Understanding Employee Benefits and key developments in the employee benefits field and items of interest to our clients. MORE

On March 15, 2022, the Consolidated Appropriations Act of 2022 (“2022 CAA”) was signed into law. Among other things, the 2022 CAA temporarily restores the telehealth relief provided under the CARES Act. The CARES Act permitted high deductible health plans (“HDHP”) to provide telehealth services or other remote care services without applying a deductible. This allowed individuals covered under a HDHP that waived the deductible for telehealth services or other remote care to maintain HSA eligibility.  Under the CARES Act, this relief was available for plan years beginning on or before December 31, 2021, meaning it expired for calendar year plans at the end of 2021.

Under the 2022 CCA, HDHPs may, but are not required to, provide telehealth and other remote services without applying a deductible for the months of April 2022 through December 2022 without running afoul of the HSA eligibility rules (“Extended Telehealth Relief”). This means, however, that if a plan year started between January 1, 2022 and March 31, 2022 (the “Gap Period”), such as a calendar year plan, the Extended Telehealth Relief was not available for the plan for the Gap Period. If the plan did not impose the minimum deductible for telehealth or other remote services during the Gap Period, the plan may not be a HDHP during the Gap Period, meaning that participants would be ineligible for HSA contributions during that period.

As mentioned above, the Extended Telehealth Relief is optional.  If a plan sponsor decides to implement the Extended Telehealth Relief, it should take the following steps:

  • If the HDPH is fully insured, the plan sponsor should contact its HDHP carrier to ascertain whether the carrier’s plans will adopt the Extended Telehealth Relief from April 2022 to December 2022. If the Extended Telehealth Relief is adopted, the plan sponsor should also ensure that the changes are made to its plan documents and are communicated to HDHP participants.
  • If the HDHP is self-insured, the plan sponsor should consult with its stop-loss carrier and third party administrator regarding the telehealth relief extension. It should also ensure that the changes are made in its plan documents and that HDHP participants are notified of such changes.

Additionally, if a plan sponsor of a calendar year HDHP (or other plan year beginning before April 1) did not impose the minimum deductible for telehealth or other remote services during the Gap Period, it should contact experienced benefits counsel to determine the appropriate course of action.

As indicated in our January 11, 2022 blog post and alert, the Department of Labor, the Department of Health and Human Services, and the Treasury (the “Agencies”) issued FAQs Part 51 on January 10, 2022, requiring group health plans to cover over-the-counter (“OTC”) COVID-19 tests without participant cost-sharing, preauthorization, or medical management.  In response to stakeholder feed-back regarding FAQs 51, the Agencies released FAQs 52 on February 4, 2022. The new guidance provides additional flexibility for complying with the safe harbor that allows plans providing direct coverage of tests obtained from network pharmacies and a direct-to-consumer shipping program to limit reimbursement for tests purchased from non-preferred pharmacies or retailers to $12 per test (“$12 Safe Harbor”), and answers other questions from stakeholders regarding the mandated OTC COVID-19 test coverage.

Guidance Related to the $12 Safe Harbor

Effective February 4, 2022, the $12 Safe Harbor has been clarified as follows:

  • To comply with the safe harbor’s requirement that the direct coverage program provide adequate access (based on facts and circumstances), OTC COVID-19 tests must generally be made available through “at least one direct-to-consumer shipping mechanism and at least one in-person mechanism.” The Agencies did, however, recognize that there may be some limited circumstances in which a direct program could provide adequate access without providing both a direct-to-customer shipping mechanism and an in-person mechanism.
  • A “direct-to-consumer shipping mechanism” includes programs that provide direct coverage of tests without requiring plan members to procure the OTC COVID-19 test at an in-person location. Examples include online or telephone ordering, and may be provided through a pharmacy or retailer, the plan or health insurance issuer directly, or any other entity on behalf of the plan.
  • Reasonable shipping costs related to the OTC COVID-19 tests must be covered by the plan or issuer. The shipping costs are included in the $12 reimbursement limit.
  • A plan or insurance issuer will not fail to comply with the $12 Safe Harbor if it is temporarily unable to provide adequate access to OTC COVID-19 tests through its direct coverage program because of a supply shortage.
  • The plan or issuer is not required to cover all FDA-approved OTC COVID-19 tests under its direct coverage program to satisfy the adequate access requirement.

Additional Guidance

The February 4, 2022 guidance also provided the following clarifications:

  • The requirement to provide OTC tests without participant cost-sharing, preauthorization, or medical management, described in FAQs Part 51 and Part 52, does not apply to at-home OTC COVID-19 tests that require a laboratory or other healthcare provider to process the results.
  • A plan or insurance issuer may disallow reimbursement for tests purchased from private individuals or on-line auctions, limit reimbursement to established retailers who typically sell OTC COVID-19 tests, and establish other reasonable policies to prevent fraud and problematic behaviors that could limit access to tests.
  • A participant may not double dip by having the medical plan reimburse the participant for the costs of the OTC COVID-19 tests and being reimbursed from a health flexible spending account (FSA), health savings account (HSA), or health reimbursement account (HRA). If a participant is reimbursed by both the medical plan and an FSA or HRA, the participant should contact the plan administrator regarding correction procedures.

