Action Steps for Your Employee Benefits Plan During the Coronavirus Pandemic

4/14/2020
Action Steps for Your Employee Benefits Plan
During the Coronavirus Pandemic
John Barlament, Partner
john.barlament@quarles.com
414-277-5727
Michael Wieber, Partner
michael.wieber@quarles.com
414-277-5109
Carolyn McAllister, Partner
carolyn.mcallister@quarles.com
414-277-5101
April 15, 2020
Presentedby:
Agenda
• Retirement Plans
• Overview of CARES Act Changes
• $100,000 Question - Options for Coronavirus-related Distributions &Loans
• Cost Containment - Options to Change ContributionLevels
• Suspension of RMDs for 2020
• Treatment of Leaves, Layoffs & Furloughs
• Tax & Amendment Deadlines
• Health & Welfare Plans
• Continuing Health Benefits DuringFurlough
• Health and Welfare Plan Considerations
• Resources for Employers
© 2020 Quarles & BradyLLP 1
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4/14/2020
Retirement Plans
Overview of CARES Act Changes
• New Coronavirus-related distribution & loan options
• "Coronavirus-related" means:
• The participant, spouse or dependent has been diagnosed with COVID-19or
SARS-CoV-2, OR
• The participant experiences "adverse financial consequences" as a result of being
quarantined; has their work schedule affected due to those viruses; or is unable to work
because of the lack of childcare.
• A plan administrator may rely upon the employee's certification that a distribution or
loan is Coronavirus-related.
• Affected plans: 401(k), 403(b), governmental457(b)
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4/14/2020
CARES Act - Distribution Options
• Must be taken before December 31, 2020
• Permitted from all contributionsources
• Total up to $100,000 in the aggregate
• Not subject to mandatory 20% withholding that often applies to plandistributions
• Not subject to the 10% tax for early withdrawal
• The income tax resulting from these withdrawals can be spread over three tax years.
• The distributions may be repaid in whole or in part over three years, with the taxes on
the distribution being effectively reversed.
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CARES Act - Loan Options
• Greater Coronavirus-related loans permitted during the 180-day period following the
enactment (March 27, 2020 - September 23,2020).
• Loans of up to $100,000 (up from $50,000)
• Loan amount not limited to 50% of the participant's vestedbalance
• Repayment period can be extended by one year; loan can be re-amortizedaccordingly.
• Can apply to existing loans that become due prior to December 31, 2020 as well as new
loans
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4/14/2020
CARES Act - Additional Relief
• Temporary waiver of Required Minimum Distributions (RMDs)
• Certain plans are granted a temporary waiver of the RMD rules for2020.
• Affected plans: defined contribution plans, governmental 457(b) plans &IRAs
• Similar to waiver of 2009 RMDs
• Funding relief for defined benefit plans
• A defined benefit plan may delay certain contribution obligations until2021.
• Allows plans to determine funded status using the adjusted funding target attainment
percentage (AFTAP) for the plan year that ended in2019
• Funding status can affect the availability of certain distributions (e.g., lumpsums).
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The $100,000 Question - Options for Coronavirus-related
Distributions and Loans
• When are they allowed?
• If the participant, spouse or dependent has been diagnosed with COVID-19 or SARS-CoV-2
• If you experience "adverse financial consequences" from layoff, furlough, reduced hours, or
the disease in general
• Self-certifying
• What about spouse having reduced hours or layoff in two-incomefamilies?
• What to offer?
• Distributions?
• Loans?
• Both?
• When to adopt?
• Immediately?
• Wait to see what participants need/request?
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4/14/2020
The $100,000 Question - Options for Coronavirus-Related
Distributions and Loans cont.
• Who to cover?
• Active (and terminated?)participants
• Beneficiaries and alternate payees?
• What contribution sources to make available?
• Employee contributions only (electivedeferrals)
• Employer contributions (matching, safe harbor,profit-sharing)
• Limit to 100% vestedsources?
• Exclude sources requiring spousalconsent?
