Impact of COVID-19 to Employers: Frequently Asked Questions


Impact of COVID-19 to Employers:
Frequently Asked Questions

With the unfortunate circumstances surrounding the COVID-19 outbreak and the passing of the Families First Coronavirus Response Act (FFCRA), Innovative has worked with employers to understand how the outbreak and subsequent passage of the FFCRA affects their operations and employees. Innovative has received a lot of questions surrounding provisions within the FFCRA, how employees will be affected by employers considering a furlough, layoff, or reduction of pay, and more. We’ve compiled a list of frequently asked questions here for review and hope it provides clarity for employers who are determining how to proceed due to the impact of the COVID-19 outbreak on their business operations.

Families First Coronavirus Response Act Questions

  1. What is the effective date of the Families First Coronavirus Response Act (FFCRA), which includes the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act?

The FFCRA’s paid leave provisions are effective on 4/1/20 and apply to leave taken between 4/1/20 to 12/31/20.

  1. As an employer, how do I know if my business is under the 500-employee threshold and therefore must provide paid sick leave or expanded family and medical leave?

As clarified in the DOL’s FAQ’s: You have fewer than 500 employees if, at the time your employee’s leave is to be taken, you employ fewer than 500 full-time and part-time employees within the United States. In making this determination, you should include employees on leave; temporary employees who are jointly employed by you and another employer (regardless of whether the jointly-employed employees are maintained on only your or another employer’s payroll); and day laborers supplied by a temporary agency (regardless of whether you are the temporary agency or the client firm if there is a continuing employment relationship). Workers who are independent contractors under the Fair Labor Standards Act (FLSA), rather than employees, are not considered employees for purposes of the 500-employee threshold.

Typically, a corporation (including its separate establishments or divisions) is considered to be a single employer and its employees must each be counted towards the 500-employee threshold. Where a corporation has an ownership interest in another corporation, the two corporations are separate employers unless they are joint employers under the FLSA with respect to certain employees. If two entities are found to be joint employers, all of their common employees must be counted in determining whether paid sick leave must be provided under the Emergency Paid Sick Leave Act and expanded family and medical leave must be provided under the Emergency Family and Medical Leave Expansion Act.

In general, two or more entities are separate employers unless they meet the integrated employer test under the Family and Medical Leave Act of 1993 (FMLA). If two entities are an integrated employer under the FMLA, then employees of all entities making up the integrated employer will be counted in determining employer coverage for purposes of expanded family and medical leave under the Emergency Family and Medical Leave Expansion Act.

  1. If providing child care-related paid sick leave and expanded family and medical leave at my business with fewer than 50 employees would jeopardize the viability of my business, how do I take advantage of the small business exemption?

To elect this small business exemption, you should document why your business with fewer than 50 employees meets the criteria to be set forth by the DOL. Do not send the DOL any documentation but instructions are expected from the DOL in the near future on how to proceed in qualifying for this exemption.

  1. How do I count hours worked by a part-time employee for purposes of paid sick leave or expanded family and medical leave?

A part-time employee is entitled to leave for his or her average number of work hours in a two-week period. Therefore, you calculate hours of leave based on the number of hours the employee is normally scheduled to work. If the normal hours scheduled are unknown, or if the part-time employee’s schedule varies, you may use a six-month average to calculate the average daily hours. Such a part-time employee may take paid sick leave for this number of hours per day for up to a two-week period and may take expanded family and medical leave for the same number of hours per day up to ten weeks after that.

If this calculation cannot be made because the employee has not been employed for at least six months, use the number of hours that you and your employee agreed that the employee would work upon hiring. And if there is no such agreement, you may calculate the appropriate number of hours of leave based on the average hours per day the employee was scheduled to work over the entire term of his or her employment.

  1. Is the Paid Sick Leave within the Families First Act in addition to PTO offered or instead of PTO offered? 

The new paid sick leave is additional paid sick leave to be used for the qualifying reasons listed in the law. The employer cannot require the employee to use other paid leave before using this paid sick leave.

