Compliance Corner Archives

Generally, an employee’s election made through a cafeteria plan is irrevocable for the plan year, unless the individual experiences a Section 125 qualifying event that would allow them to change their elections (assuming the plan document provides for it). However, if the election change is made before the plan year begins, the employer/plan sponsor does not have to allow the change, but is permitted to do so.

The cafeteria plan regulations allow election changes before the beginning of a period of coverage. Therefore, employers/plan sponsors may choose to allow such changes made before the coverage period, or alternatively, may choose not to allow changes once open enrollment has closed. If the employer/plan sponsor allows them, the employee does not need a particular reason to make the change. A few employee circumstances that may persuade an employer to allow such a change to the election post-open enrollment include a change in circumstances yielding different health insurance needs or possibly a circumstance where the employee is unavailable during the open enrollment window. Yet, it is ultimately the employer/plan sponsor’s choice. In order to keep things as administratively simple as possible, many employer/plan sponsors will end open enrollment well before the coverage period is to begin and will not ordinarily allow elections after the period has closed. That way there is sufficient time to execute the elections and conduct any preliminary discrimination testing.

The employee can make election changes prior to the beginning of the plan year if permitted by the employer/plan sponsor. However, changes after the beginning of the plan year would only be permitted in case of a qualifying event.

An individual’s annual maximum HSA contribution is a total of each month’s allowed contribution; or the annual maximum allowed for the tier of coverage in place on Dec. 1, whichever is greater. Consider the following examples:

Example 1. Joe has self-only HDHP coverage from January through October. He gets married and switches to employee plus spouse HDHP coverage for November and December. Under the full contribution rule, Joe is permitted to contribute up to $6,550 for 2014 because he had family HDHP coverage on Dec. 1. If we calculate his total contribution based on each month’s tier of coverage, he would be permitted to contribute $3,841.67, which is (2/12 x $6,550) plus (10/12 x $3,3300). He is allowed to contribute up to $6,550 for 2014 because this is greater than the monthly total.

Example 2. Mike has family HDHP coverage for January through July. He experiences a qualifying event and switches to self-only coverage for August through December. He had self-only coverage on Dec. 1 allowing him to contribute up to $3,300 for 2014. Looking at the monthly contribution total, Mike is allowed to contribute $5,195.83 (7/12 x $6,550) plus (5/12 x $3,300). Thus, Mike may contribute $5,195.83, the greater of the two permissible methods.

As background on determining whether an employee has full time employee (FTE) status under the employer mandate, the employer may use either a monthly measurement method or a look-back measurement method to count the employee’s hours of service. The monthly measurement period is for employees whose hours are known ahead of time—the employer counts hours during that month to determine if employees s will or will not be full-time for that month. The look-back measurement method is for employees whose hours are not known ahead of time: seasonal and variable hour employees.

In cases where an employee who has been an FTE moves to a variable hour position or becomes a variable hour employee, there is a special rule. In these cases, employees who are now variable hour employees must be measured as are other variable hour employees. The situation is somewhat confusing, since these employees, upon a change in status, are now in the middle of a measurement and stability period, but have not been accounted for previously as variable hour employees (i.e., their status has not been determined for the current stability period, and their hours have not been measured in the current measurement period).

In this type of change-of-status situation, there are three different considerations. The first is how the employee is treated during the remainder of the stability period in which the transfer/change occurs. The second is how the employee is treated for the remainder of the measurement period in which the transfer/change occurs. The third is how the employee is treated going forward.

On the first consideration, for the stability period in which the transfer occurs, the employer must continue to use the monthly measurement method (i.e., track their hours every month), unless the employee’s hours of service prior to the change in employment status would have resulted in the employee being treated as an FTE during the stability period in which the change of employment status occurs. In that case, the employer must treat the employee as an FTE for that stability period. In other words, the employer must actually look at the employee’s hours during the look-back measurement period that determined eligibility for the current stability period. If the employee averaged 30 or more hours per week during that measurement period, the employee must be treated as an FTE for the remainder of the current stability period. So essentially, the employee is treated as if he/she were a variable hour employee during the last measurement period. If the employee did not average 30 hours per week, then the employer must use the monthly measurement method—counting the hours worked each month—for the remainder of the stability period in which the transfer/change occurs.

On the second consideration, for the stability period associated with the measurement period in which the transfer occurs, the employer must treat the employee as an FTE for any calendar month during which the employee either would be treated as an FTE based on the measurement period during which the change in employment status occurred or would be treated as an FTE under the monthly measurement period. In other words, the employer must count the employee’s hours back to the beginning of the look-back measurement period. In essence, the employer goes back to the beginning of the current look-back measurement period and counts all hours worked during the measurement period as if the employee were a variable hour employee from the beginning of the look-back measurement period.

On the third consideration, for any subsequent calendar month (i.e., how the employee is treated in future look-back measurement/stability periods), the look-back measurement period applies. Thus, full-time status is determined based solely upon hours worked during measurement periods and applied to the associated subsequent stability periods.

An example from the regulations helps explain:

Example (4). (Monthly measurement method to look-back measurement method). Employee B is a salaried employee of Employer Y. On July 1, 2017, Employee B transfers to an hourly employee position. Based on Employee B's hours of service from October 15, 2015, through October 14, 2016, Employee B would have been treated as a full-time employee for the stability period from January 1, 2017, through December 31, 2017, had the look-back measurement method applicable to hourly employees applied to Employee B for the entire stability period. For the calendar months January 2017 through June 2017 (prior to Employee B's change to hourly employee status), Employee B's status as a full-time employee is determined using the monthly measurement method. For the calendar months July 2017 through December 2017, Employer Y must treat Employee B as a full-time employee because Employee B would have been treated as a full-time employee during that portion of the stability period had the look-back measurement method applied to Employee B for that entire stability period. Employee B is employed for hours of service from October 15, 2016, through October 14, 2017, such that under the applicable look-back measurement method Employee B would be treated as a full-time employee for the period January 1, 2018, through December 31, 2018. Accordingly, Employee B must be treated as a full-time employee for the calendar year 2018. For calendar year 2019, the determination of whether Employee B is a full-time employee is made under the applicable look-back measurement method.

According to ERISA Section 412, plan officials who handle plan funds or other plan property generally must be covered by a fidelity bond. A fidelity bond is a type of insurance that protects the plan against loss by reason of acts of fraud or dishonesty on the part of persons covered by the bond.

A plan official must be bonded for at least 10 percent of the amount of funds he or she handles, subject to a minimum bond amount of $1,000 per plan with respect to which the plan official has handling functions. In most instances, the maximum bond amount that can be required under ERISA with respect to any one plan official is $500,000 per plan.

While all retirement plans must be bonded, many health plans are exempt from the ERISA bonding requirement. Employers who sponsor fully-insured health plans generally do not need to obtain a bond because the DOL does not require bonding for those plans as long as the premiums that are used to purchase insurance coverage are paid directly from the employer's assets to the insurance provider.

