Health and Benefits

Memo on COVID Relief Package for 2021

On December 27, 2020, the Consolidated Appropriations Act of 2021 (the “Act”), was signed by President Trump.  While the Act is mostly known for its $600 payment to most Americans making less than $75,000 per year and the expansion of unemployment benefits, it also impacts employers in a number of ways.  This article discusses a few of those provisions.

1. Flexible Spending Accounts

Many employers maintain what is known as a “Cafeteria Plan”, which enables their employees to prefund certain expenses on a tax-advantaged basis.  An employer’s Cafeteria Plan may include a flexible spending account (“FSA”) for healthcare expenses and an FSA for dependent care expenses.  The Act changes some of the rules that govern both healthcare and dependent care FSAs.

A. Changing Election

Generally, an employee is permitted to make an election regarding participation in an FSA only once per plan year, without a “change in status”.  In addition, the election is generally required to be made before the start of the plan year.  The Act provides that, for plan years ending in 2021, an employee may change the amount of his or her contributions to an FSA during the plan year, without a change in status, as long as the total of the contributions does not exceed the statutory maximum.  Any change in the employee’s election will be effective prospectively.

B. Carryover Amounts 

FSAs used to be subject to a “use it or lose it” rule.  However, the Internal Revenue Code now permits an employee to carry over unspent funds remaining in his or her healthcare FSA at the end of one plan year to the next plan year.  An added benefit is that the carryover amount does not count against the maximum reimbursement amount for the following plan year.  However, the amount that an employee may carry over is limited.  For plan year 2021, the maximum carryover amount was $550.  The Act suspends this limitation for plan years 2020 and 2021.  Under the Act, an employee may carry over the entire remaining balance in his or her healthcare FSA to the following plan year.  The Act also extends this carryover provision to dependent care FSAs.  Prior to the Act, the carryover provision covered only healthcare FSAs.

C. Extension of Grace Period

An employer’s Cafeteria Plan may include a “grace period”.  During the grace period, an employee may use funds remaining in his or her FSA at the end of a plan year to pay costs incurred in the following plan year.  There are no limits on the amount that may be used in the next plan year.  However, the grace period cannot extend more than two and one-half months into the next plan year. Both healthcare FSAs and dependent care FSAs may provide a grace period.  The Act changed the upper limit of the grace period for plan years ending in 2020 or 2021.  For plan years ending in 2020 or 2021, the grace period can extend up to twelve months.

A plan may not have both a grace period and a carryover provision.  What is the difference?  A grace period generally does not limit the amount of funds, which may be used in the next plan year but does limit the period during which such funds can be used.  A carryover provision limits the amount that may be carried over from one plan year to the next but does not limit the period during which the funds can be used.  However, since the Act changed the grace period to twelve months and eliminated the dollar limitation on carryover amounts, there does not seem to be much difference between a grace period and a carryover provision for 2021.

D. Extension Period for Reimbursements

A participant is generally permitted to obtain reimbursements from an FSA only while actively covered by the employer’s Cafeteria Plan.  Under the Act, an employee may continue to receive reimbursements from a plan for the balance of the plan year, including any grace period, during which his or her participation in the plan ceases.  This provision applies only to healthcare FSAs and not dependent care FSAs.

E. Plan Amendment 

The foregoing plan provisions are permissible, not mandatory.  This means that an employer may offer a Cafeteria Plan but is not required to.  In addition, an employer’s plan may contain a carryover provision or a grace period but also may contain neither.  In order to add or change a carryover or grace period provision, an employer must adopt an amendment to its plan.  Generally, amendments must be adopted prospectively.  For 2020 and 2021, the Act permits an employer to amend its plan retroactively.  The amendment must be adopted by the last day of the first plan year after the plan year for which the amendment is to be effective.  That means that, for a 2020 calendar year plan, the amendment must be adopted by December 31, 2021.  For a 2021 calendar year plan, the amendment must be adopted by December 31, 2022.

2. Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security Act (“the “CARES Act”), which was signed into law on March 27, 2020, created the Paycheck Protection Program (“PPP”).  The purpose of the PPP was to support small businesses in retaining and paying employees.  In addition to adding new money to the existing PPP program, the Act made other changes to the PPP program.

A. Second Draw

The Act creates what is known as a “second draw”.  This enables employers that received a PPP loan during the first phase of the program to apply for a second PPP loan.  In order to be eligible for a second draw, an employer must have:

i. no more than 300 employees;

ii. used or will use the full amount of the first PPP loan; and

iii. experienced a reduction in revenue of at least 25% for a 2020 quarter compared to the same 2019 quarter.

Like the original PPP program, the second draw is administered by lenders authorized by the Small Business Administration. A business that desires to apply for a PPP loan, whether a so-called “first draw” under the CARES Act or a “second draw” under the Act, should contact their lender.

B. Eligible Expenses

The intent of the PPP program is for loan proceeds to be used for payroll expenses.  However, both the original PPP program under the CARES Act and the revised PPP program under the Act permit loan proceeds to be used for expenses other than salary.  The Act expands the percentage of loan proceeds that may be used for expenses other than salary from 25% to 40%.

C. Deductibility

There was some uncertainty under the CARES Act whether an employer whose loan was forgiven could also deduct the business expenses paid for with the loan proceeds.  The IRS took the position that an employer could not receive both loan forgiveness and deductions.  The IRS characterized this as double-dipping.  The Act makes clear the intention of Congress that a business may receive loan forgiveness under the PPP and deduct the business expenses paid for with the loan proceeds.

3. Employee Retention Credit

The CARES Act created an Employee Retention Credit (“ERC”), which provided a credit for eligible employers for payroll taxes paid by the employer.  To the extent that the employer’s payroll taxes exceeded qualified wages, the credit resulted in a refund to the employer.  The Act amends the ERC in a number of ways.

