Benefits Monthly Minute UPDATE: Year End Stimulus Law Includes Changes to Employee Benefit Plans
President Trump signed the Consolidated Appropriations Act (the “Act”) on December 27, 2020, which includes a number of provisions impacting both retirement plans and health and welfare plans. Some of the changes are related to COVID-19 relief, but other changes are not. The following is a brief summary of certain major benefits provisions.
Health and Dependent Care FSAs:
- Employees may make prospective election changes in 2021 in the absence of a Section 125 change in status event.
- Health FSAs may permit employees who stopped participation in 2020 or 2021 to continue to receive reimbursements of unclaimed contributions through the end of the plan year (including any grace period).
- Unused amounts in a health and dependent care FSA for a plan year ending in 2020 can be carried over to 2021, and unused amounts from 2021 can be carried over to 2022.
- Grace periods for plan years ending in 2021 or 2022 may be extended for 12 months after the end of such plan year.
- Dependent care FSAs may extend the maximum age from 12 to 13 for eligible dependents who aged out of eligibility during the last plan year with a regular enrollment period ending on or before January 1, 2020, and may allow employees with unused balances for that plan year to apply this rule to claims for reimbursement of the unused balance in the following plan year.
KMK Comment: These changes are voluntary. Cashout of unused amounts and retroactive election changes remain prohibited under these new rules. Caution is needed if you offer a Health Savings Account because changes to a health FSA can impact HSA eligibility.
- The “No Surprises Act” addresses emergency services coverage, surprise medical billing, and air-ambulance benefits. For example, certain non-emergency services provided at a network facility cannot be balanced billed without satisfying notice and consent requirements, and external review processes will be available to review surprise billing matters.
- Health plan transparency protections are also included in the Act. Among other things, these protections serve to curb service provider contracts that prohibit disclosure of cost information, and also increase disclosure requirements with respect to mental health parity compliance and prescription drug spending.
KMK Comment: Plan compliance with these additional reforms will require careful coordination with third party administrators and insurers and we expect regulatory updates will be forthcoming.
- Plans will not be treated as having a partial termination if the number of active participants in the plan on March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020. Retirement plans (including 401(k) plans) that meet this safe harbor will not be required to fully vest affected participants.
- The Act clarifies that a money purchase pension plan qualifies for a coronavirus-related distribution and loan under the CARES Act.
- Retirement plans may provide “qualified disaster distributions” of up to $100,000 that are not subject to the 10% early withdrawal tax. A qualified disaster distribution may be repaid to a retirement plan that accepts rollover contributions within three years of the distribution. Certain hardship distributions taken to purchase or construct a principal residence in a disaster area may also be repaid. The limit on loans that are not treated as plan distributions is temporarily increased for qualified individuals living in a qualified disaster area for disasters declared between January 1, 2020, and ending 60 days after the Act’s enactment if the incident period for the disaster began on or after December 28, 2019, and on or before the date of enactment. A qualified disaster area does not include areas that are disaster areas solely because of COVID-19.
KMK Comment: These changes are voluntary. Some provisions related to the qualified disaster distributions are similar to the relief provided by the CARES Act. Plan amendments will not be required until December 31, 2022, for calendar year plans.
The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.
KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.