Unfunded plans are also exempt from ERISA bonding requirements. A self-insured plan is considered unfunded if the company pays the health claims directly out of the employer's general assets. However, if there is any segregation of the employer and employee contributions to a trust or another account in the name of the plan, then the plan is likely considered funded and may be subject to the ERISA bonding requirement. Employers should work with outside counsel on determining whether a plan would be considered funded or unfunded.

Keep in mind that an ERISA fidelity bond is different than fiduciary liability insurance. Fiduciary liability insurance protects the fiduciary against losses that are caused by any breach of fiduciary responsibilities. In contrast, fidelity bonds insure the plan against losses caused solely by the fraud or dishonesty of any party who handles funds, not just fiduciaries.

For additional information on ERISA fidelity bonding requirements, see DOL Field Assistance Bulletin No. 2008-04 (Previously linked website content is no longer available.).

The answer depends on many factors. State insurance laws in states that recognize same-sex marriage typically require fully insured plans in those states to offer coverage to same-sex spouses to the same extent offered to opposite-sex spouses. The same is not necessarily true for fully-insured plans in states that do not recognize same-sex marriage, although this is changing rapidly and legal counsel should be consulted prior to denying coverage to a legal same-sex spouse. In the self-insured environment, an employer arguably could continue to deny same-sex couples coverage because ERISA does not mandate spousal coverage and self-insured plans are not subject to state insurance laws.

Same-sex spouse are considered spouses under ERISA. While not guaranteed any eligibility rights, a same-sex spouse could be deemed eligible if the employer fails to clearly define eligible spouses. A self-insured ERISA plan may define “spouse” as it sees fit, but it should include in the written plan documents (and in any enrollment/employee communication materials, including the SPD) a very clear definition of that term. This will help avoid confusion among employees as to which types of spouses (and dependents) are eligible for coverage.

All of that said, there is risk that excluding a same-sex spouse under a self-insured plan would be considered discriminatory under Title VII of the Civil Rights Act. Title VII prohibits employers from discriminating in employment on the basis of race, color, religious, sex and national origin. Title VII does not provide protection based on sexual orientation, but the EEOC (which enforces Title VII) has allowed claims involving sexual orientation to proceed under sex discrimination. Therefore, if a self-insured client wishes to exclude same-sex spouses from group health plan eligibility, the recommendation is to discuss with outside counsel before proceeding.

Employers with 50 -99 full-time employees (FTEs) and equivalents who satisfy transitional relief will be subject to the employer mandate in 2016. Those with 100 or more FTEs and equivalents and large employers with non-calendar year plans will be subject to the employer mandate in 2015. Those employers are required to offer affordable, minimum value coverage to employees working 30 or more hours per week (or 130 hours per month), or risk paying a penalty.

In simple terms, “affordable” means the employee’s cost for self-only coverage under the employer’s lowest cost option does not exceed 9.5 percent of the employee’s wages. Employers have three safe harbor options from which to choose when determining whether their offer of coverage is affordable for employees. By relying on one of the three safe harbor options, the employer will be in compliance with the affordability requirement. Remember, affordability is based on the lowest cost option available to the employee, not the actual coverage that they elect.

• The Form W-2 safe harbor. The employee’s cost of coverage cannot exceed 9.5 percent of the employee’s W-2 Box 1 wages. Box 1 includes overtime, paid time off and bonuses, but does not include pre-tax contributions through a Section 125 or 401(k) plan. The advantage of using this method is that the employer can generally yield a higher premium contribution from the employee. A disadvantage of choosing this safe harbor option is that the employer may not know exactly what an employee’s annual earnings will be. One option under this method is to charge each participating employee a set percentage of wages as a premium contribution. For example, each employee would pay 9.5 percent (or a lower percentage) of wages for coverage in the employer’s health plan. This means that each employee pays a different contribution, which may be administratively difficult.
• Rate of pay safe harbor. While the Form W-2 safe harbor is based on actual wages, the rate of pay safe harbor is based on expected hours worked. For hourly employees, the employer would multiply the employee’s hourly rate by 130 hours and then multiply that result by 9.5 percent. If the employer charged the employee this amount or less for health coverage, the affordability requirement would be met. This is true regardless of whether the employee actually worked more or fewer than 130 hours in a given month. For non-hourly employees, the employer would multiply the employee’s monthly salary by 9.5 percent. An advantage of this method is that it is easier for an employer to plan prospectively in regards to employee contributions. A disadvantage of this method is that, other than base pay, it ignores an employee’s earnings other than base pay, such as commissions, overtime or bonuses.
• Federal poverty line safe harbor. If an employer’s offer of coverage would be affordable to an individual making 100 percent of the federal poverty line (FPL), the affordability requirement is met. The FPL is indexed annually. While the numbers for 2015 have not yet been released, employers can use 2014 data as a guide. For 2014, 100 percent of FPL for the contiguous U.S. and D.C. is $11,670 per year. If an employer multiplies this amount by 9.5 percent and divides that amount by 12 months, the employee’s cost of coverage could not exceed $92.38 per month. An advantage of this method is that it is the easiest to administer. If the cost of self-only coverage under an employer’s lowest cost option is this amount or less per month, the employer’s offer of coverage would automatically be considered affordable. A disadvantage of this method is that it generally yields the lowest premium contribution amount from employees.

If you need assistance determining your affordability strategy, please contact your advisor.

No, most employers are not allowed to reimburse employees for individual coverage, at least not on a tax-advantaged basis. There is an exception for small employers participating in the SHOP exchange. That being said, there are a couple of allowed alternative arrangements. First, employers may always choose to pay an employee additional salary or wages, although this would be considered additional taxable compensation and not tied to the waiver of health coverage (unless structured appropriately as a cash-in-lieu of benefits arrangement through a Section 125 plan). Second, there is a way for employers to facilitate the after-tax payment of individual health insurance premiums.

Overview: Reimbursing Individual Coverage

Most active employees who decide to forgo employer-sponsored group health coverage and purchase their own individual health insurance policy (whether through the public health insurance exchanges or elsewhere) will not be able to pay for this coverage on a pretax basis. Additionally, employers may not substantiate and reimburse employees' individual coverage premiums on a pretax basis, as this will establish a non-integrated stand-alone HRA, which is no longer permissible for plan years beginning in 2014, according to IRS Notice 2013-54. Note that retiree-only HRAs and HRAs that reimburse for certain dental and vision policies are still permitted.

There was some debate among industry experts around whether reimbursing individual coverage would continue to be allowed when IRS Notice 2013-54 was released last fall. Since that time, the IRS has issued an additional FAQ, making it very clear that employers may not reimburse or pay directly for employees' individual insurance coverage premiums on a pretax basis. The IRS clearly states that the penalty for doing so can be as much as $36,500 per employee, per year.

