Brian Gilmore

That is not a COBRA qualifying event because the loss of coverage is not caused by a triggering event. The MSP rules prevent Medicare eligibility from causing a loss of GHP eligibility in most situations. There are two requirements for a COBRA qualifying event: Loss of group health plan coverage; Caused by a COBRA triggering event. Not all losses of coverage are a COBRA qualifying event. Qualified beneficiaries have COBRA continuation coverage rights only if they experience a qualifying event. The event causing the individual’s loss of coverage must be one of the listed triggering events set forth by COBRA to constitute a qualifying event. Any other cause of a loss of group health plan coverage will not give rise to the right to continue coverage through COBRA. For example, an employee voluntarily dropping coverage for the employee and/or dependents at open enrollment or because of a mid-year permitted election change event is not a COBRA qualifying event. Qualified beneficiaries technically experience a qualifying event if their loss of coverage is caused by the employee’s Medicare enrollment. However, most employers (generally 20+ employees) are subject to the Medicare Secondary Payer rules that prohibit the employer from taking into account the Medicare entitlement of the employee. Accordingly, in most situations the employee’s Medicare enrollment cannot cause the employee to lose coverage, and therefore cannot trigger COBRA rights. Treas. Reg. §54.4980B-4: Q-1. What is a qualifying event? A-1. (a) A qualifying event is an event that satisfies paragraphs (b), (c), and (d) of this Q&A-1. Paragraph (e) of this Q&A-1 further explains a reduction of hours of employment, paragraph (f) of this Q&A-1 describes the treatment of children born to or placed for adoption with a covered employee during a period of COBRA continuation coverage, and paragraph (g) of this Q&A-1 contains examples. See Q&A-1 through Q&A-3 of §54.4980B-10 for special rules in the case of leave taken under the Family and Medical Leave Act of 1993 (29 U.S.C. 2601-2619). (b) An event satisfies this paragraph (b) if the event is any of the following— (1) The death of a covered employee; (2) The termination (other than by reason of the employee's gross misconduct), or reduction of hours, of a covered employee's employment; (3) The divorce or legal separation of a covered employee from the employee's spouse; (4) A covered employee's becoming entitled to Medicare benefits under Title XVIII of the Social Security Act (42 U.S.C. 1395-1395ggg); (5) A dependent child's ceasing to be a dependent child of a covered employee under the generally applicable requirements of the plan; or (6) A proceeding in bankruptcy under Title 11 of the United States Code with respect to an employer from whose employment a covered employee retired at any time. (c) An event satisfies this paragraph (c) if, under the terms of the group health plan, the event causes the covered employee, or the spouse or a dependent child of the covered employee, to lose coverage under the plan. For this purpose, to lose coverage means to cease to be covered under the same terms and conditions as in effect immediately before the qualifying event. Slide summary: 2023 Newfront COBRA for Employers Guide

Be careful there: https://www.irs.gov/pub/irs-utl/Circular_230_Revisions_Prohibit_Playing_Audit Lottery_With_Clients.pdf Here are a couple examples: 2023 Newfront Section 125 Cafeteria Plans Guide