• Check with plan's record keeper on what platformallows
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• Risks of loans:
• No 10% penalty waiver if don't pay back
• High payment: >$1,300 per month
• Risks of distributions: much less
• Spread tax over threeyears
• Can repay, without interest, any time in the threeyears
• Not clear how the IRS will track: amend returns vs. new line on Form1040
• Multiple withdrawals allowed.
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4/14/2020
• Won't hardship withdrawals cover this?
• Are Coronavirus-related distributions needed if plan allows hardshipwithdrawals?
• Participants must live or work in FEMA declared disasterarea.
• All states now have federally declared disasterstatus.
• 10% early distribution taxapplies.
• No ability to spread out tax or repay distribution
• Are loan suspensions optional?
• We see no reason not to allow.
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Cost Containment - Options to Change Contribution Levels
• Reducing or suspending employer contributions
• Safe harbor plans vs. other plans
• Stated formula vs. discretionarycontributions
• Matching contributions vs. profit-sharing or non-electivecontributions
• Payroll period vs. plan-yearcontributions
• Eliminate prospectively vs.retroactively
• 401(a)(17) adjustments for contributions based on partial-year compensation
• Check plan provisions
• Watch out for CARES Act – Employee RetentionCredit
• 90% of workforce must be retained at "full benefits and compensation."
• Waiting on guidance from Treasury
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4/14/2020
Cost Containment - Options to Change Contribution Levels cont.
• Safe harbor 401(k) plans
• Did safe harbor notice include language allowingsuspension?
• Difficult to meet other option: economicloss
• Consider carefully if you think of terminating the entireplan
• Restrictions make it difficult to restart.
• 30-day notice to participants and immediate planamendment
• Fully-fund contribution to date
• Must perform ADP and ACP testing for entire plan year
• Top-heavy testing required too (may need to fund top heavy minimumanyway).
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Cost Containment - Options to Change Contribution Levels cont.
• Other plans
• Freeze for remainder of the year
• Freeze for entire year (retroactively) if last-day / 1,000 hoursrequirement
• Change timing for funding of contribution (pay period to annual) to ease cashflow
• Plan amendment needed unless fully discretionary – check planterms.
• Some notice to participants recommended orrequired.
• May need to fund contribution to date (if participant is entitled to under plan)
• Mid-year freeze could require reallocation or additional contributions (if contributions are
made on a payroll basis but plan provides for annual match or profit-sharingcontribution).
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4/14/2020
Suspension of RMDs for 2020
• 2020 effects
• Required vs. optional?
• Can I rolloveramounts?
• Deadlines? Guidance from2009?
• Effects for five-year payouts
• In process
• Not yet started
• Effects for post-death distributions
• In process
• Not yet started
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Treatment of Leaves, Layoffs & Furloughs
• What is the difference in these terms?
• Could a partial termination be triggered?
• Maybe if >20% and if not just temporary"furlough"
• Are these events that permit (require?) a plan sponsor to make distributionsavailable?
• Check plan terms for paid & unpaid leaves of absence
• Look at treatment of payments for existing types ofleaves
• Are special leave payments under the Families First Coronavirus Response Act ("FFCRA")
"benefits eligible" for retirementplans?
• Or are they excludable from plan compensation if your plan excludes "fringebenefits"?
• How will service be credited during leaves orfurloughs?
• Review service crediting provisions (for eligibility, vesting andbenefits)
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4/14/2020
Treatment of Leaves, Layoffs & Furloughs cont.
• Treatment of employees on leave often causes confusion (but generally only affects a
few participants at a time).
• Be proactive: review how leaves have been handled in the past and be readyto
properly implement leaves.
• Check payroll practices and coding
• What happens if a participant is on unpaid leave and receives payagain?
• Do deferral elections and other payroll deductions start again automatically?
• Or must the employee make an affirmative election to re-start elective deferrals?
• How are loan repayments handled? (May not matter if suspended per CARES Act)
• What happens if a participant never returns to work?
• Check SPDs and employee communications
• Is past practice consistent with these documents? Do they need to be updated?
• Should a special communication be prepared for participants?
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Treatment of Leaves, Layoffs & Furloughs cont.
