American Rescue Plan Act Impact on Employee Benefits

The American Rescue Plan Act (ARPA) signed into law by the President on March 11, 2021 impacts a number of employee benefits related items.  For our purposes, this blog post will focus on 4 main areas of impact: 1. COBRA subsidies; 2. Dependent Care FSA (DCA/FSA) changes; 3. Families First Coronavirus Response Act (FFCRA) changes impacting paid time off; and 4. Employee Retention Tax Credits

COBRA SUBSIDY

It’s important to first establish who is eligible for the subsidy, which is available to both qualifying employees and dependents.  Those employees (and dependents) who have, or will elect COBRA coverage from April 1, 2021 to September 30, 2021, as a result of an involuntary termination or reduction in hours below the eligibility criteria, are eligible for the subsidy.  Importantly, employees that VOLUNTARILY leave their employment are NOT eligible for the subsidy.  Here are the pertinent details associated with the subsidy:

• – The subsidy covers 100% of the cost of COBRA, irrespective of whether coverage is for the (former) employee only, and/or qualifying dependents.
• – The subsidy is available until the earlier of the following events: a. the individual becomes eligible for coverage under another employer group plan; b. the individual becomes eligible for Medicare; c. the COBRA period ends; or d. September 30, 2021.
• – The COBRA subsidy is funded by a refundable payroll tax credit applied toward quarterly Medicare payroll taxes.
• – The ARPA does not extend COBRA maximum benefit periods (i.e., 18 mos . for employees, 36 mos. for dependents, 11-month disability extension).
• – Individuals who previously qualified for COBRA, as of April 1, 2021, but did not elect coverage, and would have otherwise been eligible, must be offered subsidized COBRA coverage.  In addition, individuals who previously elected COBRA coverage and subsequently discontinued it before April 1, 2021, and remain eligible for additional months of coverage, must be offered subsidized COBRA coverage.  Note that a revised model COBRA election notice is forthcoming from the Department of Labor (DOL) and will have a 60-day election timeline for individuals offered the subsidized coverage.
• – Beginning April 1, 2021 (and ending September 30, 2021) employers are required to provide notice of subsidized COBRA coverage to eligible individuals who are: a. in their election period and have not yet made an election; and b. previously elected COBRA coverage and subsequently terminated it, with additional time left for coverage.  Notices must be provided on or before May 31, 2021, and revised model notices are expected to be available by May 1, 2021.
• – Employers are required to provide COBRA beneficiaries notice of the expiration of their subsidy no earlier than 45 days, and no later than 15 days from the date of subsidy expiration.  Importantly, such notice is NOT required if the COBRA beneficiary becomes eligible for other employer group coverage or Medicare.
• – Employers may allow COBRA beneficiaries to enroll in a plan option other than the one originally elected, but this offer is not required.
• – It’s important to keep in mind the COBRA deadline extensions previously granted by the DOL/DHS/IRS, which could impact the offering of subsidized COBRA coverage.  See previous blog post – https://smstevensandassociates.com/employee-benefits-deadline-extensions/

***UPDATE***

On May 18, 2021, the IRS issued a guidance document on the ARPA subsidy for COBRA and State Continuation (Notice 2021-31).  See – IRS Guidance ARPA COBRA 05182021

DEPENDENT CARE ASSISTANCE/FLEXIBLE SPENDING ACCOUNT (DCA)

The ARPA allows employer plan sponsors to amend their DCA/FSA plans to significantly increase the amount that can be set aside, pre-tax, for eligible dependent day care expenses.  For the 2021 plan year (only), employers can increase the allowable amount from $5,000 to $10,500 (or $5,250 if filing income taxes on a “married filing separately” basis).  This extension may be retroactively applied to January 1, 2021, providing both current plan participants and those previously declining coverage the option of enrolling in DCA/FSA, up to the allowed maximum limits.  Employers having DCA/FSA plans that are not on a calendar year basis can still allow the increased election amount, but only to the extent that the increase coordinates with the calendar year limit.  Employers are not required to have either a rollover or extended grace period in their FSA plans in order to make this change, but can opt to add either at this time.  Any changes made require amendment(s) to DCA/FSA plan documents.

FFCRA PAID SICK AND FAMILY LEAVE CREDITS

There are 2 important updates to FFCRA resulting from the ARPA:

• – For those employers who have voluntarily chosen to continue offering FFCRA paid leave, the period of time has been extended.  It’s important to note that affected employers are no longer required to offer FFCRA paid leave, effective January 1, 2021, but may opt to voluntarily do so, now through September 30, 2021; and
• – Employees that work for an employer who has voluntarily opted to continue offering FFCRA paid leave are eligible to claim paid leave due to having received/recovered from a COVID-19 vaccine.

Employers that voluntarily opt to continue offering FFCRA paid leave are eligible for the associated tax credits, through September 30, 2021.

EMPLOYEE RETENTION TAX CREDIT EXTENSION

The ARPA extends the employee retention tax credit to apply to affected wages paid in 2020, up to January 1, 2021.  Previously, affected wages subject to tax credits were from March 12, 2020 until the end of the year.

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