  1. If any employee receives the expanded sick leave and/or FMLA due to caring for a family member and then gets sick themselves, do they receive an additional 80 hours and FMLA leave time, or are they limited to one instance?

As clarified by the DOL FAQ: Employees may take up to ten days (80 hours for a full-time employee, or for a part-time employee, the number of hours equal to the average number of hours that the employee works over a typical two-week period) of paid sick leave for qualifying reasons. However, the total number of hours for which you receive paid sick leave is capped at 80 hours under the Emergency Paid Sick Leave Act. 

  1. Under the expanded sick leave within the Families First Act, please clarify when employees should be paid at their full rate of pay and when they should be paid at 2/3 their pay.

An eligible employee should be paid at their regular rate of pay for expanded sick leave if the employee is:

  • subject to a federal, state or local quarantine or isolation order related to COVID-19; 
  • advised by a health care provider to self-quarantine due to COVID-19 concerns; 
  • experiencing COVID-19 symptoms and seeking medical diagnosis; 
  • The eligible employee should be paid two-thirds of their regular rate of pay for if the employee is:
  • caring for an individualsubject to a federal, state or local quarantine or isolation order or advised by a health care provider to self-quarantine due to COVID-19 concerns; 
  • caring for the employee’s child if the child’s school or place of care is closed or the child’s care provider is unavailable due to public health emergency; or 
  • experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

Note: There are limits on paid sick leave such that paid sick leave wages are limited to $511 per day up to $5,110 total per employee for their own use and to $200 per day up to $2,000 total to care for others and any other substantially similar condition.

  1. Can the emergency paid sick leave and FMLA run concurrently? Or can the first two weeks of FMLA leave be paid with the 10 days emergency paid sick leave?

The way the law is worded, it is likely that the emergency sick leave can be used for the first 10 workdays of the FMLA period, at the employee’s election.

  1. Is all leave under the FMLA now paid leave?

No. The only type of family and medical leave that is paid leave is expanded family and medical leave under the Emergency Family and Medical Leave Expansion Act when such leave exceeds ten days. This includes only leave taken because the employee must care for a child whose school or place of care is closed, or childcare provider is unavailable, due to COVID-19 related reasons.

  1. If an employee is unable or unwilling to telework, do I need to provide them with the 80 hours of emergency sick leave since my state has initiated a shutdown/stay at home order?  Would this employee be eligible for the expanded FMLA provisions?

If the employee meets one of the six criteria included in the act, then they should be provided sick leave. Since one of the criteria is that an employee “subject to a federal, state or local quarantine or isolation order related to COVID-19” is eligible for the emergency sick leave, it may be in the best interest of the employer to provide that individual with the emergency sick leave.

Expanded FMLA within the Families First Act takes into account the typical FMLA rules with the addition of those who cannot work due to caring for a child under age 18 due to school or care provider closures from the outbreak. Since that is the case, an employee who cannot or will not telework, most likely does not meet the definition of eligible for expanded FMLA, unless they meet typical FMLA provisions and/or the childcare exception.

  1. For employers with over 500 employees, can they choose to pay the same benefit to employees and claim the payroll credit? Will they be disqualified because of their size for the tax credit?

Final DOL guidance has not been issued, however, according to the strict terms of the law itself, the payroll tax credit, like the rest of the Families First Act, applies to employers with fewer than 500 employees.

  1. How will different groups within a controlled group be viewed in regard to the Families First Act? For example, if a group has three employers which have 50, 300, and 750 employees respectively, are all groups subject to the act, only those under 500, or none of them due to the total controlled group employee count.

This is a complex question that depends on the relationship between the companies. As a general rule for FMLA calculation, the test for determining whether related companies will be considered a single employer or separate companies under the FMLA is found at 29 CFR 825.104. Generally, separate companies will be treated as separate employers unless they are sufficiently integrated to be considered a single employer. That test considers the following factors: (i) common management; (ii) interrelation between operations; (iii) centralized control of labor relations; and (iv) degree of common ownership/financial control.