A. Extension

The Act extends the term of the ERC to June 30, 2021.  Previously, the Act was set to expire on December 31, 2020.  So, employers can now take advantage of the ERC through the first six months of 2021.

B. Eligibility

The Act expands the number of employers eligible for the ERC.  Under the CARES Act, the ERC was available to employers with fewer than 100 employees.  The Act extends the ERC to employers with fewer than 500 employees.  In addition, in order to be eligible for the ERC in 2021, an employer must be prohibited from fully or partially engaging in a trade or business as a result of a governmental order or its revenue during one of the first two quarters of 2021 must be 80% less than its revenue during a comparable quarter in 2019.  The CARES Act required a reduction in revenue of 50% or more.

C. Amount of Credit

The amount of the ERC is 70% of an employee’s “qualified wages” paid from January 1, 2021, through June 30, 2021.  The maximum amount of an employee’s qualified wages is $10,000 per quarter.  So, the maximum ERC per employee per quarter is $7,000.  The amount of the ERC under the CARES Act was 50% of an employee’s annual wages.

D. Coordination with PPP 

Under the CARES Act, an employer could not take advantage of both the PPP program and the ERC in 2020.  The employer had to choose one or the other.  The Act retroactively eliminates that restriction.  An employer that received a PPP loan in 2020 can retroactively claim the ERC for wages that were not paid with the PPP loan.  This is a huge benefit for employers that received a PPP loan in 2020; one that is not shared by employers who forsook a PPP loan in 2020 because the ERC provided a greater benefit.  They do not have the option of retroactively applying for a PPP loan for the same period for which they received an ERC.  A business that did receive a PPP loan in 2020 should consult its tax and legal advisors to determine whether it is also eligible to receive the ERC.

4. Health Plan Provisions

A. Surprise Billing

“Surprise billing” most often occurs in the context of emergency care.  When an employee requires emergency care, the employee is often unable to confirm whether the hospital or doctor is “in-network”.  As a result, the employee may be surprised when he or she gets a bill for the difference between the agreed-upon amount charged by the employee’s in-network provider and the amount charged by the out-of-network provider.

The Act addresses the problem of surprise billing by treating the care provided by the out-of-network provider as in-network for purposes of calculating the employee’s share of the cost of treatment.  As a result, an employee’s obligation is the same whether the treatment is received in-network or out-of-network.  However, this restriction does not cover all medical care and extends only to the point where the employee is stable and able to make informed decisions about his or her treatment.

The provisions of the Act regarding surprise billing go into effect on January 1, 2022.  However, regulations are supposed to be issued by July 1, 2021.

B. Reporting and Disclosure Requirements

The Act imposes a number of reporting and disclosure requirements on group health plans.  Beginning with plan years starting on or after January 1, 2022, group health plan identification cards must show in-network and out-of-network deductibles, out-of-pocket maximums, and a telephone number and website through which a participant can find certain information such as which hospitals and urgent care centers have relationships with the plan.  While an employer needs to be aware of this obligation, the delivery of identification cards is usually the responsibility of the plan’s TPA.

Also beginning with the first plan year after January 1, 2022, if an employer receives notice that an employee is scheduled to be treated by an out-of-network provider, the employer is required to notify the employee that the provider is not in-network.  In addition, the notice must provide the employee with a good faith estimate of the cost of the treatment, the plan’s financial responsibility for the treatment, the employee’s share of the cost and how much the employee has to pay before reaching the plan’s out-of-pocket maximum.  Again, while the employer needs to be aware of this obligation, it is generally the TPA that will provide the notice to the plan participant.

The Act also requires group health plans to submit certain information to the Departments of Health and Human Services, Labor and Treasury.  The first report is due December 27, 2021, and subsequent reports are due on each June1 thereafter.  The information required to be provided includes:

1. the dates of the plan year;

2. the number of participants and beneficiaries;

3. each state where the plan is offered;

4. the 50 most popular brand prescription drugs used by plan participants;

5. the 50 most expensive prescription drugs used by plan participants;

6. the 50 prescription drugs with the greatest increase during the plan year;

7. total spending on health care by the plan broken down by hospital costs, provider costs for primary care and specialty care and prescription drugs;

8. the average monthly premium paid the employer and the plan’s participants; and

9. rebates.

As with the other reporting requirements, the information will need to be gathered by the plan’s service providers.  It seems likely that regulations will be issued prior to December, 27, 2021, more clearly setting forth an employer’s obligations under the Act.

Risk Management

An Insurance Policy is a Contract

When it comes to insurance, one mistake that many people make is failing to read their policy.  Most insureds believe that they understand what their policy covers simply by the name of the policy.  For example, an auto policy covers everything car-related, and a homeowner’s policy covers everything that can happen to your home.  However, this is a big mistake.

An insurance policy is a contract between the insured and the insurance company, and, like any contract, its effect depends upon the language of the contract.  In addition, since contract interpretation is a matter of state law, the state where your policy is issued is a huge factor.  The same language in one state can have a completely different meaning in a different state.

A Business Interruption Policy Doesn’t Cover All Interruptions of Business

The need to read your policy has never been more clearly illustrated than during the Covid-19 pandemic, which has affected businesses from the hospitality sector to the travel industry to medical practices.  Whether as a result of government orders or the fear of customers to leave their homes, businesses of all types have either had to shut down completely or reduce their capacity.  As a result, businesses have lost significant revenue during this time.  Fortunately, many of these businesses have business interruption insurance policies and have asserted claims under their policies.  Unfortunately, without exception, the insurance companies issuing those policies have denied coverage.  Why?

