Employee Benefit Provisions in the Recent COVID-19 Relief BillJanuary 6, 2021
On December 27, 2020, President Trump signed into law the COVID-Related Tax Relief Act of 2020 and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 as part of the Consolidated Appropriations Act, 2021 (collectively, the “Act”). The Act contains provisions for both retirement and health plans, as summarized below.
I. Retirement and Pension Plans
A. Coronavirus-related Distributions for Money Purchase Pension Plans
The Act expands the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to allow money purchase pensions plans to provide coronavirus-related distributions effective retroactively to March 27, 2020 (the date of enactment for the CARES Act). The Act does not extend the last day for plans to allow coronavirus-related distributions, which is December 30, 2020. For a full summary of coronavirus-related distributions and other CARES Act provisions, see our previous client alert.
B. Pension Plan Transfer Termination
In accordance with Section 420 of the Internal Revenue Code (the “Code”), defined benefit pension plans may transfer up to 10 years of retiree health and life insurance costs to a separate account within the pension plan, so long as a number of requirements are met, including that the plan be at least 120% funded initially and during the transfer period and that any unused amounts be transferred back. The Act allows plans to make a one-time election before December 31, 2021 to end any existing transfer period beginning after the date of the election. If a plan makes the election, the plan must continue the maintenance of effort requirement as if the transfer period was not shortened, the plan must stay at least 100% funded during the original transfer period, the plan must achieve certain funding targets during the first five years after the original transfer period, and all amounts left in the separate account during the end of the new, shortened transfer period are transferred back to the plan.
C. Age 55 In-service Distributions for Certain Multiemployer Plans
Currently, pension plans may offer in-service distributions to employees that attain age 59 ½. The Act allows multiemployer plans that cover primarily employees in the building and construction industry to offer in-service distributions to individuals that attain age 55, so long as the individual was a participant on or before April 30, 2013, the associated trust was in existence before 1970, and the plan offered age 55 in-service distributions prior to December 31, 2011 and received a determination letter during that time.
D. Temporary Rule for Partial Plan Termination
Qualified retirement plans are required to provide full vesting for employees affected by a partial termination or a full termination of the plan. Whether a partial termination has occurred is generally determined from facts and circumstances. The Act provides that a partial termination will be deemed not to have occurred during any plan year that includes the period of March 13, 2020 through March 31, 2021, so long as the number of active participants as of March 31, 2021 is at least 80% of the number of active participants as of March 13, 2020.
E. Disaster-Related Relief
The Act provides for relief for “Qualified Disaster Areas,” which the Act defines to mean areas where a major disaster is declared (other than COVID-19) during the period beginning January 1, 2020 through 60 days after the enactment of the Act (i.e., February 25, 2021).
1. Qualified Disaster Distributions
Under the Act, an eligible retirement plan may offer individuals whose principal place of abode was located in a Qualified Disaster Area during the period specified by the Federal Emergency Management Agency as when the disaster occurred (the “Incident Period”) and suffered economic loss as a result of the disaster (a “Qualified Individual”) a qualified disaster distribution of up to $100,000 (less any amounts the individual has received as qualified disaster distributions in any prior tax year). The qualified disaster distribution may be included as income for the Qualified Individual over the next three years, and any amount of the qualified disaster distribution may be repaid to the eligible retirement plan during the three years after the Qualified Individual receives the distribution.
2. Recontribution of Certain Distributions in a Qualified Disaster Area
In addition to the qualified disaster distributions, the Act permits plans to allow individuals that took a hardship distribution or first-time home buyer distribution during the period beginning 180 days before the Incident Period and ending 30 days after the Incident Period to purchase or construct a home in a Qualified Disaster Area but did not use the distribution to purchase or construct the home due to the disaster, to repay the distribution to a qualified retirement plan. The distribution must be repaid within 180 days after the enactment of the Act (i.e., not later than June 24, 2021).
3. Loan Provisions for Qualified Disasters
The Act also contains provisions for loans from qualified employer plans. In the case of a new loan to a Qualified Individual, the maximum permitted amount of the loan may be increased to the lesser of $100,000 or 100% of the vested account balance of the Qualified Individual. The Incident Period and the 180 days thereafter may also be disregarded in determining the five-year period of a loan. For Qualified Individuals with existing loans, any repayment due during the Incident Period and for 180 days thereafter may be delayed for one year.
Plan amendments implementing the above disaster relief provisions must be adopted by the end of the plan year beginning on or after January 1, 2022.
II. Health and Welfare Plans
A. Temporary Flexible Spending Account Rules
Under current law, cafeteria plans offering health care flexible spending accounts (Health FSAs) may permit individuals to carry over part of their unused balance to the next plan year. Cafeteria plans that offer dependent care assistance programs (DCAPs) may not permit carryover of any unused DCAP amounts. In addition, Code Section 125(i) imposes limits on the amount that may be carried over for Health FSAs each year (for 2020, the maximum amount was $550). Cafeteria plans may alternatively offer a grace period of up to 2 ½ months after the end of the plan year (March 15 for calendar-year plan years), during which participants may be reimbursed for expenses incurred from remaining Health FSA or DCAP amounts from the previous plan year. Plans may not offer both a grace period and a carryover for Health FSAs.
