Employee Benefits in the Time of Coronavirus: The CARES Act

5 min

The CARES Act was signed into law on Friday, March 27, 2020. It contains a number of provisions affecting employee benefit plans and executive compensation. Below we provide a summary of those provisions. Our previous client alert, which summarized the employee-benefits-related provisions of the Families First Coronavirus Relief Act (the FFCRA), which was adopted earlier in March, is available here.

Health & Welfare Plans

Section 3201. Coverage of diagnostic testing for COVID-19.

Under the FFCRA, an employer group health plan must cover diagnostic testing for COVID-19 (and certain related items and services) without cost-sharing. “Without cost-sharing” means that the plan pays 100% and the covered person pays nothing for the testing—it does not matter whether the deductible has been met and there are no co-payments or coinsurance. The CARES Act clarifies that the definition of the covered testing includes those tests without an Emergency Use Authorization by the FDA. Practice Point: Plans must provide the coverage immediately. Plan documents should be amended as soon as feasible to formalize this coverage.

Section 3202. Pricing of diagnostic testing.

With respect to the COVID-19 diagnostic testing described above, an employer group health plan must pay either the rate specified in a contract between the provider and the plan, or, if there is no contract, a cash price posted by the provider. Providers of the diagnostic testing are required to post their cash prices publicly.

Section 3203. Rapid coverage of preventive services and vaccines for coronavirus.

An employer group health plan must cover, again without cost-sharing, any preventive service or vaccine for coronavirus that has a rating of “A” or “B” from the United States Preventive Services Task Force or a recommendation from the Advisory Committee on Immunization Practices. The coverage must begin within 15 days after the service or vaccine receives the applicable recommendation. Note: Currently, there are no preventive services or vaccines that meet these requirements.

Section 3224. Guidance on protected health information.

The Department of Health and Human Services must issue guidance regarding what patient information may be shared during the public health emergency related to COVID-19.

Section 3701. Health Savings Accounts for Telehealth Services.

High-deductible health plans may cover (but are not required to cover) telehealth services prior to an enrollee reaching the deductible, without affecting the enrollee’s eligibility for a health savings account. Practice Point. A plan amendment will generally be required to ensure that telehealth services will not be subject to the deductible.

Section 3702. Over-the-Counter Medical Products without Prescription.

Funds in a health savings account (HSA) or flexible spending account (FSA) may be used to reimburse the cost of medical care. However, there were statutory provisions limiting reimbursement for over-the-counter items to prescription items and insulin. The CARES Act removes that limitation—all over-the-counter items that qualify as “medical care” may be reimbursed by an HSA or FSA. Practice Point. Most FSA plan documents include the old limitation on over-the-counter items. In order to reimburse all over-the-counter items, the plan document will need to be amended.

Retirement Plans

Section 2202. Special Rules for Use of Retirement Funds.

Distributions. During 2020, for participants affected by the coronavirus, 401(k), 403(b), and 457(b) plans may make in-service distributions of up to $100,000, and distributions of up to $100,000 from qualified and 403(b) plans are exempt from the 10% penalty for premature distribution. These distributions may be included in the participant’s income over a 3-year period and may be repaid to an eligible retirement plan over a 3-year period. Loans. Between March 27, 2020, and September 23, 2020, for participants affected by the coronavirus, the generally applicable limits for loans from qualified, 403(b), and government plans are expanded to the lesser of $100,000 or 100% of the vested account balance. In addition, any loan repayments otherwise due between March 27, 2020 and December 31, 2020 may be deferred for one year from each payment due date, and the otherwise applicable maximum loan term may be extended by the deferral period. NOTE. The CARES Act specifically defines participants “affected” by the coronavirus.

Section 2203. Temporary Waiver of Required Minimum Distribution Rules for Certain Retirement Plans and Accounts.

Required minimum distributions otherwise due during 2020 from qualified defined contribution plans (including 401(k) plans, 403(b) plans, and government 457(b) plans) need not be made. This applies even if the participant reached age 70½ during 2019 and had been waiting until April 1, 2020 to take the first required minimum distribution. For beneficiaries of a deceased participant who will take distributions of their entire interest by the end of the fifth year following the participant’s death, 2020 does not count toward the 5-year period. Amounts distributed during 2020 that would otherwise be required minimum distributions are not eligible for rollover and are not subject to 20% mandatory federal income tax withholding.

Section 3608. Single-Employer Plan Funding Rules.

Single-employer defined benefit plans may defer until January 1, 2021 any minimum required contributions otherwise due during 2020. Deferred contributions are subject to interest. Single-employer defined benefit plans may elect to use the AFTAP determined for the 2019 plan year for purposes of applying the benefit and distribution restrictions under Code Section 436 for the 2020 plan year.

Executive Compensation

Section 4004. Limitation on Certain Employee Compensation.

The recipient of any loan or loan guarantee under the CARES Act must cap employee compensation (including salary, stock, and bonus and severance) for the period of the loan through one year following repayment of the loan. Officers and employees who received more than $425,000 in calendar year 2019 may not receive (i) more compensation in any 12-month period than they received in 2019, or (ii) severance pay or other benefits upon termination that exceed twice the 2019 compensation amount. Officers or employees who received more than $3 million in 2019 may not receive total compensation during any 12-month period in excess of (i) $3 million plus (ii) 50% of the excess over $3 million.

Additional Information

If you have any questions regarding this client alert, or if you would like assistance with any of the requirements described here, please contact a member of Venable’s Employee Benefits and Executive Compensation Practice Group.