FAQ

Alternative 1: Additional Compensation

In light of the IRS guidance described above, employers may suggest an alternative of providing additional taxable compensation to employees who decline group coverage and purchase an individual health coverage policy, sometimes referred to as a “cash-out” or “cash-in-lieu of benefits” program. The key is that for this to be structured appropriately and comply with IRS requirements, the employer should not condition the additional taxable wages on evidence that the employee has paid for individual coverage. In other words, the employer may increase taxable wages if an employee declines group coverage, but should not ask for or require proof of individual coverage. If they do so, this could violate requirements under Section 125, which govern cafeteria plans, as well as potentially violate Medicare Secondary Payer and TRICARE requirements.

A Section 125 plan is the exclusive means by which an employer can give employees a choice between nontaxable benefits and taxable cash. Thus, any cash-out option should be provided for in the Section 125 plan document.

A cash-out program that limits eligibility to only those employees who have other coverage (and requires proof thereof) would not be a valid Section 125 cafeteria plan. To be in compliance with Section 125, a safer approach would be for employers sponsoring a cash-out program to make the cash-out program available to every eligible participant under the plan, not only to those who must certify that they have obtained coverage elsewhere.

Alternative 2: Facilitate After-tax Payment of Premiums

There is a DOL safe harbor that would allow the employer to at least facilitate the payment of individual policy premiums on a post-tax basis. Under the safe harbor, an employer is allowed to collect 100 percent of the premiums through payroll deduction and then forward the payroll deductions only. The DOL voluntary safe harbor turns on the existence of certain factors, but generally requires the employer to have minimal involvement in and endorsement of the plan. To satisfy the safe harbor, the following requirements must be satisfied:

• No employer contributions (i.e., must be 100 percent after-tax employee contributions).
• Employee participation must be completely voluntary.
• Employer may not endorse the program.
• Employer may not profit from the arrangement.

An employer reimbursing any portion of the premiums on a pretax basis will fall out of the ERISA safe harbor.

To begin with, a telemedicine program is generally one where an employee has the opportunity to call or otherwise communicate with a doctor or physician and receive a medical diagnosis or advice over the phone or Internet. ERISA, COBRA and PPACA may all be implicated where an employer offers a telemedicine plan, since the plan would most likely be considered as providing medical care. But the specific benefits offered under the plan would need to be reviewed carefully to know for sure.

Firstly, if the telemedicine program is offered in conjunction (or “bundled”) with the group health plan, then the telemedicine program, by virtue of its bundled association with the major medical plan, would be subject to ERISA, COBRA and PPACA. However, compliance with those laws would happen via compliance with the group health plan. So, assuming the group health plan is otherwise in compliance with those laws, the telemedicine program would also be in compliance with those laws. To determine if the plans are bundled, the plan documents for both the major medical plan and the telemedicine plan should be reviewed.

If the telemedicine program is offered separately from the group health plan – meaning that employees who are not enrolled in the group health plan are still eligible to participate in the telemedicine program (for example, employees who are not benefits eligible or who have waived coverage) – then the telemedicine would be looked at on its own to determine if ERISA, COBRA and PPACA apply. For all three, this appears to be an analysis focused on whether the telemedicine program is providing medical care.

With regard to ERISA, a group health plan subject to ERISA is defined as a plan, fund or program that is established or maintained by an employer for the purpose of providing medical, surgical or hospital care or benefits to participants and beneficiaries. The analysis comes down to whether the plan provides medical care. While telemedicine programs may take many forms, almost all of them give employees access to a licensed health provider who provides a diagnosis and prescribes treatment relating to the employee’s medical condition. Since the definitions of “group health plan” and “medical care” are quite broad, most telemedicine programs would be considered as providing medical care and would therefore be subject to ERISA. Thus, unless another exception applies, a telemedicine plan would be subject to ERISA’s requirements, including the written plan document, SPD and Form 5500 requirements.

With regard to COBRA, the definition of “group health plan” under COBRA is very similar to ERISA — a plan maintained by an employer to provide health care to employees and their families. “Health care” for this purpose includes the diagnosis, cure, mitigation, treatment or prevention of disease, and any other undertaking for the purpose of affecting any structure or function of the body. Thus, for the same reasons that ERISA applies, COBRA would apply: The definition of “health care” is broad enough to include a telemedicine program that puts individuals in touch with a doctor or physician who will be diagnosing and treating individuals’ medical conditions.

With regard to PPACA, if the program is considered subject to ERISA and COBRA, then the program is likely subject to PPACA as well. There is a PPACA exception for EAPs (which may be similar in some respects to a telemedicine program) that do not provide significant benefits in the nature of medical care. However, for the same reasons ERISA and COBRA would likely apply, most benefits from a telemedicine program would be considered medical care. The cautious approach would be to assume that the telemedicine program must comply with PPACA-related requirements.

Overall, employers considering telemedicine programs as an alternative or enhancement to their benefit offerings should work closely with their advisor or attorney in determining whether federal law would apply to the program.

As background, HIPAA's HPID and standard transaction rules require group health plans to obtain an HPID and certify that they can perform certain transactions (e.g., claims processing, claims payment, etc.) in accordance with certain specified standards. Under the rules, such plans must obtain an HPID by Nov. 5, 2014 (although smaller plans, those with less than $5 million in receipts, have until Nov. 5, 2015, to obtain their HPID). For fully insured plans, the insurer generally handles HIPAA-related compliance. For self-insured plans, though, the employer as plan sponsor is generally tasked with such compliance (although TPAs and other business associates may handle compliance obligations).

HIPAA's HPID and standard transaction rules apply to a broad range of plans. Importantly, the HPID and standard transaction rules are found in HIPAA's administrative simplification provisions, which include HIPAA's privacy and security rules. The types of plans subject to HIPAA's administrative simplification provisions are broader than the types of plans subject to HIPAA's portability rules. (The portability rules include HIPAA special enrollment rights, which require plan enrollment upon the occurrence of certain life events, and the prohibition of discrimination based on health statuses, including claims experience and other health-related factors.) Thus, while some plans called "excepted benefits" may be exempt from HIPAA's portability rules, they may not be exempt from HIPAA privacy, security and standard transaction rules. Whether a plan is subject to HIPAA's administrative simplification provisions, including the HPID and standard transaction rules, hinges on whether the plan is subject to ERISA. This requires an analysis as to whether the plan is providing "medical care."

With that in mind, listed below are the types of plans subject to HIPAA's HPID and standard transaction rules:

• Major group health plans (e.g., PPO, HDHP, HMO, POS, etc.), both fully and self-insured
• Stand-alone dental and vision plans
• Health FSAs
• HRAs
• Employee assistance plans (if they provide benefits that rise to the level of "medical care")
• Wellness programs (if they provide benefits that rise to the level of "medical care")
• Retiree-only medical plans, including a retiree-only HRA

In addition, there does not appear to be an exception for governmental plans (local, state or federal employers) or church plans (even though such plans are generally exempt from ERISA). Governmental and church employers should work with outside counsel to obtain a definitive answer.

