The CARES Act and Employer Benefit Plans

Please note, this blog is current to the date of its publication, Tuesday, May 19. For additional updates or assistance navigating these uncertain times, please contact us or visit our SST COVID-19 resource page.


The implementation of the Coronavirus Aid, Relief and Economic Security (CARES) Act has impacted employer benefit plans in more ways than one. Below, SST’s employer benefits experts have outlined the updates to health and retirement plans, dependent care and healthcare savings accounts (HSA) that employers should note.

High-Deductible Health Plans

The Internal Revenue Service (IRS) advises that high-deductible health plans (HDHPs) will not lose their status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. Telehealth and other remote care services will also be an allowed provision.

Employers are encouraged to check with their insurance carrier and Health Savings Account (HSA) administrator to determine if this benefit requires an employer plan document change.

Retirement Plan Distributions and Loans

The CARES Act relaxes the rules around retirement plan distributions, along with loans distributed to the following groups of people:

  • An individual who is diagnosed with the coronavirus in an approved test,
  • the spouse or dependent of an individual who is diagnosed with the coronavirus in an approved test
  • An individual who has experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, losing child care, or other factors as determined by the Secretary of the Treasury

Employees are required to sign a certification of the reason for the Coronavirus Related Distribution (CRD) they received, but employers are not required to verify the certifications.

Individuals impacted by COVID-19 may:

  • Withdraw up to $100,000 from their 401(k)/403(a) plans, governmental 403(b) plans or Traditional IRA under the Coronavirus Related Distribution (CRD), surpassing the usually limit of $50,000
  • The distributions are not subject to the 10% early withdrawal penalty and are exempt from the 20% mandatory withholding that normally applies to certain retirement plan distributions
  • Withdraw loans of up to $100,000 or 100% of their vested account balance
  • Loans under CRD must be withdrawn no later than Sept. 22, 2020

Individuals with an existing loan may delay payments due during the period between the initial enactment of the CARES Act and Dec. 31, 2020, for up to one year.

Flexible Spending Account (Dependent Care)

The COVID-19 crisis has changed the work landscape in many ways, including employee’s dependent care needs. Participants may be eligible to make mid-year changes to increase or decrease their Flexible Spending Account (FSA) due to changes in daily dependent care needs related to COVID-19. Refunds for dependent care FSA contributions already taken from an employee’s paycheck are not permissible.

IRS rules govern dependent care FSA accounts, but not all employer plans recognize the changes permitted by the IRS. This may require the employer to amend their plan document to include this change, so be sure to check with you FSA plan administrator.

Health Care Savings Account (HSA) & Flexible Spending Accounts

The CARES Act restores the ability to use HSA and FSA funds to purchase certain over-the-counter drugs without a prescription, and menstrual care products shall now be treated as qualified medical expenses eligible for payment or reimbursement. These inclusions are retroactive from Jan. 1, 2020, so participants can file claims from purchases made on newly eligible items since that date.

The full list is expected to be released by the IRS later this month and cover roughly 19,000 items for retailers due to the variety of brands. This change should not require the employer to amend their plan document, but SST recommends checking with your HSA/FSA plan administrator.

For an in-depth look at these provisions and more, contact your SST account manager today.

Special thanks to SST Payroll and Benefits Supervisor Malisia Vrana for providing the content for this post.