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Employee Benefits Issues in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

By Hawley Troxell,

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted into law.  This Client Alert is the first in a series of articles summarizing its terms in various subject areas.  This Client Alert focuses on employee benefits provisions in the CARES Act related to retirement and health and welfare plans.  As always, benefits issues may vary based on the specific terms of your plan.  For assistance reviewing the specific impact of the CARES Act on your benefit plans, or for other employee benefits questions, contact Cydni Waldner or John Hughes.

Health & Welfare Benefits:

Free COVID-19 Testing Mandate Expansion

The Families First Coronavirus Response Act (FFCRA) that was enacted into law March 18, 2020, requires all group health plans to cover COVID-19 diagnostic testing, as well as the provider or facility visit related to obtaining such testing, with no out of pocket cost to participants.  The CARES Act expands on this in several ways:

  • First-dollar coverage must also include other forms of tests or other specific tests that the Department of Health and Human Services identifies in future guidance.
  • Group health plans must reimburse providers for the testing costs at the rate negotiated prior to the declaration of the public health emergency, or if there is no rate negotiated with the provider (for out of network providers in plans with network arrangements, for example), at the cash price posted by the provider on its website (or a lesser amount negotiated with the provider). As a corollary to this, the CARES Act requires all COVID-19 testing providers to make their cash price for the testing publicly available on their website.
  • If preventive services or vaccines for COVID-19 are recommended by the US Preventive Services Task Force (as an “A” or “B” recommendation) or by the CDC, then coverage of such services or vaccine must be made available at no out of pocket cost to participants beginning 15 business days after the recommendation is issued.

Telehealth & HDHP coverage/HSA eligibility

Normally, in order for an individual to be eligible to make or receive contributions to a health savings account (HSA), the individual must be covered by a high deductible health plan (HDHP) and have no other disqualifying (first-dollar) coverage.  HDHPs are only permitted to cover preventive services on a first-dollar basis; all other services and expenses must be subject to the HDHP deductible.  In Notice 2020-15, the IRS granted a special exception to this rule, allowing first-dollar coverage of the COVID-19 diagnostic testing and the provider or facility visit related to obtaining such testing mandated by the FFCRA.

There was significant debate around this provision as it related to telehealth visits, given the difficulty of restricting first-dollar coverage for telehealth to those visits related to COVID-19.  The CARES Act relieves this concern for plan sponsors and insurers by allowing the plan sponsor (for a self-insured plan) or the insurer (for a fully-insured plan) to provide first-dollar coverage for all telehealth or remote care services for plan years beginning on or before December 31, 2021.  This means a calendar year HDHP can allow telehealth without deductible for the 2020 and/or 2021 plan year.

Over the Counter Drugs

As part of the Affordable Care Act, over-the-counter medicines and drugs (other than insulin) were no longer eligible expenses for healthcare flexible spending accounts, health reimbursement accounts or health savings accounts.  Only prescription drugs qualified as eligible expenses.  The CARES Act permanently eliminates that rule, making over the counter drugs eligible expenses again.  In addition, the CARES Act specifies that menstrual care products are also eligible expenses.  These changes take effect for expenses incurred on or after January 1, 2020.

Retirement Plans:

The CARES Act also contains several provisions affecting retirement plans, most notably 401(k) plans.

Coronavirus Related Distributions (“CRDs”)

The CARES Act allows for a new distribution option during 2020 that avoids the existing 10% early withdrawal tax.

  • CRDs are available to participants who are (or whose spouse or dependent is) diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19), or participants who experience adverse financial consequences from: (1) being quarantined, furloughed, laid off, or having hours reduced on account of the illness, (2) being unable to work on account of lack of child care, or (3) closing or reducing hours of a business owned or operated by the individual.  Additional factors may be determined by the Secretary of the Treasury.
  • The plan may rely on an employee’s self-certification of the foregoing conditions.
  • The limit on the amount that may be withdrawn is $100,000.
  • The distribution is still subject to income tax, as any other plan distributions, but may be spread over three years.
  • The amount may be repaid to the plan within three years and income tax avoided.
  • The distribution applies to defined contribution plans, such as 401(k), 403(b), and 457(b) plans, and also IRAs.

Increase in Plan Loan Limits

 For those eligible for a CRD in light of the above conditions, the limitation on plan loans is increased from $50,000 to $100,000.  Additionally, plan participants may take a loan on the entire balance of their account (it is otherwise limited to 50% of the balance).  This applies to loans that are taken out generally during the six month period from the enactment of the CARES Act (March 27, 2020).

Delayed Repayment of Plan Loans

For those eligible for a CRD, if the due date for a plan loan repayment is between March 27, 2020 and December 31, 2020, the due date may be delayed for a year.  Subsequent repayments will be adjusted to reflect the delay and interest accruing during the delay.

Waiver of Required Minimum Distributions

Required minimum distributions (“RMDs”) are not required for 2020.  This includes RMDs due April 1, 2020 for those who turned 70½ in 2019.  Any RMDs that are taken in 2020 are eligible for rollover.  This is similar to the waiver provisions that were permitted in 2009.  The waiver does not seem to apply to defined benefit plans.

Funding Relief

Single employer defined benefit plan funding obligations for 2020 may be delayed until January 1, 2021.  Plan sponsors may also elect to use a plan’s funding status for the 2019 plan year to determine whether to impose benefit restrictions.

Written Plan Amendments

Plans may implement the above changes immediately.  In fact, we understand some record-keepers are requiring employers to opt out, if they desire to, by March 31, 2020.  Written plan amendments are not required to be put in place until the end of the first plan year beginning on or after January 1, 2022 (2024 for government plans).  This means December 31, 2022 for calendar year plans.  Notwithstanding, the sooner the better in terms of putting an amendment in place and communicating changes to participants.

Other Deadlines

The CARES Act provides the Secretary of Labor with the authority to alter other deadlines such those applicable to various participant notice due dates and Form 5500 filings. Given existing discretionary authority, on March 27, 2020, the IRS extended the deadlines for 403(b) plans to restate onto a preapproved document and the date by which preapproved defined benefit plans were required to be restated.


If you have any questions regarding employee benefits issues please do not hesitate to contact Cydni Waldner or John Hughes.

This Alert has been prepared by Hawley Troxell Ennis & Hawley, LLP for informational purposes only and is not legal advice, a legal opinion or counsel.  Readers receiving information through this Alert should not act on or rely on it without consulting professional legal counsel.  Any such opinions, advice or counsel are dependent upon the application of the law to the particular facts and circumstances of any given situation, and should be given by a licensed attorney in the exercise of his or her professional judgment only  after the establishment of an attorney-client relationship and based upon the exercise of the attorney’s professional judgment after consideration of such facts and circumstances.  The furnishing of this Alert does not constitute or give rise to an attorney client relationship.