The CARES Act: What You Need to Know About Employee Benefits

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law, providing financial relief to U.S. businesses and individuals affected by the coronavirus (COVID-19) pandemic. The CARES Act is the third phase of federal legislation enacted in response to the pandemic, following the Coronavirus Preparedness and Response Supplemental Appropriations Act and the Families First Coronavirus Response Act (FFCRA).

“The Coronavirus epidemic has damaged our physical and our economic health. This bill supports the economic health of individuals, families and employers. It also advances the fight to make us safe from the disease,” said Senator Bill Cassidy.

The CARES Act provides exactly what its abbreviation suggests – care. Its purpose is to care for Americans by helping employers, employees, small business, and families financially survive this time of economic hardship and bounce back once the economy stabilizes and public health improves. This post focuses on key provisions of the CARES Act that relate to employee benefits.

HEALTH AND WELFARE PLANS

• The CARES Act allows a high-deductible health plan (HDHP) with a Health Savings Account (HSA) to cover telehealth services prior to a patient reaching the deductible. This provision is temporary and will expire December 31, 2021. This will require a plan amendment.
• Over the counter medicines and drugs can once again be paid for with health savings accounts (HSAs), health flexible spending accounts (HFSA), and health reimbursement arrangements (HRA). In addition, menstrual care products are now treated as a qualified medical expense and can also be paid for with HSA, HFSA and HRA dollars. This will require cafeteria plan amendments.
• Plans must cover all testing for COVID-19, without cost sharing, even for those tests that have not yet received an emergency use authorization from the FDA. In addition, plans must cover all qualifying preventive items, services or vaccines for COVID-19 once developed, without cost sharing.
• The CARES Act allows an employee who was laid off by an employer March 1, 2020, or later to have access to paid family and medical leave in certain instances if they are rehired by the employer. The employee would have had to work for the employer at least 30 days prior to being laid off.
• The CARES Act ensures that federal contractors who cannot perform work at their duty-station or telework because of the nature of their jobs due to COVID-19, continue to get paid.

RETIREMENT PLANS

• The CARES Act authorizes eligible retirement plans (as defined under Internal Revenue Code Section 402(c)(8)(B), including employer-sponsored 401(k), 403(b) and governmental 457(b) plans) to permit “Qualified Individuals” withdrawals and loans up to $100,000 in retirement plans. Plan sponsors may utilize these provisions immediately, but a plan amendment will be required by December 31, 2022.
  • The following individuals qualify as “Qualified Individuals”, both for the new withdrawal right and for the plan loan relief:
    • Someone who is diagnosed with the coronavirus (SARS-CoV-2) or coronavirus disease (COVID-19) by a test approved by the Centers for Disease Control and Prevention (the “CDC”);
    • Someone whose spouse or dependent (as defined in Code Section 152) is diagnosed with such virus or disease by a CDC-approved test; or
    • Someone who experiences adverse financial consequences as a result of (i) being quarantined, or being furloughed or laid off, or having work hours reduced due to such virus or disease, (ii) being unable to work due to lack of child care due to such virus or disease, (iii) closing or reducing hours of a business owned or operated by the individual due to such virus or disease (this clause (iii) essentially applies to self-employed individuals and owner-employees), or (iv) other factors as determined by the Secretary of the Treasury.
• The CARES Act provides temporary relief from required minimum distribution requirements by delaying required distributions from defined contribution plans and IRAs in 2020 for an additional year. Plan sponsors may utilize these provisions immediately, but a plan amendment will be required by December 31, 2022. This relief does not apply to defined benefit plans.
• There is limited relief for minimum funding contributions otherwise due in 2020 for single-employer pension plans, which can be delayed until January 1, 2021, with interest.
• The CARES Act expands the types of employers whose pension plans can qualify for treatment as cooperative and small employer charity plans.

EMPLOYER PAYROLL TAX CREDITS AND DELAYED PAYMENT

• The CARES Act provides a tax credit against taxes owed by certain employers in 2020 for 50 percent of wages paid to employees while operations were significantly impacted by COVID-19. The credit is available to employers: (1) whose operations were fully or partially suspended due to governmental orders limiting commerce, travel, or group meetings due to COVID-19; or (2) whose gross receipts declined by more than 50 percent when compared to the same calendar quarter in the prior year.
• The CARES Act permits employers to delay depositing their Social Security taxes incurred between March 27, 2020, and January 1, 2021.

EMPLOYER PAYMENT OF STUDENT LOANS

• The CARES Act permits nontaxable employer payments before January 1, 2021, towards a qualified education loan incurred by an employee for his or her education, subject to an annual cap of $5,250.

For more helpful information regarding COVID-19 and the CARES Act, please follow these links: Jefferson Chamber Resources Page, U.S. Department of the Treasury, SBC The Small Business Owner’s Guide to the CARES Act

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Written by Brookley Valencia, Advocacy Events Manager, Staff Liaison to the Jefferson Chamber’s Government Committee and Education Committee

Acknowledgements:
The CARES Act: Summary of Key Provisions Affecting Employee Benefit Plans
CARES Act – Impact on Employee Benefit Plans
The CARES Act for COVID-19 relief: What Employers Need to Know