Financial Planning and the American Rescue Plan

Passed into law March 11th 2021, the “American Rescue Plan Act of 2021” is the latest federal response to the Covid-19 pandemic. This piece of legislation is generally known for the third rounds of direct payment “stimulus” checks but within the law are several provisions that have financial planning effects. The following article will highlight three key areas of this new law and offer an overview on the financial planning implications. First, there are temporary changes for those that have, or may purchase health insurance through the Maketplace in 2021 and 2022. This is an expansion of the Affordable Care Act passed under then President Obama. In the past, those individuals or families that purchased health insurance through the “Health Insurance Marketplace” and had incomes over 400% of the federal poverty limit, would not qualify for a premium tax credit. Now, through 2022, those with incomes over 400% of the federal poverty limit can qualify for a premium tax credit to subsidize their health insurance premiums. The maximum premium one pays for a benchmark Marketplace health insurance plan is 8.5% of their income. Additionally, those that are under 400% of the federal poverty limit will find their net Marketplace based health insurance plan premiums will be more affordable due to enhance tax credits. It is estimated that four out of five enrollees will be able to find a plan on the Marketplace for less than $10/month (after tax credits) 1. There is a special enrollment period through August 15th to enroll in or change plans as part of the Health Insurance Marketplace. Be sure you review with your health insurance professional your current policy and either start taking advantage of enhanced premium tax credits (lower net monthly premiums) or to review for a potentially higher tier plan for similar costs to your current plan. More information on this topic can be found at www.healthcare.gov The American Rescue Plan also allows for higher contributions into dependent care flexible spending accounts from the previous $5,000 to $10,500 for those married filing jointly (previously $2,500 and now $5,250 for single tax filers). It is important to note that this increase in dependent care flex spending accounts is temporary and is currently only for tax year 2021. If your employer offers a dependent flexible spending account, and elects to update its plan rules to allow for these changes, review your current election amount and consider increasing contributions into the account as a valuable tax savings strategy in paying for dependent care expenses. Lastly, the American Rescue Plan offers financial assistance for financially troubled multi-employer pension plans. Qualifying troubled pension plans will be permitted to apply for “Special Financial Assistance” whereas the Pension Benefit Guarantee Corporation (US Government Agency) pays a lump sum, non-repayable, payment to the troubled pension. This means workers covered by troubled pension plans may have more certainty with pension payment amounts and plan solvency than they have in the past. Those individuals covered under a troubled multi-employer pension plan should be on the lookout for more information as to the updated solvency of their specific plan. Updated information can then be used as part of an overall retirement projection and analysis to determine if you are on-track to meeting those retirement goals. More information on this change can be found at www.pbgc.gov The purpose of this article is not meant to be comprehensive of all the provisions of the American Rescue Plan Act of 2021 but rather highlight some of the more common financial planning implications to the larger audience. In an ever evolving legislative and financial landscape, legendary country music singer Tracy Lawrence reminds us that “The only thing that stays the same is everything changes, everything changes”.

Adam Smit is a CERTIFIED FINANCIAL PLANNER™. This article is for general information only and not intended to provide specific advice or recommendations. Securities offered through LPL Financial. Member FINRA/SIPC.

1 – Source www.hhs.gov/about/news/2021/03/12/fact-sheetamerican- rescue-plan-reduces-health-care-costs-expands-access- insurance-coverage.html