Compliance Corner Archives

Sometimes new employees receive employer-subsidized COBRA coverage from their former employer. When they do so, they often seek to delay their enrollment in their new employer’s plan in order to take advantage of the subsidized COBRA. However, there’s an argument that the end of the subsidized coverage wouldn’t be a qualifying event under Section 125. While there’s one permissible qualifying event that might allow for such a qualifying event, it isn’t clear since the IRS hasn’t provided direct guidance.

First, the “significant change in cost” qualifying event wouldn’t apply whenever the cost of COBRA increases. Instead, this would only apply if the employer raised the cost of the entire health plan midyear. In this instance, the employer plan’s cost of coverage isn’t changing and the former employer is just offering a lesser contribution to cover COBRA premiums.

Second, a HIPAA special enrollment right wouldn’t apply either, because this enrollment right only allows an election change when COBRA is exhausted, not when COBRA is dropped voluntarily (assuming the individual would choose to drop COBRA after the employer-provided subsidy ends).

Third, although there’s a qualifying event for a “change under another employer’s plan,” it isn’t clear whether this event would be permitted when a COBRA subsidy ends. For one, the rules don’t address whether COBRA coverage would actually be included in the definition of “other employer coverage.” Additionally, this particular event allows midyear changes in one of two circumstances: 1) when the other employer’s plan allows an election change that’s permissible under the regulations, and 2) when the other employer’s plan has a different period of coverage (i.e., has a different plan year). However, it isn’t clear whether or not this change in employer contribution to the COBRA premium is really a change in coverage that would fit under either of these options. So, while there’s an argument that this could be considered a qualifying event, it isn’t specifically discussed in IRS regulations or guidance, and it remains a gray area.

Therefore, the most conservative strategy for an employer is to proceed as if the COBRA subsidy ending were not a qualifying event. This would mean the employee would need to enroll upon hire (after completion of any applicable waiting period), upon experiencing another permissible qualifying event or during open enrollment. However, if an employer decides to treat the end of a COBRA subsidy as a qualifying event (preferably with the assistance of outside counsel), the employer would at least need to make sure the cafeteria plan documents provide for this permissible qualifying event.

An individual is eligible to make or receive HSA contributions if they’re enrolled in a qualified high deductible health plan (HDHP).

In 2018, the HDHP is qualified if it meets the following criteria:

• Has a minimum single deductible of $1,350 and a minimum family deductible of $2,700.
• The out-of-pocket maximum is no greater than $6,650 for single coverage and $13,300 for family coverage.

Importantly, the family coverage cannot pay benefits for any single family member before the statutory family deductible has been met.

For example, let’s say that a HDHP has a self-only deductible of $1,700 and a family deductible of $3,000. The plan also has an embedded deductible within the family tier of coverage for any single family member who attains at least $1,700 in accepted claims. This plan would fail to be qualified and would render participants ineligible for HSA contributions. To correct the issue, the embedded deductible under the family tier would have to be at least $2,700 or the plan would have to eliminate the embedded deductible.

As an additional note, to be in compliance with the ACA, the family tier of coverage for any non-grandfathered policy (both qualified HDHPs and non-HDHPs) must include an embedded out-of-pocket maximum of $7,350 or less.

There are different federal and state laws that could require entities to keep documents for a certain number of years. However, ERISA also requires that plan sponsors maintain certain documents.

Two sections of ERISA deal directly with the retention of records for employee benefits plans (including 401(k) and health plans). Specifically, ERISA 107 requires that all records pertaining to the Form 5500 be retained and kept available for examination for at least six years after the filing date. Under this requirement, the Form 5500 and all its schedules and attachments should be kept for the six-year period, as should any documentation underlying those Forms 5500, such as ledgers, checks and journals. So any documents that are filings or the underlying records supporting such filings should be kept for at least six years.

Also keep in mind that the filing date of the annual Form 5500 is generally seven months after the end of the plan year. As such, the employer may have to retain certain underlying documents for up to seven or eight years since the documentation to support that annual form may actually be dated at the beginning of the plan year. Example: The 2017 Form 5500 is filed in July 2018, and covers Jan. 1, 2017-Dec. 31, 2017. Documents pertaining to the filing might have been created in January 2017. Those documents would have to be maintained for six years after July 2018, which would be seven years and seven months after the January 2017 creation. This example also applies in the case of IRS audits of a Plan, with their three-year statute meaning that documents may need to be retained for a period closer to four years and seven months.

Additionally, ERISA 209 requires that an employer retain records that determine the benefits due or which may become due for each of its employees. This section is much broader, in that the documents are required to be kept as long as they may be relevant to a determination of benefit entitlements. The types of documents required to be kept under this section include, but are not limited to, plan documents, claims procedure documents, plan notices, group annuity contracts, age and service data used to determine benefits, payroll records, marital status records and beneficiary designations, and distribution documentation.

Fortunately, though, the employer can keep electronic copies as long as they meet the DOL rules for electronic recordkeeping. Under DOL Regulation 29 CFR §2520.107, the DOL allows for electronic recordkeeping if:

1. The electronic recordkeeping system has reasonable controls to ensure the integrity, accuracy, authenticity and reliability of the records kept in electronic form;
2. The electronic records are maintained in reasonable order and in a safe and accessible place, and in such manner as they may be readily inspected or examined (e.g., the recordkeeping system should be capable of indexing, retaining, preserving, retrieving and reproducing the electronic records);
3. The electronic records are readily convertible into legible and readable paper copy as may be needed to satisfy reporting and disclosure requirements or any other obligation under Title I of ERISA;
4. The electronic recordkeeping system is not subject, in whole or in part, to any agreement or restriction that would, directly or indirectly, compromise or limit a person's ability to comply with any reporting and disclosure requirement or any other obligation under Title I of ERISA; and
5. Adequate records management practices are established and implemented (e.g., following procedures for labeling of electronically maintained or retained records, providing a secure storage environment, creating back-up electronic copies and selecting an off-site storage location, observing a quality assurance program evidenced by regular evaluations of the electronic recordkeeping system including periodic checks of electronically maintained or retained records, and retaining paper copies of records that cannot be clearly, accurately or completely transferred to an electronic recordkeeping system).

This FAQ is designed to give general information about an employer’s possible record retention responsibilities. Ultimately, employers should consult with their service providers and/or legal counsel before determining whether to keep or destroy plan records.

Generally speaking, there’s no specific requirement when it comes to offering domestic partner coverage at all, or when it comes to demonstrating eligibility for dependent status, including for domestic partners. Thus, employers have flexibility to define domestic partner and design any documentation requirements as they see fit. That said, an employer sponsoring a fully insured plan should consider state insurance law (which may define “domestic partner”) and any carrier restrictions (some carriers may have their own requirements with respect to dependent (including domestic partner) eligibility and documentation).

Once they settle on domestic partner eligibility terms, employers will need to determine a process for verifying domestic partner status. At the very least, employers should require a signed statement or affidavit relating to domestic partner status. Some employers may go further in requiring additional documentation, including proof of financial dependency (such as a joint checking account, shared lease, etc.) or some type of proof of commitment (such as being a named beneficiary on a life insurance or retirement plan). If the employer is in a state that maintains a domestic partner registry, the employer may require some type of proof of registration.

