Alert / Retirement, Risk Management, Employee Benefits
$3 trillion coronavirus-related aid package set to pass House, die in Senate

May 15, 2020

Today the U.S. House is expected to pass a $3 trillion legislative package to further address the coronavirus pandemic and economic fallout. The wide-ranging legislation known as the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES) was developed by Democrats and is expected to pass on a mostly party-line vote. While the bill in its current form will die in the Republican-led Senate, it does establish numerous important markers that will help frame the broader debate about the next round of coronavirus-related aid.

Lockton comment: The House’s vote is not likely to occur until late Friday evening or early Saturday. Drama remains as reports indicate both progressive and moderate Democrats have voiced frustration about the bill. Failure to pass the legislation would be a blow to Speaker Nancy Pelosi and could throw into disarray negotiations of a future coronavirus-related aid package. Please check back, as we’ll update this alert to reflect the outcome.

The HEROES Act builds on and modifies several provisions in the over $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES). The centerpiece of the bill is a nearly $1 trillion allocation to states and local governments that have seen declines in tax revenues and rising costs as the virus has spread and stay-at-home orders have slowed the economy. Other aspects of the proposal go beyond CARES, which some Republicans have attacked as a Democratic wish list instead of an attempt to address the coronavirus fallout.

Wish list or not, the provisions of HEROES back up the House Democrat’s bargaining positions with concrete legislative language, which Republicans in the Senate and President Donald Trump can now push back on and trade against as they establish their own priorities.

Below is a brief look at some of the HEROES provisions most important to employers and a look at what’s next.

 

HEROES Act tax credit and loan provisions

  • Paycheck Protection Program reforms: The bill does not allocate additional funds to the PPP, but it does make several reforms, including:
    • Repeal of the requirement for forgiveness that 75% of loans be spent on payroll.
    • Allows funds to be spent over 24 weeks instead of eight.
    • Expands eligibility for all nonprofits, not just 501(c)(3)s.
    • Allows employers to take a deduction for expenses paid with loan funds even where the loan was forgiven.
  • Employee retention tax credit (ERTC): More employers will be eligible for the ERTC under the proposal, including employers that have a reduction in gross receipts of 10% instead of 50%. It also increases the amount of the credit, up to $12,000 per employee per quarter instead of $5,000
  • Main Street Lending Program: The legislation directs the Federal Reserve to expand the Program for nonprofits and stipulates that the Federal Reserve immediately offer a low-cost loan option tailored to the unique needs of nonprofit organizations with deferred payments. It also directs that the loan may be forgiven solely for nonprofits predominantly serving low-income communities that are ineligible for a PPP loan.

 

Health and welfare benefits provisions

  • COBRA subsidies: The federal government would pay 100% of the cost of COBRA for employees and their eligible beneficiaries who lose health plan coverage as a result of a coronavirus-related termination of employment, reduction of hours or furlough. The subsidies could extend through Jan. 31, 2021.

Lockton comment: Senate Republicans have also discussed a COBRA subsidy as part of future legislation. However, one concern surrounds federal funds supporting coverage that provides for abortion and another concern is that a 100% subsidy is too high. If a COBRA subsidy is included in future legislation, it is more likely to be in the 80–85% range, which is the portion of premiums frequently paid by employers.

  • Coverage of treatment: Group health plans would be required to cover 100% of the costs of COVID-19 treatment without applying cost sharing to the participant or beneficiary.
  • Surprise billing: The bill provides more money for healthcare providers and conditions receipt of that money on not balancing billing patients for coronavirus-related care or testing. This restriction is similar to what the Department of Health and Human Services has required with distributions of previously allocated coronavirus-related relief to providers.
  • Cafeteria plan flexibility: The proposal codifies the flexibility provided in recent IRS guidance and raises the maximum contribution amount for dependent care flexible spending to $10,000 from $5,000.

