Insurance Coverage and Coronavirus Testing

Will My Insurance Cover the Cost of Coronavirus Testing?

As we continue to navigate through the effects of COVID-19, many questions arise when it comes to insurance coverage. Does your specific insurance cover testing? Does it cover treatment? How can I find out my coverage options? 

The short answer is it depends on your coverage. Health insurance coverage varies widely, depending on where you live and how you obtain your coverage. Almost half of Americans receive their insurance coverage from their employers. Those plans are managed by both the federal and state guidelines, which depend on the group size and whether or not the plans are self-insured or fully-insured. So how does Coronavirus coverage fit into these health plans?

Let’s begin with testing. The Families First Coronavirus Response Act states the Medicare, Medicaid, and private health insurance plans are required to cover the cost of Coronavirus testing, without cost-sharing or pre-authorization requirements. This is including lab service costs and provider fees at doctor’s offices, urgent care clinics, and emergency rooms where tests are given. Because this act is federal law, self-insured and fully-insured plans apply to this rule. However, the testing coverage requirements that are imposed on some states are only applicable to fully-insured plans.

Plans that are not considered minimum essential coverage, for example short-term health plans, fixed indemnity plans, and healthcare sharing ministry plans, are not required to cover COVID-19 testing. Some of these plans do volunteer to cover COVID-19 testing, so look to your plan for specifics.

Some states, like Washington, have extended their testing coverage requirements to include these short-term plans, but most states have not imposed further requirements for these plans.

If you are uninsured, states can use their Medicaid programs to cover COVID-19 testing to cover their uninsured residents. There is $1 billion in federal funding to reimburse providers to cover COVID-19 testing for uninsured patients.

Now, let’s get into treatment coverage. As of right now, there is no specific treatment for COVID-19, most people will not need treatment, but around 20% of patients will be hospitalized, and 20% of those patients will need intensive care. This inpatient care is considered an essential health benefit for all ACA-compliant individual and small group health plans. Large group plans are technically not required to cover essential health benefits, but they are required to provide “substantial” coverage for inpatient care.

Even with coverage, inpatient care is expensive. The ACA states that all non-grandfathered/grandmothered plans must have in-network out-of-pocket maximums that can reach up to $8,150 for a single individual. Most COVID-19 treatment costs will not exceed this amount, but many health plans out-of-pocket limits are below that amount. Which leaves patients that need hospitalization with a four-figure invoice.

Some states, like New Mexico and Massachusetts have required state-regulated insurers to cover treatment and testing without cost-sharing. Minnesota is encouraging their providers to do the same. 

Most states are both encouraging and requiring state-regulated providers to allow testing and treatment as in-network, whether or not the medical providers are in the plan’s network. Patients may still be subject to balance billing because out-of-network providers do not need to accept the payment as payment-in-full.

Here are some ways to ensure that you are protected during these uncertain times:

  • If you are uninsured there is a COVID-19 special enrollment period in some states. If your state is included, an ACA-compliant plan is a great option. If you have a low income, you could also be eligible for Medicaid.
  • If you currently have health insurance, understand what your plan covers, and how your cost-sharing responsibilities for in-patient and out-patient care may apply.
  • Look at your health plan to see how it handles prior authorizations.
  • Look at the details of your health plan’s provider network. If you see in-network providers you have a better chance of avoiding balance billing.
  • Check to see if telehealth is covered, for less-severe cases, this is the best way to help prevent the spread of COVID-19. Some health plans are eliminating or reducing cost-sharing for telehealth services.
  • If you have an HSA-qualified plan, you can devote your pre-tax money to your account for the year. The money you contribute to your plan is able to be withdrawn tax-free for out-of-pocket health care expenses.

What You Need to Know about 2020 1094/1095 Filing

Due to the Coronavirus outbreak, the IRS has pushed back the tax filing deadline to June 15, 2020, for individuals, but there have been no specific details into filing for 1094/1095. The only information they gave was that the 30-day extension that can be filed past March 2 can be extended an additional 30 days. Here’s what you need to know about 2020 1094/1095 filing.

Form 1094-C/1095-C

Form 1095-C, which is filed to any full-time employee of an Applicable Large Employers member (employers with 50 or more full-time employees), who is full-time for one or more months of the tax year. These members report information regarding each employee for all 12 months of the year.

