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Disaster Relief Payments, Health Benefits Continuation, and Other Employee Benefits Updates

By Charles M. Russman / Mar 24, 2020

Over the last several days there have been several announcements and some changes for benefit plans to consider. From now available options, like disaster relief payments, and clarity on when and how health benefits can be continued for furloughed employees, these are positive changes in troubling times. Whether it is your health plan, retirement plan or employee benefits data, there have been changes and considerations you should keep in mind.

Disaster Relief Payments

The Treasury Department has interpreted the President’s instructions and orders as declaring a “qualified disaster” for purposes of certain provisions of the Internal Revenue Code. As a “qualified disaster” currently exists, employers can immediately provide employees (and presumably furloughed employees) with “qualified disaster relief payments” (“Relief Payments”). Relief Payments are tax-free payment from an employer to individuals to reimburse or pay reasonable and necessary personal (such as health), living (food and similar necessities), or funeral expenses incurred as a result of a “qualified disaster” for the individual or a family member. These Relief Payments cannot be made tax-free if they are covered by insurance of federally-provided disaster relief. Currently, there is no mandate for the employer to receive receipts or other verification, but employers should still be careful when determining when and how to provide the Relief Payments. Employers should remember that the Relief Payments should only relate to the COVID-19 pandemic, which is the disaster permitting the Relief Payments. Relief Payments should be made subject to a written policy that should be drafted or reviewed by experienced legal counsel to help ensure compliance with the tax code requirements. 

Health and Welfare Plans

Paying for COVID-19 Testing and Treatment

The government has now provided clear guidance that testing for and treatment of COVID-19 is essential health care, which means virtually all employer-provided health insurance will cover testing and treatment. Based on the guidance, the testing and treatment will be at little or no cost to the individuals covered by the employer-provided health insurance.

Health Benefits Continuation for Furloughs and Reductions in Hours

Insurance providers are beginning to provide clear guidance on when and how health benefits can be extended for employees on temporary leave, temporary reduction of hours and the like. The guidance varies based on the insurance provider, but it seems that insurance providers are permitting the continuation of health benefits if you, as the employer (1) continue to consider the individual an employee, (2) have notified the individual health benefits will continue, and (3) most importantly, continue to pay premiums timely. If employees do not come back to work when expected, termination of health benefits may then be appropriate. Before making commitments or statements to employees, you should contact your insurance provider, agent or broker to determine the applicable rules, particularly as to amount of time and whether there are specific filing requirements.

Retirement Plans

Hardship Distributions

The IRS has stated that the current situation in New York constitutes a “major disaster” and this means those who live or work in the state of New York are deemed eligible for hardship distributions from most qualified retirement plan (such as 401(k) plans) that permit hardship distributions. Similar guidance is likely for other hard-hit states.  Most plans with hardship-distribution provisions already require amendment by year end and this is a good time to revisit what is permissible. Depending on the language in your retirement plan, those who work or reside in California and Washington may also be deemed to have a hardship. Plans that do not currently provide for hardship distributions may want to consider adding this option.

In-Service Distributions

In-service distributions are an optional retirement plan feature that allows participants who meet certain (normally age-related) requirements to take distributions prior to retirement. Many employers who are looking for ways to get money to employees may want to consider adding this benefit to their retirement plans. Doing so requires a short and easy-to-prepare amendment, and the change can be immediately effective in most circumstances. Permitting participant loans is another optional benefit to be considered when trying to help employees access much-needed assets.

Withdrawal Liability

For those in multi-employer plans, it is important to watch for withdrawal liability. A multi-employer plan is a plan normally maintained by a union in which many unrelated employers with employees, who belong to the sponsoring union, participate. Withdrawal liability can occur when there is a partial or complete cessation of an employer’s obligation to contribute to the multi-employer plan (such as a substantial reduction in force or closing a facility). While the shutdowns and reductions in force are likely to be too transitory for withdrawal liability to occur, care and consideration should be taken when determining how to reduce the workforce. If you participate in a multi-employer plan and may need to reduce your workforce, it is recommended to contact experienced legal counsel during the planning process.

Two Related Notes on Privacy

HHS Updates Telehealth Guidance

The Department of Health and Human Services, which enforces HIPAA, issued guidance stating that good-faith uses of telehealth during COVID-19 would not result in penalty assessments. In recent guidance, HHS clarified that the nonenforcement of HIPAA penalties for good-faith uses of telehealth extends only to health care providers, not to insurance providers. The update specified that the guidance was limited to those who need to use it to provide health care, not all those subject to HIPAA. A much more detailed list of the permitted and not-permitted telehealth options also was provided. If you are unsure whether and how you are permitted to use telehealth, it is recommended to contact experienced legal counsel.

Data Privacy and Security for Remote Workers

As more employees work from home, the risks of a data breach grow. HIPAA still applies, as do applicable local, state, and federal privacy laws. While these laws do not normally prohibit the use of data when working from home, there are many requirements, restrictions, and procedures that should be followed. If employees are working from home for the first time or the number of employees working from home has increased significantly, serious consideration needs to be given to the privacy and security of your company’s data (including employees, customers and trade secrets) is essential. Whether it be HIPAA and HR data or sensitive customer data, neglecting privacy could swiftly result in financial and reputational costs businesses should not risk in the current circumstances. If you have concerns or have not previously considered this aspect of a workforce that works from home, feel free to contact us for assistance.