As far as domestic partner/dependent taxation, IRS guidance confirms that employers may rely on an affidavit to verify tax dependent status, unless the employer has reason to believe otherwise. Employers should remind employees that they have the obligation to notify the employer should that tax status change. If the domestic partner doesn’t qualify as a tax dependent, the employer should remind the employee of the related tax consequences (that the domestic partner’s coverage cannot be paid pre-tax through a cafeteria plan and that the value of the domestic partner’s coverage must be imputed to the employee — meaning it’s included in the employee’s gross income).

Ultimately, employers shouldn’t generally treat domestic partners differently than married couples. For example, requiring additional documentation to show domestic partner status as compared to marital status may be confusing and problematic, particularly for employees. So, if the employer requires only an employee attestation for spouses, it should require the same attestation for domestic partners. If the employer wants to go further and require some type of proof of dependency or registry for domestic partners, it should consider requiring a marriage certificate for spouses. Whatever the employer decides, the eligibility and documentation requirements should be outlined in the plan document and properly communicated to employees.

Even though COBRA has been around since 1985, it’s still fairly easy for an employer to get tripped up by its extensive requirements. Whether an employer utilizes a third party to administer COBRA or it administers the requirements in-house, compliance is ultimately the employer’s responsibility.

As a reminder, COBRA applies to employers who average 20 or more employees in the previous calendar year. Governmental entities and churches are exempt.

So, what are the most common mistakes that we see employers make when it comes to COBRA?

COBRA Initial Notice

Most employers are familiar with the COBRA Election Notice that needs to be sent to participants who have lost eligibility under the plan. However, many are not in compliance with another COBRA notice requirement — the COBRA Initial Notice.

This notice informs newly enrolled employees and spouses of their rights under COBRA as it applies to their group health plan. It also details how they must notify the plan within 60 days of a divorce or child ceasing to be eligible under the terms of the plan.

The notice must be distributed to employees and spouses anytime they become newly enrolled in the plan. This includes all of the following scenarios:

• After a newly hired employee enrolls
• When a previously waived employee enrolls during open enrollment
• Following an employee adding a new spouse upon marriage
• After an employee enrolls him/herself and a spouse mid-year due to a qualifying event

Most employers remember to send the notice to newly hired employees upon enrollment but forget or are unaware of the requirement to send the notice following the other occurrences. Other employers distribute the notice in a manner that does not ensure that the spouse also receives it (such as via intranet or email).

It’s important to comply so that the employer may enforce the 60-day deadline when an employee provides late notice of a divorce. Consider an employee who notifies the plan of her divorce four months after a divorce. If the notice had been previously provided to the employee, the ex-spouse would not be offered COBRA because of the late notification. However, if the employer cannot prove that it ever sent the Initial Notice to the employee and spouse, then the plan may be required to provide COBRA to the ex-spouse regardless of when the plan was notified. Further, an insurer or stop-loss carrier can deny claims for the ex-spouse because of the employer’s non-compliance, which may leave the employer self-insuring the ex-spouse’s claims.

If an employer hasn’t been in full compliance with this requirement, it’s recommended that the employer send the Initial Notice to all currently enrolled employees and spouses to catch up. Then, the notice could be sent prospectively to all newly enrolled employees and spouses for ongoing compliance.

Health FSA and COBRA

Health FSAs are a COBRA-eligible benefit. However, COBRA is only offered for participants who have a health FSA balance upon losing eligibility for the plan (also called an underspent account). The applicable premium would be the employee’s regular monthly health FSA contribution plus the two percent administrative fee, if selected by the employer.

The health FSA may only be continued through COBRA through the end of the plan year. In other words, the participant isn’t given the opportunity to make a new election during open enrollment. There’s a limited exception to this rule. If the employer has adopted the rollover provision for the plan and the participant has funds remaining at the end of the plan year, the participant may continue participation into the new plan year in order to spend down the rollover funds. A premium would not be charged in Year 2, as the employee has already contributed the funds for the rollover amount.

Remember, an employee who has waived coverage in the employer’s group medical plan but enrolls in the health FSA should still receive a COBRA Initial Notice in regards to the health FSA.

Open Enrollment Rights

A qualified beneficiary who is continuing coverage of any benefit through COBRA has the same open enrollment rights as active eligible employees. For example, a COBRA beneficiary who is continuing coverage for self-only medical has the right to add employee plus family dental coverage during open enrollment if active employees have the same right.

These are just some of the common mistakes that NFP’s Benefits Compliance team regularly sees employers make. If you’d like additional information on any of these requirements or have other questions, please contact your advisor for assistance.

The effect of telemedicine on HSA eligibility continues to be somewhat ambiguous because the IRS has yet to release guidance on the subject. However, we believe there is enough IRS guidance to provide general considerations.

As background, an individual must be enrolled in a qualified HDHP and have no other impermissible coverage in order to establish and contribute to an HSA (including employer HSA contributions). Impermissible coverage is any coverage that pays benefits prior to meeting the statutory annual deductible ($1,300 for single/$2,600 for family coverage for 2017). This is also called “first-dollar coverage” and includes Medicare, Medicaid, TRICARE, general-purpose health FSA or HRA, a major medical plan with copays, or any non-HDHP that pays expenses before the statutory deductible has been satisfied. Alternatively, permissible coverage includes, among others, limited-purpose/post-deductible FSAs or HRAs, dental, vision, permitted insurance and other excepted benefits.

Telemedicine programs are typically just another way an employee can access medical care via phone/Internet. If the telephonic/virtual visits offered are only considered preventive care or insignificant benefits, then the plan would not cause someone to become ineligible for the HSA. However, these programs are normally not limited only to preventive services. Instead, participants can contact a licensed physician or health care provider to discuss various health conditions that go beyond preventive services, such as colds/flu, viruses, dermatological problems, infections, medications, etc. So, if the program provides diagnosis, treatment or prescriptions and the actual services are provided at no cost (or with a copay less than the service fee) prior to the statutory deductible being met, then the plan is providing significant benefits and would render an individual as ineligible to participate in an HSA (even if the employee is charged a premium for access to the physician). Therefore, it’s unlikely that such a program’s visits/consultations could be considered preventive care/insignificant benefits for purposes of HSA eligibility.

So, to summarize, if the telemedicine program provides a service that would be covered by the HDHP (e.g., a doctor's visit regardless if it is by Internet or phone), but the employee is not paying a copay or fee for service, then the telemedicine program is considered first-dollar coverage and is thus impermissible when it comes to HSA eligibility. Most of the telemedicine programs we see would fall into that “impermissible coverage” category because the employee is not responsible for any cost-sharing in connection with the virtual/telephonic visit.

One approach to avoid this problem would be to require the employee to pay a fee associated with the consultation. This way the virtual consultation would be similar to any other benefit offered under the qualifying HDHP (subject to the statutory deductible). Unfortunately, there is no exact threshold with regard to cost-sharing (e.g., charging a $40 fee/consultation). But the idea is that the doctor visit must have a cost associated with it so that the employee is not receiving first-dollar coverage, and that can be accomplished by assigning a fair market value to the visit. As an example, if a program charges $40 for a virtual visit, although the fee is lower than a regular in-person office visit would be under the HDHP, then the $40 could be considered the fair market value of the service provided. Therefore, the participant did not receive a benefit before meeting the statutory deductible. That would mean the individual is still eligible to contribute to an HSA.

