Washington Update: Benefits Provisions in 2023 Federal Budget and RxDC Enforcement Relief
Congress Passes Federal Spending Bill with Important Employee Benefit Provisions
Congress recently passed the Consolidated Appropriations Act, 2023 (CAA 2023), a $1.7 trillion-dollar annual federal spending bill. The CAA 2023 includes several bipartisan provisions that affect group health plans and adopts important retirement plan proposals known as SECURE 2.0.
The CAA 2023 provisions applicable to group health plans include the following:
- Telehealth Relief Extension – The CAA 2023 provides a two-year extension of relief that allows high deductible health plans (HDHPs) to provide first-dollar telehealth coverage without negatively impacting HSA eligibility. Generally, coverage provided without cost-sharing before the HDHP statutory minimum deductible is met is considered impermissible coverage for HSA eligibility purposes. However, under the CARES Act COVID-19 legislation from 2020, telehealth services could be treated as disregarded coverage (i.e., not causing a loss of HSA eligibility) for plan years beginning on or before December 31, 2021. The Consolidated Appropriations Act of 2022 (CAA 2022) included a temporary extension of this relief from April 1, 2022, to December 31, 2022. The CAA 2023 further extends the optional telehealth relief for plan years beginning after December 31, 2022, and before January 1, 2025.
- Sunset of the MHPAEA Opt-Out for Self-Funded Non-Federal Governmental Plans – The CAA 2023 eliminates the annual opt-out provision from the Mental Health Parity and Addiction Equity Act (MHPAEA) currently available to many state and local governmental self-funded group health plans. Generally, new opt-out elections will not be permitted after the enactment of CAA 2023, and existing elections that are expiring 180 days or later after such enactment will not be permitted to be renewed. A limited exception applies for certain collectively bargained plans.
- Grants to Support MHPAEA Enforcement – The CAA 2023 authorizes five years of CMS grants totaling $10,000,000 annually to be awarded among states that agree to request and review health insurers’ non-quantitative treatment limitation comparative analyses required under the CAA 2021. The purpose of the grants is to increase MHPAEA enforcement in fully insured group and individual health plans. Accordingly, MHPAEA enforcement is expected to remain a priority of state and federal regulatory authorities.
The inclusion of the SECURE 2.0 Act in the CAA 2023 significantly impacts retirement plans. The SECURE 2.0 Act follows the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 and incorporates aspects of recent House and Senate bills. A primary goal of the SECURE 2.0 Act is to expand employee access to retirement plans and encourage greater savings. Noteworthy SECURE 2.0 Act provisions include the following:
- Automatic Enrollment (Section 101) – Effective for plan years beginning in 2025, most new 401(k) and 403(b) plans would be required to automatically enroll participants upon their becoming eligible. (Employees may affirmatively opt out.) The initial automatic enrollment deferral rate is at least 3% but not more than 10%. Each year thereafter that amount is increased by 1% until it reaches at least 10%, but not more than 15%. All current 401(k) and 403(b) plans are grandfathered. There is an exception for small businesses with 10 or fewer employees, new businesses (i.e., in existence less than three years), church plans and governmental plans.
- Increase in Age for Required Minimum Distributions (Section 107) – The required minimum distribution age will increase to 73 for a participant who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, and to 75 for a participant who attains age 74 after December 31, 2032. (Under current law, as established by the SECURE Act 2019, participants are generally required to begin taking distributions from their retirement plans at age 72.) The provision is effective for distributions made after December 31, 2022, for participants who attain age 72 after this date.
- Greater Catch-Up Contribution Limit for Participants Ages 60 through 63 (Section 109) – Participants aged 50 or older are currently allowed to make a catch-up contribution (i.e., a contribution in excess of the otherwise applicable deferral limit) up to the annual indexed amount. The 2022 limit on catch-up contributions is $6,500 ($3,000 for SIMPLE plans). Under SECURE 2.0, for participants who have attained ages 60, 61, 62 and 63, these limits increase in 2025 to the greater of $10,000 or 50% more than the regular catch-up amount for non-SIMPLE plans and the greater of $5,000 or 50% more than the regular catch-up amount for SIMPLE plans. The increased amounts are indexed for inflation after 2025.
- Further Expansion of Part-Time Worker Eligibility (Section 125) – The SECURE Act of 2019 requires employers to allow long-term, part-time workers to participate in the employers’ 401(k) plans, if they have either completed one year of service (with 1,000 hours of service) or three consecutive years of service (with at least 500 hours of service). SECURE 2.0 reduces the three-year rule to two years, effective for plan years beginning after December 31, 2024. Additionally, these long-term part-time coverage rules are extended to 403(b) plans that are subject to ERISA.
We will continue to review and report on the CAA 2023 in upcoming editions of Compliance Corner.
IRS Finalizes Rule Fixing the ACA “Family Glitch”
On October 11, 2022, the IRS finalized its proposed rule to fix the “family glitch” in eligibility rules for the ACA premium tax credit (PTC). The new final rule will be effective starting in the 2023 tax year.
