DOL Issues Guidance Regarding the ARPA COBRA Subsidies
April 13, 2021
On April 7, 2021, the DOL issued guidance regarding the COBRA subsidy provisions under the American Rescue Plan Act of 2021 (ARPA). As a reminder, the ARPA allows certain individuals to elect COBRA coverage and have that COBRA coverage 100% subsidized by the federal government from April 1, 2021, to September 30, 2021. An individual must have experienced a reduction of hours or termination of their employment (other than by reason of such employee's gross misconduct) in order to apply this subsidy. These individuals are referred to as Assistance Eligible Individuals or AEIs. A person who voluntarily terminates their employment is not eligible for this subsidy. The DOL’s guidance includes a series of FAQs, model notices and related information.
The DOL provides 22 FAQs that regarding implementation of the COBRA requirements under ARPA. The topics addressed by the FAQs are as follows:
- FAQs 1 – 6: general information
- FAQs 7 – 9: premiums
- FAQs 10 – 12: notices
- FAQs 13 – 21: individual questions for employees and their families
- FAQ 22 (mis-numbered Q21): additional information
Several of the questions provide clarification of ARPA. According to FAQ number 2, premium subsidy provisions apply to all group health plans sponsored by private-sector employers or employee organizations (unions) subject to the COBRA rules. They also apply to plans sponsored by state or local governments subject to the continuation provisions under the Public Health Service Act. Premium subsidies are also available for group health insurance required under state mini-COBRA laws.
FAQ number 3 clarifies who is an AEI. In addition to those individuals who experienced a termination of employment (except for those who voluntarily terminated), an individual appears to be an AEI if they experience a reduction of hours, regardless of whether such a reduction is voluntary or involuntary. Examples of a “reduction of hours” include any temporary leaves of absence, an individual’s participation in a lawful labor strike and appears to include medical leave that does not result in the termination of the individual’s employment. If an individual is eligible through a spouse’s plan, then they are not an AEI. An individual is an AEI if they are on Medicaid or a marketplace/exchange plan. However, those who enroll in COBRA continuation with premium assistance will not be eligible for a premium tax credit on the exchange.
FAQ number 10 highlights an important caveat concerning eligibility for premium subsidies: individuals are not AEIs if their maximum COBRA continuation coverage period (if COBRA had been elected or not discontinued) would have ended before April 1, 2021. According to the FAQ, this generally means the COBRA subsidies will not apply to those individuals with applicable qualifying events before October 1, 2019.
The FAQs also clarify issues surrounding enrollment. Note that employers have until May 31, 2021, to provide notice to AEIs of their right to elect COBRA and receive subsidies under the ARPA. According to FAQ number 10, regular rules regarding COBRA notice distribution apply, including distribution by email. FAQ number 13 states that AEIs have 60 days from receipt of the notice to elect COBRA or they forfeit their right to elect COBRA subsidies. FAQ number 5 states that AEIs can choose to have prospective coverage from the date of election or, if they have a qualifying event on or before April 1, retroactive coverage to April 1. FAQ number 16 states that qualified beneficiaries who didn’t independently elect may do so now. Further, individuals who believe that they qualify for premium assistance need to complete and submit a form entitled Request for Treatment as an Assistance Eligible Individual, as well as an election form. And FAQ number 4 states that individuals may have a special enrollment period on the exchange after the subsidy ends.
The last major topic covered by the FAQs concerns enforcement of these requirements. According to both FAQ number 10 and FAQ number 12, employers who violate COBRA rules (including the requirement to offer a COBRA election and subsidies under the ARPA) could be subject to penalties equal to $100 per qualified beneficiary or $200 per family for every day that the employer violates COBRA rules. If individuals believe that they have not received an offer of COBRA due to them, then they are advised to contact the DOL.
The DOL also published four model notices: a “General Notice,” an “Alternative Notice,” a “Notice in Connection with Extended Election Periods” and a “Notice of Expiration of Period of Premium Assistance.”
The General Notice should be provided to all individuals who experience a qualifying event from April 1, 2021, through September 30, 2021. It includes information related to the premium assistance, and other rights and obligations under the ARPA, as well as all of the information required in an election notice. It also includes information on the health insurance marketplace, Medicaid and Medicare. The General Notice satisfies existing requirements for the content of a standard COBRA election notice as well as those required by the ARPA.