Since the IRS has not provided official guidance, we couldn’t say for sure if charging a copay/fee is enough to render a telemedicine program permissible coverage. But a telemedicine program that provides first-dollar coverage (e.g., $0 cost for a visit) would clearly be considered impermissible coverage, and thus make an individual ineligible to continue HSA participation. Conversely, charging a consult fee/copay associated for a remote visit (fair market value of that service) and not receiving any first-dollar coverage may be a way to maintain HSA eligibility. Ultimately, it is up to the employer to understand the nature of its telemedicine program and its effect on their employees’ HSA eligibility.

Many companies are moving toward electronic distribution of documents, such as placing those documents on a benefit administration portal or intranet. When it comes to distribution of documents required under ERISA (such as SPDs, other plan documents and annual notices), the regulations allow for electronic distribution as long as the employer follows the DOL's safe harbor rules regarding electronic disclosure.

Specifically, the regulations recognize two groups of employees — those who “have electronic access as an integral part of their job” and those who don’t. Although this determination is facts-and-circumstances-based, the categories are determined by whether the employee has the ability to access electronic documents at a location where they are reasonably expected to perform their duties.

The first group of employees, those with “electronic access as an integral part of their job,” are not simply employees with company emails or who have access to a computer or electronic kiosk at work; instead, they actually have the ability to access electronic documents at a location where they actually work every day. As such, an employer would need to assess their workforce to determine which (if any) of their employees fit in this category.

With that clarification in mind, documents may be provided electronically to employees who have electronic access as an integral part of their job. However, the employer must take the necessary steps to ensure that the email or other electronic system: "results in actual receipt of transmitted information" (which would be satisfied by return receipts or failure to deliver notices), protects the employee's confidential information, maintains the required style/format/content requirements, includes a statement as to the significance of the document, and provides a statement as to the right to request a paper version. Further, if participants fall into this category, then no consent to electronic disclosure is required.

On the other hand, if certain employees do not have electronic access as an integral part of their job, they may provide the employer with an email address to provide notices, and the employee must affirmatively give consent to electronic notices before the documents are provided. The email must explain what documents will be provided electronically, that their consent can be withdrawn at any time, procedures for withdrawing consent and changing the email address, the right to request a paper copy of the document and if there is an applicable fee, and what hardware or software will be needed.

Further, the second group of employees (those without electronic access as an integral part of their jobs) have to give their consent for the employer to distribute the plan notices to them electronically. If certain employees do not give their consent, then the employer should distribute a hard copy to them through the mail or in person (as long as precautions are taken to ensure that the employer can prove that the employee received it).

Therefore, employers who want to post documents on their benefits administration portal or intranet must meet the requirements of the DOL’s electronic disclosure safe harbor.

Keep in mind, though, that the employer should also consider the nature and distribution requirements of the documents that they are seeking to electronically distribute. For example, the COBRA initial/general notice is unique, in that it must be distributed to enrolled employees and their spouse. So it may be difficult to ensure actual receipt by the employee’s spouse by placing the notice on a benefit administration portal or on the intranet. Instead, best practice would be to mail the notice to the address on file with the envelope and notice addressed to both the employee and spouse.

If the employer has 20 or more employees, the answer is no. This practice is prohibited by the Medicare Secondary Payer (MSP) regulations. So, due to the MSP regulations, this employer should not pay any portion of the premium for the Medicare supplement plan for any active employees or their spouses.

There are two relevant guidelines under the MSP regulations. The first prohibits 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)(i) 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."

To summarize, 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.

The second guideline prohibits 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 making 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 plan premiums would most likely be considered a financial incentive for the employee or spouse to drop group coverage, making Medicare primary. Further, CMS explicitly states on page six of the CMS Instruction Booklet for IRS/SSA/CMS Data Match that an employer must not "subsidize, purchase, or be involved in the arrangement of an individual supplement policy for the employee or family member.”

In summary, an employer with 20 or more employees should not reimburse employees or spouses for the cost of Medicare or supplement plan premiums. 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.

A noncompliant employer would be subject to a $5,000 civil penalty per violation, legal action and liability for damages, and excise tax penalties.

Generally speaking, under ERISA, a group health plan-sponsoring employer must distribute an SPD to plan participants within 90 days of the participant’s enrollment in the plan. That would include a newly-hired employee who enrolls in the plan mid-year and any employee that elects coverage for the first time at open enrollment. Thereafter, ERISA requires the employer to automatically provide an updated SPD every five years if changes have been made to the original SPD, and every 10 years if no changes have been made. Lastly, an SPD must be provided upon an employee’s request.

Because the SPD is oftentimes the employer’s method for communicating benefits and obligations under the plan, and since benefits (and sometimes obligations) change each year, many employers distribute an updated SPD each year during open enrollment. That way, the employer can avoid any miscommunication to employees (and their dependents) regarding plan benefits.

It’s also important to note that other ERISA and PPACA requirements may determine when certain notices regarding plan benefits might be required. First, if changes to the plan are considered ‘material’ or a ‘material reduction’, then ERISA requires the employer to distribute a summary of material modification (SMM) or a summary of material reduction of benefits. Both of those must go out within a certain time after the change takes effect—but practically speaking, it makes sense to distribute the SMM or material reduction notice prior to the change taking effect. Not only does that satisfy the notice requirements, but it also helps avoid any miscommunication with employees. Similarly, PPACA’s SBC rules may require 60-days advance notice of a change to plan benefits (i.e., a change to any information outlined in the most recently-provided SBC) that occurs outside of open enrollment. Employers should be aware of those additional ERISA/SBC notice requirements if any changes to the plan occur. Therefore, by providing an annual updated SPD at open enrollment, employers can incorporate any of those changes to provide consistent and reliable benefit information to employees.

Assuming the employer allows pre-tax deductions through a cafeteria plan, leaving incarceration or being incarcerated would generally not be considered a qualifying event permitted under the Section 125 rules. As background, Section 125 only allows employees to make one election annually unless they experience a qualifying event. Becoming incarcerated or released from incarceration would only trigger a qualifying event under Section 125 if the incarceration affected plan eligibility or somehow gave rise to one of the other qualifying events.

Specifically, if the incarceration makes a dependent ineligible for coverage (perhaps under the carrier’s contract), the “dependent ceases to satisfy eligibility requirements” change in status event under Section 125 would possibly apply.

A “change in residence” event could also apply if the incarceration or release from incarceration somehow affected the individual’s eligibility (again, possibly stated under the carrier’s contract). In other words, the move to or from prison would have to affect the employee or dependent’s eligibility for coverage under the employer’s plan. For example, if an individual moved into the plan’s service area after he wasn’t in the plan’s service area while incarcerated, there would be an argument that a qualifying event would occur when he’s released. However, this event rarely applies because most plans (unless it’s an HMO) provide benefits for out-of-area/out-of-network services.

Additionally, there’s a HIPAA special enrollment right for those who lose other coverage. However, this special enrollment right applies to those who lose other group health coverage. So, if an individual were covered under some type of inmate health plan, then it wouldn’t likely be considered a group health plan and the enrollment right wouldn’t apply.