Under the so-called “family glitch” circumstance, family members were previously ineligible for a PTC if the cost of self-only coverage was affordable. A PTC for purchasing health insurance on the ACA’s marketplace is available to people who do not have access to “affordable” coverage through their jobs. Previously, spouses and children were ineligible for the PTC if the employee’s contribution for self-only coverage in the employer-sponsored plan did not exceed 9.5% of household income (indexed annually), without considering any additional employee cost-share contribution for family coverage.
To increase access to PTCs for low-income families, the new rule applies a separate PTC affordability standard for family members based on the full cost-share contribution for family coverage. Under the rule, an eligible employer-sponsored plan will be treated as affordable for family members (i.e., the spouse if filing jointly and tax dependents) if the portion of the annual premium the employee must pay for family coverage, that is, the employee's required contribution, does not exceed 9.5% of household income (indexed annually). As a result, an employee’s family may qualify for a PTC even if the employee does not.
Importantly, the new rule does not impact the employee affordability test and does not increase exposure to employer shared responsibility (employer mandate) penalties. Applicable large employers will continue to base affordability tests on the cost of self-only coverage, and employer mandate penalties will continue to be triggered only by an employee’s receipt of a marketplace PTC and not by a PTC granted to their spouse or dependents. However, employers may see an indirect impact with more families dropping employer-sponsored coverage for newly subsidized ACA marketplace coverage.Importantly, the new rule does not impact the employee affordability test and does not increase exposure to employer shared responsibility (employer mandate) penalties. Applicable large employers will continue to base affordability tests on the cost of self-only coverage, and employer mandate penalties will continue to be triggered only by an employee’s receipt of a marketplace PTC and not by a PTC granted to their spouse or dependents. However, employers may see an indirect impact with more families dropping employer-sponsored coverage for newly subsidized ACA marketplace coverage.
Family members of some employees may be eligible for PTCs effective January 1, 2023, if coverage under the group health plan is determined to be unaffordable under the final rule. Related Notice 2022-41 provides an additional permitted qualifying event to allow employees who participate in non-calendar year cafeteria plans to drop coverage for such family members mid-year, so they can enroll in a qualified health plan through the marketplace. Certain conditions apply, and the plan must be formally amended to recognize this optional new qualifying event. Interested employers who sponsor non-calendar year cafeteria plans should consult with their document providers and carriers, as applicable, regarding the possible adoption of such an amendment.
IRS Issues New FAQs Concerning ARPA COBRA Subsidies
Notice Provides Additional Clarity on Who Claims the Tax Credit
On July 26, 2021, the IRS issued Notice 2021-46, providing additional guidance on the application of the American Rescue Plan Act (ARPA) subsidy for continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) in the form of 11 questions and answers. The Notice expands on prior guidance issued on May 18, 2021.
These FAQs provide additional clarification on the following topics:
- Eligibility for premium assistance in cases of extended coverage periods
- Dental and vision coverage, the applicability of premium assistance to certain kinds of state continuation coverage
- Additional discussion concerning which entity is entitled to claim the premium subsidy tax credit
Of note is FAQ #2, which states that eligibility for COBRA premium assistance ends when the Assistance Eligible Individual (AEI) becomes eligible for coverage under any other disqualifying group health plan or Medicare, even if the other coverage does not include all the benefits provided by the previously elected COBRA continuation coverage. If the AEI had dental or vision coverage through COBRA, and enjoyed the premium assistance provided under ARPA, that AEI will lose the assistance if they become eligible for group health coverage or Medicare, even if that group health coverage or Medicare does not provide dental or vision coverage.
The notice primarily focuses on issues surrounding who can claim the tax credit for providing premium assistance. For instance, FAQ #5 deals with the situation wherein state continuation and federal COBRA run concurrently, and the state continuation program continues to run after the federal COBRA coverage period is exhausted. In that circumstance, the entity that can claim the premium subsidy credit is the common law employer, even if the state-mandated continuation coverage would require the AEI to pay the premiums directly to the insurer after the period of federal COBRA ends.
In addition, FAQ #9 deals with business reorganizations (e.g., acquisitions), in which the seller remains obligated to make available COBRA continuation coverage to the individuals who became qualified beneficiaries because of the reorganization. In these cases, the FAQ states that the seller that maintains the group health plan is the entity entitled to claim the COBRA premium assistance credit, even if the buyer becomes the common law employer after the sale (if the buyer is not obligated to make available COBRA continuation coverage to AEIs).
Employers should be aware of this notice and the issues relating to the ARPA COBRA subsidy that it addresses. The Benefits Compliance team will provide more detail and analysis regarding this notice in the August 5, 2021, edition of Compliance Corner.
EEOC Extends EEO-1 Deadline for 2019 and 2020 Data Submissions
The New Deadline Gives Employers Another Month–Until August 23– To Complete Their Reports
July 8, 2021, HR360.
Employers now have some extra time to submit equal employment opportunity (EEO-1) workforce data from 2019 and 2020, the U.S. Equal Employment Opportunity Commission (EEOC) announced on June 28, 2021. These reports were previously due by July 19, 2021. Employers now have until Aug. 23, 2021, to complete their submissions.
The EEOC’s collection of this data, the portal for which opened on April 26, 2021, had been delayed numerous other times due to the coronavirus pandemic. Under Title VII of the Civil Rights Act, the EEO-1 Report is usually due by March 31 every year.
