As your company responds to the coronavirus pandemic, below are some issues to take into account with respect to your employee benefit programs. Keep in mind that things are changing rapidly, and we’ll continue to update you about significant legal developments.
What happens to an employee’s benefits while the employee is absent from work and can’t work remotely?
This will depend in part on the reason for the absence and your leave policies. If the employee is actually sick, or caring for a family member who is sick, the absence may be protected under the Family Medical Leave Act (FMLA), in which case your company must allow the employee’s health benefits to continue, and you can also continue other benefits for the employee.
But if the employee is not actually sick or caring for a sick family member, but instead is self-quarantining (and not able to work remotely) because of exposure to the virus, the absence may not qualify as an FMLA leave (though the Families First Coronavirus Response Act, currently pending in Congress, may change that). If the leave is not protected under the FMLA, you will need to look at your leave policies and your plan documents to see what they say about continuation of benefits during a non-FMLA leave. If the leave is paid, many employers will continue benefits as though the employee were actively at work; but if the leave is unpaid, benefits may end immediately or at the end of the month. Sometimes, plan documents do not have an express provision dealing with this issue, in which case you may need to look back at past practices for other employees who have been on a non-FMLA leave. If your workforce is collectively bargained, the collective bargaining agreement might also address this issue.
If you are instructing employees to self-quarantine, and the employee can’t work remotely, then you should consider whether your benefit continuation practices need to change. If you have insured benefits, the insurer will need to agree to any changes. If you have any self-insured benefits, you have more flexibility, but you will want to make sure that your third-party administrator can administrate any changes you plan to implement and that your stop-loss carrier will provide coverage. Any changes need to be formally adopted as a plan amendment.
Can my health plan cover the full costs of testing and treatment for COVID-19?
As of this writing, Congress is working on The Families First Coronavirus Response Act, which, if passed, would prohibit any cost-sharing for diagnostic products for the detection of COVID-19 and for health care provider office visits, urgent care center visits and emergency room visits that result in an order for or administration of the diagnostic product. The law would also prohibit any pre-authorization or other medical management requirements for such services. Also, a number of states have issued mandates requiring insured plans to cover the full costs of testing for the COVID-19 virus, and many third-party administrators have said that they will also make this option available to self-insured plans.
If your company offers a high-deductible health plan designed to work with a health savings account (HSA), you don’t have to worry whether paying for these services before the employee has met the annual deductible will disqualify your employees from contributing to their HSAs. In its recent Notice 2020-15, the IRS states that all medical care services received and items purchased associated with testing for and treatment of COVID-19 will be disregarded when determining whether your health plan qualifies as a high-deductible health plan. Once a vaccine is available, your plan can also cover the vaccine without cost-sharing.
Will an absence from work qualify for short-term disability benefits?
This will depend on the reason for the absence and the program’s definition of “disability.” Generally, an employee must be sick in order to qualify for short-term disability benefits. Thus, if an employee is staying home because he or she has symptoms of COVID-19, then the employee will likely qualify for benefits (perhaps subject to a short elimination period). On the other hand, if the employee is not showing symptoms, but is self-quarantining (and cannot work remotely) because of exposure to someone with the illness, that may not meet the definition of “disability” and may not result in benefits. Your short-term disability program’s definition of disability might include a period of time during which a person is ordered not to work, typically by written order of a state or local health official. However, most employees will not have a written order from a health official, but will be staying at home because your company instructed them to stay at home.
If your company has a self-insured short-term disability program, you can modify your program to include self-quarantine periods at your instruction. You can also consider waiving any exclusionary periods and any medical documentation requirements—but be careful in how you draft any such modifications, as they might also apply to other illnesses. If you use a third-party administrator for your short-term disability program, you should discuss any proposed modifications with the administrator. Also, any modifications should be made in writing and formally approved by the company (which might be by an officer who has documented authority to make revisions to your short-term disability program).
If your company has an insured short-term disability program, you will probably not be able to make any changes to the policy—but it might be worth talking to your insurer’s customer service representative to make sure you understand how the policy treats self-quarantine periods and whether the insurer has any flexibility on these issues.
Whether you have a self-insured or insured short-term disability program, you do not need to amend your short-term disability program in order to pay employees who are absent because of COVID-19. You can set up a separate program to do this. Moreover, The Families First Coronavirus Response Act, if enacted in its current form, may require you to establish such a program.
