The Impact of FFCRA and the CARES Act on Employee Welfare and Retirement Benefit Plans

The Impact of FFCRA and the CARES Act on Employee Welfare and Retirement Benefit Plans


The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) is the third significant piece of federal legislation recently enacted in response to the COVID-19 pandemic. This latest law follows the Coronavirus Preparedness and Response Supplemental Appropriations Act and the Families First Coronavirus Response Act (“FFCRA”), which were signed into law on March 6 and March 18, 2020, respectively. Collectively, these three laws combine broad-based economic stimulus with targeted measures aimed a propping up the U.S. economy and workforce. Building on the previous legislation, the CARES Act provides additional income assistance, enhances unemployment insurance benefits, and adopts certain other consumer financial protections, among other things.


Aid to Health Care Institutions
$100 billion available to eligible health care providers and hospitals for health care related expenses and lost revenues directly attributable to COVID-19. Eligible entities include public entities, Medicare or Medicaid suppliers and providers, and for-profit and non-for-profit entities as specified by the Secretary of Health and Human Services (HHS) that provide diagnoses, testing, and care for individuals with possible or confirmed cases of COVID-19.

Exemption for Telehealth Services
Telehealth services generally cover physician office visits, consultations, and certain other medical or health visits that are conducted online, via telephone, or using some other telecommunications technology (e.g., real-time audio and video). Under prior law, participants covered by High Deductible Health Plans (“HDHPs”) that included telehealth benefits were generally required to pay for those services until they satisfied the applicable deductible or reached their out-of-pocket limit. First-dollar telehealth services could be provided only if considered to be preventive care or otherwise permitted or disregarded under law, regulation, or guidance.

Effective on the date of enactment, the CARES Act amends Internal Revenue Code § 223(c) to provide that a plan does not fail to be treated as a HDHP by reason of providing telehealth and other remote care services without imposing a cost sharing. Thus, participants in HDHPs can receive first dollar coverage for telehealth and other remote care services and still be able to contribute to a health savings account (“HSA”). This rule applies during plan years beginning before January 1, 2022.

Coverage of Diagnostic Testing for COVID-19
Beginning April 2, 2020, the FFCRA required group health plans and health insurance issuers offering group or individual health insurance coverage to cover, without any cost-sharing (i.e., deductibles, copayments or coinsurance), prior authorization, or medical management requirements:

  • FDA-approved COVID-19 testing, and
  • Items and services furnished to an individual during health care provider office visits, urgent care center visits, and emergency room visits that result in an order or administration of COVID-19 testing, or evaluation of such individual for purposes of determining the need for such testing.

The CARES Act expands this coverage requirement to include tests for which developers have requested or intend to request emergency use authorization from the FDA, or that have been developed in and authorized by a state, or that the Secretary of Health and Human Services determines appropriate in guidance. The requirement does not apply to excepted benefits, such as accident, stand-alone vision and dental, or hospital/fixed indemnity insurance.

The CARES Act also establishes rules for determining reimbursement rates for COVID-19 testing and related items and services.

Further, the CARES Act modifies prior law which stated that preventive services must be covered without cost-sharing only when provided by an in-network provider and could be subject to reasonable medical management techniques (such as preauthorization requirements). The CARES Act requires all group health plans and issuers to reimburse in-network providers at the negotiated rate in effect before January 31. Out-of-network providers must be reimbursed at a rate no greater than the cash price listed by the provider on a public internet website. It is not yet clear whether providers must also post the prices of items and services related to the diagnostic test, such as an office visit or evaluation.

While nothing in the FFCRA or the CARES Act requires plans or issuers to cover treatment of COVID-19, plans and polices routinely cover medically necessary services that would include COVID-19 treatment without referring to it by name.

Rapid Coverage of Preventive Services and Vaccines for Coronavirus
Existing law generally requires that non-grandfathered group health plans and health insurance issuers cover preventive services without cost sharing. “Preventive services” for this purpose include evidence-based items or services that have in effect a rating of “A” or “B” from the U.S. Preventive Services Task Force (“USPSTF”). Changes to the list of recommended preventive services are usually effective beginning in the plan year that begins on or after one year from the latest issue date. So that health plans will promptly provide cost-free coverage of COVID-19 vaccines recommended by the USPSTF or the Center for Disease Control, the CARES Act requires plans and issuers to implement changes to the preventive services recommendations relating to “qualifying coronavirus preventive services” within 15 business days following the date on which a recommendation is made.

Pre-Tax Purchases of Over-the-Counter Medical Products
Effective in 2011, the Affordable Care Act added a new Internal Revenue Code § 106(f), under which expenses incurred for medicines or drugs may be paid or reimbursed by an employer-provided plan, including a health FSA or HRA, only if the medicine or drug (i) requires a prescription; (ii) is available without a prescription (an over-the-counter medicine or drug) and the individual obtains a prescription, or (iii) is insulin. Effective for expenses incurred after December 31, 2019, section 3702 of the CARES Act allows funds in health FSAs, HSAs, and Archer MSAs to be applied to the purchase of over-the-counter medicines and drugs without a prescription from a physician and for the purchase of menstrual care products.

