• American Rescue Plan Act of 2021: Key Employer Provisions

    President Biden signed the American Rescue Plan Act of 2021 into law on March 11. It provides $1.9 trillion in coronavirus relief. The bill itself is 591 pages long with a Table of Contents that is seven pages long! It includes a plethora of relief measures that impact nearly every segment of society. Importantly, there are also critical measures in the bill that impact employers and their employee benefit programs. Following is a summary that highlights the key provisions that affect employee benefit plans.

    COBRA Subsidies

    100% Subsidy: The bill provides a 100% premium subsidy for COBRA coverage from April 1, 2021 to September 30, 2021.

    Assistance-Eligible Individuals: Eligible individuals are those whose Qualifying Event was a termination of employment (other than for gross misconduct) or a reduction in hours. If the event is a Termination, it must be an involuntary termination of employment. Individuals must have active COBRA coverage (or be eligible to elect COBRA coverage) on or after April 1, 2021.

    Coverages Included: The law refers to “any premium” and does not make an expressed differentiation between medical plan coverage and other health plan coverages that are subject to COBRA. Therefore medical, dental, vision, and EAP premiums would be subsidizedFSA plans are not subsidized.

    Extended Election Period: A Qualified Beneficiary who previously did not elect COBRA or discontinued coverage, but who would otherwise be an assistance-eligible individual, is still eligible for the subsidy (assuming they are still within their maximum COBRA coverage period). These individuals must be given a 60-day election period which is measured from the later of April 1, 2021 or 60 days after notification of the new election opportunity is provided. The effective date for an election pursuant to the extended election period is April 1, 2021. The maximum duration of such coverage maps back to the original maximum coverage period. Notably, the extended election period provision creates an important deviation from the general COBRA rule that coverage needs to be continuous. In this case, an individual could “jump back on” to COBRA coverage as of April 1, 2021 without coverage being retroactive and without having to pay retroactive premiums.

    All Qualified Beneficiaries who were covered at the time of the original Qualifying Event would be eligible to elect coverage under the extended election period. This is true regardless of whether all, some, or none of them had actually elected COBRA coverage at the time of the initial Qualifying Event and/or whether any of them were still covered as of April 1, 2021. As an example, if an employee had family coverage in place at the time of the Qualifying Event and elected employee only coverage under COBRA, all of the other family members would have a right to elect coverage under this new extended election period. 

    Subsidy Disqualifying Events: If an assistance-eligible individual becomes eligible (just eligible, not actually covered) under any of the following plans, the subsidy ends.

    • Any other group health plan (other than excepted benefits, health FSA, or QSEHRA coverage)
    • Medicare

    To underscore, if a Qualified Beneficiary is eligible for another employer’s group health plan or a spouse’s group health plan, they would not be eligible for the subsidy. From an administration point of view, this will likely require a monthly attestation on the part of the assistance-eligible individual that they have not become eligible for any of the prohibited coverages.

    Lastly, if a Qualified Beneficiary reaches their COBRA maximum coverage period while in the subsidy period, the subsidy will end. In other words, the existence of the subsidy does not change the maximum duration of COBRA.

    Plan Change Opportunity: The law allows assistance-eligible Qualified Beneficiaries to enroll in a different employer-sponsored plan provided:

    • The employer elects to permit such change in enrollment.
    • The new premium does not exceed the premium of the original plan at the time of the qualifying event.
    • The different coverage is also offered to similarly situated active employees.
    • The different coverage does not consist of: excepted benefits only (such as dental and vision), QSEHRA coverage, or an FSA.

    Ultimately, this provision allows employers to effectively offer a plan change opportunity for assistance-eligible individuals. Notably, this would not be a true open enrollment where someone could add dependents to their COBRA coverage. Rather, it would be an opportunity for a QB to change coverage from, say, a PPO plan to an HMO plan. If offering the plan change opportunity is desired, employers should confirm it will be allowed by their insurance carriers/contracts.
    Decision Point: Employers will need to decide whether to offer this flexibility or not.

    Termination Type Needed! Current COBRA administration processes (and data requirements) do not differentiate between voluntary and involuntary termination or reduction of hours. This distinction is critical for administering this provision.
    Action Item: Employers will need to provide data for each termination Qualifying Event as to whether the event was voluntary or involuntary.

    Notification Requirements: Employers must provide formal notification of these provisions to assistance-eligible individuals, including those in their 60-day election period and Qualified Beneficiaries who would still be in their COBRA maximum coverage period but either never elected COBRA or dropped coverage at an earlier date. The law outlines specific elements which must be included in the notice, the most important of which are the availability of the premium subsidy, the extended election period, subsidy disqualifying events, and the plan change opportunity (if the employer elects to extend this option). The deadline for notification is May 30, 2021 for those who are eligible for an extended election period. Employers must also notify assistance-eligible individuals that their subsidy is expiring between 45 days and 15 days prior to the end of the subsidy. The DOL will be issuing model notices for both the initial subsidy notification and the subsidy expiration notice.

    Premium Recovery via Tax Credit: The bill provides that the mechanism for employers to recoup the subsidized premium is a tax credit against employment taxes. The timing is based on standard quarterly filings.

    Vita COBRA Administration: The Vita COBRA team is already working hard to implement the system changes necessary to accommodate the premium subsidies. Most importantly, the type of termination will need to be confirmed. In addition, employers will need a report of subsidized COBRA premiums for assistance-eligible QBs to calculate and document the tax credit that should be recovered via the employment tax credit.

    Dependent Care FSA Maximum Increased to $10,500

    The maximum election amount for dependent care FSA is increased to $10,500 (from $5,000). This increase is temporary and is only effective for the 2021 tax year. The increased maximum is an employer choice (not a mandatory provision), and employers may amend plans for 2021 retroactively. We anticipate this increase will be universally adopted. Be aware that this change will likely exacerbate discrimination testing failures for employers who have had difficulty passing the tests in the past. We also anticipate that, while the increase is only authorized for the current year, the higher limit will likely become the “foot in the door” that may pave the way for an extension of the increase into the future.
    Decision Point: Employers will need to decide whether to increase the maximum on their plan.

    Paid Sick Leave

    The bill provides an extension and expansion of the paid sick and Emergency FMLA tax credits created in the FFCRA. It allows (but does not require) employers to extend paid sick leave to employees and extends the payroll tax credits for employers who provide the leave to employees. This provision applies to paid leaves effective April 1, 2021 and expires on September 30, 2021. For this period, the payroll tax credit may be taken against all payroll taxes (not just the 6.2% SS tax, like the prior legislation). The law also extends the duration of the paid family leave from 50 days to 60 days and restarts the 10-day limit on the amount of qualified sick leave wages with respect to each employee.

    Summary of Other Provisions

    The bill includes a host of other provisions to benefit individuals and businesses. Following is a very high-level summary of some of the other key provisions:

    • Vaccines: Resources and support for COVID-19 vaccine manufacturing, distribution, administration, tracking, and accelerated research.
    • Business Financial Support: Additional PPP funding and an expansion of the program to include some nonprofits that were previously not eligible. The Employee Retention Credit was also extended through 2021.
    • State and Local Government Support: Financial support to bridge shortfalls in state and local governments’ budgets and to support school re-openings.
    • Individual Relief: Additional $1,400 stimulus payments to supplement the $600 provided in December 2020. Additional $300 per week unemployment supplement. Expansion of Child Tax Credit from $2,000 to $3,000, with a higher credit of $3,600 for children under age 6 (this applies to the 2021 tax year only). Expansion of Child and Dependent Care Tax Credit ($4,000 for one child or $8,000 for two or more children). Increase in ACA premium subsidies (with a cap of 8.5% of household income). Homeowner assistance.
    • Other Provisions: Clarifies that forgiven student loan debt will be tax-free (should a future debt cancelation program be implemented by Congress or via Executive Order). Incentives for states to expand Medicaid. SBA assistance for restaurants, bars, and shuttered venue operators.
  • IRS Clarifies and Expands COVID Relief

    In response to the COVID crisis, the Consolidated Appropriations Act of 2021 provided employers the ability to offer greater flexibility to employees with health FSA and Dependent Care FSA plans. While the flexibility was welcome news for plan participants, for employers, the Act brought with it two things of note:

    1. Additional administration complexities
    2. Unanswered questions and ambiguities

    In an effort to address the unanswered questions, the IRS recently issued Notice 2021-15. The Notice provides important clarity for employers regarding the new flexibility available under FSA plans. However, in the process of proving that clarity, the notice doubled-downed on the administrative complexities required of employers and plans.