Therefore, if a participant’s or dependent’s plan eligibility isn’t altered by becoming incarcerated or leaving incarceration or by a change in residence, it appears no Section 125 event would apply and the employee could not change his/her election until the next open enrollment period, or until he/she experienced some other qualifying event. Thus, an employer should review the carrier contract for eligibility requirements and permit a change only if a qualifying event applies and the Section 125 plan document allows for it.

Also keep in mind that although leaving incarceration rarely permits an employee to make an election change under an employer’s Section 125 plan, an individual leaving incarceration does indeed experience a special enrollment period in the health insurance marketplace for purchasing individual coverage.

The Summary Plan Description (SPD) and Section 125 Cafeteria Plan Document are two different documents with different purposes. Thus, an employer should adopt and maintain these documents separately.

SPD
Under ERISA, private employers of any size are required to have an SPD that describes the participant’s rights and obligations under the ERISA-covered benefits. The SPD must be distributed to new participants within 90 days of employment. Governmental entities, Native American tribes and churches aren’t subject to ERISA and aren’t required to have an SPD.

Neither the certificate of coverage often supplied by the insurer for a fully insured plan nor a TPA for a self-insured plan is sufficient for this purpose. That document may include some of the information that is required by ERISA, such as a description of benefits available under the plan, benefit exclusions and terms of eligibility. However, it’s typically missing many other required elements, such as identification of ERISA fiduciaries, the employer’s right to amend or terminate the plan, the employer’s procedures for processing qualified medical child support orders, how rebates will be processed and the employer’s right to amend and terminate the plan.

This is where a wrap document is helpful. You won’t find the term “wrap document” anywhere in the regulations or federal guidance. It’s an industry solution that has been developed to assist group health plans with compliance. The wrap document leverages the information already contained in the certificate by simply supplementing the document with the missing ERISA elements. The wrap document isn’t intended to be a stand-alone document. It “wraps” the missing information around the certificate, so that the two documents combined together (wrap document plus the certificate of coverage) become the SPD.

It’s important to understand that the SPD requirement applies to all ERISA-covered benefits, not just to the medical plan. Thus, an employer plan sponsor would need to have an SPD for each benefit that’s subject to ERISA, which may include medical, dental, vision, group disability, group term life, health FSA and HRA. It could also include telehealth and employee assistance programs (EAPs), depending on how those programs are structured and the benefits offered. Importantly, ERISA doesn’t apply to dependent care FSAs or HSAs. For this reason, the wrap document serves another important purpose. It can be used to bundle all of an employer’s plan options into a single plan number and plan document. This eases the administrative burden of maintaining multiple documents and filing multiple Forms 5500.

Section 125 Cafeteria Plan Document
If an employer permits employees to contribute to the cost of certain coverages on a pre-tax basis via salary reductions, that employer has a Section 125 cafeteria plan. In order to take advantage of the tax savings, the IRS requires the employer to adopt and maintain a separate written Section 125 Cafeteria Plan Document. It applies to an employer of any size and any type (including governmental entities, Native American tribes and churches).

The document identifies which benefits are offered through the cafeteria plan, which may include medical, dental, vision, group disability, group term life (on employee life only), health FSA, dependent care FSA, HSA and other accident/health insurance policies (such as specific illness or AD&D). The document also identifies which qualifying events are recognized by the employer (since many of them are optional).

The Section 125 Document isn’t distributed to participants; it’s only maintained on file.

Summary
An SPD is required of an ERISA-covered employer who offers ERISA-covered benefits to employees. It must be distributed to new participants within 90 days of participation. It’s enforced by the DOL’s Employee Benefits Security Administration.

A Section 125 Cafeteria Plan Document is required of any employer whose employees contribute to the cost of qualified benefits from their paycheck on a pre-tax basis. The document isn’t distributed to participants; it’s enforced by the IRS.

While these documents may both describe an employer’s benefit plan offerings, they serve different purposes and have different requirements. Thus, they should be separate documents.

Veterans with a disability rating who receive care from the VA are still eligible for HSA contributions. However, veterans without a disability rating who receive care from the VA within the last three months and active duty military service members or veterans who are enrolled in TRICARE aren’t eligible to contribute to an HSA.

As background, individuals are only eligible to make or receive contributions to an HSA if they have qualifying HDHP coverage and no impermissible coverage. Impermissible coverage is generally defined as coverage that pays for coverage before the HDHP statutory deductible has been met (below $1,300 for single coverage and $2,600 for family for 2017). Coverage that pays before the statutory deductible is met is known as “first dollar coverage,” and it includes many other types of coverage, such as Medicare, general-purpose health FSAs, general-purpose HRAs and TRICARE.

While VA coverage also previously rendered veterans ineligible for contributing to an HSA, beginning in 2016, receipt of VA hospital care or medical services "for a service-connected disability" won’t adversely affect an individual's ability to make HSA contributions, regardless of when the VA care or services were provided. A "service-connected disability" is a disability that was incurred or aggravated in the line of duty in the active military, naval or air service. The new rule applies to coverage under programs administered by the VA (it doesn't apply to TRICARE).

Interestingly, though, this rule seems like it would be difficult to administer since the employer wouldn’t really know if the coverage a certain employee received from the VA was for a service-connected disability. To help ease the administrative burden, the IRS announced a rule of administrative simplification under which any hospital care or medical services received from the VA by a veteran with a disability rating from the VA may be disregarded for purposes of determining HSA eligibility.

So as long as the medical services from the VA are for a veteran with a disability rating from the VA, the services/coverage won’t disqualify the individual from HSA eligibility. Assuming they’re otherwise eligible for the HSA, they could contribute. The IRS simplification rule is found in IRS Notice 2015-87, Q/A-20, which is available here.

However, employees who don’t have a disability rating and received care from the VA within the last three months and employees who are enrolled in TRICARE wouldn’t be eligible for HSA contributions. Accordingly, any employee on TRICARE would have to drop that coverage before making or receiving any HSA contributions.

Telemedicine programs are just another medium for an employee to visit with the doctor (or other medical professional) and receive a medical diagnosis or advice over the phone or Internet. Generally speaking, telemedicine programs provide medical care. Medical care is generally defined as the diagnosis, cure, mitigation, treatment or prevention of disease for the purpose of affecting any structure or function of the body. That said, employers should assume that a telemedicine program by itself is likely subject to ERISA, COBRA and PPACA, since the plan would most likely be considered as providing medical care. Of course, the specific benefits offered under the plan would need to be reviewed carefully to know for sure.

First, if the telemedicine program is offered in conjunction 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 through the group health plan. To clarify, 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 program should be reviewed.

On the other hand, once a telemedicine program is separated, or offered as a standalone benefit to employees – meaning that employees who aren’t enrolled in the group health plan are still eligible to participate in the telemedicine program – it's generally considered its own separate plan for compliance purposes. And as explained more below, most standalone telemedicine programs won’t satisfy PPACA provisions and will have ERISA and COBRA compliance to deal with as well. Remember that when a telemedicine program is looked at on its own to determine if ERISA, COBRA and PPACA apply, the focus is on whether the telemedicine program is providing medical care.

ERISA
With regard to ERISA, a group health plan subject to ERISA is defined as a plan, fund or program that’s 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 program would be subject to ERISA’s requirements, including the written plan document, SPD and Form 5500 requirements.