The information that is reported from both 1094-C and 1095-C is used to determine employer liability for payment under the employer’s shared responsibility provision, section 4980H, and the amount, if any, that is owed. 

Employers that are subject to the ACA must distribute 1095 reporting forms to employees and transmit copies to the IRS, with a few exceptions:

Form 1095 B, Health Coverage

  • . Transmittal Form 1094-B to accompany Form 1095-B
  • Instructions for Forms 1094-B and 1095-B
  • Form 1095-C, Employer-Provided Health Insurance Offer and Coverage
  • Transmittal Form 1094-C to accompany Form 1095-C
  • Instructions for Forms  1094-C and 1095-C

Forms 1094-B/ 1094-B

Information in form 1095 B is reported to the IRS and taxpayers regarding employees who are covered by minimum essential coverage (which includes government-sponsored programs, eligible employer-sponsored plans, individual market plans, other Department of Health and Human Services coverage). Eligibility for this coverage may affect a taxpayer’s eligibility for the premium tax credit.

Everyone who provides minimum essential coverage to employees during a year must file an information return that reports the coverage, using forms 1094-B and 1095-B.

There is an automatic 30-day extension for both forms 1094-B and 1095-B, which you can receive by completing Form 8809 and filing it with the IRS on or before the due date. There is no need for a signature or explanation to receive the extension, but form 8809 must be filed before the due date of the returns. You may also apply for an additional 30-day extension under certain hardship conditions.

At SBMA, we take the complexity of 1094/ 1095 filing off your plate.  Our team will take care of all of the filings and, in the event the IRS sends a letter saying the filing was incorrect, we will take care of the refiling on your company’s behalf. 

Penalty A and B Compliance

What You Need to Know About Penalty A and B Compliance

If you are a business owner and qualify as a “large employer” —  any company with 50 or more full-time or full-time equivalent employees (employees who average 30 hours per week) — there a few things you need to know regarding employee coverage. If you don’t comply with the regulations set for you, you will face significant penalties, which can quickly add up. 

ALE employers must offer affordable or minimum value medical coverage to their full-time employees and their dependents until the age of 26. This minimum essential coverage includes various programs that comply with ACA’s provisions to employer health care. 

Any employer who does not offer minimum essential coverage to at least 95% of their full-time employees and their dependents is subject to penalty, and at least one employee obtains coverage through the Marketplace Exchange. This penalty includes a $2,320 fine per full-time employee after the first 30 employees. If you have 150 employees, this penalty would be $308,400.

If employers offer coverage, but the coverage is not affordable or does not meet a minimum value, they may still receive a penalty. If your employee’s share of the premium for the coverage you provide is more then 9.78% of their household income, the coverage is deemed unaffordable. 

The penalty includes either a $3,480 fine per full-time employee receiving a federal subsidy for coverage purchased on the Marketplace or a $2,320 per full-time employee, not including the first 30, depending on which is the lower cost for the company.

As you can see, these penalties can add up to a lot of expenses for your business. At SBMA, we want to help you avoid any potential penalties for lack of proper insurance. Contact us for more information regarding your employer benefit needs. 

Virtual Care and the Telemedicine Revolution

During this time of uncertainty, there has been an increase in consumer demand for virtual healthcare services, which has put added pressure on providers and payers to expand delivery options for on-demand health services.

A survey from Accenture, which included 1,501 consumers who answered questions online, found that most people are willing to utilize virtual healthcare services. For the 20% of respondents who had received care virtually, the reasons they cited most often for seeking virtual care are:

  • Greater convenience than traditional in-person healthcare services (37%)
  • Familiarity using technology to manage their health (34%)
  • Curiosity to try virtual health (34%)

Consumers said they would be more likely to “try virtual” if encouraged by a physician or familiar healthcare provider.
According to the research, today’s consumers are demanding a combination of in-person and virtual health services. More than 75% of those surveyed said they would be interested in receiving healthcare virtually some or most of the time.

What is Virtual Health?

Virtual health includes health care innovations like virtual appointment kiosks and portals, remote consultations, and electronic personal health records. These components work together to allow for easier access to care, such as virtual wellness coaching, remote monitoring, video visits, and online health chats, among several other benefits that we will examine more closely below.
Virtual health combines clinical care and professional collaboration through telemedicine, telehealth, and collaboration at-a-distance to connect clinicians, patients, care teams, and health professionals to provide health services, support patient self-management, and coordinate care across the care continuum.
Specific to physician-patient encounters, virtual health enables live and asynchronous clinical interactions, clinical practice, and patient management supported by a wide range of communication, collaboration, and cognitive computing technologies along with digital devices and data.


