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What Employers Need to Know About the American Rescue Plan Act

There is a lot for employers to unpack in the American Rescue Plan Act (ARPA), which was signed into law on March 11, 2021.  Here are some of the key provisions:

Voluntary Paid Sick and Family Leave

With regard to paid leave, the ARPA provides incentives for employers to voluntarily continue paid leave under the FFCRA framework. You may recall that under the FFCRA, employers with fewer than 500 employees were required to offer paid EPSL and EFMLA for certain qualifying reasons.  Those benefits expired December 31, 2020, but the stimulus package passed in January 2021 provided tax credits through March 31, 2021 to employers who voluntarily continued to provide FFCRA leave to their employees.  The ARPA extends those tax credits through September 30, 2021.  It also expands qualifying reasons for leave to include time off for getting the vaccine; recovering from illness relating to the vaccine; and the quarantine period when an employee is waiting for test results or a COVID diagnosis.

Importantly, the ARPA resets available leave, so that employees who used all or a part of their EPSL prior to April 1, 2021 would be eligible to take an additional 80 hours of leave if their employer chose to offer FFCRA leave voluntarily.  The DOL has yet to issue guidance on whether the ARPA also resets the available EFMLA leave, but it does not appear the Act would grant an additional 12 weeks in the same 12-month FMLA period.

An important note about the tax credits – employers who treat highly compensated, full time or more senior employees more favorably, are not eligible to take the tax credit.

It appears that political subdivisions (such as municipalities and boards of education) may now claim the tax credit for benefits provided between April 1, 2021 and September 30, 2021.  These employers were previously excluded from the tax credit, even though they were required to provide leave to employees through December 31, 2020.  This may prove particularly beneficial to boards of education in Connecticut, who are required by executive order to continue providing certain FFCRA benefits.  While it would appear based on a change to the statutory language that political subdivisions may now take the tax credit, there has been no official guidance on this point.

COBRA Subsidy

Perhaps one of the most challenging aspects of the ARPA for employers will be the changes to COBRA eligibility and premiums.  Currently, COBRA premiums are paid by the employee, who is responsible for 100% of the cost for continuation of coverage. Under the new legislation, the federal government will fully subsidize the cost of COBRA premiums for a 6-month period between April 1 and September 30, 2021; however, the employer, insurer or multiemployers plan sponsor will initially bear that cost, subject to offset by way of a new federal tax credit. The subsidy will apply to workers who lost coverage during COVID because they were unable to pay the premiums and workers who lose coverage between April 1 and September 30. The subsidy is available to employees who were involuntarily terminated (except for willful misconduct) and those whose hours were reduced making them no longer eligible for health insurance coverage; employees who voluntarily separate are not eligible.

The Act also allows the employee to retroactively elect COBRA benefits, so that if an employee lost coverage April 1, 2020, they would be eligible for subsidized coverage from April 1 through September 30, 2021. The new election period would also allow an employee who initially elected continuation of coverage under COBRA but had to drop coverage due to cost, to receive subsidized coverage.

The ARPA does not, however, extend or modify the COBRA eligibility period.  For example, if an employee loses benefits July 1, 2021, the employee is only eligible for the subsidy for July, August, and September 2021, even though their eligibility for continued coverage – at the employee’s cost – would continue beyond September 30.

As a result of the ARPA provisions, employers will have to review and revise all COBRA notices. Employers will need to send notice of the subsidy and right to elect coverage to all COBRA-eligible workers and current COBRA recipients no later than May 30, 2021.  An employer is also required to notify employees receiving the subsidized COBRA coverage at least 15 days before the subsidized coverage ends. The ARPA directs the DOL to provide a model notice for employers within 30 days of enactment.

Other Provisions

While the above provisions may be among the most challenging to administer, employers need also be aware of some other provisions in the ARPA:

  • Allows for increased distribution limit on employer-provided Dependent Care Assistance Programs from $5,000 to $10,500 (half those amounts for married filing separately). These provisions are not mandated but will require a plan amendment if implemented.
  • Extends the Employee Retention credit created under the CARES Act to the end of 2021.
  • Expands subsidies for Affordable Care Act premiums for 2 years.
  • Extends federal unemployment assistance under PUA and PEUC to September 6, 2021 and provides for $300/week in addition to benefits received under PUA, PEUC or regular state unemployment benefits.

As was the case with the FFCRA, many questions remain regarding the practical implications of the ARPA. We anticipate DOL and/or IRS guidance in the near future that will (hopefully) help answer some of these questions and provide much needed clarity.

The COVID-19 pandemic continues to present administrative and operational challenges to employers, which are likely to extend at least through the end of the year.  The Labor and Employment attorneys at Berchem Moses are available to keep you up to date and help navigate these challenges.