I've posted some commentary on this issue here: https://www.newfront.com/blog/missing-the-dependent-care-fsa-run-out-period-2 Section 125 Use-It-Or-Lose-It Rule The health and dependent care FSAs are components of the company’s Section 125 cafeteria plan. Internal Revenue Code §125 (and its implementing regulations) imposes very strict limitations on the administration of cafeteria plans. One of the most fundamental of these limitations is that all FSA elections are subject to the use-it-or-lose-it rule. This means that after the end of the plan year (or earlier termination of employment) and any grace and/or run-out period, any remaining unreimbursed funds not subject to a carryover provision must be forfeited to the plan. Plan Disqualification Risk Unfortunately, there is no option for employers to make exceptions to these rules or refund to employees any unreimbursed FSA amounts remaining at the end of the plan year plus any related grace period and/or run-out period (or after the run-out period following termination of employment). Engaging in this practice would risk disqualifying the entire Section 125 cafeteria plan if discovered by the IRS, resulting in all elections becoming taxable to all employees. ... There may be particularly unfortunate situations involving large dependent care FSA forfeitures or claims submitted only slightly after the end of the run-out period. However, a small number of employees forfeiting contributions is by far the better approach than risking the tax-advantaged status of the cafeteria plan for all employees. The potential consequences under Section 125 are too severe to make offering an exception a viable alternative. ... Regulations: Prop. Treas. Reg. §1.125-5(c): (c) Use-or-lose rule. (1) In general. An FSA may not defer compensation. No contribution or benefit from an FSA may be carried over to any subsequent plan year or period of coverage. See paragraph (k)(3) in this section for specific exceptions. Unused benefits or contributions remaining at the end of the plan year (or at the end of a grace period, if applicable) are forfeited. Prop. Treas. Reg. §1.125-1(c)(7): (7) Operational failure. (i) In general. If the cafeteria plan fails to operate according to its written plan or otherwise fails to operate in compliance with section 125 and the regulations, the plan is not a cafeteria plan and employees’ elections between taxable and nontaxable benefits result in gross income to the employees. (ii) Failure to operate according to written cafeteria plan or section 125. Examples of failures resulting in section 125 not applying to a plan include the following— (A) Paying or reimbursing expenses for qualified benefits incurred before the later of the adoption date or effective date of the cafeteria plan, before the beginning of a period of coverage or before the later of the date of adoption or effective date of a plan amendment adding a new benefit; (B) Offering benefits other than permitted taxable benefits and qualified benefits; (C) Operating to defer compensation (except as permitted in paragraph (o) of this section); (D) Failing to comply with the uniform coverage rule in paragraph (d) in §1.125-5; (E) Failing to comply with the use-or-lose rule in paragraph (c) in §1.125-5; (F) Allowing employees to revoke elections or make new elections, except as provided in §1.125-4 and paragraph (a) in §1.125-2; (G) Failing to comply with the substantiation requirements of § 1.125-6; (H) Paying or reimbursing expenses in an FSA other than expenses expressly permitted in paragraph (h) in §1.125-5; (I) Allocating experience gains other than as expressly permitted in paragraph (o) in §1.125-5; (J) Failing to comply with the grace period rules in paragraph (e) of this section; or (K) Failing to comply with the qualified HSA distribution rules in paragraph (n) in §1.125-5. Prop. Treas. Reg. §1.125-1(f): (f) Run-out period. A cafeteria plan is permitted to contain a run-out period as designated by the employer. A run-out period is a period after the end of the plan year (or grace period) during which a participant can submit a claim for reimbursement for a qualified benefit incurred during the plan year (or grace period). Thus, a plan is also permitted to provide a deadline on or after the end of the plan year (or grace period) for submitting a claim for reimbursement for the plan year. Any run-out period must be provided on a uniform and consistent basis with respect to all participants. Slide summary: 2023 Newfront Section 125 Cafeteria Plans Guide

I think that's pretty much the exact same issue we were looking into above. Seems like a reasonable position to me. If you're interested, I've posted some additional thoughts here: https://www.newfront.com/blog/dependent-care-fsa-during-maternity-leave-2

That's a difficult one because it will depend on how the plan defines the "period of coverage" for these purposes. My guess would be the plan document doesn't specifically address whether an employee who was a participant, revoked the election mid-year, then enrolled again mid-year will have two separate periods of coverage for this purpose. In other words, while it's clear expenses incurred during the period the election was revoked from March-June would not be eligible, it's not clear whether the period of coverage would bridge the gap to cover claims in the initial period of enrollment (Jan-Feb). The plan could take the position that each period (Jan-Feb and July-Dec) are treated separately. In that situation, the employee's contributions July-Dec would not be able to reimburse claims incurred Jan-Feb. Essentially, the employee would be treated in the same manner as a terminated employee at the end of Feb, and then treated as a newly eligible employee again in July. Any unreimbursed balance at the end of the initial participation period would be subject to use-it-or-lose-it and forfeited. However, I think the plan could also take the position that any months in the full 12-month plan year in which the employee participates (in this case, Jan-Feb and July-Dec) are the employee's "period of coverage." In that case, the incoming contributions in July-Dec could be applied to reimburse the $200 remaining balance from the Jan-Feb claims. Ultimately, I think the FSA TPA will probably direct the situation through it's standard administrative and systems processes. I would check with the TPA for how they administer these types of situations. Prop. Treas. Reg. §1.125-5(a)(1): (a) Definition of flexible spending arrangement. (1) In general. In general. An FSA generally is a benefit program that provides employees with coverage which reimburses specified, incurred expenses (subject to reimbursement maximums and any other reasonable conditions). An expense for qualified benefits must not be reimbursed from the FSA unless it is incurred during a period of coverage. See paragraph (e) of this section. After an expense for a qualified benefit has been incurred, the expense must first be substantiated before the expense is reimbursed. See paragraphs (a) through (f) in §1.125-6.