The Alternative Notice must be sent by issuers that offer group health insurance coverage subject to continuation coverage requirements imposed by state law that differ from those imposed by federal law (e.g., employers with fewer than 20 employees may be covered by certain state healthcare continuation laws). The Alternative Notice must be provided to all qualified beneficiaries, not just covered employees, who have experienced a qualifying event at any time from April 1, 2021, through September 30, 2021, regardless of the type of qualifying event. The Alternative Notice serves as a template that can be modified for each state’s requirements.
The Notice in Connection with Extended Election Periods must be distributed to AEIs (or any individual who would be an AEI if a COBRA continuation coverage election were in effect) who became entitled to elect COBRA continuation coverage before April 1, 2021. This notice covers the rights of AEIs to elect COBRA coverage as discussed above and provides them with the forms necessary to do so.
The Notice of Expiration of Period of Premium Assistance must be provided 15 – 45 days before the date of expiration of premium assistance and informs AEIs of the expiration and the date that the subsidies will expire. This notice must also provide information concerning eligibility for coverage without any premium assistance through either COBRA continuation coverage or coverage under a group health plan. This notice is not required if an AEI becomes eligible under a group health plan (excluding excepted benefits, a QSEHRA or a health FSA) or for Medicare. This notice may note that the individual and any covered dependents may be eligible for a special enrollment period to enroll in individual market health insurance coverage.
In addition to the specific requirements of each notice, the General Notice, the Alternative Notice and the Notice in Connection with Extended Election Periods must include the following information:
- A prominent description of the availability of premium assistance, including any conditions on the entitlement.
- A form to request treatment as an “Assistance Eligible Individual” (as discussed above).
- The name, address and telephone number of the plan administrator (and any other person with relevant information about the premium assistance).
- A description of the obligation of individuals paying reduced premiums who become eligible for other coverage to notify the plan and the penalty for failing to meet this obligation.
- A description of the opportunity to switch coverage options, if applicable.
The DOL also provided a PDF summarizing the COBRA premium assistance provisions of the ARPA, which includes the forms necessary to request treatment as an AEI.
Model Notices »
Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 »
In addition to the FAQs and model notices, the DOL also linked to a number of publications that provide information on COBRA, retirement and health benefits for dislocated workers and those experiencing job loss, and HHS guidance on the ARPA.
Employers should familiarize themselves with this guidance as they prepare to comply with the ARPA COBRA provisions. The Benefits Compliance team expects that the federal government will provide more guidance in the coming weeks. We will continue to analyze subsequent guidance and provide resources to explain the continued developments.
COBRA Premium Subsidy Webpage »
DOL Issues FAQs Regarding Mental Health and Substance Use Disorder Parity CAA Implementation
April 13, 2021
On April 2, 2021, the DOL, HHS and the Treasury (collectively, “the Departments”) jointly released FAQs regarding recent amendments to the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). The guidance is intended to assist group health plan sponsors in understanding the new MHPAEA obligations imposed by the Consolidated Appropriations Act of 2021 (CAA).
As background, the MHPAEA generally provides that financial requirements and treatment limitations imposed on a plan’s mental health or substance use disorder (MH/SUD) benefits cannot be more restrictive than those applicable to medical/surgical benefits in a classification. Furthermore, separate treatment limitations cannot be imposed only on MH/SUD benefits. These MHPAEA provisions apply to both quantitative treatment limitations, such as the number of doctor visits, and non-quantitative treatment limitations (NQTLs), such as preauthorization requirements, step protocols or experimental treatment limitations.
The CAA, which was enacted on December 27, 2020, requires group health plans and issuers to perform and document their comparative analyses of the design and application of any NQTLs imposed upon MH/SUD benefits. Effective February 10, 2021, plans must be prepared to provide the analyses to the Departments (or applicable state authorities or participants) upon request.
