By: Anne Pachciarek | Virginia Lewey

On March 11, 2021, President Joe Biden signed the American Rescue Plan Act.  The $1.9 trillion COVID-19 relief package addresses the continued impact of the pandemic on the economy, public health, state and local governments, individuals, and businesses.  The Act includes a third round of stimulus checks to individuals up to certain income limits, extended unemployment benefits, and funding for COVID-19 vaccines and testing.  Notably, the Act contains several provisions affecting retirement plans and health and welfare plans.  It includes temporary coverage of 100 percent of the cost of continuing health coverage under COBRA in situations where an individual has lost coverage under an employer health plan due to involuntary termination.  It also provides funding stabilization for single-employer pension plans and multiemployer pension plan relief.

In addition, the Act makes changes to section 162(m) of the Tax Code to expand the number of employees subject to that section.

This Alert discusses the key employee benefits provisions of the Act and their practical impact on employers and participants, which Israeli companies that have offices in the US have to familiarize themselves with –

Health and welfare plans

100 percent government-subsidized COBRA

The Act provides for eligible employees and their families to receive up to six months of COBRA continuation coverage (between April and September 2021) at no cost to eligible employees.  This subsidy will be completely funded by the government and not treated as taxable income to recipients.  Plan administrators will be responsible for notifying eligible individuals of this subsidy, and employers will be reimbursed for the premium costs through a payroll tax credit.

The subsidy applies to the continuation coverage premiums charged by employer sponsored medical plans that are subject to COBRA or state law similar to COBRA.  Flexible spending accounts are specifically excluded.

Employees and their family members are eligible if they lose employer-provided health care coverage due to termination of employment (other than for gross misconduct) or a reduction in hours.  COVID-19 causation need not be established. However, employees who voluntarily terminate their employment, and therefore are eligible (with their families) for the regular employee-paid COBRA continuation coverage, are not eligible for the subsidy.

Further, to be eligible for the subsidy, an individual’s general 18-month period of potential COBRA coverage must fall within the six-month premium subsidy period.  This includes individuals who as of April 1, 2021 have already elected COBRA coverage or could have elected COBRA coverage but did not (or even elected but then dropped COBRA coverage), as well as those individuals who first become eligible to elect COBRA during the April – September subsidy period.

Unlike regular COBRA, the subsidized coverage need not extend exactly the same plan.  The employer may, but is not required to, allow eligible individuals to choose another plan for the subsidized coverage, as long as the premium is no higher than the employee’s previous plan.

This fully subsidized COBRA coverage will end, if earlier than September 30:

  • On the date that the individual’s regular COBRA 18-month continuation period expires. If the regular COBRA 18-month period since termination of employment ends on June 30, 2021, then the fully subsidized COBRA period would run from April through June. Individuals who first lost coverage as of April 2020 could receive the entire six months’ subsidy, as their COBRA period would not run out until September 2021.
  • On the date that an individual becomes eligible for coverage under another group health plan or Medicare. Note that the statutory language is eligibility, not actual coverage. The individual is required to notify the plan when no longer eligible for subsidized COBRA for this reason, with a monetary penalty for failure to do so.

Additional notice requirements apply.  Information regarding the subsidy must be included with the standard election notice sent to individuals who become eligible for COBRA during the subsidy period.  Moreover, the notice must include sufficient specificity to explain the individual’s right to a subsidy.  Notably, a new notice must be sent to individuals who became eligible for COBRA before the subsidy period, including information on their renewed opportunity to elect the subsidized coverage (starting April 1 and ending 60 days following this second chance notice).  Finally, plan administrators must send notice when an individual’s premium subsidy is expiring (other than for eligibility for other coverage).  The Department of Labor, Treasury Department and Health and Human Services are charged with publishing model notices to help plan administrators meet these obligations.

As for payment of the subsidy, employees and their families will not receive checks. Their premium payments will be treated as having been paid in full. The employer plan sponsor absorbing or advancing these premium costs will be reimbursed through a payroll tax credit.  The tax credit will be refundable if the premiums exceed the payroll tax due.

We expect the model notices as well as additional regulatory guidance will be useful to understanding employers’ obligations in administering this subsidy.   Meanwhile, employers are urged to start coordinating with COBRA administrators to identify eligible individuals and consider other administrative mechanics.

