FAQ

Health and welfare plans subject to ERISA's Form 5500 reporting requirements (generally, plans with 100 or more participants) must report certain information to the DOL. For plans with fully insured coverage, this reporting obligation includes specific information about each insurance policy using the form's Schedule A (Insurance Information).

Insurers are statutorily required to provide Schedule A information to plans. Although most insurers generally do so, issues arise that sometimes result in plan administrators not receiving the information they need to complete the Form 5500 as the filing deadline approaches.

Importantly, plan administrators remain responsible for filing Schedule A even if they did not receive a schedule. While plan administrators can report an insurance company's failure to provide the necessary information on Schedule A's Part IV, this should be a last resort undertaken only after all reasonable efforts have been made to obtain the information.

Before assuming that an insurance company didn't send any Schedule A information, plan administrators should first ensure that the information wasn't simply misplaced. Insurers often deliver their Schedule A information electronically, and it is not uncommon to find Schedule A information delivered to the wrong person or department, diverted to junk or spam email folders, or simply buried unopened in an inbox because the recipient didn't recognize it. (There is no standard format for Schedule A information, and carriers' approaches vary widely.) Other times it may be sent via USPS but is not delivered to the correct team member as the information is unfamiliar to most within a company.

If the above approach doesn't yield any results, the plan administrator should contact the insurance company to see if there's been an oversight. This usually solves the problem, as the insurer can tell the plan administrator where they sent the information or just simply send it again.

However, some plan administrators will discover that insurance companies really didn't send any Schedule A information, and the plan administrator will need to know why.

A few of the more common reasons insurers have for not sending out Schedule A information are:

• The insurance policy year has not ended: Plans sometimes include insurance policies with policy years that differ from the plan year. For instance, a plan that runs from July 1 to June 30 may have an insured benefit with a calendar-year policy year. If so, the insurer may not have any Schedule A information to provide because its policy year hasn't concluded. (The plan administrator may nevertheless want to check for Schedule A information for the previous policy year (if any), since Form 5500 reporting should include Schedule As for any insured benefits with policy years ending within the applicable plan year being filed.)
• The insurer thought the plan was a small plan: Sometimes plans with insured benefits covering fewer than 100 participants must still file Form 5500 for those benefits (usually because those benefits are offered through a wrap plan alongside other benefits covering 100 or more participants). Plan administrators may have to proactively request Schedule A information because these insurers assume that the plan is exempt from the Form 5500 requirement.
• The plan didn’t need Schedule A information in the past: Insurers that hadn't provided Schedule A information in the past, because the plan had not needed it (usually because the plan had truly been a “small plan”), may continue to withhold it even if its own benefit surpasses 100 participants, unless the carrier is proactive in tracking.

If the plan administrator determines that no Schedule A information is necessary (e.g., the policy year did not end until after the reportable plan year or other appropriate reason), no further action is required. However, if the plan administrator does determine that Schedule A information is necessary (e.g., because the insurer's “small plan” is just one component of the plan administrator's “large plan”), then the insurer should provide that information to the plan administrator as soon as practicable.

If necessary, a plan administrator can ask the local DOL office to intervene and, if all else fails, the plan administrator should answer “Yes” on Schedule A, Part IV, Line 11 (“Did the insurance company fail to provide any information necessary to complete Schedule A?“) and explain on Line 12 in detail the information that the insurer failed to provide. This will fulfill the plan administrator's obligation to complete Schedule A despite the insurance company's failure to provide the information to do so. It is important that employers work to gather the required information ahead of time so they can identify any gaps and acquire the information rather than needing to report to the DOL that the carrier did not provide the information.

In short, yes. Self-insured plans have compliance obligations in addition to what is required for fully insured plans. As a reminder, a level-funded plan is considered a self-insured plan for benefits compliance purposes. Therefore, a plan transitioning from a fully insured plan to a self-insured or level-funded plan should be aware of the additional compliance obligations, including (but not limited to) requirements under the ACA, HIPAA, ERISA, Section 105 nondiscrimination rules, and federal transparency rules.

