Summary of Benefit Coverage Requirements for Health FSAs and HRAs

May 1st, 2012 | No Comments |
Category: Compliance and Regulatory, DOL, ERISA, FSA, Flexible Spending, HHS, HIPAA, HRA, Health Reimbursement, IRS, PPACA, Section 125 Plans, Uncategorized

Does an employer have to provide a copy of the Summary of Benefits and Coverage (“SBC”) to enrollees of Health Flexible Spending Accounts (“Health FSA”) or Health Reimbursement Arrangements (“HRA”)?

The SBC requirement applies to group health plans (both insured and self-insured) and insurers (as defined by applicable provisions of the PHSA, ERISA, or the Code) but not to certain “excepted benefits,” PHSA § 2715(a), as added by PPACA, Pub. L. No. 111-148 (2010). Grandfathered group health plans must comply with this mandate, as provided in PPACA, Pub. L. No. 111-148, § 1251(a)(3) (2010), as amended by PPACA, Pub. L. No. 111-148, § 10103(d)(1) (2010).

When is a Health FSA or a HRA considered an excepted benefit?

Health FSA:
A health FSA is considered an excepted benefit for a “class of participants” if the health FSA is a health FSA under Code Section 106(c)(2) and satisfies two conditions:
*Maximum Benefit Condition: The maximum benefit payable under the health FSA to any participant in the class for a year cannot exceed two times the employee’s salary reduction election under the health FSA for the year (or, if greater, the amount of the employee’s salary reduction election for the health FSA for the year, plus $500), as provided in Treasury Regulations Section 54.9831-1(c)(3)(v)(B);DOL Regulations Section 2590.732(c)(3)(v)(B);HHS Regulations Section 146.145(c)(3)(v)(B); and

*Availability Condition: Other nonexcepted group health plan coverage (e.g., major medical coverage) must be made available for the year to the class of participants by reason of their employment, as provided in Treasury Regulations Section 54.9831-1(c)(3)(v)(A);DOL Regulations Section §2590.732(c)(3)(v)(A); HHS Regulations Section146.145(c)(3)(v)(A).

Neither the regulations nor the preamble to the regulations explains what is meant by the term “class of participants.” The term appears to preclude a “participant-by-participant” approach to determining whether benefits under a health FSA are excepted benefits.

Examples of Health FSA Funding That Meet the Maximum Benefit Condition:

* A one-for-one employer match (employer $600, employee $600).
* An employer contribution of $500 or less (employer $500, employee $200).
Examples of Health FSA Funding That Do Not Meet the Maximum Benefit Condition:
* An employer contribution of more than $500, if employee contributes $500 or less (employer $600, employee $400).
* An employer contribution in excess of one-to-one match, if employee contributes more than $500 (employer contributes $700, employee contributes $600).

Remember: Health FSAs funded exclusively by employee salary reduction contributions (with annual coverage capped by the amount of the annual salary reduction election) will, by definition, satisfy the Maximum Benefit Condition.

HRA:

A 100% employer-paid stand-alone HRA with an annual limit less than or equal to $500 and no carryovers will be considered an excepted benefit if the employer makes major medical insurance available to all employees who are eligible for the HRA. This is the same requirements as provided above for Health FSAs. This is because such an HRA may be considered a health FSA and would qualify as an excepted benefit. Likewise, a retiree-only HRA or limited-purpose HRA (i.e., that provides only vision and dental benefits) would also be considered an excepted benefit .

The above HIPAA exceptions will not apply to most HRAs. HRAs that can be used for medical expenses generally and that permit carryovers or that provide an employer-funded benefit of more than $500 will not be considered excepted benefits.

American Benefits can create SBCs for non excepted FSAs and HRAs. Contact your benefits administrator or support@amben.com

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Are You Really Saving Money By Self Administering Your HRA?

February 23rd, 2012 | No Comments |
Category: CDHC, COBRA, Cafeteria Plans, Compliance and Regulatory, FSA, Flexible Spending, HIPAA, HRA, Health Care Reform, Health Reimbursement, Medicare, Taxes, Uncategorized
 
Posted by RENEE KUHS, Compliance Attorney

Do you think you’re saving money by administering your health reimbursement arrangement (HRA)?  In our experience, many employers that self-administer an HRA often overlook important compliance obligations that put them at financial risk.  Failure to comply with the following requirements is common and can be costly. 

 COBRA

 An HRA is a group health plan subject to COBRA.  Employees that experience a qualifying event are entitled to continue coverage under the employer’s HRA.  An employer that fails to extend COBRA coverage to HRA participants can be subject to substantial fines.  Employers can be fined up to $110 per day for failure to provide an initial notice or election notice.