    Choices, Choices, Choices

    The notice is chock full of “clarifications” which actually create significant administrative and compliance burdens for employers (and their FSA plan administrators). This reality calls into question whether it is even remotely cost effective to offer the flexibility to participants given the nuanced requirements to assure compliance with the newly clear rules. In addition, all of these relief measures are temporary, so any investment in systems (by FSA administrators) to administer the plan flexibility in a compliant fashion would be lost when FSA plan rules revert back to pre-COVID days.

    When the CAA was passed, FSA plan administrators generally “sucked up” the cost of administering those changes for employers. In light of the nitty gritty compliance required, it is likely that additional charges will be levied by FSA plan administrators for those employers electing to offer additional flexibility to employees.    

    There is also the issue that once temporary plan relief is offered to employees, it becomes difficult to both communicate and manage expectations when plans revert back to their regular, less-flexible state in the future.

    Employers will need to review the permissive flexibility offered and make decisions about whether to implement changes or not.

    The Short Summary

    Essentially all of the relief and plan flexibility measures have been further extended. This includes three main areas:

    • FSA Plan Flexibility:  Carryover and grace period relief is extended to plan years ending in 2021. Dependent care age is extended in certain circumstances. Post termination spend downs can be allowed. New retroactive eligibility allowed for mid-year changes.
    • HSA Issues: Clarification that certain FSA relief measures may have an adverse impact on participants making HSA contributions.
    • Health Plan Mid-Year Elections: Extension of prospective changes to health, dental, and vision plans.
    • Plan Amendments: Allows employers additional time for plan amendments.

    The relief offered empowers employers to add significant flexibility to their health plans, and specifically FSA plans. These changes can benefit plan participants, however, they can add significant administrative complexity to the plan and require considerable employee education to enable understanding of the nuances.

    What’s Actually New?

    There are two new expansions to the FSA plan flexibility that employers can offer employees in the new IRS Notice:

    1. Post Termination FSA Reimbursements: This allows for reimbursement of claims incurred after termination up to the Plan Year to date contribution amount (without electing COBRA). This effectively suspends the Use-it-or-Lose it rule.
    2. Mid-Year Election Changes: This allows for open access to mid-year election changes for medical, dental, and vision plans.

    These are the two truly new provisions. However, it does bear repeating that the most frequently asked question from the CAA is, “Can we really do rollovers for dependent care plans?” To reiterate, the answer is, “Yes” for this temporary period.

    What’s Actually Not New?

    Much of Notice 2021-15 does not offer anything new. Rather, it adds significant clarity to what was otherwise bare-bones legislation.

    Over the course of the last several months since the CAA was passed, employers, advisors, and administrators alike have faced the realities of the lack of clarity and the complexities in administering what we know to be well-intended legislation to support plan participants in difficult times. However, the reality that has unfolded is a bit challenging from the perspective of airtight plan compliance. In the descriptions below, we have highlighted in italics some of these administrative complexities.

    $100 Note with Mask

    FSA Plan Flexibility

    Carryover: Employers, at their discretion, may amend their §125 Plan to allow for a carryover of all or part of the unused balance remaining in a health FSA or dependent care FSA as of the end of a plan year.

    • This applies to plan years ending in 2020 (carried over to 2021) and to plan years ending in 2021 (carried over to 2022).
    • Employees may be required to enroll in the FSA with at least a minimum election amount to have access to unused amounts from a prior plan year. (Most FSA administrators currently do not have the ability to track this.)
    • This provision is optional, and employers may limit carryover amounts or the period during which carryovers can be used. (Limiting the period in which carryovers can be used is also something many FSA administrators do not have the ability to administer.)
    • This applies to regular health FSAs, HSA-compatible FSAs, and dependent care FSAs. (Dependent care “rollovers” are not allowed under traditional FSA rules, thus that functionality is not built into most systems.)
    • Applies to plans with a regular $550 rollover provision and/or to plans that do not currently include a rollover provision.  
    • Employers may offer participants the ability to opt out of a carryover in order to preserve HSA eligibility. (If a rollover is offered, the consequence of not opting out should be communicated to employees currently contributing to an HSA . . . which is not an easy task. Processing such an opt out is likely to require manual processing by most FSA administrators.)
    • Funds may be rolled over to an existing Limited Purpose FSA without impacting HSA eligibility.
    • Alternatively, employers may allow employees to make a mid-year election change and flip their health FSA from a Limited Purpose FSA to a general purpose FSA for a portion of the year and, presumably, flip it back as well. (Generally, the flipping process is done upon reaching the statutory deductible, not at a point selected by the individual. Most systems are not programmed to allow mid year flipping such as this and will require manual intervention.)   
    • Amounts carried over are not included in calculations for discrimination testing. (This will require differentiated reporting of carryover balances vs. current contribution balances for testing purposes.)
    • As with all plan provisions, notification of plan changes to employees is required. (Employee education and communication of these plan nuances is not an insignificant endeavor.)
    • The Notice lacks clarity about whether dependent care amounts rolled over that exceed the $5,000 annual cap (in the subsequent plan year) are taxable to employees. In a notable deviation, the guidance does clarify that health FSA rollover amounts do not impact the maximum election amount. (Employers will need to make assumptions on taxation of excess amounts given the lack of clarity provided. We would recommend employers take the conservative approach and tax employees on any excess contributions.)
    • While on a prospective basis, employers could encourage employees to consider reducing their new election amount to account for any potential rollover amount, this is not always a known calculation. Additionally, many elections for the 2021 plan year have already been made without knowledge of this potential.

    Grace Period Plans: Employers, at their discretion, may amend their §125 plans to extend the period for incurring claims.

    • This applies to plan years ending in 2020 and 2021
    • The grace period may be extended for up to 12 months after the end of the plan year.
    • Applies to both health care and dependent care FSAs. However, amounts remaining may only be used for the same benefit (health FSA or dependent care FSA). 
    • Unused amounts from one plan year that remain available at the end of a 12-month grace period (i.e., at the end of the next plan year) need not be forfeited and may be made available in the next grace period.  
    • Employers may permit an extension of a grace period for any number of months and it is not required to extend the grace period for a full 12 months.
    • Existing IRS rules regarding reporting dependent care FSA elections (W-2, Box 10) direct employers to report salary reductions elected by employees without regard to amounts that may remain available during a grace period. This rule continues to apply with respect to the extended grace period allowed under this Notice. The same applies for reporting by employees on Form 2441.
    • As with all plan provisions, notification of plan changes to employees is required. (Employee education and communication of these plan nuances is not an insignificant endeavor.)
    • Amounts made available during a grace period are not included in calculations for discrimination testing. (This will require differentiated reporting of grace period balances for testing purposes.)

    Post Termination Reimbursements: The notice provides a special rule regarding post-termination reimbursements from health FSAs. At their discretion, employers may allow terminated health FSA participants to spend down their balance.    

