Executive Compensation

JOIN US: Tuesday, March 17, 2020 at 12:30 PM EST

Employers are in uncharted territory with the COVID-19 pandemic, which has created complicated employment issues that continue to evolve by the hour. Join Kelley Drye’s Labor and Employment co-chairs Barbara Hoey and Mark Konkel and senior associate Diana Hamar as they share practical advice for

As federal, state and local governments continue to develop their responses to the COVID-19 outbreak, employers may find themselves in uncharted territory as to how to deal with emerging employee issues.

There are three overriding rules that all employers should remember:

  1. Think safety first. Keeping those employees who are infected or at risk of infection at home to ensure that the rest of the workforce is safe should be the number one priority.
  2. Think about how you can keep your business going.  Make sure your work-from-home policies and technology are up to date, and remind employees how to use them.
  3. Avoid stereotypes. Do not allow employees to assume that people of certain ethnicities are at a higher risk than others. If you become aware of any discrimination or harassment—stop it immediately.

Below are some general answers to questions our clients have been asking.  However, please be aware that this is a very fact-specific and complex topic; COVID-19 related employment issues are evolving by the hour. Employers are cautioned to stay abreast of federal, state, and local government advisories, and to consult legal counsel before making employment decisions or changing policy.


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With the arrival of 2019 novel coronavirus (“COVID-19”) to the United States, employers should begin thinking about strategies to mitigate business interruptions, ensure employee safety, and avoid unnecessary litigation.

Know Your Resources

Employers should continue to monitor reliable guidance provided by the U.S. Centers for Disease Control and Prevention (“CDC”) and local public health agencies. Understanding how COVID-19 is transmitted and what steps can be taken to protect diagnosed or exposed employees is essential to dispelling employee fears. Employers can educate employees on prevention and symptoms and should be prepared to answer employee concerns regarding workplace safety. The following are guides which may be helpful to employers:


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On December 20, 2019, Congress enacted the SECURE Act as part of the Further Consolidated Appropriations Act of 2020 (together, the “Act”). The Act includes both required and discretionary changes for employer-sponsored qualified retirement plans, some of which are effective for the 2020 plan year. Below is an overview of these changes with a reference to each date on or prior to the plan year for which the changes become effective.

Note that this Advisory does not address changes from the Act that do not affect employer-sponsored qualified retirement plans.

Changes Regarding Contributions and Withdrawals

December 20, 2019

  • Credit Card Plan Loans.  Qualified retirement plans are prohibited from making plan loans through credit cards or similar arrangements.

December 31, 2019

  • Default Automatic Contribution Rate. The maximum safe harbor default automatic contribution rate is increased from 10% to 15% (but can’t be more than 10% for the first year of participation).
  • Safe Harbor 401(k) Plan – Election. A 401(k) plan may become a nonelective contribution safe harbor 401(k) plan after the beginning of the plan year if either (i) it is amended by the 30th day before the end of the plan year, or (ii) it provides a nonelective contribution of at least 4% for the plan year and is amended before the last day for distributing excess contributions for the plan year.


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Several jurisdictions have recently adopted laws requiring individuals to purchase health coverage or pay a state tax penalty. Employers employing residents in a covered jurisdiction now need to facilitate compliance by reporting health coverage information to local governmental authorities. The following is a brief summary of the new health coverage reporting requirements.

State Individual Mandates

Under the Affordable Care Act’s (the “ACA”) individual mandate, beginning in 2014, individuals were required to either purchase minimum essential coverage (“MEC”) or pay a federal tax penalty for failing to maintain such coverage. MEC generally includes employer-sponsored group health plan coverage. The Tax Cuts and Jobs Act of 2017 effectively eliminated the individual mandate by reducing the penalty to zero starting in 2019. In response, however, California, the District of ColumbiaNew JerseyRhode Island and Vermont (“Adopting Jurisdictions”) have each adopted their own versions of the ACA’s individual mandate.

Note that Massachusetts had already adopted an individual mandate requirement in 2006, well before the ACA became law. This Advisory does not address coverage reporting requirements under Massachusetts law.


