CARES Act | Fraser Blog

FAQs Spell Out Employer-Sponsored Health Plan Requirements for Reimbursing Over the Counter COVID Tests Effective as of January 15, 2022

Effective January 15, 2022, employer-sponsored group health plans and health insurers are required to provide reimbursement to plan participants, or to provide coverage to plan participants, for over-the-counter (“OTC”) COVID-19 self-tests. No cost sharing (such as deductibles), prior authorization or other medical management requirements can apply.

These and other explanations of coverage requirements for OTC COVID-19 testing are addressed in guidance issued in a “Frequently Asked Questions” format on January 10, 2022. The FAQs were prepared jointly by the Departments of Labor, Health and Human Services (HHS), and the Treasury (collectively, the “Departments”) regarding implementation of the Families First Coronavirus Response Act (FFCRA), the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and the Affordable Care Act.

Some of the important issues addressed in the FAQs include the following:

A plan or insurer is not required to provide coverage by reimbursing sellers of OTC COVID-19 tests directly (i.e., direct coverage). Instead it may require a participant, beneficiary, or enrollee to submit a claim for reimbursement to the plan or insurer. However, the FAQs state that plans and insurers are strongly encouraged to provide direct coverage for OTC COVID-19 tests without requiring participants, beneficiaries, or enrollees to provide upfront payment and seek reimbursement.
To the extent a plan or insurer provides direct coverage for tests, it may not limit coverage to only tests that are provided through preferred pharmacies or other retailers, and must take reasonable steps to ensure that participants have adequate access to tests through an adequate number of retail locations (including in-person and online locations).
Reimbursement of tests from non-preferred pharmacies or other retailers may be limited to no less than the actual price, or $12 per test (whichever is lower); however plans and insurers may elect to provide more generous reimbursement up to the actual price of the test.
A plan or insurer may limit the number of tests covered to no less than 8 tests per 30-day period.
Plans and insurers are permitted to address suspected fraud and abuse. The FAQs state, for example, that a plan or insurer may require (i) an attestation that the OTC COVID-19 test was purchased by the participant for personal use, not for employment purposes, and (ii) reasonable documentation (such as a UPC code) of proof of purchase with a claim for reimbursement.

The Centers for Medicare and Medicaid Services also issued a set of FAQs on January 10, 2022, explaining to consumers “How to get your At-Home Over-The-Counter COVID-19 Test for Free.”

We will continue to keep you updated regarding new developments on these issues. Given the nationwide lack of availability of tests, and many insurers indicating that they cannot meet the January 15 deadline, it may be a rocky start for this program.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.

Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.

Lauren D. Harrington is an associate attorney at Fraser Trebilcock focusing on Employment Law. You can reach her at 517.377.0874, or email her at lharrington@fraserlawfirm.com.

Michigan Department of Treasury Confirms that PPP Loan Forgiveness will Conform to Federal Treatment

On April 19, 2021, the Michigan Department of Treasury issued a notice (the “Notice”) announcing Michigan’s conformity to the federal income tax treatment of loans (“PPP Loans”) issued under the Paycheck Protection Program. The Notice also sets forth additional guidance for individual and corporate taxpayers regarding various income tax issues raised by the federal loan program.

As originally established under the CARES Act, any forgiven PPP was excluded from gross income for federal income tax purposes. However, no similar provision was enacted authorizing a deduction of the business expenses paid for by those forgiven loans. This issue was addressed in the Consolidated Appropriations Act (the “CAA”), enacted on December 27, 2020, which provided taxpayers with the ability to deduct the underlying business expenses paid for by the forgiven loan. The Notice makes clear that Michigan will conform to the manner in which the federal government is treating both PPP loan forgiveness and the deductibility of business expenses.

The Notice also provides guidance for both individual and corporate taxpayers relating to the calculation of sales factor apportionment, gross receipts, and the calculation of Total Household Resources when taking into consideration the impact of PPP loan forgiveness.

Finally, the Notice states that additional documentation substantiating a PPP loan is not required for Michigan tax return filing purposes. Taxpayers are not required to include any specific loan documentation, including proof of forgiveness or proof of expenses, with Michigan individual or corporate income tax returns. However, borrowers of PPP loans must retain sufficient documentation of their participation in the PPP loan program as part of their obligation to keep accurate and complete records necessary for an accurate determination of their tax liability.

If you have any questions about how the forgiveness of your PPP loan impacts your Michigan tax liability and the filing of your tax returns, please contact Fraser Trebilcock shareholder Paul McCord.

We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

Fraser Trebilcock attorney Paul V. McCord has more than 20 years of tax litigation experience, including serving as a clerk on the U.S. Tax Court and as a judge of the Michigan Tax Tribunal. Paul has represented clients before the IRS, Michigan Department of Treasury, other state revenue departments and local units of government. He can be contacted at 517.377.0861 or pmccord@fraserlawfirm.com.