Administrators who enter the Ethnic Identification and EEO Classification data on a member's record in AutoEnroll can run an EEO-1 report from the Standard Reports menu. The report will default to pull data through the current date. The from date is not populated. Data pulled include Name, SSN, Address, City, State, Zip, Home Phone, Work Phone, Structure Group, Ethnic Identification, and EEO Classification.
OSHA Issues COVID-19 Emergency Temporary Standard for Health Care
Some Exceptions Apply to Fully Vaccinated Workers
HR360, June 11, 2021. On June 10, 2021, the Occupational Safety and Health Administration (OSHA) announced its COVID-19 Emergency Temporary Standards (ETS). The ETS was developed to protect health care and health care support service workers from occupational exposure to COVID-19 in settings where people with COVID-19 are reasonably expected to be present. The ETS is expected to become effective as soon as it is published in the Federal Register.
Covered employers include hospitals, nursing homes, and assisted living facilities; emergency responders; home health care workers; and employees in ambulatory care settings where suspected or confirmed coronavirus patients are treated.
The ETS requires covered health care employers to develop and implement a COVID-19 plan to identify and control COVID-19 hazards in the workplace.
Covered employees must also implement other requirements to reduce the transmission of COVID-19 in the workplace. These requirements include, but are not limited to, health screenings, personal protective equipment (PPE), controls for aerosol-generating procedures, physical distancing, cleaning and disinfection protocols, ventilation standards and employee training.
OSHA will update the standard, if necessary, to align with CDC guidelines and changes for the pandemic.
The standard encourages vaccinations by requiring employers to provide reasonable time off and paid leave for employees to receive vaccinations and to recover from any vaccination side effects.
The ETS also encourages respirator use when they are used in lieu of required facemasks by including a mini respiratory program that applies to such use.
Initial Summary of IRS Notice 2021-31
On May 18, 2021, the IRS published Notice 2021-31, providing guidance and clarification on the premium assistance and tax credits available for COBRA and state continuation health coverage per the American Rescue Plan Act of 2021 (ARPA). In addition to a summary overview, the Notice provides clarification on many issues regarding administering the premium assistance subsidies and tax credits, via 86 questions and answers. Highlights include:
Of Significant Importance
- Employers may require individuals to provide certification or attestation of their eligibility before treating them as an assistance eligible individual (AEI). Further, in order to claim the payroll tax credit, the employer must retain such certification or attestation.
- Eligibility for other group coverage impacts eligibility for the premium assistance only if the individual is actually permitted to enroll in that other coverage mid-year. If the individual is locked out of enrollment mid-year due to the lack of a qualifying event, the eligibility for the other coverage is disregarded and the individual is eligible for the premium assistance. It is important to note, however, that an individual who lost eligibility for the employer’s plan within the last year due to termination of employment or reduction of hours would still have a HIPAA Special Enrollment Right to enroll in their own or a spouse’s group health plan, and would therefore be ineligible for premium assistance.
- The premium assistance indeed applies to HRAs.
Employer Involvement and Duration of Premium Assistance
- The ARPA COBRA tax credit is claimed by the person to whom premiums are payable (also sometimes referred to as the “premium payee”). To re-emphasize, the premium payee is the employer for a self-insured plan and for a fully insured plan subject to COBRA, the carrier for a fully insured plan not subject to COBRA (i.e., state continuation only), and the plan for a multiemployer plan.
- Employers who had a decrease in employees such that they are not subject to federal COBRA this year, still have to offer COBRA premium assistance based on their status as a larger employer in 2020 (for AEIs who were due an offer of COBRA in 2020).
The ARPA COBRA premium assistance period is generally from April 1, 2021, through September 30, 2021. However, COBRA premium assistance is available, for those who qualify, through the last day of the last period of coverage beginning on or before September 30, 2021, even if the period of coverage extends into October. For example, the last two-week period of coverage for September 2021 is from September 19, 2021 through October 2, 2021. In this case, COBRA premium assistance is available through October 2, 2021.
- Notwithstanding an agreement between an employer subject to federal COBRA and its insurer for the insurer to collect COBRA premiums directly from the qualified beneficiaries, the employer remains obligated to pay the premium to the insurer for the months of COBRA premium assistance with respect to an AEI.
- An employer may not receive the tax credit associated with an insured plan subject solely to state continuation law (e.g., very small fully insured plans or church plans) with respect to the requirement to provide continuation coverage, even if the employer pays the full premium to the insurer.
- The premium payee can get an ARPA COBRA premium subsidy tax credit, but cannot also be reimbursed for those same premiums by treating them as qualified wages under the FFCRA. If a premium payee reimburses an AEI for premiums that should have been covered by the subsidy, then the premium payee is entitled to the premium subsidy tax credit on the date the premium payee reimburses the AEI.
- If a third party, such as a charity, pays an AEI’s premium that should have been covered by the subsidy, then the premium payee should reimburse the AEI for the premium, unless the premium payee is aware that the individual assigned the right to the reimbursed premium to the third party.
- COBRA premium assistance is available to individuals who have elected and remained on continuation coverage due to disability, second qualifying event, or an extension under state continuation coverage, so long as the original qualifying event was a reduction in hours or an involuntary termination of employment and to the extent the extended period of coverage falls between April 1, 2021, and September 30, 2021.