I hear you. So the issue here derives from Rev. Rul. 2002-27, addressing the basic premise of the Section 125 cafeteria plan safe harbor from constructive receipt. Much like the CODA rules on the 401(k) side, these are designed to ensure employees won't be taxed on the value of the taxable cash option they could have received if they hadn't elected the health plan. For the cafeteria plan rules to apply, the employee must have the choice between the qualified benefit and the taxable cash. Assume your health plan premium is $500. The ER contributes $350, the EE pays $150. The employee can pay that $150 EE-share of the premium pre-tax by utilizing the Section 125 cafeteria plan (POP component) and thereby avoiding constructive receipt of the $150 cash option. Now assume you can only waive the health plan if you certify other health coverage. According to the IRS, this does not effectively provide the employee with a choice for the $150 cash option, and therefore we're operating outside of the cafeteria plan world. So the $150 would be "deemed 125 compensation" for 415 comp purposes. Per my note above, my argument is that this situation doesn't really occur in practice. Now go back and assume we're back at the first example--no certification, cafeteria plan does apply. Only difference is the employee offers an opt-out credit of $100 if the employee declines the plan. In that case, the employee still has the unrestricted choice between applying the $150 to the health plan premium or taking the $150 as taxable cash. The difference is that if the employee declines the health plan option, the employee now has $250 in taxable cash (the $150 not applied to the health plan, plus the $100 opt-out credit). Any condition the employer imposes on the $100 opt-out credit (including the common requirement to certify other group coverage to satisfy the ACA employer mandate affordability requirement by meeting the "eligible opt-out arrangement requirements) does not affect the choice the employee had to take the $150 as taxable cash. So we're not in a "deemed 125 compensation" situation there--the $150 is still squarely within the cafeteria plan.

I know this isn't really what you're asking, but from the health plan side I view this as a red herring. The deemed 125 compensation issue addresses employers that condition the cash option on proof of other coverage, which then puts you outside the cafeteria plan safe harbor from constructive receipt. I almost never see that approach in practice. For one, the ACA employer mandate rules require that employees have an effective opportunity to decline the employer’s offer of coverage. If the plan does not follow the federal poverty line safe harbor for determining affordability, there is an argument that the employee does not have the effective opportunity to decline coverage if they must show proof of other coverage. Furthermore, requiring proof of other coverage raises potential state wage withholding law violations. Employers generally cannot withhold amounts from an employee’s paycheck (including premium contributions) without the employee’s authorization. Requiring proof of other coverage to decline the employer’s offer of coverage effectively compels employees without other coverage to pay the employee-share of the premium. It is very common for employers to require proof of other coverage to receive the opt-out credit, but that's a different situation that doesn't create deemed 125 compensation. That's an affordability requirement to meet the ACA employer mandate definition of an "eligible opt-out arrangement." Treas. Reg. § 54.4980H-4(b)(1): (b) Offer of coverage—(1) In general. An applicable large employer member will not be treated as having made an offer of coverage to a full-time employee for a plan year if the employee does not have an effective opportunity to elect to enroll in the coverage at least once with respect to the plan year, or does not have an effective opportunity to decline to enroll if the coverage offered does not provide minimum value or requires an employee contribution for any calendar month of more than 9.5 percent of a monthly amount determined as the federal poverty line for a single individual for the applicable calendar year, divided by 12. For this purpose, the applicable federal poverty line is the federal poverty line for the 48 contiguous states and the District of Columbia. Whether an employee has an effective opportunity to enroll or to decline to enroll is determined based on all the relevant facts and circumstances, including adequacy of notice of the availability of the offer of coverage, the period of time during which acceptance of the offer of coverage may be made, and any other conditions on the offer. An employee's election of coverage from a prior year that continues for the next plan year unless the employee affirmatively elects to opt out of the plan constitutes an offer of coverage for purposes of section 4980H.

Agreed. I think there's a reason you'll never see this come up in the real word. The carriers (insured) or stop-loss (self-insured) would never bless it because of the tremendous adverse selection problem. I suppose a very large employer that's self-insured with no stop-loss could try it, but at that point they might as well just offer subsidized COBRA.

