Saturday, November 6, 2021



Pension Plan and Related Limits


Pre-tax elective deferral maximum under IRC § 401(k), 403(b), and 457(b) plans (IRC §§ 402(g)(3) & 457 (e)(15))


Age 50 and older “catch-up” adjustment for 401(k), 403(b), and governmental 457(b) plans and SEPs (IRC § 414(v)(2)(B)(i))


Annual compensation limit under IRC §§ 401(a)(17), 404(l) and 408(k)


Annual benefit limit for defined benefit plans under IRC § 415(b)


Annual contribution limit for defined contribution plans under IRC § 415(c)


Highly compensated employee threshold for purposes of nondiscrimination testing in the following year under IRC § 414(q)(1)(B)


Key employee threshold for officers for top heavy plan under IRC § 416(i)(1)(A)(i)


ESOP account balance for 5 and 1 year distributions under IRC § 409(o)(1)(C)(ii)

$1,230,000  and $245,000

Limit on premiums paid for qualified longevity annuity contracts (QLACs) under Treas. Reg. § 1.401(a)(9)-6 (adopted 2014)


Minimum earnings level to qualify for SEP under IRC § 408(k)

$650 (unchanged)

SIMPLE plan elective deferral limit under IRC § 408(p)(2)(E)


SIMPLE 401(k) or IRA age 50 catch-up (IRC § 414(v)(2)(B)(ii))

$3,000 (unchanged)

Basic/Roth IRA contribution limit under IRC §§ 219(b)(5)(A) & 408A. (Age 50 $1,000 IRA catchups do not have cost-of-living adjustments)

$6,000 (unchanged)

Adjusted gross income (AGI) phase-out of deduction for IRA where participant or spouse also participates in an employer-sponsored retirement plan (IRC § 219(g)(1) & (3))

For married joint filers –

For single filers –



$68,000 to


AGI phase-out of deduction for contribution to IRA for join filers where spouse who is contributing to the IRA also participates in the employer-sponsored retirement plan (IRC § 219(g)(7))


AGI phase-out of deduction for contribution to Roth IRA (IRC § 408A(c)(3)(B)).  For married joint filers –
For single filers –



Health Savings Account contribution limits (single and family)

$3,650 and $7,300

PBGC guaranteed benefit (annual single life annuity beginning at age 65) (rounded)


PBGC flat-rate premiums per participant for single-employer plans


PBGC variable-rate premium for single-employer plans per $1,000 of Unfunded Vested Benefits


PBGC (flat-rate) premiums for multiemployer plans per participant


Taxable wage base subject to FICA tax


Sample DOL Penalties – Per Day 

-- Failure to file annual report (Form 5500) - ERISA § 502(c)(2) (originally $1,000 a day)

-- Failure to provide blackout notices or notices of diversification rights -  ERISA§ 502(c)(7) (originally $100 a day)


TBA ($2,223 in 2021)


TBA ($141 in 2021)



Tuesday, September 14, 2021

Rev. Proc. 2021-30 (EPCRS Update)

Rev. Proc. 2021-30 (EPCRS Update)

Charles C. Shulman, Esq.

Rev. Proc. 2021-30 updates the IRS Employee Plans Compliance Resolution System (EPCRS) Program, with the following changes to the EPCRS program: 

(i)  the end of the self-correction period for significant failures is extended by an extra year; 

(ii) an anonymous VCP with a free VCP pre-submission conference procedure is provided instead of John Doe applications; 

(iii) the plan sponsor can correct an operational failure under SCP by retroactive plan amendment if the amendment will result in an increase of a benefit, right or feature (BRF) is allowed even if such BRF is not available to all eligible employees, provided the benefiting group satisfies the IRC's nondiscrimination rules; 

(iv) it extends by three years the sunset of the safe harbor correction method for employee elective deferral failures associated with missed elective deferrals for participants who have an automatic contribution feature to December 31, 2023; 

(v) it expands the de minimis exception from the requirement to seek recovery from overpayment recipients for small overpayments with such amount being increased from $100 to $250; 

(vi) it allows entering into payment agreements with participants who were overpaid; and

(vii) it includes two new benefit overpayment correction methods for defined benefit plans that encourage employers to avoid seeking recoupment of benefit overpayments made to participants which are based on a plan’s funding status by either not requiring correction if the specified funding levels are met (the funding exception contribution method) or by limiting the amount to be recouped under certain circumstances (the contribution credit correction method).