- An individual who is eligible for other group stand-alone dental or vision coverage remains eligible for the premium assistance for medical coverage.
- Whether retiree health coverage will impact eligibility for premium assistance depends on whether the retiree health coverage is offered under the same group health plan as COBRA continuation coverage or under a separate group health plan. An individual is not eligible for premium assistance if offered retiree health coverage that is not COBRA continuation coverage and is coverage under a separate group health plan that the plan under which the COBRA continuation coverage is offered. However, if the retiree health coverage is offered under the same group health plan, the offer of said coverage does not impact eligibility for premium assistance.
- An individual is not eligible for premium assistance if they do not meet the definition of a qualified beneficiary under federal COBRA. For reference, “qualified beneficiary” is defined as someone who was a beneficiary under the plan on the day before the qualifying event.
- COBRA premium assistance does not apply to the portion of the premium related to continuation coverage for individuals who are not qualified beneficiaries. This means that premiums paid for a spouse or dependent who was not a beneficiary under the plan before the qualifying event are not eligible for premium assistance (since such spouse or dependent is not a qualified beneficiary). In other words, a spouse (or dependent) added to the plan at open enrollment by COBRA qualified beneficiary is not eligible for premium assistance.
- Any late or unpaid premiums for retroactive COBRA continuation coverage elected pursuant to the Emergency Relief Notices does not impact an individual’s eligibility for ARPA COBRA premium assistance.
- Involuntary termination includes when an individual voluntarily chooses to be terminated due to being offered a severance agreement in light of an imminent termination. This is also true for the same situation, but the individual chooses to retire. Further, it applies to a reduction of hours due to an individual’s choice to be furloughed due to an impending furlough.
- To determine whether termination is involuntary, a facts and circumstances test is used. The notice provides an example that explains that termination is involuntary, even if it is designated as voluntary, when the facts and circumstances indicate that the individual was willing and able to continue working but for the voluntary termination, the employer would have terminated the individual (and the individual was aware that the employee would be terminated).
- Absence from work due to disability or illness is not an involuntary termination unless the employer has taken action to terminate employment. However, it could be a reduction in hours that will give rise to premium assistance if the person loses coverage as a result of the leave.
- Termination due to general concerns about workplace safety, a health condition of the employee or a family member, or other similar issues, generally will not be involuntary termination. This is because the actual reason for the termination is unrelated to the action or inaction of the employer.
- Employees who quit because they don’t have childcare would not be AEIs; but if they remain employed, take leave for that reason, and lose coverage this would be considered a reduction in hours that would make them an AEI.
- Involuntary termination includes a situation where an employee quits because the employer initiates a reduction in hours.
- An employer’s decision not to renew an employee’s contract is an involuntary termination if the employee is willing and able to continue the employment relationship. However, if all parties always understood that the contract was for specified services over a set term and would not be extended, the completion of the contract without it being renewed is not an involuntary termination.
Extended Election Period
- An AEI may decline to elect the COBRA continuation coverage under the original COBRA election period and instead elect COBRA continuation coverage only for the extended period of coverage that begins on or after April 1, 2021. In the alternative, if the AEI elects COBRA continuation coverage retroactively, no COBRA premium assistance is available for periods of coverage beginning prior to April 1, 2021.
- A qualified beneficiary who had a reduction in hours or involuntary termination may elect additional coverage during the extended election period (i.e., medical plan plus stand-alone vision) if they were enrolled in that coverage prior to the COBRA triggering event. They would qualify as an AEI with respect to all coverages elected (i.e., those elected prior to and during the extended election period).
- An individual who otherwise would be an AEI except for eligibility for other group coverage or Medicare still has the right to enroll during the extended election period, but would not receive premium assistance.
- Even if an employer allows AEIs to enroll in different coverage than what they had the day before the qualifying event, COBRA premium assistance will not be available for coverage with a greater premium. The AEI does not have an option to elect the higher cost coverage and pay the difference.
- Employers must place an AEI in similar a plan provided to active employees if the plan the AEI was enrolled in is no longer offered.
- The penalty due from an AEI who fails to provide notice of his or her eligibility for other coverage under a group health plan or Medicare is not payable to the employer, plan, or issuer who receives the premium assistance credit.
- The extensions of timeframes available under the Emergency Relief Notices do not apply to the ARP extended election period notice or the ARP extended election period.
Calculation of the COBRA Premium Assistance Credit Amount
- Generally, the credit amount is 102% of the COBRA applicable premium, assuming the employer does not subsidize the COBRA premium for similarly-situated QBs who are not AEIs. If the employer does subsidize such cost for non-AEI QBs, then the amount of the credit is 102% minus the amount provided to non-AEI QBs (i.e., the credit does not include the amount of subsidy that the employer would have otherwise provided).
- If a plan previously charged less than the allowable 102% COBRA applicable premium rate, the plan may increase the charged amount to 102% of the COBRA applicable premium rate, and the plan can claim a credit for the full 102% amount. This is true even if the employer also provides a taxable severance benefit to the AEI.
- The premium assistance credit does not apply to non-AEI COBRA QBs, which appears to include domestic partners. The IRS notice has examples of how to calculate the credit where a non-AEI COBRA QB is covered through an AEI.