CDC Eviction Moratorium Declared Unconstitutional

On Thursday, February 25, 2021, the United States District Court for the Eastern District of Texas issued a declaratory ruling holding that the current CDC eviction moratorium is unconstitutional. For details on the moratorium and applicable CDC order please see my prior article “The DHS – CDC September Surprise; The Order to Temporarily Halt Residential Evictions.”

The general terms of the CDC Moratorium originally appeared in the CARES Act in March of 2020. Upon expiration of the CARES Act moratorium at the end of July, 2020, and the pending expiration of state-imposed moratoria, the CDC September moratorium was issued. That September CDC moratorium was scheduled to expire on December 31, 2020. That December 31 date was extended through federal legislation to January 31, 2021. That January 31 date was again extended by the CDC, with support of the Biden Administration, under an extension that sought to keep the moratorium in place through March 31, 2021.

The Michigan Supreme Court, through administrative action, ruled that Michigan courts would honor the CDC moratorium on October 22, making it, effectively, the law of Michigan. See here.

However, Terkel et al., v. Centers for Disease Control and Prevention et al., No. 6:20-cv-00564 (E.D. Tex., Feb 25, 2021; Hon. J. Campbell Barker) held that the Constitution’s Commerce Clause did not support or justify the CDC moratorium. The court did not address state power to enact or impose such moratoriums, and indeed, cited a long history of such state prohibitions going back to at least the great Depression. The court did not expressly order any federal agency not to enforce the CDC moratorium because attorneys arguing the matter for the Department of Justice indicated on the record that the government would honor the declaration.

The federal government has appealed this ruling according to the Justice Department’s website: Department of Justice Issues Statement Announcing Decision to Appeal Terkel v. CDC | OPA | Department of Justice. The Justice Department is taking the position that this ruling only applies to the specific parties in that case and that it does not strike the CDC Moratorium nationwide. This declaratory judgment is not strictly binding precedent in Michigan courts but may be cited, of course, as persuasive authority. It is uncertain whether the Michigan Supreme Court will do anything to update its October, 2020 administrative order as a result.

If you are a landlord in Michigan and seek further guidance on this matter please contact Jared Roberts at Fraser Trebilcock.

Jared Roberts is a shareholder at Fraser Trebilcock who works in real estate litigation and transactions, among other areas of the law. Jared is Chair of the firm’s Real Estate department, and also “walks the walk” as a landlord and owner of residential rental properties and apartments in Downtown Lansing. He may be reached at jroberts@fraserlawfirm.com and (517) 482-0887.

Client Alert: COVID-19 Group Health Plan Service & Notification Requirements

On April 11, 2020, the Departments of Labor, Health and Human Services, and Treasury (Departments) jointly released frequently asked questions (FAQs) regarding health care coverage issues surrounding the implementation of the FFCRA and the CARES Act. See Joint FAQs.

Notably, the Departments maintain that the FAQs are a statement of policy and are effective immediately.

The Families First Coronavirus Response Act (FFCRA) was enacted on March 18, 2020 and requires health plans and insurers to provide certain items and services related to diagnostic testing for detection of SARS-CoV-2 or the diagnosis of COVID-19 without cost sharing or prior authorization from March 18, 2020 and during the applicable emergency period. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020 and broadened the range of diagnostic items and services that plans and issuers must cover. These FAQs represent the Departments’ approach to assist employers, issuers, providers and other stakeholders to come into compliance as well as to help families understand the new laws.

Applicable Plans

The FFCRA and CARES Act apply to group health plans and health insurance issuers offering group or individual health insurance coverage. The term “group health plan” includes both insured and self-insured group health plans, whether they are ERISA plans, non-federal governmental plans or church plans. The term “individual health insurance coverage” includes individual market coverage through or outside of an Exchange. It also includes student health insurance coverage.

However, short-term, limited-duration insurance is not subject… neither are excepted benefits or plans covering less than two employees (such as retiree-only plans).

Duration of Compliance

The FFCRA provisions are effective March 18, 2020 and continue during the public health emergency.

Required Items & Services

Q3-Q5 address the type of items and services that are required under the FFCRA and CARES Act, including:

in vitro diagnostic test (meeting certain requirements) for the detection of SARS-CoV-2 or the diagnosis of COVID-19, and the administration of such tests; this includes serological tests for COVID-19, which are used to detect antibodies against the SARS-CoV-2 virus; and
items and services furnished to an individual during health care provider office visits (including in-person and telehealth visits), urgent care center visits, and emergency room visits that result in an order for or administration of an in vitro diagnostic product, but only to the extent the items and services relate to the furnishing or administration of the product or to the evaluation of the individual for purposes of determining the need of the individual for such product.

The required benefits must be furnished during office visits. The Departments construe the term “visit” broadly and include non-traditional care settings, such as drive-through screenings. See Q8.