There is an exception for health plans that are self-insured, self-administered and cover fewer than 50 participants. This exception would not apply to a fully insured plan, or to a self-insured plan that outsources its administrative functions (e.g., claims processing) to a TPA or other business associate. Thus, the exception is limited in its application.

Overall, employers should be aware of the HPID and standard transaction rules, and understand that a plan that is HIPAA-excepted may still have to obtain an HPID and certify it complies with the standard transaction rules. All employers should work closely with outside counsel to determine if their plan is subject to the HPID and standard transaction rules. Employers should also work closely with insurers (for fully insured plans) and TPAs or business associates (for self-insured plans) to ensure the plan satisfies its HPID and standard transaction obligations, including obtaining an HPID by Nov. 5, 2014 (or Nov. 5, 2015, if it is a small plan).

Controlled Group Rules Do Apply for Purposes of the Employer Mandate

Under the employer mandate, when determining whether the employer meets the 50‑employee threshold (100‑employee threshold with respect to the delayed effective date transition rules), the controlled group rules, found in IRC Section 414, apply. Those rules basically state that all businesses or companies under common control will be viewed as a single employer. That applies regardless of the business structure (i.e., whether they are structured as separate businesses with separate employer identification numbers). The key point of the analysis is whether the different companies have enough common ownership to be considered a controlled group, as described in the next two paragraphs.

Controlled Group Rules

Generally, under Section 414, two or more employers are treated as a single employer for benefits purposes if there is sufficient common ownership. There are several tests to determine whether sufficient common ownership exists. The test would depend on the relationship between the employers (e.g., parent/subsidiary, brother/sister, combination). Under the parent/subsidiary test – which is the most common – two or more employers would be treated as a single employer if there is a chain of corporations connected through one common parent and the common parent owns at least an 80 percent interest in one or more of any other corporations in the chain. For purposes of this test, the 80 percent ownership interest extends to voting power of stock or to total value of stock.

Under the brother/sister test, two or more corporations are in the same brother/sister group if they are controlled (both actual control and effective control) by the same five or fewer persons (or estates or trusts). Control means that those five or fewer individuals own stock possessing 80 percent or more of the total combined voting power of all classes of stock entitled to vote in each corporation and more than 50 percent of the total combined voting power of all classes of stock entitled to vote in all corporations, taking into account the stock ownership of each owner only to the extent that the level of ownership interest is identical with respect to each corporation. Thus, the brother/sister controlled group should be of concern where five or fewer shareholders 1) own at least 80 percent of each corporation and 2) own more than 50 percent of all corporations, taking into account identical ownership interests with respect to each corporation.

Making a controlled group determination constitutes tax and legal advice. Therefore, if the employer is unsure if their structure would be a controlled group, outside counsel should be consulted.

Employer Mandate Penalty Application

Assuming the employer mandate applies, the employer mandate regulations treat each "controlled group member" separately, meaning that each subsidiary would be considered a single employer for purposes of determining compliance with the mandate. So, for example, if Subsidiary A fails to offer coverage to its Subsidiary A employees, Subsidiary A will be responsible for a penalty — but Subsidiary B (assuming it offers coverage) will not pay a penalty for Subsidiary A's failure.

In general, HIPAA prohibits a group health plan from discriminating against an individual in terms of benefits, employer contributions or eligibility based on health factors. However, an employer may provide rewards connected to a group health plan through a bona fide wellness program. There are three different types of wellness programs: participatory, activity only and outcome-based. An outcome-based wellness program is one in which a participant is required to obtain or maintain a specific health outcome in order to receive a health plan-related reward. An example of such a program is providing a lower premium contribution deduction for the group health plan to employees who maintain a certain cholesterol level.

An outcome-based wellness program must satisfy five conditions. A full discussion of all five conditions is outside of the scope of this article. If you have questions, please contact your advisor for resources. One of the five requirements is that the employer offer a reasonable alternative standard. In other words, if an employee is unable to obtain the desired health outcome, he/she must be offered an alternative method of obtaining the reward. An example of an alternative standard is an employee completing three educational sessions related to healthy eating. At the completion of the sessions, the employee would be eligible for the lower premium contribution deduction even if his or her cholesterol level remains unchanged.

In the past, the alternative standard only had to be offered to individuals for whom the requirement was medically inadvisable or unreasonably difficult due to a medical condition. In June 2013, EBSA, the IRS and HHS jointly issued final regulations that changed this provision. Effective for plan years starting on or after Jan. 1, 2014, an outcome-based wellness program must offer the alternative standard to any individual who does not obtain the desired health outcome. The final regulations further clarified that an employee must be given the entire plan year to complete the alternative standard. Upon completion, the employee would receive the full reward retroactive to the first day of the plan year.

For example, let's say you sponsor a calendar-year group health plan. On Jan. 1, 2014, Joe's cholesterol level was not within the desired range. He indicates that he is interested in attending the sessions. However, he does not complete all three until April 1. Upon completion, Joe is entitled to the same reward as an individual whose cholesterol level was within the desired range on Jan. 1, 2014. Going forward, he would be eligible for the lower premium contribution deductions. If he paid a higher premium contribution deduction from Jan. 1, 2014, through March 31, 2014, he would be entitled to a refund equal to the difference between his deduction and the lower premium contribution deduction for wellness program participants.

Participant contributions withheld from employee paychecks are subject to the DOL's plan asset regulations governing welfare and pension benefits. This can include both cafeteria plans, which include HSA contributions, and retirement plans. However, please note that the specific details differ depending on whether the benefit is a welfare or pension benefit plan.

Welfare Benefit Plans

Under the DOL's plan asset regulations, participant contributions become plan assets "as of the earliest date on which such contributions can reasonably be segregated from the employer's general assets, but in no event later than 90 days after the payroll deduction is made." This generally means the outside limit for submitting contributions is 90 days, but is not to be considered a safe harbor because contributions will nearly always be segregated in a matter of days rather than weeks.

This deadline applies to participant contributions coming into an employer's possession under the welfare benefit plan, including personal checks used to pay COBRA contributions, premiums during FMLA leave, retiree premiums, salary reductions under a cafeteria plan and HSA contributions.

Pension Benefit Plans

The DOL's plan asset regulations are slightly different for participant contributions under a pension plan. The regulation is "as of the earliest date on which such contributions can reasonably be segregated from the employer's general assets, but in no event later than the 15th business day of the month following the month in which the participant contribution amounts are received by the employer." This generally means the outside limit for submitting contributions is 45 days, but is not to be considered a safe harbor because contributions will nearly always be segregated in a matter of days rather than weeks.

This deadline applies to participant contributions coming into an employer's possession under the pension benefit plan, including elective deferrals, Roth contributions, catch-up contributions, after-tax contributions and loan repayments.