Claiming the COBRA Premium Assistance Credit
- A premium payee claims the credit by reporting the credit and the number of AEIs receiving the COBRA premium assistance on the designated lines of Form 941, Employer’s Quarterly Federal Tax Return. In anticipation of the credit to which it is entitled, the premium payee may reduce the deposits of federal employment taxes (including withheld taxes) that it would otherwise deposit, up to the amount of the anticipated credit. Then, if the anticipated credit exceeds the federal employment tax deposit amount, the payee would request an advance of that amount by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
- A premium payee would generally file Form 941 at the end of each quarter, but can file a Form 7200 (requesting advance payments) after the end of the payroll period in which the payee became entitled to the credit (but they cannot file Form 7200 for a period of coverage that has not begun). The notice includes examples, including how to claim the premium assistance credit if the payee has no employment tax liability.
- A premium payee can still claim the premium assistance credit even if the AEI fails to provide notice that the individual is no longer eligible for the COBRA premium assistance (e.g., the individual is eligible for other group health plan coverage or Medicare), unless the payee has knowledge of the disqualifying coverage/Medicare.
As this guidance was just released, we will continue to analyze it and provide additional resources at a later date.
Possible Tax Changes: Learn about the 99.5% and STEP Acts
The Biden administration came into the White House promising both a large COVID-19-relief bill and a dramatic infrastructure overhaul.
With the COVID-19-relief bill now a law and the recent introduction of two massive pieces of infrastructure legislation, both of which included dramatic changes to current tax law, the focus in Washington has understandably turned those tax law changes. Enter the For the 99.5% Act and the Sensible Taxation and Equity Promotion (STEP) Act, in addition to the infrastructure bills.
The For the 99.5% Act and the STEP Act were introduced as bills into the Senate Budget Committee with similar versions introduced into the House, but have not been brought up for debate in either Chamber and are still a long way from becoming law. Still, they do indicate the need for us to start planning for possible challenges, even while we continue to hope for the best.
The 99.5% Act represents a possible change to estate and gift tax exemptions and rates, as well as possible curtailing of some familiar planning techniques. On the other hand, the STEP Act would change the carry-over basis rules for lifetime gifts and transfers into trust, and would eliminate the basis step-up at death, all of which means that there would be a deemed sale upon transfer of property and recognition of capital gains by the transferor.
In conjunction with the For the 99.5% Act and the STEP Act, the Biden administration has proposed paying for its infrastructure bills with several tax rate increases including: the capital gains tax rate, the corporate tax rate, the maximum income tax rate, plus the closing of what the White House calls “tax loopholes” and increasing funding for the IRS, which would allow the IRS to step up its audit and enforcement efforts.
A key factor to raising the capital gains rate is eliminating the basis step-up at death. Otherwise, many tax payers will choose to hold their assets rather than paying an increased tax rate. In order for an increase in the capital gains rate to raise significant revenue Congress would have to pass both a capital gain increase and a version of the STEP Act, which eliminates the basis step-up at death.
These acts and the White House’s two infrastructure proposals, when looked at as parts of a cohesive whole, represent potential dramatic change to the transfer tax system, but it is important to remember that all four pieces of legislation are still a long way from becoming law.
IRS Publishes Fact Sheet Regarding Tax Credits for Paid Leave Taken for COVID-19 Vaccination
On April 21, 2021, the IRS released a fact sheet that provides details concerning the tax credits permitted by the American Rescue Plan Act of 2021 (ARPA) when paid leave is provided for reasons relating to receiving the COVID-19 vaccine.
The ARPA allows employers and tax-exempt organizations with fewer than 500 employees and certain governmental employers to receive tax credits as reimbursement for the cost of providing paid sick and family leave for certain reasons due to COVID-19, which now includes leave taken by employees to receive or recover from COVID-19 vaccinations. These tax credits are available for eligible employers who choose to provide paid sick and family leave from April 1, 2021, through September 30, 2021.
The fact sheet provides an overview of who is eligible for the tax credits, when leave applies, and how employers can claim such credits. Specifically, the IRS reiterates that the ARPA tax credits are applied against an employer’s share of the Medicare tax and can be claimed quarterly on the federal employment tax return (generally Form 941). If the credit amount exceeds the employer’s share of the Medicare tax, employers are entitled to a refund. (This process is similar to claiming paid leave FFCRA tax credits.)
Employers opting to provide paid sick and family leave through September 30, 2021, should be aware of the guidance provided in the fact sheet and work with their tax advisers to claim the credits. For more information on the paid leave and tax credits provided under the ARPA, see our prior Compliance Corner article from the March 16, 2021, edition, Congress Passes the American Rescue Plan Act of 2021.
IRS Announces that Personal Protective Equipment Can Be Treated as Medical Expenses
On March 26, 2021, the IRS issued announcement 2021-7, indicating that personal protective equipment (PPE) can be treated as medical expenses under §213(d) of the IRC. Specifically, PPE, including masks, hand sanitizer and sanitizing wipes, can be deducted on individual taxpayers’ taxes or reimbursed under FSAs, Archer MSAs, HSAs and HRAs.
