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Comp and Benefits Brief

March 22, 2021

Additional Employee Benefits Relief in the American Rescue Plan Act of 2021

President Biden signed The American Rescue Plan Act of 2021 (“ARPA”) into law on March 11, 2021, adding new employee benefits relief and providing extensions of prior COVID-19 relief. In our prior Alert[1] we discussed ARPA’s COBRA subsidy provisions. In this Alert we discuss the other employee benefits relief provided by ARPA.

1. Previous COVID Relief Expansion

Employee Retention Credit
The Employee Retention Credit (the “ERC”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was originally scheduled to expire on December 31, 2020 and was extended by the Consolidated Appropriations Act, 2021 (the “CAA”) until June 30, 2021 (see our prior Alert[2]), is again extended to cover qualified wages paid through December 31, 2021.

In addition, ARPA provides the following changes to the ERC rules:

  • Recovery Startup Businesses. Expands ERC eligibility to “recovery startup businesses” which is defined as employers that (i) commenced operations after February 15, 2020, (ii) have gross annual receipts of less than $1M, and (iii) otherwise don’t satisfy the ERC eligibility requirements. This means that a “recovery startup businesses” may claim ERCs even if it is not experiencing a decline in gross receipts, and did not partially or fully suspend operations due to a governmental order limiting commerce, travel or group meetings due to COVID-19. The ERCs are capped at $50,000 per quarter for “recovery startup businesses.”
     
  • Employers With More Than 500 Employees. Expands the types of “qualified wages” that are eligible for ERCs, so that employers with more than 500 employees that are experiencing a gross receipts reduction of more than 90% as compared to the same calendar quarter in 2019 (“severely financially distressed” employers) may now claim ERCs on qualified wages paid to both working and non-working employees.
     
  • Expanded Use of Tax Credit. ERCs may now be claimed against the employer’s share of Medicare tax (1.45%).

As a reminder, the CAA increased the amount of ERCs from 50% of qualified wages to 70% of qualified wages paid per calendar quarter (this was not increased by the ARPA). Thus, eligible employers may now claim up to $28,000 per employee in 2021 (with the extension to December 31, 2021).

FFCRA Paid Sick and Family Leave Credits
The Paid Sick and Family Leave Credits (the “Credits”) first provided in the Families First Coronavirus Response Act (the “FFCRA”), which were originally scheduled to end on December 31, 2020 and were extended by the CAA through March 31, 2021 for employers who chose to continue to allow eligible employees to use their FFCRA leave entitlement, is again extended through September 30, 2021.

The ARPA also makes the following changes to FFCRA Credits claimed on qualified leave wages paid from March 31, 2021 through September 30, 2021:

Expanded Reasons for FFCRA Leave (Optional). Allows employers to expand the reasons for which FFCRA leave may be taken (and FFCRA Credits may be claimed) to include paid time off for the following reasons:

Paid Sick Leave

Emergency Family Medical Leave

  • The employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 and either he or she has been exposed to COVID-19 or the employer has requested him/her to undergo such test or diagnosis
  • The employee is obtaining an immunization related to COVID-19 or is recovering from any injury, disability, illness, or condition related to the immunization
  • The employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 and either he or she has been exposed to COVID-19 or the employer has requested him/her to undergo such test or diagnosis
  • The employee is obtaining an immunization related to COVID-19 or is recovering from any injury, disability, illness, or condition related to the immunization
  • The employee or someone he or she is caring for is subject to a governmental order or has been advised by a health care provider to self-quarantine
  • The employee is experiencing COVID-19 symptoms and is seeking medical attention
  • The employee is caring for his or her son or daughter whose school or place of care is closed or unavailable for reasons related to COVID-19

FFCRA Leave Do-Over (Optional). Allows employers to voluntarily provide an additional ten (10) days/eighty (80) hours of sick leave and an additional twelve (12) weeks of paid family leave beginning April 1, 2021 even if employees have used up their original FFCRA entitlement prior to March 31, 2021 (again providing additional leave if employees have used up their entitlement is optional):

Paid Sick Leave

Emergency Family Medical Leave

  • Additional 10 days (80) hours of wages
  • Additional $200/per day for 12 weeks ($12,000) – increased from $10,000.

Tax Credits Include Payroll Taxes. Provides that FFCRA Credits may be increased by the employer’s share of Social Security tax (6.2%) and the employer’s share of Medicare tax (1.45%) on qualified leave wages.

Nondiscrimination. Adds a non-discrimination requirement providing that no FFCRA Credit will be given to an employer who discriminates in favor of highly compensated employees, full-time employees, or employees based upon tenure. Thus, employers who choose to voluntarily expand FFCRA leave as described above should make FFCRA paid leave available to all employees with respect to job category or years of service.

In light of the voluntary nature of the continued FFCRA leave, employers need to balance the above broadened credits and expanded use against the loss of workers and the administrative burden of claiming FFCRA Credits, in deciding whether they want to allow employees this extra time to take FFCRA leave.

