American Rescue Plan Act Brings Changes to Employer Obligations

April 1, 2021 rings in new employer obligations with the enactment of the American Rescue Plan Act of 2021 (ARP). Employers and employees should take note of the recent changes to Consolidated Omnibus Budget Reconciliation Act (COBRA), Families First Coronavirus Response Act (FFCRA), and unemployment benefits to ensure compliance. We have highlighted those changes for you below.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Between April 1, 2021 and September 30, 2021, employers must offer 100% subsidized COBRA continuation coverage to “assistance eligible individuals” (“AEIs”).  AEIs are any qualifying plan participants who lose, or have lost, health insurance coverage due to a reduction in number of hours of employment or involuntary termination. The government is expected to provide further guidance, but “involuntary termination” is currently defined as termination of employment for any reason other than “gross misconduct.”

Additionally, the following individuals may also be eligible for the subsidy:

• Individuals previously eligible for COBRA continuation coverage which would have extended into the subsidy period under the ARP who:
  • Did not elect COBRA coverage (e.g., an individual involuntarily terminated on March 30, 2020 who did not elect COBRA but would be within their 18-month coverage period if they had elected COBRA), or
  • Dropped COBRA coverage (e.g., an individual involuntarily terminated on March 30, 2020, who elected COBRA, but did not pay premiums after December 31, 2020 but are still within their 18-month COBRA coverage period).

• Individuals who are or become eligible during the subsidy period (e.g., an individual involuntarily terminated on March 15, 2021 or an individual involuntarily terminated on May 1, 2021)

The coverage extends to the employees, their spouses, and their dependent children. Similar to the standard COBRA eligibility, once an AEI becomes eligible for other group health insurance coverage or Medicare, they must notify their employer of their loss of eligibility or face a penalty.

Under ARP, employers are required to provide several new notices to those who become eligible for COBRA continuation coverage by May 31, 2021. (The DOL is scheduled to issue model notices by May 10.)

In addition to the current COBRA notice requirements, the initial notice should include the following information:

• An explanation of the procedure and the necessary forms required for establishing eligibility for premium assistance,
• The name, address, and phone number for the plan administrator or COBRA administrator,
• A description of the extended election period,
• A description of the qualified beneficiary’s obligation to notify the group health plan once he or she ceases to meet the requirements for premium assistance,
• An explanation of the qualified beneficiary’s right to a subsidized premium and any conditions on eligibility to the subsidized premium, and
• An explanation of the qualified beneficiary’s option to enroll in different coverage if the employer is allowing employees to elect to enroll in different coverage.

If a qualified beneficiary’s COBRA coverage period terminates before September 20, 2021, the employer must send an additional notice regarding the coverage expiration. The notice must:

• Be sent within a 30-day time period, which spans 45 days before and ends 15 days before the subsidy termination date.
• Notify the qualified beneficiary of the actual expiration date, and
• Must include an explanation that the qualified beneficiary may be eligible for continued coverage without the COBRA subsidy.

The ARP COBRA subsidy is provided by the federal government and not the employer. Under the ARP:

• An employer must cover any COBRA premium owed to a COBRA provider or plan administrator.
• The government will reimburse the employer for the premiums via tax credit on the employer’s quarterly payroll tax filings.
• The credit can be advanced and is refundable, meaning an employer will be able to claim a refund if the subsidy paid exceeds the taxes due.

However, some limitations exist, specifically:

• Employers cannot claim the COBRA premium credit on amounts for which employee retention credits or Families First Coronavirus Relief Act credits have already been obtained.
• The statute of limitations for assessments on these credits is extended to five years from the traditional three years.

Families First Coronavirus Response Act (FFCRA)

The ARP expands certain leave provisions of the Families First Coronavirus Response Act (FFCRA). It also extends tax credits available to employers with less than 500 employees who voluntarily grant employees paid leave through September 30, 2021. Note: The ARP does not renew the original FFCRA mandate that private employers must provide employees with paid or unpaid leaves of absence for reasons related to COVID-19. It is now voluntary for employers to provide paid leave consistent with FFCRA and now ARP.

The ARP also adds three new qualifying reasons for paid leave to the six reasons previously included in the FFCRA:

• When the employee is seeking or awaiting results of test for or diagnosis of COVID-19 (provided that the employee was exposed to COVID-19 or the employer requested the test),
• When the employee is obtaining COVID-19 immunization,
• When the employee is recovering from injury, disability, illness, or condition related to COVID-19 immunization.

Other important changes from the ARP include the elimination of the requirement that the first 10 days of emergency family medical leave be unpaid. Now, under the ARP, all 12 weeks of emergency family medical leave will be paid. Consequently, the ARP increases the maximum tax credit allowable per employee from $10,000 to $12,000 beginning April 1, 2021, which ensures the matching of tax credits with the expansion of paid leave. This also means that employees who exhausted their emergency family medical leave and went unpaid for the first ten days will be eligible for an additional ten days of paid leave.

Further, the ARP resets the 10-days/80-hour limit for paid sick leave starting April 1, 2021. Thus, if an employee previously depleted his or her authorized paid sick-leave under the FFCRA, he or she will now have an additional 10-days/80-hours available to use. Employers will again be eligible for a tax-credit to reimburse the costs of the paid leave.

Further additions from the ARP include a non-discrimination rule and anti-retaliation provision. In order to be compliant, an employer may not discriminate in favor of highly compensated employees, full-time employees, or based on the employee’s seniority with respect to leave. If an employer violates these provisions, they will be disqualified from receiving a payroll tax credit.

Unemployment Benefits

The ARP extends certain unemployment benefits previously granted through the CARES Act. One such extension is the additional $300 per week for individuals collecting any form of unemployment compensation benefits. Previously set to expire March 14, 2021, this benefit now runs until September 6, 2021.

Additionally, the Pandemic Emergency Unemployment Compensation (PEUC) benefits are also extended to September 6, 2021. While typically unemployment benefits expire after 26 weeks, Congress is permitting the benefits to exceed this deadline in response to the ongoing pandemic. The first $10,200 of unemployment benefits will be nontaxable income for individuals earning less than $75,000 and households earning less than $150,000.

Another extension under the ARP involves Pandemic Unemployment Assistance (PUA) benefits, which also run until September 6, 2021. The PUA is for individuals not eligible for regular unemployment compensation or extended benefits under state or federal law or PEUC, including those who have exhausted all rights to such benefits. Covered individuals also include self-employed individuals, those seeking part-time employment, and individuals lacking sufficient work history. This means that under the PUA, self-employed individuals, gig-workers, and independent contractors are also entitled to receive the additional Federal Unemployment Benefits under the ARP.

Due to the new ARP legislation surrounding COBRA, FFCRA, and unemployment benefits, employers need to ensure compliance in order to take advantage of the federal tax credits. Employees should also be aware of their rights regarding leave or termination. An employer should consult counsel when trying to navigate these changes in order to ensure proper procures are followed when seeking to obtain tax credits.

For additional COVID-19 related information, go to our Coronavirus/COVID-19 Resource Center.