The new Consolidated Appropriations Act has several provisions that impact benefit programs. Here's what you need to know.
The Consolidated Appropriations Act (CAA) was signed into law on December 27, 2020. While provisions within the bill are wide ranging, this blog tackles those affecting employee benefits as we enter 2021. The CAA’s effect on benefits starting in 2022 will be tackled in a later post.
Emergency Paid Leave
Under the CARES Act, emergency paid sick leave (E-PSL) and emergency family medical leave (E-FMLA) were provided through 12/31/2020. Most employers with under 500 employees were required to provide up to 80 hours of E-PSL and up to 12 weeks of E-FMLA to their employees, with few exceptions.
The CAA allows employers to voluntarily extend these leave programs through 3/31/2021. If the employer follows the CARES Act leave requirements, the Federal government will continue to provide reimbursement of qualified paid leave (and healthcare premiums) the employer pays out on behalf of employees taking leave from 1/1/2021 - 3/31/2021.
Note: Employees will not receive a new cache of emergency leave in 2021; only amounts of unused leave from 2020 can be rolled over into 2021.
Healthcare & Dependent Care Flexible Spending Accounts
The new law allows employers to make certain changes to their Healthcare and/or Dependent Care Flexible Spending Accounts (HC FSA & DC FSA) on a voluntary basis. While these plan updates do not need to be made until well after the plan year has ended, it is recommended that interested employers update documents sooner than later – since their plan will need to have followed those rules back to the “effective date” the employer chooses. For changes to plan years that end in 2020, employers need to update their plan documents by 12/31/2021. For those ending in 2021, documents must be updated by 12/31/2022.
These voluntary plan changes include expansion of two existing provisions that allow employees to roll unused funds into the next plan year. Currently both HC FSA and DC FSA programs allow for a grace period of up to 2 ½ months, where members can incur claims that qualify as reimbursable; the CAA allows employers to extend this to 12 months during plan years ending in 2020 and 2021. The other “rollover” provision currently allowed under a HC FSA is the carryforward of up to $550 into the new plan year; the CAA allows employers to increase this to the full balance remaining at the end of the plan year (for plan years ending in 2020 and 2021), and also adds this as an option for DC FSA programs.
Mid-Year changes to HC FSA and/or DC FSA elections will continue to be allowed for plan years ending in 2021, but they must be prospective. Employee options would include initially electing to enroll, rescinding an existing election or increasing/decreasing funding into the account(s). Employers are not required to make this update to their program, and they should proceed with caution, since changes to employee elections can affect the projected pass/fail results of nondiscrimination testing.
Another voluntary change employers can make to their plans is allowing for post termination reimbursement of funds from an employee’s HC FSA through the end of the plan year (and any applicable grace period). This applies to plans with an end date during 2020 and/or 2021.
While most of the changes to HC and DC FSA programs are voluntary, where the employer can decide to implement the change or not, there is one update that is automatic – the extension of the DC FSA’s child age limit. Under regular DC FSA regulations, funds can be used for dependents who are under age 13. This new bill changes the regulations to allow reimbursements to age 14, as long as certain parameters are met:
Section 127 of the Internal Revenue Code allows employers to provide education assistance of up to $5,250 per calendar year, which can be excluded from both the employee’s income and employment taxes. Under the CARES Act passed in March 2020, student loan payments were added to this list of allowable items for the 2020 calendar year. Now, with the passage of the CAA signed in December 2020, an employer’s payment of student loans will continue to be included on the list of eligible Section 127 education assistance expenditures through 2025.
Help your clients through the process of deciding which provisions to add to their benefits programs.
The Bottom Line
Interpretations of these new regulations are still hitting the airwaves as I type, since a reading of the actual Act’s provisions refer back to a multitude of other rules and regulations. Luckily, most of the program changes I have outlined here are voluntary; if an employer feels the regulations are too burdensome and/or confusing, they do not need to implement them. For those willing to take the plunge, at least the option is there.
Be Benefits Informed
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I love numbers. I'm a math geek. I read benefits industry articles and periodicals for relaxation (but, honestly, I'm still a fun gal). I also like to share what I've learned and you'll find it all here.