American Rescue Plan Act
On March 11, 2021, President Joe Biden signed into law the American Rescue Plan Act (Act), a $1.9 trillion relief bill containing financial benefits for individuals, businesses, state and local governments and more. The following measures impact employers and employees:
The subsidy covers 100% of an eligible individual’s (including qualified beneficiaries) COBRA premium from April 1, 2021 through September 30, 2021 for individuals who qualify for COBRA due to a reduction in hours or an involuntary termination of employment. Any employee who lost coverage as of April 2020 is potentially eligible for the entire six-month subsidy, since their 18-month COBRA period would include the period from April 1, 2021 through September 30, 2021 when the subsidy ends. Individuals who voluntarily terminated employment are not eligible for the subsidy.
Covered Group Health Plans
All group health plan coverage such as medical, dental, vision and employee assistance programs (with counseling services) are subject to the subsidy. Flexible spending accounts (FSAs) are not subject.
The subsidy is funded through refundable payroll tax credits. The subsidy will be delivered by the employer paying COBRA premiums to the insurance carrier or covering the cost of providing COBRA coverage under a self-insured plan and then taking a payroll tax credit to be reimbursed for the cost of covering COBRA premiums.
The Act also creates a special enrolled opportunity for eligible individuals by making the subsidy available to employees who did not elect COBRA coverage during their original election period, in addition to those who initially elected COBRA but let their coverage lapse. Eligible individuals may elect COBRA during the period beginning on April 1, 2021 and ending 60 days after the date on which they are provided notice by the employer or plan administrator. Plan administrators are required to begin notifying eligible individuals of the COBRA subsidy within 60 days of April 1, 2021 (May 31, 2021).
If COBRA enrollment is elected, the subsidy will last for a maximum of six months and would end earlier if the individual’s maximum period of COBRA coverage (generally, 18 months) ends before September 2021. Additionally, coverage will also end early for individuals who become eligible for coverage under another group health plan or Medicare, and these individuals will be required to notify their employer of their new coverage or risk being subject to an individual penalty (greater of $250 or 110% of the subsidy amount) for failure to provide notice.
In addition, the Act allows employers to permit eligible individuals who are enrolled in coverage under the employer plan to change to a different coverage option offered under the plan. However, employers are not required to permit such a change. If an employer decides to allow plan changes, the election to change coverage options must be made by the individual no later than 90 days after the date of notice of the right to change options is provided to the individual. The premium for the new coverage must be equal to or less than the individual’s current plan option, and the new coverage option must be coverage that is offered to active employees in a comparable situation at the time the election to change is made.
The Act also creates notice requirements for employers. COBRA notices will have to include information about the availability of the subsidy and the special 60-day enrollment period for qualified beneficiaries. The notice must be in writing and must communicate to the recipient in “clear and understandable language” the availability of premium assistance under the Act and, if the employer has chosen to offer the optional plan coverage option change described above, the notice must describe that option. The additional information can be incorporated into the normal election notice or can be provided by including a separate document with the normal election notice.
The Act specifies that the notice must include all the following:
- The forms necessary for establishing eligibility for COBRA premium assistance.
- The name, address and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with premium assistance.
- A description of the extended election period provided by the Act.
- A description of the option to enroll in different coverage, if adopted by the employer.
- A description of the individual’s obligation to provide notice if the individual becomes eligible for other group health coverage or Medicare, and of the penalty for failure to provide such notice.
- A description “displayed in a prominent manner” of the individual’s right to a subsidized premium and any conditions on entitlement to the subsidized premium.
Plans are also required to:
- Send a separate expiration notice to eligible individuals when their periods of premium assistance are due to expire.
- Notify individuals if their subsidy will end before September 30, 2021, except in cases where the subsidy is ending due to the individual’s eligibility for other coverage.
The Act also requires the DOL to issue a model notice by April 10, 2021.
Next Step for Employers
Employers will need to review their records and begin to compile a list of COBRA qualified individuals and beneficiaries who had a qualifying event in 2020 to ensure that eligible individuals receive a notice regarding the subsidy and their ability to elect COBRA. Employers should also consider whether they will permit individuals to enroll in a different plan option and provide applicable notice.
Employers who internally administer COBRA will need to develop the appropriate notices required by the Act and be prepared to administer the subsidy. Employers who use the services of a third-party administrator (TPA) for COBRA administration will need to work with their TPA to ensure compliance. For employers who utilize HR Works’ COBRA administration services, we will be reaching out to clients and partners to confirm that the proper steps are being taken to ensure compliance.
Employers should take care to ensure that they reported accurate information to their TPA regarding terminated employees and beneficiaries, as TPAs who do not have accurate records will not be able to send notices to all impacted employees. Further, the use of and reliance on a TPA will not negate an employer’s responsibility for compliance.
The provision to voluntarily choose to offer leave under Families First Coronavirus Act (FFCRA) will remain the same as it has been as since January 2021. Under the American Rescue Plan, and effective April 1, private employers with fewer than 500 employees can start or continue to voluntarily provide leave under Emergency FMLA (E-FMLA) and Emergency Paid Sick Leave (EPSL). Employers who choose to continue to offer FFCRA leave will be eligible for the tax credit through September 30, 2021. In addition, the Act makes certain changes to FFCRA which will be effective on April 1, 2021 as follows:
New Covered Reasons for Emergency Paid Sick Leave
In addition to the six reasons for leave set forth in the FFCRA, employers will also receive tax credits for providing leave to employees who are:
- Obtaining an immunization related to COVID-19;
- Recovering from any injury, disability, illness or condition related to such immunization; or
- Seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19, when such employee has been exposed to COVID-19 or the employer has requested such test or diagnosis.
