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COVID-19: Mid-Year Changes to 401(k) Plans

U.S. employers looking to reduce operating costs in the short term in response to the disruption caused by the COVID-19 pandemic may seek to reduce or suspend their matching or nonelective contributions in their 401(k) plan. The following summarizes the key issues facing employers in making the determination to suspend or reduce safe-harbor contributions.

Suspending or Reducing Employer Contributions in Non-Safe-harbor Plans

Discretionary employer matching and nonelective contributions generally may be immediately suspended or reduced through appropriate corporation action.  Employers should consider the following in connection with a suspension or reduction of employer contributions:

  • Does the Plan have Discretionary Employer Contributions?

If the plan does not include provisions setting out a formula or specific amount of employer contributions, the board simply needs to take action to change the amount of the employer matching contribution, which could include suspending the contribution until the board takes further action.

  • Does The Plan have a Set Formula for Determining Matching or Nonelective Contributions?

If the retirement plan or related documents set out a formula for determining the employer contributions (that is, the amount of the contributions are “hard-wired” into the plan), the plan will need to be amended to change the formula.  Companies may also consider removing specific formulas entirely and replacing them with provisions stating that the amount of the employer nonelective or matching contributions is discretionary and will be determining by the board from time to time.

  • When may the Reduction or

CARES Act Expands U.S. Retirement Plan Access and Provides Additional Relief and Changes to Employer-Provided Benefits

The Coronavirus, Aid, Relief and Economic Security Act (“CARES Act”) provides legislative relief to participants impacted by the Coronavirus pandemic.  A summary of key provisions of the CARES Act, based on the current draft, is included below. These provisions are, of course, still subject to approval by both houses of Congress and the President’s signature.

Provisions Applicable to Retirement Plans

Coronavirus-Related Distributions

Tax-favored coronavirus-related distributions (“CRD’s) which do not exceed $100,000 will not be subject to the 10% early distribution tax.  A CRD means any distribution from a plan made on or after January 1, 2020 and before December 31, 2020 to an individual who is one of the following:

  • An individual who is diagnosed with COVID-19 or SARS-CoV-2;
  • An individual whose spouse or dependent is diagnosed with COVID-19 or SARS-CoV-2; or
  • An individual who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, experiencing a reduction of work hours, inability to work due to lack of child care caused by COVID-19 or SARS-CoV-2, the closing or reduction of hours by a business owned or operated by such participant due to COVID-19 or SARS-CoV-2, or other factors determined by the Treasury Secretary.

Notably, the plan administrator may rely on the individual’s certification that he/she has experienced a CRD.  Tax on the CRD shall, unless the individual elects to the contrary, be spread pro-rata over a three year period.  The individual may repay the CRD to the plan without regard to contribution

DOL Rolls Out Public Search Engine for Top-Hat Plan Statements

Top-Hat plans are unfunded plans for a select group of management or highly compensated employees that are exempt from a number of ERISA provisions (such as reporting, funding, testing, and certain fiduciary obligations).  In order to ensure that a plan is exempt from those provisions of ERISA, a plan sponsor must file a one-time “top-hat statement” with the Department of Labor within 120 days of the plan’s effective date.

The Department of Labor has rolled out a top-hat plan statement search engine, which is available to the public generally.  The engine is searchable by looking up employer names, plan names, and/or employer identification numbers (EINs).  Sponsors of top-hat plans that have previously filed a statement should consider searching the database to ensure that the statement shows up in the Department of Labor’s records.  If a statement is not found for a plan, review internal records for filing confirmations previously received.

If a top-hat statement has not been timely filed, an application may be made to the Department of Labor’s Delinquent Filers Voluntary Compliance Program to correct the error.

COVID-19 U.S.: Collected Employee Benefits Blog Posts

We have published a number of COVID-19/coronavirus related blog posts for our U.S. clients and friends over the past couple of weeks.  In an effort to consolidate the flurry of guidance and keep you up-to-date in these fast-changing circumstances, we are posting the links to all of our COVID-19 related blog posts here.  We will update the list below as additional blog posts are added.

