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.
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.
Charles C. Shulman, Esq.