Benefits Monthly Minute
American Rescue Plan Act of 2021 – Benefits Highlights
The American Rescue Plan Act of 2021 (“ARPA”) was signed into law on March 11, 2021, and includes several provisions related to employee benefit plans.
- COBRA Subsidy: Beginning on April 1, 2021 until September 30, 2021, a new 100% COBRA premium subsidy will be available to certain eligible employees and their family members. An eligible employee includes an individual who has qualified for COBRA due to a reduction in hours or an involuntary termination of employment, and elects COBRA coverage between April 1 and September 30. It also includes an employee who became eligible for COBRA coverage before April 1, and the period of COBRA coverage would have included any month between April and September, 2021, even if the individual did not previously elect COBRA coverage. During this six-month period, the COBRA notice must include detailed information about this premium subsidy, and the federal government is required to issue an updated model notice by April 10, 2021. The subsidy can last up to six months, but will end earlier if the individual becomes eligible for coverage under another group health plan or Medicare. Plans are also required to notify individuals if their subsidy will terminate before September 30, 2021, and a new model notice is required to be provided by the federal government by April 25, 2021. The subsidy is paid by the employer, and the employer will receive a credit against their quarterly payroll taxes.
KMK Comment: The subsidy requires the immediate attention of plan administrators. Eligible individuals can include a former employee who terminated as long ago as November, 2019. Note that the subsidy is not available for employees who voluntarily terminate employment.
- Dependent Care Assistance: Generally, the value of dependent care expenses up to $5,000 can be excluded from income and wages through either a dependent care flexible spending account (FSA) or directly. The ARPA increases this amount to $10,500 for 2021 and requires a plan amendment to implement this change.
KMK Comment: The 2021 contribution limit increase is welcomed news for participants experiencing escalating dependent care expenses, however, additional clarification about how this increase coordinates with the dependent care FSA carryover relief is still needed.
- Multiemployer Pension Plans: Special relief has been provided to certain severely underfunded multiemployer pension plans. The Department of Treasury will establish a special financial assistance program administered by the PBGC to provide a cash payment to pay benefits through 2051.
KMK Comment: This is a significant help to the participants of multiemployer pension plans. It also restores certain benefits for participants who had benefits reduced in 2014.
IRS Guidance on Consolidated Appropriations Act Implementation (Part II)
As reported previously, IRS Notice 2021-15 provides clarification on the implementation of the Consolidated Appropriations Act (the “Act”) provisions to health FSAs and dependent care FSAs. Of note, the Notice spells out -
- Age Limit Relief Applicable to Dependent Care FSA Carryover Relief: the Act permits dependent care FSAs to 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 31, 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. Notice 2021-15 confirms that the special age limit relief is separate from the general carryover and extended claims period relief available under the Act. Employers may adopt the special age limit relief without adopting carryover or grace period relief.
- Grace Period Extensions: the Act permits grace periods for plan years ending in 2021 or 2022 to be extended for 12 months after the end of such plan year. The Notice explains that this extension is available even if the cafeteria plan did not previously allow a 2 ½ month grace period or a carryover, and further, employers may choose to adopt an extended period for incurring claims that is less than 12 months.
- Post-termination Reimbursements from Health FSAs: under the Act, 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). The Notice makes clear that employers are free to limit the unused amounts in the health FSA to the amount of salary reduction contributions the employee had made from the beginning from the plan year in which he/she ceased to be a participant up to the date that participation ended (less prior reimbursements).
- HSA Compatibility: as previously reported in the December Monthly Minute UPDATE, the permitted changes under the Act require caution considering the impact of health FSAs on HSA eligibility, an important issue that was left unaddressed under the new legislation. The Notice provides some helpful clarification on this front:
- If an employee revokes a general-purpose health FSA election and the plan does not permit expense reimbursement after the revocation, then HSA eligibility is not impacted for the months following revocation.
- An employee may make a mid-year election change from a general-purpose health FSA to a limited-purpose health FSA, in which case the maximum HSA contribution is determined by reference to the number of months of HSA-eligibility and, while the FSA balance may transfer, reimbursements for expenses incurred after the change are determined under limited-purpose rules.
- In all cases, the maximum reimbursement for combined health FSAs for the year is limited to the amount of salary reduction elected for the year (subject to the $2,750 limit) plus any available unused amounts from prior years and nonelective employer contributions.
KMK Comment: the Notice provides various examples illustrating the application of these FSA changes which will be helpful in deciding which of these optional provisions employers may wish to adopt. As these decisions are made, it’s important for employers to work with advisors to correctly implement, adopt and communicate these cafeteria plan updates.
It Ain’t Over ‘Til the DOL Sings (an Encore)
Just four short months ago in the November Monthly Minute, we reported on a newly adopted DOL ESG final rule preventing fiduciaries from selecting investments based on non-financial considerations, and requiring them to base investment decisions on financial factors. On March 10, 2021, the DOL announced that until further guidance is published, it will not enforce its recently published final ESG rules or otherwise pursue enforcement actions against any plan fiduciary for failure to comply with these final ESG rules with respect to an investment (including a QDIA) or investment course of action.
KMK Comment: under the November, 2020 final rule, plans would have been required to make QDIA changes in connection with certain ESG investments by April 30, 2022; however, this newly released guidance allows fiduciaries to press pause on moving forward with these changes until further guidance is released. Keep in mind that this DOL announcement does not revoke the rule or protect a plan fiduciary from a participant attempting to enforce the rule. Plan fiduciaries will want to continue to proceed with caution in evaluating ESG investments. We will keep you updated as new guidance is released.
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.