Some have argued that telemedicine is different. The DOL has addressed similar situations (e.g., through wellness programs and employee assistance programs [EAPs]) where there were nonconventional mediums for visiting with a doctor, and the DOL came out on the side that the arrangement was providing medical care. So, where telemedicine is putting an individual in touch with a medical professional – whether that's by phone, Skype, Internet chat or whatever other means of technology – and the professional is providing advice (e.g., diagnosing, treating, advising, etc.), it would be difficult to argue that the arrangement wasn't providing medical care. That would lead to the conclusion that ERISA applies.

Again, if the telemedicine program is offered in conjunction with the medical plan, then the overall compliance of the medical plan would satisfy compliance for the telemedicine portion since the telemedicine is incorporated into the group health plan itself. The telemedicine benefit would need to be described in the plan documents and SPD as an available option for obtaining health care under the plan.

COBRA
If ERISA applies, that generally means COBRA would apply. The definition of “group health plan” under COBRA is 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. Further, COBRA applies anytime coverage under a group health plan wouldn’t be available to the individual at the same cost but for the individual’s employment with the employer.

To clarify, 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. Thus, for a telemedicine program that's integrated with the group medical plan, COBRA compliance would be included or completed along with the medical plan, and the telemedicine program would fall under that. If it's a standalone telemedicine program, though, it would have to comply with COBRA on its own.

PPACA
If the program is considered subject to ERISA and COBRA, then the program is likely subject to PPACA as well. The general rule is that PPACA would apply to the program since it's a group health plan. The question is often asked whether the telemedicine program can somehow be considered an “excepted benefit.”

There are four categories of excepted benefits, but only one that a telemedicine program might fall into. That’s the “certain supplemental insurance coverage” category, which pertains to certain types of plans that supplement group coverage. One of the requirements to fall into that category is that the plan must be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles.

The problem for a telemedicine program is that such programs usually don’t fill gaps in the coverage and don’t provide additional compensation or benefits to assist with coinsurance or deductibles. So, most likely, the program isn’t filling any gaps and is simply providing a different method for accessing the same benefits (i.e., medical coverage).

Thus, the more logical, and cautious, approach would be to assume that the telemedicine program, on its own, is not an excepted benefit and is therefore subject to the PPACA. Like ERISA and COBRA, if the telemedicine program is integrated with the medical plan, compliance with PPACA is fairly straightforward. If the medical plan is in compliance, then the telemedicine program follows suit. If the telemedicine is standalone, then it's on its own to comply and will have difficulty with provisions such as the annual dollar limit prohibition.

If it's helpful as a parallel analysis, the government has issued guidance on whether an EAP would be considered an excepted benefit. According to that guidance, an EAP must meet four criteria in order to qualify as an excepted benefit:

1. The program must not provide "significant" medical care (although the regulations don’t define significant).
2. The EAP couldn’t be coordinated with benefits under another group health plan.
3. Employee contributions/premiums couldn’t be required as a condition for EAP participation.
4. No cost-sharing is permitted.

That first one is really the key. Regulations don’t define “significant,” but they do state that the amount, scope and duration of covered services are taken into account in determining whether significant medical care or treatment is provided. However, there is an example: where a plan provides only limited short-term outpatient counseling (without covering inpatient, residential or intensive outpatient care) without requiring prior authorization, this doesn’t provide significant medical care. There’s an argument that a telemedicine program meets that example because it's providing only limited short-term access to doctors (although there's a counter-argument that it's not short-term, since employees can use it as often as they want), it requires no prior authorization and it doesn’t otherwise cover inpatient/residential care.

Thus, for the same reasons that 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.

The Bottom Line
In summary, employers considering telemedicine programs as an alternative or enhancement to their benefit offerings should work closely with their advisor or attorney in determining whether these various federal laws would apply to the program.

The IRS recently announced the 2018 inflation-adjusted amounts relating to HSA contributions and HSA-qualifying HDHPs, including the statutory minimum deductible and the maximum out-of-pocket limits. The HSA rules state that for HDHPs with non-calendar year plans, the adjusted limits for the calendar year in which the HDHP’s plan year begins may be applied for that entire plan year. So, while a calendar HDHP plan would need to adopt the new 2018 deductible/out-of-pocket amounts on Jan. 1, 2018, a non-calendar year HDHP plan could wait until the renewal in 2018 to adopt those updated amounts. For example, a HDHP plan year that begins on July 1, 2017, would not need to be updated with the 2018 numbers until the plan year that begins on July 1, 2018.

As for HSA pre-tax elections, the normal restrictions that apply to other pre-tax elections through IRC Section 125 (such as the irrevocable election rule for major medical or health FSA coverage) do not apply to employee HSA contributions. So, employers may allow employees to change their pre-tax HSA elections at any time (so long as the change is prospective). The related rules actually require the employer to allow employees to change their HSA elections at least monthly. For administrative simplicity, most employers stick to that monthly minimum and restrict additional changes within the month.

Certain elements must be present for an employee assistance program (EAP) to be considered a COBRA-covered benefit. Not all EAPs are subject to COBRA. Plan sponsors should take care in determining which plans are subject to COBRA and comply accordingly. Also, remember that plans sponsored by a church are not typically subject to COBRA.

In general, COBRA applies to group health plans that provide medical care or health care. So, if the EAP provides employees (and spouses, if eligible under the EAP) coverage for licensed health providers that assist in diagnosing and prescribing treatment related to the individual’s health condition, then the plan is likely subject to COBRA. This would also generally include EAPs staffed with trained counselors (internal or outside providers) who provide some type of treatment that would generally constitute medical care. This is true regardless of whether the employer pays the full EAP premium for active employees.

However, EAPs typically also provide other non-health care benefits (i.e., financial or legal counseling). Those non-medical benefits should be separated from the COBRA offering since they are not a health benefit.

In summary, if the EAP is found to be providing medical care, it is treated as any other benefit subject to COBRA. The employer may charge up to 102 percent of the cost; coverage would need to be offered to those covered on the day before the qualifying event (including divorced spouses, if applicable); and coverage may be continued for the full applicable COBRA coverage period (i.e., 18, 29 or 36 months).

Yes. The COBRA Initial Notice (also known as the COBRA General Notice) must be sent to all newly enrolled employees and spouses within 90 days of participation.

When a newly eligible employee enrolls him/herself and a spouse in the employer’s group health plan, the plan administrator (who is typically the employer plan sponsor) must distribute the COBRA Initial Notice. The notice should be addressed in such a manner that identifies the spouse, such as John and Jane Doe, John Doe and spouse, or Mr. and Mrs. John Doe. The preferred method of delivery is to mail the notice to the employee’s home address (assuming that the plan doesn’t otherwise have knowledge that the employee and spouse do not share an address). A notice that is emailed to the employee would not be considered sufficient notice to a covered spouse.

Many employers have a process in place to notify newly eligible employees, but a common mistake is to overlook employees and spouses that enroll later in the plan, including those who enroll during open enrollment or following a qualifying event. Anytime a previously ineligible or waived employee enrolls in the group health plan, a COBRA Initial Notice must be emailed to the employee and any enrolled spouse.