With respect to the ACA, the employer would have additional ACA reporting obligations. For example, an applicable large employer (ALE) with 50 or more full-time employees in the prior year needs to provide information regarding individuals enrolled in the plan on Forms 1094/5-C (in Part III). A small employer (non-ALE) needs to report individuals enrolled in the plan using Forms 1094/5-B or they can utilize Forms 1094/5-C. This can be a big change for a non-ALE who did not have any reporting obligation as a fully insured plan. So, if a non-ALE changes funding type, it is important to engage with an ACA reporting vendor as soon as possible to ensure the information is captured and tracked throughout the plan year.

The employer would also be responsible for reporting and paying the PCOR fee to the IRS. Carriers pay and report the fee for fully insured plans, but self-insured or level-funded plans must handle it on their own. PCOR reporting is handled on Form 720, and the fee is based on the average number of lives for the plan year. PCOR reporting is due on July 31 of the year following the last day of the plan year.

With respect to HIPAA, the self-insured or level-funded plan would have to comply with the full range of HIPAA privacy and security obligations, including providing a HIPAA privacy notice (previously provided by the carrier under the fully insured plan), conducting a risk assessment, implementing more extensive privacy and security procedures, and training staff. Level-funded plans often feel similar to fully insured plans and plan sponsors may remain “hands-off" with respect to receipt of PHI, but they must still comply with the full range of HIPAA obligations.

Under ERISA, if the employer is holding plan assets in a segregated account, the plan would generally be considered funded and subject to the ERISA trust and fidelity bond requirements. If the plan is considered funded, then the exemption from the Form 5500 filing requirements for a small plan (with less than 100 participants at the plan year start) would no longer apply. Furthermore, if the plan receives a refund, any portion considered plan assets (such as amounts attributable to participant contributions towards premiums) must be returned to the plan participants (like an MLR rebate for a fully insured plan) in some manner.

The employer sponsoring the self-insured or level-funded plan may also have ERISA fiduciary obligations regarding claim appeals (which were previously assumed by the carrier under the fully insured plan). Additionally, the plan would no longer be subject to state insurance laws, such as coverage mandates, because these would be preempted by ERISA.

Section 105 nondiscrimination rules will apply to both self-insured and level-funded plans, in addition to the Section 125 nondiscrimination rules to which the plan is likely familiar. Under these Section 105 rules, self-insured health plans cannot discriminate in favor of highly compensated employees (HCEs) with respect to eligibility or benefits. For this purpose, “highly compensated” includes the top 25% of the employer’s workforce, which is a broader definition than that found in Section 125 nondiscrimination rules (which apply to all cafeteria plans). Section 105 rules can be a bit more restrictive than Section 125 rules when it comes to allowable benefit variances, so it is important to plan ahead if the employer already allows varying contributions or eligibility criteria depending on employee class.

Federal transparency rules have levied additional reporting requirements on plan sponsors as well. While fully insured plans are subject to RxDC reporting and gag clause attestation reporting requirements, the carrier often handles it for the employer. Self-insured and level-funded plans may receive reporting help from their TPA, but it is important to confirm what the TPA will handle when entering into that arrangement. Similarly, under MHPAEA, while all plans are subject to comparative analysis requirements, funding type will determine which entity is responsible for completing the analysis. Insurers (along with the employer sponsoring the fully insured plan) are responsible for the comparative analysis for fully insured plans. However, the plan sponsor bears responsibility for the self-insured or level-funded plan. In many cases, the TPA may be able and willing to assist, but employers should confirm whether the TPA will handle this requirement.

Although not an exhaustive list, as you can see above, changing funding types can add quite a few additional compliance obligations to employers’ plates. Therefore, employers considering a change from a fully insured to a self-insured or level-funded plan should consult with legal counsel and their advisors for further information regarding the additional compliance requirements.