Reset of Paid Sick Leave Clock
With respect to employees who previously took 10 days of Emergency Paid Sick Leave (ESPL) under the FFCRA, the Act permits an employer to provide these employees with an additional 10 days of leave.
Emergency Family and Medical Leave Tax Credit Expansion
Previously, tax credit taken by employers to cover the cost of providing emergency FMLA (E-FMLA) was only available if the employee was unable to work (or telework) to care for their child whose school or place of care has been closed or was unavailable due to the public health emergency. Now, employers may claim tax credits for E-FMLA arising from any of the reasons set forth in the FFCRA (including the expanded reasons described above). The Act also removes the two-week waiting period on E-FMLA leave and raises the aggregate cap on emergency FMLA leave from $10,000 to $12,000.
The Act includes new non-discrimination rules for employers who opt to provide FFCRA leave and obtain the tax credits. Specifically, the Act disallows the tax credits for any employer who discriminates with respect to leave: (1) in favor of highly compensated employees (as that term is defined in Section 414(q) of the Internal Revenue Code); (2) in favor of full-time employees; or (3) based on employment tenure.
The Act also directs the Department of Labor to issue regulations or other guidance regarding these changes.
Next Steps for Employers
Employers should weigh their options and consider whether there is a benefit to their organization to continue to offer leave under the law. Employers who choose to continue to offer leave should also review their policies and procedures to ensure that they are compliant with the new changes made by Act. Employers should also keep in mind that in addition to leave under the FFCRA, many state and local governments enacted similar paid COVID-leave laws and ordinances which may still be in effect. For New York employers, the state’s COVID-19 Paid Sick Leave does not have an expiration date and presumably continues until an announcement from the state that said provision is no longer in effect.
Employers may contact HR Works for assistance with navigating the expanded and extended laws for FFCRA, and for support with their State and Fedreal leave administration needs.
The Act extends the $300 weekly Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation benefits that were available under the March 2020 Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the December 2020 Consolidated Appropriations Act, both of which were set to expire after March 14, 2021 through September 6, 2021. The Act also includes a provision which stipulates that the first $10,200 in unemployment benefits received in 2020 are non-taxable for households with incomes under $150,000.
The Act makes the following changes to the three programs:
Federal Pandemic Unemployment Compensation (FPUC)
The Act provides for a supplemental weekly benefit of $300 per week for each week of unemployment between March 14, 2021 and September 6, 2021.
Pandemic Emergency Unemployment Compensation (PEUC)
The Act extends PEUC by providing for up to 53 weeks of additional unemployment benefits to eligible individuals who have exhausted the unemployment benefits available under state law, permitting eligible recipients of unemployment benefits in many states to be eligible to receive up to 79 weeks of benefits.
Pandemic Unemployment Assistance (PUA)
The Act provides eligible individuals up to 79 weeks of PUA benefits, an extension from the 50 weeks of benefits provided previously under the Consolidated Appropriations Act.
In addition, the Act extends other CARES Act provisions through September 6, 2021, including the incentives for states to waive waiting periods. Specifically, the Act creates increased incentive for states to waive waiting periods as benefits paid during a waived waiting period will now be 100% federally funded, as opposed to the 50% funding provided for under the Consolidated Appropriations Act.
Next Steps for Employers
The federal government may issue updated guidance to address the implementation of these unemployment provisions considering this new legislation. Employers should monitor state websites for any applicable unemployment programs and up-to-date guidance.
For calendar year 2021, the Act increases the annual contribution limit for a dependent care assistance program (DCAP) from $5,000 to $10,500 (and from $2,500 to $5,250 for married individuals filing taxes separately). Employers with DCAPs can retroactively amend their plans to incorporate this increase, if the amendment is adopted by the last day of the plan year in which it is effective, and the plan operates consistently with the terms of the amendment until it is adopted.
The following are other notable measures create by the Act which may impact employers and employees:
Expansion of Subsidy for ACA Premiums
The Act increases the dollar amount of, and expands eligibility for, subsidies for health insurance coverage purchased through the Affordable Care Act (ACA) Exchanges by changing the formulas for health insurance tax credits, allowing a greater number of individuals to qualify for the credits. These and other ACA affordability changes made by the Act will expire after two years.
Paycheck Protection Program
The Act adds $7.25 billion to the Paycheck Protection Program Flexibility Act of 2020, which provided for fully forgivable loans for certain employers on the condition that they maintained their payroll and employee headcount.
Employee Retention Credit
The Act extends the employee retention credit created by the CARES Act through December 31, 2021. The Act also expands eligibility to new startups that were established by February 15, 2020, and for severely financially distressed employers whose gross receipts are less than 10% of what they were in the same calendar quarter for 2019. The credit is capped at $50,000 per calendar quarter for startups.
Multi-employer Pension Plans
The Act provides $86 billion to help fund struggling multi-employer pension plans to ensure workers receive their retirement benefits for the next 30 years.
HR Works will continue to monitor any employment-related developments under the Act and will communicate any new information as needed.
HR Works Can Help
We understand the challenges employers face with new and changing legislation, and the difficulties of keeping up with what needs to be done in order to remain compliant. We partner with employers across the United States to alleviate the administrative burdens and help mitigate risk associated with complex State and Federal laws.
Our experts are here to:
- Manage employee leaves of absence and COBRA administration
- Help you leverage your HR Technology to better manage payroll, tax, and other changes
- Update and develop important policies and employee communications
- Provide guidance and best practices for compliance