Note, however, that taking the position a group of companies is a single enterprise or single employer for purposes of this new law may have implications under other laws that use a similar test.

  1. Do you know if the government will be creating a new FFCRA form for the Expanded FMLA?  Or will we have to use the current FMLA form?

The DOL has provided a model notice to employees regarding the expanded FFCRA obligations. A link to the model notice can be found on the Innovative COVID-19 Resource Page.

Lay-off & Furlough Questions

  1. If we furlough employees for business reasons due to the outbreak, are employees still eligible for their health insurance plan? Can these employees drop or change their medical elections? Do we need to collect premiums from these employees?

Employers will need to follow the Federal Affordable Care Act (ACA) eligibility guidelines for determining how to address employees experiencing a “Furlough” or Leave of Absence. If the employer is utilizing the Lookback Method for measuring hours, the employee is likely within a stability period for medical plan eligibility.  During this time the employee would need to continue to be provided medical coverage, unless they choose to voluntarily drop coverage or change their elections. It is important to note that the employer ensure their plan documents are updated, based on their ACA eligibility rules.

While employees are on an unpaid Leave of Absence employers can still collect premiums from employees for their health coverage for their portion of the cost. Employers can offer employees the ability to remit a check or they can collect the payment in arrears upon return to work. The employer can also waive costs, but if they are not doing so for all employees, non-discrimination testing rules should be considered.

Employers should have established policies that address these situations and, if they decide to make a material change to their policy, be certain to update their plan documents reflecting these material modifications.  If an employer has a self-funded medical plan it will also be important for the employer to receive prior approval from the stop-loss insurance carrier.

  1. In order to reduce payroll burdens, some employers are considering a reduction in work schedules and reducing pay proportionately.  For non-exempt employees, the employees should be paid for hours worked.  How should it be handled for exempt employees?

The statute and regulations are not clear on this question regarding exempt employees, but the DOL’s field operations handbook and enforcement policy are generally given a great deal of deference by courts interpreting the FLSA. The current position of the DOL is that an employer may, as the result of a downturn in business, prospectively reduce the salary of an exempt employee by some amount, as long as the reduction bears some relationship to the amount of work the employee is expected to perform. The usual way this is set up is the scenario described by the DOL – a reduction of the employee’s salary based on the idea that the employee is generally expected to work about a 40-hour workweek.

The reduction does have to be prospective only, which is why most available guidance on the issue recommends advance notice of a change but does not provide a timeframe for the notice. Generally, it is a better practice to have the reduction continue consistently over a period of time – that is, if the employee’s salary is fluctuating week to week because the employee is being asked to perform more work in a given workweek, the DOL is more likely to find that the reduction is designed to circumvent the salary basis rules.

  1. In the event of a reduction of pay for employees, can they drop or change their coverage?

Presuming contributions are run through a cafeteria plan, employees would not be able to change their election unless they experienced a permitted election change event that is recognized in the plan documents.

  1. How are Healthcare FSA’s affected by a layoff?

If a healthcare FSA account is terminated, new expenses are not able to be incurred. However, the employee will have access to a runout period (check the plan document) to submit any claims for reimbursement that were incurred prior to the termination/layoff date. Under some circumstances an employee can elect their healthcare FSA under COBRA if they have spent less than they have contributed. Lastly, should an employee return from a layoff, they would need to re-enroll as this is a re-hire scenario.

  1. How are Dependent Care Accounts affected by dependent care facilities closing during the COVID-19 outbreak?

If an employee’s dependent care facility closes, it is considered a qualified life event and an employee can stop their dependent care account deductions.

  1. How are Commuter Reimbursement Accounts (CRA) affected by the COVID-19 outbreak? Specifically, can employees who are no longer taking public transportation use those funds for parking expenses?

