CARES Act: Employee Benefit Provisions
April 3, 2020
By: Michael C. Joyce
The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted March 27, 2020. This wide-ranging relief bill included several employee-benefits related provisions.
Qualified Retirement Plans
Section 2202 of the CARES Act provides ways for affected employees to access qualified retirement plan funds in a tax-favored manner. Note that these changes may be made in the discretion of the employer-plan sponsor, and are not required. Following is a summary of these provisions:
- Hardship distributions: The Act allows an employee to receive hardship distributions of up to $100,000 from the qualified retirement plans of his or her employer so long as the distributions are “coronavirus-related”.
- An employer includes the employer’s “controlled-group” members under Internal Revenue Code Section 414(b), (c) or (m)).
- The 10 percent early withdrawal penalty is waived for these distributions (generally distributions to a participant prior to attaining age 59½).
- The employee has the option within three years of the distribution to repay all or a portion of the distribution to a tax-qualified retirement plan or IRA (while not clear, it is expected the employee could re-contribute these amounts to the plan from which he or she received the distribution).
- A “coronavirus-related distribution” must be made before December 31, 2020 and relate to the plan participant’s, or his or her spouse’s or dependent’s, coronavirus diagnosis, or relate to an adverse financial impact due to the employee’s coronavirus-related quarantine, furlough or lay-off or inability to work due to lack of childcare.
- Unless a different election is made by the participant, the income from this distribution is recognized ratably over three years, including the year of distribution, rather than solely in the year of distribution.
- The employer may rely on the employee’s certification that the employee satisfies the requirements (described above) to receive a distribution.
- Plan loans: Plan loans related to the coronavirus may be made to participants of up to $100,000, increased from the usual cap of $50,000, and without limiting the loan to one-half of the of the participant’s account value.
- The due dates of loan repayments for a newly-issued or currently outstanding loan may be delayed for one year (with interest accruing during such payment-delay period).
- The 10 percent penalty on defaulted loans is also waived.
- Taxes on a defaulted loan can be paid over three years.
- Similar to hardship distributions described above, participants diagnosed with the coronavirus or with a diagnosed spouse or dependent will be eligible for these loans or a participant who is experiencing “adverse financial consequences” related to coronavirus.
- Plan Amendment: Unless the Secretary of the Treasury provides otherwise, a retirement plan must adopt an amendment by the end of the first plan year beginning on or after January 1, 2022 (e.g., in the case of a calendar year plan, by December 31, 2022).
- Section 2203 of the CARES Act also provides for a temporary waiver of required minimum distributions (“RMDs”) from defined contribution plans for the 2020 calendar year.
Certain Health-Related Provisions
The CARES Act included provisions related to health care funding for medical supplies, hospitals, providers, and testing. Sections 3201 – 3203 amended and supplemented certain provisions of the Families First Coronavirus Response Act regarding provisions that group health plans and insured health coverage must provide certain COVID-19 testing without any cost-sharing with the participant (such as deductibles or copayments) and coverage for certain coronavirus preventive services and vaccines.
It is hoped that the regulatory guidance will be issued to help clarify the benefits-related provisions of the CARES Act.
Please contact your Nyemaster Goode attorney with any questions about the CARES Act and its impact on your business.
Additional CARES Act Coverage
- CONGRESS INCREASES APPROPRIATIONS TO CARES ACT PROGRAMS
- CARES ACT ESTABLISHES PAYCHECK PROTECTION PROGRAM
- HOW TO APPLY FOR A PAYCHECK PROTECTION PROGRAM LOAN
- 7 FAQS ON UPDATED GUIDANCE TO PAYCHECK PROTECTION PROGRAM
- PPP LOAN FORGIVENESS: AN OVERVIEW
- BEST PRACTICES TO MAXIMIZE PAYCHECK PROTECTION PROGRAM LOAN FORGIVENESS
- FED LAUNCHES MAIN STREET LENDING PROGRAMS FOR SMALL AND MID-SIZED BUSINESSES
- EXPANSION OF OTHER LOANS PROGRAMS
- NEW AND MODIFIED TAX PROGRAMS UNDER CARES ACT
- WHAT CARES ACT MEANS FOR HIGHER EDUCATION INSTITUTIONS
- CARES ACT PROVIDER RELIEF FUND
- ADDITIONAL DISTRIBUTION FROM CARES ACT PROVIDER RELIEF FUND
- CARES ACT: MORE THAN STIMULUS MONEY
- CARES ACT PROVIDES INCREASED OPPORTUNITIES FOR INDIVIDUALS TO DEDUCT CHARITABLE CONTRIBUTIONS
- MEDICARE ACCELERATED AND ADVANCE PAYMENT PROGRAM
- FEDERAL RELIEF FOR HEALTHCARE PROVIDERS