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Year-End Appropriations and COVID-19 Relief Legislation Includes Many Employee Benefit Plan Provisions



Consolidated Appropriations Act, 2021, H.R. 133 (Dec. 21, 2020)

Rules Committee Print available at

Congress has passed year-end appropriations legislation that includes a variety of provisions affecting employer-sponsored benefit plans—some relating to the COVID-19 public health emergency and others with broader applicability. Here are highlights of the Consolidated Appropriations Act, 2021 (the Act or CAA, 2021):

  • FSA Relief. The Act loosens certain rules applicable to health and dependent care flexible spending arrangements (FSAs). Health or dependent care FSAs can allow unused amounts from a plan year ending in 2020 to be carried over to 2021, and unused amounts from a plan year ending in 2021 to be carried over to 2022. Grace periods for plan years ending in 2020 or 2021 may be extended to 12 months after the end of the plan year. For plan years ending in 2021, plans may allow employees to make a prospective election change to modify their FSA contributions without a change in status. Health FSAs may allow employees who ceased participation during the 2020 or 2021 calendar year to continue to receive reimbursements from unused benefits or contributions through the end of plan year in which participation ceased (including any grace period). Dependent care FSAs may extend the maximum age from 12 to 13 for eligible dependents who aged out of eligibility during the last plan year with a regular enrollment period ending on or before Jan. 31, 2020, and may allow employees with unused balances for that plan year to apply this rule to claims for reimbursement of the unused balance in the following plan year. Plans adopting any of these voluntary changes must be amended by the end of the first calendar year beginning after the end of the plan year in which a change took effect, and must be operated in accordance with the amendment’s terms beginning on its effective date. [EBIA Comment: These provisions expand and extend certain relief announced earlier in the COVID-19 emergency (see our Checkpoint article). However, core cafeteria plan principles remain in place: cashouts of unused contributions and retroactive election changes generally are not permitted. Note also that allowing carryovers, grace periods, or an extended coverage period under a health FSA may impact HSA eligibility.]
  • Surprise Medical Billing. The Act contains extensive provisions intended to protect consumers from surprise medical bills for services provided by nonparticipating providers or facilities. (Participating providers and facilities are those that have a contractual relationship with the group health plan or insurer, while nonparticipating providers and facilities lack these contractual relationships.) Different rules apply for emergency and non-emergency services, but in each case plans and insurers are limited in cost-sharing and other restrictions they can impose. Plans and insurers must make initial payments or issue denial notices to providers within specified timeframes. An independent dispute resolution (IDR) process is established to determine the amounts due from plans and insurers to nonparticipating providers and facilities when the parties cannot agree on payment. The agencies will certify IDR entities based on their medical, legal, and other expertise. The Act identifies factors that IDR entities should consider in making payment determinations. Group health plans and insurers must provide external review (in accordance with existing ACA external review requirements) for any adverse determination relating to emergency services or air ambulance services (addressed separately in the Act). These provisions generally apply to plan years beginning on or after January 1, 2022.
  • Disaster Relief. Disaster-relief provisions allow retirement plans to provide “qualified disaster distributions” of up to $100,000 that will not be subject to the 10% additional tax on early distributions. Such distributions may be repaid within 3 years to an eligible retirement plan to which a rollover contribution could be made. Also, certain hardship distributions taken to purchase or construct a principal residence in a disaster area may be repaid. Finally, the limit on loans that are not treated as plan distributions is also temporarily increased for qualified individuals living in a qualified disaster area. The relief applies to disasters declared during the period beginning on January 1, 2020, and ending 60 days after the Act’s enactment, if the “incident period” for the disaster began on or after December 28, 2019, and on or before the date of enactment. This relief is similar to that provided in the CARES Act (see our Checkpoint article), and nearly identical to relief adopted for disasters in 2018–19 (see our Checkpoint article). It does not apply to areas that are disaster areas solely due to the COVID-19 pandemic—relief for that disaster was provided in the CARES Act. Unlike the 2018–19 version of this relief, the 2020 version also refers to the Thrift Savings Plan for federal employees and to money purchase pension plans.
  • Student Loan Repayments. The Act amends the definition of educational assistance under Code § 127 to extend a temporary provision that allows employers’ qualified educational assistance programs to repay qualified education loans (generally, loans for higher education expenses) that were incurred by employees for their own education. The current provision (added by the CARES Act (see our Checkpoint article)) was set to expire January 1, 2021. As extended, the provision applies to amounts paid under a qualified educational assistance program before January 1, 2026. [EBIA Comment: The extension does not alter the annual maximum nontaxable benefit of $5,250.]
  • Partial Termination Relief. The Act includes a partial termination safe harbor for retirement plans (including 401(k) plans). Under the provision, plans will not be treated as having a partial termination (which triggers 100% vesting for affected participants) if the number of active participants in the plan on March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020. The safe harbor applies to any plan year that includes the period beginning on March 13, 2020 and ending on March 31, 2021.
  • Meal Deductions. The Act temporarily amends Code § 274(n) to remove the 50% limit on deductions for business meals if the expense is for food or beverages provided by a restaurant and the expense is paid or incurred after December 31, 2020, and before January 1, 2023. [EBIA Comment: In effect, this temporarily reverses a change made by the Tax Cuts and Jobs Act, which repealed the rule allowing employers to avoid the 50% limitation on deductions for food or beverages if the expenses are excludable from employees’ income as de minimis fringe benefits (see our Checkpoint article). It also renders partially obsolete (at least temporarily) some parts of the final regulations on meal and entertainment expense deductions that were finalized barely two months ago (see our Checkpoint article).]
  • Mental Health Parity Expansion. Health plans and insurers that impose a nonquantitative treatment limitation (NQTL) on mental health or substance use disorder benefits (such as a restriction based on facility type) must perform and document a comparative analysis of the NQTL’s design and application. Beginning 45 days after the Act’s enactment, the comparative analysis and other specific information (such as applicable plan provisions and evidentiary standards relied upon to design and apply the NQTL) must be made available to the applicable state or federal agency upon request. If, after reviewing the comparative analysis, a federal agency determines that the NQTL does not comply with applicable parity requirements, the plan or insurer must specify the corrective actions it will take. If, following those actions, the agency determines that the plan or insurer remains out of compliance, then the agency must notify enrolled individuals of the noncompliance. Among other things, the agencies are also required to provide certain guidance and regulations, including a process and timeline for filing mental health parity complaints.
  • Deductible Medical Expenses. The ACA increased the threshold for deductible medical expenses from 7.5% to 10% of adjusted gross income. Subsequent legislation restored the 7.5% threshold for 2017 through 2020 (see our Checkpoint article). The Act makes the 7.5% threshold permanent.