Beginning January 15, 2022, and through the duration of the public health emergency, insurers and group health plans must cover at-home COVID-19 diagnostic tests available over-the-counter (OTC) without imposing cost-sharing, prior authorization, or other medical management requirements. This requirement stems from the latest guidance issued on January 10, 2022, by the Department of Health and Human Services, the Department of Labor, and the Treasury.

Group health plans will need to determine whether they will provide this coverage by reimbursing sellers of OTC COVID-19 tests directly (referred to as “direct coverage”) or by requiring participants to submit a claim for reimbursement. Plans that provide direct coverage may not limit coverage to preferred pharmacies or retailers. However, the guidance provides a safe harbor that allows plans to limit reimbursement for tests purchased from non-preferred pharmacies or retailers to $12 per test or the cost of the test, whichever is less.

Regardless of the reimbursement method used, plans may limit the number of OTC COVID-19 tests reimbursed to no less than eight tests per covered individual per 30-day period (or calendar month). The guidance also allows plans to take reasonable steps to address fraud and abuse. For example, plans can require an attestation that the test was purchased for personal use and not employment purposes, will not be reimbursed by another source, and is not for resale.

Given the short timeframe to implement this required coverage, group health plans will need to make reimbursement and limitation decisions quickly. In addition, plans will need to consider how best to communicate OTC COVID-19 testing coverage to participants.

Updated November 18, 2021

On November 4, 2021, the Internal Revenue Service (IRS) released Notice 2021-61, which sets forth the 2022 cost-of-living adjustments affecting dollar limits on benefits and contributions for qualified retirement plans.  The health savings account (HSA) and high deductible health plan (HDHP) annual deductible and out-of-pocket expense adjustments were announced earlier this year in Revenue Procedure 2021-25.  In addition, the Social Security Administration announced its cost-of-living adjustments for 2022 on October 13, 2021, which includes a change to the taxable wage base.

The IRS previously issued guidance on temporary COVID-19 relief for cafeteria plans provided in the Consolidated Appropriations Act.  Among other things, these temporary rules allow employers to amend their cafeteria plans to permit all unused balances at the end of the 2021 plan year in health or dependent care FSAs to be used for expenses in 2022.  For more information about these temporary rules, see Stinson’s previous blog: IRS Guidance on Coronavirus Relief for FSAs, DCAPs, and Cafeteria Plans: Almost Anything Goes.

The following chart summarizes the 2022 limits for benefit plans. The 2021 limits are provided for reference.

  2021 2022
Elective Deferral Limit 401(k), 403(b), 457(b) $19,500 $20,500
Catch-up Limit (age 50+) $6,500 $6,500
(no change)
Defined Benefit Limit $230,000 $245,000
Defined Contribution Limit $58,000 $61,000
Dollar Limit – Highly Compensated Employees $130,000 $135,000
Officer – Key Employee $185,000 $200,000
Annual Compensation Limit $290,000 $305,000
SEP Eligibility Compensation Limit $650 $650
(no change)
SIMPLE Deferral Limit $13,500 $14,000
SIMPLE Catch-up Limit (age 50+) $3,000 $3,000
(no change)
Social Security Taxable Wage Base $142,800 $147,000
ESOP 5 Year Distribution Extension Account Minimum $1,165,000 $1,230,000
Additional Amount for 1-Year Extension $230,000 $245,000
HSA (Self/Family) Maximum Annual Contribution $3,600/$7,200 $3,650/$7,300
HDHP Minimum Deductible Limits $1,400/$2,800 $1,400/$2,800
(no change)
Out-of-pocket Expense Annual Maximum $7,000/$14,000 $7,050/$14,100
Medical FSA $2,750 $2,850


For more information on the 2022 cost-of-living adjustments, please contact Jeff Cairns, Stephanie Schmid or the Stinson LLP contact with whom you regularly work.

On October 4, 2021, the Department of Health and Human Services, Department of Labor and Treasury jointly issued FAQs relating to COVID-19 vaccine incentives and surcharges. Under the guidance, employers may provide incentives such as premium discounts or surcharges through group health plans to incentivize COVID-19 vaccines, provided the incentive complies with the activity-only wellness program regulations. An activity-only wellness program must meet the following requirements:

  1. The program must give individuals eligible for the program the opportunity to qualify for the reward at least once per year.
  2. The reward, along with all other wellness incentives for health-contingent programs under the plan, must not exceed 30% of the total cost of employee-only coverage.
  3. The program must be reasonably designed to promote health or prevent disease.
  4. The full reward must be available to all similarly-situated individuals, including providing a reasonable alternative standard.
  5. The plan must disclose the availability of a reasonable alternative standard in all plan materials describing the wellness program.

The guidance provides examples of ways for employers to meet the five requirements above. For example, to meet the reasonable alternative standard requirement, the wellness program may offer a waiver or a right to attest to following other COVID-19 guidelines (e.g., masking requirements) to individuals for whom it is unreasonably difficult due to a medical condition or is medically inadvisable to receive the COVID-19 vaccine.

The guidance also clarifies how rewards are treated for purposes of determining affordability with respect to employer shared responsibility payments under the Affordable Care Act (ACA). Premium discounts are treated as “not earned” for purposes of determining an employee’s required contribution. Therefore, if a program provides premium discounts for receiving a vaccination, those discounts are disregarded in determining affordability. On the other hand, if a program provides for surcharges to those who do not receive a vaccine, the employer must assume the surcharge applies.  As a result, employers will need to carefully consider how any such program is implemented to appropriately manage potential ACA liability.

