act reflect a blend of both Senate Bill 3548 and House Bill 6379 with additional provisions that address Democrats’ concerns. This blog focuses on the nitty-gritty with respect to the executive compensation related items that apply to businesses who receive federal loans under the CARES Act.

Federal Loans – The rescue package includes $500 billion in aid for “eligible businesses,” states and municipalities. Relief is not available if any covered individual (including certain political officials and family members) hold at least a 20% interest in or value of an eligible business (alone or with another covered individual). The Federal loan program is broadly available to businesses impacted by the crises but with specific allocations to commercial airlines, cargo carriers and businesses critical to maintaining national security. The Treasury Secretary will have broad authority to administer the program with oversight by a new Treasury Department Special Inspector General for Pandemic Recovery and Pandemic Response Accountability Committee. For information beyond the executive compensation requirements addressed below, please see our general alert.

Executive Compensation Limits – In responding to the crisis and addressing the bleeding on businesses, many CEOs have stopped taking their salary and have reduced their executives’ pay. For companies that receive Federal loans under the CARES Act, their executive compensation practices will be reshaped for quite some time. The following limits are in effect for the period the loan remains outstanding (up to a maximum of 5 years) and for one year after the loan is paid off (“Compensation Limit Period”).

Compensation Limits

For any officer or employee of an eligible business whose “total compensation” exceeded one of the following thresholds in calendar year 2019, total compensation during any 12 consecutive months of the Compensation Limit Period is capped at the following amounts:

  • If compensation exceeded $425,000, total compensation is capped at the amount received in calendar year 2019
  • If compensation exceeded $3,000,000, total compensation is capped at $3,000,000 plus 50% of the excess over $3,000,000 of compensation received in calendar year 2019

Severance Pay Limits

Severance pay and other benefits cannot exceed two times the maximum total compensation received by the individual in calendar year 2019. The provision is somewhat ambiguous as to whether it applies to terminations during this period or severance pay received during the period, but suggests it is pay received.

Total Compensation

In determining the thresholds, companies need to include salary, bonuses, awards of stock and other financial benefits. For public companies, this appears to equate to the total compensation disclosed in the Summary Compensation Table in their annual proxy. It does not include any stock gains from exercised options or sales from other vested equity. If a company is not public, until further guidance, it may consider using the rules for public companies to determine total compensation. In general, total compensation includes among other items, stock awards valued at grant date, employer contributions under 401(k) and nonqualified deferred compensation plans, perquisites, and pension values.

Action Items

If a company receives a loan and maintains a severance plan covering these individuals, amendments will need to be made to meet these limits. Additionally, if a company has individual employment and/or severance agreements promising salary and severance commitments, it will need to amend these agreements. Given that these agreements are bilateral contracts to an executive who could sue to enforce, care should be given to obtaining any necessary consent before obtaining a loan.

Stock Buyback and Dividend Prohibition

For any eligible business who receives a Federal loan and is public, for the same Compensation Limit Period, the business cannot use any of its cash to buyback stock on the market, which has the effect of increasing stock value by decreasing the number of shares outstanding. This prohibition does not apply if there is a contractual obligation to repurchase shares in effect on the CARES Act’s enactment date. These companies cannot issue dividends either.

The Treasury Secretary has authority to waive this prohibition if necessary to protect the Federal government’s interests and if so, must be available to testify before Congress as to the reasons for the waiver.

In 2018, S&P 500 companies did a combined $806 billion in buybacks followed by another $370 billion in buybacks in the first six months of 2019, according to a January 7, 2020 Harvard Business Review article, “Why Stock Buybacks Are Dangerous for the Economy.” The authors concluded: “When companies do these buybacks, they deprive themselves of the liquidity that might help them cope when sales and profits decline in an economic downturn.”

When the time comes for post-mortem reflection, companies will be looking at ways to shore up their resiliency for the long-term. Given the recent economic fallout and the prohibition on stock buybacks for Federal loans, buybacks will likely also fall out of favor as a short-term boost in value even for companies that do not receive a Federal loan under the CARES Act.