This one depends on how the employer handles the transition. Here's an overview with details on the options: https://www.newfront.com/blog/merger-acquisition-rules-health-fsa-2 Here's a slide summary: 2023 Newfront M&A for H&W Employee Benefits Guide

HSA eligibility is purely an individual issue. So the fact that the spouse is enrolled in Medicare doesn't affect the employee's HSA eligibility. That's simply disqualifying coverage for the spouse that blocks the spouse from contributing to an HSA in the spouse's name. The employee can contribute up to the family limit if at least one other person is covered by the HDHP--regardless of whether that other person has disqualifying coverage. So an employee covering a Medicare-enrolled spouse in the HDHP can contribute to the family limit even though the spouse is not HSA-eligible. The spouse enrolled in Medicare is not HSA-eligible and therefore cannot make the catch-up contribution. Only the HSA-eligible employee could make the catch-up contribution in that situation. Here's an overview: https://www.newfront.com/blog/hsas-and-family-members The Family HSA Contribution Limit: Family Members’ Other Non-HDHP Coverage Irrelevant HSA-eligible employees can contribute to the family limit if they enroll in any HDHP tier other than employee-only coverage. The HSA rules define family HDHP coverage as any coverage other than self-only coverage. This means that employees who are HSA-eligible and cover at least one other individual under the HDHP can contribute up to the family HSA limit. The family HSA contribution limit is available regardless of: Whether the other covered family members are HSA-eligible (e.g., the family members may also be enrolled in non-HDHP coverage or Medicare); or Whether the other covered family members are eligible for tax-free coverage under the plan (e.g., non-tax dependent domestic partners). Example: Ben enrolls in HDHP coverage for himself and his domestic partner Julianna for all of 2021 (and has no disqualifying coverage). Ben’s (non-tax dependent) domestic partner Julianna also has employee-only coverage under a non-HDHP HMO plan with her employer. Result: Ben is eligible to make the full $7,200 family HSA contribution limit for 2021. The fact that Julianna is a non-tax dependent domestic partner and has other disqualifying coverage is irrelevant for purposes of Ben’s ability to contribute to the family HSA limit. Note that Julianna cannot make or receive HSA contributions to an HSA in her name because she is not HSA-eligible. https://www.newfront.com/blog/hsa-catch-up-contributions Catch-Up Contributions: Married Individuals Both spouses may make the additional $1,000 catch-up contribution if they are both HSA-eligible and are both age 55+ by the end of the calendar year. Although the special HSA contribution rules for married individuals permit one spouse to contribute up the standard statutory family contribution limit in his or her HSA, the catch-up contribution rules are designed differently. The catch-up contribution rules require each spouse to make the catch-up contribution to his or her own HSA to take advantage of the double catch-up contribution. In other words, each spouse would have to contribute $1,000 to their own HSA to take advantage of the catch-up contribution for both HSA-eligible and catch-up-eligible spouses. One spouse cannot contribute a $2,000 catch-up amount (or any more than $1,000) to his or her own HSA for this purpose. Therefore, in a married relationship where only one spouse has established an HSA—which is common due to the special HSA contribution rules for married individuals—the other spouse would need to establish an HSA just to fund the $1,000 catch-up contribution. That is the only way to take advantage of the catch-up contribution available to both spouses. Example 2: Anthony and his spouse Chelsea are both age 55+. Both Anthony and Chelsea are covered by a family HDHP through Anthony’s employer, and both are HSA-eligible for all of 2020. The couple wants to take advantage of the maximum standard statutory and catch-up HSA contribution amounts available for 2020. Result 2: Anthony may contribute up to $8,100 to his HSA ($7,100 family contribution limit + $1,000 catch-up contribution). To take advantage of her catch-up contribution, Chelsea must establish her own HSA and contribute the $1,000 catch-up contribution to her HSA. The catch-up contribution available to Chelsea cannot be made to Anthony’s HSA (i.e., Anthony cannot make a $2,000 catch-up contribution to his HSA). Slide summary: 2023 Newfront Go All the Way with HSA Guide