To be clear, maternity leave is provided only to birth parents to attend prenatal care, for pregnancy-related disability and to recover from childbirth (e.g., severe morning sickness or complications requiring bed rest). If an employer sponsors short-term disability (STD) benefits, the STD policy generally covers pregnancy-related disability, though coverage and eligibility vary based on the specific policy. In contrast, parental leave (aka bonding leave) is for any parent to take time off to bond with and/or care for their newborn or newly placed adopted or foster child. STD does not generally cover bonding leave.  

The EEOC states that employers should carefully distinguish between leave related to any physical limitations imposed by pregnancy or childbirth (described by the EEOC as “pregnancy-related medical leave”) and leave for the purposes of “bonding” with a child and/or caring for a child (described as “parental leave”). Leaves related to pregnancy, childbirth, or related medical conditions can be limited to women affected by those conditions. However, parental leave must be provided in the same manner to both men and women on the same terms. (See the EEOC’s enforcement guide on pregnancy discrimination and Estée Lauder Companies to Pay $1.1 Million to Settle EEOC Class Sex Discrimination Lawsuit | U.S. Equal Employment Opportunity Commission for more information).  

So, it’s possible for an employer to offer additional wage replacement or STD benefits to employees who give birth, while parental leave is provided equally to similarly situated men and women on the same terms. However, a recent parental leave settlement highlights that it may be viewed as discriminatory if maternity leave is provided without verifying whether the birth parent is actually disabled due to pregnancy or childbirth. Employers would also want to consider allowing all women employees who give birth the same level of STD benefits under the policy to avoid any arguments of disparate treatment or discrimination. Ultimately, employers should review their leave policies and STD benefits carefully with their legal counsel.  

Employers also need to designate the FMLA when a leave reason qualifies for FMLA and when the employee meets the FMLA eligibility, if applicable. The FMLA qualifying reasons include the birth of a child, prenatal care, incapacity related to pregnancy, nonbirth parent to care for their spouse who is incapacitated, and bonding (applies equally to female and male employees). Bonding leave can be taken within 12 months from the date of birth under the FMLA rules.  

Additionally, as an increasing number of states have been enacting their state mandatory disability insurance (DI) and paid family leave (PFL) (aka PFML), employers should review the applicability of any state mandatory DI or PFL to their employees based on their work states and coordinate the employer-provided maternity leave, parental leave, and STD/LTD with the FMLA, and state PFML appropriately, including benefit amounts and leave durations. (For further information, please ask your NFP consultant for a copy of the NFP publication Quick Reference Chart: Statutory Disability & Paid Family and Medical Leave Programs.)  

Employer Takeaway  

When coordinating disability benefits with maternity and parental leave, employers should consult with their legal counsel or HR advisor who specializes in leave policies to ensure the leave policies and STD/LTD benefits comply with applicable guidance and do not intentionally or unintentionally produce disparate treatment of birth parents and nonbirth parents. Further, the leave policy should be clearly communicated to employees and included in employee handbooks and/or other employee communication materials.  

The short answer is no. An offer of COBRA is required if both of the following are true: one of the seven allowable COBRA triggering events occurs and a loss of coverage results. Sometimes an individual will experience a triggering event, but if it does not result in a loss of coverage, it is not considered a COBRA-qualifying event. Entitlement to Medicare (i.e., enrollment) is listed as a triggering event. However, it rarely leads to a loss of coverage due to the reasons discussed below.

For employers with 20 or more employees, the Medicare Secondary Payer (MSP) rules prohibit an employer from “taking into account” eligibility for or enrollment in Medicare when it comes to eligibility for the group health plan. Enrolling in Medicare does not automatically terminate group health coverage, and thus employers must allow individuals to remain on the group health plan if desired. Even for those employers with fewer than 20 employees who are not subject to MSP rules, group health plan eligibility rules typically do not prohibit an individual from having dual coverage in both Medicare and the group health plan. Because an individual can have dual coverage, if the employee chooses to drop the group health plan coverage, it is seen as a voluntary drop and thus does not create a COBRA-qualifying event for the employee or a spouse or dependent child(ren) who were also covered under the plan. Employers with fewer than 20 employees should review their plan documents to determine how eligibility works for someone who is Medicare eligible.