Benefits of Virtual Health and Telemedicine

As you can see, there are many benefits of offering Virtual Health. For patients and medical practices, the use of telemedicine technology allows patients to receive follow up care and chronic illness management from their own home on the devices they already own and use. This follow-up care is especially crucial for those who are homebound or have difficulty arranging travel.
For healthier patients, it reduces travel time and costs and requires less time away from work. As an added benefit, patients do not have exposure to other potentially contagious patients. In short, telemedicine removes many of the barriers preventing people from actively managing their health.

Here are the main benefits for most patients:

Improved Access – Not only does telemedicine improve access to patients, but it also allows physicians and health facilities to expand their reach beyond their own offices. Telemedicine has a unique capacity to increase service to millions of new patients.

Cost Efficiencies – Telemedicine has been shown to reduce the cost of healthcare and increase efficiency through better management of chronic diseases, shared health professional staffing, reduced travel times, and fewer or shorter hospital stays.

Improved Quality – Studies have consistently shown that the quality of healthcare services delivered via telemedicine are as good those given in traditional in-person consultations.

Virtual Health Care technology is excellent for providers as well. It can help extend clinical services to reach more patients efficiently and profitably. It helps improve health outcomes by increasing patient compliance with follow up and chronic illness management. Virtual Health Care strengthens patient relationships without putting additional strain on the medical staff.
There are significant benefits to medical practice, as well. By utilizing virtual health, your practice can expand access to care. It improves clinical workflows by helping your staff capture each patient’s reason for the call or visit quickly, prioritize care delivery, suggest the best treatment guidelines, and identify additional information resources. Virtual health care can also support communication along the care continuum.

What does this mean for my practice?

Technology is providing new methods to assist your clients by responding to the need for better communication. It’s also creating a competitive landscape the medical field has never seen before. Embracing this new trend will enable you to maintain your patients for years to come.

Contact SBMA for more information on employee benefits packages that include virtual health services!

What is the Families First Coronavirus Response Act?

In March 2020, President Trump signed into law the Families First Coronavirus Response Act, the initial coronavirus relief bill aimed at assisting families living in the United States. The new law requires small employers—those with fewer than 500 employees—to provide limited paid-leave benefits to employees who are affected by the coronavirus emergency. Small employers receive new tax credits and federal payroll-tax relief to pay for the new mandatory benefits.

Mandatory employee paid leave.

The Act requires emergency paid sick leave. It is limited to $511 per day for up to 10 days (up to $5,110 in total) for an eligible employee in coronavirus quarantine or seeking a coronavirus diagnosis. An employee can also receive emergency paid sick leave of up to $200 per day for up to 10 days (up to $2,000 in total) to care for a quarantined family member or a child whose school or child-care location has been closed due to the pandemic.

The Act also requires that small-business employees obtain the right to take up to 12 weeks of job-protected family leave if the employee or a family member is in coronavirus quarantine or if the school or child-care location of the employee’s child is closed due to the coronavirus. The employer must pay at least two-thirds of the employee’s usual pay, up to a maximum of $200 per day, subject to an overall per-employee maximum of $10,000 in total family-leave payments.

Small-employer tax credits

The Act grants a new tax credit to small employers to cover the now-required payments to employees who take time off under the new law’s emergency sick-leave and family-leave provisions.

Specifically, a small employer can collect a tax credit equal to 100% of qualified emergency sick-leave and family-leave payments made by the employer according to the Act. However, the credit only covers leave payments made during the period beginning on a date specified by the Secretary of the Treasury and ending December 31, 2020. The beginning date will be within 15 days of March 18, 2020, when the Act became law.

The credit increases to cover a portion of an employer’s qualified health-plan expenses that are allocable to emergency sick-leave and family-leave wages.

The new credit offsets the Social Security tax component of the employer’s federal payroll-tax bill. Any excess credit is refundable, meaning the government will issue a payment to the employer for the excess.

Warning: The credit is not available to employers that are already receiving the pre-existing credit for paid family and medical leave under Internal Revenue Code Section 45S.