 

HEROES Act employment provisions

  • Paid leave: The Act expands the new paid sick and family leave requirements in the Families First Coronavirus Response Act (FFCRA) to all employers regardless of size, though employers with 500 or more employees are ineligible for tax credits for paid leave and related benefits. It also increases the amount of leave required to be paid and expands which employers are subject to the FMLA.
  • Workforce safety standards: The proposal requires Occupational Safety and Health Administration to issue mandatory workplace safety standards, which among other things, will require employers to adopt a comprehensive infectious disease exposure control plan to protect workers from exposure to the coronavirus.
  • Unemployment compensation: The $600 increase in unemployment compensation as added by CARES would be extended through Jan. 31, 2021.
  • Maritime workers’ compensation presumption: Maritime workers who contract the COVID-19 virus or are who were ordered not to return to work by the employer or by a public health agency because of exposure or risk of exposure in the workplace to one or more individuals diagnosed with the COVID­19 virus, are deemed eligible for the Longshore and Harbor Workers’ Compensation Fund. Employers and carriers can receive reimbursement from a federal fund provided the employer is in compliance with requirements and guidance related to the prevention of exposure to the COVID­19 virus, issued by the OSHA, the Centers for Disease Control, the U.S. Coast Guard, or state or local health authority.
  • Banking for cannabis-related businesses: Cannabis-related business will be able to access banking and insurance services.

 

Retirement reforms

  • Required minimum distribution (RMD) relief: The CARES waived RMDs for 2020, allowing individuals to keep funds in their retirement plans and avoiding locking in losses from the market downturn resulting from the COVID-19 pandemic. The HEROES Act expands the RMD relief in the CARES Act by providing that RMDs made for 2019 and 2020 would be permitted to be rolled back to a plan or IRA without regard to the 60-day requirement if the rollover is made by Nov. 30, 2020.
  • CARES Act clarifications: The CARES Act allowed retirement plans to rely on an employee’s self-certification that they qualify to receive a coronavirus-related distribution but failed to specify that the plan could also rely on self-certification for the special loan rules. The HEROES Act clarifies that plans can rely on an employee’s self-certification for coronavirus-related distributions and loans. In addition, the HEROES Act clarifies that Money Purchase Pension Plans can make use of the CARES Act hardship and loan rules.
  • Single-employer defined benefit plan relief: Today, defined benefit funding shortfalls must be amortized over seven years, which is financially disastrous considering the current interest rate and market volatility due to the COVID-19 crisis. To provide more stability and a longer period over which to pay for long-term liabilities, the HEROES Act apples the following changes effective after Dec. 31, 2019:
    • All shortfall amortization bases for all plan years beginning before Jan. 1, 2020 (and all shortfall amortization installments determined with respect to such bases), would be reduced to zero.
    • All shortfalls would be amortized over 15 years, rather than seven years.
    • To preserve the stabilizing effects of smoothing, 1) the 10% interest rate corridor would be reduced to 5%, effective in 2020; 2) the phase-out of the 5% corridor would be delayed until 2026, at which point the corridor would, as under current law, increase by 5 percentage points each year until it attains 30% in 2030, where it would stay; and 3) a 5% floor would be put on the 25-year interest rate averages, thus, establishing stability and predictability on a longer-term basis.

 

What’s next?

Republicans in the Senate have been blunt that the legislation is dead on arrival in the upper chamber. Though numerous provisions appear to be negotiable, there are just too many complaints about the breadth and focus of the bill. One of the most significant complaints is that it does not contain comprehensive liability protections for employers that reopen and are following guidelines on how to keep employees safe.

Lockton comment: Senate Majority Leader Mitch McConnell has said any future legislation must contain these liability protections. The extent of the required protections is not yet fully known. For example, will they protect the employer against claims from customers, employers or both? Will they apply only to essential workers or all employees? Would they override workers’ compensation laws or just tort claims?

In addition, reports indicate that many Senate Republicans are hesitant to pass additional large spending bills until the effects of states reopening and the CARES Act are better understood. For instance, there are hundreds of billions of dollars allocated by CARES and subsequent legislation that remain unspent.

Negotiations among party leaders will likely continue, but it is becoming increasingly likely that no significant coronavirus-related legislation will be enacted before June.

Scott Behrens, J.D.

Sam Henson, J.D.

 

Not legal advice: Nothing in this Alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Government Relations group are not privileged under the attorney-client privilege.

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