If you have any questions, please contact Charles at or at 201-357-0577

Monday, August 23, 2021

Missing Plan Participants – Recent Guidance

Missing Plan Participants – Recent Guidance


Charles C. Shulman, Esq.


March 31, 2021
(Revised Aug. 2021)


A common problem in plan administration is finding missing participants. Sometimes these lost participants simply cannot be located. Other times they can be located but they do not accept distribution packages with respect to their benefits.  


Field Assistance Bulletins. 

DOL Field Assistance Bulletin 2004-02 stated that certain methods of finding participants be used because they have a high degree of success and are relatively inexpensive. These methods are as follows: (i) certified mail, (ii) plan records of participants in other plans maintained by the employer, for example, a health plan, (iii) using a designated beneficiary to locate a participant, (iv) using the IRS or Social Security Administration letter-forwarding service.  However, both these letter forwarding programs were discontinued (the IRS program in 2012 and the SSA program in 2014).

DOL Field Assistance Bulletin 2014-1 sets forth the DOL’s current views on the proper fiduciary steps to follow in connection with locating missing participants. It prescribes the search steps that must be used in locating the lost participant. Routine methods of regular mail or email will suffice most of the time. However more may be necessary if there is no response or the fiduciary believes it does not have a current address. Certified mail should be used to find out if the participant can be located. FAB 2014-1 notes that the DOL model participant notice for plan termination can be used. A search of the employer records including plan records for other plans maintained by the employer such as health plans should be done. Asking designated beneficiaries of the participant for the location of the participant should be done. Use of free internet search tools such as Internet search engines, public record databases, obituaries and social media should be utilized. Possible additional searches include internet search tools that charge a fee, commercial locator services, credit reporting agencies and investigative databases. If a participant still cannot be located, the preferred method of distributing the account from the plan is to establish an IRA rollover account following the general procedure for distribution of cash-out amounts between $1,000 and $5,000. This amount would be rolled over to an IRA which would be invested in an investment designed to preserve principal and provide a reasonable rate of return. There is a strong preference for rollover distributions because if funds are otherwise distributed, there will need to be 20% mandatory withholding.  Another alternative is to furnish the funds to the state unclaimed property fund. Many states maintain funds with web internet access sites listing the names of individuals who are due funds from one source or another. Some state funds accept plan distributions on behalf of missing participants. Although the Department of Labor in Opinion 94-41A takes the position that state funds may not be automatically escheated to the state, the fiduciary may reach the conclusion that this is the proper course of action where it is necessary to distribute all funds in order to complete the termination of the plan.


DOL Best-Practices Memo. A DOL “best practices” memo – “Missing Participants – Best Practices for Pension Plans,” (January 12, 2021),, outlines how fiduciaries of defined benefit plans and defined contribution plans can handle missing participants. The Best Practices memo outlined red flags that the DOL looks for as indicators of missing participant issues, including: a significant number of participants who are nonresponsive, a significant number of terminated vested participants reaching normal retirement age who have not started receiving benefits, incomplete contact information and census data and absence of sound policies for handling returned mail and uncashed checks. The 2021 Best Practices memo also gives examples of best practices, including:

  1. Maintaining accurate census information for the plan’s participant population (including contacting participants and beneficiaries on a periodic basis to confirm or update their contact information, including contact information change requests in plan communications, flagging undeliverable mail/email and uncashed checks, requesting updates to contact information for beneficiaries, regularly auditing census information, and in the case of a change in record keepers or plan sponsor, addressing the transfer of appropriate plan participant and beneficiary information and relevant employment records);
  1. Implementing effective communication strategies (including using plain language and offering non-English assistance, encouraging employees to notify the plan of any change in contact information and encouraging information contact through plan websites and toll-free numbers, building steps into plan enrollment for new employees and exit procedures for separating employees to confirm or update contact information, communicating options about consolidating accounts from prior employer plans and marking correspondence with the original plan or sponsor name where this has changed after participants separated); 
  1. Conducting missing participant searches (including checking plan and employer records for participant, beneficiary and emergency contact information, checking with designated plan beneficiaries and emergency contacts for updated contact information, using free online search engines, public record databases, obituaries, and social media to locate individuals, using a commercial locator service or credit-reporting agency to locate individuals, mailing certified mail or mail with tracking features to the last known mailing address, attempting contact via email addresses telephones and social media, searching death Indexes, contacting colleagues of missing participants or by publishing a list of missing participants on the company’s intranet, reaching out to a union’s local offices and registering and publicizing missing participants on public and private pension registries with privacy and cyber security protections); and 
  1. Documenting procedures and actions (including putting applicable plan policies in writing, documenting key decisions and the steps taken to implement the policies, ensuring third-party record keepers are performing agreed upon services, and working with the record keeper to identify and correct shortcomings in the plan’s recordkeeping and communication practices).

