President Joe Biden signed the American Rescue Plan Act of 2021 (ARPA) earlier this year in an effort to ease the economic impact of COVID-19 on American citizens and businesses. In addition to the aid provided to individuals, the ARPA contains a number of provisions that impact employee benefits programs. From health benefits to pension plans, here’s what employers and employees should know about the impact of the ARPA on employee benefits.
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What is the American Rescue Plan Act of 2021 (ARPA)?
Signed into law on March 11, 2021, the American Rescue Plan Act of 2021 is part of an ongoing attempt to mitigate the financial impact of COVID-19 on American individuals and businesses. While many people are aware of certain benefits like stimulus checks that went out to most American citizens, many are not familiar with how this legislation affects employee benefits.
The ARPA contains several important provisions that impact employee benefits, such as:
- Dependent Care FSAs
- Single & Multiemployer Pension Plans
- Payroll Tax Credits
It’s important for employers and employees to understand these provisions to learn how they may be impacted by this new COVID relief package.
How the American Rescue Plan Impacts Employee Benefits
To get a better understanding of how the American Rescue Plan impacts employee benefits, here’s a breakdown of the most important provisions found in this new legislation:
Subsidized COBRA Benefits
COBRA allows employees to retain their employer-provided health coverage for 18 months following job loss.
The ARPA provides a 100% subsidy of COBRA premiums from April 1, 2021, through September 30, 2021, to ensure that employees who have lost their jobs during the pandemic are able to keep their coverage. This also allows employees who previously declined COBRA coverage to elect subsidized COBRA.
However, this provision doesn’t apply to employees that have voluntarily left their jobs or those who qualify for other group health plans.
Dependent Care FSAs
For 2021, the ARPA also increased the cap for contributions for Dependent Care Flexible Spending Accounts (FSAs) from $5,000 to $10,500 and $2,500 to $5,250 for married individuals with separate tax returns.
Employers may or may not choose to implement this change, but if they do choose to do so, they must adopt the amendment by the final day of the plan year.
Single-Employer Pension Plans
The ARPA contains two funding provisions that impact single-employer pension plans.
First, the amortization period for underfunded plans, which was previously seven years, is increased to 15 years. The ARPA also reduces amortization bases and shortfall amortization installments to zero. This allows for lower annual contributions for plan sponsors.
Next, the ARPA extends pension smoothing rules that were originally going to phase out beginning in 2021. For plan years starting in 2020 through 2025, the 10% interest rate corridor is being reduced to 5%. Moreover, the planned 5% per year expansion will be delayed to 2026.
Multiemployer Pension Plans
The ARPA includes a number of provisions to assist the stabilization of multiemployer pension plans.
Starting in 2021, Pension Benefit Guaranty Corporation (PBGC) premiums are increased to $52 from $31 per participant, which will be adjusted for inflation.
Next, multiemployer pension plans that are less than 65% funded are considered to be in the “red zone,” while plans that are between 65% and 80% are in the “yellow zone.” Under the ARPA, plans may use their 2019 funding status for plan years beginning in 2020 or 2021.
Multiemployer pension plans are also allowed to amortize the investment and COVID-related losses for the first two plan years ending after February 29, 2020, over a 30-year period. Previously, this was allowed for a 15-year period.
Moreover, the ARPA requires plans that are in the red zone (critical status) or yellow zone (endangered status) to adopt a funding improvement plan or rehabilitation plan. Critical and endangered plans for years 2020 and 2021 can extend the period for these plans from 10 years to 15 years.
Lastly, the ARPA implements a financial assistance program for multiemployer pension plans.
Select underfunded plans can receive lump-sum funding from the PBGC if they meet one or more of the specified criteria:
- The plan is in declining or critical status for plan years starting in 2020, 2021, or 2022.
- The plan has been approved for a suspension of benefits under the Multiemployer Pension Reform Act of 2014.
- The plan is in critical status and has fewer active participants than inactive participants. This applies to plan years beginning in 2020 through 2022.
- After December 16, 2014, the plan became insolvent and has maintained this status and not been terminated as of March 11, 2021.
Employee Retention Tax Credit
The Employee Retention Tax Credit, which was originally established with the CARES Act, is extended until December 31, 2021. Employers may claim up to $7,000 in credits per employee per quarter.
Eligibility is also being expanded to include some small startups that began operating after February 15, 2020. These startups may qualify for a maximum credit of up to $50,000 per quarter.
Voluntary Paid Leave Tax Credits
The tax credit for employers that voluntarily provide paid sick and family leave to employees impacted by COVID-19 has been extended from March 31, 2021, to September 31, 2021.
Learn More About Employee Benefits
The American Rescue Plan Act impacts employee benefits plans to aid employers and individuals as they continue to be negatively impacted by the COVID-19 pandemic.
Contact KSA Insurance today to learn more about employee benefits and how they can provide value for your business and employees.