You don't have to stop HSA contributions upon reaching age 65. You won't lose HSA eligibility until you enroll in Medicare. Just keep in mind that Medicare Part A enrollment will be six months retroactive, so you'll have to account for that issue. Here's an overview https://www.newfront.com/blog/how-medicare-affects-hsa-eligibility General Rule: HSA Eligibility The general rule is that an individual must meet two requirements to be HSA-eligible (i.e., to be eligible to make or receive HSA contributions): Be covered by an HDHP; and Have no disqualifying coverage (generally any medical coverage that pays pre-deductible, including Medicare). HSA eligibility also requires that the individual cannot be claimed as a tax dependent by someone else. Medicare is Disqualifying Coverage Enrollment in any part of Medicare is disqualifying coverage that causes an individual to lose HSA eligibility. This means that an individual who is enrolled in Medicare Part A, Part B, Part C, Part D, or any combination thereof is not eligible to make or receive HSA contributions. Even enrollment in only the (generally premium-free) Medicare Part A hospital coverage blocks HSA eligibility. Individuals Who Are Age 65+ May Still Be HSA Eligible Medicare enrollment causes an individual to lose HSA eligibility. However, many employees age 65 and older delay enrollment in Medicare, and therefore may continue to be HSA-eligible. In other words, mere eligibility to enroll in Medicare has no effect on the individual’s HSA eligibility if the individual chooses not to enroll in any part of Medicare. The Medicare Part A Automatic Enrollment Trap: Individuals Receiving Social Security Retirement Benefits Individuals who are receiving Social Security retirement benefits are automatically enrolled in (premium-free) Medicare Part A hospital coverage with no opt-out permitted. Accordingly, any individual receiving Social Security retirement benefits is not HSA eligible by virtue of the automatic Medicare Part A enrollment. The Medicare Part A Retroactive Enrollment Trap: Six Months of Retroactive Coverage For individuals who delay enrolling in Medicare until after age 65, the Medicare Part A enrollment will be effective retroactively up to six months. This six-month retroactive enrollment in Medicare Part A will also block HSA eligibility retroactively for six months. Individuals have two options to address the retroactive Medicare Part A enrollment causing the retroactive loss of HSA eligibility: Plan Ahead: Stop making HSA contributions at least six months before applying for Medicare, and limit HSA contributions during that period to the prorated amount; or Correct Mistake: Work with the HSA custodian to take a corrective distribution of the excess contributions by the due date (including extensions) for filing the individual tax return (generally April 15, without extension). Example: Jose reaches age 65 in August 2018 but does not enroll in Medicare. Jose signs up for Social Security benefits on October 1, 2019, which automatically enrolls him in Medicare Part A retroactive to April 1, 2019. Result: Jose retroactively loses HSA eligibility as of April 2019—and therefore he can contribute only 3/12 of the HSA statutory limit for 2019 (plus 3/12 of the catch-up contribution). If he already contributed in excess of that limit, Jose will need to make a corrective distribution of the excess contributions by April 15, 2020 (assuming no extensions) to avoid a 6% excise tax. Slide summary: 2023 Newfront Medicare for Employers Guide

Almost every employer uses a "wrap" SPD that incorporates outside third-party materials by reference. I see no issue with that approach. Here's a summary: 2023 Newfront ERISA for Employers Guide

Nope, they'll just restart pre-tax payroll contributions through the Section 125 cafeteria plan upon return. More details: https://www.newfront.com/blog/health-benefits-protected-leave-2 Paying for Group Health Plan Coverage The Section 125 rules provide three ways to handle collection of the employee’s payment: 1. Pre-pay: Under the pre-pay option, the employee is given the opportunity to pay for the continued coverage in advance (i.e., before commencing the leave). In this case, the employee could elect to reduce his or her final pre-leave paycheck with pre-tax salary reduction contributions that will cover his or her share of the contributions for all or a part of the expected duration of the leave. Two important limitations: The pre-pay option cannot be the sole option offered. So if the company offers this approach, it will have to also offer at least one of the other two. Pre-pay cannot be used to pay for coverage in a subsequent plan year on a pre-tax basis. If the leave is expected to spill over into a subsequent plan year, the employee could only pre-pay on a pre-tax basis for the part of the leave in the first plan year. 2. Pay-as-you-go: Under this approach, the employee pays for his or her share of the cost of coverage in installments during the leave. If the leave is paid leave, the employee could pay on a pre-tax basis from the payments he or she is receiving. Otherwise, these payments would have to be made on an after-tax basis (e.g., by check). 3. Catch-up: In this approach, the employee agrees in advance to make catch-up contributions upon returning from leave for the cost of coverage during the leave. Although not clear, it appears that catch-up contributions may be made on a pre-tax basis even if the leave straddles two plan years. In general, employees on paid leave will probably want to go with option #2. Employees on an unpaid leave will probably want option #1 or #3 so that they can pay on a pre-tax basis. Slide summary: 2023 Newfront Health Benefits While on Leave Guide

