• Temporarily waives required minimum distributions.  Required minimum distributions (RMDs) are not required for 2020 for IRAs or for any defined contribution plan, including 403(b) plans and governmental 457(b) plans.  This includes individuals who reached age 70½ during 2019 but who have not otherwise commenced RMDs.  This is particularly significant for participants whose account balances have experienced dramatic losses in the first quarter of 2020 since RMD calculations are based on the account balance as of December 31, 2019.  If a participant does receive a 2020 RMD, the distribution is an eligible rollover distribution. 
• Plan Amendment Timing. Many of the above-referenced changes are optional provisions that a plan sponsor may incorporate by plan amendment.  CARES Act amendments must be adopted by the last day of the first plan year beginning on or after January 1, 2022 (or for governmental plans, January 1, 2024).  Please contact us for additional information regarding the employee benefit plan implications of this COVID-19-related legislation or for information about how these changes might be relevant to you.  

Defined Benefit Pension Plans (Single-Employer, Non-Governmental)

• Extends the employer pension contribution deadline.  Any minimum required contributions for a single-employer non-governmental defined benefit plan under Code section 430 that would otherwise be due during 2020 will not be due until January 1, 2021.  However, the employer will be required to apply interest at the plan’s effective rate from the original due date through the date of contribution.  The other extended amortization and pension stabilization provisions that were originally proposed by the House were not included in the final CARES Act.
• Adjusts section 436 benefit restrictions.  A plan sponsor is permitted to treat the plan’s adjusted funding target attainment percentage for the last plan year ending before January 1, 2020, as the adjusted funding target attainment percentage for plan years which include calendar year 2020.  
  Fringe Benefits
• Employers can make nontaxable student loan payments under a qualified educational assistance plan.  The CARES Act temporarily implements the provisions of the previously proposed Employer Participation in Repayment Act, which expands the tax exclusion for employer-provided educational assistance to include payments of qualified education loans by an employer to either an employee or directly to a lender.  The maximum exclusion for all educational assistance (including tuition, books, and supplies) is $5,250 per employee per calendar year, and the expansion to cover student loan payments is only applicable for amounts paid before January 1, 2021. 
• Employer credit for shutdown wages paid includes allocable health plan expenses.  In connection with the new CARES Act tax credit given to eligible employers for wages paid to employees during a COVID-19-related business closure, if applicable, amounts paid or incurred by the employer to provide and maintain a group health plan during that same period are also eligible for this credit. 

Group Health Plans

• Updates health plans coverage requirements for COVID-19 testing and diagnostic services.  The Families First Coronavirus Response Act required that all group health insurance plans and health insurance issuers offering group or individual coverage provide COVID-19 testing and diagnostic services without any cost-sharing (including deductibles, copayments, and coinsurance) requirements or prior authorization requirements.  The CARES Act provides additional information regarding the rates at which the group health plan or insurance company must reimburse the provider of the diagnostic test and requires that provider costs be published.
• Requires health plans to cover qualifying COVID-19 preventative services.  This requires group health plans and health insurance issuers to cover (without cost-sharing) any approved item, service, or immunization that is intended to prevent or mitigate COVID-19. 
• Allows telehealth services for HSA participants without a deductible.  For plan years beginning on or before December 31, 2021, a high-deductible health plan is permitted to cover telehealth services at a reduced or no charge without causing the plan to be disqualified or participants to become ineligible to contribute to a health savings account (HSA). 
• Permanent inclusion of certain over-the-counter medical products as qualified medical expenses.  The Act reverses a requirement of the Affordable Care Act that required participants to have a prescription for any over-the-counter products purchased using funds from an HSA, health reimbursement arrangement (HRA), Archer MSA, or health care flexible spending account (FSA).  The Act also specifically expanded the definition of medical care expenses to include menstrual care products.

Executive Compensation

• Limitations on employee compensation for recipients of government loans and guarantees.  In order to receive certain government loans or loan guarantees provided by Title IV of the Act, the business must agree to employee compensation limits for the period beginning on the date of such agreement and ending one year after the loan or guarantee is last outstanding .  First, any non-bargained employee of the eligible business whose compensation exceeded $425,000 in 2019 may not receive, during any 12-consecutive-month period, more compensation from the eligible business than he or she received in 2019, and may not receive severance in the amount of more than twice his or her 2019 compensation.  Second, any employee of the eligible business whose compensation exceeded $3,000,000 in 2019 may not receive, during any 12-consecutive-month period, more compensation from the eligible business than the sum of (1) $3,000,000, and (2) 50 percent of the excess over $3,000,000 that such person received in calendar year 2019.

Compensation for this purpose includes salary, bonus, stock awards, and any other financial benefits.  

• Limitations on employee compensation for recipients of financial assistance for air carriers or contractors.  In order to receive certain government funds or relief provided to air carriers or contractors, the business must agree to employee compensation limits for the two-year period beginning March 24, 2020 and ending March 24, 2022.  The compensation is limited in the same manner as described above, with certain limitations applicable to employees who made more than $425,000 in 2019 and more onerous restrictions applicable to employees who earned more than $3,000,000 in 2019.

Client Alert 2020-180