The quick and cynical answer is that the insurance companies do not want to pay these claims.  The full extent of business loss in the American economy is not yet clear.  However, one estimate is that businesses have been losing close to $40 billion a month.  Yet, the entire property and casualty insurance industry has collected approximately $6 billion in premiums.  Clearly, the premiums will not cover the losses.  However, another reason may be that the insurance companies are simply reading the language of the policies and enforcing the policies as written.

The typical business interruption policy contains language that protects a business against the inability to operate due to loss or damage to property.  In most states, the courts have interpreted this language to require actual physical damage to a business’ building.  Without demonstrated physical damage to property, there is no coverage.

Claims Have Turned to Lawsuits

The result has been that, since the pandemic began, over 5,000 lawsuits have been filed against insurance companies.  While none has been fully adjudicated yet, we are beginning to see some results.  In most cases, an insurance company will respond to a lawsuit by filing a motion to dismiss.  A motion to dismiss challenges the sufficiency of a complaint, and, by a large margin, insurance companies are prevailing on their motions to dismiss.

In order to overcome a motion to dismiss, a business must allege that its business property was damaged in the same way that it would have been damaged by fire or flood.  This is a difficult bar to eclipse.  Most business closures have been caused by government shut-down orders, rather than actual physical damage to busines property, which prevents its use.  Some plaintiffs have tried to get around this problem by claiming that their property has been damaged by the presence of the Covid-19 virus on the premises.  This has worked but only in a small number of cases.

The reason that this claim has not been more successful is that many business interruption insurance policies contain a virus exclusion.  This virus exclusion was generally added to business interruption policies in 2006.  However, there are some business interruption insurance policies that do not contain a virus exclusion.  In those cases, the plaintiffs have been able to defeat the insurance company’s motion to dismiss.

Governmental Action

Another way in which businesses are trying to get around the “physical loss or damage” requirement is by claiming that their business interruption was caused by governmental action.  Therefore, whether their physical location was damaged is irrelevant.  The government order caused the loss of their ability to use their premises.

Again, this approach has been only marginally successful.  In a very small number of states, the courts have said that the policy’s use of the phrase “loss or damage to property” must be read to mean that “loss” and “damage” are not synonymous.  Otherwise, if they meant the same, one would be what courts call “surplusage”.  In other words, either loss or damage would be excess language without adding any real meaning to the phrase.  Courts tend to avoid surplusage.  However, this argument has worked in only a few states.  In most states, the courts have said that the typical business interruption insurance policy does not cover governmental orders, as would a regulatory change policy.

What’s an Insured To Do?

The obvious answer is – READ YOUR POLICY!  However, this is not a very satisfactory answer for a couple of reasons.  The first is that insurance policies are not pictures of clarity.  They are often ambiguous and contain confusing endorsements and exclusions.  Even a highly educated businessperson may have difficulty understanding a policy if he or she is not experienced at reading policies.  The second is that, by the time you’ve read your policy, it is often too late.

The best answer is that you should work with an experienced and knowledgeable insurance professional, like RMC, before you buy your policy.  After all, you wouldn’t sign a contract without first consulting an attorney, and an insurance policy is a contract.  Not only can your insurance advisor explain your policy’s provisions before you have a claim, a professional advisor will have access to the policies of multiple companies and can find the policy that best suits your needs.  In addition, an insurance professional can negotiate with an insurance company to obtain coverage that is not part of the standard form policy.

A second reason to work with a professional is that the professional can introduce you to innovative concepts, like a captive insurance company that may better suit your needs.  A captive insurance company is an insurance company formed by a business to insure the risks of the business.  It can work in concert with your commercial insurance, replace some or all of your commercial insurance or insure risks that are not insurable or are prohibitively expensive on the commercial market.  Because you own your captive insurance company, you control the risks that it can assume.  As a result, you can tailor its policies to cover your specific needs.  While it is too late to form a captive to insure against the Coved-19 pandemic, now is the time to plan for the next unexpected risk.

Technical Memorandum

FAQ for Guidance on COVID-19 Legislation

The Department of Labor, Health and Human Services, and Treasury Provide Further Guidance on COVID-19 Legislation 

Since the enactment of the Families First Coronavirus Response Act (FFCRA) on March 18, 2020, the Department of Labor, the Department of Health and Human Services and the Department of the Treasury have released a series of Frequently Asked Questions (FAQs) to guide employers in the implementation of the law’s provisions.  The most recent set of FAQs was released on June 23, 2020.

The June FAQ contains 18 questions on a variety of subjects. The following are some of the more relevant questions and answers.

Are Self-Funded Health Plans Required to Comply With the Provisions of the FFCRA?

The answer is yes.  The FAQ says that:

The statute and FAQs make clear that the requirements apply to both insured and self-insured group health plans.

While we don’t really think that this was ever in doubt, the Departments felt the need to clarify the application of the FFCRA.

What COVID-19 Tests Must Be Required?

The FFCRA and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) mandate that group health plans must cover the cost of testing for Covid-19.  Apparently, the Departments felt that there was some confusion about which tests must be covered.  The FAQs clarify that the following tests are covered:

  • A test approved, cleared or authorized under the Federal Food, Drug, and Cosmetic Act;
  • A test for which the developer has requested or intends to request emergency use authorization (EAU) from the FDA;
  • A test that is developed in and authorized by a State that has notified the Secretary of HHS of its intention to review the test; or
  • Any test that the Secretary of HHS determines to be appropriate.

The FAQs go on to say that no test has yet been approved under the Federal Food, Drug, and Cosmetic Act.  The tests, which are authorized, because the developer has sought an EAU are listed on the FDA’s website.  In addition, any tests, which have been authorized by a state, are also shown on the FDA’s website.  Finally, the FAQ says that no other test has been approved by the Secretary of HHS.

