The United States Congress passed the Coronavirus Aid, Relief and Economic Security Act (the “Cares Act”), and it was immediately signed into law by President Trump on March 27, 2020.  Passage of the CARES Act follows closely behind the passage by Congress of the Families First Coronavirus Response Act (the “FFCRA”).  Contained within the CARES Act are a number of provisions that affect employee benefit plans.  Those provisions are summarized below.

With respect to defined contribution retirement plans, a number of changes have been made--mostly to enhance access to plan accounts by plan participants affected by the coronavirus. The following changes have been made:

(a) The CARES Act permits an optional new type of plan distribution for plan participants affected by the coronavirus. These distributions, while not mandatory, can be offered in-service and without regard to the age of the participant.  This new distribution option applies to distributions for a participant that (a) do not exceed $100,000 in the aggregate for a taxable year, (b) are made between January 1 and December 31, 2020 and (c) are treated as “Coronavirus Related Distributions” (“CRDs”), as defined below.  This new provision applies to distributions from eligible retirement plans (generally, qualified plans, 403(b) plans and 457 plans).  For this purpose, all controlled group, trades or businesses under common control and affiliated service group entities are aggregated.  In addition, the CARES Act waives the 10% excise tax that otherwise would apply to early distributions (including in-service distributions made prior to age 59 ½) from a plan.

The CARES Act applies a relatively broad definition of CRDs, which includes distributions to any participant (i) who is or whose spouse or dependent is diagnosed with the coronavirus, (ii) who experiences adverse financial consequences as a result of quarantine, furlough, layoff or reduced work hours due to the coronavirus, or (iii) cannot work due to lack of child care due to the coronavirus or closing or reduced hours of a business owned or operator by the participant due to the coronavirus.  Similar to rules applicable in the context of hardship withdrawals, plan administrator can rely on an employee’s certification that requested distributions qualify as CRDs.  

Participants receiving CRDs are provided an option to spread the amounts required to be included in gross income from such CRDs over three tax years.  Participants also may repay CRDs (or some portion thereof) to the plan at any time during the three year period beginning on the date of the distribution.  Any such repayment is treated as an eligible rollover distribution.  

(b) The CARES ACT has increased the $50,000 maximum loan limit applicable to plan loans to $100,000 for loans made in the 180-day period extending from the date the CARES ACT was enacted to the extent participants satisfy the standards for CRDs set forth above. In addition, the rule that a loan cannot exceed 50% of the present value of the participant’s accrued benefit is suspended for such loans.  Finally, the due date for any loan payments, including with respect to new and currently outstanding loans, due between the date of the Act and December 31, 2020 must be  extended one year for qualifying participants, with the amount due adjusted for interest. The additional year is not counted for purposes of the five year plan loan repayment rule.

(c) The CARES ACT waives the minimum required distributions for the 2020 year for participants who hit the minimum age in 2020.  This rule applies to defined contribution plans, 403(a) and 403(b) plans and 457(b) plans maintained by governmental employers (but not to defined benefit plans).

The CARES Act provides an extended period for making plan amendments to conform to these new provisions.  Any necessary plan amendments must be made not later than the last day of the plan year that begins on or after January 1, 2022 (although a special 2024 deadline applies to governmental plans).  Notwithstanding this delayed date, plans are required to comply with the new rules throughout this interim period.

The CARES Act also made a couple changes related to defined benefit plans, as follows:

(a) The CARES Act delays all 2020 minimum required contributions for single-employer defined benefit plans until January 1, 2021.  The relief applies to quarterly contributions and year-end contributions regardless of plan year.  Any delayed contributions when later made must include interest reflecting late payment based on the plan’s effective interest rate for the affected plan year.

(b) In addition, the CARES Act allows (but does not require) defined benefit plans to use the plan’s adjusted funding target attainment percentage for the plan year ending in 2019 when determining whether benefit restrictions apply to any plan year that includes the 2020 calendar year. This relief is intended to help plan sponsors avoid freezing benefits and allow then to continue to offer lump sums payments and other accelerated payment forms in 2020--even if the plan’s funded status has significantly declined in the context of this current public health crisis.  

As noted, the CARES Act also made a few changes to health care plans. Those changes are summarized below:

(a) The FFCRA requires that all employer-sponsored group health plans, including both insured and self-insured plans, cover all coronavirus testing expenses without any cost sharing during the designated emergency period. The CARES Act expands on the types of testing that plans must cover without cost-sharing to include forms of tests or additional tests as may be specified in future governmental guidance. The CARES ACT also requires pans and insurers to reimburse providers for the testing costs at a rate negotiated before the public health emergency was declared, or at the amount posted by the provider on its website if no such negotiated rate exists.  Finally, the CARES Act expands upon the no cost coverage mandate to include coverage of preventive services or vaccines for the coronavirus when available (to the extent recommended by relevant governmental agencies). The bulk of the work for ensuring compliance with these features likely will be performed by either insurance companies or by third party administrator for self-funded programs.

(b) The CARES Act permits a high-deductible health plan with a health savings account to cover tele-health or other remote care services prior to a participant reaching the deductible limit. It appears this provision is designed to broaden the range of health care services available to participants who may have been exposed to the coronavirus without resulting in such participants becoming ineligible for HSA contributions. This provision applies for plan years beginning on or before December 31, 2021.

(c) The CARES Act eliminates a previously existing rule that required that over-the-counter medicines and drugs (other than insulin) be prescribed in order to be treated as eligible reimbursable expenses.  The CARES Act also expands the category of eligible expenses to include menstrual care products, including tampons, pads, liners, cups, sponges, or similar products. These new provisions are effective for expenses incurred on or after January 1, 2020.

Although not directly related to existing employee benefit programs, the CARES Act permits (but does not compel) employers to help students repay student loans between the date of enactment of the CARES ACT and January 1, 2021.  These subsidies would be tax-free to the students so long as they do not exceed $5,250 annually.

To learn more about the issues raised by this client bulletin, please contact Richard P. McHugh at

Note: This bulletin is for general use and should not be construed to provide legal advice as to particular factual situations.

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