This alert is another in the series covering changes employers can expect to labor and employment policy from President-elect Joseph Biden’s administration.
President-elect Joseph Biden and Vice President-elect Kamala Harris have pledged to make significant changes to the American workplace, including an expansion of workers’ rights. Though there is still uncertainty, Barclay Damon’s alert series will shed light on what employers can likely expect to see under the Biden administration.
The early days of the Biden presidency will likely be consumed by COVID-19-response activity. The results of the January runoff elections in the US Senate will also determine President-elect Biden’s ability to implement his more progressive campaign promises. When it comes to federal action targeted toward employer-sponsored benefit plans, the Biden administration is likely to first focus on pandemic relief (e.g., further flexibility for cafeteria plans, health savings accounts, and relief for plan participants impacted by COVID-19) as opposed to more sweeping policy changes1.
Retirement Plan Policy
Although retirement policy was a less-prominent focus of President-elect Biden’s campaign, he has proposed “equalizing” employer-sponsored defined contribution plan savings between low- and middle-income employees with those of high-income employees. This would be achieved by replacing the individual deduction for retirement plan contributions with a flat retirement savings tax credit that is deposited into retirement accounts, functioning like a matching contribution on employees’ retirement contributions. It is unclear what impact, if any, such a change would have on the deduction for employer contributions to employer-sponsored retirement plans.
Biden has also proposed additional small-business tax credits for employers that implement a retirement plan for employees and requiring “automatic 401(k)s.” Several states maintain retirement savings programs that require certain employers to automatically enroll employees in the state plan or provide a private retirement plan, and Biden will likely support such state programs. At the federal level, mandatory automatic enrollment retirement arrangements were proposed in the Automatic Retirement Plan Act (ARPA) introduced in Congress in 2017, which would have required certain employers to maintain automatic contribution retirement plans for employees. Expanded automatic contribution requirements are featured in the Securing a Strong Retirement Act of 2020, introduced in Congress in October 2020 (referred to as the Secure Act 2.0), which has bipartisan support. The Secure Act 2.0 would require new retirement plans to include automatic 3 percent employee elective deferral contributions that escalate to a 10 percent deferral rate over time. Employees could opt out of such deferrals, and existing retirement plans would not be required to adopt an auto-enrollment feature.
Retirement policy tends to be less politically polarizing and receive bipartisan Congressional support; it is anticipated that Biden will support bipartisan retirement plan legislation to the extent it aligns with his policy goals of increasing savings for low- and middle-income earners.
Health Care Reform
A key feature of Biden’s campaign was a promise to protect and build on the existing Affordable Care Act (ACA) framework. The Biden administration has not signaled whether it will make changes to the ACA “pay or play” rules. It is anticipated that the Biden administration will attempt to expand access to premium tax credit subsidies for coverage purchased on the individual marketplace. Currently, the ACA only provides premium tax credit subsidies to those earning below 400 percent of the federal poverty level. Biden has proposed eliminating the 400 percent income cap on subsidy eligibility in order to provide subsidies to middle-income families.
Biden has also proposed limiting the cost of marketplace coverage to 8.5 percent of household income and calculating subsidies based on a lower-cost but more generous “gold” marketplace plan (currently, a silver plan is used to calculate subsidies), which would decrease out-of-pocket spending. Under the ACA, individuals cannot receive subsidies for themselves or their family members if they received an offer of affordable self-only coverage from their employer, even if the employer offered no contribution toward family coverage, or the family coverage was unaffordable even with an employer contribution. Biden’s proposal would eliminate this “family glitch,” a criticized aspect of the current ACA subsidy program, and provide marketplace subsidies to certain employees and their families even if the employer offers affordable self-only coverage.
In theory, these changes would expand access to subsidized marketplace coverage for individuals making more than $51,040 (single) or $104,800 (family of four) per year in 2021. In an example provided by the Biden administration, a family of four with an annual household income of $110,000 would save $750 per month by switching to marketplace coverage.
