CARES Act-Employee Benefit Programs

April 3, 2020

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The CARES Act contains significant changes to employee benefit plans, including relief for plan participants and plan sponsors of qualified retirement plans, as well as expanded benefits for participants in group health plans.

Qualified Retirement Plans

The CARES Act provides qualified retirement plan participants with special early access to their plan funds, and the ability to defer minimum mandated distributions.

1. COVID-19 Related Distributions and Loans

Special CARES Act provisions permit individuals modified access to retirement savings located in their employer’s tax-qualified retirement plans where they self-certify that they:

  • Are diagnosed with COVID-19;
  • Have a spouse or dependent diagnosed with COVID-19; or
  • Experienced adverse financial consequences as a result of quarantine, furlough, or being laid off, reduction in work hours, inability to work due to lack of child care, the closing or reduction of hours of a business owned or operated by the individual due to COVID-19, or certain other factors as determined by the Treasury Department.

Specifically, individuals have flexibility in deciding whether they want to distribute funds or take a loan from their qualified retirement plan. For distributions made during the period beginning January 1, 2020, and before December 31, 2020, the CARES Act implements the following provisions and extends these rules to distributions up to $100,000:

  • A special exemption from 10% early withdrawal penalties for such a distribution relating to COVID-19;
  • The ability to repay such a distribution over three (3) years, regardless of the typical plan contribution limits; and
  • To the extent such a distribution is not repaid, it is included in taxable income over a 3-year period.

For loans, the special relief includes:

  • A temporary increase in a qualified retirement plan’s loan limit for loans made during the 180-day period following March 27, 2020.
    • Note that, in general, a qualified retirement plan’s modified loan limit under the CARES Act is up to the lesser of (a) the present value of the nonforfeitable accrued benefit of the employee or (b) $100,000.
  • A delay of one (1) additional year on any plan loan repayment that becomes due during the period beginning on March 27, 2020, and ending on December 31, 2020.

Note: one advantage of a qualified retirement plan loan over a distribution is that the loan is not taxable so long as its required payment terms are met by the participant.

2. Minimum Distributions

To minimize the potential negative impact of financial market volatility, the CARES Act also provides a waiver of minimum distributions required to be made in calendar year 2020 from qualified retirement plans, defined contribution plans under Sections 403(a) and 403(b) of the Internal Revenue Code, and eligible deferred compensation plans under Section 457(b) of the Internal Revenue Code. 

Under the CARES Act, qualified retirement plans have until the end of the plan year beginning on or after January 1, 2022, to adopt a retroactive amendment to reflect the changes noted below.  Such an amendment will not cause the plan to fail to meet certain applicable regulatory requirements of the Internal Revenue Code or ERISA. Government plans have an additional two years to adopt these amendments.

Group Health Plans

1. Expanded Benefits

The CARES Act includes the following expanded benefits under group health plans:

  • Qualifying coronavirus preventive services must be covered, without cost-sharing, by group health plans and health insurance issuers.
    • A qualifying coronavirus preventive service includes items, services, or immunization that prevents or mitigates COVID-19, and that is:
      • An evidence-based item or service that has in effect a rating of “A” or “B” under the recommendations of the U.S. Preventive Service Task Force; or
      • An immunization that has in effect, a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention.
  • COVID-19 diagnostic testing, which the Families First Coronavirus Response Act required to be covered by a group health plan or health insurance issue without cost-sharing, has been expanded, as have the reimbursements to the provider.
  • Plans beginning on or before December 31, 2021, will not fail to be a high-deductible health plan for purposes of a health savings account if it covers telehealth and remote care services without charging a deductible.
  • Over-the-counter medicine and drugs, as well as menstrual care products, are treated as medical expenses for purposes of health savings accounts, healthcare flexible spending accounts, health under the reimbursement accounts, and Archer Medical Savings Accounts.


1. Minimum Contributions and Funding

For companies with cash flow concerns, the CARES Act provides additional time to meet 2020 minimum required contributions for single-employer plans by delaying the due date for the minimum required contributions until January 1, 2021. Interest, however, will accrue from the original due date to the actual payment date under the effective rate of interest for the plan. Note that this relief does not apply to other contributions that are required to be made, such as contribution obligations associated with corporate transactions or increases in a plan sponsor’s debt. 

In addition, plan sponsors have the option of using a plan’s funding status for the last plan year ending before January 1, 2020, for purposes of determining its funding-based benefit limitations for the plan year. This should enable plan sponsors to avoid restrictions on future benefit accruals and distributions where a plan has a decline in funding status as a result of the market downturn.

2. ERISA Compliance Deadlines

The CARES Act also amended ERISA to permit the Labor Secretary to provide extensions for ERISA compliance deadlines in the event of a public health emergency, as declared by the Secretary of Health and Human Services.

HCVT Contacts

If you would like to discuss the employee benefits, please contact your HCVT professional.

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