On March 27, 2020, Congress passed, and the President signed, an unprecedented 2 trillion dollar stimulus and relief package into law. The law’s nearly 900 pages provide relief for specific industries, including hospitals, airlines, and railroads, as well as cash payments to individuals of up to $1,200 per adult and $500 per child.
The bill also contains a number of provisions of direct interest to employers.
Small businesses (including all businesses under 500 employees and other businesses as defined in section 3 of the Small Business Act and implementing regulations) can qualify for up to $10 million in forgivable loans to be used to cover:
- Payroll costs (including payments made to independent contractors) during the coronavirus crisis (if employers maintain pre-crisis levels of payroll);
- Group health benefits, including group health premiums
- Mortgage interest payments or rent payments
- Interest on qualifying debt obligations incurred before the covered period
These provisions of the law will be administered through private lenders and funded by a $349 billion federal government fund. The law also loosens or waives entirely a number of Small Business Administration rules for qualification, including the requirement that borrowers not be able to obtain credit elsewhere, and all personal guarantee or collateral requirements. Employers seeking such funding must make pared down certifications, including certifying that the uncertainty of current economic conditions makes the loan necessary to support ongoing operations, the funds will be used to retain workers and maintain payroll or make other qualified payments, and that they do not have other duplicative applications or requests pending.
The law is retroactive to February 15, 2020, permitting employers who had to make emergency layoffs to rehire their workforces and provide them with wages and benefits. The law also contains tax preferred treatment of all forgiven loans.
In addition, the law contains $17 billion in available subsidies to help small business borrowers in economic distress pay existing SBA loans, as well as provisions for deferment of payments on such loans during the crisis.
The Act further grants the Small Business Administration speedy rulemaking authority, directing the agency to create a regulatory scheme to implement the law within 15 days of its enactment. Employers should expect to see a number of regulations governing these loans in short order.
The CARES Act is an attempt to use an existing loan program to quickly provide small businesses with loans through several measures: providing $377 billion for 7(a) loans, providing the lender with a 100% SBA guaranty of the loans, simplifying eligibility criteria, increasing the maximum dollar amount of the loans, revising the use of proceeds to pay expenses that are not currently permitted, and waiving or reducing SBA fees.
Employers of All Sizes
For larger employers, who do not qualify for this small business relief, the Act creates a $500 billion fund for emergency loans to large corporations. These loans are not forgivable and will be subject to strict public reporting requirements.
The bill establishes a fully refundable tax credit for businesses of all size that are closed or distressed to help them keep workers on the payroll, with the aim of encouraging all businesses to maintain payroll – even if employees are placed on leave – until the immediate crisis has passed. The credit covers to 50 percent of payroll on the first $10,000 of compensation, including health benefits, for each employee.
For employers with more than 100 full-time employees, the credit is for wages paid to employees when they are not providing services because of the coronavirus. Eligible employers with 100 or fewer full-time employees are eligible to use the credit even if they aren’t closed.
Unemployment Insurance Expansion
The CARES Act further provides additional unemployment relief to laid-off workers, extending existing state unemployment insurance provisions to four months and providing laid-off workers with an additional $600 per week in unemployment benefits. It further eliminates all state one-week waiting periods for benefits. The law does not, as many anticipated, contain COBRA subsidies to laid-off workers, however, it does provide that the unemployment benefits provided will not “count against” workers’ eligibility for Medicaid or SNAP benefits. Finally, the new unemployment rules provide, for the first time, available unemployment benefits to independent contractors and gig workers. These rules are retroactive to January 27, 2020, allowing workers out of work to obtain retroactive supplemental compensation.
Benefit Plan Rule Changes
For employers with High Deductible Health Plans (HDHP) with Health Savings Accounts (HSAs), the law changes the rules for these plans in a couple of significant ways. First, the legislation includes a safe harbor for HDHPs that begin on or before December 31, 2021, that provide pre-deductible coverage for telehealth and other remote care services. This means that telehealth and other remote care services could be covered pre-deductible without violating federal rules for HDHPs paired with an HSA. Second, the Act expands allowable HSA expenses to include over-the-counter medication and menstrual products.
The law also contains provisions to expand insurer coverage for coronavirus testing and mitigate “surprise billing.”
Finally, the CARES Act contains a number of provisions relevant to retirement plan investors. Eligible individuals can now withdraw up to $100,000 from their retirement accounts, in total, without paying a penalty for early withdrawal. They also could avoid taxes on the withdrawal if the money is put back in the account within three years. If it can’t be returned, income taxes could be paid over three years.
The relief package also doubles the current retirement plan loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan. Individuals with a loan outstanding from their plan with a repayment due from the date of enactment of the Cares Act through Dec. 31, 2020, can delay their loan repayments for up to one year.
In the coming days and weeks, Innovative will be providing comprehensive coverage of this law, including detailed information for small employers, large employers, plan sponsors, and employees. For more information, or with any questions, please contact Innovative Benefit Planning.