Small-employer FICA tax relief

Sick-leave and family-leave payments mandated by the Act are exempt from the 6.2% Social Security tax component of the employer’s federal payroll tax that generally applies to wages. Employers must pay the 1.45% Medicare tax component of the federal payroll tax, but they can claim a credit for that outlay.

The Families First Coronavirus Act is just the first step of many that are sure to be taken by the U.S. government as they continue to face the COVID-19 outbreak. You can read answers to common questions, apply for aid, and more on the Department of Labor’s Q&A page here.

For a list of COVID-19 resources, click here.

How Employee Benefits Improve Retention

The Affordable Care Act, enacted in 2010, ensured that everyone was able to receive health insurance regardless of if they have pre-existing health conditions or for any other discriminatory reasons. This Act gave employees the ability to leave their employers if the only reason they were staying was insurance reasons. Employees who were stuck in their jobs to receive benefits now had the opportunity to look for opportunities elsewhere.

employee benefits improve retention

When employees leave a company, that company incurs many costs to their business, in addition to the added inconvenience. A study done in 2016 by the Society for Human Resource Management discovered that the average cost for companies to find replacement employees is $4,129, including turnover costs, and the average 42 days of lost productivity to find a new employee.

 If that employee holds a job that requires higher skills, that number increases, according to the Center for American Progress. The economic cost for finding a replacement goes from 5.8% of a year’s compensation to up to 213% for a highly skilled employee.

So how does a company prevent employees from leaving their company?

In short, the answer is simple: offer better benefits. While the ACA ensured benefits for all, you can differentiate your company by providing great options for their benefits. 

Around 75% of employees said that being able to customize their benefits package based on their specific needs is an important consideration they take when accepting a new job. Not only will it attract new people to your company, but 88% of employees say that the ability to customize their benefits package leads to higher overall job satisfaction. 

With these statistics in mind, if you offer voluntary benefits like vision, dental, accident, critical illness, hospital indemnity, and life insurance options for your employees, you will be able to retain and attract great employees.

At SBMA, we want to help you attract and retain those employees. Contact us to get started on your employee benefits packages. 

The Difference Between Group and Voluntary Benefits

There are many options to consider when choosing what coverage you would like to include in your group benefits plan. When considering the purchase of voluntary benefits versus buying group benefits options, you need to understand the advantages and disadvantages of both. Here are a few significant differences that will allow you to make a more informed decision.

  • Keeping your coverage: With voluntary benefits, you own the policy, meaning it can move transferred and taken with you whether or not you choose to leave your employer. There is no limitation on age or time of the policy. With group benefits, your policy owner is the employer, and they are responsible for renewing the policy. You could lose coverage if the plan gets canceled or if you choose to leave your employer. With some group policies, there are age limitations, which could include the possibility of losing your benefits at a certain age. The ability to move the plan is limited, and there is a possibility to keep coverage at a reduced benefit, or with a higher premium that may only last 12-36 months.
  • Premiums/Pricing: The premium for voluntary benefits takes into account your age at the time of purchase, and it does not increase over time. There is no annual renewal process, so you do not have to sign up for these benefits every year. With group benefits, the premiums are step-rated. There are predetermined points in the policy that inform you of when the premiums increase. The rate you receive when you purchase your coverage could only last 2-3 years, and rates are subject to change.
  • Renewability: Voluntary benefit policies are guaranteed to be renewable, and the carrier can not terminate. As stated above, there is no annual renewal process. With group benefit policies, the employer, who owns the benefits, is required to renew the group benefits policy. The employer also can cancel the policy at any time with a 60-day notice to employees.
  • Enrollment: Enrolling in voluntary benefits typically involve a one-on-one session with the enroller. You are the primary contact person, and anything to do with the policy goes directly to you. With group benefits information, there are group sessions to inform you about enrollment, but typically you enroll on your own. The employer is the point of contact between the policyholders and you, so those policyholders are usually less engaged with fewer customization options.

These are some considerations to take when looking for policy options. You may not be able to decide whether or not your employer offers group or voluntary benefits; this should help you navigate your policy. Inform yourself about what your policy provides, and you will be better suited to get the coverage necessary for you. Contact us for more information.