• Potential help in FFCRA and CARES Act to survive the cost ofbenefits
• Under FFCRA, employers with fewer than 500 employees must provide certain
employees with expanded FMLA and paid sick leave.
• Employers will receive a payroll tax credit for the qualified sick leave wages they pay,
subject to the caps.
• Paycheck Protection Program Loans from the Small Business Administration - are
available to businesses that employ fewer than 500 people (generally). If certain
requirements are met, the loans will be forgiven.
• Employee retention tax credit allows eligible employers (including tax exempt
organizations) to receive a tax credit equal to 50% of qualifiedwages.
• ***Many detailed requirements and restrictionsapply***
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4/14/2020
Tax& Amendment Deadlines
• Deadline to amend for changes under CARES Act for calendar-year plans: December 31,
2022 (or later for governmental plans) (same deadline as SECUREAct)
• Some changes would require amendments in 2020 (e.g., reducing orsuspending
employer contributions, adding a participant loanprogram).
• Automatic extension of any tax filing obligations on or after April 1; now due July 15
(federal tax returns, IRA contributions, distribution of excess deferrals, etc.)
• PBGC also extended filing & reporting deadlines on or after April 1; now due July15.
Section 403(b) amendment deadline was March 31; now June30.
• No relief yet for 5500 filing deadline for calendar-year plans (July 30,2020)
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Health & Welfare Plans

4/14/2020
Continuing Health Benefits During Furlough?
• Does eligibility continue under health plan? Check your eligibilityterms.
• Do you use a "forward-looking" test for eligibility (e.g., "You are eligible if you are scheduled to work
30 hours a week" or "monthly measurement method")? Or a "backwards-looking" test (e.g., follow
"look-back measurement method" under Employer Shared Responsibility rules)?
• If forward-looking, employees who go on furlough / layoff may lose eligibility. Is that what you want?
• If backwards-looking, employees who are not formally terminated (just on a leave or temporary non-
work) probably do not lose coverage because their "full-time" status is "locked in."
• But how will they pay for coverage if they are not being paid? Employer "loan" to employees? What if
employee never repays it? Taxable "wages"? Withhold FICA, FUTA, etc.?
• COBRA for terminated employees; maybe COBRA for furloughed employees
(If reduction in hours causes loss of coverage, that is a COBRA event.)
• Some insurers offering to delay COBRA-qualifying event
• More flexibility to modify eligibility terms if self-funded (but run by stop-loss carrier).
If fully-insured, talk to carrier (and maybe have "side letter"?)
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Health and Welfare Plan Considerations
• Eligibility for other welfare plans (e.g., life; long-term disability; short-term disability;
AD&D) – similar analysis as above
• FFCRA requires all "group health plans" to cover certain, specified testingduring
Coronavirus "emergency period."
• Cannot impose any "cost-sharing" requirements (deductibles, copayments, coinsurance) or
"prior authorization or other medical managementrequirements"
• Does "medical management requirements" include out of network restrictions? What about
requiring that Coronavirus test be "medically necessary"? If cannot use "medical necessity",
will some enrollees abuse process (e.g., get "over-tested" once tests are more-readily
available)?
• Coverage of testing (and treatment) on pre-deductible basis will not destroy "high
deductible health plan" status.
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4/14/2020
Health and Welfare Plan Considerations cont.
• FFCRA creates new health plan "credit." Amount of credit employer can receive for
required paid family leave/sick leave generally increased by "amounts paid or incurred"
to "provide and maintain a group health plan", to extent amounts are excluded from
employee's gross income under Code Section 106(a)
• New IRS FAQs from March 31 provide some answers on how to calculate.
• Most health plans (medical; dental; vision; health FSA; HRA; ICHRA) count.
• Available for employer contributions and employee pre-tax (but not after-tax) contributions
• Employer "allocates" health plan expense on per-employee-on-leave, per-day basis.
• E.g., Acme Co. has 400 employees on fully-insured plan; pays $5,200,000 in 2020.
• Total of $5,200,000 is divided by 400 = $13,000 premium per employee.
• Calculate "average number of work days"; can use 52 weeks x 5 days = 260 days.
