03.15.2021 Key Employee Benefit Aspects of the American Rescue Plan Act
The American Rescue Plan Act of 2021 (the ARPA), signed into law by President Biden on March 11, 2021, includes provisions affecting employee benefit plan sponsors. The ARPA provides relief to certain COBRA qualified beneficiaries along with new group health plan notice requirements, an increased limit for dependent care flexible spending arrangements (FSAs), and relief for certain defined benefit pension plans.
COBRA Premium Assistance
The ARPA provides a 100% subsidy of COBRA continuation coverage premiums for certain COBRA qualified beneficiaries.
Eligible COBRA Qualifying Beneficiaries. Employees and their family members who lose or lost group health coverage due to an involuntary termination of employment or reduction in hours are eligible for the subsidy if:
- The individual was eligible for COBRA before April 1, 2021, and his or her COBRA coverage period extends past April 1, 2021, even if the individual declined COBRA when it was initially offered;
- The individual is enrolled in COBRA as of April 1, 2021; or
The individual enrolls in COBRA on or after April 1, 2021, and before September 30, 2021.
COBRA Subsidy. During the six-month subsidy period from April 1, 2021, through September 30, 2021, eligible qualifying beneficiaries will receive a 100% subsidy of their COBRA premiums. Employers that sponsor fully-insured group health plans will pay the full COBRA premium to the insurance carrier. Employers that sponsor self-insured group health plans will provide COBRA coverage at no cost. Employers will be reimbursed for the cost of the subsidized COBRA premiums through a payroll tax credit in a manner similar to the way employers were reimbursed for the cost of paid sick leave under the Families First Coronavirus Response Act.
Alternate COBRA Coverage. Employers may permit an eligible qualified beneficiary to enroll in different medical coverage than what he or she was enrolled in at the time of the COBRA qualifying event, provided that (i) the premium for the different coverage does not exceed the premium for the coverage that the individual was enrolled in at the time of the qualifying event, and (ii) the medical coverage is offered to all similarly situated active employees.
Notice Requirement. Eligible qualified beneficiaries must be provided a notice about the subsidy. Eligible qualified beneficiaries that previously declined COBRA must be notified of their second COBRA election opportunity. Plans must also notify eligible qualified beneficiaries if the subsidy will end before September 30, 2021, unless the subsidy ends due to the individual’s eligibility for other coverage. Existing COBRA notices will need to be updated to describe the subsidy. The Department of Labor will be providing model notices within 30 days of the enactment of the ARPA.
Increase in Dependent Care FSA Limit
The ARPA increased the dependent care FSA annual contribution limit from $5,000 to $10,500 for 2021 only. The limit for married couples filing separately is half of that amount and is increased from $2,500 to $5,250 for 2021 only.
The dependent care FSA limit has not been indexed for inflation in the same manner that other health and welfare and retirement plan dollar limits are indexed. The IRS has not had regulatory authority to index the amount until Congress acted to do so. The ARPA has changed the limit, but the increase will sunset at the end of 2021, unless Congress acts to extend or otherwise index the limit.
Retroactive Amendments. Cafeteria plan rules generally prohibit retroactive changes to the plan’s terms. However, the ARPA provides that a cafeteria plan can be amended retroactively to provide for this increased FSA limit, as long as the amendment is adopted by the last day of the 2021 plan year.
Mid-Year Election Changes. Cafeteria plan rules also generally prohibit a participant from making mid-year changes to a cafeteria plan election unless the change is on account of the participant’s change in status. However, under the Consolidated Appropriations Act passed at the end of 2020, participants can prospectively change their cafeteria plan elections without a corresponding change event, which will permit participants to increase their dependent care FSA contributions at any time this year to take advantage of the increased limit.
Non-Calendar Year Plans. Note that the increased limit is a calendar-year limit. Cafeteria plans with non-calendar-year plan years must be sure that participants’ elections do not cause the participants to exceed the limit in 2022, if Congress does not act to extend or otherwise index the limit.
Relief for Defined Benefit Plan Funding
The ARPA provides relief for underfunded single-employer defined benefit plans. For plan years beginning after December 31, 2021 (or at the election of the plan sponsor, plan years beginning after December 31, 2018, 2019, or 2020), the shortfall amortization base is reduced to zero. In addition, beginning in the applicable plan year, the new shortfall amortization base will be amortized over fifteen years, instead of seven years.
The ARPA also replaces the interest rate stabilization table in Internal Revenue Code section 430 in order to reduce the minimum funding obligation for single-employer pension plans.
Financial Assistance for Multiemployer Pension Plans
The ARPA is addressing concerns over the potential insolvency of many multiemployer plans by providing special financial assistance to financially troubled multiemployer plans, extending funding improvement and rehabilitation periods, and adjusting funding standard account rules applicable to such plans.
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