For Your Benefit Newsletter, December 2020

December 2020 Publications

Consolidated Appropriations Act Implications for Employers

President Trump signed the Consolidated Appropriations Act, 2021 (Act) into law on Dec. 27. In addition to appropriations for COVID-19 relief, the Act contains provisions that affect retirement, health and other welfare benefits. Most notably, the Act contains comprehensive patient protections that apply to group health plans and health plan issuers, including prohibitions on surprise medical billing and health plan cost transparency. These provisions are effective as of Jan. 1, 2022, and we expect the Departments of Health and Human Services, Labor and Treasury to issue several implementing regulations and other guidance through 2021 under the Biden administration.

A few highlights from the Act that affect employers currently include the following:

Flexible Spending Arrangements (FSAs)

Extended Carryover. An FSA may allow unused FSA benefits or contributions to be carried over from 2020 into 2021, and from 2021 into 2022. There does not appear to be a dollar limit on the carryover amount.
Extended Grace Period. An FSA may adopt a grace period of up to 12 months after the end of the 2020 and 2021 plan years with respect to unused benefits or contributions.
Post-Termination Reimbursements. A former employee who ceases participation in an FSA in 2020 or 2021 may continue to receive reimbursements from unused benefits or contributions through the end of that plan year, plus any extended grace period.
Dependent Care Age Increase for 2020. Under existing rules, a dependent care FSA is only permitted to reimburse dependent care expenses until the dependent reaches age 13. For dependent care FSA contributions or benefits during the 2020 plan year, a dependent care FSA is permitted to reimburse dependent care expenses until the dependent child reaches age 14. Any unused 2020 dependent care FSA contributions or benefits must be used before the dependent child reaches age 14.
Flexibility to Change Elections in 2021. Under existing rules, an FSA participant is required to have a qualifying change in status to change the participant’s elections. During the 2021 plan year, an employee may elect to prospectively modify – increase or decrease – the amount of the participant’s contributions to a health or dependent care FSA.
FSA Amendment Requirements. The deadline to adopt an amendment to reflect these changes is the last day of the calendar year following the plan year in which the amendment is effective. If an amendment is effective for the 2020 plan year, the employer may adopt the amendment no later than Dec. 31, 2021, provided the plan is operated consistently with the terms of such amendment from the effective date until it is adopted.

Student Loan Repayment – The CARES Act included a provision that allows an employer to reimburse qualified student loan payments tax-free through an education assistance program (up to $5,250 per calendar year) before Jan. 1, 2021. The Act extends the availability of this tax-free benefit for employees to Jan. 1, 2026.

Partial Plan Terminations – Employee turnover of more than 20% during a plan year may trigger a partial plan termination under Internal Revenue Service rules, requiring that all qualified plan participants be 100% vested. The Act provides that a qualified plan will not trigger a partial plan termination for any plan year spanning the period from March 13, 2020, to March 31, 2021, as long as the number of active participants covered by the plan on March 31, 2021, is at least 80% of the active participants on March 13, 2020.

Additional guidance will be forthcoming on these law changes, and we will continue to share updates as the new rules are issued.

Mandated Coverage of COVID-19 Vaccines Private Health Plans

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) requires that non-grandfathered employer-sponsored group health plans cover—without cost sharing—qualifying coronavirus preventative services, which generally include COVID-19 vaccines. On Oct. 29, 2020, the Department of Labor, the Department of Health and Human Services and the Department of the Treasury issued interim final rules (Regulations) providing guidance on how plans must administer this provision. Plans must cover administration of a vaccine, regardless of how the administration is billed. For vaccines that require multiple doses, plans must cover the administration of multiple doses. In addition, in an effort to encourage more people to receive the vaccine, even if a vaccine is delivered by an out-of-network provider, plans must cover the vaccination without cost sharing. Out-of-network providers must be reimbursed by the plan in a reasonable amount, in comparison to the prevailing market rate, and the amount paid for the services under Medicare will be considered reasonable. Lastly, if a COVID-19 vaccination is billed together with an office visit to a provider, a plan may not require cost sharing for the office visit if receiving a COVID-19 vaccine is the primary purpose of the office visit.

As new vaccines are being shipped and administration of the vaccines has started, plan sponsors should ensure that coverage of the COVID-19 vaccine is provided under the rules established by the Regulations.

2021 Retirement and Welfare Plan Limits Mostly Unchanged

In October, the Internal Revenue Service announced the 2021 limits for retirement and welfare plans. Most retirement plan limits are unchanged from 2020, including contributions to 401(k) plans and IRAs. One notable change in welfare plan limits is the high deductible health plan (HDHP) out-of-pocket maximum limit for self-only coverage (from $6,900 to $7,000) and family coverage (from $13,800 to $14,000), in addition to an increase in the health savings account (HSA) contribution limit. Lastly, for purposes of withholding and paying FICA and FUTA taxes, the Social Security Wage Base is increasing from $137,700 in 2020 to $142,800 in 2021.