Safe Harbor Available for Small Employers

On Jan. 14, 2010, the DOL finalized a regulation that implements a "safe harbor" of seven business days for employers with fewer than 100 participants to deposit plan assets to an employee's account. The safe harbor applies to both welfare and pension benefit plans. For small employers (fewer than 100 participants), the employer needs to be aware that the safe harbor now only allows seven business days from the date funds are withheld from the employee's pay to pass before funds must be deposited. This only applies to employee contributions, not employer.

Safe Harbor Unavailable for Large Employers

The safe harbor does not apply to large employers with 100 or more participants. This means large employers must generally deposit contributions for welfare or pension plans as soon as they can be "reasonably segregated" from the employer's general assets. This regulation has tripped up several employers recently, and DOL enforcement is taking place on this issue in particular. The focus of DOL audits has been determining when the money can be "reasonably segregated," because this is usually much sooner than 90 days (for welfare) and 45 days (for pension) after payroll deduction. In fact, the DOL has stated that "when contributions reasonably can be segregated from the employer's general assets in a shorter time period, [a] delay in forwarding the contributions, even a delay that does not exceed the maximum period under the regulation, may cause a breach of fiduciary duty."

Summary

Participant contributions withheld from employee paychecks should be forwarded on the earliest date they can be reasonably segregated from the employer's assets, except for small employers (defined above) who have a safe harbor of seven business days. If an employer has not been forwarding participant contributions on a timely basis, there are procedures available to correct both the fiduciary breach and the prohibited transaction that has occurred. Ask your advisor for assistance.

DOL Frequently Asked Questions: The Voluntary Fiduciary Correction Program »

The answer depends on whether the employer is sponsoring a fully or self-insured group medical plan. As background, the PCOR fee is found in two separate sections of the IRC: Section 4375 and 4376. Section 4375 applies to fully insured plans and requires the insurer to report and pay the PCOR fee. Section 4376 applies to self-insured plans and requires the employer to report and pay the PCOR fee.

An HRA is considered a self-insured plan, and therefore any employer sponsoring an HRA is responsible for reporting and paying the PCOR fee with respect to the HRA. In determining the number of covered lives, however, the employer may use the number of employees covered under the HRA (as opposed to the number of employees and dependents, which is required for most medical plans).

That said, for purposes of payment of the PCOR fee for the medical plan and the HRA, there are some considerations that vary based on whether the major medical plan is fully or self-insured.

If the employer's medical plan is self-insured, then the employer is responsible for reporting and paying the PCOR fee for both the medical plan and the HRA. Generally, that means the employer must determine both the number of covered lives for the medical plan and the number of covered employees for the HRA. However, there is a special rule for employers that sponsor multiple self-insured arrangements (e.g., self-insured medical plan and HRA) that have the same plan year. Under the special rule, only one PCOR fee applies for each covered life (which includes dependents and spouses) under the medical plan. If an employee is participating in the HRA but not participating in the medical plan, the employer still pays a fee on that employee for the HRA coverage.

If the employer's medical plan is fully insured, then the carrier is responsible for the PCOR fee on each covered life under the medical plan. However, the employer is responsible for the PCOR fee for each employee covered under the HRA. Again, this does not include dependents and spouses.

The PCOR fee is due July 31 of the year after the year in which the plan ends. So, for plan years ending in 2013, the PCOR fee is due July 31, 2014. The PCOR fee is reported and paid using IRS Form 720.

If you want to implement a measurement period for your variable hour or seasonal employees, the measurement period must conclude in time for you to offer coverage to those who are considered full-time employees by the effective date of the employer mandate. For most group health plans, that date is Jan. 1, 2015.

Employers can choose a measurement period of between three and 12 months. Employers do not have to use a 12‑month period. That said, for purposes of administrative ease and simplicity, the 12‑month measurement period is recommended, particularly if the end of the measurement period coincides with the plan's regular open enrollment. That way, the employer is only calculating hours, sending out eligibility notices, and enrolling individuals once per year (for ongoing employees).

An employer may change the length of measurement periods each year. Importantly, the length of the stability period (which follows and coincides with the measurement period) must generally be the same length as the measurement period, but it can never be shorter than six months. There is a transition rule for shorter measurement periods for the first year of the employer mandate in 2015. The preamble to the final regulations states:

"As an extension of guidance provided in section IX.C of the preamble to the proposed regulations, for purposes of stability periods beginning in 2015, employers may adopt a transition measurement period that is shorter than 12 consecutive months but that is no less than 6 consecutive months and that begins no later than July 1, 2014, and ends no earlier than 90 days before the first day of the plan year beginning on or after January 1, 2015 (90 days being the maximum permissible administrative period). For example, an employer with a calendar year plan may use a measurement period from April 15, 2014, through October 14, 2014 (six months), followed by an administrative period ending on December 31, 2014." (79 Fed Reg 8572)

The shorter transition measurement period must begin no later than July 1, 2014. Otherwise, you are limited to providing coverage for the length of the measurement period. By following this rule and the requirement to offer coverage by the effective date of the employer mandate, you will be left with shorter measurement and stability periods and administrative hassle. Therefore, measurement periods coinciding with 12-month stability periods which begin Jan. 1, 2015 should commence no later than July 1, 2014.

Yes, that is correct. An individual is eligible for HSA contributions if he/she is covered by an HDHP, is not claimed as a tax dependent and is not covered by disqualifying coverage. Coverage that would disqualify an individual from HSA eligibility includes Medicare, Medicaid, a non-HDHP that provides benefits before the statutory deductible has been met, and general purpose HRA and FSA. This would include a spouse's enrollment in a health FSA in which the employee's medical expenses were eligible to be reimbursed.

Revenue Ruling 2004-45 states:

"A health FSA and an HRA are health plans and constitute other coverage under Section 223(c)(1)(A)(ii). Consequently, an individual who is covered by an HDHP and a health FSA or HRA that pays or reimburses Section 213(d) medical expenses is generally not an eligible individual for the purpose of making contributions to an HSA. This result is the same if the individual is covered by a health FSA or HRA sponsored by the employer of the individual's spouse."

It is not enough that the employee certifies that he will not submit his medical expenses for reimbursement through his spouse's health FSA. The mere fact that the employee's expenses are eligible for reimbursement under the spouse's plan makes the employee ineligible to make or receive HSA contributions.

A health FSA can be specially designed to be compatible with an HSA. If an employee or spouse is enrolled in a limited purpose, post-deductible or combination health FSA, the employee would maintain his/her HSA eligibility. To summarize:

• A limited-purpose health FSA only reimburses expenses related to dental, vision or preventive services.
• A post-deductible health FSA reimburses participants for any qualified medical expense, but only after the statutory HDHP deductible has been met ($1,250 single, $2,500 family for 2014).
• A combination health FSA would reimburse only dental, vision and preventive expenses before the statutory deductible has been met and all other qualified expenses after the statutory deductible is met.