Please see the following examples, all of which obligate an employer to send the COBRA Initial Notice:

• Example 1. John is a new hire. After satisfying the waiting period, John enrolls himself in the employer’s medical and dental plans.
• Example 2. When originally eligible, Marsha waived coverage. During open enrollment, Marsha adds herself and her husband to the medical plan.
• Example 3. Samantha is enrolled in the employer’s medical, dental and vision plans. She recently got married and added her new husband to all of her employer’s group health plan benefits.

Please note that this requirement applies to all COBRA covered benefits, not just medical. Thus, a notice is required following an employee or spouse’s enrollment in a dental or vision plan, a health FSA or an HRA.

If an employer has failed to properly distribute the notice to enrolled employees and spouses, they should consider a mass mailing to all those that should have previously received. Failure to comply with the notice requirement could result in an ERISA penalty of $110 per day per affected individual. Additionally, if the error isn’t corrected within 30 days of discovery, an additional $100 per day per affected individual civil penalty could be assessed.

Lastly, compliance with the COBRA Initial Notice requirement is important in order for the employer to enforce employee notification deadlines. The notice informs employees and spouses of their obligation to notify the plan within 60 days of a divorce or child ceasing to be eligible under the terms of the plan. If they notify the plan in a timely manner, the plan would offer COBRA up to 36 months to the child or spouse losing coverage. If they notify the plan after the 60-day deadline, the plan isn’t required to offer COBRA. However, if the plan never sent the employee and spouse a COBRA Initial Notice, the employer may be required to offer COBRA regardless of the timeliness of the employee’s notification.

If you’d like additional information on this issue or a copy of the COBRA Initial Notice, please contact your advisor.

Buyers and sellers in a transaction are generally free to negotiate COBRA liability (and health plan obligations generally) as they see fit. So, the two parties involved in the transaction could agree to whatever they want with respect to COBRA and the employee benefit plans of the selling entity—they could even set it up with the understanding that the purchasing company will take on all COBRA obligations. Any agreement should be clearly described in the written purchase agreement. If it is, then that would control with respect to COBRA obligations. If it’s not spelled out in the agreement, then the default COBRA rules apply.

Before going into the default COBRA rules, though, we strongly suggest that entities entering into a transaction to buy/sell a company (or a division of a company) engage outside counsel to assist with the situation. An acquisition is a complicated matter, and the COBRA obligations can be large. As such, we think it’s worth getting legal advice when the situation necessitates.

As for the default rules, those generally turn on whether the acquisition involves a stock or an asset sale.

Asset Sale

In asset sales, employment is typically terminated and the buyer has to rehire employees. If the seller continues to maintain a health plan for employees, a terminated employee of the seller should be offered COBRA by the seller regardless of whether the employee is rehired by the buyer or if they are eligible for the buyer's health insurance.

For asset sales, COBRA responsibility hinges on whether the seller maintains any group health plan after the sale. If they do, then the seller is responsible for offering and maintaining COBRA coverage for any COBRA beneficiaries. Thus, if the seller continues to maintain a group health plan following the sale (e.g. seller owns multiple entities) the seller's plan would have COBRA liability for those employees terminated in connection with the sale and also for current COBRA participants.

On the other hand, if the seller ceases to provide any group health plan, the buyer continues the business operations associated with the assets purchased without interruption or substantial change, and the employees continue to be employed immediately after the sale by the buyer, then there would be no qualifying event and COBRA would not be offered. However, any employees who have been terminated/not rehired or any present COBRA participants under the seller's COBRA plan would be eligible to continue coverage through the buyer's COBRA plan. The buyer has the obligation to offer COBRA by the later of the date of the asset sale or the date the seller ceases to provide any group health plan to any employee.

Importantly, the determination of whether the seller’s group plan was terminated “in connection with” the asset sale is based on all of the relevant facts and circumstances. Thus, even if the actual plan termination occurs after the actual sale date, the termination can still be considered “in connection with” the sale (assuming the facts and circumstances support it).

Stock Sale

In stock sales, a current employee of the seller who continues to be employed following the sale would not be offered COBRA coverage because they have not experienced a qualifying event. However, if an employee is terminated and loses coverage as a result of the sale, then the seller should offer COBRA to such employees.

If the seller ceases to provide any group health plan to any employee as a result of the sale, then any terminated employees and any present COBRA participants under the seller's plan would be eligible to continue coverage through the buyer's plan.

Ultimately, the COBRA rules seem to be designed to ensure that employees have the opportunity to elect COBRA even when there is a merger or acquisition. So employers who find themselves involved in a merger or acquisition should work with their counsel and the other party to the transaction to ensure that the COBRA rules are adhered to.

Yes, it will, unless the spouse’s FSA or HRA is structured to be HSA-compatible. Generally, to be eligible to establish and contribute to an HSA, an individual must have qualifying HDHP and must have no impermissible coverage. Qualifying HDHP coverage means that the HDHP meets certain statutory requirements relating to the annual deductible and out-of-pocket amounts. Impermissible coverage is generally defined as coverage that pays for amounts under the statutory deductible for the qualifying HDHP ($1,300 for single coverage / $2,600 for family coverage for 2017). Impermissible coverage includes TRICARE, Medicare, a general purpose health FSA, a general purpose HRA, Medicaid and any non-HDHP that pays benefits before the statutory deductible has been met.

A spouse’s general purpose FSA or HRA that covers the employee and spouse and any dependents (most are structured this way) would also be impermissible coverage. This is because the employee’s qualified medical expenses are reimbursable through the spouse’s general purpose health FSA or the spouse’s general purpose HRA (giving the employee first dollar coverage without first meeting the statutory HDHP deductible).

Please see Revenue Ruling 2004-45, which 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 general purpose health FSA or HRA. The mere fact that the employee's expenses are eligible for reimbursement under the spouse's plan makes the employee ineligible to establish an HSA or to make or receive HSA contributions.

However, an HRA and a health FSA can both be structured so as not to jeopardize HSA eligibility. If an employee or spouse is enrolled in a HRA or a health FSA that are limited purpose, post-deductible or a combination of the two, the employee would maintain his HSA eligibility because such coverage is HSA-compatible. To summarize:

• A limited-purpose health FSA or HRA only reimburses expenses related to dental, vision or preventive services.
• A post-deductible health FSA or HRA reimburses participants for any qualified medical expense, but only after the statutory HDHP deductible has been met ($1,300 for single coverage / $2,600 for family coverage for 2017)
• A combination health FSA or HRA 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.

Importantly, the health FSA or HRA have to be structured in one of these ways at the plan level. Participating employees cannot individually choose what kind of health FSA or HRA they have based on how they use it (although a plan may offer both general purpose and HSA-compatible FSAs and HRAs).

The first consideration is whether the wellness program is a stand-alone plan or if it is bundled with the medical plan? In other words, if an employee waives the medical plan, can they still participate in the wellness program? If they can, then it is likely a stand-alone plan.

A stand-alone wellness program will most likely be subject to COBRA and ERISA on its own if it provides medical care. The concept of medical care is based on Section 213(d) of the IRC and generally includes physical examinations, health screenings, and treatments (such as a flu shot). The program would need a plan document and terminated employees with a triggering event would be offered the opportunity to continue participation in the wellness program through COBRA. Participation would be on the same terms and conditions for similarly situated active employees, which would include incentives and rewards such as gift cards, etc. So, while one may suppose that having a standalone wellness plan (providing medical care) would alleviate COBRA considerations, it actually creates more work for an employer plan sponsor because the stand-alone wellness plan would have to comply on its own with COBRA, ERISA, etc.