Accordingly, the FAQs explain that for an analysis to be treated as sufficient under the CAA, it must contain a detailed, written, and reasoned explanation regarding the bases for the plan’s conclusion that the NQTLs comply with the MHPAEA. FAQ #3 specifies that such analyses should include, but not necessarily be limited to:
- A clear description of the specific NQTLs, plan terms and policies at issue
- Identification of the specific MH/SUD and medical/surgical benefits to which the NQTLs apply within each benefit classification
- Identification of any factors, evidentiary standards or sources, or strategies or processes considered in the design or application of the NQTLs
- Precise definitions and supporting sources for any factors, standards, strategies or processes defined in a quantitative manner
- An explanation as to whether any factors were given more weight than others and the reason(s) for doing so, or whether there was any variation in the application of a guideline or standard used by the plan between MH/SUD and medical/surgical benefits
- If the application of the NQTL turns on specific benefit administration decisions, an identification of the nature of the decisions, the decision maker(s), the timing of the decisions and the qualifications of the decision maker(s)
- If the plan’s analyses relied upon any experts, an assessment of each expert’s qualifications and the extent to which the plan relied upon each expert’s evaluations in setting recommendations regarding both MH/SUD and medical/surgical benefits
- A reasoned discussion of the plan’s findings and conclusions as to the comparability of the processes, strategies, evidentiary standards, factors and sources within each affected classification, and their relative stringency, both as applied and as written
- The date of the analyses and the name, title and position of the person(s) who performed or participated in the comparative analyses
Employers are encouraged to refer to the MHPAEA Self-Compliance Tool, which is accessible on the DOL website, for guidance related to these NQTL requirements and the necessary analyses process. In particular, the Self-Compliance Tool outlines four steps that plans should take to assess their compliance with MHPAEA for NQTLs. The FAQs indicate that plans that have followed the guidance in the Self-Compliance Tool should be well prepared to satisfy a comparative analyses request.
Plans should also be prepared to provide applicable supporting documentation, such as claims processing policies and procedures, referenced studies or internal testing results.
In the near term, the DOL expects to focus on the following NQTLs in its enforcement efforts:
- Prior authorization requirements for in-network and out-of-network inpatient services
- Concurrent review for in-network and out-of-network inpatient and outpatient services
- Standards for provider admission to participate in a network, including reimbursement rates
- Out-of-network reimbursement rates (plan methods for determining usual, customary and reasonable charges)
However, the guidance makes clear that a review, once initiated, may not necessarily be limited to these particular NQTLs. Additionally, a comparative analysis may be requested if the Departments become aware of potential MHPAEA NQTL violations or complaints.
If a plan’s submission of a comparative analysis results in a determination that the plan is not in compliance with the MHPAEA, the plan would be required to submit additional comparative analyses that demonstrate compliance within 45 days. If the Departments make a final determination that the plan is still not in compliance following the 45-day corrective action period, all enrollees would need to be notified within seven days. In addition, the compliance findings would be shared with the state where the group health plan is located.
The FAQs also confirm that the comparative analyses and other applicable information should be made available to ERISA plan participants, beneficiaries and enrollees upon request. Additionally, in the event of a claim appeal, a participant’s right to documents and information would include the MHPAEA analyses and related materials, if relevant to the adverse benefit determination.
Employers that sponsor plans offering MH/SUD benefits should be aware of the enhanced MHPAEA compliance obligations imposed by the CAA and this related guidance. These employers should ensure that NQTL comparative analysis is performed and documented for each NQTL under their plans and be prepared to provide the required comparative analyses upon request. Consultation with carriers and/or TPAs will likely be necessary to verify and coordinate the necessary data to complete the analyses. Employers should refer to the DOL MHPAEA Self-Compliance Tool and consult with counsel for further guidance.
FAQS About Mental Health and Substance Use Disorder Parity Implementation and the Consolidated Appropriations Act, 2021 Part 45 »
Federal Marketplace Special Enrollment Period Extended
March 30, 2021
In response to the COVID-19 public health emergency, the federal health insurance marketplace (Healthcare.gov) is accepting new enrollments in a special enrollment period (SEP) from February 15, 2021, through August 15, 2021. On March 23, 2021, CMS issued guidance on this opportunity in the form of frequently asked questions. (The extension was lengthened from the previously set extension to May 15, 2021.) This enrollment opportunity is open to anyone who is in a state that utilizes the federal marketplace and is otherwise eligible to purchase coverage. States that operate their own public marketplace may adopt a similar SEP, but they are not required to do so.
During this time, an individual is not required to have a recent loss of coverage or other triggering event (such as loss of employment-based coverage or marriage). It is considered an open enrollment period. The coverage will be effective on the first of the month after application submission and plan selection. If the individual has a special enrollment event that would permit retroactive coverage (birth, adoption, placement for foster care or pursuant to a court order), they must indicate such on the application.
