American Rescue Plan Act Provides Sweeping Relief Impacting Employee Benefits

The American Rescue Plan Act of 2021 (ARPA), signed into law by President Biden on March 11, is intended to accelerate the country’s recovery from the economic impacts of the COVID-19 pandemic. The ARPA provides financial support to individuals impacted by the pandemic, including a third round of stimulus checks to individuals, additional COVID-19 vaccination funding, and extended federal unemployment insurance. Additionally, the ARPA includes a number of provisions that impact employers and employee benefit plans, including the following:

• 100% COBRA Premium Subsidy. The ARPA creates a 100% COBRA premium subsidy and additional COBRA enrollment rights for certain “assistance eligible individuals.” An “assistance eligible individual” is a qualified beneficiary who is eligible for and elects COBRA from April 1, 2021, through September 31, 2021, due to an involuntary termination of employment or reduction of hours. There is no requirement that the termination or reduction of hours be related to COVID-19 – only that it be “involuntary.” The employer is required to pay 100% of the COBRA premium for assistance eligible individuals during the subsidy period and will be reimbursed by the federal government for such payments via a payroll tax credit.

The subsidy will last for six (6) months and will end the earlier of the assistance eligible individual’s maximum period for COBRA coverage, or upon the individual’s becoming eligible for coverage under Medicare or another group health plan during the subsidy period.

The ARPA also extends enrollment for individuals who already had an involuntary termination of employment or reduction in hours within the last 18 months and did not timely elect COBRA or dropped COBRA. Such individuals have a new 60-day election period following the date on which they receive a new required COBRA notice. In other words, individuals who do not have a COBRA election in effect on April 1, 2021, but who would be assistance eligible individuals if they had, are eligible for the subsidy. Employers are also permitted to allow assistance eligible individuals to enroll in different coverage that has the same or lower premium cost.

Employers must provide a revised COBRA notice to all individuals that may be eligible for the subsidy. The ARPA directs the DOL to issue new model COBRA forms for this purpose by April 10, 2021.

The COBRA subsidy poses potentially significant administrative burdens on employers. For example, as a result of the extended enrollment provisions, employers will be required to examine their COBRA records as far back as November 2019 (as the 18-months of eligibility would run through April 2021). The ARPA did not address how the COBRA subsidies will interact with the extended COBRA deadlines. (For more information about the extended deadlines, click here).

• Increased DCAP Maximum. The ARPA temporarily increases the amount of excludible dependent care flexible spending account benefits from $5,000 to $10,500 for 2021. Dependent care plans should be amended to recognize this change.
• Enhanced ACA Premium Tax Credit. For 2021 and 2022, the ACA premium tax credit is significantly expanded. Under existing rules, the credit is limited to taxpayers with household incomes between 100% and 400% of the federal poverty line who purchase insurance through the Exchange. The ARPA eliminates the upper income limit for eligibility and increases the amount of the credit by decreasing the amount that an individual must contribute to the cost of coverage.
• FFCRA Tax Credits Extended. The ARPA extends the tax credits available for paid leave provided pursuant to the Families First Coronavirus Response Act (FFCRA). While the FFCRA’s requirement to provide paid leave expired on December 31, 2020, the Consolidated Appropriations Act extended the credit through March 31, 2021, and the ARPA further extends the credit to paid leave provided through September 30, 2021.
• Eligibility for the Employee Retention Credit Extended. The ARPA extends the availability of the employee retention credit to December 31, 2021. The Consolidated Appropriations Act had already offered significant increases to the credit and extended availability for the credit through June 30, 2021. Importantly, the employee retention credit is now available to employers who received loan forgiveness under the PPP.

The ARPA includes several provisions that significantly impact employee benefit plans and impose additional administrative burdens on employers. Employers should analyze these provisions and determine the extent to which they impact their employer-sponsored benefit plans.