    • This applies to employees who ceased participation during the 2020 or 2021 calendar year.
    • Reasons include termination of employment, change in employment status, or a new election to revoke contributions.
    • Unused balances may be reimbursed by expenses incurred through the end of the plan year in which participation ceased, including any grace period. (FSA administration systems are set up for this type of “spend down” arrangement for dependent care accounts, but not for health FSA plans.)
    • Employers may elect to offer a shorter spend down period.
    • Employers may limit the unused amounts to the employee’s salary reductions through the date participation ceased. (Systems are not established to allow for this type of customization.)
    • The spend-down will not prevent individuals from having a loss of coverage for COBRA purposes. Therefore, COBRA notifications offering Health FSA coverage must still be sent to Qualified Beneficiaries. Employers may allow employees to be reimbursed for up to the amount contributed to the HCFSA as of the date of the Qualifying Event or the employee may elect COBRA coverage to access the entire FSA election.

    Dependent Care Age Relief: Employers may extend the maximum age from 12 to 13 when reimbursing dependent care expenses.

    • This applies for participants whose enrollment period ended on or before Jan. 31, 2020. (The wording in the Notice is a little convoluted. For elections that qualify based on the timing of the election, the Notice allows children an additional year to incur claims. If a child turned 12 and aged out of the plan during 2020, expenses could be reimbursed through age 13.
    • This provision does not apply for 2021 plan years (or for any elections after the cutoff date).    
    • Allows employees to use remaining balances which were previously elected.
    • This provision does not allow for prospective elections for children who are already over age 12.
    • Balances may be used in the following plan year.
    • Employers can adopt this relief without adopting the carryover or grace period relief.
    • Administrative difficulties will potentially ensue with this provision, especially if the participant has other eligible children. (FSA administration systems are built to track dependent care reimbursements against the total balance, not to specific children.)

    Mid-Year Election Changes – FSA Plans: The guidance allows certain, prospective mid-year election changes for health and dependent care FSAs for plan years ending in 2021. At the employer’s discretion, plans may allow employees to prospectively revoke, increase, decrease, or make a new FSA election mid-year.

    • Election changes are not required to meet the standard election change requirements outlined by the IRS.
    • Amounts contributed to an FSA after a revised election can be used for eligible expenses incurred during the first plan year beginning on or after January 1, 2021, even if the employee was not enrolled in the FSA on January 1, 2021.
    • Employers must define how unused contributions are treated following a revocation. Specifically, are contributions available to reimburse expenses incurred during the rest of the plan year or only before the revocation? (FSA administration systems do not typically do not allow for this type of customization.)
    • HSA eligibility will be impacted by a “crossover” in reimbursement eligibility due to this provision. If a health FSA allows an election revocation that terminates plan participation but allows reimbursements to be received regardless of when expenses were incurred, the health FSA will be considered disqualifying coverage for HSA eligibility purposes.
    • If expenses incurred before participation ends can be submitted, the health FSA will not be considered disqualifying coverage for months after the revocation date.
    • An employer may allow amounts contributed to a health FSA or dependent care FSA after a prospective election change opportunity, to be used for any eligible expenses incurred retroactively to the start of the plan year that begins on or after January 1, 2021.
    • For example, under a calendar year plan, an employee who makes a mid-year election to enroll in an FSA on February 1, 2021 may use the FSA for claims incurred back to January 1, 2021, even though the employee was not enrolled in a health FSA or dependent care FSA at that time. (FSA administration systems are typically set up to require claims to be incurred after the election date, as is required by the regular cafeteria plan rules.)
    • Allowing elections to cover retroactively incurred claims is a significant deviation from all standing guidance for FSA plans. It also opens up the plan to the potential for significant adverse selection and payroll processing complexities.

    Mid-Year Election Changes – Health Plans: The guidance also presents a NEW election change opportunity for plan participants. Participants may make prospective mid-year election changes in medical, dental or vision coverage.

    • Applies to plan years ending in 2021.
    • At the employer’s discretion, plans may allow employees to prospectively make any of the following changes mid-year:
      1. Make a new health plan election
      2. Revoke and existing health coverage election and elect other coverage offered by the employer
      3. Revoke an existing health coverage election.
    • Election changes are not required to meet the standard election change requirements outlined by the IRS.
    • If coverage is revoked, employees must attest in writing that they have obtained other health coverage not sponsored by the employer. (A sample attestation is provided.)
    • Employers have full latitude to offer some or all of the election change opportunities. This includes restricting changes to a specific type of coverage (say, medical only) or offering change opportunities for certain of the change options but not others.

    HSA Issues

    The relief measures provided for FSA plans could wreak havoc on participants making contributions to an HSA. To this end, the IRS directly addressed and clarified several important issues.

    • Carryover relief, grace period relief, and health FSA spend-down are considered extensions of non-HDHP coverage that adversely affect eligibility for HSA contributions (unless the health FSA is HSA-compatible).
    • Plans can be amended to allow employees to opt out of a carryover or extended period for incurring claims in plan years ending in 2021 and 2022 to preserve HSA eligibility. (But this add significant complexity for employers and FSA administrators since these type of elections are not typically done on an individual basis.)
    • Plans may also allow midyear election changes to switch between HSA-compatible and general-purpose health FSAs (or vice versa).
    • Care must be taken when making any such change as both timing of coverage and type of account matter in defining HSA eligibility. To maintain HSA eligibility, it is important that participants not be covered by a general purpose FSA or any other non-HDHP coverage.

    Health Plan Election Changes

    Employers, at their discretion, may permit §125 plan participants to make the following changes, provided they are made on a prospective basis:

    • Make a new election (if the employee initially declined to elect employer-sponsored health coverage)
    • Revoke an existing election and make a new election to enroll in different health coverage (sponsored by the same employer)
    • Revoke an existing election, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer.

    This applies to health, dental, or vision coverage, and it applies for plan years ending in 2021. This relief mirrors previously provided relief for calendar year 2020).

    For the situation when an employee attests that they have or will enroll in other health coverage, sample attestation language is provided in the notice. Also, the notice states that employers may rely on an employee’s attestations absent actual knowledge to the contrary.

    Employers have full discretion in electing to fully or partially extend these relief measures and can place certain other limits on these changes so long the plan impact does not discriminate among plan participants.

    Plan Amendments 

    Consolidated Appropriations Act of 2021: Employers wishing to implement elements of the permissible changes allowed by the Consolidated Appropriations Act of 2021 must adopt an amendment by the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. For example, for calendar year 2020 plans, amendments must be adopted prior to December 31, 2021. In the meantime, plans must operate their plans in accordance with the amendment’s terms retroactive to its effective date.

    Employers must also inform eligible employees of the changes. The deadline for adopting a carryover relief amendment is based on the end of the plan year from which the funds are carried over.

    CARES Act: Employers planning on implementing Cares Act provisions allowing tax-favored reimbursement of expenses for OTC drugs without prescriptions and menstrual care products in health FSAs and HRAs must also execute formal plan amendments.

    Employer Action

    Employers should review the permissive flexibility offered by the CAA and carefully consider whether to adopt any provisions. The additional administrative burden (both internally and in concert with FSA administrators) and the potential cost (both time and potential administrative expense) should be carefully weighed against the additional flexibility the relief offers for plan participants.

  • 2021 San Francisco HCSO Requirement Due April 30

    5/26/2021 Update: The 2020 SF HCSO reporting requirement has been waived. READ MORE HERE

    The San Francisco Health Care Security Ordinance (SF HCSO) requires covered employers to make a minimum health care expenditure on a quarterly basis on behalf of all covered employees. While the ordinance has been in place for many years (since 2008), many employers are still out-of-compliance or unsure how the rules apply. With the annual reporting requirement being due next month (April 30), now is a good time remind employers of their full obligation under the SF HCSO.



    Covered Employers

    Employers are subject if they have 20+ employees (50+ for non-profits), with 1 or more working in the geographic boundary of San Francisco, and required to obtain a San Francisco business registration certificate. Small employers 0-19 (0-49 non-profit) are exempt.

    Tip: The headcount for determining your company size under HCSO – both for determining applicability and expenditure rate – includes ALL employees, regardless of status, classification, or contract status. That means even temp or contract employees that are 1099 or through an agency still count!