• Calculate "daily average premium rate" = $13,000 / 260 days = $50 / day
• $50 per employee per covered leave day is the "qualified health plan expense" employer can claim as
tax credit.
• If plan is self-funded, use COBRA rate or actuarial estimate. 23
• CARES Act: Builds on FFCRA – and goes beyondit
• Tweaks definition of what Coronavirus testing must be covered
• Establishes what a self-funded health plan must pay for coronavirus testing
• If had "negotiated rate" before emergency declaration, use that.
• If not, look to "cash price" on provider's "public internet website" or negotiateprice.
• "Speed up" coverage of coronavirus coverage if and when vaccine or other "preventive"
coverage becomes possible (15 calendar days after announced)
• Removes ACA limitation on health FSA, HRA, HSA reimbursement of over-the-counter
medicines
• Also clarifies that menstrual care products can be reimbursed
• Optional; modify plan if you wantit.
• Do so retroactive to 1/1/2020? Or just goingforward?
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4/14/2020
• New regulations from April 6: maintain health plan coverage during newleaves
• Basic approach is to follow prior FMLA rules (i.e., must maintain health plancoverage).
• Employers can charge for it (pre-pay; pay-as-you-go; catch-up later).
• Continuation required for "benefits provided through a supplement to a group health plan" like a
"flexible spending account or other component of a cafeteria plan."
• If employer introduces a new health plan / option during the leave, employee on leave entitled to it.
• Are a couple odd things:
• Rather than rely on existing FMLA regulations, claims support under HIPAA nondiscrimination rules
• But not a common interpretation and raises issues of whether it would apply to small employers (less than
50 employees) who are normally exempt from FMLA
• Also whether that rule applies beyond FMLA leave period
• Related FAQs from April 11 state that IRS, DOL and HHS would "take enforcement action" if employer
/ insurer "attempts to limit or eliminate other benefits, or to increase cost-sharing, to offset" the
costs of Coronavirus testing.
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• PPP loan program allows loans for health plan expenses (but details notclear).
• CARES Act allows for "telehealth and other remote care services" to be provided by a
high-deductible health plan, without destroying HSA eligibility.
• Allows employers to provide up to $5,250 tax exclusion for employer payments toward
certain employee student loans
• Must meet certain administrative requirements (e.g., written plan) and be aware of "expiration" date
of December 31, 2020
• Different than prior law,which focused on current education, not prior education
• Many questions on cafeteria plans (e.g., can dependent care elections be changed if
dependent care providers temporarilyclose?)
• Tougher to modify health FSA elections – e.g., Suppose employee previously elected to put $200 /
month into a health FSA. Employee is still employed but now says he "can't afford it." No obvious way
to allow a reduction.
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4/14/2020
Resources for Employers
• Being prepared is the best way to protect your organization from effects of the
coronavirus. Additional information can be found at the resourcesbelow:
• www.osha.gov/SLTC/covid-19/
• https://www.cdc.gov/coronavirus/2019-ncov/community/guidance-business-response.html
• www.eeoc.gov/facts/pandemic_flu.html
• www.dol.gov/coronavirus
• https://www.dol.gov/agencies/whd/pandemic/ffcra-questions
• https://dwd.wisconsin.gov/covid19/public/ui.htm
• Please visit https://www.quarles.com/covid-19-guidance-for-clients/ for articles to help
employers navigate many aspects of the COVID-19pandemic.
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Questions
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4/14/2020
Thank You
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© 2020 Quarles & Brady LLP - This document providesinformationof a general nature.None of the informationcontained herein is intended as legal advice or opinionrelative to specific
matters, facts, situationsor issues.Additionalfacts and informationor future developmentsmay affect the subjectsaddressed in this document. You should consult with a lawyer about
your particularcircumstancesbeforeactingon anyof this informationbecauseitmay notbe applicableto youor your situation.
John Barlament, Partner
john.barlament@quarles.com
414-277-5727
Michael Wieber, Partner
michael.wieber@quarles.com
414-277-5109
Carolyn McAllister, Partner
carolyn.mcallister@quarles.com
414-277-5101

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