If an individual is offered coverage through an employer that is considered affordable and meets the minimum value standard or if the individual is enrolled in employer coverage (regardless of affordability), the individual may still enroll in marketplace coverage, but they would not be eligible for a premium tax credit. As a reminder, employees can only drop employer coverage offered through a Section 125 cafeteria plan if they experience a qualifying event. The intended enrollment in marketplace coverage is an optional qualifying event permitting an employee to drop coverage mid-year, if the employer's Section 125 Cafeteria Plan Document allows for such changes.
Although this guidance affects individuals who may enroll in the marketplace, employers should be mindful of this extension.
HHS News Release »
CMS SEP Guidance »
10th Circuit Rules that Employee Was Entitled to Benefits Due to Ambiguous Eligibility Terms in Plan Documents
March 30, 2021
On February 22, 2021, the United States Court of Appeals for the Tenth Circuit (the appellate court) ruled in Carlile v. Reliance Standard Life, et.al that an employee was entitled to long-term disability benefits, even though he was on notice of his termination and on short-term disability when he requested them. The employer provided the employee with a 90-day notice of termination (“notice period”) and did not require him to work during that time. The employee came to work during the notice period, but he was diagnosed with cancer. He requested and received a short-term disability benefit during the notice period. When the short-term disability was set to expire, the employee requested a long-term disability benefit. The carrier that provided benefits on behalf of the employer denied this request, because he was no longer an active employee, since he was under a notice of termination and not working over 30 hours per week, and therefore no longer eligible for benefits under the terms of the plan.
The employee took the carrier to court, alleging that it denied his claim for long-term disability in violation of ERISA. The trial court found that the term “active” in the plan documents was ambiguous and ruled in favor of the employee. The carrier appealed, asserting that the plan’s definition of “full-time,” that someone must work at least 30 hours during a regular work week, was sufficient to determine whether someone is “active” for this purpose.
However, the appellate court agreed with the trial court, pointing out that in the absence of a specific definition in the plan, the term “active” could be interpreted broadly enough to include employees who worked any number of hours, if they worked. In addition, the employee worked during the notice period, was paid for that work, and was considered a full-time employee during that time. Since the term “active” was not so defined as to exclude employees who did not work 30 hours a week, the appellate court determined that it was ambiguous and ruled in favor of the employee.
Since the ruling came from a federal appeals court, it is possible that the matter will be appealed to the Supreme Court, so this may not be the final word on the matter. However, employers should be aware of the danger of ambiguous terms in their plan documents and should consider consulting with counsel or plan document drafters in order to determine whether important terms are clear and unambiguous.
Carlile v. Reliance Standard Life, et al »
9th Circuit Rules that Local Ordinance not Preempted by ERISA
March 30, 2021
In March, the US Court of Appeals for the Ninth Circuit (the appellate court) ruled in The ERISA Industry Committee v. City of Seattle that a Seattle local ordinance was not preempted by ERISA. At issue was Seattle Municipal Code (SMC) Section 14.28, which is a health benefits ordinance that requires hotel employers (and other hotel businesses) to either provide money directly to certain employees, or to include such employees in their health benefit plan. The court agreed with the district court that the Seattle ordinance does not relate to employee benefit plan operations in a way that triggers an ERISA preemption.
ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” However, the district court found that the Seattle ordinance does not apply to employee benefits such that would trigger ERISA as it is not a fundamental area of ERISA regulation (e.g., reporting and disclosures). Instead, the district court relied on precedent that provides that an ordinance requiring businesses to make certain minimum healthcare expenditures on behalf of covered employees was not preempted by ERISA. The appellate court agreed, emphasizing that local laws have a presumption against ERISA preemption when operating in an area generally occupied by the states.
The outcome of this case serves as a reminder of ERISA preemption and the extent of its application.
The ERISA Industry Committee v. City of Seattle »
DOL Publishes Proposal of Withdrawal of Independent Contractor Rule
March 16, 2021
On March 12, 2021, the DOL published a proposal to withdraw the independent contractor rule that was finalized by the prior administration and set to take effect on May 7, 2021 (more info on the prior final rule is available in the January 20, 2021 edition of Compliance Corner).