The PPE may be reimbursed through the reimbursement programs listed above beginning on or after January 1, 2020. Group health plan sponsors will need to amend their plan documents to reflect this change by December 31, 2022.
Plan sponsors should be mindful of this guidance. While the announcement does not require an employer communication be sent to employees, employers should work with their service providers and vendors to facilitate this change to their plans.
IRS Extends the Individual Tax-Filing Deadline
On March 17, 2021, the IRS issued news release IR-2021-59, announcing that the federal income tax filing due date for individuals for the 2020 tax year will be extended from April 15, 2021, to May 17, 2021. On March 29, 2021, the IRS also released Notice 2021-21, providing additional guidance on the extension. This extension comes as the IRS acknowledges that many people are still experiencing tough times due to the pandemic.
The announcement explains that all individual taxpayers (including self-employed individuals) with a return or payment due on April 15, 2021, will have until May 17, 2021, to file their taxes. Similarly to last year’s extension, taxpayers do not need to have been impacted by COVID-19 to access this relief. Additionally, the relief extends to 2020 federal income tax payments (including payments of tax on self-employment income) due on April 15, 2020. (Unlike last year’s extension, this extension does not apply to estimated tax payments that are due on April 15, 2021; estimated tax payments are quarterly payments made by those whose income isn’t subject to income tax withholding.)
As a result of the extended filing deadline, taxpayers now also have until May 17, 2021, to make 2020 contributions to their HSAs and IRAs. Employers with April 15, 2020, filing deadlines may also have additional time to make 2020 contributions to certain workplace retirement plans.
The announcement also mentions that residents of the states of Louisiana, Oklahoma and Texas will have until June 15, 2021, to file and pay their taxes (as a result of the federally declared winter storm disaster in those states). This extension of the filing deadline for the entire country does not affect that extension; it is still June 15, 2021.
The IRS has indicated that they will provide additional guidance in the coming days. In the meantime, employers should be aware of the tax deadline extension.
EEOC Announces 2021 Schedule for EEO-1 and Other EEO Reports
HR360, January 19, 2021. On Jan. 12, 2021, the U.S. Equal Employment Opportunity Commission (EEOC) announced that it will open four equal employment opportunity (EEO) data collections in 2021. The agency had previously delayed EEO collections in May 2020 due to the coronavirus pandemic.
According to the announcement, EEO reporting will now resume according to the following schedule:
- April 2021: Private employers and federal contractors will be required to file 2019 and 2020 EEO-1 Component 1 data.
- July 2021: Certain public elementary and secondary school districts will be required to file 2020 EEO-5 data.
- August 2021: Certain unions will be required to file 2020 EEO-3 data.
- October 2021: State and local governments will be required to file 2021 EEO-4 data.
Clients who have recorded employee EEO classifications in AutoEnroll can run an EEO-1 report from the Standard Reports dropdown menu. This report provides information on equal employment opportunity through the current date. It includes fields such as: name, address, Structure Group, ethnic identification, and EEO classification.
Congress Passes Appropriations Bill with COVID-19 Relief
On December 21, 2020, Congress passed the Consolidated Appropriations Act of 2021, which includes COVID-19 relief legislation. (As of the time of publication of Compliance Corner, President Trump had not signed the legislation, but is expected to.) In addition to approximately $1.4 trillion in stimulus spending, the legislation includes various benefits-related provisions, such as extensions for FFCRA leave tax credits, temporary extension of FSA and DCAP grace and carryover periods, a new federal prohibition against certain surprise billing practices and price transparency requirements which prohibit certain information from being withheld from third parties and require plans and issuers to file reports with the federal government. This article provides a preliminary summary of these provisions.
The new law allows employers covered by the FFCRA (those with fewer than 500 employees) to extend the time they can offer EPSL or EFMLA to employees to March 31, 2021. If they do, then they can apply for the tax credits available under the FFCRA for leave granted under the extension. The law does not provide any additional leave for employees, just additional time during which employers may grant that leave if any is still available to the employee.
FSAs and DCAPs
The law also permits additional flexibility for FSAs and DCAPs. DCAP sponsors are temporarily permitted to adopt carryover features, which are otherwise limited to FSAs. Furthermore, for plan years ending in 2020 and 2021, both FSAs and DCAPs appear to be permitted to carry over any unused funds to the following plan year. (There is no reference to the $550 carryover cap currently applicable to FSAs.) Similarly, the law allows for the extension of FSA and DCAP grace periods for a plan year ending in 2020 or 2021 to 12 months.
Employees who cease participating in an FSA during calendar year 2020 or 2021 can continue to receive reimbursements from unused benefits or contributions through the end of the plan year in which such participation ceased (including any grace period, such as one extended under this law). This provision resembles a DCAP spend-down and does not appear to require employees to elect COBRA coverage in order to take advantage of it.
In addition to these extensions, plans can allow employees to make elections to prospectively modify the amount (but not in excess of any applicable dollar limitation) of their contributions to an FSA or DCAP without a change in status.
These changes are optional for employers. Plan documents will need to be amended to make these changes; however, the amendments can be retroactive, if (1) such amendment is adopted not later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective (e.g., calendar 2020 plan amendments must be adopted on or before December 31, 2021) and (2) the plan or arrangement is operated consistent with the terms of such amendment during the period beginning on the effective date of the amendment and ending on the date the amendment is adopted.