While CRA accounts cannot be suspended, participants can change their election so that no additional funds are added to the plan. At this time, the IRS has not issued guidance on whether or not employees can use funds for parking instead of public transportation.

Paycheck Protection Program Questions

What Do Borrowers Need to Know and Do?

  1. Am I eligible?

You are eligible for a PPP loan if you have 500 or fewer employees whose principal place of residence is in the United States, or are a business that operates in a certain industry and meet the applicable SBA employee-based size standards for that industry, and:

i. You are:

a. A small business concern as defined in section 3 of the Small Business Act (15 USC 632), and subject to SBA’s affiliation rules under 13 CFR 121.301(f) unless specifically waived in the Act;

b. A tax-exempt nonprofit organization described in section 501(c)(3) of the Internal Revenue Code (IRC), a tax-exempt veterans organization described in section 501(c)(19) of the IRC, Tribal business concern described in section 31(b)(2)(C) of the Small Business Act, or any other business; and

ii. You were in operation on February 15, 2020 and either had employees for whom you paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC.

You are also eligible for a PPP loan if you are an individual who operates under a sole proprietorship or as an independent contractor or eligible self-employed individual, you were in operation on February 15, 2020. You must also submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099-

MISC, or income and expenses from a sole proprietorship. For borrowers that do not have any such documentation, the borrower must provide other supporting documentation, such as bank records, sufficient to demonstrate the qualifying payroll amount.

SBA intends to promptly issue additional guidance with regard to the applicability of affiliation rules at 13 CFR §§ 121.103 and 121.301 to PPP loans.

  1. How do I determine if I am ineligible?

Businesses that are not eligible for PPP loans are identified in 13 CFR 120.110 and described further in SBA’s Standard Operating Procedure (SOP) 50 10, Subpart B, Chapter 2, except that nonprofit organizations authorized under the Act are eligible. (SOP 50 10 can be found at

  1. I have determined that I am eligible. How much can I borrow?

Under the PPP, the maximum loan amount is the lesser of $10 million or an amount that you will calculate using a payroll-based formula specified in the Act, as explained below.

  1. How do I calculate the maximum amount I can borrow?

The following methodology, which is one of the methodologies contained in the Act, will be most useful for many applicants.

Step 1: Aggregate payroll costs (defined in detail below in f.) from the last

twelve months for employees whose principal place of residence is the

United States.

Step 2: Subtract any compensation paid to an employee in excess of an

annual salary of $100,000 and/or any amounts paid to an independent

contractor or sole proprietor in excess of $100,000 per year.

Step 3: Calculate average monthly payroll costs (divide the amount from

Step 2 by 12).

Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.

Step 5: Add the outstanding amount of an Economic Injury Disaster Loan

(EIDL) made between January 31, 2020 and April 3, 2020, less the

amount of any “advance” under an EIDL COVID-19 loan (because it does

not have to be repaid).

The examples below illustrate this methodology.

Example 1 – No employees make more than $100,000

Annual payroll: $120,000

Average monthly payroll: $10,000

Multiply by 2.5 = $25,000

Maximum loan amount is $25,000

Example 2 – Some employees make more than $100,000

Annual payroll: $1,500,000

Subtract compensation amounts in excess of an annual salary of

$100,000: $1,200,000

Average monthly qualifying payroll: $100,000

Multiply by 2.5 = $250,000

Maximim loan amount is $250,000

  1. What qualifies as “payroll costs?”

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.

  1. Is there anything that is expressly excluded from the definition of payroll costs?

Yes. The Act expressly excludes the following:

  • Any compensation of an employee whose principal place of residence is
  • outside of the United States;
  • The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary;
  • Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
  • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).
  1. Do independent contractors count as employees for purposes of PPP loan


No, independent contractors have the ability to apply for a PPP loan on their own

so they do not count for purposes of a borrower’s PPP loan calculation.