Sometimes employers assume that the spouse or dependent child(ren) would receive COBRA offers because they did not drop their own coverage; only the employee dropped coverage. Since dependents typically cannot stay enrolled in the group health plan without an employee and the employee could have remained enrolled in the group health plan to continue covering the spouse or dependent child(ren), it is still considered a voluntary drop. It is also important to note that even if the spouse or dependent child(ren) have access to other coverage, because this is a voluntary drop, the other group health plan may not consider this a midyear election change event to allow them to enroll midyear. Employees who cover a spouse or dependent child(ren) may want to remain enrolled in the group health plan even while enrolled in Medicare to ensure family members have access to coverage or time their Medicare enrollment to coincide with the annual open enrollment period of the spouse’s own employer or the federal or state marketplace.

Employers can request a copy of NFP’s COBRA: A Guide for Employers publication which includes a discussion on allowable triggering events and how Medicare enrollment (also known as entitlement) rarely creates a COBRA-qualifying event.

The answer depends upon whether the employees lost eligibility for the medical, dental, vision, health FSA, and other benefits when they were furloughed, and how long the furlough lasts. Employers should review the terms of the SPD/plan document and cafeteria plan document to ensure that the furloughed employees are actually eligible under the plan terms to continue participating.

First, an employer needs to review the plan’s eligibility terms in the plan document/SPD (aka the wrap document). If the employer has experienced this issue before, then they may have previously put language in their plan documents about continuation of coverage during furloughs or leaves of absence. If there are Service Contract Act (SCA) or Defense Base Act (DBA) contracts in place, employers should review those contracts as well to see if there are any special provisions.

If there are no special terms in the employer’s plan document/SPD, then the employer should review the carriers’ certificates or other carriers’ documents for the plan eligibility terms. They may have a specific number of work hours required to be eligible for the plan (e.g., 30 hours/week). When an employee no longer meets the terms of eligibility, coverage should be terminated, and COBRA should be offered (if applicable).

Importantly, a furlough without a loss of plan eligibility would not be a qualifying event under Section 125. Therefore, employees on furlough who didn’t lose eligibility are not allowed to change their plan election midyear unless they experience a midyear qualifying event.

Medical: Additional Rules

If an employer is an applicable large employer (ALE) who is subject to the ACA employer mandate and if they use the monthly measurement method, then an employee who reduced their work hours to fewer than 30 hours/week or 130 hours/month (e.g., an employee who is furloughed) could be terminated from coverage at the end of the month with COBRA offered for reduction of hours. However, if an employer uses the look-back measurement method and the employee worked at least 30 hours/week on average during the preceding measurement period, then the employee would remain eligible through the end of the stability period regardless of the number of hours they work during a furlough unless the employee experiences an employment status change (e.g., full-time to part-time).

Additionally, for an ALE, if employees return to work after 30 days but before 13 weeks, they would be reinstated to eligibility and would have the right to change elections. If they return beyond 13 weeks, then they could be treated as a new hire and need to meet a new waiting period or start a new measurement period.

Health FSA

A furlough without a loss of health FSA eligibility would not be a qualifying event under Section 125. Therefore, the employees on furlough are not allowed to change the health FSA election amounts midyear unless they experience a midyear qualifying event.

However, if they did lose eligibility, COBRA should be offered for any employee with an underspent balance. If they want coverage for the furlough period, they would have to elect and pay for COBRA. If they return to work in less than 30 days since the date they were furloughed, the employees would be reinstated to their previous elections, including the health FSA. If it’s more than 30 days, then they would be treated like new hires with an opportunity to enroll in the health FSA if they choose.

If the employer does not wish for their employees to lose eligibility while on furlough, the employer should consult with their legal counsel on how to design the continuation of coverage during the employees’ furloughed period because of lack of clear guidance. Some of the approaches may be suspending the FSA, suspending employee FSA contributions but continuing FSA coverage, and the employer paying for the employees’ portion.

