American Rescue Plan Act (ARPA) Recap
Last week, President Biden capped the first major legislative victory of his administration by signing off on a sweeping $1.9 trillion COVID package meant to infuse a host of economic relief measures into the economy. But the American Rescue Plan (Public law 117-2) is more than stimulus payments and jobless benefits, it also includes a litany of provisions with direct implications for employee benefit plan sponsors. The enactment – which comes exactly twelve months after the virus was a declared a health emergency – brings the total price tag of pandemic related spending to about $5.4 trillion since last March.
Key employee benefit policy provisions are summarized below.
Dependent Care FSAs
The Act increases the annual employee contribution limit of a dependent care FSA from $5,000 to $10,500 for 2021. An employer may amend its cafeteria plan retroactively in order to adopt this increased limit, as long as the plan is amended by the end of the plan year.
Keep in mind, this is compatible with the temporary changes allowed under the Consolidated Appropriations Act* that created unprecedented benefits for employees with dependent care expenses (i.e. unlimited carryover, midyear election changes/new enrollment, increased dependent age limit, etc.).
The Act provides up to six months of free COBRA coverage for “Assistance Eligible Individuals,” a special COBRA enrollment/coverage period, and new notice obligations as described below.
The COBRA subsidy is equal to 100% of COBRA premiums for eligible coverage and is available from April 1, 2021 to September 30, 2021.
An Assistance Eligible Individual (AEI) is defined as someone who: a) lost medical coverage under a group health plan due to their/their family member’s involuntary termination of employment or a reduction of hours; and b) is already enrolled in COBRA coverage on April 1, 2021 or enrolls in COBRA coverage during the Special Enrollment Period.
The Act provides an AEI who is not enrolled in COBRA as of April 1, 2021 a second window of time to enroll in order to take advantage of the subsidy. This includes AEIs who never made a COBRA election or who made an election but later dropped COBRA. The Special Enrollment Period runs for 60 days after the individual receives notice. An AEI who enrolls in COBRA during the Special Enrollment Period will have coverage from April through September or through what would have been the end of their typical COBRA coverage period.
Employers are required to provide a notice describing the availability of the subsidy and the Special Enrollment Period to AEIs by May 31, 2021. The Dept. of Labor must develop a model notice template that can used for this purpose within the next 30 days. Additionally, a notice of subsidy expiration must be sent between 15-45 days before the end of the period. Again, the federal government is tasked with publishing a model notice sometime within the next six weeks.
The employer (self-insured plans) or carrier (fully-insured plans) will be reimbursed the total COBRA premium – including administrative fees – by claiming a credit against Medicare payroll taxes. It is anticipated that the IRS will provide additional guidance on exactly how to claim the credit in upcoming weeks.
Paid Sick and Family Leave
The American Rescue Plan extends (through September 30, 2021) tax credits for employer-provided paid sick and paid family leave, which were originally established under the Families First Coronavirus Response Act.**
What’s more, leave can now be taken: (1) when an employee is obtaining a COVID vaccination; (2) when an employee is suffering or recovering from side effects related to the COVID vaccination; and (3) when an employee is seeking or waiting the results of a COVID test.
Emergency Paid Sick Leave
Starting April 1, 2021, the Act re-sets the limit on the tax credit available for Emergency Paid Sick Leave (EPSL). Employers may voluntarily provide employees up to 80 hours of EPSL in the period from April through September 2021, in addition to any EPSL provided earlier, and still be eligible for the corresponding tax credit.
The IRS is expected to provide additional guidance in the coming weeks.
*Public Law 116-260
**Public Law 116-127
THIS JUST IN…
The Treasury Department announced today that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021 to May 17, 2021. The IRS will be providing formal guidance in the coming days.