 HIPAA Privacy

 An HRA is a self-funded health plan and governed by the HIPAA Privacy Rules.  Employers that offer a fully-insured health plan and sponsor an HRA often overlook their HIPAA Privacy obligations.  In order to administer an HRA, the entity processing the claims receives protected health information (PHI) which is protected by HIPAA.  Employers that offer a fully-insured health plan will rely on the insurance carrier to comply with the HIPAA Privacy Rules.  However, the HRA compliance obligations rest with the employer.  Employers that do not comply can be subject to civil penalties of up to $100 per violation.

 Medicare Reporting

 An HRA is a group health plan subject to Medicare Secondary Payer (MSP) provisions.  New reporting requirements went into effect in the fourth quarter of 2010.  Employers are required to provide HRA coverage information to the Centers for Medicare and Medicaid Services (CMS).  The information reported to CMS will allow better coordination of payer responsibilities between the group health plan and Medicare.  Failure to comply could result in fines of up to $1,000 per day.

 Plan Documents

 An HRA is an employee welfare plan under ERISA.  ERISA requires that every warfare plan be established and maintained pursuant to a written instrument.  The written instrument or plan document serves to define what expenses are eligible for reimbursement, the amount of employer contribution, and whether the funds may be rolled over from year to year.  Not only could an enforcement action be brought against an employer for failure to have a plan document, but it is difficult for the employer to prove plan terms and enforce its provisions.

If you are administering an HRA for your employees and are concerned about your compliance status, please feel free to contact support@amben.com  or rcummings@amben.com

 

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Simple Cafeteria Plans – A GIFT for small employers.

December 15th, 2010 | 1 Comment |
Category: Compliance and Regulatory, FSA, Flexible Spending, Health Care Reform, IRS, Uncategorized
 
Effective January 1, 2011, certain employers that establish “simple cafeteria plans” are exempt from the Code Section 125 nondiscrimination requirements as well as the non-discrimination requirements applicable to the plans offered through the cafeteria plan (e.g. Code Section 129 non-discrimination testing for dependent care FSAs, Code Section 105(h) non-discrimination testing for self-insured medical plans, etc).   The Act defines a simple cafeteria plan as a plan “which is established and maintained by an eligible employer,” and for which certain contribution, eligibility and participation requirements are met. In general, an eligible employer is an employer that employed an average of 100 or fewer employees for either of the prior two years.  

Plans that qualify as a simple cafeteria plan for any given year are treated as meeting any applicable nondiscrimination requirements for that year (i.e., non-discrimination testing is not required for these plans).

 

Eligible Employer Definition

 

Under the Act, a small employer is any employer that had, on average, 100 or fewer employees on business days during either of the 2 preceding years.

If an employer was not in existence during the prior year, the number of employees is based on the average number of employees that is reasonably expected to be employed on business days during the current year.

 

The Act contains a provision for growing businesses that allows employers who offer a simple cafeteria plan in a qualifying year and then subsequently grow beyond 100 employees to maintain that plan in subsequent years.

A growing employer may continue the simple cafeteria plan until the employer exceeds an average of 200 or more employees during a preceding year.

 

Eligibility, Participation, and Contribution Requirements

 

 

To establish and maintain a simple cafeteria plan, an eligible small employer must design their plan to meet the following requirements:

· All employees with at least 1,000 hours of service during the preceding plan year must be eligible to participate in the plan (other than employees that may be excluded, as outlined below)

 

· Each employee that is eligible to participate in the plan must have the right, subject to terms and conditions applicable to all participants, to elect any benefit available under the plan

  

Allowable Exclusions

 

The Act allows employers to exclude the following employees from participating in the plan:

 

· Employees who have not attained the age of 21 before the close of the plan year

 

· Employees who have less than one year of service with the employer as of any day during the plan year

 

· Employees covered under a collective bargaining agreement if there is evidence that the benefits covered under the plan were the subject of good faith bargaining between employee representatives and the employer.

 

· Employees described in Code Section 410(b) (3)(c) (relating to non-resident aliens working outside the United States)

 

Contribution Requirements

 

· The employer must make a contribution to provide qualified benefits under the plan on

behalf of each qualified employee, regardless of whether the employee makes a contribution of their own. This contribution amount must be in an amount equal to:

 

  1. A uniform percentage (not less than 2 percent) of the employee’s compensation for the plan year, or — An amount which is not less than the lesser of:

 

  1. 6 percent of the employee’s compensation for the plan year, or;

 

  1. Twice the amount of the salary reduction contributions of each qualified employee

 

 

Section 125(j)(3)(C) allows comparable contributions for HCEs and key employees, as it provides:

 

Subject to subparagraph (B)(regarding matching contributions), nothing in this

paragraph shall be treated as prohibiting an employer from making contributions to provide qualified benefits under the plan in addition to contributions required under subparagraph (A).