When an employee experiences a triggering event and that event is coupled with a loss of service, COBRA is required to be offered. COBRA is simply a continuation of the individual's existing group coverage through the employer, but they can be charged the full cost of coverage plus a 2 percent administrative charge. The requirement to offer COBRA applies to nearly all employers sponsoring a group health plan that have 20 or more employees on a typical business day during the preceding calendar year. However, the inception of the health insurance marketplace has introduced a new option available for individuals who lose coverage under an employer-sponsored plan.

Recall that COBRA coverage offered to an individual who has experienced a triggering event must be the same coverage that the qualified beneficiary had on the day before the qualifying event. The only exceptions to this rule are when an open enrollment period is made available for similarly situated active employees under the plan, or when a qualified beneficiary experiences a HIPAA special enrollment right. In both of these cases, coverage option changes under COBRA may be made.

There is a short time frame, usually 30–31 days, during which a former employee may not yet have elected COBRA but they are simultaneously eligible to enroll, midyear, on another employer-sponsored plan. Many times this can include coverage through a spouse's employer or when starting a new job and becoming eligible for benefits for the first time. It is important for individuals to understand that if they miss this window of opportunity and instead elect COBRA, they must wait for another midyear qualifying event, the next open enrollment period or exhaustion of the entire COBRA period (typically 18 months) to make any coverage changes.

Under health care reform, there is now yet another option now available for COBRA beneficiaries. As discussed in this Compliance Corner, on May 2, 2014, CMS announced a new special enrollment period (SEP) that specifically allows individuals currently on COBRA to enroll in a qualified health plan through the federally facilitated marketplace, even though the open enrollment period for the marketplace is now closed. Until July 1, 2014, individuals who are eligible for COBRA or COBRA beneficiaries qualify for this new SEP and may purchase a qualified health plan from the exchange. This includes all COBRA beneficiaries, not just those who have COBRA due to a termination of employment. Policies purchased in the marketplace are individual policies rather than group policies. Individuals can also purchase individual policies by contacting a broker or insurance carrier directly, outside of marketplace coverage.

Importantly, there are currently no notification requirements for employers to notify current COBRA beneficiaries that a SEP is now available in the marketplace, although employers should confirm that they are using the most current COBRA notices (which were recently updated). In any case, employers may find themselves answering questions about what options are available for an individual deciding whether to elect COBRA. Former employees can always be directed to the health insurance marketplace for more information about what coverage options are available to them.

Unfortunately, this would not be a qualifying event. Section 125 restricts the ability of an employee who has made a pretax election to change that election mid-plan-year. Basically, an individual's election is irrevocable (unchangeable) during the plan year unless the individual experiences a Section 125 qualifying event (and even then, the plan document must allow the election change, and the election change must be on account of and consistent with the qualifying event). Those qualifying events include:

• HIPAA special enrollment rights (acquisition of a new dependent through marriage, birth, adoption; loss of eligibility for group health coverage, insurance, SCHIP or Medicaid)
• Change in status (change in marital status, number of dependents, employment status, dependent satisfies or ceases to satisfy eligibility requirements, or a change in residence)
• Change in cost of coverage
• Significant cost change or coverage curtailment
• Addition or significant improvement of benefit options
• Change of coverage under another employer plan
• Loss of group coverage under a governmental or educational institution
• Court judgment, order or decree

There is no Section 125 qualifying event for unaffordability or financial hardship. While items 3 and 4 might seem like they would apply, these two events relate to changes made by the employer, not changes in the employee's circumstances that cause the cost to be unaffordable.

In summary, a Section 125 plan (whether a full plan or a premium-only plan) may not provide leeway for an employee to drop their pretax elections mid-plan-year due to a financial hardship. Doing so places the entire plan at risk. The penalty for failing to comply with the regulations can be severe. The 2007 Proposed Treasury Regulations state that a plan that fails to operate in accordance with the Section 125 requirements is not a cafeteria plan, and employees' elections between taxable and nontaxable benefits result in gross income to employees.

Yes, the mistake should be corrected. This is important for several reasons. First, under ERISA, the employer is obligated to operate the plan in the best interest of plan participants and benefits and not to benefit from the plan. By overcharging and not correcting, the employer is violating both of those obligations. Those violations are considered violations of a fiduciary duty, and therefore could result in civil lawsuits, fines and other penalties.

Second, the overcharge could be in violation of Section 125 (if the deductions were made pretax), which allows employers to take pretax salary deductions to pay for qualified benefits (i.e., premiums for medical, dental, vision and other health coverage). Thus, the overcharge would likely be viewed as a deduction made not for qualified benefits. This could be in violation of Section 125, which may result in the disqualification of the Section 125 plan (i.e., all individuals would lose the pretax benefits associated with that coverage). So the overcharge could have consequences under Section 125.

Third, the overcharge could be a violation of the salary reduction agreement between the employer and the employee. That would be a problem between those two parties, but may also be a violation of state wage withholding laws. Some states require that employee salary reductions be made only with the signed authorization of the employee and must state the nature of the reduction (and sometimes the actual amount). By over-withholding, the employer may be in violation of the state law and the employee's written authorization.

As far as actual steps for correction, there are no specific IRS or DOL guidelines on correction procedures. The general idea is to put each party back in the place they would have been had the mistake not occurred. So that would seem fairly straightforward — refund the amounts that were overcharged. If those have been in the current year, then there would not likely be any reporting or withholding issues. However, if the overcharges were in prior years, the employer may have to file amended tax reports and filings, such as quarterly employment tax reports and Forms W-2. If that is the case, the employer should work with outside tax counsel or their accountant in correcting the error.

The answer depends upon the type of employer. All public agencies and local elementary and secondary schools are subject to FMLA regardless of the number of employees. Local schools include both public and private schools.

Private employers are subject to FMLA if they have 50 or more employees for 20 or more calendar workweeks in the current or preceding calendar year. Thus, once an employer has 50 or more employees for 20 or more workweeks, they are subject to FMLA for the rest of that calendar year and the entire next calendar year. When calculating the number of employees, all common law employees should be counted, including part-time, seasonal and temporary employees.

A successor employer should include the employees of a predecessor employer in the calculation of the number of employees. In determining whether the employer is a successor employer, the following factors should be considered: substantial continuity of the same business operations; use of the same plant; continuity of the work force; similarity of jobs and working conditions; similarity of supervisory personnel; similarity in machinery, equipment and production methods; similarity of products or services; and the ability of the predecessor to provide relief. An employer who takes over a contract project from another employer can be considered a successor employer.

The employees of integrated employers must be counted together. In determining whether two or more entities are an integrated employer, the following factors should be considered: common management, interrelation between operations, centralized control of labor relations and degree of common ownership or financial control.

