How Does ARPA Affect My Employee Benefits?

The American Rescue Plan Act, or ARPA, was signed into law on March 11 and is one of the Biden Administration’s earliest actions. The Act contains provisions impacting health care plan sponsors and administrators. It also affects pension plan funding requirements and executive compensation deductions available to employers.

Here is a breakdown of what else you can expect from ARPA as it relates to different benefits.

COBRA Subsidy

The Act will require employers to implement new processes in administering COBRA benefits from April 1 through September 30 of this year. Specifically, it requires employers to provide a full subsidy for individuals who qualify for continued coverage under COBRA (or state mini-COBRA laws), even if the employee has been terminated or his hours reduced. These provisions also apply for employees who voluntarily reduce their hours or quit. If the covered employee becomes eligible for Medicare or another group health plan (including a spouse’s employer’s plan) during the applicable six-month period, the obligation to subsidize terminates, effective as of the first day of the next month. However, the employee has a duty to notify the employer if he or she becomes eligible for another form of coverage.

This is clearly an added expense for employers. But employers can recover the amounts they spend on these subsidies by claiming refundable tax credits against the 1.45% employment tax they pay for hospital insurance. This means that if the subsidies exceed the amount the employer paid in employment taxes for hospital insurance, the employer will receive those surplus amounts as cash payments.

Employers must issue a notice to individuals eligible for these subsidies no later than May 31. Plans must provide additional COBRA opportunities to those who 1) would be eligible for a subsidy, but for the fact that they did not have a COBRA election in effect on April 1; and 2) individuals who elected, but discontinued, their COBRA coverage before April 1. Employees are entitled to the notice if their qualifying event for COBRA coverage was an involuntary termination or hours reduction within the past eighteen months.

Enhanced Enrollment Options

The Act also allows employers to permit subsidy-eligible employees to switch medical coverage to a plan that is no more expensive than their current plan. However, a significant caveat applies: Given that the subsidy will cover the full cost of coverage for up to six months, it is unlikely that employees will, if offered this choice, select a less expensive plan.

Dependent Care Flexible Spending Account (FSA) Limits

The Act increases the amount that employees may exclude as taxable income under a FSA from $5,000 to $10,500 for unmarried employees and those filing jointly, and from $2,500 to $5,250 for married individuals who are filing separately. It also expands the grace period that allows participants to accumulate eligible expenses after the end of a plan year from two and a half months to twelve months. Finally, it includes a carryover provision that allows employees to spend down their unused funds throughout the next plan year, rather than the existing “use it or lose it” framework.

Funding Requirements for Pension Plans

The Act provides funding changes that will affect single- and multi-employer pension plans. First, the Act increases the period over which single employer pension plans can amortize funding shortfalls from seven to fifteen years. It also extends the interest rate stabilization period for minimum funding through 2029. 

The Act also establishes separate funding relief provisions for multi-employer pension plans. Sponsors can apply the same funding status from a previous plan year for plan years beginning between March 1, 2020, to February 28, 2021, to the following plan year. It also extends the funding rehabilitation periods for plans in “endangered” or “critical” status from ten to fifteen years.

Executive Compensation for Covered Employees

ARPA expands the definition of “covered employee” for purposes of identifying the employees who are subject to the annual one million dollar deduction limit on compensation under Section 162(m) of the Internal Revenue Code. Currently, a “covered employee” includes the CEO, CFO, and the three highest-paid employees. Starting in 2021, “covered employees” will also include the next five highest paid employees, thus making at least ten employees subject to the one million dollar deduction limit.

Changes to Emergency Paid Sick and Family Leave

Tax credits are now extended through September 30, 2021, for employers who offer their employees paid sick and family leave under the Families First Coronavirus Response Act (FFCRA). Now, in addition to the current justifications for leave, employees qualify for emergency sick or family leave for:

●      Obtaining a COVID-19 vaccine

●      Recovering from an injury, disability, illness, or other condition related to the vaccine

●      Seeking or awaiting the results of a diagnostic test or medical diagnosis for COVID-19

The Act denies state tax credits to employers who use discriminatory practices in deciding to whom to offer medical or family leave. 

Unemployment

The Act extends the $300-per-week unemployment benefit entitlement through September 6, 2021. The first $10,200 in unemployment collected in 2020 will be deemed non-taxable for households with a total income of less than $150,000.

Small Business Benefits

ARPA contains provisions that help small businesses by earmarking $25 billion in grants for restaurants and other food and beverage businesses. These grants may be distributed in amounts up to $10 million for eligible businesses to use in funding payroll, mortgage or rent payments, and inventory.

The Act also adds another $7 billion to the existing Paycheck Protection Program (PPP), $15 billion to the Economic Injury Disaster Loan (EIDL) Advance program, and additional funding to the Shuttered Venue Operators Grant (SVOG) program for theaters, performing arts venues, and other entertainment venues.

Hammer Law PLLC is equipped and prepared to help you navigate your business’ new obligations and opportunities post-ARPA, along with other employment law needs and requirements. If you have any questions or would like to discuss further, please contact firm founder, Holly Hammer, by phone at 919-727-1509 or by email at holly@hammerlawpllc.com.