In a previous FAQ, the Departments said that a Covid-19 test must be covered “when medically appropriate for the individual, as determined by the individual’s attending health care provider”.  Apparently, the Departments thought there was some confusion about the term “individual’s attending health care provider”.  The June FAQs make clear that the term is not limited to the health care provider “directly” responsible for providing care to the patient.  It includes any provider who “makes an individualized clinical assessment to determine whether the test is medically appropriate for the individual in accordance with current accepted standards of medical practice”.  This means that an individual, who goes to the emergency room or an urgent care center with symptoms and sees somebody other than his primary care physician, can still be given a Covid-19 test that must be paid for by the individual’s group health plan.

Finally, the FAQs clarify that the FFCRA and the CARES Act also cover tests that can take place at home.  In addition, if an individual receives multiple tests, the FAQs confirms that each test must be covered by the individual’s group health plan.

What Tests are Not Covered?

With the country beginning to reopen and people going back to work, this may be the most important part of the FAQs.  The Departments address the question whether tests for “surveillance or employment purposes” must be covered.  In other words, if an employer requires an employee to show a negative test before returning to work, do those tests have to be covered?

The answer is no.

In the FAQ, the Departments say that:

Clinical decisions about testing are made by the individual’s attending health care provider and may include testing of individuals with signs or symptoms compatible with Covid-19, as well as asymptomatic individuals with known or suspected recent exposure to SARS-CoV-2 . . . However, testing conducted to screen for general workplace health and safety (such as employee “return to work” programs), for public health surveillance for SARS-CoV-2, or for any other purpose not primarily intended for individualized diagnosis or treatment of COVID-19 or another condition is beyond the scope of . . . the FFCRA.

Do the FFCRA and the CARES Act Protect a Patient From Balance Billing?

The answer is maybe.

The FAQs state that the FFCRA, as amended by the CARES Act, provides that an in-network health care provider can only charge an employee the amount negotiated by the provider and the plan.  An employee cannot be charged any additional amount.  In addition, an out-of-network provider can only charge the amount shown on its public website or a lesser amount negotiated by the plan with the provider.  Again, an employee cannot be charged any additional amount.

The question that neither the FFCRA, nor the CARES Act, answers is what if an out-of-network provider does not have a published rate or has not negotiated a lesser amount with the plan.  Can the employee be balanced bill for any amount?  The FAQs do not really answer this question; although they do say that “the Departments interpret the provisions of section 3202 of the CARES Act as specifying a rate that generally protects participants, beneficiaries, and enrollees from balance billing for a COVID-19 test”.  However, instead of providing a real solution, they simply note that a provider that fails to comply with the provisions of the CARES Act, regarding the publication of its cash price for a test, is subject to a monetary penalty.  The assumption is that all providers will either publish the cash price on their website or will negotiate a price with the employee’s plan in order to avoid a civil penalty.  As a result, this situation will never arise.

For questions about the June FAQs, the FFCRA, the CARES Act or your group health in general, please contact RMC Group.

Retirement Plans Technical Memorandum

Notice 2020-50 Expands Rights Under the CARES Act

On June 19, 2020, the IRS issued Notice 2020-50, expanding the relief for Coronavirus-Related Distributions (CRDs) from qualified retirement plans provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

What are Coronavirus-Related Distributions?

Section 2202(a) of the CARES Act provides special tax treatment for certain distributions from qualified retirement plans.  Generally, distributions from a qualified retirement plan are taxable in the year in which they are made and are also subject to an additional tax of ten percent (10%), if the participant is younger than 59½ years old.  The CARES Act provides that a CRD may be included in the recipient’s taxable income ratably over a three-year period, rather than entirely in the year of distribution.  In addition, the CARES Act exempts CRDs from the 10% tax on early distribution.  So, what is a CRD?

A Coronavirus-Related Distribution is essentially any distribution from a qualified retirement plan made to a “Qualified Individual” on or before December 31, 2020.

Who is a Qualified Individual?  

Section 2202(a)(4) of the CARES Act defines a “Qualified Individual” as any individual:

  • who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 19 (referred to collectively as COVID-19) by a test approved by the CDC;
  • whose spouse or dependent is diagnosed with COVID-19; or
  • who experiences adverse financial consequences as a result of:
  • being quarantined, furloughed or laid off, or having work hours reduced due to COVID-19;
  • being unable to work to lack of childcare; or
  • the closing or reduction of hours of a business owned or operated by the individual due to COVID-19.

At the time that the CARES Act was passed, some observers noted that the definition of Qualified Individual was incomplete.  Certain persons who could be adversely affected by the COVID-19 pandemic were left out of the definition.  For example, what about a person whose spouse was unable to work due to lack of childcare?

Notice 2020-50 to the Rescue!

In Notice 2020-50, the IRS expands the group of persons who are Qualified Individuals and can take advantage of the provisions of the CARES Act.  Notice 2020-50 provides that a Qualified Individual includes an individual who experiences adverse financial consequences as a result of:

  • the individual having a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19;
  • the individual’s spouse of a member of the individual’s household being quarantined, furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
  • closing or reducing hours of a business owned or operated by the individual’s spouse of a member of the individual’s household due to COVID-19.

Rarely does the IRS expand on a taxpayer’s rights.  However, in Notice 2020-50, the IRS corrected what many observers saw as shortcomings of the CARES Act.