Additionally, a recent IRS Notice issued just days ago states that testing and treatment for COVID-19 includes “the panel of diagnostic testing for influenza A & B, norovirus and other coronaviruses, and respiratory syncytial virus (RSV) and any items or services required to be covered with zero cost sharing under … the CARES Act.” See IRS Notice 2020-29.

Notice 2020-29 also separately expands Notice 2020-15 to provide that reimbursement of expenses for testing and treatment of COVID-19 incurred on or after January 1, 2020 will not result in a high deductible health plan (HDHP) to fail to be an HDHP under Code section 223.

Cost-Sharing Requirements

Cost-sharing requirements (including deductibles, copayments and coinsurance), prior authorization requirements, and medical management requirements cannot be imposed for benefits that must be provided under section 6001(a) of the FFCRA, as amended by section 3201 of the CARES Act.

With regard to out-of-network providers, Q7 of the Joint FAQs provides that plans and issuers are required to provide coverage for such items and services even if providers have not agreed to accept a negotiated rate as payment in full. In such case, a cash price equal to the service as listed b the provider on a public internet website must be provided (or another amount may be negotiated for less than such cash price).

Summary of Benefits and Coverage (SBC) Requirements & Mid-Year Changes

While material modifications to the SBC normally require that the plan provide 60 days advance notice, the Departments state that they will not take enforcement action regarding greater coverage of COVID-19 diagnosis and/or treatment, as long as plans and issuers provide notice of the changes as soon as reasonably practicable. This non-enforcement policy applies only while the COVID-19 public health emergency and/or COVID-19 national emergency declaration is in affect. Coverage changes beyond this emergency period must fully comply.

State Standards

States may impose additional standards or requirements on health insurance issuers regarding COVID-19 diagnosis or treatment, as long as they do not prevent application of a federal requirement.

Excepted Benefits

The FAQs describe types of excepted benefits, including employee assistance programs (EAPs), and provide that COVID-19 diagnosis and testing offered under an EAP will not jeopardize that EAP’s excepted benefit status while the COVID-19 public health or national emergency declaration is in effect. Additionally on-site medical clinics offering COVID-19 diagnosis and testing will remain excepted benefits.

Telehealth & Remote Care Services

The Departments maintain that widespread use of telehealth and other remote care services are essential to fight the ongoing COVID-19 pandemic, and they strongly encourage all plans and issuers to promote and notify individuals about these services.

The CARES Act has already offered flexibility with regard to high deductible health plans (HDHPs) and health savings accounts (HSAs)… stating that use of telehealth and other remote care services prior to the deductible being met will not jeopardize HDHP status, even if their use is not for COVID-19 related reasons. Moreover, individuals using telehealth or other such services outside of the HDHP may also still contribute to HSAs. The CARES Act amended Internal Revenue Code section 223(c) in this respect and will remain in effect from March 27, 2020 and for plan years beginning on or before December 31, 2021.

However, subsequently released IRS Notice 2020-29, mentioned above, provides that telehealth and other remote care services provided on or after January 1, 2020 (and applying for plan years beginning on or before December 31, 2021) will not affect HDHP status, expanding on the CARES Act which previously applied this rule effective as of March 27, 2020.

Similar to guidance previously stated in these FAQs, plans and issuers who add benefits (or reduce or eliminate cost sharing) for telehealth and other remote care services will temporarily be deemed not to violate notice of material modifications requirements or mid-year change restrictions. The Departments will apply the same non-enforcement policy as described above but only during the emergency declaration and only as long as notice is provided as soon as reasonably practicable.

Participant Communication and Lawsuits

Please keep in mind this is a Department non-enforcement policy and does not protect employers and plans from participant lawsuits.

As you are well aware, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.

The IRS Says You Should Never Double-Dip Your Forgiven PPP Loan Proceeds

With stay-at-home orders and prohibitions on social gatherings still in effect, most of us are safe from those spring cookout guests with bad habits, like double-dipping their chips. The IRS recently gave loan borrowers under the CARES Act Paycheck Protection Program another reason against double-dipping. On April 30, 2020, the IRS announced that Paycheck Protection Program (PPP) loan recipients cannot deduct expenses that are paid with forgiven PPP loan proceeds.

Under the PPP provisions of the CARES Act, borrowers who pay certain covered expenses (payroll costs, benefits, rent, interest and utilities) using funds borrowed under the PPP program may have some or all of their loan forgiven. The CARES Act also modifies the general rule regarding the tax treatment of debt that is forgiven by providing that amount forgiven under the PPP program will not be included in the borrower’s taxable income.

Ordinarily, a business produces taxable income from making sales or furnishing services and is permitted to deduct from that income the expenses it incurred to produce it.