    Covered Employees

    Employees working an average of 8 or more hours per week in San Francisco and entitled to be paid minimum wage. There is a waiting period of 90 days.

    Tip: Look at the exemption criteria closely. The manager/supervisor exemption is coupled with the salary exemption amount, meaning the two are not separate. An employee needs to make more than the salary exemption (2020: $102,754 annually) AND be considered a manager/supervisor/confidential employee per HCSO.


    Calculating Expenditure Rate (Updated for 2021)

    Rates are based on employer size and are calculated per hour payable to covered employees. A medium size employer is 20-99 employees (50-99 non-profit) with a rate of $2.05 per hour for 2020 and $2.12 per hour for 2021, while a large employer is 100+ employees with a rate of $3.08 for 2020 and $3.18 per hour for 2021. The reporting due on April 30 is for the 2020 plan year.

    Tip: Hours worked include both paid and entitled, like PTO. Maximum hours for the calculation are capped at 172 a month.


    Making Expenditures

    For full-time, benefit eligible employees, average costs for medical, dental, and vision can be used. For most employers, the minimum expenditure is easily reached. A large employer would need to spend approximately $534 per month in 2020 on an exempt or 40-hour non-exempt employee. Most medical, dental, and vision premiums, when combined, exceed that amount. Remember that employee contribution amounts cannot be included in the calculation. For non-benefit eligible employees, the expenditure would be made quarterly. The simplest method for making an expenditure is via the San Francisco City Option. The quarterly expenditure option does not apply to employees enrolled in a self-funded plan. The calculation for a self-funded plan is done after the close of the plan year and any top off contributions would be due by the end of February of the following year.

    Tip: Being benefit eligible does not immediately mean that HCSO requirements are met and expenditures do not need to be made. If a benefit-eligible employee waives the employer’s company sponsored health plan, the employer is still required to make a minimum expenditure on behalf of that employee. That means paying into the City Option, similar to non-benefit eligible employees. The exception is if the employee voluntarily signs the HCSO Waiver Form. You may NOT coerce an employee to sign the form and the form language dissuades one from signing it! Due diligence would mean sending the form to a waived employee and if the employee chooses not to sign, be sure to make the quarterly expenditure.

    Due Dates

    Quarterly expenditures are due 30 days following the end of the quarter. First quarter expenditures are due April 30th. Annual Reporting to HCSO of covered employees and expenditures made are also due April 30th and is completed online. The online form will be posted to the OLSE HCSO website no later than April 1, so mark your calendars.


    Risk

    There are penalties for non-compliance – up to $100 per employee per quarter for failure to make expenditures and up to $500 per quarter if the annual reporting is not submitted. There are other penalties as well for retaliation, failure to provide records to OLSE, and failure to post the required notice. However, while there is no guarantee, the OLSE generally does not fine an employer that has been out-of-compliance that now comes into compliance. The bigger risk is if an employee complains as that is generally when the OLSE would act and penalize for non-compliance.

    COVID-19 Impact

    Consistent with the Emergency Proclamation by the SF Mayor, the employer requirement to submit the 2019 Annual Reporting Form for the Health Care Security Ordinance and the Fair Chance Ordinance was cancelled. There has been no additional relief for the 2020 reporting due April 30th of 2021.

    Remember that the definition of a covered employee under HCSO hinges on where work is performed. Given the work from home orders starting in March of 2020 employers will need to count and confirm expenditures for employees who live in San Francisco if they previously worked at a job site outside of the city boundaries.


    More Information

  • CARES Act Deadline Extension

    Recall that as part of the IRS/DOL response to COVID-19, multiple COBRA and health plan deadlines were extended until after the Outbreak Period (60 days after the end of the National Emergency) or until February 28, 2021 (whichever is earlier). When this legislation was passed, few expected the pandemic to still be impacting daily life into 2021. As the sunset date approached, the joint agencies were silent on whether the extended deadlines would actually expire given the continuing impact of COVID-19 and the fact that the Outbreak Period is still open. This left employers and plan participants alike wondering about how to administer the deadline extensions.

    Finally, Guidance!

    Finally, on February 26, 2021, The Employee Benefit Security Administration (EBSA) issued clarifying guidance. The guidance essentially redefined the deadline extension to the earlier of the following:

    • 60 days after the end of the Outbreak Period
    • One year after the initial deadline for any given individual.

    Fundamentally, the regulators stretched the interpretation of the law to the maximum extent possible with the intent of offering maximum flexibility and protection for plan participants. In doing so, they also created a veritable nightmare for plan administrators. Now, each individual has a personalized deadline extension (up to a maximum of one year) from the date of their initial election deadline.

    Examples

    Example #1: A qualified beneficiary would have been required to make a COBRA election by March 1, 2020. The new guidance delays that requirement until February 28, 2021. This is the earlier of one year from March 1, 2020 or the end of the Outbreak Period (which remains ongoing).

    Example #2: A qualified beneficiary would have been required to make a COBRA election by March 1, 2021. The new guidance delays that election requirement until the earlier of one year from that date (i.e., March 1, 2022) or the end of the Outbreak Period.

    Example #3: A plan would have been required to furnish a notice or disclosure by March 1, 2020. The new guidance delays the notice/disclosure deadline to February 28, 2021.

    In all circumstances, the delay for actions required or permitted does not exceed one year.

    Reasonable, Prudent, and in the Interest of Employees

    The DOL recognizes that affected plan participants may continue to encounter an array of problems due to the ongoing nature of the COVID-19. In fact, in an unprecedented statement, they went so far as to articulate the following:

    Plan administrators should act reasonably, prudently, and in the interest of employees to ensure their families maintain their health, retirement, and other employee benefit plans for their physical and  economic well-being.

    Here, the DOL has provided loose-but-real guidance that employers should make reasonable accommodations to prevent the loss of or undue delay in payment of benefits. In such cases, employers should take steps to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established time frames.

    While always maintaining the commitment to plan compliance, the team at Vita has and will continue to support employers and plan participants in this spirit.

    Mind Your Insurance Contracts

    A very real quagmire is presented here for employers. To the extent that an employer takes actions “in the interest of preventing loss of benefits for employees” (and qualified beneficiaries) but outside the legislatively defined deadlines, they run the risk of extending coverage outside of the insurance contract they have secured with their carrier. Extreme care should be taken in such actions as insurance carriers are not under any obligation to extend such grace, especially when it might result in adverse selection.

    Reminder of Impacted Deadlines

    Following are the deadlines that remain impacted by this legislation and for which the new deadline extension framework applies.

    COBRA

    • The 60-day deadline for individuals to notify the plan of a qualifying event
    • The 60-day deadline for individuals to notify the plan of a SS determination of disability
    • The 30-day deadline for employers to notify plan administrators of a COBRA event
    • The 14-day deadline for plan administrators to furnish COBRA election notices (44 days when combined with 30 days above)
    • The 60-day deadline for participants to elect COBRA
    • The 45-day deadline in which to make a first premium payment
    • The 30-day deadline for subsequent premium payments.

    HIPAA Special Enrollment

    • The 30-day special enrollment period triggered when eligible employees or dependents lose eligibility for other health plan coverage (in which they were previously enrolled)
    • The 30-day special enrollment period triggered when an eligible employee acquires a dependent through birth, marriage, adoption, or placement for adoption
    • The 60-day special enrollment period triggered by changes in eligibility for state premium assistance under the Children’s Health Insurance Program or loss of Medicaid/CHIP eligibility.

    Group Health Plans (Including FSAs)

    • The deadline for individuals to file claims for benefits, for initial disposition of claims, and for providing claimants a reasonable opportunity to appeal adverse benefit determinations
    • The 180-day timeframe to appeal
  • New 1095 Codes for Individual Coverage HRAs

    It’s 1095 season! The IRS has announced two new codes for the 2020 Form 1095-C for use with an Individual Coverage HRAs (ICHRA). The IRS website indicates that employers offering ICHRAs can use two previously reserved codes (from Code Series 1 on Form 1095-C, line 14) for reporting offers of coverage for 2020:

    Code 1T: This code indicates that an ICHRA was offered to an employee and spouse (not dependents) and that affordability was determined using the employee’s primary residence zip code.

