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DCAP Limit Increases and Full COBRA Subsidies Included in ARPA

March 12, 2021

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On Thursday, March 11, President Biden signed the The American Rescue Plan Act (ARPA) of 2021. The relief bill temporarily increases the maximum contribution amount for Dependent Care Assistance Plans (DCAP) and provides full COBRA subsidies under specific circumstances.

DCAP Maximum Contribution Increase

Beginning in 2021, employees who participate in their employer’s DCAP plan may now contribute up to $10,500 annually (up from $5,000). Taxpayers who are married filing separately will see an increase to $5,250 from $2,500

This assistance applies to plan years that begin after December 31, 2020, and before January 1, 2022. 

The Act doesn’t amend the current non-discrimination guidance, which means that plans must still ensure that no more than 55% of all dollars in their DCAPs benefit highly compensated workers (generally owners, officers, and/or folks earning $125,000/year or more).  So, while this may seem like an enticing opportunity to expand your employees use of DCAPs, employers should carefully consider the impact that doubling the deferral limit might have on their plan.

Plans can be amended retroactively for the change so long as the amendment is adopted by the last day of the plan year in which the amendment is effective.

COBRA Subsidies

ARPA establishes a 100% COBRA premium subsidy for certain qualified beneficiaries during the period beginning on April 1, 2021, and ending on September 30, 2021.

The qualified beneficiary must be eligible for and elect COBRA for a period of coverage within the subsidy period due to involuntary termination of employment or reduction of hours. This applies for those who elected COBRA previously and are still enrolled as of April 1, as well as those who enroll on or after April 1 as outlined below.

The employer will pay 100% of the COBRA premium for the April 1-September 30, 2021, time period and will be reimbursed by the federal government through a credit against payroll taxes or, for credit amounts exceeding payroll taxes, as a refund of an overpayment.

COBRA Enrollment Period

Under ARPA, a terminated worker who is eligible for assistance and who hasn’t elected COBRA coverage by April 1, or who elected COBRA coverage but then discontinued it, may elect COBRA coverage during an enrollment period starting April 1 and ending 60 days after the date on which the COBRA notification was delivered.

Currently, we are consulting with industry legal and compliance experts regarding how this will affect plan administration. We will provide a follow up soon with additional detail as well as information regarding how DataPath systems will support these changes.

In the meantime, if you have any questions, please consult your qualified benefits counsel.

Source; DataPath, Inc.