COVID-19 has introduced new challenges for employee benefit plan sponsors. Even though many states are starting to move into phases two and three and more businesses are operating again, there remain many unanswered questions.
Here are some of the more common ones with answers to help keep plans in compliance and members’ needs met.
- How should health plan coverage for furloughed employees be managed?
Furloughed employees are typically viewed as employees on unpaid leaves. Since a pandemic of this magnitude was not anticipated, many plans may not have a provision indicating how to manage health plan eligibility of furloughed employees. Proper due diligence at this time should begin with reviewing the plan to determine if a policy is in place for furloughed employees’ health coverage. If there is no provision, the plan should be modified to reflect what the plan sponsor wants the coverage to be. It’s important that in doing so, the plan sponsor gain the approval of their health insurer, or for self-insured plans, the stop loss carrier’s, to provide the desired coverage to furloughed employees or risk the insurer refusing to pay claims.
- Does having a “furloughed” status affect an employee’s elected benefits?
Yes, and therefore it is important that plan sponsors inform their employees regarding possible changes to their most recent plan elections and what they can do to protect themselves. For example, employees with Healthcare Flexible Spending Accounts (FSAs) may be advised to elect COBRA for their account should the employer decide to terminate furloughed employees’ continued right to participate in the FSA.
- What is permissible for employers/plan sponsors to do to help their employees/plan members during the furloughed period?
Depending on the nature of the assistance, plan sponsors may not be the only decision maker. If an employer wants to help out furloughed employees by extending life insurance or disability insurance coverage to them, they should consult their insurance carrier to determine the permitted time period which will be limited. Should a plan sponsor want to help with furloughed employees’ premium payments, it’s important to keep in mind that certain employment laws such as the Family & Medical Leave Act may stipulate what amount of subsidy is permitted, and for self-insured plans, nondiscrimination rules may apply. If cash is paid directly to the furloughed employee to use to pay their premiums, the amount will be treated as wages and taxed accordingly.
- Are employers allowed to stop their contributions to their employees’ qualified retirement plans (i.e., 401(k)/403(B)?
This is not a one size fits all answer. There are factors involved, including whether or not the plan is a “safe harbor plan” and if so, what was stated in the safe harbor notice provided to employees at the beginning of the relevant plan year. If it allowed for reducing contributions, than this is permissible, and it would also be allowed if the employer was experiencing “economic loss” which many have resulted due to the pandemic shutting down operations. Other variables regarding the possible modification of a safe harbor plan are the schedule for when contributions are made (i.e., annually or periodically), if a “last day” or 1,000 hour rule applies as an eligibility condition for an employer’s matching contribution, and if the plan contained a provision indicating that some 2019 discretionary contributions (i.e., non-elective and matching) did not have to be made in the 2020.
- Are there certain allowances that can be made to help furloughed employees who are affected by COVID-19 in terms of plan distributions?
Yes. Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, there is a provision enabling a plan to be amended so that furloughed employees/plan members, who are affected by COVID-19, can receive penalty-free plan distributions of no more than $100,000. The distribution must be repaid within three years of the distribution or else the unpaid amount will be treated as ratable income for the year the distribution was made for the three-year period. There is also a CARES Act provision that allows the amendment of a plan to temporarily increase the limit on plan loans to qualified individuals to a maximum of $100,000 or 100% of the participant’s vested account balance. The increase applies to loans granted during the 180-day period after the date of the enactment, which is until September 23, 2020. Under CARES, there is also a waiver of the minimum required distribution for 401(k), 403(b) and 457(b) plans. Complete information regarding the CARES Act’s provisions for retirement plans, visit:
- Are all employee COVID-19 screenings being paid for by insurers?
This is a question for the individual insurance carrier. While many insurers are providing screenings without costs, some are not. Another question to confirm with any vendor used for testing is that they comply with HIPAA’s Security Rule ensuring that only authorized users have access to electronic protected health information (EPHI) and that this EPHI is protected through a secure communications/IT system.
In addition to consulting their carriers, employers/plan sponsors should contact their employee benefits third party administrator with any questions relating to their employee benefit plans, how to help furloughed employees, and regulatory changes implemented due to COVID-19.