Other Important Provisions of Notice 2020-50

  1. The CARES Act requires an employee to certify to her employer that she is in fact a Qualified Individual. The employer can rely on the certification by the employee, unless the employer has “actual knowledge to the contrary”.  There was some confusion whether this imposed a duty on the employer to investigate the truth of the employee’s certification.  Notice 2020-50 says that this requirement “does not mean that the administrator has an obligation to inquire into whether an individual has satisfied the conditions . . .”  Rather, an employer may not rely solely upon the certification of the employee only if the employer “already possesses sufficiently accurate information to determine the veracity of a certification”.   In addition, Notice 2020-50 provides sample language for an acceptable certification.
  2. As stated above, the CARES Act provides somewhat of a tax holiday to a Qualified Individual. While a distribution from a qualified retirement plan is generally includable in taxable income in the year of distribution, the CARES Act permits a Qualified Individual to include a CRD in taxable income ratably over a three-year period.  Notice 2020-50 clarifies that this is an election on the part of the Qualified Individual.  The Qualified Individual may choose instead to include the entire CRD in taxable income in the year of receipt.  However, this election may not be changed.  All CRDs must be treated in the same manner as reflected on the Qualified Individual’s 2020 tax return.
  3. The CARES Act also permits a Qualified Individual to recontribute a CRD to a qualified retirement plan. Unlike the tax treatment of a CRD, whether a CRD will be recontributed to a qualified retirement plan, or the manner in which it will be recontributed, does not have to be determined before the filing of the Qualified Individual’s 2020 tax return.  Notice 2020-50 says that the decision can be made at any time during the three-year period and provides for the filing of amended returns to reflect the recontribution of all or a portion of the CRD,

In Notice 2020-50, the IRS expanded many of the rights created by the CARES Act.  This does not often happen.

To learn how your qualified retirement plan is impacted by the CARES Act or Notice 2020-50, call your RMC representative.

Life Insurance

The Basics of Indexed Universal Life Insurance

Indexed universal life insurance gives you flexibility in your financial planning, and the ability to accumulate additional cash through your life insurance policy.

What Is Universal Life Insurance?

Universal life insurance is a form of permanent life insurance, which gives you death benefits without an expiration date as long as the policy stays in force. The death benefit can help to replace lost income or cover expenses after the insured has passed. You can even add a living benefits rider so that in the case of a qualifying medical event, such as chronic, critical, or terminal illness, you or your beneficiaries can access death benefits to pay those expenses.

Universal life insurance also gives you a cash value account that has the potential to accrue tax-deferred interest over time. If there is sufficient cash value, you can pay the annual cost of insurance from the cash value.  You can pay more than the annual cost of insurance.  You may also choose to withdraw from that cash value to cover personal expenses or work toward savings goals. Keep in mind, there may be tax consequences when withdrawing cash.

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  • Indexed universal life insurance is one of the three basic types of universal life. It has a cash value element that grows based on the performance of a market index.
  • A market index measures the performance of related stocks. If the index related to your indexed universal life policy increases, the cash value of your policy can earn interest.
  • Any increase in cash value will depend not only on the performance of your index, but also on your policy’s participation rate, cap, and floor.
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Cash Growth in Universal Life Insurance 

All forms of universal life insurance have cash values, but indexed universal life is unique in the way that cash value accrues.

  • Guaranteed universal life offers premium guarantees regardless of how the market indexes perform. Your plan’s interest rates are set into the premiums when you sign up for the policy and never change.
  • Variable universal life lets you choose investment vehicles for your cash value. This tends to be a more hands-on policy because you actively monitor the performance of your investments. In some cases, however, you can choose to have a fixed interest rate for your cash savings.
  • Indexed universal life also has an invested cash component. Instead of being tied to a particular investment product, however, it’s tied to a market index. Your interest rate goes up or down based on that index.

What Is a Market Index?

A market index tracks changes in the performance of the stock market. There are many market indexes out there, some measuring the performance of the market as a whole, others focusing on particular types of companies. The S&P 500, Dow Jones, and NASDAQ are just a few well-known indexes commonly available to indexed universal life policyholders.

Each index publishes a number that tells you whether its market is performing well or poorly. If the numbers in a particular index are trending up, the values of the stocks it represents are increasing. If the numbers are trending down, the values of the underlying stocks are dropping.

Market Index and Indexed Universal Life

Each indexed universal life policy follows a particular index, and insurers generally allow you to choose which index you want your policy to follow. It can help to know a bit about your options before selecting a plan, but don’t feel like you have to do all of the research on your own. You can always get in touch with an insurance professional to help you explore your options.

Regardless of which index your policy follows, most universal life policies are the same in the way they assess and credit interest.

How Interest Crediting Works

As an indexed universal life insurance policyholder, you pay a premium to your insurer. Part of that premium goes toward covering policy expenses. Once expenses are covered, the rest goes into your cash value account.

After a set period—usually a year—your insurer will calculate the change in your chosen index. You receive an interest credit based on the amount that the index shifts and on carrier-set variables like participation rates, caps, and floors. With an indexed universal life plan, you’re protected against losses if the market drops and you stand to benefit if the index value goes up.

Upside Potential

When the index associated with your policy increases, showing net growth, your account can earn interest credit. That interest credit gets added to your cash value account. The more good years your index has and the more it grows per year, the more your policy’s cash value can grow.

Downside Protection

Investors in the open market face losses if the market drops. Indexed universal life is an insurance product, so it safeguards against such losses using interest floors. Some accounts have 0% floors, meaning that you aren’t guaranteed any gain, but you’re also completely protected from losses. Others have 1% to 2% floors that guarantee at least that percentage of interest credit.

For example, assume you have a floor of 1% on your indexed universal life insurance policy. If you had a stock market investment instead of a policy, you would likely have lost money when coronavirus caused the stock markets to plummet in March of 2020. Your indexed universal life insurance policy, however, keeps you protected from a loss associated with the mirrored index and guarantees at least a 1% gain on your cash-value account.

