Brian Gilmore

Sounds like you're in a small group age-rated plan. I don't see any issues with that approach under the Section 125 cafeteria plan nondiscrimination rules that govern employee contribution rates.

Not sure what you're driving at with the assumption language, but I've copied the DOL guidance below for reference. One of the conditions for avoiding ERISA status is that the employer not represent the HSA as an ERISA welfare benefit plan, so I wouldn't put HSA materials in an ERISA SPD. HSAs are not viable in the hypothetical they are subject to ERISA (not sure any ERISA HSAs actually exist). https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2004-01 As noted above, HSAs are personal health care savings vehicles rather than a form of group health insurance. ... Accordingly, we would not find that employer contributions to HSAs give rise to an ERISA-covered plan where the establishment of the HSAs is completely voluntary on the part of the employees and the employer does not: (i) limit the ability of eligible individuals to move their funds to another HSA beyond restrictions imposed by the Code; (ii) impose conditions on utilization of HSA funds beyond those permitted under the Code; (iii) make or influence the investment decisions with respect to funds contributed to an HSA; (iv) represent that the HSAs are an employee welfare benefit plan established or maintained by the employer; or (v) receive any payment or compensation in connection with an HSA. 2023 Newfront Go All the Way with HSA Guide

The HSA is not a group health plan subject to ERISA, so there generally are no SPD terms addressing HSAs. It's really just a tax vehicle. Employers definitely have been making more efforts in recent years to communicate HSA features, strategies, and eligibility issues at OE, etc. both as a service to employees and to make sure employees are informed about these concerns. Also because the HDHP is often the best plan option from a cost perspective for both parties.

Yeah it's a pickle unfortunately. Most employers would say this is just purely an individual income tax issue because they're not responsible for monitoring outside disqualifying coverage. In theory you could receive the HSA contributions and then take a corrective distribution from the custodian, but the approach I mentioned above would avoid that hassle. Here's some more details on that point: https://www.newfront.com/blog/employer-hsa-contributions Employer HSA Contribution Consideration #4: Limited Role in Determining HSA Eligibility HSA eligibility is generally an individual income tax issue that does not involve the employer. Therefore, with limited exceptions, the employer is not responsible for determining the HSA-eligible status of employees. Employers are responsible for confirming only the following three items with respect to an employee’s HSA eligibility: Whether the employee is covered by an HDHP sponsored by that employer; Whether the employee has any disqualifying coverage sponsored by that employer; and The employee’s age for determining eligibility for catch-up contributions. Employers may rely on employees’ representations as to their date of birth. Most importantly, employers are not responsible for determining or monitoring whether employees have any outside disqualifying coverage. For example, this means it is not the employer’s responsibility to verify: Whether the employee is enrolled in non-HDHP coverage through a spouse, domestic partner, or parent; Whether the employee’s spouse is enrolled in a general purpose health FSA (which disqualifying coverage for both the spouse and employee); or Whether the employee is enrolled in any part of Medicare. Any such disqualification coverage issues related to a plan not sponsored by the employer are exclusively the employee’s responsibility because they are purely an individual income tax issue. ... IRS Notice 2004-50: https://www.irs.gov/irb/2004-33_IRB#NOT-2004-50 Q-81. Are employers who contribute to an employee’s HSA responsible for determining whether the employee is an eligible individual and the employee’s maximum annual contribution limit? A-81. Employers are only responsible for determining the following with respect to an employee’s eligibility and maximum annual contribution limit on HSA contributions: (1) whether the employee is covered under an HDHP (and the deductible) or low deductible health plan or plans (including health FSAs and HRAs) sponsored by that employer; and (2) the employee’s age (for catch-up contributions). The employer may rely on the employee’s representation as to his or her date of birth.

Yeah that's a bummer. Happens all the time unfortuantley. The spouse's general purpose health FSA is unfortunately disqualifying coverage for both the spouse and you. Spending the health FSA down to zero doesn't change that. The health FSA will remain disqualifying coverage for both you and the spouse for the full plan year. The only exception would be if the spouse revokes the health FSA (permitted election change event needed) or terminates (and doesn't elect COBRA for the health FSA)--in which case you could prospectively start HSA contributions on a prorated limit basis (HSA eligibility is determined as of the first day of each calendar month). Here's an overview: https://www.newfront.com/blog/hsa-interaction-health-fsa-2 I recommend notifying your employer not to make the ER HSA contribution because you are not HSA-eligible. You can revoke your EE HSA contribution election for any reason (you don't need a permitted election change event), so you'll also want to do that, too. Here's an overview: https://www.newfront.com/blog/hsa-contribution-election-changes-2 If you still have HSA contributions deposited before they can be stopped, I recommend working with the HSA custodian to take a corrective distribution. That will avoid a 6% excise tax that would otherwise apply for the excess contribution. Here's an overview: https://www.newfront.com/blog/correcting-excess-hsa-contributions Slide summary: 2023 Newfront Go All the Way with HSA Guide