If these benefits aren't incorporated into a self-insured major medical plan, this would really need to be an HRA to work properly. I typically refer to those as "specialty HRAs." Here's an overview on that issue: https://www.newfront.com/blog/addressing-employee-health-plan-exception-requests-part-vi Of course the employer could choose not charge any amount (i.e., fully subsidize) the COBRA premium for the HRA. The COBRA rules permit you to charge up to 102% of the cost of coverage--but any amount below that is always fine. Assuming they want to charge for the coverage, the IRS doesn't have great guidance on how to address the COBRA rate for HRAs, but here are my thoughts: https://www.newfront.com/blog/cobra-for-infertility-hras-and-other-specialty-hras Determining the Specialty HRA COBRA Premium The most difficult aspect of applying the standard COBRA rules to an HRA is determining the applicable premium. The COBRA rules do not naturally lend themselves to an account-based plan such as an HRA. The limited IRS guidance available in this area states that the standard COBRA rules apply for determining the specialty HRA premium. Those rules permit the employer to charge up to 102% of a reasonable estimate of the cost for providing the HRA to a participant. (Keep in mind that although the specialty HRA is exclusively paid by the employer for an active participant, COBRA will shift that cost of coverage to the qualified beneficiary.) We find that most employers are comfortable setting that reasonable estimate at 60% to 80% of the amount made available annually under the specialty HRA. This is based on the general rule of thumb that HRA participants tend to take reimbursement of roughly 60% – 80% full HRA balance made available each year. For example, assume the specialty HRA has a $10,000 annual limit. The employer might set the COBRA premium at 75% of that amount, plus the 2% administrative fee. That would result in a monthly COBRA premium of $637.50 ($10,000/12 *.75 = $625 x 1.02) for any qualified beneficiary enrolled in the specialty HRA through COBRA. Key Point: The COBRA rate is not tied to the employee’s balance remaining in the HRA at the time of the qualifying event, but rather to the amount made available under the HRA. That contribution amount would have continued to be credited to the HRA during the COBRA period. So even if the employee had taken reimbursement of $2,500 of the HRA’s $10,000 annual limit at the time of the qualifying event, the COBRA rate would still be based on the $10,000 amount made annually available—at a monthly premium of $637.50 based on the example above. This means that all COBRA qualified beneficiaries will have the same COBRA premium regardless of their remaining specialty HRA balance. Here's a slide summary: 2023 Newfront Fringe Benefits for Employers Guide

Employee health plan and HSA contributions are taken pre-tax through the Section 125 cafeteria plan. We don't have any guidance I'm aware of addressing these payroll year straddling issues for 125 purposes. But I've always felt comfortable piggybacking on the 401(k) rules for these purposes, which basically allow it to go either way. In other words, although compensation generally must actually be paid or made available to an employee within the year to be counted as compensation for that year, year-end payrolls do not always pay out by the end of the year. The qualified plan regs allow for adjustments to address this minor timing difference. I think the cafeteria plan can provide that compensation for a year includes amounts earned during that year (2022) but not paid until the next year (2023) solely because the timing of pay periods/pay dates. Treas. Reg. §1.415(c)-2(e): (e) Timing rules. (1) In general. (i) Payment during the limitation year. Except as otherwise provided in this paragraph (e), in order to be taken into account for a limitation year, compensation within the meaning of section 415(c)(3) must be actually paid or made available to an employee (or, if earlier, includible in the gross income of the employee) within the limitation year. For this purpose, compensation is treated as paid on a date if it is actually paid on that date or it would have been paid on that date but for an election under section 125, 132(f)(4), 401(k), 403(b), 408(k), 408(p)(2)(A)(i), or 457(b). (2) Certain minor timing differences. Notwithstanding the provisions of paragraph (e)(1)(i) of this section, a plan may provide that compensation for a limitation year includes amounts earned during that limitation year but not paid during that limitation year solely because of the timing of pay periods and pay dates if— (i) These amounts are paid during the first few weeks of the next limitation year; (ii) The amounts are included on a uniform and consistent basis with respect to all similarly situated employees; and (iii) No compensation is included in more than one limitation year.