Using Your Policy’s Cash Value

Growing the cash value of your life insurance policy has several benefits. With an indexed universal life insurance policy, you have the option of withdrawing from your policy’s cash value to cover personal expenses. That means your cash value account can serve as an attractive supplement to your retirement income, as the policy has several cash withdrawal options, some can even be tax-advantaged.

Many index universal policies also allow you to choose an increasing death benefit option, in which your death benefit payout increases as the cash value of your policy grows. In some situations, you can choose to decrease your death benefit as well, directing a greater percentage of your premiums toward building cash value.

Life Insurance

Living Benefits for an Uncertain Era: Why Life Insurance Matters More than Ever

The COVID-19 pandemic has rocked the world. With more than 4 million cases and hundreds of thousands of deaths, the crisis has forever transformed the way people think about mortality and how to protect their loved ones.

Life Insurance in Unprecedented Times

The need for life insurance has never been as great as it is today. COVID-19 can take the lives of people at any age, even if they have no pre-existing conditions, and some patients leave families behind with no financial support. Life insurance can help you ensure that your loved ones will be financially secure if something happens to you.

When you buy life insurance, you pay a premium to an insurer in exchange for a death benefit paid to a beneficiary after your death.  Some policy options also allow you to tap into your coverage while you are still alive. One such option is living benefits coverage, an add-on to a standard permanent life insurance policy.

[content_band bg_color=”#e8f4f8″ border=”all”] [container] [custom_headline style=”margin: 0; 0; 0; 0;” type=”center” level=”h4″ looks_like=”h4″ accent=”true”]Key Takeaways[/custom_headline]

  • COVID-19 has taken the lives of hundreds of thousands, all from different stages and walks of life, proving in the process that all livelihoods are vulnerable.
  • Life insurance is more important now than ever before. With living benefits, you can access your life insurance assets in the case of a serious medical event.
  • Living benefits help you cover the costs of serious illness, chronic illness, critical illness, or critical injury, with fewer restrictions and more options for use as compared to long-term care insurance.
  • From COVID-19 to cancer, medical events can have serious financial consequences.[/container] [/content_band]

Living Benefits and Permanent Life Insurance

There are two basic types of life insurance. Term life is active for a defined period or until the policyholder reaches a specific age. If you die during that time, your beneficiaries receive a pre-determined death benefit.

Permanent life insurance has no expiration date and may also include a cash value that you can borrow against. In many cases, you can add coverage on top of the standard death benefit using an add-on structure known as a rider.

Living benefit riders, also known as accelerated benefit riders, are policy additions. If you have living benefits as part of a permanent life insurance policy, you can access your death benefit to help cover the costs of a terminal illness, chronic illness, critical illness, or critical injury.

These riders give you two benefit types as part of a single policy:

  1. Valuable life coverage that can protect your loved ones in the event of your death
  2. Cash benefits that can supplement long-term care if you become incapacitated

Your cash benefits come out of your death benefit. They reduce your death benefit but do eliminate it. In addition, you can restore some or all of your withdrawn benefits as long as the policy stays active.

Qualifying for Living Benefits

Living benefits are available to policyholders who experience any qualifying medical event and require long-term care. Qualifying events usually fall into one of the following categories.

  • Terminal illness: a condition that will result in death within a specified period, typically 24 months
  • Chronic illness: a condition that, according to a doctor, renders you unable to perform at least two out of six activities of daily living for 90 days or more and may require you to receive residential care
  • Critical Illness: a condition like COVID-19, which could result in death without intense medical intervention. Other examples include heart attack, stroke, and cancer
  • Critical injury: an injury that causes serious incapacity, as in the case of traumatic brain injury, paralysis, or severe burn

An insurance commissioner may also approve another illness or injury as a qualifying event.

Living Benefits vs. Long-Term Care Insurance

Long-term care insurance may also provide financial coverage to people with qualifying conditions. However, living benefit riders offer more benefits with fewer restrictions.

Long-Term Care Restrictions

A long-term care insurance policy may only pay benefits for two to five yearsIn addition, your long-term care insurer might raise your premiums after you have purchased the policy.  That is unlikely to happen with a permanent life insurance policy, which is designed to maintain stable premium levels throughout the life of the policy.

Long-term care insurance also restricts payments to direct care services, whether you receive those services at home, at a day facility, or in a residential care community.

Paying for Care with Living Benefits

Most living benefits riders don’t mandate that you use the funds for direct care costs. Policyholders have used these benefits to cover many different expenses, including but not limited to:

  • Household expenses
  • Routine bills (credit cards, car payments, etc.)
  • Home modifications
  • Adult daycare
  • Nursing home care

If you elect to have living benefits as part of your policy, your advisor will discuss with you how withdrawals will work.

You Need This Benefit

COVID-19 isn’t the only health risk facing people in the United States today.

These health events are costly. Almost 20% of cancer patients spend more than $20,000 a year on treatments. Patients with chronic illness have 10 times more out-of-pocket costs as compared to healthy patients. Nearly half of all stroke patients have to pay for special care long-term.

In total, medical debt drives approximately 530,000 bankruptcy filings every year. It’s impossible to tell how many of those filings would be avoidable with help from living benefits coverage.

In Conclusion

For the first time in the modern world, humanity is realizing on a massive scale that life is fragile. The unexpected can happen to anyone at any time.

COVID-19 has proven this point like nothing in living memory ever has, but that knowledge doesn’t have to make you feel helpless. Plan today and protect your tomorrow—both for your own sake and for that of your loved ones.