    Code 1U: This code indicates that an ICHRA was offered to an employee and spouse (not dependents) and affordability was determined using the employee’s primary employment site zip code under an affordability safe harbor.

    This change corrects an oversight in the 2020 Form 1095-C code options. The existing code options did not address all the potential coverage options for an ICHRA. Specifically, codes for three coverage possibilities were available, but the scenario where ICHRA coverage was offered to an employee plus a spouse (without dependents) was not covered by the available code options. This update corrects that omission.

  • How Remote Work Has Changed Employer Posting Requirements

    Little has been said lately about how to handle required employment and legal notices in remote work arrangements. Historically, requirements for notification of employee rights have been satisfied by placing gigantic rights notification posters on bulletin boards, in break rooms, and where employees gather for lunch. This practice was put in place long before the digital age and is outdated for a substantial portion of today’s workforce, especially given the migration to remote work for many employees in the COVID era.

    Overview

    The DOL recently released guidance on complying with notice and posting requirements in remote work environments. Specifically, the guidance clarifies when employers may disseminate poster information exclusively in electronic form, when it can be simply “posted” electronically, and when it needs to be “pushed” directly to employees. Across the board, federal, state, and local laws require employers to post notifications “in a conspicuous location” as the means of notifying employees of their rights under various laws. Even recently passed laws have failed to define any electronic distribution alternatives.

    One-and-Done vs. Continual Posting

    The guidance to distinct categories of notification:

    • Notices that must be continually posted (FLSA and FMLA posters)
    • Notices that may be provided once to each employee individually (Service Contract Act posters), typically via email.

    Continuous Posting Requirements

    Several of the statutes require that employers “post and keep posted” these notices indefinitely and thus, do not permit employers to meet their notice obligations through a direct mailing or other single notice to employees. In this case, the regulations consider electronic posting an acceptable substitute for the continuous posting requirement if:

    • All of the employer’s employees exclusively work remotely,
    • All employees customarily receive information from the employer via electronic means, and
    • All employees have readily available access to the electronic posting at all times.

    This ensures the electronic posting satisfies the statutory and regulatory requirements that such postings be continuously accessible to employees.

    Where an employer has employees on-site and other employees teleworking full-time, hard copy posting is still required for on-site employees. The employer may supplement a hard-copy posting requirement with electronic posting. The guidance encourages both methods of posting.

    Posting Notices Electronically

    If an employer seeks to meet a worksite posting requirement through electronic means, such as an intranet software, website, or shared network drive, the electronic notice must be “as effective as” a hard-copy posting.

    As a number of the statutory provisions below require that affected individuals be able to readily see a copy of the required postings, where an employer chooses to meet a worksite posting requirement through electronic means, the same requirements apply in the electronic format. As a practical matter, a determination of whether affected individuals can readily see an electronic posting depends on the facts. The guidance outlines that electronic posting on a website or intranet is not a sufficient means of providing notice if an employer does not customarily post notices to affected employees or other affected individuals electronically.

    Posting on an unknown or little-known electronic location has the effect of hiding the notice, comparable to displaying a hard-copy of the required notice in a custodial closet or storage room. Such postings would be considered insufficient.

    Key E-Posting Requirements

    All posted notifications must be “readily available” for workers which means employees have direct and easy access to the notice. Specifically, employees should not have to request permission to access a web posting or a posting on a shared network drive. Lastly, employers must inform employees where the e-posts are located and provide instructions on how to access them electronically. In short, common sense rules the day for e-posting. An electronic post should as conspicuous and as easy for employees to access as a lunchroom poster.

    Job Applicants

    For laws that require posters be visible to job applicants (such as the Employee Polygraph Protection Act), electronic-only posting is permitted if the hiring process is conducted remotely, and applicants have readily available access to the electronic posting at all times.

    State and Local Laws

    The DOL guidance applies only to federal notice and posting requirements. However, there are many state and local posting requirements, as well. For example, California law requires employers to post information related to minimum wage laws, discrimination and harassment, and medical leave and pregnancy disability leave. While there is no specific state-law guidance at this time, employers would do well to mirror federal electronic posting standards for remote employees to assure that required access to information is maintained for remote workers.

    Resources

    Following is the link to the DOL Field Assistance Bulletin: https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/fab_2020_7.pdf

  • 401(k) Update: Q1 2021

    Administration

    2020 Year-End Census Information Due Now!
    It’s that time again! Perhaps one of the most pressing compliance matters is the submission of census data to begin compliance testing. Sponsors of calendar-year 401(k) plans subject to the Average Deferral Percentage (“ADP”) or Average Contribution Percentage (“ACP”) Tests (i.e. all Non-Safe Harbor Plans) must submit their 2020 census data now to ensure timely results.

    Be sure to submit your annual census data and compliance questionnaires to your recordkeepers by their specific deadlines. Typically, this information is due no later than January 31st, though we have seen due dates as early as January 15th. This allows the recordkeepers sufficient time to process the year-end tests and deliver results to you before March 15th, which is the deadline for employers to process corrective refunds (for failed ADP tests, if applicable) without paying a 10% excise tax. Please contact Vita Planning Group if you have questions regarding your recordkeeper’s year-end requirements.

    For other important dates on the horizon, download our online Compliance Calendar.

    2021 Contribution Limits1
    As a reminder, the employee contribution limits for 2021 are remaining the same as last year, with the standard limit set at $19,500 and the age 50+ catch up amount set at $6,500. For your convenience, we have illustrated below the maximum per pay period deferral amounts based on two common payroll cycles.

    • $19,500 max:
      26 pay periods - $750.00
      24 pay periods - $812.50

    • $26,000 max (age 50+):
      26 pay periods - $1,000.00
      24 pay periods - $1,083.33

    Plan Document Restatements
    Approximately every 6 years, the IRS requires employer-sponsored retirement plans to update their plan documents through a process called “restating” the document. Most 401(k) and 403(b) plans use an IRS-pre-approved plan document created by their recordkeeper or third-party administrator and this cyclical process ensures that documents are updated to incorporate regulatory changes from any mandatory or voluntary amendments that may have been adopted since the last time the document was restated.

    This process is owned by your plan’s recordkeeper or third-party administrator so be on the lookout for this task over the coming months. Generally, the restatement involves providing you with the updated plan document for review and adoption (i.e. signature). The deadline2 to restate plan documents is July 31, 2022, however we expect recordkeepers and third-party administrators to begin rolling out the process this year.

     

    401(k) News

    CARES Act COVID-19 Provisions End
    The COVID-19-related loan and distribution provisions of the CARES Act ceased at the end of December 2020.3 Any loan repayments that were suspended under the CARES Act will need to resume with the first payroll in January 2021. Please ensure that you receive an updated amortization schedule from your retirement plan recordkeeper and update your payroll records accordingly.

    While the CARES Act withdrawal provisions ended, FEMA has declared the COVID-19 pandemic a disaster in all 50 states, hence the hardship withdrawal provisions passed as part of the SECURE Act remain in force. It is important to note that disaster-related hardship distributions, in the context of the SECURE Act, do not provide the same tax relief that COVID-19-related distributions offered under the CARES Act and would be subject to normal hardship distribution rules.

     

    Consolidated Appropriations Act, 2021
    The Consolidated Appropriations Act, 2021 was signed into law on December 27, 2020. The comprehensive bill provides funding for the federal government and provides additional COVID-19 relief to individuals and businesses. Although the CARES Act was not extended as part of the passage of this legislation, the Act included retirement plan provisions that provide some relief to plan sponsors and participants.

    For example, the Act enables certain retirement plan sponsors that laid off or furloughed employees due to the COVID-19 pandemic to potentially avoid a partial plan termination.