90-Day Fills and Refills
Requires Medicare Part D and Medicare Advantage plans to allow fills and refills of covered Part D drugs for up to 90-days during the public health emergency.

Medical Flex Spending Account (FSA) and Dependent Care Flex Spending (DFSA) programs

  • Mid-year changes are now allowed to both the Medical FSA and Dependent Care FSA plans.
  • Changes allowed: Make new, increase, or decrease election.
  • Increased rollover maximum for 2021 plan year to $550.


Plan loans to qualified individuals

Maximum loan amount increases
The CARES Act permits a plan to increase temporarily the limit on plan loans to qualified individuals to (i) $100,000, or (ii) 100% of the participant’s vested account balance. This increase is permitted for loans granted during the 180-day period after the date of enactment, i.e., until September 23, 2020.

Extension of loan repayment date
With respect to plan loans to qualified individuals that are outstanding on or after March 27, 2020, any loan repayment dates scheduled from March 27, 2020 through December 31, 2020 may be delayed for one year. Interest will continue to accrue during the delay period and subsequent loan payments will be adjusted to reflect the increased interest due. The Act provides that the extension of payment dates under the CARES Act will be disregarded in determining compliance with the maximum 5-year loan term under the Internal Revenue Code. Additional guidance is needed to determine the impact of any home purchase loan repayment period.

Coronavirus distributions to qualified individuals
The CARES Act allows a plan to permit coronavirus distributions to be made to qualified individuals on and after January 1, 2020 and before December 31, 2020 in an amount up to $100,000 without imposition of the 10% early distribution penalty. Based on the language of the Act, coronavirus distributions are not permitted on December 31, 2020. This may be addressed in technical corrections to the Act.

The provision applies to eligible retirement plans (including 401(k) plans, 403(b) plans, 457(b) plans maintained by governmental entities, and individual retirement accounts (IRAs)). The $100,000 is an aggregate limit that applies to distributions from all plans for an employee. However employers need only consider those plans maintained by the employer (and any member of any controlled group that includes the employer) to determine compliance with the dollar limit.

A recipient of a coronavirus distribution is permitted to make repayment contributions to an eligible retirement plan within three years after such distribution without regard to any annual limitation on contributions. Note that the repayment contributions need not be made to the eligible retirement plan making the coronavirus distribution.

A coronavirus distribution is included in income over a three-year period beginning in the year of the distribution unless the recipient elects earlier taxation, or to the extent the recipient makes a repayment contribution. A coronavirus distribution is not subject to the 20% withholding rate that otherwise applies to distributions that are eligible for rollovers.

Qualified individuals
For purposes of plan loans and coronavirus distributions, a qualified person includes a person:

  • Who is diagnosed with COVID-19 by a CDC-approved test;
  • Whose spouse or dependent is diagnosed with COVID-19 by a CDC-approved test;
  • Who experiences adverse financial consequences as a result of:
    • being quarantined, furloughed or laid off, or having work hours reduced due to COVID-19
    • being unable to work due to lack of child care due to COVID-19;
    • closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
    • other factors determined by the Secretary of the Treasury.

A plan administrator may rely on an employee’s certification that he or she satisfies one of the above qualifications.

Waiver of minimum funding rules for 2020
The CARES Act waives required minimum distributions that would otherwise be required to be made in 2020 from 401(k) plans, 403(b) plans, 457(b) plans maintained by governmental entities and IRAs. The waiver also delays any distributions that would otherwise be due to beneficiaries due to the five year rule.

Employers will want to determine soon whether to implement any or all of the newly permitted provisions relating to plan loans, coronavirus distributions and the waiver of the minimum funding rules. Plan amendments reflecting the implementation of the CARES Act relief are not required, however, until the last day of the first plan year beginning on or after January 1, 2022 (i.e., December 31, 2022 for calendar year plans), or such later date as the Secretary of the Treasury may prescribe. Governmental plan sponsors have until the end of the 2024 plan year to amend their plans.

Single employer defined benefit plan funding
The CARES Act permits a delay in the payment of minimum required contributions due in 2020 to January 1, 2021. The delayed payment must include interest from the original due date of the minimum required contribution.

The CARES Act also permits a defined benefit plan to use the adjusted funding target attainment percentage (AFTAP) for the last plan year ending before January 1, 2020 for plan years which include calendar year 2020, for purposes of determining whether the benefit limitations under Internal Revenue Code 436 (i.e., benefit limitations imposed due to the underfunded status of the plan) apply.