Seyfarth Synopsis: On Friday, March 27, 2020, in light of the far-reaching impact of coronavirus, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes some relief provisions for tax-qualified defined benefit pension plans. Click here to review the executive compensation provision contained in the law; click here to review the health and welfare plan provisions; and click here to review the defined contribution plan provisions.

The CARES Act includes two provisions aimed at providing some relief to companies that sponsor tax-qualified defined benefit pension plans.

  • Delay of Required Contributions. Under the CARES Act, a company can delay to January 1, 2021 any required contributions otherwise due in 2020 to meet funding standards. This provision will provide cash conscious companies with the ability to conserve their cash in 2020 by delaying contributions to the plan until January 1, 2021. Any contributions that are delayed are increased by interest for the period beginning on the original due date to the actual payment date.
  • Benefit Restrictions Relief. Normally, a pension plan must impose restrictions on certain benefit distributions (for example, lump sums) when the plan’s funding status falls below 80 percent. The primary intent of these restrictions is to prevent retirement-eligible participants from drawing down a large portion of the plan’s assets at the expense of participants who are not yet retirement-eligible and unable to draw benefits. Recognizing the current, unique circumstances that could adversely impact a plan’s funded status (such as historically low interest rates), the CARES Act provides that a pension plan can use its funding status for the plan year ending in 2019 when determining whether it must impose benefit restrictions for plan years which include calendar year 2020.

Please stay tuned to our Beneficially Yours blog as we intend to provide updates as events unfold. In the interim, we hope that everyone is staying safe and secure as we all navigate these uncharted waters.

By Namrata Kotwani and Mark Casciari

Seyfarth Synopsis: In this post, we discuss the implications of the Fifth Circuit’s holding that a plaintiff challenging the ACA has Article III standing to bring suit when her injury amounts to an “increased regulatory burden,” even though she faces no other penalties.

The authors are well-aware of the COVID-19 pandemic and its human toll. We extend our well-wishes to the readers of this post, and hope for everyone’s wellness and safety, and a marked improvement to public health.

On March 2, 2020, the United States Supreme Court granted certiorari in California v. Texas, No. 19-840, which appeals the decision of the Court of Appeals for the Fifth Circuit that struck down the individual mandate to the Affordable Care Act (ACA). We previously shared an overview of the Supreme Court’s decision to grant certiorari here.

In Texas v. United States (as the case was styled previously), the Fifth Circuit held that the two individual plaintiffs who were self-employed residents of Texas had standing to challenge the ACA, despite not being subject to a financial penalty. There was no penalty because the 2017 Tax Cuts and Jobs Act (TCJA) set the penalty for not maintaining individual health insurance at zero dollars. According to the Fifth Circuit, the individual plaintiffs had standing because they demonstrated the “increased regulatory burden” that the individual mandate imposes.

As we have discussed, the Supreme Court is keenly interested whether a federal court plaintiff has a sufficient injury to sue in a federal forum when she can show no other harm besides a technical statutory violation. In Spokeo v. Robbins, the Supreme Court held that, although Congress can create federal claims, those claims can only be litigated in federal court as long as the plaintiff alleges a “concrete” injury (i) that affects the plaintiff in a personal and individual way, (ii) that is traceable to the defendant, and (iii) that is repressible by the federal judge. And now pending before the Supreme Court is Thole v. U.S. Bank, which will decide whether plan participants and beneficiaries in a fully-funded ERISA pension plan have Article III standing to sue a plan for alleged breaches of their statutory fiduciary duties. The Thole plaintiffs faced no injury in the form of reduced pension benefits but alleged that investment decisions made by the plan fiduciaries in breach of their duties of loyalty and prudence caused the plan to lose more than $758 million.

It is possible that the Supreme Court may dismiss the individual plaintiffs in Texas v. United States for lack of standing, finding that they have not been harmed by a mere obligation to maintain individual health insurance without a corresponding penalty. Such a ruling would seemingly comport with Spokeo, which suggests that private plaintiffs may not sue to enforce statutory obligations when they have not yet been harmed by violations of those obligations. ERISA fiduciaries thus might expect a drop in class action filings, especially as all private claims for breaches of fiduciary duty under Section 502(a)(2) and (a)(3) may be brought only in federal court, and not in a state court. A technical ERISA statutory violation may not be found “concrete and particularized,” or “actual or imminent,” and may instead be considered “conjectural” or “hypothetical,” buzz words used to determine the outcome of Spokeo arguments to dismiss.