A common misunderstanding is that a private employer is subject to FMLA only if it employs 50 or more employees within a 75-mile radius. The mileage factor only applies when determining whether an employee is subject to leave under FMLA. It is not related to determining whether an employer is subject to FMLA. If an employer has 50 or more employees, as determined under the factors described above, then the employer is subject to FMLA. This is true regardless of whether the employees are within 75 miles of each other. The employer is responsible for posting the FMLA poster in worksites and including the language of the General Notice in its employee handbook (or providing a copy to new hires). It is possible, however, that an employer that is subject to FMLA and the General Notice requirement would not, in fact, have any employees eligible for leave because of the mileage requirement.

Employers may implement an eligibility carve-out for spouses who have coverage available to them elsewhere, but there are some benefits compliance issues to consider. With respect to federal law, there is nothing in Section 125 that explicitly prohibits a plan from excluding spouses from eligibility under the terms of the plan if coverage is available elsewhere. Further, implementing a spousal carve-out raises other considerations with respect to state law, the insurer, enforceability, HIPAA special enrollment rights, Medicare Secondary Payer (MSP) laws, ERISA and COBRA, as outlined below.

Insurer and State Law Considerations

To begin with, state law sometimes comes into play for fully insured plans. That would depend on the state in which the insurance policy is issued. Some states restrict the use of spousal carve-outs by stating that spousal eligibility cannot be conditioned on whether the spouse has other coverage available to him or her. So, for a fully insured plan, state law should be considered first. Although not an exhaustive list, examples of states that have taken this approach include New York, Wisconsin, Georgia and Texas.

If the plan is fully insured, the plan sponsor should confirm the plan design with the insurer's underwriting assumptions as well as the terms of the plan's underlying insurance policy. The employer should also clearly define the eligibility provisions in the plan document in order to state exactly how the carve-out will be structured.

Enforceability of a Spousal Carve-out

The employer should also consider whether a spousal carve-out is enforceable and pre-determine what disciplinary actions will occur if an employee misrepresents the coverage available to a spouse. For example, would misrepresentation lead to a retroactive cancellation of coverage, including recouping any previously paid premiums and benefits? This is particularly important in light of health care reform, which allows rescissions of coverage only in the event of fraud and/or misrepresentation. Such retroactive cancellations (or other disciplinary actions) should also be confirmed with the carrier (if the plan is fully insured).

Changing the Definition Under the Plan

The employer should clearly define the eligibility provisions in the plan document (typically governed by ERISA) in order to state who is eligible for coverage under the plan. The plan document is the document that a court would look to if there are any issues with respect to eligibility, along with what was represented to the employee. So the plan document and any communications sent to employees (i.e., open enrollment materials, SPDs, etc.) would need to properly describe the carve-out.

Since the definition of an eligible spouse is being amended under the plan, a spouse that becomes ineligible midyear should be terminated. In other words, a spouse that becomes eligible for coverage under his/her employer-sponsored group health plan midyear would become ineligible under that plan. The spouse would then be dropped from the group health insurance coverage when the other coverage becomes effective. Alternatively, if a spouse is currently ineligible for coverage because they have their own employer's plan, they should be permitted to enroll midyear if they lose coverage under the spouse's employer's plan (as this would be a HIPAA special enrollment right, discussed next).

HIPAA Special Enrollment Rights

HIPAA special enrollment rights require that a health plan allow a midyear enrollment for an individual who, within the last 30 days, has lost group health coverage due to a loss of eligibility for that coverage. This means that the spouses whose coverage will be terminated due to the eligibility provision will be able to enroll in the spouse's employer's plan under HIPAA special enrollment rights due to "loss of eligibility for coverage under a group health plan."

COBRA

An active spouse that is dropped from coverage would not be offered COBRA since there has not been a qualifying event. For COBRA to apply, there must be a qualifying event and a loss of coverage (ERISA 603). In this case, there would be a loss of coverage, but not a qualifying event, such as a divorce, death of employee, employee termination, etc. In addition, the practice of declining eligibility for spouses with other coverage would also not be permissible for spouses of COBRA beneficiaries. COBRA is very specific on the reasons that a COBRA beneficiary's coverage may be terminated, and this would not be a permissible reason.

Certification of Other Coverage

Employers will want to consider whether and how employees will certify that the spouse has other coverage. This could be done through a basic affidavit or signed certification. For any affidavit or other employee certification, the basic idea is to make sure that the employee understands the consequences of signing the certification, so that he/she can give knowing consent. The form should provide information on the spousal carve-out, including the consequences for providing false information.

MSP Laws

Importantly, keep in mind that the MSP laws prohibit an employer with 20 or more employees from "taking into account" an active employee's (or spouse's) entitlement to Medicare. The employer must provide the individual with the same benefits under the same conditions as other employees. Thus, if the employer has 20 or more employees, they may not take Medicare into account when determining eligibility under the plan. A best practice would be to only consider other "employer" coverage, rather than any other coverage.

To begin with, the written plan document and summary plan description (SPD) requirements are two separate requirements under ERISA. The written plan document is meant to be the more complex document — it serves as the operations manual for the plan administrator and contains all of the technical information relating to the plan. There is no requirement to distribute the plan document — the employer simply must have one and make it available upon request. The plan administrator is also under a fiduciary obligation to follow the terms of the plan document in operating the plan. The SPD, on the other hand, is meant to be a summary of the plan document, written in laymen's terms so that an average plan participant can understand. It should be shorter and less technical than the plan document, and it must be distributed to plan participants at certain times.

A "wrap" document generally relates to the written plan document requirement (but also comes into play for the SPD requirement). There are two types of wrap documents — a wrap document and a mega-wrap document — which have two separate purposes. As background on the first type of wrap document, many employers use the insurance policy, contract or booklet from the insurer as the plan document (since it contains the general eligibility rules and benefits offered under the plan). While the insurance policy may include much of the information needed to satisfy the written plan document requirement, it does not normally contain some ERISA language that is required. A wrap document simply adds the required ERISA language to an insurance policy, such that the two together satisfy the written plan document requirement.

The mega-wrap document, on the other hand, is meant to bundle together the different component plans sponsored by the employer, which may help simplify ERISA compliance. For example, if an employer sponsors two different medical plans and an HRA (all are subject to ERISA), the employer can have one written plan document, one SPD and one Form 5500 (as opposed to three of each). Importantly, the bundled plan document would need to sufficiently describe that all component benefits are considered one plan for ERISA purposes. In addition, the SPD and Form 5500 would need to include the appropriate information for all component benefits. For example, the Form 5500 main body would need to include a description of all component benefits and a separate Schedule A would have to be attached for each insured component benefit).

Finally, while bundling plans does help simplify and streamline ERISA compliance, it may make ERISA and its obligations applicable to some component benefit plans that were previously exempt from ERISA. For example, if one of the component benefit plans was previously exempt from the Form 5500 filing requirement as a small (fewer than 100 participants) unfunded plan, that component benefit may become subject to the Form 5500 filing requirement as a result of the bundling of the plans (since the 100-count would have to include participants under the entire plan — not just those under the component HRA). Employers should consider that when determining whether to implement a mega-wrap document.