The DOL finalized the original rule in early January 2021, but then the Biden administration published a regulatory freeze on (among other things) any rules that were final but not yet effective (more info on the regulatory freeze is available in the February 2, 2021 edition of Compliance Corner). The final rule modified the standards and more clearly outlined five factors for employers to consider when determining whether an individual is an employee or an independent contractor. The rule appeared to make it easier for employers to classify the individual as the latter.
In the proposed withdrawal, the DOL explained that the final rule’s analysis would run contrary to the Fair Labor Standards Act’s (FLSA) purpose of providing broad protection of workers as employees, since the rule makes it easier to classify more workers as independent contractors (causing them to lose FLSA protections). The DOL also took issue with the original rule’s cost-benefit analysis, which it believes is flawed.
Because the final rule had not taken effect, the DOL stated that the final rule withdrawal will not be disruptive or burdensome to employers. In addition, the DOL indicated that the withdrawal will give the DOL an additional opportunity to review policy and legal issues relating to the employee versus independent contractor determination and analysis. The proposed withdrawal includes a request for comments. All such comments must be submitted by April 12, 2021.
Since the original final rule never took effect, employers do not have any obligations relating to the original final rule or the proposed withdrawal and the independent contractor analysis remains what it was before. Employers should also keep in mind that the DOL must follow specific procedures in withdrawing rules, and the proposed withdrawal, coupled with the request for comments, is part of that process. The formal, finalized withdrawal of the rule is expected after the comment period.
It remains to be seen whether the DOL will eventually publish additional guidance or rules on the issue. In the meantime, because proper employee/independent contractor classification remains an important issue, employers should work with outside counsel in making that determination.
Proposed Withdrawal »
Comment Period Extended for Proposed HIPAA Privacy Rule
March 16, 2021
On March 10, 2021, HHS extended the comment period for the proposed HIPAA privacy rule. As we highlighted in the December 22, 2020 edition of Compliance Corner, HHS proposed modifications to the HIPAA privacy rule to remove barriers to coordinated care and reduce regulatory burdens on the health care industry.
The comment period on the proposed rule is extended through May 6, 2021 (instead of the original March 22, 2021 deadline). HHS wants to maximize the opportunity for the public to provide meaningful input to inform policy development.
Interested entities can take advantage of this extended comment period.
Modifications to the HIPAA Privacy Rule to Support, and Remove Barriers to, Coordinated Care and Individual Engagement »
Congress Passes the American Rescue Plan Act of 2021
March 16, 2021
On March 10, 2021, Congress passed the American Rescue Plan Act of 2021 (ARPA). The ARPA includes over $1.9 trillion in COVID-19 relief and contains important updates to certain benefits laws to help employees who have been affected by the pandemic. We will address some of the major benefits-related provisions below.
Effective April 1, 2021, ARPA provides a 100% premium subsidy for qualified beneficiaries who elect coverage through COBRA, including state continuation programs. A qualified beneficiary must have experienced an employer-initiated termination of their employment (other than by reason of such employee's gross misconduct), or reduction of hours, in order to apply this subsidy. A person who voluntarily terminates their employment is not eligible for this subsidy. This subsidy applies to COBRA premiums paid for coverage periods between April 1,, 2021, and September 30, 2021 (or when the qualified beneficiary becomes eligible for other group medical or Medicare coverage, whichever comes first). Note that if a qualified beneficiary’s coverage period extends beyond September 30, then premiums charged for coverage after that date will not be subsidized under ARPA.
In addition to the subsidy, ARPA provides an election period for certain qualified beneficiaries. Qualified beneficiaries who can access this election period appear to include those persons who would qualify for the premium subsidy and are still within their 18-month coverage period, but declined COBRA coverage. Qualified beneficiaries who can access this election period also appear to include those who dropped COBRA coverage (regardless of the reason for the COBRA coverage) before the period expired. This election period starts on the date the qualified beneficiary receives a new COBRA election notice and lasts for 60 days. The new election period does not extend the maximum coverage period for any qualified beneficiary who elects COBRA coverage under these circumstances. For example, if a person only had a month left in their coverage period – as calculated from the date of the loss of coverage and qualifying event, such as employment termination – then they would not gain additional months of coverage if they elected COBRA coverage during this new election period.