  1. What is the interest rate on a PPP loan?

The interest rate will be 100 basis points or one percent. The Administrator, in consultation with the Secretary, determined that a one percent interest rate is appropriate. First, it provides low cost funds to borrowers to meet eligible payroll costs and other eligible expenses during this temporary period of economic dislocation caused by the coronavirus. Second, for lenders, the 100 basis points offers an attractive interest rate relative to the cost of funding for comparable maturities. For example, the FDIC’s weekly national average rate  for a 24-month CD deposit product for the week of March 30, 2020 is 42 basis points for non-jumbo and 44 basis points for jumbo ( Third, the interest rate is higher than the yield on Treasury securities of comparable maturity. For example, the yield on the Treasury two-year note is approximately 23 basis points. This higher yield combined with the fact that the loans are 100 percent guaranteed by the SBA and the fact that lenders will receive a substantial processing fee from the SBA provide ample inducement for lenders to participate in the PPP.

  1. What will be the maturity date on a PPP loan?

The maturity is two years. While the Act provides that a loan will have a maximum maturity of up to ten years from the date the borrower applies for loan forgiveness (described below), the Administrator, in consultation with the Secretary, determined that a two year loan term is sufficient in light of the temporary economic dislocations caused by the coronavirus. Specifically, the considerable economic disruption caused by the coronavirus is expected to abate well before the two year maturity date such that borrowers will be able to recommence business operations and pay off any outstanding balances on their PPP loans.

  1. Can I apply for more than one PPP loan?

No. The Administrator, in consultation with the Secretary, determined that no eligible borrower may receive more than one PPP loan. This means that if you apply for a PPP loan you should consider applying for the maximum amount. While the Act does not expressly provide that each eligible borrower may only  receive one PPP loan, the Administrator has determined, in consultation with the Secretary, that because all PPP loans must be made on or before June 30, 2020, a one loan per borrower limitation is necessary to help ensure that as many eligible borrowers as possible may obtain a PPP loan. This limitation will also help advance Congress’ goal of keeping workers paid and employed across the United States.

  1. When will I have to begin paying principal and interest on my PPP loan?

You will not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment. The Act authorizes the Administrator to defer loan payments for up to one year. The Administrator determined, in consultation with the Secretary, that a six-month deferment period is appropriate in light of the modest interest rate (one percent) on PPP loans and the loan forgiveness provisions contained in the Act.

  1. Can my PPP loan be forgiven in whole or in part?

Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgiveable purposes described below and employee and compensation levels levels are  maintained. The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan. However, not more than 25 percent of the loan forgiveness amount may be attributable to nonpayroll costs. While the Act provides that borrowers are eligible for forgiveness in an amount equal to the sum of payroll costs and any payments of mortgage interest, rent, and utilities, the Administrator has determined that the non-payroll portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll. The Administrator has determined in consultation with the Secretary that 75 percent is an appropriate percentage in light of the Act’s overarching focus on keeping workers paid and employed. Further, the Administrator and the Secretary believe that applying this threshold to loan forgiveness is consistent with the structure of the Act, which provides a loan amount 75 percent of which is equivalent to eight weeks of payroll (8 weeks / 2.5 months = 56 days / 76 days = 74 percent rounded up to 75 percent). Limiting non-payroll costs to 25 percent of the forgiveness amount will align these elements of the program, and will also help to ensure that the finite appropriations available for PPP loan forgiveness are directed toward payroll protection. SBA will issue additional guidance on loan forgiveness.

  1. What forms do I need and how do I submit an application?

The applicant must submit SBA Form 2483 (Paycheck Protection Program Application Form) and payroll documentation, as described above. The lender must submit SBA Form 2484 (Paycheck Protection Program Lender’s Application for 7(a) Loan Guaranty) electronically in accordance with program requirements and maintain the forms and supporting documentation in its files.