PBGC Missing Participant Program for Terminating Defined Benefit and Defined Contribution Plans. Under the Pension Protection Act of 2006, the single-employer missing participant program required to be maintained by the PBGC is extended to terminating single-employer and multiemployer pension plans and defined contribution plans, and defined benefit pension plans that are not covered by the PBGC because they have no more than 25 active participants. ERISA § 4050(d). In December 2017, the PBGC finalized regulations first proposed in 2016 that expand its existing Missing Participants Program to cover terminated 401(k) and other defined contribution plans and defined benefit plans that are not currently covered by the program. PBGC Reg. §§ 4050.101 to 4050.407, 82 Fed. Reg. 60800 (Dec. 22, 2017). Under ERISA § 4050 as amended by PPA 2006, the PBGC is required to operate a missing participants program for single-employer plans and multiemployer plans covered by Title IV of ERISA. It also may maintain an optional program for defined benefit plans not covered by Title IV of ERISA and for defined contribution plans. The regulations establish missing participant programs for terminating multiemployer defined benefit plans covered by Title IV (PBGC Reg. §§ 4050.401 to 4050.407), terminating professional service employer defined benefit plans not covered by Title IV (PBGC Reg. §§ 4050.301 to 4050.307), and for terminating defined contribution plans (PBGC Reg. §§ 4050.201 to 4050.207). The regulations also make changes in the existing Missing Participants Program including providing for (i) fees to be charged for plans to participate in the Missing Participants Program; (ii) a requirement to treat as missing certain nonresponsive distributees with de minimis benefits subject to mandatory cash-outs under the Plan’s terms; (iii) stricter requirements for diligence searches, including sponsor and related plan records, free web search methods and commercial locater services; (iv) fewer benefit categories and fewer sets of actuarial assumptions for determining the amount to transfer to the PBGC; and (v) changes in the rules for paying benefits to missing participants and their beneficiaries. The program is mandatory for PBGC for single-employer plans and multiemployer plans subject to Title IV and insured by the PBGC. The insured defined benefit plans are required to either (i) transfer the benefits of missing participants to the PBGC, or (ii) purchase annuities and provide the PBGC with information about the annuity provider. PBGC Reg. §§ 4050.103 and 4050.403. Participation in the Missing Participants Program for defined contribution plans and defined benefit plans not covered by PBGC insurance is voluntary.

A defined contribution plan program that participates in PBGC’s Missing Participants Program must either (i) transfer accounts of missing participants to the PBGC, or (ii) send the PBGC information about where the accounts of its missing participants were transferred. PBGC Reg. §§ 4050.203 and 4050.303. As part of the Missing Participants Program, the PBGC is creating a database that may be used to provide information about missing participants and their benefits. It would permit the public to search the database to determine whether it contained information about benefits available to a specific participant, but it would be designed in a way that would protect individuals’ privacy. A one-time fee, $35 initially, is charged for transferring a participant’s defined benefit or defined contribution benefit to the PBGC. Amounts of $250 or less could be transferred at no fee. The regulations are effective January 22, 2018, and apply to single-employer plans terminating after 2017 and to the closeout of multiemployer plans after 2017.         

