In response to this relief, some plan sponsors are considering whether to amend their DCFSA plans and allow an additional enrollment period to allow participants to contribute up to the increased limit for DCFSAs in 2021. This change would allow all plan participants to take advantage of the increased cap on tax-favored benefits in 2021, regardless of whether they had unused amounts in their account from 2020. However, plan sponsors should be mindful of a few factors that may affect their decisions.

First, employers will need to consider how the increase in contributions will affect the DCFSA plan's performance under the annual nondiscrimination tests. One of these tests measures whether highly-compensated employees (HCEs) disproportionately use benefits in the DCFSA compared to non-HCEs, and it is possible that HCEs will be the most likely to take advantage of the increased limit.
Second, employers will want to advise employees to be careful in increasing their contributions to make sure that the benefits they receive remain tax-favored. For example, an employee who carries over $5,000 from 2020 and contributes $10,500 in 2021 will have $15,500 to use in 2021 or, if the employer permits, to carry over to 2022.
Third, employers with non-calendar year plans may be limited in their ability to offer an additional enrollment period in 2021. They will also need to recognize that the $10,500 cap on the amount that may be excluded from income for federal tax purposes will apply based on the employee's tax year, which will be the calendar year.
Fourth, employers will need to consider whether any amendments to their plan documents will be required to account for the changes that they introduce. For a calendar year plan, an employer may adopt amendments on or before December 31, 2021, and apply them retroactively consistent with plan operation.

Funding requirements for pension plans

The ARPA provides significant funding changes that will provide relief to single-employer and multiemployer pension plans. The ARPA increases the period over which single-employer pension plans can amortize funding shortfalls, from a seven, to now a fifteen-year period. The statute also extends the interest rate stabilization period that applies to minimum funding through 2029, likely resulting in the reduction of an employer's annual minimum funding obligations to its defined benefit pension plan throughout the next decade.

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American Rescue Plan Act: Impact on employee benefits

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