Here's a thread with some more discussion:

If you take a look at IRS Publication 969 and the Form 8889 instructions (relevant part copied at the bottom of this post https://www.newfront.com/blog/correcting-excess-hsa-contributions), they generically refer to these additional amounts as "earnings." That should include amounts from the standard interest-bearing cash portion and the investment portion. Then again, if we're talking about 4 cents in interest I don't really think it matters either way.

Yeah I think they could in theory, but why would they want to? The health FSA salary reduction contribution limit only needs to be prorated for a short plan year (i.e., not an employee entering mid-year into a health FSA full plan year). The more the employee elects, the more the employer saves in FICA contributions. And I don't see any heightened risk of experience losses with a mid-year entry if that's the motivation. Plus, as long as they aren't coming from a related employer, the employee has a fresh $3.050 limit available to them even if they had a health FSA with the prior employer. For the dependent care FSA, it's a simple $5k calendar year limit across-the-board that will be the employee's responsibility to stay within. Again, the more the employee elects, the more the employer saves on the payroll tax side.

The effective date of coverage when experiencing a mid-year permitted election change event is generally a matter of plan design. I recommend making coverage effective the first of the month following the date of the election change request (as opposed to the event) to avoid retroactive payment issues. The exception of course is for birth, adoption, and placement for adoption--which must be effective date of event. Here's an overview: https://www.newfront.com/blog/hipaa-special-enrollment-events-2 Section 125 Permitted Election Change Events: Paying for Retroactive Coverage Employee pre-tax premium payments are made through the company’s Section 125 cafeteria plan. Section 125 does not permit retroactive elections except where the event is birth, adoption, or placement for adoption. (There could also be a retroactive mid-year election for a new hire for elections made within 30 days after date of hire.) In all other cases, the election must be prospective. This means that the employee cannot pay for an election change on a pre-tax basis for any period prior to the date of the election. Example 1: First of the Month Following Election Change Request For example, assume again that Jack marries Jill on January 19, and submits the election to enroll Jill on February 14. As described above, the standard approach would be for coverage to be effective as of March 1 (first on the month following the date of the election change request). Example 2: Date of Election Change Request Some employers may choose to be more generous and permit Jill’s enrollment as of February 14 (the date of the election change request). If coverage is effective as of February 14 (the date of the election change request), there is no issue (assuming the carrier or stop-loss provider approves of the more generous practice) because coverage is not retroactive from the date of the election change request. Example 3: Date of Event On the other hand, if coverage is effective as of January 19 (the date of the marriage), there would be an issue because coverage is retroactive from the date of the election change request (February 14). In that case, there is no basis for permitting Jack to pay for Jill’s coverage on pre-tax basis for the period prior to the date of the election (from January 19 through February 13). That would mean that either a) the company must pay the full cost of coverage for the period from the date of the event to the date of the election, or b) the employee must pay for the coverage on an after-tax basis for the period from the date of the event to the date of the election. Needless to say, neither of those options are ideal. Many companies avoid this issue by providing coverage as of the first of the month following the date of the election change request (except for birth, adoption, and placement for adoption, and mid-year new hire elections made within 30 days of hire). That will always permit the employee to pay pre-tax for the employee-share of the premium for the entire period of coverage. As a reminder, employers should seek insurance carrier (or stop-loss provider) approval for coverage to be effective as of the date of the event because that is only required for newborns and children newly adopted or placed for adoption with the employee. Slide summary: 2023 Newfront Section 125 Cafeteria Plans Guide

I think the employer is confusing the rules here. While it is true that Box 10 includes both taxable and non-taxable dependent care assistance amounts, the non-taxable component is for amounts in excess of the $5k tax-free limit. In your case, the reductions to your account brought you below the $5k limit to (presumably) pass the 55% average benefits test. Those reductions resulted in the excess amounts simply being converted to taxable income you could use for any purpose. That excess amount returned to you as taxable income was no longer dependent care assistance. It was simply taxable cash that should be reported in Box 1, 3, 5. It wouldn't be reported in Box 10. More details: https://www.newfront.com/blog/the-dependent-care-fsa-average-benefits-test IRS Publication 15-B: https://www.irs.gov/pub/irs-pdf/p15b.pdf Form W-2. Report the value of all dependent care assistance you provide to an employee under a DCAP in box 10 of the employee's Form W-2. Include any amounts you can't exclude from the employee's wages in boxes 1, 3, and 5. Report in box 10 both the nontaxable portion of assistance (up to $5,000) and any assistance above that amount that is taxable to the employee. Example. Oak Co. provides a dependent care assistance FSA to its employees through a cafeteria plan. In addition, it provides occasional on-site dependent care to its employees at no cost. Emily, an employee of Oak Co., had $4,500 deducted from Emily’s pay for the dependent care FSA. In addition, Emily used the on-site dependent care several times. The fair market value of the on-site care was $700. Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 FSA plus $700 on-site dependent care). Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount.