In its recent guidance, the IRS reasoned that the CARES Act exclusion from income for forgiven PPP loan amounts results in a class of tax-exempt income under the federal tax laws and regulations. The IRS concluded that, although the expenses paid by the PPP may be otherwise deductible as trade or business expenses or interest under the Internal Revenue Code, another section of the Code, intended to prevent a double tax benefit, disallows deductions sourced to tax-exempt income. As a result, borrowers will not be permitted to “double-dip” by claiming an additional tax break on money received through this program designed to provide economic assistance.

The guidance will impact tax planning for PPP loan borrowers and the overall value of the PPP loan forgiveness program.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.

Client Alert: FSAs, HRAs, and HSAs Can Reimburse Over-the-Counter Medications

One of the many changes brought forth under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) includes allowing pre-tax reimbursement of over-the-counter (“OTC”) medications effective January 1, 2020.

Specifically, the CARES Act amended Internal Revenue Code (the “Code”) sections 223(d) and 106(f) to remove the restriction that reimbursable medications are limited to prescribed drugs and insulin. Additionally, the CARES Act provides that expenses incurred for menstrual care products (as defined in Code section 223(d)(2)(D)) shall be treated as incurred for medical care. Affected reimbursement accounts include health flexible spending accounts (“health FSAs”), health savings accounts (“HSAs”), and health reimbursement accounts (“HRAs”).

This marks another change in course as to how to handle OTC medications. While OTC drugs were previously allowed under the Code, beginning January 1, 2011, the Affordable Care Act limited reimbursable medications to prescriptions and insulin. The CARES Act once again changes that, and while many of the CARES Act provisions include sunset dates, there is no expiration date for OTC reimbursements. With respect to HSAs, this change is effective for amounts paid after December 31, 2019. For health FSAs and HRAs, it is effective for expenses incurred after December 31, 2019.

Most health FSA and HRA plan documents specifically restrict reimbursement to prescription drugs and medications, including insulin. Therefore, if an employer chooses to allow reimbursements of OTC and menstrual care products from health FSAs and HRAs, plan amendments will most likely be required. HSAs are generally not employer sponsored products and, as such, would require no amendments.

While these are permissive changes, employers wanting to share some positive news to employees may want to allow them. Employee communication, as always, is of paramount importance, especially summaries of material modifications for ERISA plans.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.

CARES Act Offers Emergency Small Business Relief

One of the central pieces of the CARES Act is the provision of $349 billion for small businesses through federally backed loans under a modified and expanded Small Business Administration (SBA) 7(a) loan guaranty program called the Paycheck Protection Program. Congress has designed the program to make funds available to qualifying businesses quickly through approved banks and nonbank lenders.

The CARES Act is designed to provide broad and targeted lending program towards small businesses including:

Paycheck Protection Program (“PPP”) to cover payroll costs, interest costs, rent, and utilities;
Economic Injury Disaster Loan Grants to provide an ‘immediate’ advance of up to $10,000.00 of working capital to businesses that have applied for Economic Injury Disaster Loans in response to coronavirus; and
Entrepreneurial Development Programs

Paycheck Protection Program – General Loan Terms:

SBA will provide 100% federally backed loans to eligible small businesses. These PPP loans are being offered on the same terms, conditions, and processes as a loan made under the SBA’s current Business Loan Program. No collateral or personal guarantee is permitted to be required for a PPP loan. The interest rate on loans under the PPP is not to exceed 4%. There will be no subsidy recoupment fee associated with the loans and no prepayment penalty for any payments made. Additionally, the SBA has no recourse against any individual, shareholder, member, or partner of an eligible loan recipient for non-payment, unless the individual uses the loan proceeds for unauthorized purposes (see below for permitted uses).

Lenders will not require collateral or any personal guarantee as security for these loans, and the interest rate cannot exceed 4%. Additionally, prepayment penalties are not allowed. The only instance in which a lender will have recourse against any individual, shareholder, member, or partner of a borrower would be when the loan proceeds are used for an unauthorized purpose. The typical SBA requirement that borrowers not be able to obtain credit elsewhere will also be waived.

A loan made under the SBA’s Disaster Loan Program on or after January 31, 2020, may be refinanced as part of a covered loan under this new paycheck protection program as soon as these new loans are made available. The CARES Act specifically allows SBA Disaster Loan recipients with economic injury disaster loans made since January 31, 2020 for purposes other than the permitted loan uses under the PPP to receive assistance under this program.

Loan Origination:

The SBA can provide these loans directly or in cooperation with private sector lenders through agreements to participate on an immediate or deferred (guaranteed) basis. Lenders authorized to make loans under the SBA’s current Business Loan Program are automatically approved to make an approve PPP loans under this new CARES Act program. As a result these can be accessed directly through lenders and will not require SBA pre-approval. The goal is to be ready to fund loans as quickly as possible. So, the best starting place for a small business seeking one of these loans is with the business’s lender.

Additionally, the Treasury Secretary may extend this lending authority to additional private sector lenders under criteria established by Treasury (including, for instance, allowing additional lenders to originate loans).

