Question and Answer: Employee Benefits Triage Amid COVID-19
Published: March, 2020
Submission: March, 2020
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Dykema has launched a COVID-19 Resource Center to keep our clients up to date on the most recent legal, business and health guidance surrounding the novel coronavirus and how to navigate their businesses through uncertain times. Various firm practitioners are providing timely content that aims at providing guidance for employer’s current issues as well as those unforeseen items that have yet to arise. The site is continually being updated, as state and federal authorities provide guidance on a rolling basis.
This client alert provides answers to common benefit-related questions that we are receiving from our clients. Statutory and regulatory intervention is rapidly evolving and likely will impact our guidance below. Check-in with us often to receive the most up-to-date guidance!
Health and Welfare Plans
Whathappens to employees’ active coverage under employer-sponsored welfare plans when their work schedules are reduced or they are furloughed or temporarily laid-off in response to the COVID-19 pandemic?
In most cases, the answer comes down to the terms of your plan documents, which include employer-prepared wrap welfare plan and summary plan description documents as well as the insurance policies for fully-insured welfare benefits. Things to consider are:
What are the legal limitations or implications in making benefit-related decisions in response to the COVID-19 pandemic?
There are a number of existing laws impacting benefit decisions, some of the key points are addressed below. However, statutory and regulatory guidance is rapidly evolving in response to COVID-19, so check back often with us for updates.
If active benefit coverage continues during reduced or no hours of service or temporary layoff situations, how should we handle employee share of the premiums during this time?
The answer, again, will mostly depend on your plan terms, but there are legal considerations at play too. Here are some considerations for employers:
If an employee is covered under an HDHP-HSA option, will he or she lose eligible individual status when the HDHP pays for COVID-19 expenses before the employee has paid the minimum deductible expense?
No, employees will continue to be treated as eligible individuals for purposes of making or receiving contributions to their HSAs. On March 11, 2020, the IRS provided emergency relief to eligible individuals with HSAs in IRS Notice 2020-15. Specifically, an HDHP may cover the cost of testing for or treatment of COVID-19 before the employee has paid the deductible limit.
Are there any other changes to health plans that we should know about in light of the coronavirus pandemic?
Congress recently passed a new law, the Families First Coronavirus Response Act, that will, among other things, require most group health plans and individual health insurance plans to cover testing and associated visits related to COVID-19 with no cost sharing starting on and after March 18, 2020. Some states have adopted similar requirements for insurers they regulate, and many private insurance companies will voluntarily expand coverage for testing. Congress also is poised to enact additional legislation expanding the types of plans required to cover COVID-19 testing, waiving prior authorization requirements for COVID-19 testing and covering COVID-19 vaccines, once developed, at no cost to the patient. While private health plans likely cover most items and services needed to treat complications due to COVID-19, there is no clear federal requirement to do so at no cost-sharing to the covered individual.
Are there any considerations or actions that I should take in regard to my employee’s health and wellness prior to working?
Navigating proper procedures when an employee is noticeably sick or even asymptomatic (but thought to be sick) poses some unorthodox work encounters. Employers should understand what personal health data an employee might be obligated to disclose if he or she becomes infected or is at high risk for infection—which is likely to include anything that could interfere with the employee’s ability to perform the essential functions of the job, or that could increase the risk to coworkers or third parties through workplace contact.
Employer group health plans (including medical, dental, vision, EAP, health FSA and HRAs) are considered “covered entities” subject to HIPAA Privacy and Security Laws. Employers are subject to these privacy laws in handling employee information, including any positive diagnosis of COVID-19. Failure to understand the legal obligations in relation to such data could expose the company to breach of privacy claims. All such data must be handled within the organization’s data privacy protection framework and in accordance with the various laws.
How will the economic concerns related to the onset of COVID-19, including the volatile stock market and the potential reduction in employment and pay, affect my company’s retirement plan? As the plan sponsor, what do I need to know?
What is the government doing to help?
In these difficult times, employers may be forced to reduce hours of service of certain employees or potentially layoff or terminate a portion of their workforce. How do these events affect the administration of their retirement plans?
As this may be a difficult economic year, can an employer modify its existing retirement plan contribution provisions?
While these requirements may be relaxed as part of the CARES Act, employers generally are prohibited from negatively affecting participants that may have already accrued a right to a contribution. For instance, if a defined contribution plan provides that all participants credited with at least 1,000 hours of service shall be entitled to a fixed profit sharing contribution or matching contribution, the plan may not be amended to retroactively reduce this contribution for participants that have already been credited with at least 1,000 hours of service. A plan sponsor, however, could prospectively amend the plan to decrease or altogether discontinue employer contributions on employees’ compensation earned after the date the plan amendment has been approved and adopted by the plan sponsor.
There also are restrictions on modifying safe-harbor matching or non-elective contributions mid-year.
If you are contemplating modifying or terminating your retirement plan, you should contact your Dykema attorney to explore your options.
Are there any special rules affecting our retirement plan if we need to terminate the employment of a significant portion of the workforce?
To protect participants, the Internal Revenue Code requires employers to fully vest the accounts of individuals affected by events that result in the termination of active participation of 20 percent or more of your active participant population. This can include significant corporate events, including those caused by adverse economic conditions and other triggers outside of an employer’s control. Importantly, this test is not necessarily based on any single event (day), but instead, multiple termination dates would be aggregated to determine if the 20 percent threshold is applicable. Moreover, affected plans may need to retroactively vest certain participants that had already terminated their employment.
Does the stock market’s volatility affect my fiduciary obligations?
As many know, an economic downturn will cause retirement plan investments to dip. It is imperative that fiduciaries follow the terms of their plan documents, including investment policy statements, and they should be vigilant in monitoring investment performance and communications with plan participants. Fiduciaries should work closely with their investment advisors and managers for guidance on long-term investment strategies, recommended rebalancing of investments and targeted communications with plan participants to address concerns over market volatility and short-term investment horizon for those closer to retirement.
Here to Help
Dykema is here to support our clients through this uncertain time. This alert does not intend to cover all benefits issues arising from COVID-19, but offers answers to some of the common questions we are receiving from our employer-clients. As mentioned above, please visit our COVID-19 Resource Center for more information. Please contact us with questions, especially as we anticipate rapid development of new statutory and regulatory guidance in response to the COVID-19 pandemic.
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