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What happens to beneficiaries who are enrolled in COBRA when a merger or acquisition occurs? 

The Internal Revenue Service (IRS) has some rather thorough and complex guidelines that address COBRA issues when business reorganizations occur, including mergers and acquisitions. In an effort to simplify an otherwise complex situation, we can generally break down the guidance as follows:

1. If the selling entity continues to maintain a group health plan after the sale has been completed, then the selling entity must continue to offer COBRA to qualified beneficiaries.
2. If the selling entity terminates its group health plan in connection with the sale, then the buying entity must make COBRA available to qualified beneficiaries, assuming the buying entity has its own group health plan in place. If the selling entity terminates its group health plan and the buying entity does not have a group health plan in place, neither party has the obligation to offer COBRA.
3. The buying and selling entities may also structure a contractual agreement which allocates the responsibility of making COBRA available to qualified beneficiaries. However, if the entity who is contractually assigned to provide COBRA fails to meet its responsibilities, then the entity that has the obligation to provide COBRA (according to bullets #1 and #2) assumes the liability for making COBRA available to qualified beneficiaries.

It should also be noted that the employment status of actively employed workers at the selling entity may be affected as a result of the merger or acquisition. For example, some employees at the selling entity may lose their job or experience a reduction in hours. To the extent a change in employment status results in a loss of coverage under the group health plan, then COBRA should be offered to those affected individuals. The same rules as outlined above would apply.

For more details, please refer to Reg § 54.4980B-9.

The materials contained within this communication are provided for informational purposes only and do not constitute legal or tax advice.

 

Two things happened in 1986. Run-D.M.C released their hit song, “It’s Tricky,” and COBRA became effective. Thirty-two years later, Run-D.M.C.’s music is still popular, and COBRA administration is still tricky—especially when it comes to Flexible Spending Account (FSAs). Add FSA carryover to the mix, and it gets even trickier.

COBRA only applies to FSAs which are said to be underspent.* This means that the amount available for reimbursement for the remainder of the plan year exceeds the COBRA premium for that same time period. Figuring out if the FSA is underspent involves a bit of math, so it’s best illustrated with an example.

How to determine the amount available for reimbursement for the remainder of the plan year:
v

• Jay has elected to put $2,500 into his FSA, which runs on a calendar year
  • He also has $500 in carryover funds from the previous year, for a total balance of $3,000 for the plan year
• Jay terminates employment on May 31.  At that time, he had been reimbursed for $1,100 in healthcare expenses.
• The maximum amount available for reimbursement for the remainder of the plan year is: $3,000 – $1,100 = $1,900 

How to determine the COBRA premium:

• The maximum monthly COBRA premium is 1/12 of the employee’s election, plus a 2% administrative fee.
• The carryover balance should not be factored into setting the COBRA premium
  • The employee would have already paid for the carryover amount with the previous year’s contribution
• The maximum monthly COBRA premium for Jay is ($2,500 ÷ 12) X 102% =  $212.50

How to determine if the FSA is underspent:

• Jay terminated employment on May 31, which leaves 7 months left in the plan year
• The total premium for the remainder of the plan year is: $212.50 X 7 = $1,487.50
• Since the amount available for reimbursement for the remainder of the plan year exceeds the premium for the same time period, the FSA is considered underspent, and COBRA would need to be offered
  • If the opposite were true, then COBRA would not have to be offered.

If COBRA applies to the FSA, then COBRA beneficiaries must be given the same carryover rights as current employees. Using the above example, Jay could elect COBRA for a maximum monthly premium of $212.50. Jay’s
employer can only change him a premium for the remainder of the plan year, which is 7 months.

If Jay has unused funds at the end of the plan year, then he must be allowed to carry over up to $500 for the maximum time period permitted under COBRA law. In this case, it would be an additional 11 months, since the termination of employment allows for 18 months of continuation coverage.

Jay’s employer is prohibited from charging him a premium for the additional 11 months of access to the carryover amount, as Jay would’ve already paid for this amount. Additionally, Jay’s employer does not need to give him the ability to make a new election to the FSA for the new plan year.