Key retirement plan limits:

Limit	2020	2021
Social Security Wage Base	$137,700	$142,800
Elective Deferral/Roth contribution limit for 401(k), 403(b) and 457 plans	$19,500	$19,500
Catch-up contribution limit for employees age 50 and over for 401(k), 403(b) and 457 plans	$6,500	$6,500
IRA contribution limit	$6,000	$6,000
IRA catch-up for individuals aged 50 and over	$1,000	$1,000
415 limit for defined contribution plans	$57,000	$58,000
Compensation limit for qualified plans	$285,000	$290,000

Welfare Plan Limits:

Limit	2020	2021
HSA annual contribution limit:
Self-only coverage	$3,550	$3,600
Family coverage	$7,100	$7,200
HSA catch-up contribution (age 55 and over)	$1,000	$1,000
High deductible health plan (HDHP) minimum deductible requirements:
Self-only coverage	$1,400	$1,400
Family coverage	$2,800	$2,800
HDHP annual out-of-pocket maximum:
Self-only coverage	$6,900	$7,000
Family coverage	$13,800	$14,000
Health Flexible Spending Account Limit	$2,750	$2,750

These changes will be effective for plan years that begin on or after Jan. 1, 2021.

Supreme Court Rules That ERISA Does Not Preempt Arkansas PBM Law

On Dec. 10, 2020, the U.S. Supreme Court ruled, in an 8-0 decision, that the Employee Retirement Income Security Act of 1974 (ERISA) does not preempt Arkansas’ pharmacy benefits manager (PBM) law, Act 900. In Rutledge v. Pharmaceutical Care Management Assn., the Court was tasked with assessing whether Act 900, which regulates the price at which PBMs reimburse pharmacies for the cost of drugs covered by prescription drug plans, related to employee benefit plans, is enough to warrant ERISA preemption and thus invalidation of the law. Both the Arkansas District Court and the Eighth Circuit Court of Appeals had previously held that the law was preempted by ERISA. The Supreme Court’s majority opinion was written by Justice Sotomayor, and a concurrence was added by Justice Thomas.

The Arkansas law was being challenged by the Pharmaceutical Care Management Association (PCMA), which represents the 11 largest PBMs in the country. PCMA contended that Act 900 had an impermissible connection with an ERISA plan because its enforcement mechanisms both directly affected central matters of plan administration and interfered with nationally uniform plan administration in three ways: (1) by requiring PBMs to tether reimbursement rates to a pharmacy’s acquisition cost; (2) by requiring PBMs to provide appeals processes for pharmacies to challenge the PBM maximum reimbursement amount; and (3) by interfering with patients’ benefits by permitting pharmacies to decline to sell a drug to a beneficiary if the relevant PBM’s reimbursement to the pharmacy is less than that pharmacy’s acquisition cost.

To determine whether the law should be preempted, the Court began with its preemption standard: ERISA preempts state laws that “relate to” a covered employee benefit plan. A state law relates to an ERISA plan if it has a connection with or reference to such a plan. First, the Court held that Act 900 does not have an impermissible connection with an ERISA plan. To have such a connection, the state law “must govern a central matter of plan administration or interfere with nationally uniform plan administration.”

The Court found PCMA’s contention that Act 900 has an impermissible connection with an ERISA plan because its enforcement mechanisms both directly affect central matters of plan administration and interfere with nationally uniform plan administration to be unconvincing. First, the Court noted that Act 900 amounts only to regulation of reimbursement rates, which exists regardless of ERISA plans. Second, the Court held that Act 900’s appeal procedure does not govern central matters of plan administration “simply because it requires administrators to comply with a particular process.” Third, the Court held that allowing pharmacies to decline to dispense a prescription if the PBM’s reimbursement will be less than the pharmacy’s cost of acquisition does not interfere with central matters of plan administration because “the responsibility for offering the pharmacy a below-acquisition reimbursement lies first with the PBM.” Finally, and notably, the Court noted that any “operational inefficiencies” caused by Act 900 are insufficient to trigger ERISA preemption, even if they cause ERISA plans to limit benefits or charge plan members higher rates.

Next, the Court found that Act 900 also does not “refer to” ERISA because Act 900 does not “ac[t] immediately and exclusively upon ERISA plans,” and because “the existence of ERISA plans is [not] essential to the law’s operation.” Notably, according to Justice Sotomayor, “Act 900 indirectly affects ERISA plans only insofar as PBMs may pass along higher pharmacy rates to plans with which they contract.” Applying precedent, Justice Sotomayor wrote, “State rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage are not pre-empted by ERISA.” Further, because Act 900 regulates PBMs whether or not the plans they service fall within ERISA’s coverage, ERISA plans are also not essential to the law’s operation.

Justice Thomas’ concurrence agreed that ERISA did not preempt the Arkansas law. However, the bulk of his concurrence focused on his often espoused view that he opposes the ERISA preemption analyses that the majority opinion cites as precedent because in his view, such precedent deviates too far from the text of ERISA’s statutory text.

Accordingly, there are two takeaways from the Rutledge opinion: first, state PBM laws, insofar as they are similar to Arkansas’ Act 900, are not preempted by ERISA; and second, the Court’s Opinion could cause an influx of state-by-state regulation of PBMs.