Updated March 28, 2020: Under the IRS safe harbor reason for a hardship related to FEMA, a hardship is available for expenses and losses for employees living or working in affected area at the time of a disaster designated by FEMA for individual assistance with respect to the disaster.  It is not clear that FEMA has granted Iowa individual assistance yet, but per its website, FEMA has provided the Crisis Counseling Program (which it labels as individual assistance) to California, Washington, New York and Louisiana.

Seyfarth Synopsis: The Federal Emergency Management Agency (FEMA) has declared several disaster areas around the United States as a result of the spread of the coronavirus (COVID-19). As of publication, the entire states of California, New York, Washington, and Louisiana are declared disaster areas. Pursuant to final regulations issued in 2019, a federal disaster declaration has become one of the safe harbor reasons that qualifies a 401(k) or 403(b) plan participant for a hardship distribution, so it appears that plan participants may now be able to take a hardship withdrawal if they are laid off, put on an unpaid leave of absence or incur other expenses and losses on account of COVID-19 (that wouldn’t have otherwise qualified for a hardship distribution).

As COVID-19 spreads across the country, workers have been instructed, and in some cases ordered, to stay home and shelter in place, with the exception of certain workers deemed essential (e.g., health care workers, food distribution and grocery store workers, transportation workers). Where workers can perform the daily duties of their jobs remotely from home, their work continues. However, some workers, particularly in the services and retail industries, just cannot work remotely. Employees facing reduced hours or furloughs will likely suffer financial hardship and may be looking for a way to access their retirement funds to relieve that stress.

Fortunately, many employer-sponsored 401(k) and 403(b) retirement plans provide for an in-service distribution right upon the showing of an immediate and heavy financial need (a “financial hardship”). Many plans have adopted safe harbor immediate and heavy financial hardship reasons, which include expenses related to medical care, payment of tuition, payments of rent or mortgage to prevent eviction, and funeral expenses. Historically, the IRS would also issue special relief for areas that suffered a disaster (e.g., a hurricane or wildfires), which allowed plan participants access to hardship distributions even if the participant did not otherwise satisfy one of the other safe harbor reasons (like a casualty loss to the participant’s principal residence), and increased plan loan limits.

Following the enactment of the Tax Cuts and Jobs Act of 2018, the IRS amended the hardship distribution regulations to reflect changes made by that Act and included a new immediate and heavy financial need safe harbor event:

Financial need incurred by an employee on account of a FEMA declared disaster.

Under the new rules, any plan participant who lives in or works in the declared disaster area and otherwise satisfies the requirements for a hardship (i.e., the amount taken is necessary to meet the need), is eligible to take a hardship for expenses and losses on account of the disaster, including loss of income. Examples of situations where hardships are now permitted include situations where employees living in the affected states face financial hardship because they have been put on an unpaid leave of absence or had their hours reduced due to COVID-19.

Before taking a hardship distribution, participants should consider all other possible sources for the needed funds. In addition to a hardship distribution being subject to income tax, if taken before age 59½, could be subject to a 10% excise tax for early distribution.

Given the present circumstances, we wanted to take the opportunity to remind plan sponsors and plan participants of the availability of these new hardship provisions. The new rules became effective as of January 1, 2019, and were permissive – so some employers may not have adopted the new disaster area hardship safe harbor. Plans do not yet have to be amended to reflect the new rules, but the plan sponsor will have to have otherwise taken appropriate action to incorporate the change into its plan.

For the most up-to-date list of states that have been declared disaster areas, visit https://www.fema.gov/disasters.

Stay safe everyone.

Seyfarth Synopsis:  On March 19, Senator McConnell introduced the Coronavirus Aid, Relief, and Economic Security (CARES) Act. While the Act largely focuses on economic relief for businesses and individuals, it did contain certain provision impacting benefit plans (for more on the potential impact for retirement plans, click here). Notably, the CARES Act replicates and builds off of the COVID-19 testing provisions from the Families First Coronavirus Response Act, as described below. 