    The bill4 states: “A plan shall not be treated as having a partial termination (within the meaning of 411(d)(3) of the Internal Revenue Code of 1986) during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020.” Essentially this allows relief to companies who rehire previously laid off workers by avoiding a partial plan termination.

    The Act also allows for “qualified disaster distributions” from retirement plans for participants affected by disasters declared by the President under the Stafford Act, other than the COVID-19 pandemic. Participants in 401(k), 403(b), money purchase pension and government 457(b) plans may take up to $100,000 in aggregate from their retirement plan accounts without tax penalties. Income tax on those distributions may be spread over three years, and participants may repay them into a plan that is designed to accept rollovers within three years. The bill states that participants have until 180 days after enactment of the bill to take qualified disaster distributions.

     

    Market Update5

    Markets in the fourth quarter of 2020 were buffeted in by countervailing forces: between the upswing in COVID-19 cases around the globe and the delivery of a vaccine; between the result of the US Presidential election and the attempts to contest its validity; between the timing of continued governmental economic support and its scale. Despite several sharp declines during Q4 2020, asset markets finished up for the quarter and for the year overall. The S&P 500 rose nearly 12% in Q4, taking the index up over 18% for the year. The pace of US bond market appreciation slowed with the BarCap US Aggregate Bond Index up 0.64% in Q4, resulting in a rise of 7.5% for the year. Overseas, the MSCI All Country World ex US index surged 14% in Q4, leaving the index up 6.5% for the year. The rollout of COVID-19 vaccine programs as well as the expectation of continued fiscal and monetary support should be positive for asset markets in early 2021.

    At the end of 2020, US GDP and employment were struggling to regain their levels seen at the beginning of the year with progress being impeded by the spike upward in the number of COVID cases in the US and the resulting social distancing measures re-introduced to control their spread. 2020 Q3 US GDP was revised upward to 33.4% annualized rate, up from the record 31.4% plunge in Q2. Despite this strong bounce back, GDP is still about 3.5% below its 2019 Q4 level. Strong consumer spending in October and an increase in industrial production in November have resulted in estimates for GDP growth in Q4 2020 as high as 5%. At the end of November 2020, unemployment was at 6.7%, and 56% of jobs lost at the outbreak of the pandemic have been regained. The slower-than-expected nonfarm payroll increase of 245,000 in November may signal that job gains will moderate at the end of 2020 and into 2021.

    The rollout of COVID-19 vaccines continued governmental economic support and stimulus, and the release of pent-up consumer and corporate demand is leading to expectations of continued support for asset markets, both in the US and overseas in 2021. US equities in 2021 should benefit from increasing corporate earnings, due both to higher margins and improving GDP growth. However, the easy monetary policy and massive fiscal spending that helped bond markets appreciate in 2020 have pushed the 10 Yr US Treasury yield below 1% and compressed credit spreads making the outlook for bonds, in terms of either income or capital appreciation, more difficult to project. Even with the run up in overseas equity prices in Q4 2020, both overseas emerging and developed markets appear cheap relative to US equities, trading well below historical price-to-book and price-to-earnings ratios. The same health, economic support and demand factors that are supportive of US equities, appear as compelling overseas as we begin 2021.

            

    This commentary is provided for informational purposes only and does not pertain to any security product or service and is not an offer or solicitation of an offer to buy or sell any product or service. Nothing in this commentary constitutes investment, legal, accounting or tax advice or a representation that any investment strategy or service is suitable or appropriate to your individual circumstances.
    Securities are offered only by individuals registered through AE Financial Services, LLC (AEFS), member FINRA/SIPC. Investment advisory services offered through Liberty Wealth Management LLC, a Registered Investment Adviser with the SEC. Insurance offered through Vita Insurance Associates, Inc. CA Insurance License 0581175. DBA Vita Companies. AEFS is not an affiliated company with Liberty Wealth Management, or Vita Companies.

     

     

    Sources:

    1 IRS 401(k) Limits

    2 Cycle 3 DC Plan Restatements FAQ

    3 CARES Act Q&A

    4 Consolidated Appropriations Act, 2021

    5 JPMorgan Asset Management, Guide to the Markets – U.S. Economic and Market Update, 1Q 2021 December 31, 2020.

  • Extension of FFCRA Tax Credit Into 2021

    The Families First Coronavirus Response Act (FFCRA) requires employers with less than 500 employees to provide employees with 80 hours of paid sick leave for specified reasons related to COVID-19. In addition, employers are required to provide up to 10 weeks of paid, job-protected leave for employees who have worked for their employer for at least 30 days and who are unable to work due to the need to care for a son or daughter whose school is closed or the unavailability of a childcare provider due to COVID-19. The legislation was due to sunset on December 31, 2020.

    Extension

    President Trump signed a relief bill into law on December 27, 2020. While the full FFCRA law was not extended into 2021, employers can now elect to continue allowing employees to take unused FFCRA paid sick and family leave and receive the federal tax credit for through March 31, 2021.

    Employer Action Items

    1. Decide whether to offer continued paid sick leave and paid family leave until March 31, 2021.
    2. Communicate corporate decision and any process requirements to employees.
    3. Confirm any state or local laws that impact decision.

    Optional, Not Mandatory

    Employers are not required to provide paid leave after December 31, 2020 (as was the case under the FFCRA through December 31, 2020). However, as of January 1, 2021, employers may voluntarily offer such leaves and may continue to take the same payroll tax credit as was previously afforded under the FFCRA.

    The relief package does not change the qualifying reasons for which employees may take leave, the caps on the amount of pay employees are entitled to receive, or the FFCRA’s documentation requirements.

    Same Pool of 80 Hours

    The law also does not change the amount of leave that employees are entitled to take under the FFCRA. Under the FFCRA, full time employees are entitled to a one-time allotment of 80 hours of paid sick leave and 12 weeks of expanded family medical leave. Therefore, an employer is generally not entitled to a second tax credit for an employee taking leave in 2021, if that employee exhausted FFCRA leave in 2020.

    Local Regulations

    Despite the fact that employers are no longer required to provide FFCRA leave after the first of the year, employers should be mindful that some states and local governments have enacted COVID-19 leave laws, which may or may not expire at the end of the year. For example:

    • New York: The quarantine leave law requires that New York employers provide job-protected sick leave to employees who are subject to a mandatory or precautionary order of quarantine or isolation. This does not expire at the end of the year.
    • Colorado: The state-specific COVID-19 leave law sunsets on December 31, 2020. The state paid sick leave program begins phasing in on January 1, 2021.
    • California: The COVID-19 leave law expires on December 31, 2020 or upon the expiration of the paid sick leave provisions of the FFCRA. Although the federal relief bill allows employers to claim a tax credit for paid sick leave provided into 2021, it does not appear to change the expiration date of the specific paid sick leave provisions of the FFCRA. Therefore, unless the state amends the law or issues guidance to the contrary, California’s leave law will likely expire at the end of the year. However, unlike the federal FFCRA, the California law allows an employee who is on leave on the date that the law expires to complete their leave, even if this extends the leave period past the law’s expiration date.
  • COVID-19 Relief Package (Consolidated Appropriations Act, 2021)

    UPDATED 12-27-2020

    In a marathon push before the end of the year, Congress passed the Consolidated Appropriations Act of 2021, on Dec. 21, 2020. President Trump signed the bill on December 27, 2020. This legislation is a massive package that averts a government shutdown and provides $1.4 trillion to fund the federal government through September 2021. The bill also provides $900 billion in additional COVID-19 pandemic relief, funding a panoply of needs for individuals and businesses.

    The following summary outlines both general provisions of the COVID-19 relief package as well as provisions that directly impact employers and their benefit plans (listed first).