The law also provides that expenses for an employee’s child continue to be eligible for reimbursement under a DCAP even when the child turns age 14 (the age a child normally ages out of eligibility for qualified expenses), provided that the regular enrollment period for the DCAP plan year at issue ended on or before January 31, 2020. This also goes for any unused balance rolling over to the next plan year.
Effective January 1, 2022, the relief legislation protects people from large unexpected medical bills they may incur when obtaining emergency medical care from out-of-network providers (including air ambulance services). The law requires health plans or insurers to pay out-of-network providers for emergency care services provided to their insureds, without imposing increased cost sharing or pre-authorization requirements upon the insureds. Any cost sharing imposed upon the insureds for these services will be treated the same way they are treated if applied towards services provided by in-network providers (such as counting towards out-of-pocket maximums or in-network deductibles).
Insurers and plans can negotiate with the out-of-network providers on the price they will pay for the emergency services. The out-of-network providers bill the plan or insured for the services and the plan or insured has 30 days to either make an initial payment or deny the payment. The initial payment (or “qualifying payment”) is an amount determined to be the median payment amount for the same or a similar item or service that is provided by a provider in the same or similar specialty and provided in the geographic region in which the item or service is furnished. HHS is charged with promulgating rules for determining qualifying payments by July 1, 2021. Regardless of whether a payment is made or denied, the parties have 30 days to negotiate the price that the plan or insurer will ultimately pay for the item or service and, if that fails, the parties may also arbitrate. Once an arbitrator is agreed upon, then the arbitrator has 30 days to determine the price. The arbitrator cannot consider benchmark or government reimbursement rates when determining a price.
The prohibition against balance billing will not apply to providers who provide services to patients (that are not considered “ancillary” services) if:
- the patient receives an oral and written notice 72 hours in advance of the appointment for the service that explicitly states that the provider is out-of-network;
- consent to receive the service out-of-network is optional and the same service can be obtained by an in-network provider;
- the provider provides a good faith estimate of the amount that the patient will be charged for the service if they consent;
- the facility provides a list of any in-network providers who can provide the same service (if the out-of-network provider in question works out of an in-network facility); and
- the patient consents to the notice in writing and receives a copy of the signed consent.
For purposes of this law, “ancillary services” include: emergency medicine, anesthesiology, pathology, radiology and neonatology; items and services provided by assistant surgeons, hospitalists and intensivists; diagnostic services that are not exempted by rule; and items and services provided by non-participating providers if there are no participating providers at the same facility who can furnish such items or services.
Among other items of note, the legislation also imposes a requirement that all insurance ID cards must include plan deductibles for both in- and out-of-network services, out-of-pocket maximums and plan telephone number and web address. It also requires plans to provide, upon request of a participant or provider, an explanation of whether a particular provider or facility is in- or out-of-network for the service to be provided, the contract rate for that service and whether that service can be obtained in-network.
States are charged with enforcing these provisions and they can additional obligations on out-of-network providers that go beyond those established by this law. If the states do not want to enforce these provisions, then HHS can do so.
The law encourages price transparency by prohibiting health plans and insurers from entering into agreements with providers that prohibit the provision of provider-specific cost or quality of care information; electronic access to de-identified claims and encounter information for each enrollee in a plan; or sharing of the above information/data with business associates in accordance with HIPAA standards.
Beginning one year after the passing of the law and every June 1 thereafter, group health plans and issuers must submit a very detailed report to the DOL and Department of the Treasury that includes, among other things: the number of enrollees in the plan; the plan year; the states in which they offer coverage; the top 50 brand drugs dispensed by pharmacies for claims under the plan and the total claims paid for each drug; the top 50 by total annual spending and the annual amount spent for each of those drugs; and total spending by the plan (broken down by types of cost, such as hospital and primary care, specialty care, provider and clinical service costs, prescription drugs, wellness and plan and enrollee spending on prescription drugs).
We have highlighted some of the major benefits-related provisions in this article, but the law (when passed) will be brand new. In the next edition of Compliance Corner, we will provide additional details on the various provisions that impact employee benefit plan sponsors.
EEOC Provides Guidance on Employer-Mandated COVID-19 Vaccinations
On December 16, 2020, the EEOC updated its FAQs that cover a variety of COVID-19-related issues by adding several new FAQs directly addressing issues relating to employer-mandated COVID-19 vaccinations. The EEOC does not mandate that employers require vaccinations; however, it does allow employers to do so if they follow applicable laws. Keep in mind that employees who refuse to take the vaccine may not be excluded from the workplace, unless the employer determines that there is a direct threat to health and safety at the worksite and no other reasonable accommodation with the employee can be made. The FAQs provide more detail concerning issues surrounding employees who refuse to get vaccinated due to a disability or for religious reasons.
The EEOC states that an employer-mandated vaccination is not a “medical examination” under the ADA. However, if the employer follows CDC (Centers for Disease Control) guidelines and asks pre-screening questions of employees to figure out whether they have medical reasons for not taking the vaccine, then those questions are subject to the ADA, which requires the employer to show that the questions are “job-related and consistent with business necessity.” If the vaccinations are voluntary (and the pre-screening questions are also voluntary) then the employer does not have to make that showing. Similarly, if the employee obtains the vaccination from a third party that is not contracted to supply the vaccine by the employer, then the employer would not have to make that showing.