Employers can place restrictions on the carryover amounts. For example, they can structure their FSA so that carryover is only available to employees who make new elections in the following plan year. If Jay’s employer had this provision in place, then he would not be entitled to any carryover amount after the plan year was over. In other words, he’d only need to be offered COBRA for 7 months.

 

The Employee Retirement Income Security Act of 1974 (ERISA) requires most employers, who offer health and welfare benefits, to provide a written plan document to participants. The plan documents that are issued by insurance companies and other benefits providers are typically standardized and don’t include all of the customized, employer-specific language that the ERISA law requires.

To make things easier, Flexible Benefit Service Corporation (Flex) can prepare a written plan document with all of the required disclosures that “wraps around” all ERISA health and welfare benefits that an employer offers.
The Wrap Document can provide all of the required language for many different types of plans, such as:

1. Health Insurance
2. Dental Insurance
3. Disability Insurance
4. Vision Insurance
5. Life Insurance
6. Flexible Spending Accounts (FSAs)
7. Health Reimbursement Arrangements (HRAs)
8. Accident-Only Plans
9. Long-Term Care
10. Accidental Death & Dismemberment (AD&D)
11. Prescription Drug Plans
12. Retiree Medical Plans
13. Employee Assistance Programs (EAPs), if counseling is provided

Government and church plans are exempt from ERISA, but all other employers who offer health and welfare benefits are required to have a plan document in place that meets the disclosure requirements included in the ERISA law. Fortunately, employers can view Wrap Documents as the low-hanging fruit of compliance with ERISA.

 

The Employee Retirement Income Security Act of 1974 (ERISA) requires employers to provide a Summary Plan Description (SPD) to employees if they offer health, dental, vision, life, disability or other benefits.

Many employers are either unaware of this requirement, or they distribute documents that do not meet the SPD requirements laid out by ERISA. Certificates of Coverage (COC), Summaries of Benefits and Coverage (SBC) or general contracts issued by insurance carriers are not the same as ERISA-compliant SPDs. 

Typically, these types of documents do not include all the required SPD provisions and disclosures. Insurance companies write their certificates and booklets to be compliant with insurance laws. It is the responsibility of the plan administrator (which is almost always the employer) to comply with the SPD requirements of ERISA.

We’ve put together a list of the 25 most common things required by the ERISA law that are not included in documents provided by insurance carriers:

1. Name of the plan or the plan’ s common name.
2. Name and address of the plan sponsor.
3. Name, address and phone number of the plan administrator.
4. Plan year (which may be different than the policy year).
5. Plan number (as defined in the Form 5500 reporting rules).
6. Employer identification number (EIN), also known as the Tax ID number or
   (TIN).
7. Type of welfare plan (e.g. health, life, disability).
8. How the plan is administered (e.g. self-administered, insured, TPA).
9. Eligibility requirements for participation.
10. Name and contact information of the Agent for Service of Legal Process.
11. COBRA statement of rights.
12. Circumstances that could result in the disqualification, ineligibility,
    denial, loss, forfeiture, suspension, offset, reduction, or recovery of any benefit.
13. FMLA procedures.
14. Source of premium contributions (e.g. employer and employee
    contributions).
15. Schedule of premium contributions.
16. Funding medium (e.g. employer general assets or trust).
17. Procedures for qualified medical child support orders (QMSCO).
18. A statement indicating all plan documents will be available free of charge
    after an adverse benefit determination.
19. Statement of ERISA rights.
20. If the plan is collectively bargained, details on where a copy of the
    agreement can be found.
21. HIPAA special enrollment rights and privacy procedures.
22. Newborns’ and Mothers’ Health Protection Act disclosure.
23. Women’ s Health and Cancer Rights Act disclosure.
24. CHIPRA special enrollment rights disclosure.
25. Terms under which the employer may amend or terminate the plan.

With so many ERISA requirements missing, that means employers must
supplement the carrier materials with an additional document or risk costly penalties. Many employers choose to use a single document which “wraps around” all the benefits they offer so that they don’t have to prepare
multiple documents, hence the name Wrap Document.

Having a wrap document helps employers minimize the risk of financial penalties and lawsuits and keeps them compliant with demanding laws. These documents also help save time and money. Employers can consolidate all health and welfare plans under the same wrap document, so there’s no need to update or amend multiple documents in response to legislative changes, regulatory changes or changes made by the employer with respect to the benefits they offer. 