Finally, employers should note that the FAQs do not address other wellness program requirements like the Americans with Disabilities Act and Genetic Information and Nondiscrimination Act.

On May 18, 2021, the Internal Revenue Service (IRS) released much-anticipated guidance on premium subsidies for continuation coverage under Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) provided by the American Rescue Plan Act of 2021 (ARPA).  For more information about the ARPA and COBRA subsidies, see Stinson’s previous blog: American Rescue Plan Act Contains Many Employee Benefit Related Provisions.

In addition to providing premium subsidies, the ARPA requires group health plans to provide notice to Assistance Eligible Individuals by May 31, 2021.  Although the Department of Labor (DOL) issued model notices and FAQs regarding premium subsidies and notice requirements, many questions remained. For more information about DOL’s model notices and guidance, see Stinson’s previous blog: DOL’s ARPA COBRA Subsidy Notices and FAQs: Stay Tuned for More. The latest guidance, IRS Notice 2021-31 (the “Notice”), addresses many of those remaining questions in the form of 86 questions and answers.  However, certain questions still remain, and more guidance is expected.  In this blog post, we provide a summary of those portions of Notice 2021-31 that address which qualified beneficiaries for purposes of COBRA are Assistance Eligible Individuals entitled to premium assistance under the ARPA (the “subsidy”), how employers can ascertain whether a qualified beneficiary is an Assistance Eligible Individual, when an Assistance Eligible Individual may elect COBRA continuation coverage, and a few other items of note or where questions remain under Notice 2021-31.  The Notice addresses many other questions, including how to calculate and claim the tax credit.

Who qualifies as an Assistance Eligible Individual

The COBRA subsidy is only available to individuals who qualify as an “Assistance Eligible Individual” under section 9501(a)(3) of the ARPA.  An individual qualifies as an Assistance Eligible Individual if such a person is a qualified beneficiary entitled to COBRA continuation coverage as a result of a covered employee’s reduction of hours or involuntary termination of employment for a reason other than gross misconduct.  Notice 2021-31 provides extensive guidance on what constitutes a reduction of hours or involuntary termination of a covered employee for purposes of determining if an employee and the employee’s spouse and/or dependents qualify as Assistance Eligible Individuals. The table below summarizes the guidance provided in Notice 2021-31.

[wptb id=1846]

How an Employer Determines who is an Assistance Eligible Individual

As mentioned above, in order to qualify for the COBRA subsidy, qualified beneficiaries must be Assistance Eligible Individuals.  However, the COBRA subsidy is not available to qualified beneficiaries who are eligible for coverage under another group health plan or Medicare. Notice 2021-31 states that an employer may require each individual to provide a self-certification or attestation regarding the individual’s eligibility status (i.e., reduction in hours, involuntary termination, and eligibility for Medicare or other disqualifying group health plan coverage).  While an employer is not obligated to require self-certification or attestation regarding the individual’s eligibility status, an employer who claims a tax credit must retain records that substantiate an individual’s eligibility for the COBRA subsidy, which may include the self-certification or attestation. Notice 2021-31 allows an employer to rely on an individual’s self-certification or attestation for such proof of eligibility, unless the employer has actual knowledge that the self-certification or attestation is incorrect.  An employer may also rely on other evidence to substantiate eligibility (e.g., employer’s records regarding a reduction in hours or involuntary termination of employment).

When Assistance Eligible Individuals may elect COBRA 

An Assistance Eligible Individual must elect COBRA coverage with the subsidy within 60 days of receiving an extended election period notice and may elect coverage retroactive to the loss of coverage, if eligible, effective as of April 1, 2021, or prospectively.  However, the COBRA subsidy only applies for coverage beginning on or after April 1, 2021.

Any qualified beneficiary (including a spouse or dependent) who does not have a COBRA election in effect on April 1, 2021, but who would be an Assistance Eligible Individual if such an election were in effect, is eligible for the extended election period under the ARPA.  Even if an individual elected self-only COBRA coverage, a spouse or dependent, who is a qualified beneficiary with respect to a reduction in hours or involuntary termination, must receive a second opportunity to elect COBRA coverage under the ARPA.

A qualified beneficiary who elected some health coverage (for example, dental-only coverage, or health but not dental or vision coverage) upon a reduction of hours or involuntary termination is eligible for a second opportunity to elect coverage that the qualified beneficiary was enrolled in prior to the qualifying event and initially rejected at the time of the qualifying event.

Notice 2021-31 makes clear that the extended election period under the ARPA only applies to group health plans subject to COBRA and does not apply to State mini-COBRA laws, unless the State law specifically provides a similar extended election period.

Other Items of Note

COBRA subsidy election may truncate the Outbreak-related extension:  Q&A-56 of the Notice appears to require that an individual, who received a COBRA notice prior to April 1, 2021 and elects the COBRA subsidy, also elect, by the same deadline, retroactive coverage to the date coverage was lost, or lose the right to that retroactive coverage, cutting short the extended time period for that election that might otherwise be available under the coronavirus outbreak extension.  This impact on the ability to elect retroactive coverage was not addressed in the DOL’s model ARPA COBRA subsidy notice.