  1. How can PPP loans be used?

The proceeds of a PPP loan are to be used for:

  • payroll costs (as defined in the Act and in 2.f.);
  • costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
  • mortgage interest payments (but not mortgage prepayments or principal payments);
  • rent payments;
  • utility payments;
  • interest payments on any other debt obligations that were incurred before February 15, 2020; and/or
  • refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020. If you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan. However, at least 75 percent of the PPP loan proceeds shall be used for payroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL refinanced will be included. For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness. While the Act provides that PPP loan proceeds may be used for the purposes listed above and for other allowable uses described in section 7(a) of the Small Business Act (15 U.S.C. 636(a)), the Administrator believes that finite appropriations and the structure of the Act warrant a requirement that borrowers use a substantial portion of the loan proceeds for payroll costs, consistent with Congress’ overarching goal of keeping workers paid and employed. As with the similar limitation on the forgiveness amount explained earlier, the Administrator, in consultation with the Secretary, has determined that 75 percent is an appropriate percentage that will align this element of the program with the loan amount, 75 percent of which is equivalent to eight weeks of payroll. This limitation on use of the loan funds will help to ensure that the finite appropriations available for these loans are directed toward payroll protection, as each loan that is issued depletes the appropriation, regardless of whether portions of the loan are later forgiven.
  1. What happens if PPP loan funds are misused?

If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.

  1. What are the loan terms and conditions?

Loans will be guaranteed under the PPP under the same terms, conditions and processes as other 7(a) loans, with certain changes including but not limited to:

  • The guarantee percentage is 100 percent.
  • No collateral will be required.
  • No personal guarantees will be required.
  • The interest rate will be 100 basis points or one percent.
  • All loans will be processed by all lenders under delegated authority and lenders will be permitted to rely on certifications of the borrower in order to determine eligibility of the borrower and the use of loan proceeds.
  1. Are there any fee waivers?
  • There will be no up-front guarantee fee payable to SBA by the Borrower;
  • There will be no lender’s annual service fee (“on-going guaranty fee”) payable to SBA;
  • There will be no subsidy recoupment fee; and
  • There will be no fee payable to SBA for any guarantee sold into the secondary market.
  1. Who pays the fee to an agent who assists a borrower?

Agent fees will be paid by the lender out of the fees the lender receives from SBA. Agents may not collect fees from the borrower or be paid out of the PPP loan proceeds. The total amount that an agent may collect from the lender for assistance in preparing an application for a PPP loan (including referral to the lender) may not exceed:

  • One (1) percent for loans of not more than $350,000;
  • 50 percent for loans of more than $350,000 and less than $2 million; and
  • 25 percent for loans of at least $2 million.

The Act authorizes the Administrator to establish limits on agent fees. The Administrator, in consultation with the Secretary, determined that the agent fee limits set forth above are reasonable based upon the application requirements and the fees that lenders receive for making PPP loans.


Retirement Plan Questions

Within the CARES Act, there are provisions that affect retirement plans. This section of the FAQ’s is broken down to cover the four main aspects: Coronavirus Related Distributions; Expanded Loan Rules; Required Minimum Distributions; Pension Plans.

  1. What is a Coronavirus Related Distribution (CRD)?

This is a completely new type of distribution for defined contribution plans (401k/403b/457). It is available to a “qualified individual.” To meet the requirements, one or more of the following must apply to the Participant:

a. The Participant is diagnosed with the virus SARS-Co-V-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention,

b. The Participant’s spouse or dependent (as defined in section 152 of the Internal Revenue Code) is diagnosed with such virus or disease by such a test, or

c. The Participant experienced adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.

d. The maximum CRD is $100,000 and the provision expires 12/31/2020.

  1. How is this being implemented for my plan?

Most plan sponsors are adding the CRD, but it is not mandatory. Your plan’s third-party administrator and recordkeeper are determining how and when they will implement the changes. Many organizations are assuming plans are adopting the feature, but you do not need to add it. You should verify with your vendors if they need anything from you.