Eligible Small Businesses:

With some exceptions, eligible recipients include those “small business concerns” currently defined under the SBA, but also include any business concern, nonprofit organization, veterans’ organization, or Tribal business if it employs not more than the greater of:

500 employees (includes full-time, part-time, and those employed on other bases); or
If applicable, the size standard in number of employees established by the SBA for the industry in which the entity operates.

There is a special eligibility rule for businesses in the hospitality and dining industries. For businesses with more than one physical location, if it employs 500 or fewer employees per location and is assigned to the “accommodation and food services” sector (Sector 72) under the North American Industry Classification System (NAICS), the business is eligible to receive a loan.

In addition to small businesses, sole-proprietors, independent contractors, and other self-employed individuals are eligible for these loans. Non-profits and churches designated as 501(c)(3) organizations may also participate in PPP borrowing, while 501(c)(6) organizations are not eligible.

Maximum Loan Amount:

The maximum loan amount is capped at $10 million and will equal to 2.5 times the business’s monthly payroll costs. Loan funds can be obtained and forgiven when used to cover payroll costs, interest on mortgage obligations, rent, and utilities. Under the PPP, businesses can re-hire employees they had initially laid off, as long as they can demonstrate to the lender that they were in business before February 15, 2020, and that the employee was formerly on the payroll.

Permitted Uses:

Loans may be used for:

Providing sick leave to employees unable to work due to direct effect of COVID-19;
Maintaining payroll during business disruptions during slow-downs;
Meeting increased supply chain costs;
Making rent or mortgage payments; and
Repaying debts that cannot be paid due to lost revenue.

Loan Payment Deferral Relief and Forgiveness:

The CARES Act provides that businesses that were operating on February 15, 2020 and that have a pending or approved loan application under the PPP are presumed to qualify for complete payment deferment relief (for principal, interest, and fees) for 6- months to one year. Lenders are required to provide this relief during the covered period (if secondary market investors decline to approve a lender’s deferral request, the SBA must purchase the loan).

The CARES Act’s broader loan forgiveness provision in Section 1106 provides that the debt may be forgiven (and excluded from gross income) in an amount (not to exceed the principal amount of the loan) equal to the following costs incurred and payments made during the covered period:

Payroll costs;
Interest payments on mortgages;
Rent; and
Utility payments.

Forgiveness amounts will be reduced for any employee cuts or reductions in wages.

The reduction formula for fewer employees is:

The maximum available forgiveness under the rules described above multiplied by:

The average number of full-time equivalent employees (FTEEs) per month – calculated by the average number of FTEEs for each pay period falling within a month – during the covered period divided by:

Either (at election of the borrower):

Average number of FTEEs per month employed from February 15, 2019 to June 30, 2019; or
Average number of FTEEs per month employed from January 1, 2020 until February 29, 2020;

Or, for seasonal employers:

Average number of FTEEs per month employed from February 15, 2019
until June 30, 2019.

This formula will be used to reduce forgiveness amounts, but cannot be used to increase them.

For reductions in wages, the forgiveness reduction is a straight reduction by the amount of any reduction in total salary or wages of any employee during the covered period that is in excess of 25% of the employee’s salary/wages during the employee’s most recent full quarter of employment before the covered period. “Employee” is limited, for purposes of this subparagraph only, to any employee who did not receive during any single pay period during 2019 a salary or wages at an annualized rate of pay over $100,000.

There is relief from these forgiveness reduction penalties for employers who rehire employees or make up for wage reductions by June 30, 2020. Specifically, in the following circumstances, the forgiveness reduction rules above will not apply to an employer between February 15, 2020 and 30 days following enactment of the CARES Act:

The employer reduces the number of FTEEs in this period and, not later than June 30, 2020, the employer has eliminated the reduction in FTEEs; or
There is a salary reduction, as compared to February 15, 2020, during this period for one or more employees and that reduction is eliminated by June 30, 2020 (it is unclear whether this is also intended to be limited to employees who made under $100,000 in 2019).
Employers with tipped employees (as described in the Fair Labor Standards Act) may receive forgiveness for additional wages paid to those employees. Also, emergency advances received under the expanded SBA Disaster Loan Program discussed below will be excluded from forgiveness amounts.

Business borrowers seeking forgiveness of amounts must submit to their lender:

Documentation verifying FTEE on payroll and their pay rates;
Documentation on covered costs/payments (e.g., documents verifying mortgage, rent, and utility payments);
Certification from a business representative that the documentation is true and correct and that forgiveness amounts requested were used to retain employees and make other forgiveness-eligible payments; and
Any other documentation the Administrator may require.

Additionally, grant money will be made available to loan applicants and certain small businesses, such as:

Economic Injury Disaster Loan Grants:

Businesses who have applied for an Economic Injury Disaster Loan in response to coronavirus may, during the 2020 fiscal year, request an advance of up to $10,000 (which does not have to be repaid, even if the loan application is later denied) to provide covered leave, maintain payroll, and pay debt obligations. Advances are to be made by the lender within three days of an application for such advance.

