In addition to $600 checks for most Americans, the year-end COVID-19 stimulus package signed by the President on December 27, 2020, includes a new round of changes that employers will need to track for their employee benefit plans. The Consolidated Appropriations Act, 2021 (H.R. 133) (the “Act”) is the fourth major legislative attempt to provide relief to businesses and individuals facing economic hardship due to the COVID-19 pandemic. Although lacking a catchy acronym (like the “CARES” and “SECURE” Acts), this legislation makes the most significant changes to health plans since the Affordable Care Act, offers employers and employees additional flexibility for cafeteria plan benefits, and provides additional retirement plan relief.
The IRS has granted additional, albeit temporary, COVID-19-related relief for sponsors of “safe-harbor” 401(k) and 403(b) plans (i.e., plans that are exempt from one or both of the ADP and ACP nondiscrimination tests). Notice 2020-52, which was issued on June 29, 2020, provides temporary relief from the current requirements for mid-year amendments to such plans, and provides additional clarification regarding mid-year amendments to safe-harbor plans that only affect highly compensated employees. This guidance is welcome relief for plan sponsors who feel the financial need to reduce or suspend employer contributions under these plans, but who may not be able to satisfy the current regulatory requirements for mid-year amendments.
As part of its ongoing response to the coronavirus (COVID-19) outbreak, the IRS has released new guidance (Notice 2020-29) providing increased flexibility with respect to mid-year election changes under Section 125 cafeteria plans during the 2020 calendar year. The Notice also provides increased flexibility with respect to grace periods that will allow participants with unused amounts in their health or dependent care flexible spending accounts (FSAs) to apply those amounts to expenses incurred through December 31, 2020. Generally, employers may adopt the changes immediately (in some cases retroactive to January 1, 2020), so long as the plan is amended by December 31, 2021.
Deadline relief afforded by a new DOL and IRS Joint Notice during the COVID-19 national emergency significantly changes the administration of both self-funded and fully insured group health plans. Some of the extended deadlines are already causing confusion and increasing compliance risks for employers.
On May 4, 2020, the IRS posted 14 Questions and Answers (Q&As) on its website regarding the special retirement plan distribution options and loan provisions made available to certain qualified participants under the Coronavirus Aid, Relief, and Economic Security Act (hereinafter, the “CARES Act”). These Q&As answer many, but not all, of the questions that plan sponsors and third-party administrators have been grappling with since the CARES Act was enacted on March 27, 2020. Perhaps most importantly, the Q&As confirm that each of the distribution and loan provisions are optional for employers to adopt (or not adopt). They also indicate that the IRS intends to issue formal guidance regarding the CARES Act distribution and loan provisions in the near future, and that it anticipates that the guidance will generally apply the principles set forth in its prior guidance (Notice 2005-92) regarding the Katrina Emergency Tax Relief Act of 2005 (“KETRA”).
A frequently overlooked portion of the CARES Act offers employers the ability to give their employees some immediate – and cost-free – financial assistance. The Act opens the door for employees to use pre-tax dollars to purchase over-the-counter drugs and menstrual care products. Employers will need to modify health FSAs, HSAs, and HRAs to take advantage of this relief.