The Act allows cafeteria plans that offer Health FSAs, DCAPs, or both to allow all unused Health FSA and DCAP amounts as of the end of the plan year ending in 2020 to be carried over to the plan year ending in the following calendar year (i.e., 2021), and likewise for unused amounts as of the end of the plan year ending in 2021. The Act also extends the permissible grace period to up to 12 months following the end of the plan years ending in 2020 or 2021. However, the prohibition against offering both a carryover and a grace period was not changed by the Act, so if a plan already offers a grace period for the Health FSA or DCAP, it cannot allow a carryover as well.
Currently, plans may also allow terminated participants to be reimbursed for expenses incurred through the end of the plan year from any DCAP amounts remaining as of the date of termination. Health FSAs may not offer a similar spend-down provision, which means that once the participant’s employment terminated, the participant could be reimbursed only for expenses incurred prior to termination unless the participant elects (and pays for) COBRA coverage. The Act permits a cafeteria plan to allow a participant whose employment terminates during calendar years 2020 or 2021 to be reimbursed for expenses incurred through the end of the plan year (including any grace period) from any unused amounts in the participant’s Health FSA as of the date of termination, regardless of whether the participant elects COBRA coverage.
Further, under the Code, cafeteria plan elections (including Health FSA and DCAP elections) are generally irrevocable during the plan year unless a participant experiences a qualifying change in status. The Act gives plans the flexibility to allow participants to change their Health FSA and DCAP elections on a prospective basis during the plan year ending in 2021, regardless of whether they experience a change in status.
Finally, DCAPs may reimburse only expenses incurred with respect to a “qualifying individual,” which includes dependents of an individual that have not yet turned 13. The Act temporarily changes the requirements to increase the age for which a dependent can still be a qualifying individual: from age 12 to 13. This change is effective for the last plan year for which the regular enrollment period was on or before January 31, 2020 (generally the 2020 plan year). So, if a participant’s dependent turned 13 during the applicable plan year and would have otherwise aged out, the participant may still continue to be reimbursed for expenses related to that dependent during such plan year. Additionally, if the participant still has unused amounts in their DCAP as of the end of the plan year, they may continue to be reimbursed for expenses related to their dependent(s) that turn 13 during the next plan year from the unused amounts.
Plans wishing to adopt any of the foregoing changes have until the end of the next plan year after the plan year for which they adopt any changes (e.g., if changes are made for the 2020 plan year, the amendment must be adopted by the end of the 2021 plan year), and the plan must be operated consistently with the amendment as of the effective date of such change.
B. No Surprises Act
The Act also includes the “No Surprises Act,” which imposes requirements on health plans, providers, and insurers for handling bills for out-of-network services. Beginning with the plan year starting on or after January 1, 2022, the No Surprises Act prohibits health plans from charging patients more than the in-network cost sharing amounts for emergency care provided at an out-of-network facility and for all services provided by a non-participating provider at an in-network facility. There is an exception for items and services provided by non-participating providers at in-network facilities (other than for “ancillary services”) or items and services provided at out-of-network facilities if written notice containing certain required information is given to the patient at least 72 hours prior to the items or services being provided (or the day of, if the appointment is made less than 72 hours in advance) and the patient consents to the items and services being provided by a non-participating provider or at an out-of-network facility. The exception does not apply to ancillary services, which the No Surprises Act defines to be items and services such as emergency care, anesthesiology, pathology, radiology, neonatology, diagnostic services (except those items or services that the regulations designate as not being ancillary services), other items and services designated as ancillary services by regulations, or items and services provided by non-participating providers if there is no participating provider that can provide the services at the facility.
Group health plans will also be required to include all deductibles (both out-of-network and in-network), out-of-pocket maximums (for both out-of-network and in-network), and a telephone number and internet website where an individual may obtain consumer assistance on any physical or electronic plan or insurance identification cards.
C. Mental Health Parity Provisions
The Act requires that any health plan or health insurer that covers mental health or substance use disorders in addition to medical and surgical benefits and imposes nonquantitative treatment limitations (NQTLs) must perform and document a comparative analysis of the NQTLs for mental health and substance abuse disorders and NQTLs imposed for medical or surgical benefits and make the analysis and accompanying information available beginning 45 days after the enactment of the Act (i.e., February 10, 2021). The comparative analysis must demonstrate that the processes, strategies, evidentiary standards, and other factors used to apply the NQTL for mental health and substance abuse disorder benefits are not more stringent than those for medical or surgical benefits in the same benefits classification. Other information that must be made available includes the plan or coverage terms related to the NQTLs, with a description of the benefits to which each term applies, the factors used to determine whether the NQTLs will apply to a benefit, the evidentiary and other standards used for the foregoing factors, and the findings and conclusions indicating that the plan or coverage is in compliance.
If you have questions about your retirement or health plan as it relates to the COVID-Related Tax Relief Act of 2020 and the Taxpayer Certainty and Disaster Tax Relief Act of 2020, please reach out to a Lewis Rice pension & employee benefits attorney.