Posted by Robert Davis on April 9, 2020.
Congress has passed, and the President has signed into law, the Coronavirus Aid, Relief, and Economic Security (CARES) Act—a sweeping $2 trillion emergency relief bill for businesses and individuals affected by the coronavirus pandemic.
Follow us @Deloitte HC
Among the headlines, the bill provides immediate cash payments to individuals and families of up to $1,200 (or $2,400 for couples filing jointly), plus an additional $500 per child. Payment amounts are reduced beginning at $75,000 in income for individuals and $150,000 in income for joint filers, and are completely phased out for individuals with income exceeding $99,000 and joint filers with income exceeding $198,000. Eligibility is based on 2019 tax returns, or 2018 returns if the 2019 return has not yet been filed.
The bill also expands unemployment benefits to include the self-employed, independent contractors, and gig workers. It provides additional benefits to each recipient of unemployment insurance for up to four months and an additional 13 weeks of unemployment benefits after state benefits are no longer available.
Additionally, the bill provides $500 billion to the Treasury Department’s Exchange Stabilization Fund for distressed industries and authorizes the Federal Reserve to provide approximately Four trillion dollars in direct aid to various industries and local governments.
The distressed industry relief includes relief for airlines, and comes with limits on stock buybacks and executive compensation.
The CARES Act also includes an employee retention tax credit and payroll tax deposit delay among other tax issues of interest to employers. These are explained in more detail in Deloitte’s Covid-19 stimulus: A taxpayer guide.
Provisions Affecting Employers and Employee Benefits
Deeper in the weeds, there are a number of provisions that will be of interest to employers.
Student Loan Debt Assistance
One provision of the bill permits individuals to defer their student loan payments for six months. However, employers might also want to help employees pay down some of their student loan debt during this period. If they do, the CARES act amends IRC section 127(c) to provide a gross income exclusion for employer payments of an employee’s student loans, but only for payments made before January 1, 2021. The $5,250 aggregate annual limit on employer education assistance program benefits applies.
Qualified Retirement Plans
The CARES Act provides minimum funding relief for sponsors of pension plans. Specifically, it extends the due date for any minimum contribution (including quarterly contributions) otherwise due during the 2020 calendar year until January 1, 2021. However, interest will accrue from the original due date until the actual contribution is made.
Additionally, this section gives plans the option to use the adjusted funding attainment percentage (AFTAP) for the last plan year ending before January 1, 2020 as the AFTAP for plan years that include calendar year 2020. This may help certain plan sponsors avoid benefit restrictions or other consequences of AFTAPs falling below 80% due to interest changes and/or stock market losses.
Employers that sponsor retirement plans will also be interested in the following, which provide flexibility to permit employees to access retirement savings.
- Waiver of 10% Penalty on Certain Early Distributions from Retirement Plans: Section 2202 amends IRC section 72(t) to waive the 10% penalty on early distributions from qualified retirement plans and IRAs for any “coronavirus-related distribution” up to a limit of $100,000 per taxable year. Additionally, recipients will have the option of repaying these coronavirus-related distributions over a three year period and have the repayment treated as a rollover (i.e., no tax on the distribution). Those who cannot or choose not to repay the distribution can elect to have the tax on that distribution spread out over three years. A “coronavirus-related distribution” is a distribution made on or after January 1, 2020, and before December 31, 2020, to an individual who is diagnosed with coronavirus, whose spouse or child(ren) are diagnosed with coronavirus, or who suffers adverse financial consequences resulting from the coronavirus pandemic.
- Temporary Increase to Qualified Plan Loan Limit: Section 2202 also amends IRC section 72(p) to increase from $50,000 to $100,000 the dollar limit on qualified plan loans for any plan loan made during the 180-day period beginning with the enactment of the stimulus bill. It also provides that the loan can be up to 100% of the individual’s vested accrued benefit (if that is less than $100,000). It also provides that an individual affected by coronavirus may have repayments on a loan suspended for one year, and have the maximum term on loans extended for an additional year.
The bill also amends IRC section 401(a)(9) to suspend the required minimum distribution (RMD) requirements for distributions otherwise required to be made in 2020. This provision applies only to defined contribution plans and IRAs; it does not apply to defined benefit pension plans.
Group Health Benefits
Employers providing group health benefits should note the CARES Act:
- extends the recently enacted mandate for group health plans and health insurance issuers to cover diagnostic testing for coronavirus to also include certain in vitro diagnostic tests;
- establishes rules for group health plans and health insurance issuers relating to reimbursing providers for coronavirus diagnostic testing; and
- requires group health plans and health insurance issuers to cover (without any cost-sharing) certain “qualifying coronavirus preventive services.”
ERISA imposes a number of deadlines on employee benefit plans, including annual funding notices, benefit statements, and Form 5500 filing requirements, among others. The bill amends ERISA section 518 to give the Secretary of Labor discretion to extend these and any other ERISA deadlines by up to one year in the case of a public health emergency as declared by the Secretary of Health and Human Services. (Note that HHS Secretary Azar declared a public health emergency relating to coronavirus on January 31, 2020.)
|Robert Davis is a managing director in Deloitte Consulting LLP and leads the Washington Rewards Policy Center of Excellence, dedicated to informing practitioners and clients about legislative and regulatory developments relating to employer-sponsored rewards programs|