On Sunday, December 27, the President signed the Consolidated Appropriations Act, 2021 (CAA, 2021) into law. This legislation includes continued funding for various government agencies and additional COVID-19 relief measures and extensions. Among the COVID-19 relief provisions are many that will be impactful for employers and their benefit plans.
There are a number of provisions of the law that employers should be aware of and decide whether to act on. It is also important to note that there are several provisions that will require additional guidance or regulations from various agencies. Below is detail about the most urgent provisions as well as highlights for the provisions that Alight expects to have a longer timeline or more limited impact.
In addition to CAA 2021, the United States Department of the Treasury and the Internal Revenue Service (IRS) released Notice 2021-03 on December 22, which extends the temporary relief from Notice 2020-42 through June 30, 2021. This notice addresses the physical presence requirement for benefits elections, including signatures, witnessed by a notary public or plan representative and allow the witnessing and notarization to occur remotely via live audio-video conferencing.
CAA, 2021 (new or extended relief provisions):
Health and dependent care flexible spending accounts (FSAs) – Temporary rollovers and other relief
Employers will be permitted (not required) to amend their plans to provide more flexibility and allow employees an opportunity to use unused amounts in their health and/or dependent care FSAs through various options. Employers may:
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Allow employees to carryover unused amounts in their health and/or dependent care FSAs from 2020 to the plan year ending in 2021 and allow further carryover of any remaining 2021 amount to the plan year ending in 2022
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Allow up to a 12-month grace period, for those employers that allow a grace period, for participants to incur new expenses against prior year accumulated funds and submit claims
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Allow midyear election changes on a prospective basis without a change in status/election change event for plan years ending in 2021
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Allow health FSA participants who stop participating in the plan during calendar year 2020 or 2021 to continue to receive reimbursements through the end of the year during which they stop participating (including grace periods)
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Allow an age increase for dependent care FSAs from age 13 to 14 for an “eligible dependent” if the dependent otherwise would have exceeded the age 13 limit in 2020 and the employee participated in the dependent care FSA for 2020
Note that without additional agency guidance, it appears all other plan requirements and restrictions remain in effect. For example, the Health Savings Account (HSA) rules prohibiting contributions to an HSA while general purpose FSA funds are available (subject to limited exceptions). Similarly, there does not appear to be any relief from the prohibition from offering both a carryover and a grace period to participants. Employers may wish to review actual or anticipated 2021 enrollments and discuss possible changes with counsel to determine whether a grace period extension (or other actions) would unintentionally impact those transitioning into an HDHP/HSA arrangement for 2021.
Student loan repayments – Continue to be allowed under IRC 127 for 5 years
Expanding on the new provision earlier in 2020, employers will be allowed to continue to pay a tax-free benefit up to the educational assistance limit of $5,250 per year for student loan repayments through December 31, 2025. Employers may need to take action now to continue or start these types of payments in 2021 and beyond.
CARES Act Employee Retention Credit extension and enhancements
The CARES Act provided that certain employer “qualified wages” and “health care” expenses through 2020 can be credited against the employer’s payroll tax obligations. CAA, 2021 extends that credit for six months (through June 2021) and increases the potential reimbursement from 50% to 70%, among other changes. The new provisions are very detailed, and their applicability will heavily depend on the employer’s particular circumstances to qualify, but this could be an important opportunity to collect additional credits and save money on payroll taxes. Employers should review this with their tax counsel and consultants to maximize their value.
Retirement plan temporary protection against partial plan terminations
Retirement plans won’t be treated as having a partial plan termination for any plan year that includes the period from March 13, 2020 through March 31, 2021, if the number of active participants covered by the plan on March 31, 2021 is at least 80% of the number covered by the plan on March 13, 2020. This will help certain plans avoid or delay the requirements otherwise applicable to partial plan terminations.
CCA, 2021: Narrower or longer-term provisions
These sections of the law may apply less broadly to employers or, as noted, appear to be heavily reliant on future guidance in order to be actionable.
Pension plan relief for “qualified future transfers”
For pension plans that utilize the qualified future transfer provisions of IRC Section 420, the law provides crisis-related relief allowing the plan to make certain elections/changes and providing more time to rebuild to the required 120% funded status.
Allowance of Coronavirus-related distributions (CRDs) in money purchase pension plans
The CARES Act allowed in-service CRDs for most plans, this extends that ability to MPPPs for 2020.
Construction & building trades employer distributions
CAA, 2021 includes new permitted in-service distributions for certain construction and building trades workers age 55 and older so that they may receive retirement benefits while continuing to work.
FFCRA extensions for most government employers and private sector employers with fewer than 500 employees
The Families First Coronavirus Relief Act (FFCRA)’s emergency family and medical leave act required certain employers to provide family and medical leave, and provided tax credits for the leave through December, 2020. The CAA, 2021 extensions appear to extend the available tax credit provision to March 31, 2021, but not the leave requirement itself. This appears to mean that employers that voluntarily continue such leaves during that time may be able to take the tax credit for doing so.
Further extension of tax credits for paid family and medical Leave under the Tax Cuts and Jobs Act (TCJA)
Under the TCJA, employers with a paid medical and family leave meeting certain requirements can claim a tax credit based on the wages paid during the leave. This is a temporary program, but was previously extended to December 31, 2020, and under the CAA, 2021, this is extended through 2025.
The “No Surprises Act” for health plans and providers
These provisions will require additional rules and guidance from the agencies, but we expect it will be very impactful for employer plans. The requirements will include, among others:
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controls and arbitration related to “surprise” and out-of-network provider billing;
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increased transparency in pricing, cost-sharing, and provider quality information;
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providing cost comparison tools;
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self-insured voluntary participation in state all payer claims databases;
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strengthening parity in mental health and substance use disorder benefits.