The premium subsidy is paid through a refundable FICA tax credit to the employer, carrier or plan, as applicable. The credit is claimed by the party to which the premium is due: the carrier for a fully insured plan that is not subject to federal COBRA (i.e., eligible only for state continuation); the employer for all self-insured plans and fully insured plans that are subject to federal COBRA; and the plan for a multiemployer plan. Note that an employer with a fully insured plan subject to COBRA will likely have to front the premiums to the carrier for assistance eligible individuals and then will receive the credit. The credit is calculated each calendar quarter in an amount equal to the premiums not paid by qualified beneficiaries who qualify for the subsidy in that quarter. The credit is limited to the amount of the FICA tax, and any overpayment must be refunded. However, a credit can be advanced through the end of the most recent payroll period in the quarter.
Employers also have the option of allowing qualified beneficiaries to change coverage to other plan options. Normally, qualified beneficiaries must be covered by the same plan that covered them on the day before the date of the qualifying event (although they can change coverage if an open enrollment period occurs during their period of COBRA coverage). If the employer allows it, then it must provide qualified beneficiaries with notice and give them 90 days from the date of the notice to make a change. The qualified beneficiaries who have this choice can only choose coverage that costs the same or less than the coverage they already have.
Finally, employers must provide notice of the subsidy and (if the employer chooses) the option to change coverage to those qualified beneficiaries who are potentially affected by these changes. Qualified beneficiaries potentially affected by these changes are those who qualify for the subsidy (even if they are already covered by COBRA) and those who qualify for the new election period, as described above. Employers can either provide new notices or supplement current notices by including this information in a separate document with the current notice.
The DOL is charged with providing a model notice within 30 days of the date of ARPA’s enactment. Notices should include:
- The forms that are necessary for establishing eligibility for the subsidy described above
- The name, address and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with such premium assistance
- A description of the extended election period described above
- A description of the obligation of the qualified beneficiary to let the plan know when they have become eligible for coverage under another group medial plan or become eligible for Medicare benefits and the penalty for failing to do so
- A description, displayed in a prominent manner, of the qualified beneficiary’s right to a subsidized premium and any conditions on entitlement to the subsidized premium
- A description of the option of the qualified beneficiary to enroll in different coverage (if the employer chooses this option)
In addition to this notice, employers are required to provide notice of the expiration of the premium subsidy to those qualified beneficiaries who are benefiting from that subsidy. Employers must provide this notice between 15 and 45 days from the date the subsidies end. The notice must also state that the qualified beneficiary will continue to be covered by COBRA for the remainder of the qualified beneficiary’s coverage period (but without the subsidy) or by other group health plan coverage, if applicable. The DOL is expected to produce a model notice within 45 days of the date of ARPA’s enactment. Note that if the qualified beneficiary notified the plan that they become eligible for another group medical plan or Medicare benefits, then the employer is not required to provide this notice.
Importantly, the notices are an obligation of the plan administrator, which is typically the employer plan sponsor. The administrator should be identified in the summary plan description. The employer may contract with another party, such as a COBRA vendor, to perform the duty on their behalf, but the employer is ultimately responsible for compliance. Failure to comply with the notice requirement would be considered a COBRA failure subject to penalty.
FFCRA: EPSL and Expanded FMLA
An employer can opt to extend EPSL or Expanded FMLA to its employees through September 30, 2021 (an extension of the March 31, 2021, deadline in the CAA). If employers choose to do this, then they can receive payroll tax credits to offset the costs of providing that leave.
Reasons for granting emergency paid sick leave now include time taken when “the employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 and such employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis, or the employee is obtaining immunization related to COVID–19 or recovering from any injury, disability, illness, or condition related to such immunization.”
ARPA appears to grant an additional 80 hours of sick leave under EPSL effective after the first quarter of 2021.
Reasons for taking Expanded FMLA now include any reason for leave allowed under EPSL, including the additional reason cited above. The first ten days of Expanded FMLA appear to no longer be unpaid and the maximum leave provided under this provision is increased from $10,000 in the aggregate to $12,000.
ACA Premium Subsidy
ARPA reduces the amount that individuals would pay for plans in the exchanges, limiting the amount to no more than 8.5% of the person’s income. This limitation applies even if the person’s income is 400% of the poverty level or higher. Unless future legislation or guidance indicates otherwise, applicable large employers are still required to offer full-time employees minimum value coverage satisfying one of the affordability safe harbors.
