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Correcting Credits to Non-Integrated HRA


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Does anyone have any ideas as to what the proper correction would be under 4980D(f)(3) for credits made to a non-integrated HRA?

It is clear from the IRS, DOL, and HHS guidance that a non-integrated HRA will fail to comply with the annual dollar limit prohibition and preventive services requirements. If a plan sponsor (in the multiemployer plan context) makes credits to an HRA account and then later finds out the individual was not enrolled in a group health plan (rendering the HRA account "non-integrated"), what could be done to correct and avoid being slapped with the $100 per day/per individual excise tax penalty?

4980D(f)(3) states that:

(3) Correction

A failure of a group health plan shall be treated as corrected if—
(A)such failure is retroactively undone to the extent possible, and
(B)the person to whom the failure relates is placed in a financial position which is as good as such person would have been in had such failure not occurred.
My thoughts:
1. The sponsor could "un-credit" the amount credited to the HRA. This addresses subsection (A) regarding the retroactive "undoing" of the failure. But what about (B)? If the plan also has an FSA feature, presumably the employer could "re-credit" the amount to the FSA, which should place the individual in as good a position they would have been under the HRA (no tax recognition, can reimburse eligible medical expenses, potentially a rollover feature).
And if the plan doesn't have an FSA option?...
2. The sponsor could un-credit the HRA, turn around and give that amount to the employee after-tax and gross up his or her wages.
3. The noncompliance period under 4980D(b)(2) would run from the date the individual had both credits to his or her HRA account and was not enrolled in a group health plan, and would end on the date the HRA was un-credited and the employee was made whole.
4. The sponsor could potentially take advantage of the reasonable diligence exception under 4980D©(1) if it required employees to fill out an attestation form certifying that they are enrolled in group health plan coverage. If the employee is not enrolled in the sponsor's coverage, what more should the sponsor be expected to do to exercise reasonable diligence in knowing the failure (i.e., not being enrolled in GHP coverage) exists?
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I suggest that you first consider that this is not new law and that non-compliance might have existed long before the guidance to which you refer was issued. The guidance clarified existing law and therefore would make your scenarios incorrect.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Can you clarify why the scenarios posed would be incorrect? I understand your point about non-compliance being independent of the more recent guidance with respect to the market reform requirements, but are you implying there is no way to correct in the event credits are made to a non-integrated HRA?

My reading of the more recent guidance that says non-integrated HRAs will not meet market reform requirements is that the possbility for correction under 4980D(f)(3) is still an option. So my question more specifically is, how do you put someone in as good a financial position they would have been but-for employer credits being made to the non-integrated HRA?

If I am missing something here please let me know.

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Your scenarios are based on market reform requirements and guidance. If non-compliance predates market reforms and the guidance on which your scenarios are based then logically your scenarios are based on a wrong assumption.

You seem to be relying on "reading of the more recent guidance" and coming to the conclusion that a "non-integrated HRA" is something new. It is not.

If your arrangement was never ever compliant, then your start date for correction is Day 1 of the arrangement.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Perhaps I am not being clear. I understand that non-integrated HRAs are nothing new. What I am saying is: the market reforms are relevant to the extent that a non-integrated HRA will be deemed to fail the market reform requirements and as a result will be subject to the $100 per participant per day penalty (Notice 2013-54).

There isn't any concern about non-compliance currently, what I am contemplating is in the event a participant is, unbeknownst to the employer, NOT actually enrolled in underlying group health plan coverage, the HRA is now non-integrated, and the employer then makes credits to the HRA before discovering the issue: how is this "corrected" under 4980D to avoid the penalty? It comes to the employer's attention after-the-fact. The employer requires employees to be enrolled in GHP coverage as a condition of participation in the HRA but someone just slips through the cracks.

It seems easy enough to uncredit the HRA, since its an employer account. But how do you place the person in an equivalent financial position?

The scenarios I posed were potential corrections to a void being hit with the $100 per individual per day penalty tax. If I am missing something obvious please let me know.

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I am also thinking of this in context of Form 8928. The instructions say:

No tax is due for any failure... if it is established to the satisfaction of the Secretary of the Treasury that no one liable for the tax knew, or exercising reasonable diligence would have known, that the failure occurred. Additionally, no tax is due if the failure... was due to reasonable cause and not due to willful neglect and the failure was corrected during the 30-day period beginning on the first date anyone liable for the tax knew , or exercising reasonable diligence would have known, that the failure existed.

Back to scenario 4 I posed above. Is requiring employees to attest to the fact that they are enrolled in GHP coverage an exercise of reasonable diligence?

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