The Consolidated Appropriations Act of 2021 (the Act) passed by Congress and signed into law by the President on December 27, 2020 contains several changes affecting employer-sponsored benefit plans (including retirement and health and welfare plans).  This alert highlights the key provisions of the changes affecting employee benefit plans.

Retirement Plans

• Qualified Disaster Relief.  The Act provides relief for non-COVID-related disasters that are declared by the President on or after January 1, 2020 and prior to February 26, 2021.  This relief comes in three forms:
• Qualified Disaster Distributions - Qualified individuals affected by a declared disaster may take qualified disaster distributions of up to $100,000 in the aggregate from eligible retirement plans (including 401(k), 403(b), 457(b), and money purchase plans) without tax penalties, provided the distributions are made before June 25, 2021.  The distributions may be recontributed to the plan within a three-year period commencing on the date of the distribution and will be treated as if they are direct rollovers.  Amounts not repaid will be taxed ratably over a three-year period commencing with the taxable year of the distribution. 
• Qualified Disaster Loans - Qualified individuals affected by a declared disaster may receive plan loans up to the lesser of $100,000 or 100% of the present value of the individual’s vested account balance, provided the loans are made on or before June 25, 2021.  Relief from plan loan repayments is also afforded to individuals with outstanding plan loans and repayment due dates occurring during or shortly following the designated disaster period.  These loan repayments can be delayed for one year or until June 25, 2021, whichever is later. 
• Recontributions for Home Purchases - Certain individuals who had initially taken a hardship distribution to purchase or construct a principal residence in a qualified disaster area, but who were unable to use the funds for their intended purpose due to the disaster, may recontribute the funds to the plan until June 25, 2021.

The qualified disaster relief appears discretionary.  If a plan sponsor desires to implement any of the above options, it has until the last day of the first plan year beginning on or after January 1, 2022 (or January 1, 2024 for governmental plans) to adopt an amendment. 

• Partial Termination Relief.  During any plan year which includes the period March 13, 2020 to March 31, 2021, a qualified retirement plan will not be considered to have incurred a partial termination requiring full vesting of affected participants, if the number of active participants covered by the plan is at least 80% of the number of active participants covered by the plan on March 13, 2020.

• Extension of CRDs to Money Purchase Plans.  The CARES Act allowed certain qualifying individuals to receive in-service "Coronavirus Related Distributions" (CRDs) without regard to any plan qualification restrictions otherwise imposed on such in-service distributions under Sections 401(k), 403(b), and 457(b) of the Internal Revenue Code.  The Act clarifies that money purchase plans may also allow CRDs.  This relief is effective as if originally included in the CARES Act. 

• Qualifying Transfers to a 401(h) Retiree Medical Account.  With respect to any employer utilizing the “qualified future transfer” option under Section 420 of the Internal Revenue Code to transfer excess pension funds to Section 401(h) retiree health accounts, the employer may make a one-time election to prospectively terminate its transfer period.  Amounts previously transferred to Section 401(h) accounts that remain unused as of the effective date of the election must revert back to pension plan within a reasonable amount of time.

• Working Retirement Age for Certain Multiemployer Pension Plans.  The Setting Every Community Up for Retirement Enhancement lowered the voluntary in-service distribution age for defined benefit plans from age 62 to age 59½.  With respect to certain multiemployer plans that primarily cover employees in the building and construction industry, the Act further lowers the voluntary in-service distribution age from age 59½ to age 55.  This change applies to distributions made before, on, or after the effective date of the Act.

Health and Welfare Plans

• Student Loan Relief.  The CARES Act allowed an employer to pay (or reimburse) up to $5,250 of an employee's qualified education loans as a tax-free benefit to the employee under the employer’s Section 127 educational assistance program.  Such payments were permissible only if made after March 27, 2020 and prior to January 1, 2021.  The Act extends this window to January 1, 2026.

