The Consolidated Appropriation Act of 2021 was signed into law on December 27, 2020 and is an impressive 5,593 pages. According to the Senate Historical Office, the Act is the longest bill ever passed by Congress. Buried within the myriad of COVID-19 relief and other changes are numerous employee benefit plan provisions that employers should review and determine next steps for adoption and compliance.

We understand you may not have time to slog through the nearly 6,000 pages of the new law – so we’ve summarized the key parts for you. The article is divided into three main sections addressing the significant issues in the Act relating to (i) group health plans, (ii) fringe benefits, and (iii) retirement plans, as follows:   

Group Health Plans

The first area to discuss is the Act’s provisions related to group health plans. There are five key issues on this topic for employers to understand.  Many of these changes necessitate potential contract review and updates with third party vendors with most changes effective for the 2022 calendar or plan year.

No Surprises Act For Group Health Plans

One of the surprise additions to the Act was the adoption of the “No Surprises Act” which has been a bipartisan effort in the works for several years. The No Surprises Act protects medical plan participants from balance billing by out-of-network providers for certain emergency services, including air ambulance charges.

The Act also provides protection for nonemergency care at an in-network provider when services are performed by an out-of-network physician or laboratory without the patient’s consent. In such cases, the covered individual will only be liable for cost-sharing amounts that apply to in-network services. The Act also provides for an independent dispute resolution process to facilitate negotiation of outstanding amounts between the group health plan and the providers. 

Finally, it’s critical to note that the No Surprises Act applies to contracts entered into or renewed for plan years beginning on or after January 1, 2022.

Transparency Disclosure Provisions

The Act also contains disclosure requirements to increase transparency as to benefit design and provider networks, including:

• Listing on the plan ID card the amount of the in-network and out-of-network deductibles and out-of-pocket maximum limitations;
• Providing an advance Explanation of Benefits (EOB) for scheduled services at least three days in advance or one business day after scheduling to give participants transparency into which providers are expected to provide treatment, the expected cost, and the network status of the providers;
• Offering a price comparison tool for consumers;
• Publishing up-to-date directories of the plan’s in-network providers to be available online or within one business day upon request. The participant will not be responsible for out-of-network charges if they provide documentation that they received incorrect information from a plan or issuer about a provider’s network status prior to a visit; and
• A patient-provider dispute resolution process to be established by the Secretary of the Department of Health and Human Services (HHS) to facilitate claims resolution for bills higher than provided estimates.

The effective date for this provision is no later than January 1, 2022. Note that in addition to the transparency provisions in the Act, a final regulation issued in October 2020 by the Trump administration also provides for additional transparency requirements for group health plans beginning January 1, 2022. This regulation is currently on hold by the Biden administration for evaluation, but group health plan sponsors should monitor future developments.

Mental Health Parity And Addiction Equity Act Compliance Report Required

Beginning February 10, 2021, group health plans and health insurance issuers that provide mental health or substance use disorder (MH/SUD) benefits must have a report documenting a comparative analysis of plan design requirements and application of non-quantitative limitations (NQTLs) under the plan.  

As background, the Mental Health Parity and Addiction Equity Act prohibits group health plans that provide MH/SUD benefits from imposing, among other things, less favorable NQTLs for MH/SUD benefits as compared to medical benefits. Generally, NQTLs consist of any limitations on the scope and duration of benefits that are not expressed numerically. Examples of NQTLs include medical-management standards (e.g. medical necessity, prior-authorization requirements, and calculation or provider reimbursement rates). Generally, the “processes, strategies, evidentiary standards and other factors” used to define plan terms and administer NQTLs for MH/SUD benefits must be comparable to and applied no more stringently than the ones used for MH/SUD benefits.

The NQTL compliance report required under the Act must be furnished to the Department of Labor (DOL) and HHS upon request. Although the Act only requires the DOL and HHS to request at least 20 of these comparative analyses per year for review, we anticipate that request of the report will become standard on regular group health plan audits. Where violations are determined to have occurred, the plan must provide a compliance plan establishing actions it will take to ensure parity. Further guidance will be provided in regulations issued within 18 months of the Act’s adoption. 

Elimination Of “Gag” Clauses

The Act prohibits group health plans from entering into provider network contacts that would prevent either the plan sponsor or the covered individuals from accessing cost and quality of care information, including provider-specific cost and quality of care data. The Act also requires the group health plan to secure access to specific claims data (de-identified for HIPAA and compliant with the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act) that shows:

• Financial information (allowed amount or other claims-related financial obligations in the provider contract);
• Provider information (name and clinical designation);
• Service codes; or
• Any other data element included in the claim or encounter transactions.