DOL Field Assistance Bulletin 2021-01, “Temporary Enforcement Policy Regarding the Participation of Terminating Defined Contribution Plans in the PBGC Missing Participants Program” (January 12, 2021) provides that the DOL will not pursue violations under ERISA §404(a) against plan fiduciaries of a terminating defined contribution plan (or a qualified termination administrator of an abandoned plan) in connection with the transfer of missing participants’ account balances to the PBGC in accordance with the PBGC’s missing participant regulations (PBGC Reg. §4050.101; discussed above), rather than to an IRA, certain bank accounts or the state unclaimed property fund per DOL Reg. §2550.404a-3, if the plan fiduciary complies with the guidance in this Field Assistance Bulletin and has generally acted in accordance with a good faith reasonable interpretation of ERISA §404. (This does not preclude the DOL from pursuing violations under ERISA for a failure to diligently search for participants prior to the transfer of their account balances to the PBGC.) The plan fiduciary who participates in the PBGC Defined Contribution Missing Participants Program must otherwise comply with the requirements of the safe harbor regulation at DOL Reg. §2550.404a-3 for distributions from terminated plans. Notices to participants must state that their account balances are being transferred to the PBGC’s Defined Contribution Missing Participants Program, and include the PBGC’s website and contact telephone number. A plan fiduciary can also transfer to the PBGC the account balances of participants who elected a lump-sum distribution of the entire account under the terms of the plan if that distribution was paid by check and the check remains uncashed after the cash-by date prescribed on the check (or 45 days if longer). A plan fiduciary may pay the PBGC charge from the accounts transferred to the PBGC Defined Contribution Missing Participants Program unless the plan prohibits such payment from the plan.


If you have any questions regarding the above, contact Charles C. Shulman, Esq. at or at 201-357-0577.


Sunday, July 11, 2021

American Rescue Plan Act of 2021 – Summary of Benefit Provisions


March 15, 2021

American Rescue Plan Act of 2021 – Summary of Benefit Provisions

Charles C. Shulman, Esq.

 A.  Introduction  The American Rescue Plan Act of 2021 ("ARPA"), H.R. 1319, P.L. 117-2, signed March 11, 2021, which provides COVID-19 relief to governments, businesses and individuals, also provides relief to plan sponsors and participants of employee benefit plans, including: (i) actions to address underfunded multiemployer pension plans; (ii) extended amortization for single employer pension plans; (iii) a 100% subsidy of COBRA premiums for a six month period beginning April 1, 2021; (iv) an increase in the dependent care assistance program limit; and (v) broadening of the definition of covered employee for purposes of Internal Revenue Code § 162(m).

B.   Multiemployer Plan Provisions

      1. Delay of Designation of Multiemployer Plan Funding Status in 2020 and 2021 – Under the American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9701(a)(1) if a multiemployer defined benefit plan elects, the funding status as endangered, critical, or critical and declining status under IRC § 432 for plan years beginning on or after March 1, 2020 and, if elected, the next succeeding plan year, may generally remain the same as in the plan year beginning on or after March 1, 2019.  ARPA § 9701(a)(2) provides that where such an election is made for a plan that was in endangered or critical status, the plan is not required to update its funding improvement or rehabilitation plan and schedules under IRC § 432(c)(6) and 432(e)(3)(B) until the plan year following the plan year(s) elected.  The election (which must be made in accordance with guidance from the Secretary of the Treasury) must be included in the annual certification or made within 30 days after the annual certification.  ARPA § 9701(c)(1).  Such an election may be revoked only with the consent of the Secretary of the Treasury.  Notice must be given to participants that such an election has been made.  ARPA § 9701(c)(2).  These provisions are effective on the date of enactment, i.e., March 11, 2021.  These provisions and some of ones below are similar to those made 2008 financial crisis legislation.

      2.  Temporary Extension of Funding Improvement and Rehabilitation Periods for Multiemployer Pension Plans in Critical and Endangered Status in 2020 or 2021  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9702(a) provides that if a multiemployer defined benefit plan that is in endangered or critical status for a plan year beginning in 2020 or 2021, the plan sponsor may elect to extend the plan's otherwise applicable 10 year funding improvement period for endangered plans under IRC § 432(c) or 10 year rehabilitation period for critical plans under IRC § 432(e) by five years, from 10 to 15 years. If a multiemployer defined benefit pension plan is in seriously endangered status for a plan year beginning in 2020 or 2021, the plan sponsor may elect to extend the plan's otherwise applicable funding improvement period by five years from 15 to 20 years.  The election is to be made at such time, and in such manner and form, as the Secretary of the Treasury may prescribe in consultation with the Secretary of Labor.  ARPA § 9702(b)(1).  This provision is effective for plan years beginning on or after January 1, 2020.  ARPA § 9702(c). 

