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 subsidized. FSA 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.

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.