The American Rescue Plan Act of 2021 (the “Act”) was signed into law on March 11, 2021.  As well as providing extended unemployment, the Act provides for subsidized COBRA, an increase in the amount of dependent care assistance permitted, continued and expanded credit for paid sick and family leave, and assistance for certain single and multiemployer pension plans.

Dependent Care Assistance Plan

The Act increases the amount an employee can exclude from the employee’s income and contribute to a dependent care assistance plan from $5,000 to $10,500 for the year 2021 only.


Both private sector employers who are required to provide COBRA and governmental employers who are required to provide “public COBRA” under the Public Health Services Act must fully subsidize COBRA premiums from April 1, 2021 until the earlier of (i) September 30, 2021, (ii) the date following the expiration of the maximum period of continuation coverage required under COBRA, or (iii) the date the former employee becomes eligible for coverage under any other group health plan.  Employers must subsidize the payments for any employee who lost coverage because the employee was involuntarily terminated (other than for gross misconduct) or had a reduction in hours.  Employees who voluntarily terminated employment are not eligible.  The eligible employees would include those who elected COBRA and are still in their coverage period and those who did not elect COBRA or those who terminated their COBRA election and who would still be in their coverage period if they had elected or not terminated COBRA.

Employers will receive a credit against their quarterly Medicare Tax payments for the payment of the subsidy.  If the plan is a multiemployer plan, the plan will be responsible for the payment of the subsidiary and will receive a credit on its Medicare Tax liability.   To the extent that the amount of the subsidies exceeds the Medicare Tax liability, the employer will receive a refund.

Employers must provide three notices to eligible former employees notifying them of the premium subsidy, the extended opportunity to elect coverage, and when the premium subsidy will be terminated.

In addition, employers may, at their option, allow former employees who are currently electing COBRA to elect coverage under a different plan offered by the employer as long as (i) the premium for the new coverage does not exceed the premium for the current coverage, (ii) the new coverage is not an excepted benefit, a QSEHRA, or a FSA, and (iii) the employee did not voluntarily terminate employment.

Credit for Paid Sick Leave and Paid Family Medical Leave

The Act expanded the time period in which an employer may receive a tax credit for voluntarily providing paid sick leave and paid family medical leave in certain circumstances.  The tax credit is equal to 100% of the qualified sick leave and family medical leave wages and it is applied against the employer’s quarterly taxes.  The Act retains the $200 and $511 a day limitation depending upon the reason of the leave.  The Act also expands the leave to include (1) the seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 and (a) such employee has been exposed to COVID-19  or (b) the employee’s employer has requested such test or diagnosis, or (2) the employee is obtaining immunization related to COVID-19 or recovering from any injury, disability, illness, or condition related to such immunization.

Single Pension Plan

For purposes of the underfunded single employer plan, it will extend the amortization period from 7 years to 15 and make changes to the interest rate stabilization provisions.

Multiemployer Pension Plan

The Act temporarily delays the designation of endangered, critical, and critical and declining status of multiemployer pension plans.  For plan years between March 1, 2020 and February 28, 2021, a multiemployer pension plan may maintain their status from the prior plan year.  In addition, a multiemployer plan which is in endangered or critical status for a plan year beginning in 2020 or 2021 will have their funding improvement period or rehabilitation period extended for five years.

For more information on these changes and other employee benefit law changes, contact a member of our Labor and Employment or Employee Benefits Group.