    FSA Plan Flexibility

    Under the bill, employers are allowed, but not required, to amend plans as follows:

    • Carryover unused FSA balance from plan year ending in 2020 to plan year ending in 2021.
    • Carryover unused FSA balance from plan year ending in 2021 to plan year ending in 2022.
    • Extend grace period to 12 months after the end of the plan year for plan year ending in 2020 and 2021 for both health and dependent care FSAs.
    • Provide employees who cease participation in a health FSA during calendar 2020 or 2021 the opportunity to receive reimbursements from unused benefits or contributions through the end of the plan year in which such participation ceased (including grace period if applicable). At this point it is not clear whether this permits reimbursement of expenses incurred after termination or is simply an extended run-out period. Additional clarification on this will likely be forthcoming.
    • Increase the maximum age (by one year) for dependent care beneficiaries who aged out during the pandemic. 
    • Prospective modification of election amount for health and dependent care FSAs (plan years ending in 2021).

    Employers have considerable flexibility in the timing for amending plan documents. Amendments must be made by the end of the first calendar year beginning after the end of the plan year in which the amendment is effective. For example, calendar year 2020 plan amendments must be adopted on or before December 31, 2021. Plans must operate consistently with the terms of the amendment retroactive to its effective date.

    FSA Plan Action Item for Employers

    Decide What to Adopt: Employers must decide which, if any, of the plan flexibility options offered by this legislation to adopt. While considerable time is allowed to actually execute formal plan amendments, decisions on these issues should be made reasonably quickly to clarify for plan participants exactly what their plans will allow.

    Expect Some Confusion: Employers can expect some measure of confusion in the marketplace and from plan participants. Some employers will adopt these enhanced flexibility provisions and others will not, adding a degree of variability that FSA plans do not typically have.

    Open Ended Plan Years: Employers should be aware that extending flexibility for plan participants, in terms of when claims can be incurred or submitted, comes with the consequence of not being able to close out plan years in a timely manner. For example, employers who adopted the grace period extension for 2019 plan years, technically, still cannot close out the 2019 plan year.

    Administration Platforms: Software platforms for FSA plan administration do not currently include mechanisms to allow the flexibility afforded by this legislation, such as rolling over balances. Suffice it to say, they will all be scrambling to modify their platforms to accommodate these changes. The changes will certainly be accommodated, but employers should expect potential delays while administration platforms are being updated.

    Clear Communication: After decisions are made, employers should distribute clear communication about any plan flexibility adopted so that plan participants understand exactly what, if any, additional flexibility is included in their plan.

    FFCRA Paid Leave Credits

    The FFCRA paid sick leave and expanded FMLA leave provisions have been extended for employers on a voluntary basis through March 31, 2021. The corresponding payroll tax credits for paid sick leave and expanded FMLA leave remain available for employers electing to offer the paid sick and family leave. As a reminder, employers are required to continue employee benefit plans through any such leave period.

    General Provisions of the Act

    Aid for Small Businesses: $325 billion in aid for small businesses struggling after nine months of pandemic-induced economic hardships. This breaks down as:

    • $284 billion to the SBA for first and second-draw PPP forgivable small business loans
    • $20 billion to provide Economic Injury Disaster Loan (EIDL) grants to businesses in low-income communities
    • $15 billion in funding available to shuttered live venues, independent movie theaters, and cultural institutions
    • $12 billion in funding available to help business in low-income and minority communities.

    Individual Stimulus Payments: $166 billion for a second round of economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year. Each dependent child is also eligible for a $600 economic impact payment.

    Unemployment Benefits: $120 billion to provide workers receiving unemployment benefits a $300 per week supplement from Dec. 26, 2020 until March 14, 2021. This is a renewal of the federal unemployment benefits provided by the CARES Act which expired in July. This bill also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others in nontraditional employment, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.

    Rental Assistance: $25 billion in emergency rental aid directed to assist those affected by COVID-19 who are struggling to make rent. Assistance under this program will be administered by state and local governments and applies to past-due rent and future rent payment, as well as to pay utilities and prevent utility shut-offs. The national eviction moratorium was also extended through Jan. 31, 2021.

    Transportation Industry: $45 billion in transportation funding, including $16 billion for airlines, $14 billion for transit systems, $10 billion for state highways, $2 billion each for airports and intercity buses, and $1 billion for Amtrak.

    Colleges and Schools: $82 billion in funding for colleges and K-12 schools significantly impacted by the coronavirus pandemic. This includes support for HVAC repair and replacement to mitigate virus transmission and $10 billion in childcare assistance.

    Health-Related Expenses: $22 billion for health-related expenses incurred by state, local, Tribal, and territorial governments.

    Food Assistance: $13 billion for emergency food assistance, including a 15% increase for six months in Supplemental Nutrition Assistance Program benefits.

    Broadband Expansion: $7 billion for broadband expansion.

    100% Deductibility for Business Meals: Temporarily allows a 100% business expense deduction for meals (rather than the current 50%) for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020 (not retroactive to the 2020 tax year) and expires at the end of 2022.

    Student Loan Provisions: The law extends the provision allowing employers to contribute up to $5,250 tax-free toward an employee’s student loan debt. This provision was set to expire on January 1, 2021 but was extended to payments made prior to Jan. 1, 2026. Notably, the law does not further extend the student loan moratorium on federally-held student loans and does not extend the forbearance period, the pause in interest accrual, or the suspension of collections activity past Jan. 31, 2021.

    PPP Round Two

    The return of the PPP is of particular interest to small businesses. The first round of PPP loans helped millions of small businesses acquire $525 billion in forgivable loans during the five months the program was accepting applications. The new round of PPP, or PPP2 as some are calling it, contains many similarities to the first round of the PPP but also has several important differences. Details of the new second round of the PPP can be found in the reference section below.

    Tax Deductibility of PPP Expenses

    The bill also specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS guidance that such expenses could not be deducted and brings the policy in line with what hundreds of other business associations have argued was Congress’s intent when it created the original PPP as part of the $2 trillion CARES Act.

    COVID-19 Payroll Tax Credits

    The Act also extends and expands the Employee Retention Credit (ERC) under the CARES Act. Eligible businesses may now take advantage of the ERC through July 1, 2021. The ERC program has been expanded and modified for calendar quarters beginning after December 31, 2020, as follows:

    • The ERC is expanded from a 50% refundable tax credit to 70%, and the $10,000 eligible wage limit per employee will be a quarterly limit (previously, this was an annual limit). So instead of a $5,000 credit per employee credit per year, the program will allow a credit of up to $7,000 per employee per quarter.

    • To be eligible for the expanded ERC in 2021, an employer must show that gross receipts for such calendar quarter are less than 80 percent of the gross receipts for the same calendar quarter in 2019, or it experienced a full or partial suspension of operations during the quarter due to a governmental order. There is also a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility.

    • The definition of a large employer for purposes of the ERC is modified to mean more than 500 employees (currently, this threshold is 100 employees). As such, for eligible small to midsize employers (those who averaged 500 full-time employees or fewer in 2019), qualified wages for purposes of the ERC will be wages paid to any employee during the quarter where the employer meets the gross receipts test or experienced a full or partial suspension of operations due to a governmental order. These employers also will be able to receive advances on the ERC at any point during the quarter based on wages paid in the same quarter in a previous year.

    In addition, employers who receive PPP loans may still qualify for the ERC with respect to wages that are not paid with forgiven PPP proceeds. This provision is effective retroactively to the enactment date of the CARES Act.


    PPP Details

    Eligibility

    PPP2 loans will be available to first-time qualified borrowers as well as to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:

    • Have 300 or fewer employees.
    • Have used or will use the full amount of their first PPP loan.
    • Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

    Loan Terms

    As with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable: 

    • Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
    • Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
    • Covered operating costs such as software and cloud computing services and accounting needs.

    To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks, the same parameters PPP1 had when it stopped accepting applications in August.

    PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum.

    Simplified Application

    The PPP2 program creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, borrowers will receive forgiveness if they sign and submit to the lender a certification that is not more than one page in length, include a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.

    Other Special Provisions

    The PPP2 also includes special allocations to support first-time and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders.