Dependent care FSAs

For this year only, the Act increased from $5,000 to $10,500 the limit on what can be excluded from income through a Section 129 Dependent Care Assistance Program.   Employers may amend their plans on or before the last day of the plan year to allow eligible employees to benefit from this increase.   If an employer adopts this relief, participants may prospectively increase their dependent care elections.

Retirement plans

MPPAA reform

The Act contains two sets of changes affecting multiemployer pension plans.  First, the Act authorizes single, lump sum payments to certain struggling multiemployer pension plans under a new financial assistance program within the PBGC.  Eligible plans receiving the assistance would not be required to repay that assistance.

A multiemployer pension plan is eligible to receive the special financial assistance if (1) the plan is in critical and declining status in any plan year beginning in 2020 through 2022; (2) a suspension of benefits had been approved as the date the Act was signed into law; (3) in any plan year beginning in 2020 through 2022, the plan is certified by the plan actuary to be in critical status, has a modified funded percentage of less than 40 percent, and has a ratio of active to inactive participants which is less than 2 to 3; or (4) the plan became insolvent after December 16, 2014, has remained insolvent and has not been terminated as of the date the Act was signed into law.

The law requires the PBGC to issue regulations setting forth the requirements for special financial assistance applications.  Eligible plans must generally apply to the PBGC for financial assistance by December 31, 2025.  Applications for financial assistance that are timely filed will be deemed approved within 120 days of the filing, unless the PBGC notifies the plan that the application is incomplete or that there is a defect in the application.

The amount of financial assistance available under the Act equals the amount required for the plan to pay all benefits due during the period beginning on the day of payment of the financial assistance and ending in 2051.

This special financial assistance may be used by an eligible multiemployer plan to make benefit payments and pay plan expenses.  Special financial assistance and any earnings on such assistance must be segregated from other plan assets.  The special financial assistance must be invested by plans in investment-grade bonds or other investments as permitted by the PBGC.

The PBGC may impose reasonable conditions on plans receiving the financial assistance relating to increases in future accrual rates and any retroactive benefit improvements, allocation of plan assets, reductions in employer contribution rates, diversion of contributions and allocation of expenses to other benefit plans, and withdrawal liability.  The conditions cannot relate to any prospective reduction in plan benefits, plan governance, or funding rules.

A plan that receives special financial assistance shall be deemed to be in critical status until the last plan year ending in 2051.

The other set of changes affecting multiemployer pension plans is intended to provide temporary relief for plans that have been adversely affected by the COVID-19 pandemic.  Among other provisions, the Act permits a multiemployer pension plan to elect to maintain the previous year’s zone status for a period of one year.  In the case of a plan that was in endangered or critical status, the plan is not required to update its funding improvement or rehabilitation plan for that year.  The Act also allows plans in endangered or critical status in 2020 or 2021 to elect to extend their funding or rehabilitation periods for five additional years.  In addition, multiemployer pension plans would be permitted to amortize investment and other losses incurred as a result of COVID-19 over 30 years instead of 15, subject to restrictions on benefit increases.

Single employer pension plan funding relief

The Act provides that for plan years beginning in 2022 the period for amortizing funding shortfalls is extended to 15 years (instead of the current 7-year period), although a plan sponsor could elect to implement the extended amortization period for 2019, 2020 or 2021.  In addition, the Act provides interest rate relief for single employer plans.  These changes provide relief to pension plan sponsors and give them more time to make up investment losses.

Executive compensation

For taxable years beginning after December 31, 2026, the definition of a covered employee for purposes of Code section 162(m) will also include the five highest compensated employees of a publicly held corporation for the taxable year.  Notably, this group may change from year to year.


The Act provides some welcome relief for employers and individuals directly affected by the coronavirus pandemic. However, the Act has several significant provisions affecting retirement and benefit plans, which employers will need to become familiar with and, in the case of the COBRA-premium subsidy, quickly implement.

Employers are encouraged to immediately take action to identify how the Act impacts their employee benefit plans.  We will continue to monitor any additional regulatory guidance related to plan administration in light of the Act.


For advice on these and other employee benefit questions or implications in light of the American Rescue Plan and the coronavirus pandemic, please contact a member of the DLA Piper Employee Benefits and Compensation group or your DLA Piper relationship attorney.

Please also visit our Coronavirus Resource Center and subscribe to our mailing list to receive alerts, webinar invitations and other publications.