Provider contracts may, however, prohibit group health plans from publicly disclosing the information that they receive under the contract, and plans may be required to certify their compliance annually. As there is no effective date specifically for this provision, it appears that it applies to existing contracts with no time for conforming amendments. 

Mandatory Rx Reporting

Finally, the Act requires group health plans and health plans to annually report certain information related to prescription drugs and plan benefits to HHS, DOL, and the Internal Revenue Service (IRS). The first report must be submitted no later than one year following the date of enactment of the Act (or by December 27, 2021). Subsequent reports would need to be filed no later than June 1 of every subsequent year.

The report must include:

• The beginning and end dates of the plan year;
• The number of enrollees;
• Each state in which the plan or coverage is offered;
• The 50 brand prescription drugs most frequently dispensed;
• The 50 most costly prescription drugs with respect to the plan;
• The 50 prescription drugs with the greatest increase in plan expenditures;
• Total spending on healthcare services by such group health plan or health insurance coverage, broken down by the types of costs, including (1) hospital, healthcare provider, and clinical service costs, for primary care and specialty care separately; (2) costs for prescription drugs; and (3) other medical costs, including wellness services. Spending on prescription drugs must be broken down by the health plan spend and the participants’ and beneficiaries’ spend;
• The average cost sharing between employers and employees on monthly premiums;
• The impact on premiums by rebates, fees, and any other compensation paid by drug manufacturers to the plan or coverage or its administrators or service providers, with respect to prescription drugs prescribed to enrollees in the plan or coverage, including the amounts paid for each therapeutic class of drugs, and the amounts paid for each of the 25 drugs that yielded the highest amount of rebates and other compensation under the plan or coverage from drug manufacturers during the plan year; and
• Any reduction in premiums and out-of-pocket costs associated with rebates, fees, or other compensation described in the preceding paragraph.

Fringe Benefits

There are two key provisions in the Act related to fringe benefits: one related to flexible spending accounts, and another related to student loan repayment assistance.

Temporary Health Flexible Spending Accounts And Dependent Care Flexible Spending

Accounts Rules

The Act updates and extends earlier relief initiated by the IRS in 2020 to add more flexibility for employers to make it easier for employees to use and not lose funds in their flexible spending accounts (FSAs). 

Prior IRS Guidance

As background, the IRS released sub-regulatory guidance in May 2020 in response to concerns that many employees may have challenges fully utilizing cafeteria plan elections in light of COVID-19. The IRS guidance allowed employers to amend their 125 cafeteria plans and FSAs to allow for mid-year election changes during 2020 without a qualifying change in status instead of waiting for open enrollment. Many employers took advantage of this provision to allow employees to cease dependent care FSA contributions due to closed schools and day care as well as health FSA contributions due to canceled elective surgeries, for example. 

In addition, prior IRS guidance allowed non-calendar year FSAs and calendar year FSAs with a grace period to extend the period in which claims for reimbursement could be incurred (i.e. the “grace period”) beyond the 2 ½-month period following the end of the plan year to December 31, 2020.  Employers utilizing this relief must amend their cafeteria plans no later than December 31, 2021 (see our prior guidance here for further discussion). For the Act relief described below, the plans must be amended by the end of the plan year following the plan year in which the amendment is implemented.

Relaxed Election Change Guidelines for FSAs

The Act extended the IRS relief to permit employers to allow mid-year election changes for FSAs without regard to whether such employee incurred a change in status for plan years ending in 2021. Note the IRS subsequently extended this relief to all Section 125 cafeteria plan election changes in IRS Notice 2020-29.

Carryover Relief for FSAs

Building on the previous relief from the IRS, the Act also allows, but does not require, employers that sponsor FSAs to permit the carryover of an unlimited amount of unused funds from the plan years ending in 2020 and 2021 to be used for reimbursement in the next plan year. The carryovers are not allowed under the Act after the 2022 plan year. 

Generally, carryovers are limited to $550 of unused funds, but the Act allows unlimited carryovers. However, if any funds remain in an account at the end of 2020 due to the extension of claims periods (not grace periods) required by the DOL extension of certain deadlines (see our prior guidance here for further discussion), those amounts are not eligible for the carryover.  

Grace Period Relief For FSAs

In addition, the Act increases the grace period limitation of 2 ½ months after the end of the plan year to 12 months for FSA plan years ending in 2020 or 2021. The IRS subsequently clarified that although balances available at the end of a grace period are typically forfeited, the forfeiture requirement does not apply to the 12-month grace period because it would extend through the next plan year rather than ending at the end of the plan year.

Accordingly, if a plan adopts a grace period (rather than a carryover), 2020 balances can be available through the 2021 and 2022 plan years. The IRS has subsequently clarified that the FSAs are not required to have a grace period or carryover already in place to take advantage of the new relief, but a plan cannot have both a carryover and grace period. 