Extended second event/disability coverage period eligible for subsidy:  Q&A-17 of the Notice provides that coverage initially triggered by an involuntary termination of employment or reduction in hours, but which is extended by a second event or a disability determination (or state mini-COBRA), so that it extends into the subsidy period is potentially eligible for the COBRA subsidy.  It appears that the individual must have actually elected and remained on COBRA coverage throughout the extended period to be eligible, but it is not clear.  More guidance is expected.

Dental only/vision only COBRA coverage:  Q&A-35 of the Notice makes it clear that dental and/or vision only coverage is eligible for the subsidy.  However, the Notice does not address whether Medicare or medical coverage available through another employer’s plan would prevent the subsidy from being available for dental and/or vision coverage.  However, the statutory language providing for the subsidy seems to prevent an individual who is eligible for Medicare or coverage under an employer’s plan from being eligible for the subsidy, and the attestation in the DOL model COBRA subsidy notices requires the individual to affirm that they are not eligible for Medicare or another employer’s plan to be eligible for any kind of subsidy.  More guidance is expected.

Amount of tax credit:  Q&A-64 of the Notice clarifies that the amount of the credit is limited to the premiums that would have been charged to an individual in the absence of the COBRA subsidy and does not include any amount that the employer would have otherwise provided.  For example, if the applicable premium is $1,000 per month and absent the COBRA subsidy the employer requires individuals electing COBRA coverage to pay $500 per month, then the amount of credit the employer may receive is $500 per month.

On April 14, 2021, the Department of Labor’s (DOL) Employee Benefits Security Administration issued guidance on cybersecurity for the first time to help plan sponsors, fiduciaries, service providers, and participants protect personal information and retirement assets. In the guidance, the DOL identifies evaluating cybersecurity practices as part of the plan sponsor’s or other plan fiduciary’s duty to prudently select and monitor plan service providers and states that ensuring proper mitigation of cybersecurity risks is a fiduciary obligation.  The guidance is provided in three documents:

  • Tips for Hiring a Service Provider, which provides plan sponsors and fiduciaries with questions to ask before selecting a service provider and items to include in contracts with service providers;
  • Cybersecurity Program Best Practices, which includes best practices for recordkeepers and service providers and can be used by fiduciaries to prudently select service providers; and
  • Online Security Tips, which includes steps participants and beneficiaries can take to reduce the risk of fraud and losses to their retirement accounts.

The guidance is intended to complement the DOL’s regulations on electronic records and disclosures, which require a plan administrator using electronic disclosure to take steps reasonably calculated to protect the confidential information of participants and beneficiaries. For more information on the electronic disclosure regulations, see Stinson’s previous blog post: New DOL Electronic Disclosure Safe Harbor Offers Relief for Retirement Plans.

There has been a recent increase in litigation involving cybersecurity and retirement plans. Some of these lawsuits allege a breach of fiduciary duty by a plan administrator or plan sponsor for failing to prudently select and monitor service providers or by a service provider for failing to establish processes to prevent fraudulent withdrawals. Plan sponsors and fiduciaries should carefully review the new DOL cybersecurity guidance as part of broader measures to protect plan assets and personal information.

For more information, contact Audrey Fenske, Stephanie Schmid, or the Stinson LLP contact with whom you regularly work.

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (“ARPA”) into law. Under ARPA, certain employees and their dependents who lost group health coverage during the COVID-19 pandemic due to the employee’s involuntary termination (other than for gross misconduct) or reduction of hours are allowed to temporarily receive fully-subsidized COBRA coverage between April 1, 2021 and September 30, 2021. The COBRA subsidy is designed for individuals (i) who are currently enrolled in COBRA, (ii) who enrolled in COBRA previously and later dropped COBRA continuation coverage, or (iii) who previously declined COBRA continuation coverage.  ARPA offers the last two groups a second chance to obtain COBRA coverage, even if their deadline for electing coverage or paying premiums has passed.  Coverage must be provided to subsidy-eligible individuals (“Assistance Eligible Individuals” or “AEIs”) without the requirement to pay the COBRA premium, with the employer, insurer, or multiemployer plan providing the subsidy offsetting the cost by claiming a new federal tax credit.

AEIs must be notified of their right to the subsidy and when the subsidy is about to end, and ARPA required the Department of Labor (“DOL”) to draft model notices (“Model Notices”) for these purposes.  On April 7, 2021, the DOL issued guidance related to COBRA subsidies, consisting of Frequently Asked Questions (“FAQs”), and Model Notices and election forms.

The Notices and FAQs provides some clues as to the work ahead for plan sponsors, administrators, insurers, and other service providers, but additional guidance is needed on such critical issues as who will qualify as an AEI – for example, the circumstances in which an employee will be considered to have had an involuntary termination and the process for making that determination.   Absent clear guidance, employers, multiemployer plans, and insurers could find themselves responsible for the subsidy without being eligible for a tax credit when they make a good faith determination that an individual is an AEI, or, alternatively, subject to excise taxes (or more) for not providing notice when they make a good faith determination that an individual is not an AEI.  The IRS has promised guidance, which presumably will address this issue, along with others.