Premium Payments During Furloughed Period

For active employees, employees pay for their premium contributions through a paycheck deduction. Employers must consider how employees who are on leave without pay can make premium contributions without a paycheck to deduct from. Generally, the rules for FMLA premium payment can serve as useful guidelines. For instance, the employer may require that employees pay during the furlough period by personal check. The payments may be due per pay period or per month. The employees should be provided with written notice of the payment method, due date, and consequences for nonpayment (termination of coverage). Alternatively, the employer could permit the employee to pay upon return, but this is typically not preferred when the return date is not known.

COBRA

Under COBRA, a reduction in hours that causes an employee to lose eligibility for health coverage is a qualifying event that triggers the right to elect COBRA continuation coverage. Therefore, employers who are subject to COBRA should work with their COBRA vendor to ensure that COBRA election notices are provided timely when a furloughed employee loses plan eligibility.

For additional information regarding midyear election change events and COBRA rules, please ask your broker or consultant for a copy of the NFP publications Midyear Election Change Events: A Guide and Matrix for Employers and COBRA: A Guide for Employers.

Yes, individual coverage health reimbursement arrangements (ICHRAs) are considered self-insured group health plans and thus are subject to ACA reporting rules, the same as other group health plans. It can be confusing to employers since many assume that the reporting obligations would be on the insurance carrier that actually delivers the individual coverage; but, in fact, the employer also has a reporting obligation. As a refresher, there are two facets of ACA reporting: 1) reporting offers of coverage to full-time employees (Section 6056, reported on Form 1095-C) and 2) reporting who was covered under a plan (Section 6055, reported on either 1095-B or 1095-C depending on funding type and employer preference).

The obligation under Section 6056 to report offers of coverage only applies to applicable large employers (ALEs), which are generally those employers with 50 or more employees in the previous calendar year. ALEs must report whether they made offers of coverage that met the minimum essential coverage, minimum value, and affordability standards to their full-time employees. Form 1095-C added codes in 2020 to use for Line 14 (these codes denote what type of offer was made) that are specific to employers offering ICHRAs. Employers that are ALEs should review the Line 14 codes specific to ICHRAs when completing their forms. As discussed below in more detail, ALEs also have an obligation to report who is covered by the ICHRA, which is handled in Part III of Form 1095-C.

Since ICHRAs are considered self-insured group health plans, the Section 6055 obligation (to report who was enrolled in coverage) is on the plan sponsor and applies regardless of employer size. Employers who are ALEs, as mentioned above, will meet this obligation by reporting enrollment in Part III of Form 1095-C. Employers that are not ALEs can fulfill the filing obligation by either using Form 1095-B or Form 1095-C since many vendors are not set up to file the “B” forms. In some cases, the ICHRA vendor provides Form 1095-B to enrollees; however, there is still an obligation for the employer to file it with the IRS. So, even if the ICHRA vendor is willing to handle some or all of the reporting, the employer needs to confirm the vendor is also filing those forms with the IRS. If not, then the employer would need to file themselves to meet their reporting obligations.

Additional information regarding recent changes to electronic filing requirements and furnishing forms to employees can be found in our recent Compliance Corner article. Employers can also request a copy of NFP’s ACA Reporting Toolkit from their consultant or advisor.

The answer is generally no. Although carriers will sometimes tell employers they can make changes within 30 or 31 days of the plan year beginning, that doesn’t give employees carte blanche to change their minds and choose new elections.

Under IRC Section 125, the employee's election must occur prior to the coverage effective date, and the related deduction should come out of a future paycheck. Section 125 also states that employees should not have the ability to change their elections after the effective date of coverage (i.e., during the plan year) unless the employee experiences a qualifying event. Under ERISA, the employer should operate/administer the plan according to the plan terms, relevant laws, and in the best interest of plan participants/beneficiaries. Therefore, for all those reasons, the employer should not allow election changes for any period following the effective date of coverage, even if the carrier indicates it is allowed. Rather, allowing election changes after the effective date could be viewed as a violation of Section 125 and ERISA. Accordingly, the practice of allowing those changes post effective date should generally be discouraged.