Separately, in response to progressive calls for “Medicare for all,” Biden has touted his plan for a public health insurance option similar to Medicare that would compete with private plans on the marketplace. The administration’s plans to expand access to marketplace coverage and provide a public option appear to steer the public toward individual market coverage and away from employer-sponsored plans. These changes, if implemented, could have an indirect cost savings for employers subject to the ACA that are required to offer medical coverage to full-time employees or face potential ACA employer shared responsibility penalties. Unless there is a major change to the ACA penalty framework, employers subject to the ACA will still be required to offer affordable coverage to full-time employees in order to avoid ACA penalties. But if more employees decline employer coverage and move to individual marketplace coverage (or coverage under a public option), then employer premium contributions under fully-insured plans and claims experience under self-insured plans would theoretically decrease if employees are able to obtain less expensive coverage on the marketplace.
The current ACA framework only provides subsidies to full-time employees if they do not receive an offer of coverage from their employer or receive an unaffordable offer of coverage. In 2021, an offer of coverage will be deemed affordable if the employee’s required contribution toward the employer’s lowest-cost self-only coverage option does not exceed 9.83 percent of the employee’s income. If an employer fails to offer coverage or offers unaffordable coverage to a full-time employee who receives a marketplace coverage subsidy, then the employer is subject to potential ACA penalties. It is unclear whether the Biden administration will revise this penalty framework, given the administration’s desire to expand subsidy access to middle-class families (apparently, even when a member of the family unit receives an offer of affordable self-only coverage from an employer).
In particular, it is not clear whether the administration would lower the affordability threshold used to calculate ACA employer shared responsibilities to 8.5 percent of employee income in order to mirror the proposed limit on the cost of individual marketplace coverage to 8.5 percent of household income. If the ACA affordability limit is decreased to 8.5 percent, it would require a larger employer contribution toward health coverage in order to ensure such coverage is deemed affordable and avoid ACA penalty risk. It is also not clear whether employers that make an offer of affordable self-only coverage to employees would be subject to ACA penalties if those employees receive exchange subsidies for family coverage.
Biden has not explicitly proposed funding expanded marketplace subsidies by increasing employer penalty assessments and has repeatedly proposed funding his health care plans by raising income taxes on high-income earners. He has also proposed bringing back the individual mandate, which served as a source of funding to offset the cost of marketplace subsidies. Thus, it is possible that more employees may qualify for marketplace subsidies under Biden’s plan without triggering additional ACA penalties for employers.
However, Biden’s ability to expand upon the ACA will largely depend on the final results of the January runoff elections in the US Senate as well as the Supreme Court’s ruling in California v. Texas (Docket No. 19-840), in which several states seek to declare the ACA unconstitutional based on Congress’s reduction of the individual mandate to $0. It is unlikely that the Supreme Court will strike down the ACA in its entirety, and employers are likely to retain the ACA’s popular protections, such as the ban on pre-existing condition exclusions, dependent coverage through age 26, and preventive care with no cost sharing. The ACA’s more burdensome employer requirements, such as defining full-time as working 30 hours or more per week and the ACA information reporting requirements, will likely be left in place by the Biden administration if the Supreme Court declines to strike down the law in its entirety.
1 The most recent stimulus relief package passed as part of the Consolidated Appropriations Act, 2021 includes temporary optional changes for health and dependent care flexible spending accounts to provide greater flexibility to participants impacted by COVID-19 in 2020 and 2021. See https://www.congress.gov/bill/116th-congress/house-bill/133/text/enr. The Consolidated Appropriations Act, 2021 also contains retirement plan relief, including hardship distribution, participant loan, and partial plan termination relief. These changes will be summarized in an upcoming alert.
If you have any questions regarding the content of this alert, please contact Art Marrapese, partner, at amarrapese@barclaydamon.com; Ray McCabe, partner, at rmccabe@barclaydamon.com; Alexandra Lugo, associate, at alugo@barclaydamon.com; or another member of the firm’s Labor & Employment Practice Area.