While the DOL’s FAQs are largely geared toward individuals, focusing on how to obtain the COBRA subsidy and how the COBRA subsidy interacts with other types of health coverage that may be available, they do confirm a few points that will impact COBRA administration. The FAQs clarify that:

  • An AEI may make the election for subsidized COBRA if the election is made within 60 days of receiving the required Notice. The coverage may begin (1) April 1, 2021 or later (or prospectively from the date of a qualifying event if the qualifying event occurred after April 1, 2021), or (2) upon an earlier qualifying event if the individual is eligible to make the election (with the subsidy beginning no earlier than Apri1, 2021).
  • While an individual is not an AEI if eligible for other group health coverage (generally, a new employer’s plan, a spouse’s plan, or Medicare), individuals currently receiving coverage through Medicaid or the Marketplace may be AEIs. The FAQs also confirm that the COBRA subsidy also covers certain excepted benefits (dental and vision, but not health FSAs).
  • Individuals who lose coverage due to a reduction in hours (and remain employed), whether the reduction is voluntary or involuntary, can be AEIs.
  • Dependents of an employee terminated for gross misconduct cannot be AEIs.
  • The extension of COBRA deadlines under EBSA Disaster Relief Notice 2021-01 does not apply to the notice and election periods related to the ARPA COBRA subsidy. (Failure to send required COBRA notices can result in an excise tax of up to $100 per qualified beneficiary, not exceeding $200 per family, per day.)
  • COBRA subsidies apply to any continuation coverage required under state mini-COBRA laws; however, ARPA does not otherwise change the terms under which the coverage is available under state law.

Model Notices

The DOL also issued the Model Notices that Congress required as a part of ARPA.  Employers are not required to use the Model Notices; however, the DOL considers the appropriate use of the Model Notice to be good faith compliance with the notice requirements. The appropriate use of the Model Notice means that all of the specific information pertinent to the individual is included in the Model Notice (i.e., the correct dates, qualified beneficiaries, and group plan information). In addition to the Model Notices, the DOL also issued a Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021, which contains information on the subsidy and forms for individuals to attest to meeting the conditions for eligibility for the COBRA subsidy and request treatment as AEI (i.e., receive the subsidy); this document must be sent with the General, Alternative, and Extended Election Notices to satisfy ARPA’s notice requirements.  Below is a summary of the pertinent information related to the Model Notices.

  • General Notice and Alternative Notice – The general notice is used for any qualified beneficiary who loses coverage due to a reduction in hours or an involuntary termination between April 1, 2021 and September 30, 2021. An alternative notice is used for plans subject to state continuation coverage.
  • Extended Election Notice – The extended election notice should be sent to all assistance eligible individuals who are still in the 18-month window. Employers must send the extended election notice before May 31, 2021 if the individual is currently enrolled in COBRA, enrolled in COBRA previously and later dropped COBRA continuation coverage, or previously declined COBRA continuation coverage.
  • Notice of Expiration of Period of Premium Assistance – The notice of expiration informs AEIs that the COBRA subsidy will soon be expiring and that the individual may be eligible for Medicaid, coverage through the Marketplace, or unsubsidized COBRA continuation coverage. The notice of expiration must be sent 15 to 45 days before the COBRA subsidy expires.

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the “ARPA”) into law.  Many of the provisions in this sweeping legislation bring changes to the employee benefits world of which employers should take note and which are summarized below.

Subsidized COBRA

The ARPA contains several new rules which impact COBRA benefits. These changes will allow workers and their dependents who lost group health coverage during the COVID-19 pandemic to temporarily receive fully subsidized COBRA coverage. The ARPA also allows the employer, insurer, or multiemployer plan sponsor who subsided the premiums to offset the cost by claiming a new federal tax credit. Below is a summary of the ARPA’s COBRA subsidy provisions.

Individuals Eligible to Receive Subsidy

The following individuals are eligible to receive the COBRA premium subsidy and are considered “Eligible Individuals”:

  • Individuals who have lost medical coverage under a group health plan because the individual (or the individual’s family member) has been involuntarily terminated for reasons other than gross misconduct or a reduction of hours that would result in COBRA coverage between April 1, 2021 and September 30, 2021; and
  • The individual is a qualifying individual and already enrolled in COBRA coverage on April 1, 2021, or enrolls in COBRA coverage during the “special enrollment period” described below.

Plans Subject to the ARPA Rules

All group health plans that provide major medical benefits subject to federal COBRA rules are subject to the ARPA COBRA rules.  This includes self-funded and fully-insured plans, multi-employer plans, and governmental employer plans. Health care flexible spending accounts are not subject to the ARPA provisions.

Amount and Length of Subsidy

Eligible Individuals are entitled to receive a subsidy equal to 100% of the cost of COBRA premiums, and such subsidy is available from April 1, 2021 through September 30, 2021, if they are enrolled in COBRA coverage during that time. This also includes individuals who enroll during the “special enrollment period” as described below.  The subsidy is tax-free to the individual receiving the subsidy. The subsidy expires prior to the September 30, 2021 deadline, if, before the date, the Eligible Individual’s maximum COBRA coverage period ends or if the Eligible Individual becomes eligible for coverage under another employer’s group insurance plan or Medicare.

Special Enrollment Period

Eligible Individuals who are not enrolled in COBRA as of April 1, 2021, including those who have made an election and later dropped COBRA and those who never made a COBRA election, are allowed a second window of time to enroll in coverage and obtain the subsidy.  This window runs for 60 days after the Eligible Individual receives the appropriate notice.

While not required, the employer is also permitted under the ARPA to allow Eligible Individuals 90 days from the date of the notice to enroll in a different type of medical coverage option.