Occasionally, a situation will arise where the employer is informed that the employee made a mistake after open enrollment ended. Employers can, but are not required to, allow election changes after open enrollment and before the coverage effective date (i.e., the start of the new plan year). Some employers view this as a good practice to correct errors before the coverage period starts.

However, if the correction request occurs after the plan year begins, it is more difficult for employers. Employers should consider all the facts and circumstances surrounding the mistake before taking any action to correct it. Employers need to determine if a true mistake occurred or if it is simply an employee changing their mind.

There is a lack of formal guidance when it comes to correcting mistakes, but the general notion from the IRS is that if there's clear evidence of a mistake, then the employer can take steps to place everyone back in the position they would've been in absent the mistake. Whether the clear and convincing standard is satisfied depends on the nature of the mistake, including when it occurred and when it was discovered. Generally, employer clerical or data entry mistakes would qualify. Additionally, situations in which the employee could not have benefitted from the election are clear and convincing. For example, if an employee made a dependent care deferral election at enrollment but did not have a dependent, this seems rather clear and convincing evidence of a mistake.

Essentially, it is a facts and circumstances analysis. Factors to consider include:

• The employee's past elections and benefit usage.
• Assessment of the employee's truthfulness.
• Time that has elapsed since the first payroll date after the election was in force.
• Changed circumstances experienced by the employee that might be evidence of reconsideration rather than a mistake.
• Other extrinsic evidence of a mistake.

These factors should be applied on a consistent and nondiscriminatory basis and documented.

In the end, it would be the employer's decision as a plan sponsor to determine whether there is clear and convincing evidence of a mistake. However, the employer should consider the situation carefully before making exceptions because the employer has an obligation to follow the terms of the plan document. Additionally, the employer has an obligation to treat all eligible employees in a like manner. Finally, making an exception may also create an undesirable precedent.

If the employer chooses to recognize the mistake, the insurer or stop-loss carrier, as applicable, would need to agree. The Section 125 plan document should be reviewed to see if there is any language that addresses the correction of mistaken elections and if applicable, recoupment of amounts not withheld. The employer should also confirm that any necessary withholding from an employee's pay does not violate any state wage withholding laws.

Due to the lack of formal IRS guidance regarding the recognition of mistakes and related corrections, the employer should consult with counsel for guidance. Generally, to avoid Section 125 and ERISA compliance issues, the best practice is not allowing employees to change their elections once the coverage period has begun and once salary has been taken from their paychecks — unless there is clear evidence of a mistake.

This will depend on whether the FSA participant has a balance at the end of the plan year.

As background, an FSA grace period is a designated period after the end of the plan year during which participants can incur services and be reimbursed with funds remaining from the prior plan year election. The grace period cannot be longer than 2-1/2 months, but it can be shorter. For FSA plans with a grace period, an employee who has an undistributed cash balance in the FSA plan on the last day of the FSA plan year (regardless of whether qualified expenses have been incurred) is deemed to have impermissible coverage until the first day of the first month following the end of the grace period. Pending claims, claims submitted, claims received, or claims under review that have not been paid as of the plan year end date are not considered.

An employee with a zero-dollar balance at the end of the plan year under an FSA with a grace period is considered HSA‐eligible during the grace period (assuming the employee is otherwise HSA-eligible), as the IRS permits FSA coverage during a grace period to be disregarded under these “zero dollar” circumstances for the purpose of determining HSA eligibility.

However, note that FSA participants are not permitted to forfeit any portion of their year-end FSA balance to achieve a zero-dollar balance as of the start of the new plan year. Additionally, an FSA with a grace period can be amended before the end of the plan year to which the grace period applies such that the FSA becomes a limited-purpose FSA during the grace period. Keep in mind that this conversion of a general-purpose FSA to a limited-purpose FSA during the grace period must apply to all FSA enrollees, not just those who seek to be HSA-eligible in the subsequent plan year.

For further information, please ask your broker or consultant for a copy of the NFP publication Health Savings Accounts: A Guide for Employers.