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How Does the FFCRA Affect My Employee’s Coverage?

The Families First Coronavirus Response Act is an Act of Congress meant to respond to the economic impacts of the ongoing 2019–20 coronavirus pandemic. The act will provide funding for free coronavirus testing, 14-day paid leave for American workers affected by the pandemic, and increased funding for food stamps. So, how does the FFCRA affect my employee’s coverage?

As the effects of Coronavirus continue to unfold, we have seen many changes to how companies have to adjust their benefits. Here are some strategies that employers can utilize to prepare for the changes:

Employer-provided health coverage: The Families First Coronavirus Response Act ensures that group health plans cover COVID-19 screenings without cost-sharing. The law, however,  does not require coverage for treatment without cost-sharing; treatment costs will be based on the terms of the benefits plan.

The IRS states that employees who have coverage with a high-deductible health plan are able to get COVID-19 testing and treatment without additional expenses. 

Paid leave and short-term/ long-term disability coverage: Employees with less than 500 employees must provide up to 12 weeks of leave related to child care with the expansion of the Family and Medical Leave Act, and up to 80 hours of emergency paid sick leave to employees who are full-time. 

Families first does not address employees who were on disability or leave before the outbreak. 

Employer tax credits for paid leave: The FFRCA has provided multiple tax credits to aid employers as they attempt to meet the new requirements. These tax credits are equivalent to 100% of the qualifying leave wages against the employer’s portion of Social Security tax. 

Continuing health coverage during furloughs and mandated leaves of absence. During unpaid leaves of absences that are extended, like a temporary layoff of furlough, health benefits are typically halted. 

Review your insurance contracts and stop-loss policies to determine how to regard employees who lose eligibility due to an extended leave of absence.Group health brokers can help you navigate extended leave coverage for W-2 employees. 

(COBRA), where furloughed employees can choose to remain on the group health coverage the employer must collect the amount of the employees premium. If an employee is receiving payments from accrued time-off, it is possible to collect premiums from those payments. 

Employer inquiries, screenings, and disclosures for infected employees: Asking employees about their health condition is  not a HIPAA violation. Other laws, like the ADA, don’t allow confidential information to be disclosed that concerns employees. If employers screen employees onsite, test results are not associated with a health plan.

Telemedicine programs: The use of virtual medicine gives employees the ability to remain home while being cared for medically, which helps halt the spread of COVID-19.  

Employer expenses with a quarantine employee: Some expenses incurred while an employee is quarantined can be considered deductible. 

As we continue to navigate through COVID-19 we will likely see more changes to benefits that are being offered to employees. Check back for updates

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.

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.