Chaz

Traditionally, private equity firms have taken the position that they do not operate a "trade or business" and as such, Code Section 414's controlled group rules do not apply to their portfolio companies. There have been, however, a few recent court decisions, most notably the Sun Capital case, that have held that a private equity firm that has the requisite ownership and control over its portfolio companies, can be held responsible for withdrawal liability if a portfolio company leaves a multiemployer plan because the PE firm is in the same controlled group as the portfolio company. My question is whether a court (or regulator) can use this rationale in other contexts, specifically whether the portfolio companies need to be aggregated for purposes of determining whether the entity is an applicable large employer under the employer shared responsibility provisions of the ACA. For instance, a PE firm establishes a fund that has two portfolio companies, one with 30 employees and one with 45. If the PE exercise the requisite ownership and control, do the entities need to aggregated because they are within the same control group under Code Section 414.? I have not seen any discussion of this anywhere and I welcome any thoughts. This also has application to other retirement and welfare plan scenarios. Thanks!

I believe, off the top of my head, that HHS has informally stated that an opt-out/cash-out incentive does not violate the MSP rules if it is available to Medicare-entitled employees on the same terms as other employees. But my recollection is that the informal guidance was provided many years ago so I recommend checking to see if it has revised its thoughts or has issued more recent guidance.

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.