Entrepreneurial Development Programs:

Grants and funding will be available through this program to offer training, counseling, and assistance to small businesses affected by a coronavirus. Examples of recipients will include Small Business Development Centers, Women’s Business Centers, Minority Business Centers, and resource partner associations that provide online information and training. Under this program, participants in the State Trade Expansion Program (STEP) can gain access to federal grant funds appropriated to them for fiscal years 2018 and 2019 to remain available for use through fiscal year 2021. STEP participants will also be reimbursed for events cancelled due to coronavirus, as long as the reimbursement amount does not exceed the participant’s federal grant amount.

Conclusion

The CARES Act provides much needed stimulus to individuals, businesses, and hospitals in response to the economic distress caused by the COVID-19 pandemic. The CARES Act is, however quite long and complex, and successful navigation of the Act’s provisions as well as the economic challenges facing individuals, business and the healthcare system will require thoughtful and comprehensive planning. This is a summary of a complex new law and business are encouraged not to rely on this summary alone and to seek legal counsel regarding this new law.

FFCRA: DOL Latest Guidance Alters Action Plans of Many Employers

After the passage of the Families First Coronavirus Response Act (FFCRA) and the initial round of Department of Labor (DOL) guidance issued last week, employers began developing action plans on how to deal with their workforce amid a continually changing landscape, including numerous State orders requiring schools and businesses to close and for individuals to “stay at home.”

The Emergency FMLA Expansion Act and the Emergency Paid Sick Leave Act (Acts) are being carefully considered, and employers are preparing to offer these benefits to employees in numerous situations. For more detailed information on these Acts, which are set forth under the FFCRA, please see our previous Client Alert.

However, late last week, the DOL updated its initial list of 14 FAQs with an additional 23 new questions and answers. The updated DOL guidance can be found here: https://www.dol.gov/agencies/whd/pandemic/ffcra-questions. Moreover, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on Friday which modifies certain provisions of the FFCRA. These matters are set forth below.

EPSLA: Worksites Closing Due to Shelter In Place Orders Will Not Qualify for Paid Sick Leave

Under the Emergency Paid Sick Leave Act (EPSLA), one of the reasons an employer must provide employees with paid sick time is if they are unable to work (or telework) due to a need for leave because:

The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;

With respect to recent “shelter in place” or “stay at home” orders issued by certain States, employers were preparing to offer leave when sending their employees home. However, late last week in its updated list of FAQs, the DOL clarified that if an employer closes its worksite and/or sends employees home for lack of work, even if due to State directives, paid sick leave will not be warranted.

Questions and Answers #23 and 24 state that if an employer closes its worksite, either before or after April 1, 2020 when the Acts become effective, leave under the Acts is not warranted during the period of closure. Significantly, it goes on to state:

This is true whether your employer closes your worksite for lack of business or because it is required to close pursuant to a Federal, State, or local directive.

Instead, employees are encouraged to contact their State workforce agency or unemployment insurance office to answer questions about eligibility.

Question and Answer #25 also states that paid sick leave or expanded family and medical leave already being provided will stop as of the date the employer closes its worksite.

Moreover, the DOL guidance addresses circumstances of employers who remain open but furlough employees due to lack of work. That also does not qualify under the Acts. See Question and Answer #26:

If my employer is open, but furloughs me on or after April 1, 2020 (the effective date of the FFCRA), can I receive paid sick leave or expanded family and medical leave?

No. If your employer furloughs you because it does not have enough work or business for you, you are not entitled to then take paid sick leave or expanded family and medical leave. However, you may be eligible for unemployment insurance benefits. You should contact your State workforce agency or State unemployment insurance office for specific questions about your eligibility. For additional information, please refer to https://www.careeronestop.org/LocalHelp/service-locator.aspx.

Question and Answer #27 addresses what happens if a worksite closes and then later reopens. Leave may only be available when the worksite is open.

Question and Answer #28 discusses availability of leave for reduced hours. Again, not having enough work for an employee to do does not qualify; however, an employee who is unable to work his/her full schedule due to a COVID-19 qualifying reasons is entitled to leave under the Acts.

Employees Must be Unable to Conduct Work that Employers Have for Them To Do

The DOL guidance states that the employer must have work for employees to do, and the employee must be unable to work or telework for one of the COVID-19 specified reasons to be entitled to leave under the Acts. See Question and Answer #18:

What does it mean to be unable to work, including telework for COVID-19 related reasons?

You are unable to work if your employer has work for you and one of the COVID-19 qualifying reasons set forth in the FFCRA prevents you from being able to perform that work, either under normal circumstances at your normal worksite or by means of telework.

If you and your employer agree that you will work your normal number of hours, but outside of your normally scheduled hours (for instance early in the morning or late at night), then you are able to work and leave is not necessary unless a COVID-19 qualifying reason prevents you from working that schedule.

