Senate Approves Massive Coronavirus Response Bill

On Wednesday night, March 25, shortly before midnight, Eastern Time, the U.S. Senate cleared lingering objections of both Democrat and Republican members and unanimously passed H.R. 748, the Coronavirus Aid, Relief and Economic Security, or CARES Act. The legislation has many elements intended to aid businesses and workers, and assist the U.S. health care system in working through the coronavirus (COVID-19) pandemic. It also contains multiple provisions that would affect retirement savings arrangements, health savings accounts (HSAs), Archer medical savings accounts (MSAs), health reimbursement arrangements (HRAs), and flexible spending arrangements (FSAs).

The next move is up to the U.S. House of Representatives, where a strategy known as “unanimous consent” could speed up passage of the legislation there, resulting in quicker delivery to President Trump for his signature. If there are objections to that strategy by House members, that body—currently in recess—may have to be recalled to the Capitol for a vote. Following are key provisions that would impact tax-favored retirement and health savings arrangements.

Retirement Savings Provisions

  • This legislation would extend the income tax return filing deadline from April 15, 2020, to July 15, 2020. (The Treasury Department has already extended the deadline as described above and clarified other acts that are extended as a result—including the ability to make IRA, HSA, and certain employer plan contributions by July 15 for tax year 2019.)
  • Up to $100,000 in coronavirus-related distributions (CRDs) could be withdrawn by an individual from eligible retirement plans. These distributions would be exempt from the 10 percent early distribution penalty tax.
    • A CRD is defined as any distribution made on or after January 1, 2020, and before December 31, 2020, to a qualified individual, defined as
      • an individual (or the spouse or a dependent of that individual) who is diagnosed with COVID-19 or SARS-CoV-2 in an approved test; or
      • an individual who suffers related adverse financial consequences, or suffers from other factors as determined by the Secretary of the Treasury.

Plan administrators could rely on plan participants’ certification that they meet these requirements.

    • An eligible retirement plan is defined as a qualified retirement plan (e.g., a 401(k) plan), 403(a) plan, 403(b) plan, governmental 457(b) plan, or an IRA.
    • CRDs would be treated as meeting retirement plan distribution requirements, so long as all distributions from one employer—including members of a controlled group—do not exceed $100,000 to an individual.
    • There would be a three-year repayment period beginning the day after distribution, during which one or more repayments may be made, not to exceed, in aggregate, the amount distributed. Taxpayers could recontribute these amounts to an eligible retirement plan or IRA.
    • CRDs that are recontributed within the three-year period will be treated as having satisfied the general 60-day rollover requirement.
    • CRDs would be taxed ratably over a three-year period, unless an individual elects otherwise.
    • CRDs are not considered statutory “eligible rollover distributions” for purposes of 20 percent mandatory withholding, the notice provided to recipients of distributions eligible for rollover (i.e., “402(f)” notice) and direct rollover requirements (but do remain eligible for rollover).
  • The retirement plan loan maximum for a qualified individual (defined as meeting the COVID-19 or SARs-CoV-2 conditions described above) would increase to the lesser of $100,000, or 100 percent of a participant’s vested balance.
    • Retirement plan loan repayment dates that occur between the date of enactment and December 31, 2020, could be delayed for one year. Due dates of subsequent payments (payments after those that may be delayed one year) and the five-year amortization period would be adjusted accordingly.
  • Plan sponsors would generally be required to amend their retirement plans for these provisions by the last day of the 2022 plan year (government plans would have an additional two years), or such other date as the Secretary of the Treasury may prescribe, with operational compliance during the interim period.
  • Individuals would not be required to take their 2020 required minimum distributions (RMDs) from their defined contribution plans or IRAs. This RMD waiver would also apply to individuals who turned 70½ in 2019 but did not take their RMD before January 1, 2020).
  • The 2020 year would not be counted for purposes of a five-year payout period for a nonperson beneficiary. (This provision would not alter a required beginning date for years after 2020.)
  • Single employer defined benefit pension plan minimum required contributions due during 2020 could be delayed to January 1, 2021 (adjusted for interim earnings). This provision would also provide an option to use an alternative funding target percentage.
  • This legislation would add “public health emergency” to those events that would allow the DOL to postpone certain deadlines governed by ERISA Section 518.

Health Savings Arrangement-Related Provisions 

  • For plan years before 2022, health insurance plans could pay for telehealth and remote care services without first satisfying HSA-qualifying deductible conditions.
  • A medicine or drug need not be prescribed to be a qualified medical expense for HSA, HRA, MSA, and health FSA purposes. This includes over-the-counter menstrual care products.

Further progress of this legislation will be monitored and developments shared on