Notice Requirements

The ARPA imposes new notice requirements on group health plans so that Eligible Individuals are provided the information needed to enroll in the subsidized coverage.  The ARPA requires that the following notices be sent (1) notice of availability of the subsidy, (2) notice of the extended election period for COBRA coverage; and (3) notice of the expiration of the subsidy.  The federal government is required to issue a model notice within 30 days for the first two notices, and within 45 days for the notice of expiration of the subsidy. It is recommended that notices are not updated until the model notices are issued.

Tax Credit

While employers (for self-insured plans and multi-employer plans) or insurance carriers (for fully insured plans) are responsible for the COBRA subsidy, the paying entity is entitled to take a federal tax credit against payroll taxes.  The credit is fully deductible and, in anticipation of the credit, the credit may also be advanced, according to forms and instructions provided by federal agencies, through the end of the most recent payroll period in the quarter.  The credits are provided each quarter in an amount equal to premiums not paid by the Eligible Individuals.

Temporarily Increased Dollar Limits for Contributions to Dependent Care FSAs

The ARPA increases the cap on dependent care assistance benefits. For the 2021 tax year, employers are permitted to increase the annual limit on contributions to Dependent Care FSAs from $5,000 to $10,500 (from $2,500 to $5,250 for married participants filing separate tax returns). Employers can adopt the increased limits through a retroactive plan amendment so long as the amendment is adopted before the end of the plan year in which it is effective (December 31, 2021 for calendar year plans).

Single Employer Pension Plan Provisions

The ARPA contains two funding relief items that benefit single employer pension plans. First, for plan years beginning in 2022, the amortization period for underfunded plans is extended to 15 years, rather than seven as previous allowed. Plan sponsors can make a retroactive election to amortize over the extended period for plan years beginning after December 31, 2018, 2019, and 2020. Amortization bases and shortfall amortization installments are also reduced to zero, allowing a “fresh start” for plans. These changes will result in a lower annual required contribution for plan sponsors.

Second, the ARPA extends the funding stabilization percentages that were scheduled to begin phasing out in 2021. Under the ARPA, the 10% interest rate corridor is reduced to 5% for plan years beginning in 2020 through 2025, the 5% per year expansion will be delayed to the 2026 plan year (and, accordingly, the 30% corridor is reached in the 2030 plan year), and a permanent 5% interest floor is established for the twenty-five year averages. The effect of these changes is that plans will be able to calculate the present value of benefits using a higher interest rate, and thereby improving its funding status. Plan sponsors may elect to defer the changes until 2022.

Multiemployer Plan Provisions

Arguably the most significant provision of the ARPA from an employee benefits perspective is the creation of the financial assistance program under the PBGC for troubled multiemployer pension plans. Eligible plans that apply for assistance will receive a lump sum payment sufficient to cover all benefits due through December 31, 2051, with no repayment obligation. Plans that receive the funds would be required to restore any previously cut or suspended benefits. There is no cap on the amount of financial assistance available. The PBGC is authorized to impose additional conditions on plans that receive the financial assistance, such as conditions on future accrual rates and retroactive benefit improvements.

In order to qualify for the financial assistance, the multiemployer plan must meet any of the following criteria:

  • The plan is certified to be in critical and declining status in any plan year beginning in 2020 through 2022.
  • The plan has previously been approved for a suspension of benefits under the MPRA.
  • The plan is certified to be in critical status in any plan year beginning in 2020 through 2022, has a modified funding percentage of less than 40%, and the ratio of active to inactive participants is less than 2:3.
  • The plan has become insolvent after December 16, 2014 and has not been terminated as of the enactment of the ARPA.

At this point, it is unclear what impact the financial assistance will have on a participating employer’s withdrawal liability. The bill originally included a provision stating that any participating employer that withdraws within 15 calendar years from the date the plan receives the financial assistance would not have any reduction in their withdrawal liability as a result of the financial assistance. This provision was removed from the final bill. There is a concern among practitioners that absent such a provision, there could be a race to the door from the struggling pension funds. It is expected that the PBGC will issue additional guidance this summer that will address withdrawal liability.

The financial assistance program will be funded out of the Department of Treasury’s general assets. In addition, the ARPA increases the PBGC premiums from $31 per participant in 2021 to $52 per participant beginning in plan years starting after December 31, 2030. The PBGC premium will be adjusted annually for inflation.

In addition to the creation of the financial assistance program, the ARPA also offers the following temporary funding relief for multiemployer plans without regard to whether the plan is eligible for the financial assistance:

  • The plan may elect to retain the same funding zone status for plan years 2020 or 2021 that applied for the previous year. The plans are also not required to update their funding improvement or rehabilitation plan until the year following the designated year.
  • If the plan is already in endangered or critical status, the plan may extend its funding improvement or rehabilitation plan for five additional years.
  • The plan is 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.

Changes to Code Section 162(m)

Just four years after making significant changes to Code Section 162(m) as part of the 2017 Tax Cuts and Jobs Act (the “TCJA”), Congress has again modified this provision of the Internal Revenue Code again in the ARPA.  While the amendments to Code Section 162(m) in the ARPA are not nearly as extensive as those made by the TCJA, the changes are still significant for those companies subject to Code Section 162(m).

