As employers scramble to deal with the unprecedented impact of the COVID-19 global pandemic, there are any number of employee benefit plan considerations.
With employers considering their options for managing payroll and employee benefit costs, it is important to understand the potential employee benefit plan consequences. Whether it be layoffs, furloughs or other measures to reduce benefit plan costs, it is critical to be familiar with the terms of your various employee benefit plans. The employee benefit issues will vary by type of employment change and will also turn on the specific plan language.
For example, your ability to suspend or discontinue an employer retirement plan contribution will depend on the language of your retirement plan and the type of contribution. If you are looking at a midyear change to your retirement plan contribution, there are a unique set of considerations for safe harbor matching or non-elective contributions. In addition, any change in an employee’s job status is likely to lead to a number of questions involving access to their retirement plan benefit, including plan distribution options such as plan loans and hardship distributions. Again, your response to any such questions will involve the need to be familiar with the terms of your retirement plan. An employee who is furloughed for a short period of time may not experience a distribution event. Finally, a significant reduction in your workforce may trigger a partial termination of your retirement plan.
Similarly, a furlough or layoff will also raise issues with your health plan coverage. A change in an employee’s job status ranging from a reduction in hours to a termination of employment may trigger COBRA continuation rights. However, the impact on an individual’s health plan coverage will depend on the specific facts and circumstances as well as the health plan language. You will also need to consider whether any such employment change gives rise to an employee’s ability to make midyear changes to their existing benefit plan elections.
There are also some benefit plan implications under the recently signed COVID-19 legislation and some of the proposals under consideration involve, among other things, the suspension of required minimum distributions and an expansion of employee access to their retirement benefit. The federal Families First Coronavirus Response Act requires employers to provide coverage for COVID-19 diagnostic testing without any cost sharing. As such, you will need to amend the health plan document to provide for this mandated coverage.
This is by no means a complete listing of the myriad of benefit plan issues to consider as you react to the COVID-19 related economic downturn. It is important for you to understand how your business decisions may affect your current benefit plans. If you have any questions about these issues and new requirements, please contact me.
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