The Importance of Penalty A and Penalty B Compliance

Employee benefit programs have been mandatory for all applicable large employers (ALE) since the Affordable Care Act, enacted in 2010. This Act requires employers to offer minimum essential coverage to all employees who work in a company with a staff of 50 or more. Failure to comply with this requirement will cause penalties for these companies and will likely lead to an IRS Audit down the road. Here is more information regarding the importance of Penalty A and Penalty B compliance.

Penalty A

Penalty A and B Compliance

The ACA ensures that ALEs offer coverage to more than 95% of their full-time workforce (who work 30 hours or more a week) and their dependents. If they fail to do this, the Employer Shared Responsibility Payment (Penalty A) will be issued. As of 2020, the cost for this violation is $2,750 for each full-time employee. Each month an eligible employee is not offered coverage; the penalty enforces, which comes to $214.19 per month for one employee.

If an employer has 500 employees, and they do not offer benefits to 95% of their full-time workforce, they could face at least a million dollars in violation fees. (See graphic.)

Penalty B

In addition to the minimum essential coverage ALE employees must provide, they also have to ensure that the coverage they offer their full-time employees is affordable. For coverage to be accessible, the employee must pay less than 9.78% of their household income. So coverage should cover more than 60% of medical service expenses. Noncompliance with this requirement could result in a $3,860 fine per employee who receives and exchanges tax credit.

If 100 of an employer’s employees receive a premium tax credit or subsidy on the Marketplace exchange, the employer’s fine is $3,860 per employee, which results in a $386,000 fine. Like Penalty A, Penalty B requires monthly assessments, for each employee not offered coverage that is a $321.67 fine.

Other Compliance Issues

Other penalties that may incur:

The delivery of Forms 1095-C to every recipient by January 31. Every form that is not delivered will incur a $280 fine.

All Forms 1094 and 1095 must be filed electronically by March 31. For every form, there will be a $280 fine failure with intentional disregard will increase the fine to $560.

At SBMA, we want to help your company avoid any potential penalties. Our team will take care of all of your 1095/1094 filings, and, in the event the IRS sends a letter saying the filing was incorrect, we will take care of the refiling on your company’s behalf.

What Exactly is Telemedicine?

Healthcare providers have been offering remote services for years, which have allowed patients to receive healthcare from the comfort of their own homes. Before the recent advancements in technology, these remote services were done over landline phones. Now patients can see their doctors at their office using various online platforms, including Zoom and Skype. So what exactly does telemedicine entail? 

Using telemedicine, you can discuss symptoms, medical issues, receive a diagnosis, learn treatment options, and get prescriptions. There are a few common types of telemedicine which include:

  • Interactive Medicine: This involved a physician and patient communicating in real-time. 
  • Remote Patient Monitoring: This gives caregivers the ability to monitor specific patients who have medical equipment that collects information like blood pressure, blood sugar levels, and more.
  • Store and Forward: This type of telemedicine allows providers to share their patient’s information with other healthcare specialists and professionals.

While they sound the same, there are a few critical differences between telemedicine and telehealth. Telemedicine, as stated by the World Health Organization, is “healing from a distance.” You receive treatment without an appointment or visiting the office. Telehealth uses electronic information to support long-distance clinical healthcare, education, and administrative activities. It improves patient care and physician education rather than providing a service. It involves scheduling appointments, medical education continuation, and training for physicians.

When should you use telemedicine? Telemedicine is not for emergencies. Anything that requires urgent, primary care, you should go to a doctor in-person. However, telemedicine is for straight-forward questions and issues, and any follow-up consults. It also can be helpful with psychotherapy and teledermatology. Some examples of straight-forward issues include cold and flu symptoms, insect bites, diarrhea, pink eye, and sore throats.

Telemedicine has advanced our current health care options by offering several new benefits. It is making healthcare accessible for more patients, whether they live in a remote location, have a packed schedule, or any other number of other reasons. 

Telemedicine is also much more financially accessible. A recent study found that the average telemedicine visit is around $79, whereas an average doctor’s appointment is $149, and a trip to the emergency room costs, on average, $1,734. As telemedicine continues to grow, health insurance providers are offerings coverage for telemedicine visits. Some states even require that health insurance plans reimburse patients for telemedicine visits. 

Telemedicine offers a more accessible opportunity for healthcare and changing the way we visit the doctor. At SBMA we offer the most competitive limited benefit plans in the industry, including virtual health options! Check out our services for more information!