  1. Our plan offers a hardship distribution. How is this different?

The CRD does not fall under the same rules as a “hardship distribution” possibly offered by your plan. Yes, you do need to qualify, but the economic hardship is not limited to certain reasons or to the extent required under a hardship distribution. A participant qualifies if they meet one of the conditions mentioned in Question 1.

Other differences:

  • CRD is not subject to an early distribution penalty for participants under 59 ½. Normal hardship distributions are subject to this penalty.
  • It is taxed as ordinary income, but applicable taxes can be spread over three tax years. Normal hardship distributions are taxed fully in the year distributed.
  • The CRD can be redeposited into a retirement account within 3 years from the distribution date. Normal hardship distributions cannot.
  1. A participant’s spouse was laid off, but doesn’t have the virus. Our participant in our plan hasn’t met the qualifications. Can our participant take a CRD?

They should not.

  1. Participants are allowed to “self-certify” they are a qualified individual. What should plan sponsors do to protect the integrity of this?

Self-certify only means you do not need documentation of the qualifying reason. You should still ask basic questions. It is easy to know if the participant qualifies under some of the “financial consequences” provision as they are one of your employees, but you don’t know their full story.

  • Are you, your spouse, or dependent diagnosed with the virus?
  • Do you own or operate a business outside of our organization?
    • Did that business have to close or reduce hours?

Expanded Loan Rules under CARES Act

  1. What changed for loans?

If your plan already offers loans, then the plan sponsor has options as to which features they will add. Each of these is selected independently:

  • Increased loan limits – For new loans taken between March 27, 2020 and September 23, 2020, the maximum a qualified participant can borrow is the lesser of $100,000 or 100% of their vested balance. This is up from $50,000 and 50% respectively.
  • Suspended payments – Loans with a payment due during 2020 may suspend payments for up to a year without causing a default. When the participant is ready to begin making payments again, the loan will need to be re-amortized to capture the accrued interest.
  1. If our plan only allows 1 loan and a participant has a loan, can they get a CARES Act loan if they qualify?

No, unless your plan allows for existing loans to be refinanced with a new loan. Most do not.

  1. What if my plan does not allow loans?

The plan will need to be amended before the CARES Act loan features can be implemented. Providers are anticipating this being a common request and are preparing to turn these around quicker than normal.

  1. If a participant wants to suspend payment on their loan, what needs to happen?

Most recordkeepers are allowing the plan sponsor to simply stop submitting loan payments through the payroll submission. It is suggested that plan sponsors keep track of participant requests using a method that is date-stamped (e.g. email or signed and dated form).

Suspension of Required Minimum Distributions for 2020

  1. Do participants normally required to take a required minimum distribution during 2020 have to?

No. They have been suspended for defined contribution plans and IRAs. The question you need to answer is how is your provider dealing with this. Many use automated systems or have had a participant ask the money be sent on a specific date. Some are stopping all RMDs. Some are not. This is one of those areas where providers are able to create their own process.

  1. What if an RMD is sent to a participant?

Since RMDs were suspended for 2020, the money received from the plan can be rolled over into an IRA,  your current employer plan or the plan that distributed the RMD. Participants have 60 days from the date of the distribution to re-deposit the monies.  Individuals are only allowed to do this once every 12 months. They will be issued both a 1009-R showing the distribution and a 5498 showing the money going back into an account. If they do not deposit any withheld taxes, that amount will be subject to income tax.

  1. Can participants not take their RMD, but still take a distribution?

Yes. It would be considered a normal distribution.

Pension Plans

  1. What about RMDs from pension plans? Were they suspended for 2020?

No. They must still be taken.

  1. When does a company need to make their contribution?

If your company was required to make any contributions to a pension plan during 2020, these deposits can be delayed until January 1, 2021.s


See here for the IRS Q&A on Coronavirus relief for retirement plans and IRA’s.

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