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March 31, 2020

Act Now to Determine Treatment of COVID-19 Sick and Leave Pay Under Your Retirement Plan

Starting April 1, 2020, certain employees are entitled to receive sick pay and leave pay related to COVID-19 under the newly enacted Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act. It is critical that employers quickly determine how to properly treat these payments for purposes of their retirement plans. These payments may affect both defined contribution plans and defined benefit plans. However, the impact is immediate for defined contribution plans with elective deferrals because the company payroll system must be programmed to properly account for these new types of pay before the first payroll in April 2020 that may include these new sick and leave payments.

Whether these new sick and leave payments are compensation for contribution and accrual purposes depends on the plan’s definition of creditable or plan compensation. Employers need to look at the specific definition of compensation in each of their retirement plans and make a plan-by-plan determination. The answer may be different for every plan.

Properly applying a plan’s definition of compensation can be challenging, even under normal circumstances. But, under the current, crazy “new normal,” it is even more difficult. This makes it critical for employers to seek assistance now so they can make the best determination quickly and up-front about how these COVID-19 sick and leave payments affect their retirement plans. This will give employers time to coordinate with their outside payroll provider or in-house payroll department to get these new payment types properly coded for retirement plan purposes for the first payroll in April 2020 that may include these new payment types.

While there are many competing demands on employers right now due to the myriad of workplace changes caused by COVID-19, a timely and accurate determination of whether these new sick and leave payments are (or are not) considered compensation under an employer’s retirement plan should not be overlooked. It is important to address this issue now to avoid a messy and expensive fix later.

For your reference, here is a link to additional Warner COVID-19 eAlerts focused on human resources issues, including the FMLA and Paid Sick Leave Provisions of the FFCRA.

Warner is here to help! If you need assistance determining how these new sick and leave pay types affect your retirement plan’s definition of plan compensation, please contact a member of Warner’s Employee Benefits and Executive Compensation Practice Group.

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