EBIA Comment: There is a lot to digest here for those who work with employee benefit plans. Mark your calendars for an EBIA webinar on the Act’s FSA relief, coming up on February 3, 2021. Meanwhile, for more information on the underlying requirements, see EBIA’s Cafeteria Plans manual at Sections XIV.A (“Election Changes: Overview, Key Points, and COVID-19-Related Election Change Relief”), XVI.B (“Grace Periods and the Use-or-Lose Rule”), XVI.N (“Mandatory and Discretionary Claim-Related Extensions Due to COVID-19”), XX.D.8 (“Distinguishing Deductibility From Reimbursement of Medical Care Expenses (and Why It Matters)”), XXI.H (“Carryovers and the Use-or-Lose Rule”), and XXIV.G (“Care Must Be for a ‘Qualifying Individual’”); EBIA’s Consumer-Driven Health Care manual at Section XI.D (“General-Purpose Health FSA or HRA Coverage Will Prevent HSA Eligibility”); EBIA’s Health Care Reform manual at Sections   IX.B (“Cost-Sharing Limits”), XII.B (“Patient Protections”), and XV.F (“Overview of External Review Requirements”); EBIA’s 401(k) Plans manual at Sections XI.M (“Immediate Vesting Upon Partial Plan Termination”),  XII.G.2 (“Disaster-Related Distributions”), XV.H (“Special Hardship Rules for Disaster Relief”), and XVI.N (“Special Rules for Disaster Relief”); EBIA’s Fringe Benefits manual at Sections X.C (“Types of Educational Assistance That Can Be Offered”) and XVI (“Employer-Provided Meals”); and EBIA’s Group Health Plan Mandates manual at Section IX (“Mental Health Parity”).

Contributing Editors: EBIA Staff. Thanks to attorney John R. Hickman for his contributions to the FSA relief discussion in this article, with final editing by EBIA staff. Mr. Hickman is a partner in the Employee Benefits Practice Group with Alston & Bird in Atlanta,, and is a Contributing Author of EBIA’s Cafeteria Plans, Consumer-Driven Health Care, and Health Care Reform manuals.

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