What Employers Need to Know About FFRCA and Benefits

The Coronavirus pandemic has had a massive impact on the financial health of thousands of companies in the United States. These employers have seen the enormous reduction in business and the effect it has on their employee benefit programs, and adjust them to meet the needs of both their employees and their business. These adjustments still carry certain obligations the employer must meet under federal legislation. So what do employers need to know about FFRCA and benefits?

Employers have had to reduce or terminate a portion of their workforce, put furloughs in place, and reduce hours and compensation for their employees in response to the crisis. All of these changes impact the employee’s benefit plans and policies, so an employer must review said plans and policies and make adjustments accordingly. Here’s what to consider while doing so:

Service provider contracts for employee benefit plans

Review the terms for existing contracts with multiple service providers, as the fees related to administrative contracts can be determined by the number of participants on your plan. Any reduction in workforce or hours for your employees would affect the total number of eligible employees, which could result in additional fees within the contract. The stay-at-home order may affect a service providers ability to meet their obligations within the contract, as well. Many of these contracts will contain a “Force Majeure” clause that excuses a party for nonperformance due to extraordinary events. Each of these provisions is contract-specific — be sure to review yours. A service provider’s nonperformance in regard to ERISA plans could pose a problem for employers. Employers should seek legal advice in terms of navigating their service providers contracts during this unprecedented time.

Emergency Paid Sick Leave and FMLA Expansion

On March 18, 2020, The Families First Coronavirus Relief Act was enacted. It requires employers with fewer than 500 employees to provide paid sick leave and additional FMLA benefits to their employees. Because of the added cost to employers, the FFRCA provides a quarterly payroll tax credit which is equivalent to 100% of qualified sick and leave wages paid to employees as emergency paid sick leave and emergency family and medical leave.

Health and Welfare Plans

  • COVID-19 Specific Coverage: The FFCRA requires group health plans to cover COVID-19 diagnostic testing related costs, healthcare provider services, and facility costs without the participant’s deductibles, copay, or coinsurance. The FFCRA also ensures that prior authorization and other medical management requirements be waived regarding COVID-19 services. In addition to the FFCRA, the CARES Act requires group health plans to cover preventive services and vaccines related to COVID-19.
  • Reduction in hours (or furloughing): Specific plan or policy terms determine whether furloughed employees or employees with a reduction of hours can keep their health coverage. Many plans require employees to uphold a minimum amount of hours to maintain coverage. Employers might be able to amend their plan or alter the policy to expand coverage or modify procedures for employee premium payments, but must seek approval from their insurance provider before any changes take place. 
  • COBRA Continuation Coverage: COBRA continuation coverage is offered to employees who have been terminated or have reduced hours. Employers can provide a subsidy to help their employees cover the COBRA continuation costs. Be sure to consider any discrimination issues that may arise if the subsidy is not offered throughout your company. 
  • ACA Employer Mandate: ACA requires employers with 50 or more full-time employees (who average 30 hours a week or more) provide minimum essential coverage to their employees.
  • HIPAA: employers who are covered under HIPAA and their associates must remember that HIPAA applies during the COVID-19 pandemic. With changing work conditions, ensure that you review and update HIPAA privacy practices to ensure your safeguards are in place.
  • Cafeteria Plan Elections: There cannot be any change in mid-year election choices based on employment status change. 
  • Premium adjustments: The potential reduction or change in your workforce could affect the employee eligibility for health insurance policies, which could bring about premium adjustments. 
  • Value of welfare benefits: Welfare benefits and their value is tied to employee compensation, reducing their compensation can reduce the value of these benefits for those employees. 