  • IRS relief for high deductible health plans covering testing and treatment: click here
  • ERISA fiduciary responsibilities in an uncertain market: click here
  • HIPAA compliance during the COVID-19 pandemic: click here
  • Aggregated links to federal government guidance: click here
  • Compensation considerations fr public and private U.S. companies: click here
  • Emergency paid sick leave and family leave under the Families First Coronavirus Response Act (FFCRA): click here and here
  • Proposed legislative relief for participant access to retirement plan funds under the Coronavirus, Aid, Relief and Economic Security Act (CARES Act): click here
  • FFCRA paid sick and family leave tax credits for small employers: click here
  • FFCRA COVID-19 diagnostic testing mandate for most group health plans: click here
  • Providing employee assistance through interest-free loans: click here
  • Summary of the CARES Act retirement plan access and employer-sponsored health plan provisions: click here
  • Key Issues for employers

COVID-19 Update – Employee Assistance Through Interest-Free Loans

March 23, 2020

Categories

As we explore ways to manage through these difficult economic times, employers who are looking for ways to assist employees who have seen their compensation reduced or former employees whose jobs have been temporarily eliminated due to the impact of the coronavirus quarantine may want to consider making interest-free loans available to those employees as a way to assist them economically during this difficult period.

Click here to read the Alert from our tax colleagues in full.

Families First Coronavirus Response Act Part 2 of 2: Impact on Employer Health Plans

The Families First Coronavirus Response Act (“FFCRA”) enacted March 18 provides a combination of benefits to help U.S. employees during the COVID-19 pandemic:

  • Mandated benefits under employer health plans,
  • Paid sick leave benefits (up to 80 hours) – click here for our discussion of the paid sick leave benefits,
  • FMLA benefits (up to 12 weeks with a combination of paid and unpaid leave) – click here for our discussion of the FMLA benefits,
  • Tax benefits to ease the cost to certain small employers of providing health care coverage under the newly expanded sick leave and FMLA benefits noted above click here for a discussion of the FMLA benefits – click here for our discussion of the small employer tax credits.

The following is a summary of the mandated benefits COVID-19 testing requirements applicable to employer health plans.

COVID-19 Diagnostic Testing Coverage Requirements

Most group health plans[1] and group insurance coverage are required to cover COVID-19 testing related items and services without imposing any cost sharing (including deductibles, copayments, and coinsurance) or prior authorization or medical management requirements. The following is a summary of the key points of the FFCRA requirement:

  1. Coverage of Diagnostic Items and Services without Cost-Sharing. The specific items and services to which the coverage mandate applies include:
    1. “In vitro diagnostic products”[2] used for the detection of SARS–CoV–2 or diagnosis of the virus that causes COVID–19

Families First Coronavirus Response Act Part 1 of 2: Small Employer Tax Credits

The Families First Coronavirus Response Act (“FFCRA“) generally requires U.S. employers with fewer than 500 employees (“Small Employers”) to provide paid sick leave and additional FMLA benefits to their employees.[1] You can read our summary of the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act here and here, respectively.

In order to offset some of the costs these provisions impose on Small Employers, the FFCRA also provides a quarterly payroll tax credit equal to 100% of the qualified sick and leave wages paid to employees under the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act.

The amount of leave wages taken into account is limited with respect to each individual employee for purposes of the credit.

  • For sick leave wages paid due to an employee’s illness or quarantine, the amount of wages taken into account for purposes of the credit is capped at $511 per day and $5,110 in the aggregate for each employee; and
  • For sick leave wages paid due to an employee’s need to care for others or care for the employee’s child(ren) due to school closures[2], the amount of wages taken into account for purposes of the credit is capped is $200 per day and $2,000 in the aggregate for each employee. Sick leave wages under the FFCRA are available for a maximum of 2 weeks (10 days).

