How to Free Up Access to Employer Assets and/or Ease Employee Access to Vested Benefits During COVID-19

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Who Needs to Know
Employers and Employees Impacted by COVID-19.

Why It Matters
Employers and employees alike continue to feel the impact of the COVID-19 pandemic. Despite a variety of tax incentives, employers may need to conserve resources and employees may need to prematurely access vested retirement benefits. An employer can implement programs that can save the employer money short and long-term, ease an employee’s access to amounts the employee has accrued under an employer’s tax-qualified retirement program, or provide employees with a gratuitous benefit during these difficult times. Even employees can provide assistance to others impacted by COVID-19 through leave sharing/donation programs.


Employers and employees alike continue to feel the impact of the COVID-19 pandemic. Despite a variety of tax incentives, employers may need to conserve resources and employees may need to prematurely access vested retirement benefits. COVID-related tax incentives fall into two broad categories – incentives that advantage employers and incentives that advantage employees. Our prior alert – Revised Summary of CARES Act and FFCRA Tax Credit and Payroll Tax Relief - provides an overview of the tax-advantaged programs that are available to employers. These generally advantage the employer by providing a credit to the employer’s payroll taxes or by providing a low interest loan. An employer also can implement programs that can save the employer money short and long-term, ease an employee’s access to amounts the employee has accrued under an employer’s tax-qualified retirement program, or provide employees with a gratuitous benefit during these difficult times. Even employees can provide assistance to others impacted by COVID-19 through leave sharing/donation programs. Each program is outlined below.

Employer Actions that are Beneficial to the Employer:

  1. Temporarily suspend matching, profit-sharing, or employer non-elective contributions to a qualified retirement plan.
  2. Delay required contributions to single-employer defined benefit pension plans otherwise due in calendar year 2020, provided that the delayed payments are made with interest by January 1, 2021.

Employer Provided Gratuitous Benefits:

  1. Continue to cover employees who are not actively at work on employer provided health insurance.
  2. Employer can temporarily pay 100% of health insurance premiums for employees who are not actively at work and unable to pay health insurance premiums.
  3. Employers that offer educational assistance programs (or that establish such programs) may provide up to $5,250 per year, per employee in tax-free assistance for employees repaying student loans.
  4. Enhance EAP offerings to offer additional resources during COVID-19 (child-care referral sources, financial planning, psychological services).
  5. Implement employer provided assistance programs such as §139 disaster relief payments, disaster mitigation payments, interest-free loans, leave banks, and charitable funds.

Employer Actions that are Beneficial to Employees:

  1. Employer can permit employees to make changes to their dependent care and health FSA elections. This may require a plan amendment.
  2. Plan loan provisions may be amended to permit the suspension of loan repayments, due between March 27th and December 31, 2020. Loan repayments must resume no later than January 1, 2021.
  3. Plan loan provisions can also be amended to increase the amount of loan to the lesser of $100,000 or 100% of the participant’s vested account balance.
  4. Employers can adopt CARES Act provisions to permit coronavirus related distributions from 401(k), 403(b) and governmental 457(b) plans up to $100,000. Such distributions are not subject to the 10% tax that is otherwise applicable to distributions before a participant attains age 59½.

Employee Actions that are Beneficial to Others: Provided an employer has adopted the applicable leave program:

  1. Under a medical emergency leave donation plan, employees may donate accrued paid-time off to be used by fellow employees who suffer (or whose family member suffers) a medical emergency requiring a prolonged absence from work that would result in a loss of income due to the recipient employee’s prior exhaustion of all paid leave. The donor employee does not have taxable income on the value of the leave donated.
  2. Under a major disaster leave donation plan, employees may donate accrued paid-time off to be used by fellow employees who have been adversely affected by a major disaster or emergency declared by the President (such as COVID-19) requiring the impacted employee to be absent from work. The donor employee does not have taxable income on the value of the leave donated.
  3. Under a COVID-19 leave program, employees may elect to forgo vacation, sick, or personal leave in exchange for cash payments that the employer in turn makes to charitable organizations providing relief to victims of the COVID-19 pandemic. The donor employee does not have taxable income on the value of the leave donated provided the employer makes the donations prior to January 1, 2021. Further, the donor employee is not able to take a charitable contribution deduction for the cash value of the donated leave. However, the employer may be able to deduct these cash payments.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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