Employee Benefits Considerations In The Year-End COVID-19 Relief Legislation
Another COVID-19 stimulus package passed just before the end of the year, and the legislation includes a number of changes impacting benefit plans. This alert briefly summarizes the benefit plan changes included within the Consolidated Appropriations Act, 2021 (the “Act”). Please note that the Act contains health plan related provisions not included in this article, such as legislation governing surprise billing, price transparency, prescription drug reporting, and mental health and substance abuse. These provisions will be covered in separate client alerts written by McGrath North.
Heath FSA and Dependent Care FSA Relief: Extensions and Expansions
- Election Changes. Health FSAs or Dependent Care FSAs with plan years ending in 2021 may allow employees to make prospective mid-year election changes to employee contribution amounts without experiencing a change in status normally required to make a mid-year election change.
- Carryovers. Health FSAs and Dependent Care FSAs with plan years ending in 2020 or 2021 may allow carryovers of unused benefits to plan years ending in 2021 and 2022, respectively.
- Grace Periods. Health FSAs and Dependent Care FSAs with plan years ending in 2020 or 2021 may extend their applicable grace periods for use of unused benefits for up to 12 months (as opposed to the normally permitted 2.5 months).
- Post-Termination Health FSA Reimbursements. Health FSAs may allow participants terminated during calendar years 2020 or 2021 to continue to receive reimbursements from unused benefits or contributions through the end of the plan year in which they were terminated (including any applicable grace periods).
- Aged-Out Children Under Dependent Care FSAs. Dependent Care FSAs that began on or before January 31, 2020, may allow participants to either: (1) reimburse themselves for dependent care expenses incurred during the remainder of the plan year, even after their dependent child(ren) have reached age 13; or (2) use funds leftover at the end of the plan year throughout the next plan year for children reaching or have reached the age of 13 (but not for children that have reached the age of 14).
- Plan Amendments. In order to implement any of these changes relating to Health FSAs and Dependent Care FSAs, plans must be amended by the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. Amendments may be retroactively effective.
Broker and Consultant Compensation Disclosure Rules Finally Apply to Health Plans
- Fee Disclosures. After many years of waiting for compensation disclosure regulations applicable to group health plans, the Act applies compensation disclosure rules to group health plan service providers. Service providers expecting to receive direct or indirect compensation must provide the plan fiduciary with a description of the services and type of compensation reasonably expected.
- Minimum Age for Distributions During Working Retirement. In addition to permitting in-service pension plan distributions upon attainment of age 59-1/2, retirement plans may permit in-service distributions to certain participants under multi-employer union plans upon the participant’s attainment of age 55.
- Temporary Rule Preventing Partial Plan Termination. During plan years including the period of March 13, 2020, and March 31, 2021, a plan will not be treated as having experienced a partial plan termination if the number of active participants covered by the plan on March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020.
- Special Disaster Relief Rules for Use of Retirement Funds. Retirement plans may permit penalty-free distributions up to $100,000 for disaster relief with the income recognition spread over a three (3) year period.
- Loans. Loans from qualified employer plans will not be treated as distributions if the loans do not exceed $100,000 and certain other conditions are met, including that the individual must reside in a disaster area. Additionally, the Act extends the repayment period for new and outstanding loans for one year.
If you have questions, please contact a member of the Employee Benefits Group.
Contact information for the complete McGrath North’s COVID-19 Response Team can be found here.
For information regarding additional business-related concerns centered around COVID-19, please visit our COVID-19 Resource Guide here.