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A Review of the Employee Benefit Provisions in the CARES Act

April 17, 2020

As everyone wades through the uncertainty and daily changes associated with COVID-19, EctoHR has been monitoring changes to assist employers with navigating these uncharted waters. A significant piece of Federal legislation, The Coronavirus Aid, Relief and Economic Security (CARES) Act, was signed into law on March 27, 2020. This law includes key changes to employer-sponsored health plans and retirement plans. Below is a summary of the most notable changes associated with the benefit provisions of the Act, including how they specifically help employees.

Group Health Plans & Expanded Use of HSAs

• The CARES Act allows individuals to use Health Savings Accounts (HSAs) to cover telehealth services, which were not previously covered. This can be particularly helpful as Americans are urged to stay home.
• Account holders can now use their HSA to buy over-the-counter medical products without a prescription, including drugs, certain menstrual care products, and masks.
• These provisions will end December 31, 2020 unless Congress extends or makes the change permanent.

Retirement Plans 

• 401(k) & IRA Withdrawals
  • The CARES Act allows a new type of hardship withdrawal for participants which in certain cases is not subject to the typical 10% early distribution penalty, such as when the participant or a family member has been diagnosed with COVID-19 or if the participant has experienced a COVID-related income loss.
  • Income tax will still be owed for the amount withdrawn; however, the law allows participants to pay the tax over a 3-year period instead of the tax year the withdrawal occurred.

• Retirement Plan Loans
  • Through December 31, 2020, the CARES Act will double the current retirement plan loan limits to the lesser of $100,000 or 100% of the participants vested account balance for the next 6 months.
  • Additionally, individuals with an outstanding loan with repayment due between March 27, 2020 and December 31, 2020 can now delay their payments for up to one year. 

• Special Consideration
  • EctoHR recommends that employers be cautious in how they communicate the retirement plan changes to employees to avoid a raid on employee retirement funds at a time when values are down.
  • There are alternatives that should can be considered, including possible pay advances. While EctoHR does not typically recommend employee advances, if the business can afford to provide support to the employee via an advance or employee loan, it may worthwhile to avoid an employee selling off retirement assets during a down market.
  • Retirement plan administrators have been reaching out to employers in the last week to determine if the employer wants to allow all of these changes. Employers are encouraged to consider their employee population and their ability to keep people employed and paid during this time as part of the considerations in whether to allow for expanded loan and hardship provisions.

With many of the CARES Act provisions providing helpful resources to employers, it is important to be mindful of the legislation that could be immediately impactful to employees. EctoHR will do our best to keep you up-to-date on all of the legislation, including some of the changes that may get less attention than others.

For more information regarding the CARES Act or other COVID-19 changes, reach out to an HR professional at hr@ectohr.com or 810.534.0170.