      3.  Easing of Funding Standard Account Rules for Multiemployer Plans – The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021)  § 9703 adds new IRC § 431(b)(8)(F) allowing an underfunded multiemployer pension plan that meets the solvency test under IRC § 431(b)(8)(C), to use either one or both of two special funding relief rules which apply generally for the first two plan years ending on or after March 1, 2020:

    First – Amortization of net investment losses – The plan sponsor may make changes to the plan's funding standard account to treat the portion of its experience loss attributable to the net investment losses or to any COVID-19-related losses (in the two plan years ending on or after March 1, 2020) be amortized in equal annual installments over a 30-year period instead of a 15-year period.  IRC § 431(b)(8)(F)(i) (modifying § 431(b)(8)(A)(I)(i)); ARPA § 9703.

    Second – Expanded smoothing period and asset valuation corridor – A multiemployer plan may change its asset valuation method in a manner that spreads the difference between the expected returns and actual returns for the first two plan years ending on or after March 1, 2020.  IRC § 431(b)(8)(F)(i) (modifying § 431(b)(8)(B)(I)(i)); ARPA § 9703.  In addition, the plan's asset value must be adjusted under the valuation method being used so the value of plan assets is not less than 80% of the current fair market value of the assets and not more than 130% of the current fair market value (rather than 120%). IRC § 431(b)(8)(F)(i) (modifying § 431(b)(8)(b)(I)(i)); ARPA § 9703.

Under IRC § 431(b)(8)(C), the "solvency test" is met only if the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period, taking into account the special funding rule changes. 

      4.   Temporary Special Financial Assistance for Financially Troubled Multiemployer Pension Plans – Under new ERISA § 4262 added the American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9704 the PBGC will provide financial assistance (without any requirement of repayment) to "eligible multiemployer plans" upon request by the plan sponsor.

            a.   Eligible Multiemployer Plan – A plan is an "eligible multiemployer plan" if: (i) it is in critical and declining status in any plan year beginning in 2020 through 2022; (ii) a suspension of benefits for the plan under the Multiemployer Pension Reform Act of 2014 has been approved as of March 11, 2021; (iii) in any plan year beginning in 2020 through 2022, the plan is in critical status, has a modified funded percentage of less than 40%, and has a ratio of active to inactive participants which is less than two to three; OR (iv) the plan became insolvent after December 16, 2014, has remained insolvent, and has not been terminated as of March 11, 2021.  IRC § 4262(b) added ARPA § 9704.

            b.   Application for special financial assistance – PBGC regulations/guidance will provide the requirements for special financial assistance applications. The PBGC may also provide in regulations or guidance that during a period no longer than the first two years following the date of enactment applications may not be filed unless (i) the plan is insolvent or is likely to become insolvent, (ii) the plan is projected by the PBGC to have a present value of financial assistance payments that exceeds $1 Billion if the financial assistance is not provided, (iii) the plan has implemented benefit suspensions as of the date of enactment or (iv) the PBGC determines it appropriate based on other similar circumstances.  New IRC § 4262(c).  Any application by a plan for special financial assistance must be submitted no later than December 31, 2025, and any revised application must be submitted no later than December 31, 2026.  .  IRC § 4262(f).

            c.   Actuarial assumptions – For purposes of eligibility for the special financial assistance, the PBGC will accept assumptions incorporated in the plan's determination that it is in critical status or critical and declining status for certifications completed before January 1, 2021, unless such assumptions are clearly erroneous. For certifications of plan status completed after December 31, 2020, a plan determines whether it is in critical or critical and declining status for purposes of eligibility for special financial assistance by using the assumptions that the plan used in its most recently completed certification of plan status before January 1, 2021, unless such assumptions are unreasonable.  IRC § 4262(e) added ARPA § 9704.

            d.   Amount and manner of payment of special financial assistance – Special financial assistance is issued by the PBGC in lump sum within one year to an eligible multiemployer plan is effective no later than 1 year after a plan's special financial assistance application is approved.  New IRC § 4262(i).

            e.   Reinstatement of suspended benefits – An eligible multiemployer plan that receives special financial assistance must reinstate any benefits that were suspended.  New IRC § 4262(k).

            f.    Required disclosure – An eligible multiemployer plan receiving special financial assistance must provide each participating employer and labor organization employer, if applicable, an estimate of the employer's share of the plan's unfunded vested benefits as of the end of each plan year ending after the date of enactment of the proposal.  This disclosure must include a statement that, due to the special financial assistance, the plan will have sufficient resources to pay 100% of the plan's benefit obligations until the last day of the plan year ending in 2051.

            g.   Appropriations – ARPA establishes an eighth fund for special financial assistance to multiemployer plans and to pay for PBGC's necessary administrative and operating expenses relating to such special financial assistance.  ERISA § 4005(i)(1) added ARPA § 9704(a).