2. Health and Welfare Relief

Affordable Care Act Premium Tax Credit Expansion
ARPA expands eligibility for the Premium Tax Credit (the “PTC”) under the Affordable Care Act. The PTC is a refundable credit that helps eligible individuals and their families cover their premiums for an individual health insurance policy purchased through the Health Insurance Marketplace. Eligibility for the PTC is based, in part, on household income. As originally written, the amount of the PTC was based upon a sliding scale if the individual’s household income was between 100% and 400% of the federal poverty level. Those households with income at 100% or less of the federal poverty level were generally directed into Medicaid enrollment, and households with income at 400% or more of the federal poverty level were ineligible for the PTC. For the 2021 and 2022 calendar years only, ARPA removes the 400% limit and increases the PTC amount by decreasing the percentage of household income that individuals must contribute for policies purchased through the Health Insurance Marketplace in order to receive a PTC. The maximum percentage under the ARPA was reduced from 9.83% to 8.5% of household income. For employers, this means that more employees will qualify for a PTC in 2021 and 2022 and employers should reach out to their benefits broker to ensure that the coverage they provide is affordable.

Dependent Care Assistance Increase
For the 2021 calendar year only, ARPA permits employers to increase the maximum amount of contributions that may be made to a dependent care flexible spending account (“DCFSA”) from $5,000 to $10,000 ($2,500 to $5,250 for married individuals filing a separate return) under Section 129 of the Code.

Employers may, but are not required to, amend their DCFSA to permit the increased contribution limit. If an employer wishes to allow this temporary increase, it must amend its DCFSA no later than the last day of the plan year in which the amendment is effective (December 31, 2021 for calendar year plans).

3. Pension Relief

Pension Plan Funding Stabilization
Single employer defined benefit pension plans are subject to certain minimum funding requirements under ERISA and the Code. When calculating minimum funding, plan sponsors must include a shortfall amortization charge, which permits plans to spread the charge for funding shortfalls over a period of seven years. ARPA extends this period to 15 years. ARPA also sets all prior shortfalls to zero for plan years beginning after December 31, 2021, giving plans a fresh start so any shortfall amounts based on prior years may be recalculated and spread over a longer period of time.

ARPA also extends prior interest rate funding stabilization initiatives (most recently, the Bipartisan Budget Act of 2015). Under these stabilization rules, pension plans must use an interest rate between a set minimum and maximum (the “Corridor”) to determine the present value of the plan’s liabilities when calculating its minimum funding contribution. The difference between the minimum and maximum rate phases out over time. ARPA shrinks the Corridor and extends the date when the difference begins to phase out (from 2024 to 2026). ARPA also sets a “floor” of 5% for the minimum interest rate. These funding stabilization changes will result in an increase in the interest rate used for determining minimum funding obligations and should result in a reduction in minimum required contributions.

These changes are effective for plan years beginning after December 31, 2019, but plan sponsors may elect not to implement the change until the 2021 or 2022 plan year.

PBGC Power to Provide Multiemployer Pension Relief
ARPA sets forth a new program permitting financially-troubled multiemployer defined benefit pension plans to apply to the Pension Benefit Guaranty Corporation (the “PBGC”) for “Special Financial Assistance.” Upon approval of the application, the PBGC will make a single, lump-sum payment to eligible multiemployer pension plans to enable them to pay benefits at specified plan levels and to remain solvent. The “Special Financial Assistance” payments are funded by revenues generated from the U.S. Treasury and are not required to be repaid by the plan.

The PBGC is required to issued guidance on how plans can apply for the Special Financial Assistance within 120 days following enactment of ARPA. Plans seeking Special Financial Assistance must submit their applications to the PBGC by December 31, 2025.

It is uncertain how Special Financial Assistance received by a multiemployer defined benefit pension plan will impact the plan’s individual participating employers. Earlier versions of ARPA included provisions stating that any participating employer that withdrawals from the plan within the 15 years following the receipt of Special Financial Assistance would not see a reduction in its withdrawal liability assessment. However, this provision was removed in the final version of ARPA. ARPA simply states that the PBGC may impose by regulation or other guidance, reasonable conditions on a multiemployer defined benefit pension plan receiving Special Financial Assistance. Such reasonable restrictions may relate to future accrual rates, reductions in employer contribution rates, withdrawal liability, etc. Until further guidance is issued, it is unclear whether the receipt of Special Financial Assistance by a multiemployer defined benefit pension plan will flow through and result in savings to the participating employers in the form of lower contributions or reduced withdrawal liability. We expect the PBGC to issue guidance clarifying this and other points.

Increase in PBGC Premiums
The Multiemployer Pension Reform Act of 2014 requires that defined benefit pension plans pay the PBGC an annual premium to cover insurance for benefit payments under insolvent defined benefit pension plans. For the 2021 calendar year, the premium required to be paid by multiemployer pension plans is a flat rate of $31 per participant. ARPA increases this annual premium to $52 per participant beginning in plan years commencing on or after December 31, 2030 for multiemployer pension plans.

It should be noted that ARPA did not increase the per participant or variable rate premiums for single employer pension plans. However, these premiums may be adjusted annually due to inflation.

4. Executive Compensation

162(m) “Covered Employee” Expansion
Code Section 162(m) limits the deduction that a publicly held corporation can take with respect to compensation paid to its “covered employees” to $1 million per year. Generally speaking, a “covered employee” means the corporation’s principal executive officer (“CEO”), principal financial officer (“CFO”), and its three other highest compensated officers for the taxable year.

Beginning with tax years commencing on or after January 1, 2027, ARPA expands the number of “covered employees” to include the CEO, the CFO, and the next eight highest compensation employees of the publicly held corporation (i.e., an increase in five covered employees).

The Nelson Mullins Employee Benefits Group is ready to assist with questions or compliance steps. Please contact one of our Employee Benefits attorneys or the Nelson Mullins attorney with whom you work. For additional information on COVID-19 related issues, including summaries of other provisions of the CAA, please visit the Nelson Mullins COVID-19 resource page.