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CARES Act: Employee Benefits Implications

March 28, 2020

Congress has passed the CARES Act to help combat the impacts of COVID-19. Below is an initial summary of key employee benefits provisions. More details will be coming but we want to make you aware of these provisions and options as soon as possible.

Retirement Plan Benefits

COVID-19 Related Withdrawals

Individuals may withdraw up to $100,000 from their tax-favored retirement plans (as examples, 401(k) plans, IRAs and 403(b) plans). These withdrawals, referred to as “coronavirus-related distributions” are not subject to the 10% tax that normally would apply to early distributions.

The definition of “coronavirus-related distributions” is broad and includes any distributions from a tax-favored retirement plan made between January 1, 2020 and December 31, 2020 (but not on December 31, 2020) to any individual (1) diagnosed with COVID-19, (2) whose spouse or dependents are diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, working fewer hours, being unable to work due to the need to provide child care, or having a business they own or operate close or reduce operations because of COVID-19.

Individuals may roll the amount of the distribution back to the distributing plan, or to another plan or to an IRA, in one or more payments during the three years following the date of distribution. To the extent they do not avoid tax by rolling the total withdrawn amount over within the three-year period, tax is due ratably over the next three years. The $100,000 limit is determined on a controlled group basis (employers would look at the withdrawals from all plans in their controlled group sponsors).

Plan sponsors are not required to permit these withdrawals but if they choose to do so, administration and compliance with this new rule has been made relatively easy. For example, employers are permitted to rely on the employee’s self-certification that the distribution is coronavirus-related. Plans are permitted to allow “coronavirus-related distributions” from elective deferral amounts (401(k), 403(b), or 457(b) even if the participant is not otherwise applicable for in-service distributions of such amounts.

Larger Plan Loans

For the six months following the date the CARES Act is enacted, participants can take a loan from their defined contribution plan (such as a 401(k) plan) of up to $100,000, or if less, the full amount of their vested benefit. Prior to the CARES Act, the limit was up to $50,000, or if less, 50% of the vested benefit. Repayments of plan loans due between the date the CARES Act is enacted, and December 31, 2020 are postponed for one year from the date the payment would otherwise have been due. Plans are not required to permit loans.

Required Minimum Distributions Suspended for 2020

The required minimum distribution requirements for qualified defined contribution plans and IRAs do not apply for 2020. Required minimum distribution rules normally require those who are at least 70 ½ to take a portion of their account balance each year. The normal required minimum distribution rules will apply again in 2021. 

Postponement of Single-Employer Pension Plan Contributions

Defined benefit (pension) plan sponsors are permitted to make all contributions that would have been due during 2020 on January 1, 2021. Any payments not made when due are subject to interest that must also be contributed on January 1, 2021. For purposes of Internal Revenue Code and ERISA benefit restriction rules on underfunded pension plans, plan sponsors are permitted to use the 2019 adjusted funding target attainment percentage (“AFTAP”) for the 2020 plan year.  Delaying contributions and the use of the 2019 AFTAP for 2020 are optional.

Health and Welfare Benefits

Health Savings Account (“HSA”) Telehealth Safe Harbor

Normally, in order to be eligible to make HSA contributions, an individual must participate in a high deductible health plan, which is a health plan that covers only preventative care until a certain deductible (in 2020, at least $1,400 for an individual coverage or $2,800 for family coverage) has been reached. The CARES Act provides that individuals will continue to be eligible to contribute to an HSA even if their health insurance pays for the use of telehealth prior to meeting their high deductible health plan deductible. This exception applies only for the remainder of 2020.

Feminine and Menstrual Care Products

Historically, HSAs, Archer Medical Savings Accounts (“Archer MSAs”), and Health Flexible Spending Accounts (“Health FSAs”) could not be used for the purchase of feminine and menstrual care products. Effective retroactively to January 1, 2020, these products can be purchased with HSA, Archer MSA, or Health FSAs without loss of tax-favored status for those accounts.

Employer Student Loan Repayment

Through December 31, 2020, employers are permitted to pay up to $5,250 per employee towards an employee’s student loans, on a tax-free basis. The payments may be made to the employee as a reimbursement or directly to the lender. This optional benefit is a change to an already existing benefit available for educational assistance programs. 


There are several changes to HIPAA, including how it applies to employer health plans. Three changes are worth noting immediately. First, a new nondiscrimination provision has been added preventing discrimination in relation to any protected health information an employer or other entity receives, especially if the use or disclosure violates HIPAA. Second, new and more easily understood HIPAA Privacy Practice documents are going to be required on or after one year from when the CARES Act is enacted. Guidance is to be published. Third, the CARES Act also requires that guidance be issued by Health and Human Services for how to comply with HIPAA when there is a declared public health emergency.

Extension of Due Dates

ERISA has been amended to permit the delay of due dates, such as for contributions to multiemployer plans when there is a declared public health emergency. Previously, due dates could be delayed when there was a terrorist or military action.


This is intended as a high-level overview of the employee benefit provisions of the CARES Act. There are ambiguities and clarification on some of the details is still needed. We also have not addressed the executive compensation limits associated with some of the lending programs in the CARES Act. If you are unsure how these or other provisions of the CARES Act apply to you and your business, please contact one of our attorneys. 

The largest fiscal stimulus ever enacted, the CARES Act offers entities across all industries and sectors, including for profit companies, non-profits, states and local governments, a range of tools to deal with the extraordinary financial challenges that they and their employees face as a result of the COVID-19 pandemic. With our industry-leading government and regulatory affairs team, as well as prominent tax, banking, and employment attorneys, every part of Clark Hillis ready to partner with you in navigating the CARES Act’s complexity and factoring its programs into your strategy to move forward. For timely information on policy developments, please visit our Government & Regulatory Affairs Updates page. Our COVID-19 page offers additional resources and perspectives.

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