Participation By Terminated Employees

The Act also permits employees who terminate mid-year while covered under a health FSA during calendar 2020 or 2021 to continue participation and incur claims for reimbursement from unused benefits or contributions through the end of the plan year in which participation ceases. This includes grace periods, where applicable. Previously, an employee’s continued participation in a health FSA beyond termination was limited to COBRA and employers adopting the extended relief must still comply with its COBRA obligations.

Dependent Care Age Increase

In the case of dependent care FSAs, the Act increases the maximum age (to age 14 from age 13) for dependent care beneficiaries who aged out during the pandemic. However, this relief is limited to reimbursements of amounts contributed during the plan year with an enrollment period ending on or before January 31, 2020.

Amendment Deadline

Finally, plans adopting any of these plan design changes under the Act must be amended by the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective.

Student Loan Repayment Assistance – Extended

The CARES Act includes a temporary provision allowing the pre-tax repayment of education loans of up to $5,250 annually under an employers’ qualified educational assistance program meeting the requirements of Code Section 127. Many employers appreciated this new opportunity to aid employees in repaying student loans on a nontaxable basis. 

The Act extends this relief for amounts paid under a qualified educational assistance program before January 1, 2026. To take advantage of this benefit, employers who already maintain an educational assistance program will need to amend their programs, and employers who do not already maintain such a program will need to adopt one.

Retirement Benefits

Finally, there are four critical portions of the Act related to retirement benefits that employers should familiarize themselves with.

Partial Plan Termination Relief

The layoffs and furloughs during the pandemic have raised numerous concerns regarding the impact on qualified plans and determining whether a partial plan termination has occurred that would require full vesting of the affected participants. Generally, a tax-qualified retirement plan is treated as having been partially terminated if more than 20% of the plan’s total plan participants were laid off in a particular year. 

Recognizing that substantial reductions in workforce size due to the COVID-19 pandemic may be temporary, the Act modifies prior law such that a plan will not be treated as having a partial termination if the number of plan participants as of March 31, 2021 is at least 80% of the active participants as of March 31, 2020. This relief is intended to prevent an employer from triggering a partial plan termination as a result of temporary changes in headcount resulting from COVID-19 circumstances.

This provision is effective during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021.

Special Rules For Money Purchase Pension Plans

The CARES Act relief adopted in 2020 allowed qualified defined contribution plans to allow special in-service distributions designed to assist individuals who are affected by the COVID-19 pandemic. The Act extends this distribution relief to money purchase plans. While money purchase plans are individual account plans, they are classified as defined benefit plans and not eligible for the CARES Act relief.  This provision of the Act is effective as though included in the CARES Act, which permitted Coronavirus-Related Distributions only during 2020.  

Accordingly, this relief appears intended for the benefit of money purchase plans that inadvertently allowed Coronavirus-Related-Distributions during 2020 in error. It is also intended for individuals who took distributions from money purchase plans because of the pandemic to enjoy the same tax advantages as individuals in defined contribution plans (e.g., no 10% excise tax for distributions before 59 ½, ability to spread the income tax liability over three years, and ability to repay the distribution on a tax free basis within three years).    

Non-COVID-19 Qualified Disaster Relief    

Congress has enacted special tax relief to make it easier for retirement plan participants and IRA account holders to access their retirement funds to recover from disaster losses. The Act extends this relief for disasters occurring between December 28, 2019 and December 27, 2020 and that have been a declared a disaster under the Stafford Act between January 1, 2020 and February 25, 2021. The COVID-19 pandemic is not in itself a qualified disaster eligible for the relief. 

Under the Act, “qualified disaster distributions” of up to $100,000 may be made to affected individuals without incurring the 10% additional tax on early distributions; the amount of the distribution may be included in income ratably over three years; and they may repay the distributions within three years of receipt by making one or more contributions to an eligible retirement plan or IRA.

Relief is also provided to qualified individuals who received hardship distributions to purchase or construct a principal residence in a qualified disaster area but who did not use the funds due to the qualified disaster. Further, the cap on plan loans made between December 27, 2020 and June 25, 2021 is raised to the lesser of $100,000 or 100% of the account balance of a qualified individual. This relief is optional for employers who wish to amend their plans. 

Employers have until the last day of the plan year commencing on or after January 1, 2022 to adopt the required plan amendments.

In-Service Distribution Relief For Select Multiemployer Plans

Finally, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) reduced the minimum age for pension plans to offer in-service distributions as part of a phased retirement provision from age 62 to age 59½. For certain multiemployer pension plans that cover employees in the building and construction industry, the Act further reduces that minimum age limit from age 59½ to age 55. But the change, if available, is applicable only for individuals who were participants in the plan before April 30, 2013.