Benefits Monthly Minute

CARES Act Administrative Items for Consideration

Most of us are familiar with the changes related to COVID-19 legislation including the CARES Act. In this Monthly Minute, we are highlighting some practical CARES Act administrative items that you will want to consider: 

• Loan Suspensions.  The CARES Act allows the suspension of loan repayments beginning on March 27 through the end of 2020.  There are three common approaches to loan suspensions:  (1) suspend all loan repayments from the date of the participant self-certification for 12 months; (2) 2020 loan repayments are suspended for 12 months from the date of the self-certification, 2021 loan repayments are restarted in 2021, and the suspended repayments are reamortized and begin 12 months after the self-certification; and (3) loan repayments are suspended in 2020, but reamortized and included with the loan repayments that begin for the first payroll in January, 2021.  Until IRS guidance is provided, all three approaches can be supported.  KMK Comment:  Work closely with your plan’s recordkeeper and be careful with communications to be clear about the approach that is being used.
• CARES Act Distributions.  Plan sponsors with multiple plans need to coordinate the distribution limits (including the coding on Form 1099-R for the exception to the IRS Section 72(t) early withdrawal tax) for eligible participants from all controlled group plans, including defined benefit plans.  Note that an eligible participant has to take the maximum CARES Act distribution before taking a normal hardship withdrawal.  Finally, the self-certification is a new approach that has generated some concerns from plan sponsors, but absent further IRS guidance, plan sponsors can rely on the participant certifications without further inquiry.  KMK Comment:  Work closely with your plan’s recordkeeper to understand how these provisions are being administered in order to avoid operational errors. 

• Defined Benefit Plans CARES Act Distributions.  Defined benefit plans are permitted to allow CARES Act distributions.  KMK Comment:  Carefully consider your plan provisions because the distributions must be limited to eligible participants who are at least 59-1/2, and any distributions must be coordinated with other plans in the controlled group.

In addition to the changes brought about by the CARES Act, it is also useful to keep in mind the below-noted pre-pandemic benefits changes and issues that can help guide plan sponsors through the long road ahead:

Medical & Welfare Plans --

• Many employers are making tough decisions to furlough or layoff employees. There are various ways that medical or other welfare benefit plans can soften the impact of these employment changes:
  • Amend the plan to extend eligibility (or delay termination) for those employment changes initiated by reason of the COVID-19 pandemic.
    • Check with your insurer and stop loss carrier to confirm any changes are consistent with your policy/contract document.
  • If full-time employees currently in an ACA stability period have been furloughed, or their hours have been reduced, the decision to eliminate coverage or increase the employee contribution/premium as allowed under COBRA will result in increased ACA penalty exposure risk. Subsidizing COBRA coverage to ensure satisfaction of the ACA’s affordability threshold will mitigate this risk.
  • If employees are not in an ACA stability period, COBRA subsidies still offer a meaningful way to look after your workforce during a time when health concerns are at the forefront. Coverage offered as an alternative to COBRA may also be attractive to certain employees, although COBRA waivers must be very carefully administered.

Flexible Spending Accounts --

• During this time of financial insecurity, changes to your flexible spending arrangements can help your workforce shore up their financial future:
  • Adding a carryover feature (up to $500) to your Health FSA can provide a meaningful benefit, and offers protection against the use-it-or-lose rule. A carryover feature allows unused amounts at the end of a plan year to be carried over and used to reimburse medical expenses that are incurred during the next plan year.
  • Consider adding a grace period which may apply to either a Health FSA or DCAP and will allow participants to receive reimbursement for expenses incurred during the grace period.
  • Child care needs have changed due to COVID-19, whether due to a day care closure, non-enrollment in day care, or for other reasons. These events may qualify as cost or coverage changes under the midyear election change rules and your cafeteria plan may be amended to allow for such midyear DCAP salary reduction changes.

Retirement Plans -- 

• Retirement plan changes can provide financial help to employees and employers alike:
  • If your plan does not permit plan loans, or only permits 1 outstanding loan per participant, consider an amendment to allow for 2 outstanding loans per participant.
  • Amend the plan to permit in-service distributions after age 59-½ and/or hardship distributions.
  • As employees begin to return from layoff or furlough, pay close attention to plan provisions related to enrollment, auto-enrollment, and breaks in service.
  • If you need to reduce employer contributions to a safe harbor plan, carefully review safe harbor rules and plan provisions to determine if changes can be made. Also consider whether the plan’s discretionary profit-sharing or matching contribution should be adjusted.
  • If you have furloughed or laid off employees, be sure to determine if a partial termination has occurred which required full vesting of affected participants. 

The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.

Lisa Wintersheimer Michel
Partner
513.579.6462
lmichel@kmklaw.com 

John F. Meisenhelder
Partner
513.579.6914
jmeisenhelder@kmklaw.com 

Helana A. Darrow
Partner
513.579.6452
hdarrow@kmklaw.com 

Antoinette L. Schindel
Partner
513.579.6473
aschindel@kmklaw.com 

Kelly E. MacDonald
Associate
513.579.6409
kmacdonald@kmklaw.com 

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KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.