Code Section 162(m), as amended by the TCJA, generally bars public companies from deducting compensation in excess of $1 million paid to “covered employees” in a year.  Currently, only a company’s chief executive officer, chief financial officer, and the next three most highly compensated employees are “covered employees” for a given year.  In addition, once an individual becomes a covered employee, that individual remains a covered employee for all future years.  Consequently, at least five employees of a company subject to Code Section 162(m) are covered employees each year.

The ARPA expands the definition of “covered employee” under Code Section 162(m) such that for tax years beginning after December 31, 2026, the next five mostly highly compensated employees of a company (after the CEO, CFO, and top three mostly highly compensated employees besides the CEO and CFO) will also be “covered employees.”  As a result, beginning in 2027 for calendar year companies, at least ten employees will be covered employees for purposes of Code Section 162(m) each year.  However, unlike individuals who become “covered employees” because they are a company’s CEO, CFO, or other top three mostly highly compensated employees, individuals who are “covered employees” because they are in the next five most highly compensated employees will only be “covered employees” for that year (i.e., who is a “covered employee” as a result of being in the next five most highly compensated employees will be re-determined with respect to each year and these “covered employees” do not retain their status from one year to tax year).

When the ARPA changes to Code Section 162(m) become effective, companies will have to be ready to separately track those individuals who become “covered employees” and remain “covered employees” in perpetuity and those individuals whose status can change from year to year.  This may require companies subject to Code Section 162(m) to retool the mechanisms they use to identify and track “covered employees.”

Payroll Tax Credits

Voluntary Paid Leave Tax Credits

The ARPA extends tax credits available to employers who voluntarily provide paid sick and family leave to emloyees unable to work due to certain COVID-19 related reasons from March 31, 2021 to September 31, 2021. Please see Stinson’s previous Alert, The American Rescue Plan: Update for Employers Providing FFCRA Leave in 2021 for more information.

Employee Retention Credit

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) created the employee retention credit to help eligible employers keep employees on their payroll by providing a refundable credit against qualified wages and certain health plan expenses. The ARPA extends the employee retention credit until December 31, 2021. The credit cap rate remains at 70% of qualified wages up to $10,000, allowing employers to claim up to $7,000 in credits per employee per quarter.  The ARPA also expands eligibility for the credit to recovery startup businesses, which are business that began operation after February 15, 2020 with annual gross receipts of less than $1 million. Recovery startup businesses are eligible to receive a maximum credit of $50,000 per quarter.



On February 18, 2021, the IRS issued Notice 2021-15, clarifying temporary special rules for cafeteria plans, health flexible spending accounts (“FSAs”), and dependent care assistance programs (“DCAPs”) that were included in the Consolidated Appropriations Act (“CAA”), enacted on December 27, 2020.  The Notice also adds temporary opportunities to make changes in health plan coverage under a cafeteria plan.  The Notice provides lots of flexibility to employers wishing to implement these special rules.

Flexibility for Carryovers and Grace Periods

The CAA allows plans that include health flexible spending arrangements or dependent care assistance programs to carry over all unused contributions from 2020 and 2021 to the immediately following plan year.  Without the CAA relief, the carryover amount is limited to $550 for health FSA amounts unused in 2020; carryovers are not normally permitted for DCAPs.  Similarly, plans may extend the claims period up to 12 months after the end of the plan year for unused contributions remaining in a heath FSA or DCAP at the end of the 2020 and 2021 plan year.  Without the CAA relief, the post-plan year period for incurring claims (the “grace period”) is limited to 2 months and 15 days.

Employers may adopt either the CAA carryover or grace period relief, even if they currently provide either a carryover or grace period, or if they previously did not provide either feature.  Employers adopting the CAA carryover may limit the carryover amount and limit the time period for incurring claims.  Employers adopting the CAA grace period may limit the period to less than 12 months.  Any limits on accounts apply to the year in which the amount is contributed, not to any amounts available due to the carryover or grace period.

The unused contributions available for use in the following year include all amounts remaining in the employee’s account at the end of the plan year, except those amounts remaining solely because of the coronavirus outbreak-related extension of a grace period ending in 2020.

Post-Termination Reimbursements from Health FSAs

The CAA permits plans that provide grace periods for health FSAs (similar to the rules applicable to DCAPs) to allow employees who cease participation during 2020 or 2021 to continue to receive reimbursements from unused contributions for expenses incurred through the end of the year in which participation ceased, including any grace period or extended grace period with respect to that year.  For plans that provide carryovers, reimbursements may only be made through for expenses incurred through the end of the year in which participation terminated.

The guidance clarifies that employers may limit the unused amount available in a health FSA to the amount of contributions the employee has actually made up to the date the employee ceased to be a participant rather than the full amount elected by the employee for the year.  This applies to employees who cease to be participants due to termination, a change in employment status, or a new election during 2020 or 2021.

Interaction with COBRA

Under certain circumstances, qualified beneficiaries who lose coverage under a group health plan, including health FSA, may elect continuation health coverage under COBRA.

The guidance clarifies that a limited extension of coverage under a health FSA does not prevent an otherwise qualified beneficiary from having a loss of coverage resulting from a qualifying event (such as termination of employment).  The employer will be required to provide the individual with notice of the right to elect COBRA coverage.  For example, if an employee elected to contribute $2,400 to a health FSA and terminated employment on January 31 after making $200 in salary reduction contributions, the employer may allow the employee to request reimbursement up to $200, or the employee may elect COBRA continuation coverage to have access to $2,400 by paying the applicable COBRA premiums of $200 per month.