What happens to benefits if I have to lay off employees because of a slow-down in the economy?
This will depend on what your plan documents say about benefits during lay-off periods. Many plans will end benefits during a layoff , which means that employees who wish to continue health coverage during the layoff must elect COBRA. Some plans, however, continue benefits during temporary lay-off periods, which might be defined as periods expected to last no longer than one or two months. If your workforce is collectively bargained, the collective bargaining agreement might also address this issue.
If benefits end during a layoff, you might consider whether to make changes in the plan (which may require discussions with insurance companies, third-party administrators and stop-loss carriers). Alternatively, you might consider temporary assistance with COBRA premiums. Either approach requires documentation (a plan amendment, or a clear policy as to how long and under which circumstances the employer will assist with COBRA premiums).
What about other benefits like vacation and holiday pay for employees off work due to COVID-19? Will they continue to accrue or do I have to pay them?
Again this is going to depend on your written plans or policies. Remember, under the Michigan Payment of Wages and Fringe Benefits Act, "fringe benefits" means compensation due to an employee pursuant to a written contract or written policy for holiday, time off for sickness or injury, time off for personal reasons or vacation, bonuses, authorized expenses incurred during the course of employment, and contributions made on behalf of an employee. The Act requires an employer to pay fringe benefits to or on behalf of an employee in accordance with the terms set forth in the written contract or written policy. You should be thinking about how and if you want to make changes to these plans or policies during this crisis.
For retirement plans, what happens to service counting for eligibility, vesting or benefit accruals/contributions while employees are off work due to COVID-19?
Whether time is counted while employees are absent depends on whether your plan actually counts hours or uses elapsed time for counting service. If your plan counts hours, time for which employees are paid or entitled to be paid will count; unpaid time will not count, unless your plan provides otherwise. For plans that use elapsed time, meaning they count service from hire date to separation date, the absence generally will be ignored.
Will employees be able to take hardship distributions from a 401(k) plan for COVID-19 related expenses?
Employees may turn to their 401(k) plan to supplement income lost during a COVID-19 related absence or to pay for recommended supplies, such as hand sanitizers. Most plans use the hardship safe-harbor rules, which do not provide for hardship withdrawals for these purposes. The government may expand the list of safe-harbor hardship events, but until official guidance is issued, distributions cannot be made for these types of expenses. A hardship distribution would be allowed under the safe-harbor rules, however, for medical costs related to COVID-19 testing or treatment, funeral costs or funds needed to prevent eviction or foreclosure or to pay tuition, as long as the other hardship requirements are met. If your plan uses the general “immediate and heavy financial need” standard rather than the safe-harbor, the fiduciary will need to determine whether the plan’s standards have been met.
What do we tell our employees about investing their retirement plan accounts while the market fluctuates on account of the pandemic?
You may want to communicate to plan participants about the resources available to them for information on investing during volatile market cycles. Resources may include: investing information on your plan provider’s website, professionally managed accounts or a fiduciary investment adviser available to talk with participants by phone or online. If you have a fiduciary investment adviser, you may want to consult with the adviser about these communications. In any event, remember that plan fiduciaries other than professional investment advisers should not advise participants on the investment of their accounts.
Are there any privacy issues regarding an employee’s coronavirus status?
There are a few laws that might apply. If your company has any self-insured health benefits, remember that privacy rules under the Health Insurance Portability and Accountability Act (HIPAA) generally prohibit you from looking at plan information to make employment decisions. Thus, you cannot look at plan records to determine whether an employee has been tested for coronavirus or is getting medical attention. However, you can cooperate with and share information from health plan records with the Centers for Disease Control and with local health authorities who may be trying to identify individuals who have been exposed to the coronavirus. If you do get a request for information, remember that minimum necessary rules will apply.
Also keep in mind that the Americans with Disabilities Act (ADA) and the Family Medical Leave Act (FMLA) have confidentiality provisions in them. You should assume that any health information you obtain from employees relating to COVID-19 in connection with their ability or availability to work must be kept confidential and separate from the employee’s personnel file.
We’re here to help! Please contact any member of the Employee Benefits and Executive Compensation Practice Group if you have questions.