CARES Act Would Expand U.S. Retirement Plan Access to Participants Impacted by the Coronavirus Pandemic

The proposed Coronavirus, Aid, Relief and Economic Security Act (“CARES ACT”) would, if enacted, provide legislative relief to participants impacted by the Coronavirus pandemic.  This relief is expected to be agreed upon and enacted – although likely with some modifications.  We will update this post and provide additional detail at that time.

As currently drafted, the CARES ACT would provide the following relief with respect to hardship distributions and loans.

Hardship Distributions

The 10% early distribution tax would be waived for the following virus related hardships:

  • Participant is diagnosed with COVID-19;
  • Participant’s spouse or dependent is diagnosed with COVID-19;
  • Participant experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, experiencing a reduction of work hours, inability to work due to lack of child care caused by COVID-19, the closing or reduction of hours by a business owned or operated by such participant due to COVID-19; or
  • Other circumstances as determined by the Treasury Secretary.

The CARES Act would provide additional tax relief in the form of a three-year period for (i) payment of tax on the distribution and (ii) tax-free repayment of the distribution to the plan.

Plan Loans

The maximum loan that could be taken would be increased to the lesser of $100,000 or 100% of a participant’s vested account balance.  This limit would be double the current limit of the lesser of $50,000 or 50% of a participant’s vested account balance.  In addition, qualifying participants with outstanding loan

Families First Coronavirus Response Act: Emergency Family and Medical Leave Provisions (Part 2 of 2)

The following blog post was authored by our colleagues, Lily Kurland and Christy Phanthavong, and published on the BCLP At Work blog, where there have been ongoing labor and employment updates in response to the COVID-19 pandemic.

On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (the “FFCRA or Act”).  The FFCRA provides for two types of leave for employees:  Paid Sick Leave (up to 80 hours) and Emergency Family and Medical Leave (up to 12 weeks of combined paid and unpaid leave).  This post is part 2 of 2 summarizing the requirements of the FFCRA and focuses on Emergency Family and Medical Leave.

  • Scope: Unlike the paid sick leave provisions of the FFCRA, the emergency family and medical leave provisions are not standalone law.  Rather, these provisions amend the Family and Medical Leave Act (“FMLA”), thus providing for “Emergency FMLA” leave.  However, the amendments (such as the changed definition of Covered Employer and Eligible Employee) apply only to Emergency FMLA provisions and do not amend the pre-existing provisions of the FMLA.
  • Effective Dates: The Act will become effective no later than April 2, 2020 and expire on December 31, 2020.
  • Covered Employer: Anyone who has fewer than 500 employees[1] and otherwise satisfies the elements of the definition of “Employer” under the FMLA.[2]
    • EXCEPTIONS:
      • DOL may issue guidance excluding employers with fewer than 50 employees

Families First Coronavirus Response Act: Paid Sick Leave Provisions (Part 1 of 2)

The following blog post was authored by our colleagues, Lily Kurland and Christy Phanthavong, and published on the BCLP At Work blog, where there have been ongoing labor and employment updates in response to the COVID-19 pandemic.

On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (the “FFCRA or Act”).  The FFCRA provides for two types of leave for employees:  Paid Sick Leave (up to 80 hours) and Emergency Family and Medical Leave (up to 12 weeks with a combination of paid and unpaid leave).  This post is part 1 of 2 summarizing the requirements of the FFCRA and focuses on Paid Sick Leave. 

  • Effective Dates: The Act will become effective no later than April 2, 2020 and expire on December 31, 2020.
  • Department of Labor (“DOL”) Obligations: Must issue a “Model Notice” for employers to post within 7 days of enactment and guidance within 15 days of enactment.
  • Covered Employer – Anyone engaged in commerce with fewer than 500 employees,[1] as defined under the Fair Labor Standards Act (“FLSA”).
    • EXCEPTION – The DOL may issue guidance excluding employers with fewer than 50 employees from the paid leave requirements of the Act if the paid sick leave would “jeopardize the viability of the business as a going concern.”
  • Eligible Employees – All employees (as defined under the FLSA), regardless of length of employment, and regardless of
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