 

The Employee Retirement Income Security Act of 1974 (ERISA) requires most employers who offer health and welfare benefits to maintain and distribute Summary Plan Descriptions (SPDs) to all plan participants. This SPD must include certain disclosures and information, such as when the employer may amend or terminate the plan(s).

Plan participants must receive an SPD within 90 days of enrollment or within 30 days of their request for one. SPDs must also be distributed to participants within 120 days of the effective date of any new plan. Employers who don’t provide an SPD in a timely manner may be subject to a penalty of up to $110 per day for each violation.

Many employers are either unaware of this requirement, or they distribute documents that do not meet the SPD requirements laid out by ERISA. Certificates of Coverage (COC), Summaries of Benefits and Coverage (SBC) or general contracts issued by insurance carriers are not the same as ERISA-compliant SPDs.

Typically, these types of documents do not include all the required SPD provisions and disclosures. Insurance companies write their certificates and booklets to be compliant with insurance laws. It is the responsibility of the plan administrator (which is almost always the employer) to comply with the SPD requirements of ERISA.

So, if the information provided by the insurance company does not satisfy the ERISA requirements, then how do employers stay compliant with the law? That’s where wrap documents come in.

A wrap document “wraps around” all ERISA health and welfare benefits and includes required disclosures that are not typically found in other documents. These include details like the allocation of duties and responsibilities between the employer and the insurer or the rights participants are entitled to under ERISA. Wrap documents become the SPD which ensures that the required ERISA language is available in writing.

Having a wrap document helps employers minimize the risk of financial penalties and lawsuits, and keeps them compliant with demanding laws. These documents also help save time and money. Employers can consolidate all health and welfare plans under the same wrap document, so there’s no need to update or amend multiple documents in response to legislative changes, regulatory changes or changes made by the employer with respect to the benefits they offer.

In addition, wrap documents simplify the Form 5500 filing process for employers with plans that have 100 or more participants or are otherwise subject to the filing requirement. As opposed to filing a separate Form 5500 for each health and welfare plan, a wrap document allows the employer to file a single Form 5500 (and associated schedules A) for all benefits covered under the wrap document.

As a trusted benefits administrator for 30 years, Flex offers a simple solution to help you stay compliant with ERISA. Feel free to contact us for advice about wrap documents or request a proposal to find out more.

The only way for an employer to provide certain benefits tax-free to its employees, such as health, dental or vision insurance, is through a Cafeteria Plan, as defined under Section 125 of the Internal Revenue Code.  The only way for an employer to have a Cafeteria Plan is by preparing a written plan document which meets the requirements of Code Section 125.  Failure to have a written document, or failure to operate a Cafeteria Plan in accordance with the terms of Code Section 125, disqualifies the plan as a Cafeteria Plan and results in gross income to the participants.  In other words, any participant in the plan will lose the tax favorable status of the benefits that he or she would have otherwise received.

As a comparison, think about an employer who offers a tax-preferred retirement account, such as a 401(k). In order to have a 401(k), the employer must have a written plan document that explains information about the plan.  For example, who is eligible, when can contributions be changed, what happens after employment is terminated, can loans be taken from the plan, etc.  A similar, but different type of plan document is required when it comes to providing tax-free benefits for health, dental, vision, life, disability, and other qualified group insurance products.

Please note that a Premium Only Plan (POP) can generally be defined as a type of Cafeteria Plan where the only pre-tax benefits available to participants are for those of insurance premiums. If the Cafeteria Plan also provides for other pre-tax benefits, such as a Health Care FSA or Dependent Care FSA, additional plan documents are required.

Because Code Section 125 is complex, it generally requires a third party who is familiar with the tax code to prepare a plan document which meets the Cafeteria Plan requirements.

The materials contained within this communication are provided for informational purposes only and do not constitute legal or tax advice.

Premium Only Plans (POP) can generally be defined as a type of Cafeteria Plan where the only pre-tax benefit available to employees are for those of insurance premiums. Now, whenever non-taxable benefits are involved, the IRS will usually have some strict rules in place that must be followed.