As we described in our earlier blog posts (here, here and here), the Families First Act required health plans to offer free testing for COVID-19 and any related admissions (including telehealth fees relating to testing). The CARES Act appears to serve as a technical correction, of sorts, with respect to the testing mandate under the same text from Families First and clarifies certain unanswered questions facing plan sponsors. Specifically:

  • Expiration Date. As drafted, it appeared the Families First Act’s COVID-19 testing provisions arguably were set to expire at the end of April. The CARES Act cleans up the cross-references in a manner we assume is intended to continue the testing mandate through the expiration of the Emergency Declaration.
  • Definition of Covered Screening. The Families First Act only mandated coverage for FDA-approved COVID-19 testing.  In an acknowledgment that tests are now being developed at the state and commercial level, the CARES Act expands the list of what forms of testing are covered.
  • Telehealth Change? The CARES Act drops the parenthetical requiring coverage for no-cost telehealth services associated with testing. The intent here is unclear. We don’t believe this was intended to supersede/replace the Families First Act, so perhaps this was just a drafting error.
  • Reimbursement Rate for Testing and Admissions. The CARES Act specifies the reimbursement rate that plans must pay for testing both in the in-network and non-network setting. This is important for a few reasons:
    • This clarifies that plans must cover both in-network and non-network testing.  (It was unclear from the Families First Act whether non-network testing was required to be covered at no cost).
    • Many had expressed concern that plans could be subject to price gouging in the non-network setting. To address this, the CARES Act (a) requires that providers list, on a publically available website, the cash cost of COVID-19 testing, and (b) only requires that plans pay that rate.  Presumably, this should avoid the issue of balance billing (unless the provider charges more than its published rates), and perhaps would limit price-gouging concerns because the information would be publicly available.
  • No Cost Vaccines (when available). The CARES Act goes further than Families First in requiring that plans consider coronavirus vaccines to be a preventive service. As most are aware, the ACA requires that preventive services must be provided at no cost. While there is no vaccine of yet, this appears to be an attempt to get ahead of an anticipated vaccine release at some point down the road.

Further, under the ACA, plans must cover recommendations by the US Preventive Services Task Force no earlier than the first plan year beginning one year after the recommendation is added. The CARES Act creates a special rule for COVID-19 vaccines, requiring coverage within 15 days of the date the recommendation is released.

The CARES Act also strikes new ground in allowing telehealth services to be covered under a High Deductible Health Plan (HDHP) before the deductible is met, thus not impacting coverage for Health Savings Accounts (HSAs). This is temporary relief, however, and only allows for the first dollar coverage of such telehealth services for plan years beginning before 2022.

We will continue to track the CARES Act and keep you apprised of its progress. The proposal included various other benefits-related items that we will highlight in a separate blog as we continue to monitor.

Seyfarth Synopsis: As we have been raising in our series of blog posts and Legal Updates, the impact of the coronavirus is far-reaching, and there are a number of concerns relating to employer-sponsored retirement plans to keep in mind as we navigate this unprecedented situation. One such concern is retirement plan-related disaster relief. Yesterday, Senate Majority Leader Mitch McConnell introduced the third coronavirus stimulus package dealing with the outbreak, called the “Coronavirus Aid, Relief, and Economic Security Act” or “CARES Act.” The CARES Act includes several provisions that appear to mirror the Families First Coronavirus Response Act. Buried within the 250-page CARES Act, however, are provisions aimed at providing some retirement plan-related relief for those impacted by the coronavirus. 

In the past, the IRS has provided disaster relief for victims of certain hurricanes, wildfires and other natural disasters. This relief has generally included an increased limit for plan loans, as well as relief from the 10% penalty for early retirement plan or IRA withdrawals that would normally apply (and the ability to recontribute the distribution for a period of time after it is made). The CARES Act includes similar provisions aimed at providing some relief for those impacted by the coronavirus.