      5.   PBGC premium rate increase to $52 for multiemployer plans in 2031 subject to future COLA adjustments  – For plan years beginning after December 31, 2030, the flat rate PBGC premium for multiemployer plans will increase to $52 per participant and will be subject to cost-of-living adjustments for plan years beginning in a calendar year after 2031 in multiples of $1, up from the flat rate of $31 per participant currently in effect.  American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9704(c) 4262(c) adding ERISA §§ 4006(a)(3)(A)(viii) & 4006(a)(3)(N).

C.   Single-Employer Plan Changes

      1.   Extended Amortization of Funding Shortfalls for Single-Employer Plans – When a single-employer plan has a funding shortfall, IRC § 430(c)(2) provides that the plan must establish a shortfall amortization base to be paid over a 7-year amortization period.  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021)  amends IRC § 430 to provide that, with respect to plan years beginning on or after January 1, 2020 (or, if so elected, on or after January 1, 2019) the shortfall amortization bases for all plan years preceding the first plan year beginning on or after January 1, 2020 (or January 1, 2019, if so elected), and all shortfall amortization installments determined with respect to such bases, are reduced to zero. IRC § 430(c)(8) added by ARPA § 9705.  In addition, the funding shortfalls, as redetermined for plan years beginning on or after January 1, 2020 (or, if elected, on or after January 1, 2019) are determined over a 15-year period, rather than a 7-year period. IRC § 430(c)(8) added by ARPA § 9705.  This is effective for plan years beginning on or after January 1, 2019.

      2.   Extension of Pension Funding Stabilization Percentages for Single Employer Plans – In connection with the 25-year pension interest rate smoothing enacted in 2012 and later legislation to alleviate high pension funding obligations, the interest rate used must be within 10% of the 25-year interest rate averages.  Also, the smoothed interest rates were scheduled to begin phasing out in 2021.  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9706 extends the pension funding stabilization percentages through 2029.  The specified percentage range for a plan year is: (i) 90 percent to 110% for 2012 through 2019, (ii) 95% to 105% for 2020 through 2025, (iii) 90% to 110% for 2026, (iv) 85% to 115% for 2027, (v) 80% to 120% for 2028, (vi) 75% to 125% for 2029, and (vii) 70% to 130% for 2030 or later. IRC § 430(h)(2)(C)(iv)(II) as amended by ARPA § 9706(a). A 5% floor is established on the 25-year interest rate averages. IRC § 430(h)(2)(C)(iv)(I) as amended by ARPA § 9706(b). This is effective for plan years beginning on or after January 1, 2020.

D.   ARPA Health Plan Changes in 2021

      1.   COBRA 100% Premium Subsidy Between 4/1/2021 and 9/30/2021 – The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9501 provides that for the period between April 1, 2021 and September 30, 2021, "assistance-eligible individuals" (as defined below) may receive a 100% subsidy (full premium payment) for any premium required for COBRA continuation coverage under a group health plan.  ARPA § 9501(a)(1).  These rules are effective March 11, 2021.

An "assistance-eligible individual" is any COBRA qualified beneficiary who, with respect to a period of coverage during the period beginning on April 1, 2021 and ending on September 30, 2021 (1) is eligible for COBRA continuation coverage due to termination of the employee (other than by reason of such employee's gross misconduct or for voluntarily quitting) or reduction of hours of employment, pursuant to IRC § 4980B(f)(3)(B), and (2) elects such coverage. ARPA § 9501(a)(3).

The above COBRA premium assistance is excludible from the gross income of the individual under IRC § 139l added by ARPA.  COBRA continuation coverage that qualifies for premium assistance also includes continuation coverage offered by a State program that provides comparable continuation coverage. ARPA Committee Report JCX-2-21.

A group health plan may provide for special plan enrollment options (pursuant to a Section 125 cafeteria plan) to assistance-eligible individuals allowing them to change coverage options under the plan in conjunction with electing COBRA continuation coverage within 90 days of the date of notice of the enrollment option.  ARPA § 9501(a)(1)(B).  Eligibility for coverage under another group health plan does not terminate eligibility for premium assistance if the other group health plan coverage consists only of excepted benefits under IRC § 9382(c)(2), is a qualified small employer HRA or is a flexible spending arrangement.  ARPA § 9501(a)(1)(B)(ii)(IV).