For Cafeteria Plans, these are referred to as non-discrimination rules, and these rules are in place to ensure the plan doesn’t discriminate in favor of highly compensated and/or key employees. There are three different non-discrimination tests that must be passed relating to 1) eligibility, 2) actual contributions and benefits, and 3) key employee concentration. These are rather sophisticated and complex tests that need to be performed, and employers usually have to rely upon a third-party to conduct the testing.

But there is some good news for POP plans! Employers will get an automatic pass of the three non-discrimination tests if they can satisfy one simple requirement. If the ratio of non-highly compensated employees participating in the POP plan compared to the ratio of highly compensated participating in the POP plan is 50% or greater, the employer will be treated as passing all of the non-discrimination tests. 
Okay, maybe that actually sounds complicated, but it’s pretty simple to understand once you’ve seen an example. The following information applies to XYZ Company:

• 100 non-highly compensated employees
  • 60 participate in the POP plan (60 / 100 = 60%)
• 30 highly compensated employees
  • 25 participate in the POP plan (25 / 30 = 83.33%)

We’re not done yet. There is one more math problem to calculate:
60% / 83.33% = 72.03%

72.03% is greater than 50% so XYZ Company automatically passes the three non-discrimination tests. It would probably be more appropriate to say XYZ Company does not have to conduct the tests relating to contributions and benefits or key employee concentration because the IRS is comfortable that enough non-highly compensated employees are eligible and participating in the POP plan.
 
Employers that satisfy the 50% ratio are considered to have met the POP plan “safe harbor test for eligibility.” If the ratio is less than 50%, the employer doesn’t necessarily fail the non-discrimination testing. They might even be able to pass this test with a ratio that is less than 50%. The ratio to pass actually gets smaller as the concentration of non-highly employees participating in the POP plan increases. However, at a high level, understand that a ratio of 50% or greater will guarantee a pass for any employer.  

Subscribe to this blog at the top left navigation by entering your email address to learn more with Flexible Benefit Service Corporation (Flex).

The materials contained within this communication are provided for informational purposes only and do not constitute legal or tax advice. 
 

Health Savings Accounts (HSAs), in combination with a qualified high-deductible health plan (HDHP), are usually
touted as a way to lower insurance premiums and pay for out-of-pocket medical expenses with tax-free
dollars. 

 

Over time, some people are fortunate enough to accrue sizeable account balances in their HSA to use for future
medical expenses or even as a supplemental retirement benefit. And the really good HSA account holders have
become better “consumers” of medical care. They tend to use their HSA dollars more wisely by doing things such
as requesting if a cheaper, generic drug can be prescribed instead of a brand name alternative. 

 

These are the types of things that are mostly advertised when someone is talking about the benefits of an HSA,
and these things should be considered when deciding if an HSA makes sense to open. However, there are a couple
of other things that also stand out when it comes to HSAs, but these things don’t usually get as much attention.
One is from the account holder perspective and the other is from an employer’s perspective. 

 

Benefit to the HSA Account Holder. Unlike Flexible Spending Accounts (FSAs)
and Health Reimbursement Arrangements (HRAs), HSAs do not require third-party claim substantiation. FSAs and
HRAs require someone other than the employee to verify the expense incurred was a qualified and eligible
expense. Usually, this is done by a third-party company who administers the FSA or HRA on behalf of an
employer. 

 

Often, someone covered by an FSA or HRA will have a debit card provided to them to use for their expenses. Even
if the debit card is used at a doctor’s office or hospital, the FSA or HRA administrator may need you to provide
additional documentation about the expense. Due to IRS rules, failure to provide the additional documentation in
a timely manner may lead to deactivation of the debit card or other actions. This creates a burden on FSA and
HRA participants. 

 

HSAs, on the other hand, have claim substantiation requirements, but’s it’s a self-substantiation requirement.
The HSA account holder is the one that verifies if an expense is or isn’t an eligible expense. That means no
documentation or paperwork needs to be provided to a third party after an expense has been incurred. It makes
HSAs much more consumer friendly and easy to use in this respect. 