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March 31, 2020 is the deadline for retroactively correcting most 403(b) plan document defects that occurred on or after January 1, 2010.  These defects can be corrected by amending an individually-designed 403(b) plan or by adopting a pre-approved prototype or volume submitter 403(b) plan.

Employers who adopt a pre-approved 403(b) plan by March 31, 2020

The Internal Revenue Service has recently issued final regulations easing requirements for hardship distributions from 401(k) and 403(b) plans. The final regulations reflect a number of statutory changes, including those made under the Bipartisan Budget Act of 2018, as mentioned in our December 2018 Advisory.

401(k) and 403(b) plans may allow for a distribution of deferred compensation following an employee hardship if (i) the distribution is made on account of an immediate and heavy financial need and (ii) the distribution is necessary to satisfy the financial need. As described below, the final regulations revise the hardship distribution rules to make it easier to meet these requirements, as well as to expand the permissible sources from which hardship distributions can be made. While employers are not required to amend their plan’s hardship provisions by the end of 2019, employers should be prepared to implement certain administrative changes no later than the beginning of 2020 and to update employee communications accordingly.

The following is a brief overview of the new hardship distribution rules.


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The Departments of Labor, Health and Human Services and Treasury recently issued joint final regulations expanding the availability of health reimbursement arrangements (“HRAs”) by introducing two new types of HRAs – Individual Coverage HRAs and Excepted Benefit HRAs. The following is a brief overview of the requirements employers must satisfy in order to offer HRA coverage to their employees, and employees’ dependents, under one of these new arrangements.

Background

HRAs constitute group health plans that are subject to various Affordable Care Act (“ACA”) rules. The ACA rules include prohibitions on capping or requiring cost-sharing for certain benefits (the “Market Reforms”).

Under prior guidance, in order to comply with or avoid the Market Reforms, HRAs generally had to be integrated with other qualifying group health plan coverage or limit the scope of reimbursable expenses to benefits excepted from compliance (e.g., limited scope dental or vision coverage). The new regulations make it easier for employers to offer HRA coverage by providing two new options that do not require integration with a group health plan or limiting the scope of reimbursable expenses.


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On July 17, 2019, the Treasury Department and the IRS issued Notice 2019-45 to expand the types of preventive care services and benefits that can be provided to individuals under high deductible health plans (“HDHPs”) before reaching a minimum deductible and without preventing such individuals’ participation in health savings accounts (“HSA”). The additional preventive care services and benefits relate to medical care that helps maintain the health of individuals with chronic conditions.

As background – to be eligible for an HSA, an individual must be covered by a HDHP.  Generally, a HDHP cannot provide benefits for any year until the minimum applicable deductible for that year is satisfied.  However, there is a statutory safe harbor that permits HDHPs to provide “preventive care” without a minimum deductible.  New Notice 2019-45 sets forth a list of 14 medical services and benefits for the treatment of specified chronic conditions (including diabetes, hypertension, and heart disease, among others) that, effective July 17, 2019, can be provided by a HDHP under the preventive-care safe harbor without a minimum deductible.


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This Advisory supplements our previous advisories dated January 2018, December 2016, December 2015 (as supplemented in January 2016), October 2014, October 2013, November 2012, November 2011, and October 2010, addressing requirements of the Affordable Care Act (“ACA”). Below is a summary of recent developments impacting health care reform, as well as other recent developments affecting employer-sponsored health plans that will be relevant for employer-sponsored plans in 2019.

Review and Update Plan SPDs
Given the changes that have been made to health care reform over the years (legislative changes, new regulations, courts cases, etc.), clients are well advised to take a fresh look at their summary plan descriptions for certain less obvious changes that might be required. While clients might annually update their summary plan descriptions in ordinary course for co-pays, eligibility and contact information, there are additional technical changes that may or may not be required for certain arrangements.

Individual Mandate Repeal
The Tax Cuts and Jobs Act (the “Act”) eliminates the shared responsibility payment for those individuals who fail to maintain minimum essential health coverage beginning January 1, 2019. The Act did not, however, repeal the employer shared responsibility mandate or reporting requirements. Those requirements are still in play, and the IRS has been actively enforcing these requirements against employers.
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