Under ARPA there is a special COBRA election period (for at least 60 days after notice is given) for a qualified beneficiary who either (1) does not have an election of COBRA continuation coverage in effect on April 1, 2021 but who would be an assistance-eligible individual were such an election in effect, or (2) elected COBRA continuation coverage and discontinued from such coverage before April 1, 2021.

Under ARPA the employer to whom continuation coverage premiums are payable is allowed a credit for each calendar quarter against Medicare tax due by the employer under IRC § 3111(b) in an amount equal to the premiums not paid by assistance-eligible individuals for COBRA coverage by reason of the subsidy during such quarter.  New IRC § 6432 added by ARPA § 9501(b)(1).

The COBRA notice that a plan administrator is required to provide with respect to a qualifying event during the period of April 1, 2021 to September 30, 2021 must contain certain additional information regarding the right to the premium assistance under ARPA.  ARPA § 9501(a)(5).

IRS Notice 2021-31 provides Q&As regarding the ARPA COBRA premium assistance provisions.

      2.   Temporary Increase for 2021 of Dependent Care Assistance Program Limit  The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9631 expands the child and dependent care tax credit available to taxpayers for tax year 2021.  Also, IRC § 129(a)(2)(D) as amended by ARPA § 9632(a) expands the annual limit for dependent care FSAs for 2021 only from $5,000 to $10,500 and from $2,500 to $5,250 for a married person filing separately.  This is effective for tax years beginning in 2021.  Any plan amendment must be made by the last day of the plan year in which the plan amendment.  ARPA § 9632(c).  Note that the nondiscrimination testing rules of IRC § 129(d) for dependent care assistant programs must still be met.

      3.   COVID-Related Paid Sick Leave and Family Leave Credit  The Families First Coronavirus Response Act of 2020 required certain employers to provide qualified paid sick leave and family leave to employees who are unable to work due to COVID-19.  The costs were offset in part by refundable tax credits for qualified leave payments from April 1, 2020 through December 31, 2020, and this was extended to March 31, 2021 by the Consolidated Appropriations Act, 2021.  The American Rescue Plan Act of 2021 ("ARPA") § 9641 extends the emergency paid sick time and paid family leave credits from April 1, 2021 through September 30, 2021.

      4.   Extension of Refundable Premium Tax Credit for 2021 and 2022 – A refundable premium tax credit is available on a sliding-scale basis for individuals and families with household income between 100% and 400% of the federal poverty line who are enrolled in an Exchange-purchased qualified health plan, and who are not eligible for other qualifying coverage.  The American Rescue Plan Act of 2021 § 9661 increases the premium tax credit for 2021 and 2021 and also makes the premium tax credit available to taxpayers whose income exceed 400% of the federal poverty line.  ARPA § 9662 provides that taxpayers do not have to repay certain excess advance premium tax credit payments for 2020.  ARPA § 9663 provides for increased premium tax credit for taxpayers receiving unemployment compensation in 2021.

E.   Expanded Class of Covered Employees under IRC § 162(m)

      IRC §162(m) disallows a deduction by a publicly-held corporation for compensation in excess of $1 million per year paid to a "covered employee." "Covered employee," as amended by the Tax Cuts and Jobs Act of 2018, is an individual serving as CEO, CFO and the next three highest compensated officers who are required to be reported under the executive compensation disclosure rules of the Securities Exchange Act of 1934.  IRC §162(m)(3).  In addition, as amended in 2018, if an employee is a covered employee for any prior tax year, the employee's compensation remains subject to the deduction limit in subsequent tax years, even if the employee is no longer a covered employee. Id.

The American Rescue Plan Act of 2021 ("ARPA") (3-11-2021) § 9708 provides that for taxable years beginning after December 31, 2026, "covered employee" will also includes five other employees who are among the five highest compensated employees (in addition to the top five executives described above). IRC §162(m)(3)(C) as amended by ARPA § 9708.  However, for these other five highest compensated employees, they will not be considered covered employees for taxable years when they are no longer among the top five highest compensated employees. IRC §162(m)(3)(D) as amended by ARPA § 9708.  

Charles C. Shulman, Esq.