If the program is integrated with the medical plan, then the COBRA and ERISA requirements could be met by the combined medical plan documents and communications. A COBRA beneficiary would elect or decline the wellness plan and medical plan together. If elected, the participant would receive the same incentives and rewards as the similarly situated active employees as discussed above (including gift cards, prizes, etc.). They would also be entitled to the premium discounts.

In summary, an employee who is continuing participation in the wellness plan through COBRA would receive the same coverage (and rewards) as an active participant. If it was a stand-alone plan (providing medical care), then the wellness plan would be available through a separate COBRA election. If it is bundled with the medical plan, then a COBRA election of the medical plan would mean the former employee COBRA participant was permitted to continue participation in the wellness program on the same terms as an active employee.

Any time an employer wants to vary contribution amounts for different classes of employees, the employer must consider two sets of nondiscrimination rules: IRC Sections 105 and 125. Generally speaking, those two sets of rules allow employers to vary employer contributions based on business-related classifications, so long as the result of the variance does not favor highly compensated individuals (HCIs). As an example, the employer could offer a higher contribution to its office employees than to its factory employees, so long as the office employee population is made up of a majority of non-HCIs.

Before going further, though, it’s helpful to review which rules apply to which plans. Section 105 applies now to self-insured medical plans (including HRAs and health FSAs), but does not apply to fully insured medical plans. As most know, the PPACA made 105 applicable to fully insured plans, but the IRS delayed implementation of that requirement (and it likely won’t apply any time soon since the Trump Administration is not interested in PPACA enforcement). Section 125 applies if employees are allowed to contribute towards coverage on a pre-tax basis via salary reduction. So, employers might have to contend with both sets of rules (for example, a self-insured plan towards which employees can contribute premium payments pre-tax) or neither set of rules (for example, a fully insured plan for which the employer contributes 100 percent of the premium cost).

If either 105 or 125 apply, though, the employer will have to run the nondiscrimination tests to know if their contribution, eligibility and benefits structure somehow favors HCIs. An HCI under 125 is any officer, a more-than-5 percent owner or an employee making more than $120,000 (for 2017). An HCI under 105 is a top-5-paid officer, a more-than-10 percent owner or an employee in the top-25 percent of all employees with respect to compensation. So, the first step is identifying which individuals are HCIs. Those individuals form the group of HCIs in whose favor the contribution structure cannot discriminate.

Once the employer has identified that HCI group, the next step is identifying which group or classification of employees is getting the better deal. For example, if the employer is offering 75 percent employer contributions for the office employees and only 50 percent for the factory employees, the employer will identify the office employees as the group getting the better deal. The last step is determining whether that group has more HCIs than non-HCIs. If so, the plan design is likely favoring HCIs, meaning it will violate the nondiscrimination rules. If not, the plan design is likely fine under the nondiscrimination rules.

So, employers are still allowed to vary employer contribution levels. But they will need to take steps to understand and run the related nondiscrimination tests to avoid favoring HCIs. If structured properly, an employer can vary contributions without violating those rules.

Lastly, it’s not likely that 105 will apply to fully insured plans in the near future—with the PPACA in limbo, it’s unlikely the new presidential administration would enforce it (and it’s possible the Republican replacement plan will either repeal that provision or replace it with something else altogether).

Section 125, the law that governs cafeteria plans, generally requires that elections be made prospectively, which means elections must be made before the effective date of coverage. There are two exceptions to this rule. The first is optional and is applicable to new hires if the employer has no waiting period (coverage is effective as of the date of hire). The second is required and is related to a HIPAA special enrollment right due to birth, adoption, or placement for adoption. As background, the section 125 rules are in place to dictate when an employee’s contributions toward health coverage can be taken on a pre-tax basis. HIPAA rules establish when mid-year opportunities, called HIPAA special enrollment rights, must be provided to enroll in coverage (whether coverage changes made mid-year are available on a pre-tax basis would be controlled by the 125 rules).

If an employer has no waiting period, they may choose to add a limited exception for new hires that allows the employee up to 30 days to make retroactive elections. These elections may be effective as of the employee’s hire date even though deductions for that coverage must be taken from compensation that is not yet earned. For example, an employer plan has no waiting period for new hires. A new employee is hired on March 15th. The new employee has 30 days to make an election, and does so on April 10th. Once the new employee elects coverage on April 10th, the employer goes back and adds coverage retroactively as of March 15th, which is paid for from compensation paid after the election (i.e., pay periods that occur after April 10th).

Under the second exception, the plan must allow retroactive coverage and payment for said coverage when a special enrollment right applies in the case of a birth, adoption or placement for adoption (if made within 30 days of the birth, adoption or placement for adoption). For example, an employee enrolled in the PPO plan gives birth on March 25th. An election to switch to the HDHP and add the newborn made by the employee on April 19th must be allowed retroactively to the date of birth (due to HIPAA portability). Additionally, the change in the premium contribution must also be allowed on a retroactive basis (since the election was made within 30 days of the birth).

Some employers mistakenly allow retroactive cafeteria plan elections for other HIPAA special enrollment rights (e.g., marriage). Employers are permitted to allow retroactive enrollments in other circumstances as long as the plan allows it, but the cost relating to the retroactive period must not be funded on a pre-tax basis. Using the example of marriage, this would mean that coverage for a newly acquired spouse could be retroactively allowed back to the date of the marriage, but the premium relating to coverage before the election is made must be paid with post-tax dollars, or paid by the employer.

In 2016, the EEOC released final regulations related to employer sponsored wellness programs. As part of those rules, wellness programs that involve a medical examination or a disability related inquiry are required to distribute a notification to participants. The notice must explain what medical information will be obtained, who will receive the medical information, how the medical information will be used, the restrictions on its disclosure and the methods the covered entity will employ to prevent improper disclosure of the medical information. The rules and the notice requirement are effective for plan years beginning on or after Jan. 1, 2017.

There is a model notice available for employer use. However, depending upon the specifics of an employer’s program, the language may need to be amended to better reflect the employer’s design. For example, the notice states “you will be asked to complete a voluntary health risk assessment” and “you will also be asked to complete a biometric screening, which will include a blood test.” If the employer’s program does not include one or both of these elements, it would be best to tailor the notice to better explain the program to the participants.

Under many programs, the carrier or vendor is the one administering the assessment or screening. For example, the health risk assessment may appear on a carrier’s website and the carrier provides the reward/incentive for completion. Please note, the employer still has responsibility to distribute the notice. Thus, the employer should verify whether the carrier/vendor is complying and if they are not, the employer should do so. Please see Question and Answer #2 on the EEOC website, which states:

The notice must be provided to participants before any health information is collected and in enough time for them to decide whether to participate in the program. Thus, a notice could not be provided after a participant has completed an online HRA or medical exam.

Finally, please note that the notice described above satisfies the EEOC requirements. There is also a separate notice requirement under HIPAA. That notice applies if: 1) The wellness program is a group health plan or is integrated with a group health plan; and 2) provides an incentive/reward to participants who satisfy a specific health standard. The HIPAA notice informs participants of the availability of an alternative standard for receiving the incentive/reward.