 

The required contributions in (A) are for “qualified employees” but the employer contributions for at least 2% of pay are for all employees under (A)(i), not just qualified employees, and (B) indicates that matching contributions can be made for HCEs and key employees.

 

 

The rate of matching contributions made by the employer on behalf of highly compensated or key employees cannot be greater than the rate of matching contributions for non-highly compensated or key employees.

 

 

Qualified, Highly Compensated, and Key

Employees Defined

 

For the purposes of the Act, a qualified employee is any employee that is eligible to participate in the cafeteria plan and is not a highly compensated or key employee.

 

The term “highly compensated employee” is defined in Code Section 414(q). The income limitation for highly compensated employees is adjusted from time to time and is currently set at $110,000.

 

The term “key employee” is defined in Code Section 416(i).

 

For 2010, an individual is an HCE if his or her compensation from the same employer in 2009 exceeded $110,000 or the person is an officer, more than 5% owner, a spouse or dependent working for the same employer.

 

For 2010, an individual is a key employee if:

 

· An officer earning more than $160,000 in the 2009 plan year; or

· A more than a 5% owner; or

· A more than a 1% owner receiving compensation in excess of $150,000 in the prior plan year.

· Government entities do not have Key Employees.

 

 

The Benefits of Establishing a Simple Cafeteria Plan

 Under the Act, simple cafeteria plans are exempt from the Code Section 125 nondiscrimination requirements as well as the nondiscrimination requirements applicable to the plans offered through the cafeteria plan (e.g. Code Section 129 non-discrimination testing for dependent care FSAs, Code Section 105(h) nondiscrimination testing for self-insured medical plans, etc).

 Because the sponsor of a simple cafeteria plan is not required to perform nondiscrimination testing, the administrative burden of offering the plan is lessened; making it easier for small employers to offer a plan to their employees.

 In addition, because C Corporation owner employees or other Key Employees can participate without limitation, Simple Cafeteria Plans present a new opportunity to  a large market segment that has previously been restricted by the non discrimination requirements.

 For more information or a proposal call Rich Sormanti, Sales and Marketing Director at 800-499-3539 ext. 233, rsormanti@amben.com

American Benefits Group will continue to keep you apprised of breaking news and developments. For up to the minute benefits news and views, important regulatory updates, candid discussion forums and insightful commentary,  subscribe now with an RSS feed to www.myBenefitsBlog.com 

 
 
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SIMPLE Cafeteria Plans Provide a “Safe Harbor” from Non-discrimination Testing.

October 26th, 2010 | 2 Comments |
Category: Compliance and Regulatory, FSA, Flexible Spending, Health Care Reform, Uncategorized

The good news is that the new SIMPLE cafeteria plan regulations provide for a “safe harbor” from non-discrimination testing requirements for small employers that allow employees to contribute to health insurance premiums on a pre-tax basis.

Eligible Employers

Employers with an average of 100 or fewer employees on business days during either of the two preceding years are eligible for the simple cafeteria plan.

  • An employer that was previously eligible will remain so for each subsequent year until they exceed an average of 200 or more employees for the prior year.
  • For new businesses, eligibility is based on the number of employees the business reasonably expects to employ for the current year.

Employee Eligibility

All employees who worked at least 1,000 hours during the prior plan year must be eligible to participate in the plan and be able to elect any benefit available under the cafeteria plan the same terms and conditions.

An employer can exclude the following from the eligibility requirement:

  • Employees under age twenty-one prior to the end of the plan year
  • Employees with less than one year of service
  • Employees covered under a collective bargaining agreement
  • Non-resident aliens

Employer Contribution Requirements

Regardless of whether a qualified employee makes any salary reduction contribution, the employer must make a contribution under the plan on behalf of each qualified employee in an amount equal to:

  • a uniform percentage (not less than 2 percent) of the employee’s compensation for the plan year, or
  • an amount that is not less than the lesser of:
    – 6 percent of the employee’s compensation for the plan year, or
    – twice the amount of the salary reduction contributions of each qualified employee (the rate of matching contribution for HCE or key employees cannot be greater than the rate for NHCEs).
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