• Flexible Spending Account (FSA) Relief.  The following optional changes are available to employers who sponsor health care and dependent care flexible spending accounts (FSAs).  Employers who choose to adopt any of these changes will need to amend their plans by the end of the first calendar year after the plan year in which the change is effective and operate their plans consistent with the terms of the amendment.  Unless specifically stated, references to an FSA include both health care and dependent care FSAs.
  • Participants may carryover any unused FSA amounts from a plan year ending in 2020 or 2021 to 2021 and 2022, respectively.  Normally, only up to $550 may be carried over.
  • Grace periods ending in 2020 or 2021 may be extended for up to 12 months after the end of such plan year.  Normally, the maximum grace period is 2½ months after the end of the plan year.
  • Participants may prospectively elect to modify their FSA contributions without regard to whether a change in status has occurred.  Contributions remain subject to  applicable dollar limitations.
  • Employees who terminate participation during calendar years 2020 or 2021 may continue to receive reimbursements from unused health care FSA contributions through the end of the plan year in which their participation terminated (including any grace period, and taking into account any modification to a grace period as discussed above).  This is similar to the  rule that is applicable to dependent care FSAs.
  • For dependent care FSAs specifically, participants with dependents who reach age 13 during the last plan year with a regular enrollment period ending on or before January 31, 2020 may claim reimbursement from unused balances for the remainder of such plan year and the subsequent plan year in which the child reaches age 14.

The following summarizes certain major provisions of the Act effective January 1, 2022 (unless specifically noted otherwise), intended to combat surprise medical billing in situations where individuals have little to no control over who provides their care and to provide greater transparency in general to individuals enrolled in group health plans.  These changes apply to all medical plans, regardless of whether fully-insured, self-insured, or only offered to retirees.

• Surprise Medical Billing.  Plans providing coverage for emergency services at an out-of-network facility, non-emergency services by an out-of-network provider at an in-network facility, and/or out-of-network air ambulances services:
  • Must not impose more restrictive pre-authorization or cost-sharing requirements than those applicable to in-network providers;
  • Must apply cost-sharing payments toward any in-network deductible or out-of-pocket maximum; and
  • Must send payment to the provider no later than 30 calendar days after the bill is transmitted by the provider.

Out-of-network providers are also prohibited from balance billing a patient for emergency services or air ambulance services, and group health plans must provide for external review of any adverse benefit determination relating to such services.

• Primary Care Providers.  If a plan requires or provides for designation of a primary care provider, then it must permit a participant to designate any network provider available to accept the individual (including a network pediatrician or OBGYN, with respect to children and females, respectively).
• Dispute Resolution.  An independent dispute resolution (IDR) process is to be established to determine the amounts due from plans and insurers to out-of-network providers when the parties cannot agree on payment.  The agencies will certify IDR entities based on their medical, legal, and other expertise and will consider certain outlined factors in making payment determinations. 

• Provider Transparency.  Plans must include on the insurance identification card issued to participants the deductible, out-of-pocket maximum, and telephone number and website where an individual may seek consumer assistance information.  Additionally, no later than one (1) business day after the date a plan receives notification from a provider regarding whether the provider is an in-network provider, the plan must provide the requesting participant with a good faith estimate of the amount the plan is responsible for paying, plus cost-sharing and other similar information.  Plans must also offer price comparison guidance by telephone and via website so that enrolled individuals can compare the amount of cost-sharing they would be responsible for with respect to a specific service by a specific provider, and must establish a verification process for updating provider directory information every ninety (90) days, a process for responding to participant requests for information regarding a provider’s status within one (1) business day, and a database for listing each participating health care provider.
  
  Further, if an in-network provider ceases to be an in-network provider while an individual is receiving continuing care, the plan must notify the individual of the right to elect transitional care from the provider on the same terms and conditions for up to 90 days.

• Provider Agreements.  Plans are not permitted to enter into agreements with providers that would restrict plans from providing provider-specific cost or quality of care information, electronically accessing de-identified claims data, or sharing information with a business associate.  Further, contracts executed on or after December 27, 2021 between plans and service providers (expecting to receive at least $1,000 in services) are not considered reasonable, unless the provider discloses in writing a description of the services to be provided, the direct and indirect compensation received and identification of the payor, and other similar information. 

• Prescription Drug Data.  No later than December 27, 2021 and each June 1 thereafter, plans must submit to the Department of Health and Human Services information including the plan year, number of participants in the plan, each state in which coverage is offered, the 50 brand prescriptions most frequently dispensed and total number of claims for the year, the 50 most costly prescription drugs and annual amount spent on each such drug, and other similar information.