In addition, if an employer adopts the CAA carryover or grace period, the maximum amount that a health FSA may require to be paid as the applicable COBRA premium does not include unused amounts carried over or available during the extension period.

Regardless of the employee’s COBRA election, if the employer amended the plan to allow post-termination reimbursements from health FSAs, the employee could be reimbursed for expenses incurred through the end of the plan year and through any grace period provided under the plan.

Impact of CAA Health FSA Carryovers and Grace Periods on HSA Eligibility

Eligibility to contribute to an HSA is determined on monthly basis.  Generally, an individual is eligible in any month if the individual (i) is covered by a high deductible health plan (HDHP) as of the first day of the month, and (ii) is not covered under any other health plan (with certain exceptions), such as a general purpose health FSA.  General purpose health FSA CAA carryovers or grace periods for an employee who moves from a non-HDHP to an HDHP the following year would make the employee ineligible for HSA contributions.  This would also apply to terminated employees who may still incur expenses reimbursable from their general purpose health FSA.

To avoid this result, employers may amend their plans to allow employees, on an employee-by-employee basis, to opt-out of the CAA carryover or grace period to preserve HSA eligibility, or to make a mid-year change to be covered under an HSA-compatible FSA for part of the year.

If an employee makes a mid-year election change in coverage from a general purpose health FSA to an HSA-compatible FSA or vice versa, the employee’s permissible HSA contribution is based on the number of months the individual was covered under the HSA-compatible FSA and an HDHP.

Special Age Limit Relief Applicable to Carryovers for DCAPs

The CAA temporarily increases the age at which a child is no longer eligible for DCAP reimbursement from 13 to 14.  This special age limit rule applies to employees who are enrolled in a DCAP for the last plan year for which the end of open enrollment was on or before January 31, 2020 (the “2020 plan year”) and has one or more dependents who attain age 13 either (i) in the 2020 plan year, or (ii) in the case of an employee who has unused DCAP amounts for the 2020 plan year, in the 2021 plan year.

The guidance clarifies that this special age rule is separate from the CAA carryover and grace period.  Employers are not required to adopt the CAA carryover or grace period to adopt the age limit relief.  If an employer adopts this special rule, then all amounts from the 2020 plan year may be applied to dependent care expense for a dependent who attained age 13 during that plan year.  In addition, employers may allow employees to carry over all unused amounts from the 2020 plan year to reimburse dependent care expenses in the 2021 plan year for dependents until they reach the age of 14.  The special age limit rule does not permit employers to reimburse expenses for dependents who are 14 years or older.

Mid-Year Election Changes to Health FSAs and DCAPs

Generally, elections under cafeteria plans must be irrevocable and made prior to the first day of the plan year.  The CAA allows plans to permit employees to make prospective mid-year changes to health FSAs and DCAP elections in plan years ending in 2021, regardless of any change in an employee’s status.

The Notice clarifies that an employer may adopt an amendment allowing employees to revoke an election, make one or more elections, and increase or decrease an existing election.  An employee, who initially declined to enroll, may also elect to enroll in a health FSA or DCAP for the year.

Employers have a lot of flexibility in implementing mid-year elections.  An employer may limit the number of elections an employee may make and determine the extent to which election changes are permitted, provided any election change is applied on a prospective basis.  For example, employers may allow amounts contributed prior to a mid-year election change to cease contributions to be used to reimburse expenses incurred through the entire plan year, or may limit reimbursements to expenses incurred prior to the mid-year change.  Similarly, amounts contributed after a mid-year election to commence contributions may be used to reimburse expenses incurred at any time during the year, even prior to the election, or the employer could choose to limit reimbursements to expenses incurred after contributions began.  In addition, employers may require that any changes not reduce the annual election to less than the amount already reimbursed, and may limit elections to certain types of changes (such as decreases only) or to certain time periods.  Any rules must apply uniformly to participants.

Mid-Year Changes in Health Plan Coverage and HSAs

The Notice allows additional flexibility for plans to allow changes in health coverage, where these changes would otherwise be impermissible under cafeteria plan rules.  A plan may be amended to allow an employee who initially declined coverage to add it, to change from one type of coverage offered by the employer to another, or to drop coverage if the employee attests in writing that they are enrolled, or immediately will enroll, in other comprehensive coverage.  The Notice provides sample language for the attestation and provides that an employer can rely on the attestation unless the employer has actual knowledge to the contrary.

Employees who change comprehensive health plan coverage may also want to make changes in their health FSAs.  An employer may amend its plan to allow employees to make mid-year elections to be covered by a general purpose heath FSA for part of the year and an HSA-compatible FSA for part of the year.  Employers may offer employees a choice between an HSA-compatible FSA and general purpose FSA, on an employee-by-employee basis.  In addition, an employer may automatically enroll employees who elect HDHP coverage into HSA-compatible FSAs.

Plan Amendments

Plans must adopt an amendment implementing relief under the CAA by the end of the calendar year following the plan year in which the amendment is effective.  For example, a calendar year plan that is amended to carry over the entire unused amount remaining in health FSAs on December 31, 2020, must adopt an amendment by December 31, 2021.  The plan must operate in accordance with the amendment from the effective date of the amendment to the date the amendment is adopted.  Employers should consider the timing of participant communications and notices to ensure employees can utilize the flexibility provided by any amendments.