If an employee asserts an exemption from a mandatory vaccination requirement based on an ADA disability that prevents him from taking the vaccine, or if the employee’s sincerely held religious belief, practice or observance prevents him from taking the vaccine under Title VII of the Civil Rights Act, then the employer must (under most circumstances) provide reasonable accommodations for that employee. If the employer cannot provide such accommodation, then it should figure out whether the employee has other rights under federal or state law before terminating the employee.
The FAQs also cover some issues relating to GINA. According to the EEOC, the act of vaccinating by itself does not involve the use of genetic information to make employment decisions, or the acquisition or disclosure of genetic information, and does not implicate that statute. However, pre-screening questions may implicate GINA if they include questions about genetic information, such as questions about the immune systems of family members. As of the date of these new FAQs, it is unclear whether such information is needed to receive the vaccination.
Employers who are considering imposing a mandatory COVID-19 vaccination requirement on their workforces should be aware of these FAQs. Employers with questions concerning the implementation of a mandatory vaccination policy should consult with employment law counsel.
IRS Provides FAQ on Relief for Rule on Van Pools Affected by COVID-19
On December 3, 2020, the IRS released an FAQ about COVID Relief for Van Pools which explains temporary relief from certain conditions normally required for vanpooling benefits to be excluded from employees’ income as a fringe benefit.
As background, “vanpooling” refers to transportation in a commuter highway vehicle between an employee’s residence and place of employment. Further, a commuter highway vehicle is required to have the seating capacity of six or more adults (excluding the driver), and a minimum of 80% of the vehicle’s reasonably expected annual mileage must be used to transport employees between their residences and their place of employment. Importantly, commuting miles only count towards that 80% if the number of employees transported is at least 50% of the vehicle’s adult seating capacity (excluding the driver). This is commonly referred to as the “80/50 requirement.”
In light of the ongoing public health emergency, the IRS explains that if the employer reasonably expected at the beginning of the 2020 calendar year that at least 80% of the vehicle’s mileage would be used for vanpooling (meeting the 80/50 requirements mentioned above), but because of the ongoing COVID-19 emergency such requirements were not satisfied, the vehicle is still considered a commuter highway vehicle for the duration of 2020 so long as the seating capacity is at least six adults (excluding the driver). (For the purpose of this relief, the COVID-19 emergency commenced on the date of the president's emergency declaration, March 13, 2020.) Meaning, provided the other requirements of being a qualified transportation fringe benefit are met, up to $270 per month of the value of the van pool transportation provided by an employer and cash reimbursements from an employer to its employees for expenses related to an employee-operated van pool may be excluded from employees’ income. This relief applies to van pools using employer-operated or employee-operated vehicles.
Employers should be aware of this relief when administering fringe benefits.
New York Paid Family Leave Rates for 2021
New York State has announced its PFL changes for 2021. PPI's systems will be updated in time for the January bill cycle to bill accordingly, however the method of calculating the premium will not change. The year 2021 marks the 4th and final year of the phase-in period of Paid Family Leave benefits in New York.
Compared to rates in 2020, contributions and benefit amounts will increase in January 2021 as follows:
- Annual wage gap*: $75,408.84
- Average Weekly Wage (AWW)**: $1,450.17
- Duration: Maximum 12 weeks
- Maximum weekly benefit rate: 67% of AWW
- Max weekly benefit: $971.61
- Premium rate: 0.511% (includes a 0.005% risk adjustment for COVID-19 quarantine claims) of total weekly payroll up to $385.34
*The annual wage cap represents the wages reported per employee, not to exceed this amount per calendar year. Once the employee hits the annual wage cap, deductions should stop.
**The average weekly wage represents the annualized wage cap divided by 52 weeks. Example: 2021 – $75,408.84 divided by 52 weeks = $1,450.17.
For more information, visit the New York Paid Family Leave Web Site.
DOL Updates Q&As on Employee Leave Under the FFCRA
HR360, September 22, 2020
The U.S. Department of Labor (DOL) has released three new questions and answers (Q&As) and has updated six of its existing Q&As about emergency paid sick leave and expanded Family and Medical Leave Act leave under the Families First Coronavirus Response Act (FFCRA).
The changes reflect DOL revisions to FFCRA regulations, undertaken in response to a federal court decision that invalidated part of the original regulations. The regulatory revisions became effective Sept. 16, 2020.
The three new Q&As (Q&As 101-103) concern the applicability and timing of the court decision and the regulatory revisions. The six updated Q&As address:
- Documenting the need for leave (Q&A 16);
- Intermittent leave (Q&As 21 and 22);
- The definition of health care provider for purposes of the FFCRA leave exemption for those employees (Q&A 56); and
- Leave for “hybrid” school scenarios and voluntary remote learning options (Q&A 98-99).
Click here to read the DOLs Q&As.
This material was created by PPI Benefit Solutions to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The service of an appropriate professional should be sought regarding your individual situation. PPI does not offer tax or legal advice. "PPI®" is a service mark of Professional Pensions, Inc., a subsidiary of NFP Corp. (NFP). All rights reserved.