• EEOC Sample Notice for Employer-Sponsored Wellness Programs »
• EEOC Questions and Answers »

Overall, the employer has the obligation to count and report on union employees. To begin with, though, there is no specific exemption under the employer mandate for union members. Therefore, the question becomes whether the union members constitute “employees” under the common law standard. Because an employer typically controls the hours the union members work as well as pays wages to the union members, union members will likely be considered employees of the employer as opposed to the union. As such, an employer must include those union members in their employee count when determining the applicability of the employer mandate.

Moreover, if the employer mandate applies, the employer must provide all full-time union employees (and their dependents) minimum essential coverage that is both affordable and of minimum value (or pay a penalty). In considering the employer mandate, it is important to remember those obligations rest with the employer, not the plan, so the employer will be required to comply regardless of which plan options are currently offered (and regardless of how those plan options, including employer contribution levels, were negotiated). In other words, the employer mandate applies regardless of any collective bargaining agreements (CBAs) that may be in place.

That said, the employer is responsible for the same filing requirements on Forms 1094-C and 1095-C to the IRS (as well as distributing a Form 1095-C statement to each full-time employee), regardless of whether those employees are receiving benefits from a union plan or not. So, if the workers are common law employees of a certain employer, then the employer mandate liability and reporting responsibilities lie with that employer.

However, the employer would not have a Section 6055 reporting responsibility for these employees. If they are enrolled in a fully insured union plan, the carrier will provide covered union participants with a Form 1095-B. If the union plan is self-funded, the union will provide covered participants with a Form 1095-B.

With regard to the Form 1095-C reporting requirements, the final rules state that the administrator of a multiemployer plan may complete the individual 6056 reports for the employees covered by the CBA and eligible for the multiemployer plan. In other words, the union may complete Form 1095-C for its covered members and that would satisfy the employer’s obligation in regards to those employees. However, the employer would still be responsible for the Form 1095-C on non-union employees and the Form 1094-C transmittal on all employees. Keep in mind that the union is not obligated to help and may refuse.

So, if the multiemployer plan/union fails to complete or refuses to complete the Form1095-Cs, that is their right to do so and the employer would have to complete them for the union employees.

That said, the employer could require, as part of their CBA with the union, that the union give them a certification regarding the type of coverage that is being offered to the union employees, including whether or not the coverage meets minimum value and is considered affordable. The employer would then be able to meet its obligations to complete the Form1095-Cs for any full-time employee covered by the CBA even if the specific employee was not offered coverage under the multiemployer plan. Otherwise, the union is not obligated to provide such information to the employer. This may be partly the reasoning behind why the IRS provided a code for line 16 of Form 1095-C entitled “multiemployer interim rule relief (2E).”

Under this “multiemployer interim rule relief,” which is in place for the 2016 calendar year for reporting done in early 2017, the employer will not be subject to a penalty with respect to a full-time union employee if the employer, pursuant to a CBA, is required to make a contribution to a multiemployer plan (and that plan is offered to employees and their dependents, provides minimum value and is affordable). This rule has the effect of basically treating the multiemployer plan as an offer of coverage from the employer (even though the plan is technically sponsored by the union or other employee group). Of course, as mentioned above, the employer would still need to know the type of coverage that is being offered to the union employees, including whether or not the coverage meets minimum value and is considered affordable.

That said, the union employee's Form 1095-C will look a little different because the employer can likely rely on the reporting code relating to multiemployer plan relief. In that case, the employer reports in Part II of Form 1095-C code 1H (no offer of coverage) in line 14, leaves line 15 blank, and then enters code 2E in line 16. It may seem somewhat counterintuitive to enter code 1H (no offer of coverage), since the employer is treated as having offered coverage via the union plan, but using code 2E in line 16 indicates to the IRS that although there is no formal offer of coverage, the union plan is sufficient to avoid penalties for failing to offer coverage. To clarify, although the employer reports no offer of coverage, code 2E tells the IRS that the employee was covered under the CBA and therefore the union plan is sufficient for the employer to avoid any employer mandate penalties.

In summary, it is ultimately the employer’s responsibility to complete Form 1095-C for the union employees and their Form 1095-C statement may be slightly different than those for non-union employees.

There is no specific obligation under ERISA to provide employees with post-termination information about life insurance conversion rights. Courts that have dealt with this issue have generally permitted plan administrators to rely on the disclosures in the statutorily-mandated plan documents, as long as those disclosures are complete and correct. So, including complete and accurate information about the conversion right in the plan document or SPD for a particular benefit will generally suffice.

However, many employers include this paperwork with the other notices that are distributed to an employee upon termination, and that may be best practice in order to avoid a terminated employee coming back and claiming that they were never notified of their conversion rights.

If the employer did not initially provide the employee with a notice of conversion rights (not even through the plan documents), then the employer would want to provide that information upon termination.

Employers should work with their legal counsel or other service providers to craft and distribute an appropriate notice of conversion rights.

Yes, the Form W-2 reporting requirement remains in effect, despite President-elect Trump’s call to repeal PPACA once he takes office. As background on the requirement, PPACA requires employers to report the aggregate cost of applicable employer-sponsored coverage on their employees’ Forms W-2. Employers that file fewer than 250 Forms W-2 are not required to report. In addition, the reported aggregate cost is for informational purposes only (it does not mean the costs are taxable). The requirement went into effect in 2012, and so it should not be news to employers. But it does continue to raise questions for some employers with regard to the reportable coverage types and costs.

With respect to reportable coverage types, major medical coverage is the primary reportable coverage type. This includes any employer-sponsored major medical plan, both fully and self-insured, such as a PPO, POS or HDHP. It would also include prescription drug coverage and any dental/vision coverage that is combined with major medical coverage. But it would not include coverage that is considered ‘excepted benefits’ (those not subject to HIPAA, and thereby exempt from PPACA), including stand-alone dental or vision plans, non-coordinated and independent benefits (such as hospital indemnity or specific-illness plans), and health FSA salary reduction elections (but there are special rules regarding optional employer flex credits that could be used to contribute to an FSA). HRAs, HSA contributions, long-term care and coverage under Archer MSAs also are not included.

Employers will want to review their EAP, wellness and on-site medical clinic arrangements and programs—if COBRA applies to those plans, then they will need to be included in the reportable cost. Whether COBRA applies is a bit trickier analysis, but it basically comes down to whether the EAP, wellness program or on-site medical clinic is providing medical care. Employers should work with outside counsel in making that determination.

With respect to determining the reportable cost, employers should remember that both employer and employee portions of the cost should be included, and that there should be no adjustment for imputed income amounts. As far as actually calculating the cost of coverage, the general method is that the reportable cost equals the COBRA applicable premium for the period—whatever the employer charges for COBRA. Employers with fully insured plans may also use the employee and dependent premium charged by the insurer for the coverage period. Lastly, employers that subsidize the cost of COBRA may report a reasonable good-faith estimate of the full cost (this approach recognizes situations in which an employer with a self-insured plan subsidizes the COBRA cost by underestimating the actual cost of health benefits). Regardless of the method, all plans must report on a calendar-year basis. Finally, if an employee commences, changes or terminates coverage during the year, the reported cost must reflect the actual periods of coverage.

Employers should review their obligations under this requirement with their advisor. In addition, the IRS has provided some helpful FAQs on the topic, here.