Many employers are busy worrying about declining revenue, stay-at-home government mandates, and keeping employees safe. Most have not considered the impact that changes imposed by the COVID-19 pandemic might have on their employee benefits.
Dependent care FSAs
Many employees experienced recent closures in their children’s schools and day cares. Employees that enrolled in dependent care FSA programs for 2020 during open enrollment may have a triggering life status change related to the closure of their after-school care program, summer camp, and/or daycare. Generally, the time period for making life status benefits changes is limited to 30 days after the life status change. Employees should be made aware of this option, as they could be losing money if their 2020 dependent care expenses are less than their FSA savings.
Affordable Care Act (ACA) “affordability”
If employee salaries and hours are reduced, W2 income for 2020 will decline. This could result in an “affordable” plan under ACA becoming “unaffordable,” subjecting the employer to penalties.
Breaks in service for benefits
Any employee that worked 0 hours for 13 weeks will have a “break-in-service” under ACA. Under ACA, once an employee is full-time (working 30 or more hours), the employer must offer medical coverage for the length of the subsequent stability period (generally, 12 months), even if work hours drop below 30 hours per week. A break-in-service can halt that requirement and subject the employee to a waiting period and new test of eligibility as full-time–just as the employee would as a new hire.
Retirement loans and distributions
The CARES Act allows employees to withdraw up to $100,000 from their 401k account without incurring an early withdrawal penalty of 10% and facing the mandatory tax withholding of 20%. This money must be withdrawn in connection with a COVID-19-related economic hardship.
Employees may also take loans of up to $100,000 or 100% of the account balance (whichever is smaller) against their 401k accounts. Employees must repay this amount over the next five years, without the withdrawal being treated as income in those five years. These loans must be taken by September 23, 2020 to qualify for these special rules. Borrowers can forgo payments on these loans during 2020, but the loan will accrue interest during the entire length of the loan.
Notably, each plan’s rules trump the CARES Act offerings. A Plan must elect to provide these CARES Act loans in order for employees to take advantage of them.