Health and Benefits

Considerations for Self-Funded Health Plans in Light of the COVID-19 Crisis

The COVID-19 pandemic has caused a major disruption to the US economy.  Businesses are struggling to cope.  If your business has a self-funded health plan, here are some things that you need to think about:

1. Plan Amendments

The recent legislation passed by Congress requires employers to cover the full cost of testing for the coronavirus.  If your plan requires cost-sharing with your employees, then you need to amend your plan document.  In addition, you may have to contact your stop-loss carrier.  It has been reported that most stop-loss carriers understand the need for the plan amendment and have agreed to not raise premiums or change other features of their policy.

2. Claims Reserves

A counter-intuitive effect of our current health crisis is that, for many employers, healthcare costs have declined.  The reason is that many hospitals and doctors have limited their practice to treating COVID-19 cases.  As a result, annual physicals and other diagnostic tests have been cancelled.  In addition, patients who are not suffering from COVID-19 symptoms are afraid to go to the doctor or emergency rooms.  However, this reprieve will not last forever.  Once “shelter-in-place” orders are lifted and doctors and hospitals have the capacity to treat patients other than COVID-19 patients, employees and their dependents will once again go to the doctor.  You should continue to make your monthly payments, as required by your TPA, and be mindful of claims that are incurred but not reported.  You do not want to face unexpected costs once the economy ramps up again.

3. Risk Group

You need to understand the make-up of your employee group.  If your employees tend to be older or sicker, you can expect their healthcare costs to increase.  So far, there has been no legislation requiring plans to cover the cost of treatment for COVID-19 without cost sharing.  However, it is possible that that could make its way into future legislation.  You want to make sure that you have planned for any additional costs.

4. Telemedicine

One thing that we have learned from the crisis is the value of telemedicine.  Many patients are turning to telemedicine when they are unable to see their doctors.  If your plan document does not cover telemedicine or you do not have a relationship with a provider, you will want to address those issues.


Many employers that have laid off or furloughed employees have agreed to pay some or all of the cost of COBRA.  Before you agree to subsidize COBRA costs, make sure that you recognize the full extent of those costs.

The full impact of the COVID-19 crisis on self-funded health plans may not be known for many months.  However, what we do know is that, in order to safeguard your business, you need to prepare for whatever may come.  A healthcare professional from RMC can help you be ready for this or any future health crisis.

Retirement Plans Technical Memorandum

What Impact Does the CARES Act Have on Retirement Plans?

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law by President Trump on March 27, 2020.  It is 880 pages.  This article provides a summary of the some of the key provisions relating to retirement plans.

1. Covid-19 Related Distributions

The CARES Act provides that section 72(t) of the Internal Revenue Code shall not apply to coronavirus-related distributions from certain qualified retirement plans.  This means that a plan participant will not be subject to the 10% penalty for early withdrawal, as long as the aggregate amount of the withdrawal does not exceed $100,000.  The term “aggregate” refers to all plans maintained by the participant’s employer and any member of a controlled group.

Eligible retirement plans include:

  • IRAs
  • Tax-qualified retirement plans
  • Tax-deferred section 403(b) plans
  • Section 457(b) governmental sponsored deferred compensation plans

The exemption from section 72(t) is effective for distributions made during 2020 – calendar year 2020, not plan year 2020.  In addition, the exemption is available only to a plan participant:

  • Who is diagnosed with Covid-19
  • Whose spouse or dependent is diagnosed with Covid-19
  • Who is furloughed or laid off, has work hours reduced or is unable to work due to lack of childcare or is otherwise unable to work due to Covid-19

An employer is required to confirm that the participant meets one of these conditions but can rely on the participant’s certification.

The participant can elect whether to repay the distribution or to have the distribution included in income.  If the participant elects to repay the distribution, it must be repaid in full within three years after the date the distribution is received.  A participant who elects to not repay the distribution is taxed on the distribution ratably over three taxable years beginning with the year of the distribution.

2. Plan Loans

The CARES Act increases the amount of loans that a “qualified individual” can take from a retirement plan.  Beginning on March 27, 2020, for a 180-day period, the loan amount is increased to the lesser of $100,000 or 100% of the participant’s nonforfeitable accrued benefit under the plan.  Prior to this change, the amounts were $50,000 and 50%, respectively.

The CARES Act also changes the terms of loan repayments.  If the due date of any loan repayment occurs between March 27, 2020, and December 31, 2020, the due date is extended for one year.  Subsequent due dates are extended for one year as well.

An employer may need to amend its plan document in order to provide these enhanced rights to its employees.

3. Required Minimum Distributions

The CARES Act provides a temporary waiver of required minimum distributions for participants who turn age 72 in calendar year 2020.

4. Minimum Required Contributions

The CARES Act delays the due date of any employer-contribution to a defined benefit plan required to be made during calendar year 2020 to January 1, 2021.  However, any delayed payment accrues interest from the original due date to the date of payment.  In addition, an employer may elect to treat the plan’s adjusted funding target attainment percentage (“AFTAP”) for the last plan year ending before January 1, 2020, as the AFTAP for the plan year, which includes calendar year 2020.

5. Filing Deadlines

The CARES Act gives the Department of Labor the right to extend any filing deadline under ERISA for a period of one year as a result of the Covid-19 pandemic.

6. Education Assistance

The CARES Act amends section 127(c) of the Internal Revenue Code to include repayment of an employee’s qualified education loan in the definition of non-taxable “educational assistance”.  The payments must be made before January 1, 2021, and are limited to $5,250.

7. Plan Amendments

Some of the provisions of the CARES Act are voluntary, not mandatory.  For example, the provisions regarding coronavirus-related distributions and increased loan amounts apply only if the plan document permits such distributions and loans in the first place.  As a result, a Plan Sponsor may need to amend its plan document in order to afford its plan participants the ability to access such distributions and loans.

A Plan Sponsor can administer the plan in accordance with the necessary amendments, even before the amendments are actually adopted.  However, the amendments must be adopted by the last day of the first plan year beginning on or after January 1, 2022.


