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New Relief Package Grants. Free COBRA Coverage for Qualifying Employees…

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New Relief Package Grants. Free COBRA Coverage for Qualifying Employees…

(Yes, Free. That isn’t a misprint).
The Act applies to employees who were involuntarily terminated, within the last 18 months. Here at BMA, we are working diligently to get the information out to our groups and making sure they are in compliance and we are here to answer your questions. Below are our in-house forms we will continue to update.
On March 11, 2021 President Biden signed The American Rescue Plan (ARPA) which enacted some updates for employers who offer FSA and DCA plans to their employees.
The following updates are effective retro back to January 1, 2021:
  • DCA Contribution Amounts: The American Rescue Plan includes an increase for DCA contributions from $5,000 to $10,500 and $2,500 to $5,250 for a married individual filing a separate return. These changes are for the 2021 calendar year and absent any additional Congressional action, will revert back to $5,000 and $2,500 for the 2022 calendar year. This increase is 100% optional for employers and would require an amendment to the plan document. If the employer chooses to increase the DCA maximum contribution amounts, they will need to do an amendment no later than the last day of the plan year in which the amendment is effective (12/31/21 for calendar year plans and 12/31/22 for non-calendar year plans) and it would be retro effective back to 01/01/2021.
  • Non-Calendar Year FSA/DCAs: Employers sponsoring a non-calendar year DCA are already familiar with the complications that can arise from having a contribution limit tied to the calendar year. The ARPA increase appears to only apply to the 2021 calendar year so in other words, after 12/31/2021, the $10,500 limit will go back down to $5,000 as well as the $5,250 back to $2,500. Although not clear yet, the IRS may provide that the cafeteria plan can automatically reduce employee’s elections back as of 01/01/2022 to reflect the lower $5,000 contribution limit that will apply in calendar year 2022.
  • FSA/DCA Elections: Employers may amend their Section 125 cafeteria plan to permit participants to prospectively change their elections without experiencing a qualifying event. This includes any mid-year elections to enroll, increase, decrease or revoke the FSA and/or DCA elections.
  • FSAs: If you have termed, you can continue to use unused funds thru the end of the plan year. Note: The FSA carryover will still affect HSA eligibility so employers have the option to amend their plan documents to allow on an employee by employee basis to opt out of the carryover.
  • DCA Special Age Limit: The maximum age limit has now been changed from 12 to 13 under the DCA. This applies to employees who are (1) enrolled in a DCA for the last plan year with respect to which the end of the regular enrollment period for the plan year was on or before 01/31/20, and (2) has one or more dependents who attain the age of 13 either (a) during that plan year, or (b) in the case of an employee who has unused DCA amounts for that plan year, during the subsequent year.
  • Carry Over: Previously the carryover maximum was increased from $500 to $550, now there is no set dollar limit for carryover funds, so your contributions are not limited by what you carryover. You can also carryover funds for multiple years so, if you carryover funds from 2020 to 2021 you can then carry them over again to 2022.
  • Grace Period: Where before the Grace Period was 2.5 months, you can now extend it to 12 months. This is available for plans ending in 2020 and 2021.
As of April 1, 2021 the following will go into effect under The American Rescue Plan which was signed by President Biden on March 11, 2021. The following is the information relating to the section on COBRA Subsidies:
  • Effective April 1, 2021 thru September 30, 2021 employers must pay 100% of COBRA participant’s premiums, they will be reimbursed thru Medicare payroll taxes as long as certain reporting requirements are met. 
  • The subsidy applies to employees who have an involuntary termination or reduction in hours only, it is not available to those who terminated employment voluntarily or who had non-termination events such as divorce or death. It is also available to those currently on COBRA. All those who are eligible, have 60 days to elect once notified, if they have not elected after the 60 days then they are no longer eligible for the subsidy.
  • Permits but does not require employers to give employees the opportunity to choose a different plan than they are currently enrolled in but it has to be one of equal or lesser value, they cannot choose one in which the premium is higher. As of today this only applies to the medical plan and not to dental or vision plans. (We are waiting for additional guidance regarding the dental and vision plans and will send an update when we have one.) They have 90 days from the date of their COBRA notice to make their new election if they are going to change plans.
  • This gives those that previously declined COBRA coverage the opportunity to now elect benefits.
  • COBRA participants must notify their former employer if they become eligible for new coverage, under The American Rescue Plan individual will be subject to a penalty for failure to do so. The penalty is $250 or, if there is proof that there was intentional failure to notify then the fee is $250 or 110% of the subsidy amount (whichever is greater).
  • The subsidy will end sooner than 09/30/2021 for those whose maximum COBRA coverage period ends earlier. (As measured from the date of the original qualifying event)

NOTE: FSA’s are not eligible for the subsidy.

Please contact BMA for any questions related to the above information at 210-697-6302.

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