Retirement Plans

  • There are fiduciary responsibilities under ERISA in a market similar to the one COVID-19 has caused. ERISA plans should pay specific attention to fiduciary duties, like acting prudently, diversifying plan assets, and complying with plan provisions. 
  • Participant Access to Retirement Plan Accounts: 
    • The CARES Act permits multiple situations for employees. Employers can expand participant access to specific retirement accounts for “coronavirus-related distribution,” without subjection to 10% early withdrawal penalties and must be repaid over a 3-year period. 
    • The CARES Act also allows employers to increase the maximum loan amount for qualifying individuals if their 401k plan allows participant loans. 
    • Hardship Withdrawals: Most plans allow for hardship withdrawals in areas that are federally declared disaster areas. These withdrawals are still subject to the 10% withdrawal penalty who have not reached the age of 59 ½ and are taxable in the year they are withdrawn. 
    • In-Service Distributions: If the employee has reached the age of 59 ½, many plans allow their participants to receive in-service distributions without a withdrawal penalty. In light of the crisis, employers should consider a plan amendment to expand or add in-service distribution to defined contribution plans or benefit plans.
  • Reducing or Freezing Benefits and Contributions: Employers may be looking to reduce operating costs by reducing or freezing benefits or suspend employer matching or nonelective contributions. This requires at least a 45-day notice before the reduction is put into effect. Discretionary employer matching and nonelective contributions may be suspended or reduced prospectively and may or may not require a plan amendment. Consider the IRS rules that prevent cutbacks in benefits.
  • Funding Relief for Single-Employer Defined Benefit Plans: The CARES Act gives single-employer benefit plans more time to meet funding obligations by delaying the due date until January 1, 2021, with interest on the delayed payment. CARES Act also allows a single-employer defined benefit plan sponsor can elect to treat the plan’s different funding target attainment percentage to the last plan ending before January 1, 2020.
  • Voluntary Termination of Qualified Retirement Plans: Due to the change in economic circumstances some employers may feel they need to terminate their qualified plans. All participants must be fully vested in their accounts under the plan during termination. However, there is a rule that employers who terminate a 401k plan may not establish a new plan within 12 months of the termination. Participants and beneficiaries must receive a special notice at least 45 days prior to the effective date of termination.
  • Partial Termination of Qualified Retirement Plans: Reducing your workforce by 20% or more of qualified retirement plan participants in a plan year that is not considered routine turnover could end up in partial termination of the plan. All participants who have been affected must be fully vested in their accounts. 
  • Deadlines for 403(b) Plans and Pre-Approved Defined Benefit Plans Extended: The IRS is extending the last day of the initial remedial amendment period for 403(b) plans from March 31, 2020, to June 30, 2020. They also are extending both the April 30, 2020 deadlines for an employer to adopt a pre-approved defined benefit plan and submit a determination letter application under the second 6-year remedial amendment cycle and the April 30, 2020 end of the second 6-year remedial amendment cycle for pre-approved defined benefit plans deadline until July 31, 2020.

Incentive Compensation/ Non-Qualified Deferred Compensation Plans

There are strict rules that Code Section 409A adheres to regarding the time and type of payment incentive compensation and other non-qualified deferred compensation a company puts in place. This could include penalties for both the employer and the employees. As you work to navigate potential liquidity issues through the COVID-19, ensure that you navigate Code Section 409 A properly by addressing these issues:

  • Paying Annual Bonuses by March 15th: If you missed the March 15th deadline due to COVID-19 related issues with administrative duties or if the payment jeopardized the employer’s ability to continue, the payment may be made as soon as possible after the unforeseen circumstances are alleviated.
  • Cancellation of Deferrals/ Unscheduled Distributions: In the event of an unforeseeable event, an employee’s deferral election may be canceled, if the plan allows. Employers can also allow a participant to receive distributions if their plan contains these distributions. The employee still must show that emergency expenses cannot be covered by insurance, liquidation of assets, or ceasing deferrals under their plan. The distribution will also be limited to the amount needed to satisfy the participant’s financial needs. 
  • Scheduled Distributions/Distributions Payable Upon Separation From Service: Most non-qualified deferred compensation plans provide payment upon an employee’s separation from service. Separation of service includes termination or a reduction in hours, and the employee would be entitled to a distribution from their plan.
  • Equity Award Considerations: Employers should consider if they should update their stock option valuation that considers the COVID-19 pandemic. This could affect the issuance of equity compensation.
  • Termination of Non-qualified Deferred Compensation Plans: Section 409A does allow a voluntary plan termination and distribution of benefits under specific circumstances, but these rules do not allow termination in connection with a downturn of employers’ financial status. This would require similar non-qualified deferred compensation arrangements to be terminated, and payments would be delayed 12 months after the plan is terminated. Once this is done, the employer cannot adopt a new non-qualified deferred compensation arrangement of the same type for 3 years.

As an employer, there are many things to consider with the changing economic times. For more information visit our site.