Dependent Care FSA (DCAP)
Generally, a participant’s DCAP reimbursement amount in a calendar year is limited to $5,000 if the employee is married and filing a joint return or if the employee is a single parent (or $2,500 if the employee is married filing separately). However, the ARPA provides a temporary increase for this exclusion to $10,500 (or $5,250 if the employee is married filing separately) for taxable years beginning after December 31, 2020, and before January 1, 2022. Retroactive plan amendments are permitted so long as the plan is amended no later than the last day of the plan year in which the amendment is effective and the plan is operated consistent with the terms of the amendment. This new requirement should provide relief to employees whose employers choose to permit the temporary extended carryover and grace period DCAP provisions provided by the CAA. Accordingly, the amounts in excess of $5,000 that are used through a DCAP in a taxable year will not be treated as taxable income for participants (for the taxable year beginning after December 31, 2020, and before January 1, 2022).
Since the law just passed, we expect that the regulatory agencies will provide additional guidance in the future. The NFP Benefits Compliance team will continue to review the law, and will provide clarifying materials where possible.For additional information see the American Rescue Plan Act of 2021.
IRS Provides Guidance on CAA Changes to FSAs and DCAPs
March 02, 2021
On February 28, 2021, the IRS issued Notice 2021-15, which provides guidance for the benefits-related provisions in the Consolidated Appropriations Act of 2021 (CAA), specifically those related to health FSA and DCAP relief. The IRS also provided new guidance regarding additional mid-year election changes permitted for plan years ending in 2021.
The IRS guidance provided in Notice 2021-15 explains that:
- With respect to health FSAs and DCAPs, a plan cannot adopt both a carryover and an extended grace period for the same plan year (which is consistent with general rules). Further, any health FSA or DCAP can adopt an extended grace period or carryover, even if the plan did not previously offer such provision.
- An employer may choose to adopt an extended grace period less than 12 months in length. Similarly, an employer may choose to limit the carryover amount to less than the entire unused account balance and may limit the carryover to apply only up to a specified date during the plan year.
- Unused DCAP amounts carried over from prior years or made available during an extended period for incurring claims are not considered in determining the annual limit applicable for the following year. However, Notice 2021-15 does not indicate whether amounts above $5,000 are subject to taxation. Without further guidance, DCAP benefits used above $5,000 in a calendar year will likely be treated as taxable income when participants file their tax returns. See this edition’s FAQ.
- Prospective election changes may include an initial election to enroll in a health FSA or DCAP, which means that participants who initially waived coverage could make a new election to enroll mid-year without a qualifying life event. Further, employers may allow amounts contributed to a health FSA or DCAP after the prospective election change to be used for claims incurred prior to the election change.
- For example, Deborah elects $1,000 for her calendar year health FSA. Deborah’s employer implements the health FSA election relief allowing for a mid-year election change without a qualifying life event. In March, Deborah increased her election to $2,000. Deborah can be reimbursed on a $2,000 claim from January (even though the claim was incurred prior to her increased election). This also applies if she enrolled in coverage mid-year through an election change.
- A plan can be amended to permit employees, on an employee-by-employee basis, to opt-out of a carryover or extended grace period. In addition, an employer may permit employees to switch from a general-purpose health FSA to an HSA-compatible FSA (e.g., limited-purpose dental/vision or post-deductible FSA) mid-year.
- A plan may limit the time frame for which mid-year election changes may be made. Likewise, a plan can limit the number of mid-year election changes permitted without a qualifying life event.
- Plans may limit post-termination participation in a health FSA to employee contribution amounts made during the plan year prior to termination (also known as the health FSA spend-down provision). In addition, this option is available to participants who cease participation in a health FSA because of termination of employment, change in employment status (such as a furlough), or a new election during calendar year 2020 or 2021. The IRS reiterates that a post-termination participant still has COBRA rights.
- The special age limit relief for certain dependents who turned age 13 during the plan year is separate from the carryover and extended grace period relief. An employer that adopts the special age limit relief does not have to adopt the carryover or an extended grace period for employees to continue to use funds remaining from the previous plan year for such children.
Other Permitted Mid-Year Election Changes
In addition, the IRS provides that plans are permitted to allow participants to make mid-year election changes for employer-sponsored health coverage for plan years ending in 2021. Similar to earlier guidance provided in 2020 via IRS Notice 2020-29, a plan may permit employees to make a new prospective election if they originally declined coverage or revoke an existing election and make a new election to enroll in another group health plan sponsored by the same employer or other health coverage not sponsored by the employer (as long as the employee provides a written attestation to verify that they are or will be enrolled in coverage not sponsored by the employer).