Documentation Requirements for Leave Taken Under the Acts

While the Acts did not list any documentation or substantiation requirements for entitled leaves, the DOL provides guidance in Question and Answer #15:

What records do I need to keep when my employee takes paid sick leave or expanded family and medical leave?

If one of your employees takes paid sick leave under the Emergency Paid Sick Leave Act, you must require your employee to provide you with appropriate documentation in support of the reason for the leave, including: the employee’s name, qualifying reason for requesting leave, statement that the employee is unable to work, including telework, for that reason, and the date(s) for which leave is requested. Documentation of the reason for the leave will also be necessary, such as the source of any quarantine or isolation order, or the name of the health care provider who has advised you to self-quarantine. For example, this documentation may include a copy of the Federal, State or local quarantine or isolation order related to COVID-19 applicable to the employee or written documentation by a health care provider advising the employee to self-quarantine due to concerns related to COVID-19. If you intend to claim a tax credit under the FFCRA for your payment of the sick leave wages, you should retain this documentation in your records. You should consult Internal Revenue Service (IRS) applicable forms, instructions, and information for the procedures that must be followed to claim a tax credit, including any needed substantiation to be retained to support the credit.

If one of your employees takes expanded family and medical leave to care for his or her child whose school or place of care is closed, or child care provider is unavailable, due to COVID-19, under the Emergency Family and Medical Leave Expansion Act, you must require your employee to provide you with appropriate documentation in support of such leave, just as you would for conventional FMLA leave requests. For example, this could include a notice that has been posted on a government, school, or day care website, or published in a newspaper, or an email from an employee or official of the school, place of care, or child care provider. This requirement also applies when the first two weeks of unpaid leave run concurrently with paid sick leave taken for the same reason. If you intend to claim a tax credit under the FFCRA for the expanded family and medical leave, you should retain this documentation in your records. You should consult IRS applicable forms, instructions, and information for the procedures that must be followed to claim a tax credit, including any needed substantiation to be retained to support the credit.

Question and Answer #16 sets forth the records that an employee must provide an employer.

Other DOL FAQ Highlights

The updated FAQs address numerous other circumstances, including:

Intermittent leaves under the Acts while teleworking
Intermittent leaves under the Acts while working at employer’s worksite
Continuation of group health plan coverage
Interaction of employer paid time off policies with leave rights under the Acts
Unavailability of tax credits for amounts employers pay in excess of the Acts’ requirements
Whether leaves under the Acts can be taken in conjunction with unemployment insurance
How employers who are part of a multiemployer collective bargaining agreement can satisfy their obligations under the Acts

Again, for the full DOL questions and answers, please see: https://www.dol.gov/agencies/whd/pandemic/ffcra-questions.

How the CARES Act Affects Leave Entitlements under the FFCRA

The FFCRA was also modified slightly by the CARES Act, which was enacted on Friday, March 27, 2020. Changes include:

Under the FMLA Expansion Act, employees who have been employed for at least 30 calendar days by the employer are eligible for the leave if they have a qualifying need related to a public health emergency. The CARES Act adds a provision for rehired employees, including in the definition of “eligible employee” the following:
- an employee who was laid off by that employer not earlier than March 1, 2020, had worked for the employer for not less than 30 of the last 60 calendar days prior to the employee’s layoff, and was rehired by the employer.
With respect to tax credits under the FMLA Expansion Act and the Emergency Paid Sick Leave Act, the CARES Act amends the FFCRA to provide for advancing credits, up to the amount of the tax credit allowed, calculated through the end of the most recent payroll period in the quarter. Forms and instructions regarding this advanced credit will be forthcoming.

FFCRA Poster Reminder

The DOL also updated its questions and answers regarding the FFCRA poster requirements. Specifically, it added guidance clarifying that the notice must be “posted” by April 1, 2020. See https://www.dol.gov/agencies/whd/pandemic/ffcra-poster-questions.

Again, the poster can be found here: https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf.

As you are well aware, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.

CARES Act Relaxes Rules Regarding 2020 Retirement Plan Distributions

On Friday, the House of Representatives passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in dramatic fashion, with several members racing back to Washington after Representative Thomas Massie threatened to demand a recorded vote. The legislation (which had been previously passed on a unanimous vote by the Senate earlier in the week) was signed by President Trump shortly thereafter.