Agree--you could also try the "Make a Complaint" option with the DOL folks at EBSA: https://www.dol.gov/agencies/ebsa/about-ebsa/ask-a-question/ask-ebsa

Oh ok. That sounds fine to me from an ERISA standpoint. I don't think that creates GHP issues. But you probably want to think through the qualified employee discount fringe benefits rules in §132(c) for potential tax issues.

So you're saying the employer will reimburse a portion of the cost-sharing paid by the employee to ensure each visit does not exceed $75 OOP? That would be a GHP reimbursement of medical expenses in my opinion. I know it feels different because the provider is also the employer, but I don't see how that changes the basic concept that reimbursement of a medical expense creates an ERISA GHP. Here's an overview: https://www.newfront.com/blog/addressing-employee-health-plan-exception-requests-part-vi Specific Expense Payment Exceptions: Requests for Employer to Reimburse Outside the Plan Although many employers expend a great deal of time, effort, and money to maintain group health plan offerings for employees, there will always be at least perceived gaps in coverage where employees believe the plan does not provide sufficient benefits. This will often create situations where an employee requests that the employer pay for or reimburse a specific medical expense that was not covered by the group health plan. Common examples of situations where an employee will request reimbursement of a medical expense outside of the formal ERISA group health plan include: Services not sufficiently covered by the group health plan (e.g., infertility expenses, abortion travel expenses, gender dysphoria expenses, mental health expenses, autism-related expenses); Cost-sharing under the group health plan (i.e., deductibles, copays, coinsurance); Items and services not covered by the group health plan; Out-of-network provider costs under the group health plan; High-cost pharmaceuticals; Individual policy premium costs for part-time or out-of-state employees; Medical wellness expenses outside a wellness program integrated with the group health plan. Reimbursement of the Medical Expenses Creates a Group Health Plan Reimbursement of Internal Revenue Code §213(d) health expenses creates a group health plan, which would trigger the full array of group health plan laws (ERISA, COBRA, HIPAA, ACA, HSA eligibility, §105(h), etc.). Therefore, employers should avoid providing reimbursement for any §213(d) medical expenses outside of the group health plan unless it is part a HRA or wellness program that is integrated with the health plan. IRS Publication 502 provides a useful summary of expenses that qualify as §213(d) medical expenses.

I've always been comfortable with that approach, but I don't believe there's any guidance directly addressing it. There are rules prohibiting pre-payment in year one for year two coverage, but no such rule exists with respect to catch-up contributions in year two for year one coverage. It doesn't seem to implicate the Section 125 prohibition of deferral of compensation in the same manner as pre-payment, which is why I've been comfortable with clients using year two catch-up. Here's some materials I've put out addressing the issue if you're interested: 2023 Newfront Health Benefits While on Leave Guide https://www.newfront.com/blog/health-benefits-protected-leave-2

Yes, good point. Here's the reg on point under the ADEA. Still seems fine because it's a consistent percentage. 29 CFR §1625.10(d)(4)(ii): (ii) As a condition of participation in a voluntary employee benefit plan. An older employee within the protected age group may be required as a condition of participation in a voluntary employee benefit plan to make a greater contribution than a younger employee only if the older employee is not thereby required to bear a greater proportion of the total premium cost (employer-paid and employee-paid) than the younger employee. Otherwise the requirement would discriminate against the older employee by making compensation in the form of an employer contribution available on less favorable terms than for the younger employee and denying that compensation altogether to an older employee unwilling or unable to meet the less favorable terms. Such discrimination is not authorized by section 4(f)(2). This principle applies to three different contribution arrangements as follows: (A) Employee-pay-all plans. Older employees, like younger employees, may be required to contribute as a condition of participation up to the full premium cost for their age. (B) Non-contributory (“employer-pay-all”) plans. Where younger employees are not required to contribute any portion of the total premium cost, older employees may not be required to contribute any portion. (C) Contributory plans. In these plans employers and participating employees share the premium cost. The required contributions of participants may increase with age so long as the proportion of the total premium required to be paid by the participants does not increase with age.