The PBGC has announced the extension of filing deadlines, including premium payments.  Any filing due after April 1, 2020, can be delayed until July 15, 2020.  While this is not part of the CARES Act, it is something that affects defined benefit pension plans.

Some of these provisions will require further guidance, and we will update you as that guidance is issued.  If you have any questions how the CARES Act affects your qualified retirement plan, contact RMC Group.

*Revised April 21, 2020

Health and Benefits Technical Memorandum

Coronavirus Aid, Relief and Economic Security Act [Technical Memorandum]

On Friday, March 27, 2020, President Trump signed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) into law.  The CARES Act is a wide-ranging piece of legislation that impacts almost every aspect of American life.  This article will discuss some of its effects on healthcare.

1. Covid-19 Testing

The Families First Coronavirus Response Act (“FFCRA”) requires group and individual health plans, whether fully-insured or self-insured, to cover the full cost of testing for the Coronavirus.  The FFRCA eliminated deductibles, co-pays and coinsurance in connection with Coronavirus testing.  The problem with the FFRCA was that it was limited to FDA-approved tests.  The CARES Act expands the type of tests, which a health plan is required to cover to include tests that:

  • have been submitted to the FDA for approval;
  • have been developed or authorized by a state; or
  • have been determined by the Department of Health and Human Services to be appropriate for the purpose.
2. Coverage of Covid-19 Vaccines

While the FFCRA requires that health plans cover the cost of testing for the Coronavirus, it does not require that health plans cover the cost of any item or service designed to prevent Covid-19, such as a vaccine.  The CARES Act requires health plans to cover the full cost of any item or service that is intended to prevent or mitigate Covid-19 and that is:

  • an evidence-based item or service that has a rating of A or B in the current recommendations of the U.S. Preventive Services Task Force; or
  • an immunization that has a recommendation from the Advisory Committee on Immunization Practices of the Centers for Disease Control and Prevention with respect to the individual involved.

A health plan is required to cover the cost of such item or service 15 days after one of the foregoing conditions has been met.

3. Cost of Testing

The CARES Act sets the price that a health plan is required to pay for Covid-19 testing as:

  • the price negotiated between the plan and provider; or
  • if the plan and provider have not negotiated a price, then the price listed by the provider on its public website.

A provider can be charged a fine of $300 per day for failure to list the price on its public website.

4. High-Deductible Health Plans

The CARES Act provides that a high-deductible health plan can pay the full cost of telehealth services without cost-sharing, even if the participant has not met the plan’s deductible for the year.  In addition, the participant can continue to fund an HSA.  This provision is effective for plan years beginning before December 31, 2021.

The CARES Act is not likely to be the final piece of legislation enacted by Congress to fight the Coronavirus pandemic.  We will keep you posted about future developments.  If you have any questions about the CARES Act or how it impacts your health plan, please contact RMC Group.

Business Insurance Health and Benefits Technical Memorandum

What Employers Should Know About Labor Department’s Guidance On Families First Coronavirus Response Act

On March 24, 2020, the Department of Labor (DOL) issued an FAQ to provide guidance for the Families First Coronavirus Response Act (the “Act”). This is their first effort at answering some questions.

What do we know from this guidance?
1) Paid Leave Provisions Begin April 1st

The Act’s paid leave provisions are effective April 1, 2020, and will extend to December 31, 2020.

This is slightly interesting in that the Act says it will become effective April 2, 2020. The FAQ provides no explanation for why the DOL changed the effective date of the Act’s provisions.

It says the relevant date for making this determination is the date that an employee requests leave under the Act.

So, for example, if, on the date that Jim asks for leave under the Act, the employer has 505 employees, Jim is not eligible for paid leave under the Act.

However, if, a week later, when John asks for leave, the employer has 495 employees, then John is eligible for leave under the Act.

2) Independent contractors are not covered under the Act

If an employer has multiple locations, employees in all locations are considered when tallying the total number.

However, if a corporation has an ownership interest in another corporation, the corporations are generally treated as separate entities, unless they are considered joint employers under the Fair Labor Standards Act.

3) The Act Only Applies For Businesses With Under 500 Employees

The FAQ makes clear that the Act does not apply to employers with more than 500 employees.

4) Fewer Than 50 Employees May Be Exempt

Employers with fewer than 50 employees may be exempt from the requirements of the Act. The criteria for the exemption will be addressed in the regulations.

5) Part-Time Employees Are Entitled To Benefits

A part-time employee is entitled to be paid for the average number of hours worked. You calculate their paid leave period based upon the number of hours that the employee is normally scheduled to work. If the normal hours are unknown or the employee’s hours fluctuate, then you can use a 6-month average.

6) Sick Pay and Overtime Are Included, With Capped Hours

When calculating sick pay, overtime hours are included. However, the amount of hours are capped at 80. So, if an employee is scheduled to work 50 hours in one week, you can pay for 50 hours for that week. But, the employee can only be paid for 30 hours the next week.

7) Family And Medical Leave Sick Pay Is Calculated Differently

The payment rates for paid sick leave and family and medical leave under the Act are different. So, it is important for you to determine under which part of the Act the employee seeks to qualify. An employee receiving sick pay is entitled to full pay with a cap of $511 per day. An employee taking family and medical leave is entitled to two-thirds of normal pay.

8) Benefits Are Not Retroactive

The Act is not retroactive. However, it provides a new and separate benefit. So, an employee who took sick pay before April 1, 2020, is still eligible to take sick pay under the Act after April 1, 2020.

We will provide more information as it becomes available from the Department of Labor.

Not sure how these changes affect your company?

Leave a comment below or contact us with your questions.