The CARES Act is the third extensive—roughly $2 trillion dollar—emergency relief package with numerous components designed to mitigate the rapid and sudden fallout from the COVID-19 pandemic. Among its 880 pages are a few changes that loosen the requirements applicable to distributions from retirement plans for 2020:

Retirement plans may permit individuals to take a “coronavirus-related distribution” of up to $100,000 in 2020, which will be exempt from the 10% early distribution penalty. In addition, individuals taking such distributions may pay tax on them ratably over three years and may repay them within a three-year period. Individuals will be eligible for such a distribution if they (or their spouse or dependent) test positive, or if they experience adverse financial consequences as a result of COVID-19 due to being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care, or closing or reducing hours of a business owned or operated by the individual (a “qualified individual”). A plan administrator may rely on a participant’s certification that he or she is a qualified individual. Plans that may offer these distributions include qualified defined contribution plans, 403(b) plans, governmental 457(b) plans, and IRAs. Although more clarification would be welcome, these rules are structured similarly to the new “qualified birth or adoption” rules under the recently-passed SECURE Act. As such, the availability of these distributions appears to be an optional plan provision.
With respect to participant loans taken within 180 days following passage of the CARES Act, the limits on permissible plan loans has been increased from $50,000 to $100,000 and from half of the participant’s vested account balance to the entire vested account balance. In addition, with respect to any qualified individual (as defined in the previous bullet) with an outstanding loan, any payments due during the remainder of 2020 are delayed by one year. It is our understanding that offering loans up to the increased limits is optional (as is offering loans at all); whether plan sponsors will be required to offer delayed repayment to affected individuals is less clear, but this aspect is likely mandatory.
Required minimum distributions (RMDs) are waived for 2020. This includes individuals who attained age 70½ in 2019 and did not take their first RMD prior to January 1, 2020. Impacted plans again include qualified defined contribution plans, 403(b) plans, governmental 457(b) plans, and IRAs. Though more guidance is needed on implementation, we expect this temporary waiver to operate similarly to the 2009 waiver under WRERA. If that is the case, plan sponsors would be able to determine whether they would offer the 2020 RMD waiver, and if so, what the default will be (i.e., to receive or not receive an RMD).

The CARES Act includes a delayed amendment deadline for the above changes set at the last day of the plan year beginning on or after January 1, 2022 (i.e., December 31, 2022 for calendar year plans). Governmental plans have two additional years.

Along with the above changes, the CARES Act contains some funding relief for sponsors of qualified defined benefit plans. Specifically, the Act delays minimum funding contributions otherwise due during calendar year 2020 until January 1, 2021 (though delayed contributions will be subject to an interest adjustment). In addition, the CARES Act permits plan sponsors to elect to treat the AFTAP for the last plan year ending before January 1, 2020 as the AFTAP for plan years which include calendar year 2020. This will help many plans avoid funding-based benefit limitations (including the inability to pay lump sums) that might otherwise come into play.
Finally, the CARES Act provides authority for the DOL to delay ERISA filing deadlines due to public health emergencies. Though the Act itself does not provide any delay, we anticipate that forthcoming DOL guidance will do so.

If you have any questions on how the CARES Act (or any other COVID-19 developments) may impact your organization’s retirement plans, please contact Brian Gallagher at bgallagher@fraserlawfirm.com.

CARES Act Payroll/Loan Program Preview

This summary discusses some key provisions of the Senate Bill version of the “CARES Act,” S.B. 3548, as applicable to employers and small businesses. In many ways this legislative package, if passed, will supersede or provide assistance to employers well exceeding prior state and federal enactments.

This blog is intended to provide generalized information for planning purposes rather than details of the implementation of the legislatively-created benefits, many of which must necessarily remain to be developed at the state and federal levels.

$350 Billion Loan Program

The core of the CARES legislative program, if passed more or less in its current state, is a $350 billion loan program intended to encourage small businesses not to lay off their employees, to preserve consumer demand and allow those businesses better to “snap back” following the current crisis. This aspect of the package falls under the CARES Act Payroll Protection Title of the omnibus package.

Loaned funds used for payroll, rent, mortgage interest, and utility payments would be forgiven if certain conditions are met. Importantly, the principal amount of loaned funds used for approved purposes is to be forgiven if the borrower maintains its pre-crisis full-time workforce as of the date of the loan; interest, capped at 4%, will remain payable.

The program will be administered by the Small Business Administration and will adopt existing SBA loan program policies. Loan eligibility standards and application requirements will be significantly loosened.

CARES would allow a 50% refundable payroll tax credit on worker wages paid during the crisis. Additional tax law adjustments will liberalize net operating loss-reduction rules, allowing greater offset of business income.

Sole proprietors and other self-employed workers could be eligible for the expanded unemployment-insurance benefits the bill provides. At the present, “gig economy” workers appear not to be eligible for these expanded benefits. The loans will be available to companies with 500 or fewer employees.

Businesses can receive loans up to $10 million, based on how much the company paid its employees between Jan. 1 and Feb. 29. The loans will carry an interest rate up to 4%.

Fraser Trebilcock Shareholder Dave Houston has over 40 years of experience representing employers in planning, counseling, and litigating virtually all employment claims and disputes including labor relations (NLRB and MERC), wage and overtime, and employment discrimination, and negotiation of union contracts. He has authored numerous publications regarding employment issues. You can reach him at 517.377.0855 or dhouston@fraserlawfirm.com.