  • COVID-19 Vaccination Policy Considerations for Employers

    COVID-19 vaccines are starting to be rolled out, so now it’s time for employers to think about their vaccination policy! Can vaccines be mandatory in the workplace? Should they be? Can policies differ for different employees/workplace arrangements? Should they? What are the pros and cons? What is the right answer?

    EEOC Guidance

    On December 16, 2020, the EEOC weighed in on this issue and published specific guidance for employers. The guidance affirmed the information presented in this article (which was written and posted prior to the guidance). In a sentence, the EEOC indicated that employers may encourage or possibly require COVID-19 vaccinations, but any such policy must comply with the ADA, Title VII of the Civil Rights Act, and other workplace laws.

    General Agreement

    Legal experts generally agree that employers have a strong case for requiring employee vaccinations for certain segments of their employee populations. That said, there is an equally compelling argument that employers do not have a strong case for requiring vaccination of all employees, especially those employees who do not work in a public facing role, do not interface with other employees, or who work from home. Whatever vaccination policy is ultimately implemented, it must allow certain exceptions, must be applied only to jobs that have a reasonable business necessity for vaccination, and must be applied in a non-discriminatory manner.

    When CAN vaccinations be required?

    Employers may require employees to be vaccinated before returning to an onsite workplace if the failure to be vaccinated constitutes a direct threat to the public or to other employees in the workplace, specifically if an argument can be made that the virus could be easily transmitted in the workplace. The more likely it is that non-vaccinated employees might put customers, other employees, and/or the general public at risk, the more compelling the case will be for a vaccination mandate.

    When can vaccinations likely NOT be required?

    Employers who have office-based business and/or who have a remote workforce will have a more difficult time arguing the necessity of a vaccine mandate in the face of employees who value personal choice over a mandate. Even in an office environment that enables appropriate social distancing, some employees will value a vaccine mandate as they see it as important for personal safety. Other employees may find such a stance unpopular if they feel differently about personal choice. Employers will need to balance issues of personal choice, workplace safety, and attitudes toward public health safety when considering their workplace mandate policy.

    Potential Liability for Not Requiring Vaccination

    Facing liability for not requiring vaccination in the workplace is a potential conundrum for employers. It is possible that employees might allege that an employer has failed to provide a safe and healthy work environment if vaccination of all workers is not required. Providing a safe and healthy workplace is an Occupational Safety and Health Act (OSHA) requirement for all employers.

    It would certainly be groundbreaking to hold employers liable for not requiring vaccination, but it is equally groundbreaking to hold employers responsible for potentially hosting a work environment that could incubate or create the possibility of spreading the disease. Much of this discussion hinges on whether public health authorities (federal or local) take an aggressive or conservative stance in their future guidance to employers regarding whether unvaccinated employees may be allowed in the workplace.

    Current Guidance

    Available guidance indicates apparent support by several government agencies for mandatory vaccination policies. For example, based on the findings of the CDC, the EEOC has determined that COVID-19 meets the "direct threat" definition. During the pandemic, employers have relied on this guidance to justify asking employees more in-depth health-related questions and performing medical screening of employees before allowing them to report for work. However, the EEOC has yet to issue guidance for how it will view mandatory vaccine policies.

    For some employers, implementing a mandatory vaccination policy will be an important business consideration. For example, employers with employees in positions that provide direct health care, caretaking of children and the elderly, or serving other populations at elevated risk from COVID-19. However, it is generally thought that it will be difficult to apply a mandatory vaccine policy to ALL employees, especially those who may work at home or not be at particularly high risk for either contracting or spreading the disease.

    Because of the reality that rarely do all employees of an employer face the exact same personal risk, job risk, and work circumstances, it is generally thought that it will be difficult to apply a blanket vaccination mandate for all employees. In addition, there are also several important and necessary exceptions to a mandatory vaccine policy. These exceptions require that employers offer reasonable accommodation necessary for certain employees. Thus, adopting a policy that encourages and enables, but does not require, vaccination will be easier to administer for many employers.

    Reasonable Accommodations

    Federal laws prohibit employers from applying a mandatory vaccination policy without allowing exceptions for disability status or religious belief. While nothing prohibits an employer from adopting a policy that requires vaccination for all employees, certain accommodations must be allowed for employees needing a disability or religious exception.

    It should go without saying, but any accommodation for disability or religious reasons must be applied in a non-discriminatory manner and without retaliatory practices.

    Disability: In the context of flu vaccines, the EEOC considers that employers who are subject to the Americans with Disabilities Act (ADA) generally must provide reasonable accommodations to employees with disabilities that prevent them from receiving a vaccine. Under the ADA, an employer may request information including the nature of the limitation or disability and the difficulty or issue that vaccination would cause. An employer may also require an employee to provide documentation from the worker's medical provider to confirm the employee's specific limitation or disability and the need for accommodation.

    Sincere Religious Belief: Employers that are subject to Title VII of the Civil Rights Act of 1964 must reasonably accommodate individuals who notify them of sincerely held religious beliefs that prevent them from receiving the vaccine. Such accommodations can be more complicated. It should be noted that the EEOC has made it clear that protected religions are not limited to major, well-recognized faiths. Employers should note that the EEOC has indicated, "an employee's belief or practice can be 'religious' under Title VII even if no religious group espouses such beliefs or . . . the religious group to which the individual professes to belong [does] not accept such beliefs." As a rule, employers should accept that requests for religious accommodations are based on sincerely held beliefs. However, if an employee requests such an accommodation and an employer has an objective basis for questioning the sincerity of that belief or practice, the employer can request supporting information from the employee.

    This information could be a first-hand explanation from the employee or may be verified by third parties. It should be noted that “sincerity” can be difficult to measure, but generally such third-party verification can be provided by others who are aware of the employee's religious practice or belief. Employers should be careful not to pry for too much information as such practices may bring rise to a claim of requiring unnecessary evidence and thus risking liability for denying a reasonable accommodation request, at best, or a discrimination claim, at worst.

    Undue Hardship for Employer

    If an employee requests accommodation for disability or religious reasons, the employer has an obligation to provide one unless and until doing so would impose an undue hardship. Importantly, the meaning of "undue hardship" differs under the ADA and Title VII as follows:

    • ADA - Disability Accommodation: Undue hardship means "significant difficulty or expense" when considered in light of the accommodation's net cost, the employer's overall financial resources, the employer's type of operation, and the impact of the accommodation upon the employer's operation.
    • Title VII - Religious Accommodation: Undue hardship has been interpreted by the Supreme Court as meaning anything more than a de minimis burden.

    In either case, when such an accommodation is requested, employers should engage in an interactive dialogue with the employee to determine the nature of the disability or religious conflict, its impact on the individual's ability to perform the essential functions of the job (without compromising the safety of other employees, patients, or customers), the ability to meet the work requirements, and whether a reasonable accommodation exists that would not impose an undue hardship. Potential accommodations could include (but are not limited to) use of personal protective equipment (PPE), moving the employee’s work station or work location, a temporary reassignment, teleworking, or a leave of absence.

    What about those who just don’t want the vaccine?

    It is important to note that employers are not required to accommodate personal beliefs that do not fall under the ADA or Title VII. Examples include:

    • Secular Beliefs: Employers are generally not required to accommodate secular beliefs about the vaccine.
    • Personal Medical Beliefs: Employers are not required to accommodate personal medical beliefs, concerns, or fears about the vaccine.

    Action Items

    As COVID-19 vaccinations start to become available, employers will want to consider the following:

    1. Policy on vaccinations for some or all segments of their employee population.
    2. Anticipate requests for reasonable accommodation and think through how such accommodations will need to be adopted and the impact in workplace environments.
    3. Communication plan about new vaccination policies to employees.
    4. The COVID-19 public health and safety guidance from authorities is ever-changing as the pandemic evolves. As such, the EEOC has provided a robust resource page for employers.