 

Benefit to the Employer. Many benefits offered by an employer are subject to
non-discrimination testing. These tests are generally designed to make sure rank and file employees are eligible
for and receiving similar benefits to highly compensated employees. These tests can be complicated and are
supposed to be performed throughout the plan year. Employers will usually need to rely on their legal counsel
for assistance or they’ll need to outsource the testing. 

 

FSAs, HRAs, and self-insured medical plans are examples of plans subject to non-discrimination testing. Guess
what? HSAs are not subject to testing. Administratively, that makes HSAs easier for an employer to offer. It
should be noted that HSA contributions made through a Cafeteria Plan are included in the overall Cafeteria Plan
non-discrimination testing, but HSAs do not have plan-specific testing that also applies like FSAs, HRAs and
self-insured medical plans do. 

 

The Health Savings Account (HSA) market has grown rapidly in the past decade. More than 21 million people currently have an HSA and there’s still plenty of opportunity for growth. In fact, a recent report projects 30 million HSAs by the end of 2019.

 

Here are the top employer benefits of an HSA:

 

• High deductible health plans (HDHPs), which are required when offering HSAs, are usually less expensive than most other group health plans.
   
• If an employee is responsible for more healthcare costs, they are more active in managing their healthcare purchases. This is the very essence of healthcare consumerism, which encourages the employee to use healthcare money as if it were their own money – because it is with the HSA. This may also keep renewals lower, especially for employers with self-insured health plans.
   
• From costs to plan management, HSAs can practically run themselves with the appropriate set-up at the beginning of the plan year.
   
• Contributions made to the HSA directly from payroll can be pre-taxed, meaning the employer and employee do not have to pay any payroll taxes on these funds. This strategy offers employer savings which can offset most costs to administer the HSA.

 

Flex is a leading HSA benefits administrator, who has offered these plans since they were established. We provide leading technology to manage our HSAs and deliver best-in-class service to support our clients. Plus, we integrate free debit cards, online investments, a new Mobile App and so much more. 

 

Contact a Flex Sales Consultant at 866-472-5351 to learn more about our HSAs!

 

While we continue to hear about the rapid growth of Health Savings Accounts (HSAs),
there is one feature about Health Flexible Spending Accounts (Health FSAs) that keeps some employees enrolled in
this type of consumer-driven account (CDA). That’ s the uniform coverage requirement of Health FSAs.

Health FSAs require the employer to make the entire annual election available to
employees at the start of the plan year. This is referred to as uniform coverage. HSAs, on the other hand,
don’ t have a uniform coverage requirement. Only the funds that have been contributed to date are available
for the employee to use with an HSA.

This is an area where some employers are becoming more creative with their HSA.
Those employers wishing to increase their HSA enrollment and/or offer an enhanced benefits package are
advancing funds to their employee’ s HSAs. This concept is simple, gives the appearance of uniform coverage,
and may be very appealing to employees.

Let’s assume an employee wanted to put $2,400 into their HSA and the employer had
24 pay periods. Using a traditional funding mechanism, the employee would have $100 withheld from each
paycheck and put into their HSA. The HSA balance would accumulate over time and at the end of the year, the
employee would have $2,400 in their account (assuming there were no withdrawals).

With advancing, the employer would contribute $2,400 to the employee’s HSA at the
start of the year. The employee would still have $100 withheld from each paycheck, but the withholding would
be retained by the employer. The employee pays back the advanced contribution under this method.

It should be noted there are some risks to the employer. Most notably would be an
employee who received an advanced contribution and terminated their employment prior to paying the employer
back. Employers can generally recoup any outstanding amounts owed on an employee’ s final paycheck, but if
the outstanding balance exceeds the amount of the final paycheck, the employer will be on the hook for that
amount of the advancement.

One way to reduce the above-mentioned risk is to limit the amount of the
advancement. For example, an employer may only allow for advancements of up to $1,000. And for most
employers, even if there are losses attributed to the advancements, these losses are offset by payroll tax
savings.

HSA contributions avoid Medicare and Social Security taxes that employees must pay
and employers are required to match. When taking into account HSA contributions made by all employees, the
payroll taxes avoided are likely to exceed any potential losses from the advancements.

Advancing HSA contributions isn’t for everyone, but it’s most certainly something
employers should evaluate and consider.