Chaz

I'll grant you that the arrangement does likely violate the cafeteria plan nondiscrimination tests. What I am struggling with is the consequences to the HCE. The arrangement just applies to ONE HCE; all other employees including other HCEs can opt of medical coverage but are not eligible to receive the opt-out payment. Medical insurance is the only benefit offered that participants pay a portion of the premium. The opt out arrangement for the one HCE is reduced to writing, which is included as part of the cafeteria plan and is specific enough to be clear that the other HCEs are ineligible for it. A simplified example with round numbers: HCE earns $100,000 per year. Participants' share of the cost of coverage equals $10,000 per year. The opt out payment is $15,000. So, if the HCE participated in the health plan, the HCE's taxable income would be $90,000 but because the HCE opted out, the HCEs taxable income is $115,000 (whereas other HCEs who opted out would have taxable income of $100,000). What would the tax consequences be to our lucky HCE friend in this scenario? It seems to me that the HCE is already being taxed on the value of the highest benefit he could receive. (The actual situation I am facing is somewhat similar to what EBECatty runs in to periodically. I have suggested virtually exactly the same design to the client as EBECatty suggests but the client is resisting.) Thanks!

The opt-out compensation is only offered to the one HCE. And, yes, the HCE gets the amount solely because the HCE opted out and the payment is contingent on opting out. Peter's other questions are all good ones but I am just looking for the consequences to the HCE under the cafeteria plan rules for participating in this arrangement.

A small employer offers only fully insured medical insurance to its employees and employees pay their share of the cost of coverage through a cafeteria plan. One (and only one) highly compensated employee is provided with additional cash compensation for opting out of the medical coverage. Does this violate the benefits portion of the cafeteria plan nondiscrimination tests? If so, what is the consequence to the one HCE? Thanks.

"Murky" is an understatement.

Subject to the answers to Peter's questions, I think it would be safe to remove the spouse from coverage if presented with an divorce decree executed by a court. Any divorce decree can theoretically be appealed a number of times, which would put the plan administrator in a predicament if an original decree is not considered "final" for purposes of dropping the spouse from coverage. The employer would then offer the spouse COBRA continuation coverage (assuming the employer is otherwise subject to COBRA). If the order is modified, it might be to require the employee to contribute all or part of the cost of continuation coverage but that would generally not be the concern of the employer except possibly to the extent that the employee's wages are garnished.

Do any of you that maintain PHI on behalf of a covered entity use Microsoft as your cloud provider? Have any of you who do successfully convinced Microsoft to enter into a business associate agreement? Thanks.

Brian, I typically see in level-funded arrangements that the TPA holds the amounts in its account, and therefore they don't remain in the employer's general assets so, in most cases at least, 92-01 won't apply. Is that your experience?

You may need to discuss with benefits counsel. It is quite possible that the amounts needed to be held in trust. If they weren't that is a problem itself but in general, they cannot revert back to the employer. I need to know more facts, though.

Note also that, regardless of to whom the reimbursements are made, most if not all of the reimbursements will likely constitute taxable income to the participant, if as appears likely, the LSA is provided in connection with an employer-employee relationship.

Imagine you are teaching your child to drive. You reach an intersection with a red light with absolutely no sign that anyone else is around. You child asks "Why can't we go through the light? How will the police know we did that?" How would you respond?

I advise employers to (i) require employees to provide documentation that a individual that the employee wishes to enroll in the plan meets the eligibility requirements and (ii) state in the SPD and in enrollment materials that the plan will consider enrolling an ineligible dependent as constituting fraud and misrepresentation. The second part may be a slightly risky way to avoid the ACA's prohibition on rescissions but, at the very least, will give employees second thoughts about engaging in hijinks or shenanigans.

My comments do not relate to the HSA/HDHP part of it. Here is a good resource on enrolling in Medicare and the potential penalties that you will incur if you enroll late: https://www.medicare.gov/publications/10050-medicare-and-you0.pdf See pages 17-18 (and elsewhere in the document) for a discussion of the timing of enrollment.

I'm not sure I fully understand your situation but if you are not going to covered by a group health plan through current employment (i.e., COBRA doesn't count) for longer than eight months, you're probably looking at paying higher premiums for Medicare Part B and D when you ultimately enroll in Medicare.

I am not necessarily looking for specific advice but I was wondering if anyone has had this or something similar occur. Employer was assessed a penalty of $40K under the ACA's shared responsibility provisions (the details don't matter). At no time did the employer send the IRS any amounts with respect to this assessment. Employer worked with counsel (me) to abate the penalty, which the IRS agreed to do. A few months later, the IRS sent Employer a check for $40K plus interest. Employer wrote back and said that the check was sent in error and requested IRS guidance on how to handle it. No response from the IRS. A few months later, the IRS sent another check in the same amount to the Employer. The employer responded similarly to what it did before. A few months later, the IRS sent yet another check in the same amount. Employer called the IRS and the representative told the Employer to send the checks back. Employer did so, along with a brief explanation. All was good until this past November, when the IRS sent a note saying that it was still working on the matter and would respond in 60 days. Last week the IRS sent another check, this time in the amount of $50K or so, reflecting additional interest. That is all.

Thanks for this. You set forth what has been my understanding all along. Maybe I am missing something, though, because the regs you cite are either with respect to calculating FTEs or for determining whether an ALE needs to offer coverage to an individual and don't discuss the threshold for full-time employees who are not considered in calculating FTEs. Here's a fuller excerpt from Publication 5208: Steps to determine your status as an ALE 1. Determine how many full-time employees you had each month of the prior calendar year. Under the ACA, a full-time employee for any calendar month is one who has, on average, at least 30 hours of service per week, or at least 130 hours per calendar month. There are exceptions for seasonal workers and employees with medical coverage under TRICARE or the Department of Veterans Affairs. 2. Determine how many full-time equivalent employees you had each month of the prior calendar year. To do this, combine the number of hours of service of all non-full-time employees for the month and divide that total by 120. Make sure you do not include more than 120 hours of service per employee. The same exceptions above for seasonal workers and workers with coverage under TRICARE or the Department of Veterans Affairs apply when determining the number of full-time equivalent employees. Peter and you accurately describe #2 above but not #1(?) Is Publication 5208 incorrect or am I missing something?