  • “Coronavirus-Related” Distributions. The CARES Act provides that coronavirus-related distributions (“CV Distributions”) from retirement plans (including IRAs) will not be subject to the 10% penalty that normally applies to early withdrawals (both in-service and after termination). CV Distributions, in the aggregate, may not exceed $100,000 (from all plans maintained by the employer and members of its controlled group). These CV Distributions are not eligible for rollover, but the relief would allow an individual to include the amount of the qualified CV Distribution(s) in income over a three-year period. In addition, an individual could choose to repay all or a portion of the CV Distribution(s) to a qualified retirement plan or IRA within three years. There are, however, a number of conditions that must be met in order to qualify for this relief:
    • CV Distributions must be taken after the Act’s enactment, but before December 31, 2020.
    • CV Distributions must be made to an individual who is diagnosed with the SARS-CoV-2 virus or with coronavirus disease 2019 (COVID-19), or to an individual whose spouse or dependent is diagnosed with the virus or disease. Alternatively, an individual is eligible for this relief if he or she experiences adverse financial consequences stemming from the virus or disease as a result of being quarantined, furloughed, laid off, having reduced work hours, being unable to work due to lack of child care, the closing or reduction of hours of a business owned or operated by the individual or other factors determined by Treasury.

In addition, although the CARES Act does not appear to expand the circumstances under which someone can take a plan distribution, there is language in the bill that indicates that a coronavirus-related distribution would be deemed to satisfy the 401(k), 403(b) and 457 plan distribution timing rules.

  • Plan Loans – Increase in Limit and Extension of Period to Repay. The CARES Act would allow certain “qualified individuals” to borrow more money from their retirement plans, and have additional time to repay new or existing plan loans.
    • New Loans: First, it increases the limit on plan loans to the lesser of $100,000, or 100% of the participant’s vested account balance, instead of the $50,000 and 50% vested account balance limits that normally apply under law. This would apply for loans made during the 180-day period beginning on the date of the Act’s enactment.
    • Existing Loans: Second, the Act would generally extend the period for repayment of any plan loan outstanding on or after the CARES Act enactment date by one year.

The conditions for qualifying for this relief are similar to those that apply to CV Distributions. To be eligible, an individual must be diagnosed with the SARS-CoV-2 virus or with coronavirus disease 2019 (COVID-19), or have a spouse or dependent who is diagnosed with the virus or disease.  Alternatively, an individual is eligible for this relief if he or she experiences adverse financial consequences stemming from the virus or disease, as described above.

  • Plan Amendment Deadlines. Plan sponsors have until at least the last day of the first plan year beginning on or after January 1, 2020, to amend their plans to provide for this relief, which is optional and not mandatory. Plan sponsors of governmental plans would have an extra year to amend their plans to provide for this relief.

For purposes of the CV Distribution and loan relief, the CARES Act requires that diagnosis of the virus or COVID-19 be made pursuant to a test approved by the CDC. This requirement in the CARES Act is a bit surprising, as it would appear to exclude other types of FDA-approved tests that are being fervently developed in light of the shortage of CDC-approved test kits. It seems that a determination on the part of the plan administrator may need to be made with respect to whether someone has experienced adverse financial consequences, or has a CDC-approved diagnosis, which may necessitate substantiation (or certification) on the part of the individual. It’s unclear at this point what type of substantiation would need to be provided by an individual requesting this relief.

The CARES Act is scheduled to be negotiated with Senate Democrats today. We understand that the Senate Democrats are working on their own stimulus package, and expect negotiations to extend through the weekend. Please stay tuned to our Beneficially Yours blog as we intend to update this information as events unfold. In the interim, we hope that everyone is staying safe and secure as we all navigate these uncharted waters.

On Monday, March 23, at 1:00 p.m. Central, Seyfarth partners Diane Dygert, Benjamin Conley, Jennifer Kraft, Kaley Ventura, Jake Downing, and Christina Cerasale are presenting a 1 hour CLE webinar, “Employee Benefits in a Time of COVID-19.”

Keep up with the latest developments and rapidly changing laws and regulations relating to COVID-19 and your benefit plans. We’ll discuss what steps are needed next related to required coverage under the Families First Coronavirus Response Act, practical considerations in responding to business developments related to COVID-19 (HIPAA concerns, severance and furlough issues), as well as the potential changes or impact on retirement plan benefits and executive compensation, immediately as well as in the long term.

Register Here