Importantly, employers may choose to implement this relief, but are not required to do so. However, if employers do implement any or all this relief, it should be clearly communicated with employees. In addition, plan amendments are required. Further, the amendments can be retroactive if they are completed by the last day of the calendar year following the end of the plan year for which the change is effective (and, in the meantime, the plan operates in accordance with the terms of the amendment). This means amendments to plan years ending in 2020 would have to be completed by December 31, 2021.
IRS Notice 2021-15 »
Tenth Circuit Holds Divorce Decree Meets QDRO Requirements
March 02, 2021
In Festini-Steele v. ExxonMobil Corporation, No. 20-1052 (10th Cir. 2021), the US Court of Appeals for the Tenth Circuit recently held that a divorce decree can satisfy the ERISA requirements for a qualified domestic relations order (QDRO). As a result, the court determined that a deceased employee’s former spouse was entitled to his life insurance proceeds.
Under ERISA, plan benefits are generally not assignable. As federal law, ERISA supersedes any conflicting state law. An exception to the ERISA anti-assignment principle is a QDRO, which allows for a participant’s benefits to be payable to a spouse or dependent pursuant to a divorce or separation.
For a state court order to qualify as a QDRO, certain information must be included. Specifically, the order must include the name and address of the participant and alternate payee(s) (i.e., the spouse or dependent with a right to plan benefits), each plan to which the order applies, the amount or percentage of the participant’s benefits to be assigned (or the way such an amount would be determined), and the number of payments or period to which the order applies.
In this case, Billy Steele and Stela Festini-Steele were divorced in Colorado in 2014. Their separation agreement (which was incorporated in the divorce decree) required Billy, who worked for ExxonMobil, to maintain life insurance with Stela as beneficiary until the couple’s minor daughter, A.S., attained age 18. After the divorce, Billy remarried. In 2017, he died in a car accident; his daughter A.S. was four years old at the time.
Following the death, Stela contacted ExxonMobil, provided a copy of the divorce decree, and requested the benefit from Billy’s ExxonMobil life insurance plan. ExxonMobil denied the request and informed Stela that she was not a named plan beneficiary. In the denial letter, ExxonMobil determined the submitted divorce decree did not meet QDRO requirements because it failed to specify the insurance amount or benefit plan name.
Stela filed an ERISA civil enforcement claim against ExxonMobil. The district court ruled that the divorce decree was not a QDRO because it failed to identify a plan, the life to be insured or the named beneficiary. Additionally, in the district court’s view, the order did not clearly specify the amount or percentage of the participant’s plan benefits to be paid.
On appeal, the Tenth Circuit’s review focused upon the plan administrator’s denial of Stela’s claim (as opposed to the district court’s prior determination). Accordingly, the court discussed arguments raised by ExxonMobil during litigation, but emphasized that their ruling was based upon the issues cited in the plan’s administrative records.
In the opinion, the Tenth Circuit first addressed the requirement that a QDRO clearly specify the amount or percentage of the participant’s benefits to be paid by the plan to each alternate payee. The court determined that the divorce decree met this requirement by directing Billy to designate his former spouse as beneficiary and not identifying other beneficiaries, thus indicating she was the sole beneficiary and entitled to the full benefit.
The Tenth Circuit then considered the issue of whether the plan subject to the order was clearly identified. Here, the court highlighted language in the divorce order stating that “[t]he parties agree to the following terms relating to all life insurance accounts.” This provision was interpreted to require the participant to name his former spouse as beneficiary of all life insurance plans or policies insuring his life until their daughter A.S. turned eighteen.
Finally, the court noted that although the parties’ separation agreement warned that a separate QDRO may be necessary with respect to retirement plan benefits, this admonition does not preclude a plan administrator from determining that a DRO within which a separation agreement is incorporated is a QDRO.
As a result, the Tenth Circuit held the terms of the separation agreement incorporated within the divorce decree met the requirements of a QDRO. The district court’s judgment was reversed and the case remanded for entry of judgment in favor of the former spouse.
ERISA plan sponsors of group life insurance benefits, particularly those within the jurisdiction of the Tenth Circuit, should be aware of this ruling. Employers may want to review their QDRO procedures, to determine if any modifications are advisable.
Festini-Steele v. ExxonMobil Corporation »