Employers should work closely with their advisors in determining whether they are complying with ERISA's written plan document and SPD requirements through the use of a wrap document.

There is no specific federal (or PPACA) requirement that eligibility for a group health plan needs to be changed to include all employees who work 30 hours or more per week. That requirement is tied to the employer mandate, which has been delayed until January 2015 (and later for some employers). Recently released final regulations delay the employer mandate's effective date until Jan. 1, 2016, for employers that have 50-99 full-time-equivalent employees, provided they meet certain other requirements. Furthermore, the effective date for employers with non-calendar-year plans may be delayed until the first day of the first plan year in 2015 if they meet very specific requirements (such as not pursuing an early renewal strategy in 2013). As background, the employer mandate requires certain employers to pay a penalty if they:

• Do not offer employer-sponsored coverage to full-time employees and their dependents; or
• Sponsor insufficient (i.e., not of minimum value) or unaffordable coverage to full-time employees and their dependents

The penalty amount is dependent upon the number of full-time employees, which is defined as those working 30 hours or more per week. This is likely why many employers think they must change the definition of eligibility to be 30 hours or more per week. While it may be administratively easier for employers to change the definition of eligibility to match the employer mandate requirement, it is not necessarily required under federal law. Complicating the matter further, Congress is currently considering a bill that would amend the employer mandate and redefine "full-time employee" as one working 40 hours or more per week (rather than 30). It is unclear whether Congress will pass that bill before the employer mandate is effective. But as it stands now, large employers may be subjecting themselves to an employer mandate penalty if they do not make 30-hour-per-week employees eligible for the employer's group health plan.

Employers should also keep in mind that some state insurance laws define "eligible employee" in the insurance code. In other words, if it is a fully insured policy issued in a state with a more generous eligibility threshold, the employer should already make an offer of coverage to employees working those hours, which can be a lower threshold. This is more common in the small group market, but some states define "eligible employees" in the large group market as well. If the employer happens to be large enough to be subject to the employer mandate but also must comply with the definition of eligibility under state law, it does not necessarily mean the employer would pay a penalty on those who are working less than 30 hours a week who are eligible under the plan.

If the employer has 20 or more employees, the answer to both questions is no. Both practices are prohibited by the Medicare Secondary Payer (MSP) regulations. The MSP regulations prohibit an employer with 20 or more employees from taking an individual's age-based Medicare status into consideration. As 42 USC 1395y (b)(1)(A)(1)states:

"A group health plan may not take into account that an individual (or the individual's spouse) who is covered under the plan by virtue of the individual's current employment status with an employer is entitled to benefits under this subchapter under section 426(a) of this title, and shall provide that any individual age 65 or older (and the spouse age 65 or older of any individual) who has current employment status with an employer shall be entitled to the same benefits under the plan under the same conditions as any such individual (or spouse) under age 65."

In other words, employees and spouses who are eligible for Medicare due to age must be eligible under the same terms and conditions as employees and spouses that are under age 65.

Additionally, the regulations prohibit an employer (again, with 20 or more employees) from providing a financial incentive for a Medicare-eligible individual to not enroll or terminate group coverage to make Medicare primary. According to 42 USC 1395y(b)(3)(C):

"It is unlawful for an employer or other entity to offer any financial or other incentive for an individual entitled to benefits under this subchapter not to enroll (or to terminate enrollment) under a group health plan or a large group health plan which would (in the case of such enrollment) be a primary plan (as defined in paragraph (2)(A))."

Reimbursing an employee for the cost of Medicare or supplement premiums would most likely be considered a financial incentive for the employee (or spouse) to drop group coverage, making Medicare primary. Further, CMS has stated that an employer must not "subsidize, purchase, or be involved in the arrangement of an individual supplement policy for the employee or family member" (CMS Instruction Booklet for IRS/SSA/CMS Data Match).

In summary, an employer with 20 or more employees should not exclude Medicare-eligible employees or spouses from group health plan eligibility due to their age. An employer should not reimburse employees or spouses for the cost of Medicare premiums or of a Medicare supplement policy. To do so would put the employer at risk for violation of the MSP Regulations. The employer should not take the employees' or spouses' Medicare status into consideration and should offer them the same benefit options that are available to other employees and spouses.

The penalty for noncompliance is a $5,000 civil penalty per violation, along with the risk of legal action and liability for damages. Additionally, an excise tax equal to 25 percent of group health plan expenses incurred during the calendar year may be imposed.

In general, PPACA requires that small group policies issued or renewed on or after Jan. 1, 2014, provide coverage for the 10 categories of essential health benefits (EHB). One of the EHB categories is pediatric dental coverage. Please note that a small employer is not required to sponsor a group health plan for its employees. If it chooses to do so, the coverage should include EHB. Large employer plans and self-insured plans are not required to provide coverage for EHB. For this purpose, a small employer in most states is currently defined as one with 50 or fewer employees (which will increase to 100 employees in 2016).

Small employers have a choice as to how they will purchase their group coverage. They may purchase through the SHOP or outside of the exchange. If a small employer purchases a group medical policy through a federally facilitated SHOP and in most state-run SHOP exchanges, the policy may exclude coverage for pediatric dental services if a stand-alone dental benefits plan is offered through the SHOP. This exclusion is specifically provided for in Section 1302 of PPACA.

The same exclusion is not available for small group policies purchased outside of the exchange. Such policies must provide coverage for all 10 EHBs, including pediatric dental, but with one exception. A small group policy purchased outside of the exchange may exclude coverage for pediatric dental only if the insurer is reasonably assured that participants are covered by an exchange-certified stand-alone dental plan offered outside of the exchange. Not all dental plans will meet this qualification; it must be an exchange-certified dental plan.

The responsibility to offer EHB, including pediatric dental coverage, falls on the insurer. However, a small employer needs to understand the requirement so that it may be an informed consumer and purchase the appropriate policy/policies for its employees.

The exemption for smaller employers still applies. Until further notice, employers with fewer than 250 Forms W-2 in the previous calendar year are exempt from the reporting requirement. At this time, the IRS has not issued further guidance.

Therefore, employers who filed fewer than 250 Forms W-2 in 2012 may continue to take advantage of the transition rule to delay this requirement until the earlier of the date the IRS ends the transition rule, or the year following the first year the employer files 250 or more Forms W-2. Of course, such employers may choose to include the value of health coverage if they wish to comply voluntarily. Conversely, this also means that if a small employer previously relied on the exemption, but filed 250 or more Forms W-2 in 2012, they must comply with the reporting requirement in 2013 (reflected on Forms W-2 provided no later than Jan. 31, 2014). The test to determine how many Forms W-2 were filed in the previous year must be performed each year in order to qualify for the transition relief.

Recall that this new requirement hinges on the actual number of Forms W-2 filed, and not how many employees the employer employed or how many participants are covered on the health plan.