In an effort to support American workers, Congress passed the new federally funded Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Here’s what employers need to know about how this will affect their health and retirement plans.
The CARES Act contains several provisions applicable to employer sponsored health plans and tax-favored medical expense reimbursement vehicles, including:
- Allowing high deductible health plans to cover telehealth and remote care services without cost-sharing and without jeopardizing an individual’s Health Savings Account (HSA) eligibility for plan years beginning before December 31, 2021
- Requiring group health plans and insurers to cover any FDA approved COVID-19 vaccine once developed as preventive care without cost-sharing
- Allowing HSAs, health reimbursement arrangements, health flexible spending accounts, and Archer medical savings accounts to reimburse over-the-counter medications and certain menstrual care products, such as tampons and pads
Additionally, the CARES Act also extends the deadline to make a 2019 contribution to an HSA to July 15, 2020, to coincide with the new tax filing deadline.
The CARES Act has certain provisions relating to retirement plans applicable to all individuals, and additional provisions for those with a COVID-19 related event, as defined below. The provisions also apply to plan sponsors whose plan may or may not currently allow the type of relief being provided.
For individuals of retirement age that do not currently need the funds, the CARES Act waives required minimum distributions (RMDs) for 2020, allowing individuals to keep the funds in their plans. This applies to anyone required to take an RMD and is not limited to those with a specific coronavirus related event.
If an individual is still able to contribute to an IRA and wishes to take advantage of declines in investment values, the deadline for making a contribution to an IRA for 2019 is extended until July 15, 2020. This coincides with the extended filing deadline for 2019 income taxes.
Individuals Adversely Affected by COVID-19
If an individual needs access to funds, one option is to take a loan from their retirement account. The maximum value of a participant loan increased from $50,000 to $100,000 for 180 days following the date the bill is signed into law.
Additionally, previously a plan participant could only borrow up to 50% of their vested balance. Temporarily, the maximum amount of a loan is increased to 100% of the vested balance. For currently outstanding loans, any loans due between now and December 31, 2020, receive a one-year extension for repayment.
The Act includes additional relief for those with a “coronavirus-related distribution.” This is someone who was diagnosed with the virus; whose spouse or dependent was diagnosed; or who has adverse financial consequences due to being quarantined, furloughed, laid off, reduced hours, or being unable to work due to lack of childcare. Small business owners whose business closed or had reduced hours due to COVID-19 are also included.
- For those under age 59 1/2, the 10% early withdrawal penalty is waived for a distribution up to $100,000 for a “coronavirus-related distribution.” This essentially allows another type of in-service distribution.
- If an individual takes such early distribution, the funds can be put back into the account within three years of the date the distribution was received.
- The income tax on the distribution can be (but does not have to be) spread over three years.
- Similar to hardship distributions, the plan administrator can rely on the employee’s certification that the factors exist.
Even if a current plan document does not allow for the distributions or loans discussed here, the plan sponsor can adopt these distribution and loan provisions effective immediately. The plan would need to be formally amended before the end of the first plan year beginning after January 1, 2022 (or a later date if determined by the Treasury). Government plans have an additional two years after that date.
Consult Legal Counsel
Individuals looking to take advantage of these opportunities should consult their attorney to determine if their situation fits the requirements. Plan sponsors wanting to amend their plan to ensure participants can take advantage of these opportunities should contact their attorney to make any necessary plan amendments.
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