Tag Archive for: ARPA

IRS Provides Guidance on the New COBRA Subsidy

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On March 11, 2021, the President signed the American Rescue Plan Act (ARPA) into law. This law includes a 100% COBRA subsidy aimed at providing health insurance coverage to over two million Americans that were laid off during the COVID-19 pandemic.

While many U.S. workers will benefit from the new COBRA subsidy, employers have struggled to understand the new law and what it means for their business. On April 7, 2021, the U.S. Department of Labor issued guidance and model notices to help employers comply with COBRA subsidy requirements. More recently, the Internal Revenue Service (IRS) released Notice 2021-31, which provides further guidance and answers to questions regarding eligibility, election period, Outbreak Period extensions, and payroll tax credits.

Eligible Health Plans

The COBRA subsidy applies to all group health plans sponsored by private-sector employers or employee organizations subject to COBRA under the Employee Retirement Income Security Act of 1974 (ERISA). It also applies to health plans sponsored by state or local governments subject to the continuation provisions under the Public Health Service Act.

Determining Eligibility for the Subsidy

Individuals must be enrolled or become eligible for COBRA on or after April 1, 2021 and before September 30, 2021 to qualify. Individuals that became eligible for COBRA before April 1, 2021 and did not elect coverage may also qualify if they have an 18-month COBRA period. These individuals must elect coverage within 60 days following receipt of their subsidy notice.

All individuals that experience a loss of employee health coverage due to involuntary termination or reduction of hours within the specified time period are eligible for the subsidy. However, employees terminated for gross misconduct do not qualify.

The IRS Notice defines involuntary termination of an employee as “a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” Notice 2021-31 provides examples of events that would make an individual eligible for coverage. The notice also provides guidance on which situations might make an employee ineligible for the subsidy.

According to the IRS Notice, employees that experience a reduction in hours resulting in loss of health insurance coverage will qualify for the COBRA subsidy, regardless of whether the reduction in hours was voluntary or involuntary.

Payroll Tax Credits

The COBRA subsidy is paid to employers as a tax credit against their portion of Medicare taxes. Employers can claim the tax credit on their quarterly IRS Form 941 or in advance using IRS Form 7200. Payees are eligible to receive a tax credit equal to the amount charged for COBRA premiums per quarter.

Employers should review the IRS guidance as well as the DOL model notices for more information about the COBRA subsidy.

MEBO offers employee benefit plans, custom-tailored to the needs of our clients. Please contact us for information about our services.

 

 

 

American Rescue Plan Act of 2021 – Important FSA Changes

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Signed into law on March 11, 2021, the American Rescue Plan Act (ARPA) provides health and wellness opportunities to individuals impacted by COVID-19.  Last week, we featured an article explaining how the ARPA impacts employers in regards to COBRA coverage. This week, we’ll take a closer look into dependent care flexible spending account (FSA) contributions changes under the new law.

The ARPA increases the limit for dependent care FSA contributions in 2021 from $5,000 to $10,500. While this increase to the maximum contribution amount only applies to 2021, there’s a chance this change will become a permanent option. It’s important that employers learn as much as they can about how this change might impact their business.

What This Means for Employers

The ARPA dependent care FSA limit increase is not mandatory. Employers are not required to implement this temporary change. Employers that do wish to incorporate this feature will need to amend their FSA plan before the end of their plan year.

Although the amendment can have a retroactive effect back to the beginning of the plan year, the maximum contribution increase only applies to the 2021 tax year, not the employer’s plan year. For organizations whose plan year began after January 1st, participants can only contribute the higher amount through the end of 2021. After that time, their contributions mustn’t exceed the standard $5,000 per year IRS limit. For example, if an employer’s plan year runs from July 1, 2021 to June 30, 2022, participants would only contribute the higher amount (up to $875 per month) through December 31, 2021. They would then contribute the standard amount (up to $416.67 per month) for the remainder of the plan year.

Important Considerations

Increasing the maximum dependent care FSA contribution isn’t a viable option for every company. Before implementing this change, employers need to determine whether it makes sense for their business.

Employers should consider whether their payroll system can support changing FSA contribution amounts. It’s also important that employers look into how this change might affect their plan’s compliance. For many companies, only highly compensated employees will be able to increase their contributions. This goes against the Internal Revenue Code (IRC), which allows pretax contributions to FSAs as long as they do not favor highly compensated employees (HCEs).

Employers considering implementing this change should speak with an experienced benefits broker. It’s also important that employers communicate changes to eligible participants. Please contact us for more information.

Understanding the New ARPA COBRA Subsidy

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On March 11, 2021, President Biden signed the American Rescue Plan Act (ARPA) into law. This law includes provisions that impact employers. Most notably, it includes a new COBRA subsidy. Employers should learn all they can about this subsidy and how it might affect their business.

ARPA Requires Employers to Cover the Costs of COBRA Continuation Coverage

For a limited period of time, the ARPA requires employers to cover 100% of the employer’s cost of continuing group health coverage under COBRA for up to six months following the loss of coverage by an employee or former employee. This new law covers any employee that elects COBRA continuation following the involuntary reduction of hours or involuntary termination for reasons other than gross misconduct. Under the ARPA, eligible individuals also get a second chance to elect COBRA coverage or renew their coverage after allowing it to lapse.

COBRA beneficiaries receiving coverage on April 1, 2021 are automatically covered by the subsidy. Under the new law, employers must inform previous employees that did not initially elect COBRA coverage as well as those that allowed their coverage to lapse of the special enrollment period that begins on April 1, 2021. This enrollment period ends 60 days after the employer provides notification to potential beneficiaries.

Notifying Potential Beneficiaries

ARPA will require employers to identify and notify individuals eligible for coverage by May 30, 2021.  In addition to identifying and notifying eligible beneficiaries, employers must also update termination documentation to include information about the COBRA subsidy and the special enrollment period.

Who’s Eligible?

Eligible individuals include those whose initial COBRA period ended or would have ended between April 1, 2021 and September 30, 2021 or later.  It’s important to note that the ARPA COBRA subsidy does not increase the COBRA period. If an employee’s COBRA coverage begins after April 1, 2021 or ends before September 30, 2021, the ARPA subsidy will remain in effect for less than six months. It’s also worth mentioning that individuals that qualify for coverage under another employer’s health plan or Medicare do not qualify for the ARPA COBRA subsidy.

Although the federal government provides the ARPA COBRA subsidy, employers must pay any premiums owed to their COBRA provider or plan administrator. Eligible employers will receive a dollar-for-dollar tax credit on their quarterly tax filing.

The ARPA COBRA subsidy applies to insured and self-insured plans subject to COBRA. It also applies to self-funded and insured plans subject to continuation coverage under state law.

COBRA Coverage

Previously, employers could require an electing employee to pay the employee’s share and the employer’s share plus a 2% administrative fee to continue group coverage under COBRA. While COBRA coverage often costs more than switching health plans, many employees elect COBRA continuation over searching for a new health plan that might not offer the same coverage or options.

MEBO offers employee benefit plans customized to meet the needs of organizations today. Please contact us for more information about our services or to schedule a consultation.