The SMM requirement here is 60 days after adoption of the material reduction in health benefit. More details: https://www.newfront.com/blog/distribution-timing-rules-spds-smm-2 The SBC rules do require 60 days advance notice of a material modification, but that's generally not interpreted to include plan terminations. Really you're looking at a generalized fiduciary obligation here to disclose, which is going to be a gray area. But if the deal hasn't isn't public, I don't see how you could disclose even if you wanted to. 29 CFR §2520.104b-3: (d) Special rule for group health plans. (1) General. Except as provided in paragraph (d)(2) of this section, the administrator of a group health plan, as defined in section 733(a)(1) of the Act, shall furnish to each participant covered under the plan a summary, written in a manner calculated to be understood by the average plan participant, of any modification to the plan or change in the information required to be included in the summary plan description, within the meaning of paragraph (a) of this section, that is a material reduction in covered services or benefits not later than 60 days after the date of adoption of the modification or change. Slide summary: 2023 Newfront ERISA for Employers Guide

Yeah my point was a week or two in it's pretty decent at providing decent answers to basic EB questions. Imagine a year or two in? Or a decade? I would guess that clients will be more interested in what the bot has to say than our input over that kind of horizon. Or at least we'll constantly be double-checked and confronted by any differences in the AI analysis.

Yeah I hear you. I would think of this more as an obligation foisted on the buyer, who hopefully has more resources and sophistication in this area. It ought to be part of the due diligence/transition process. A three-month rule like we have for new ALEs would be great--although since the buyer is already an ALE I'm not sure the IRS would be receptive to the idea.

Yeah of course fine to disagree, and thanks for raising the question for everyone's input. I'd be curious if anyone else here is taking that position. I read the rules to require the ALE status of each member to be assessed on a monthly basis. I'd be careful with your approach because it exposes the ALEM to significant §4980H and §6056 liability if the IRS reads the rules the same way I do. The only debate I've really ever had on this point is whether they become an ALEM the month the deal closes or the month following. I haven't seen the position you're taking that it may not be until a year or two later. So I'd suggest the more conservative route here is to take the approach I'm arguing absent guidance stating you can delay. I think the argument that you can delay absent guidance stating ALEM status triggers as of the close is fairly aggressive in this context. Here's the main point I'm relying on from the regs: https://www.federalregister.gov/documents/2014/02/12/2014-03082/shared-responsibility-for-employers-regarding-health-coverage (5) Applicable large employer member. The term applicable large employer member means a person that, together with one or more other persons, is treated as a single employer that is an applicable large employer. For this purpose, if a person, together with one or more other persons, is treated as a single employer that is an applicable large employer on any day of a calendar month, that person is an applicable large employer member for that calendar month. If the applicable large employer comprises one person, that one person is the applicable large employer member. An applicable large employer member does not include a person that is not an employer or only an employer of employees with no hours of service for the calendar year. For rules for government entities, and churches, or conventions or associations of churches, see § 54.4980H-2(b)(4).

It's as of the closing, so as of 10/1/22 in your example. Upon an ALE buyer acquiring a non-ALE small company seller, the small company becomes an “Applicable Large Employer Member,” or “ALEM,” of the buyer’s “Aggregated ALE Group.” Subsidiaries and related entities in an ALE’s controlled group are referred to as ALEMs, and the controlled group itself is referred to as the Aggregated ALE group. So an ALE with multiple EINs in its controlled group is an Aggregated ALE Group consisting of multiple ALEMs. That’s a jargon-filled way of saying that because ALE status is determined on the basis of the employer’s entire controlled group, the small company becomes subject to the ACA employer mandate pay or play rules and the associated ACA reporting requirements upon the acquisition. Furthermore, the small seller company is referred to as an ALEM of the broader Aggregated ALE Group because it is preserving its EIN as a member of the buyer’s controlled group. In short, even if the previously non-ALE seller maintains its EIN, upon the close the acquisition the seller becomes an ALEM subject to: Potential ACA employer mandate pay or play penalties, and ACA reporting for the seller’s employees. More details: https://www.newfront.com/blog/aca-reporting-for-controlled-groups Here's a slide summary: Newfront Office Hours Webinar: M&A for H&W Employee Benefit Plans

Yeah I agree that's the best workaround, Scott. Catty, they could structure it as a bonus if that helps.

Anyone else tried playing around with the ChatGPT AI system by asking employee benefits questions? Not perfect, but you can definitely see where this is heading. https: //chat.openai.com/

Yes, they would fail the 55% average benefits test because they would be at 0%. Unfortunately, there is no way to pass the nondiscrimination testing requirements for the dependent care FSA if only HCEs participate. The employees’ remaining contributions in the FSA will simply be returned as taxable compensation. Any amounts already reimbursed will be recharacterized as taxable income. This will effectively eliminate the dependent care FSA for that plan year. Keep in mind that they may be able to take advantage of the top-paid group (top 20%) election to try to get at least one of the HCEs to move into non-HCE status. Then even if they're still failing, at least they would be able to preserve at least some of the HCE tax-advantaged dependent care FSA benefits. Details and cites here: https://www.newfront.com/blog/the-dependent-care-fsa-average-benefits-test

That's a great question. It's really not basic--I've debated this one with ERISA attorneys for years. I've always taken the position that the uniform election rule in the Section 125 nondiscrimination provisions requires that HCPs pay at least as much as non-HCPs for the same plan options. In other words, a contribution structure that charges more to certain non-HCPs for the same benefit does not provide a “uniform election with respect to employer contributions.” So all full-time non-HCP employees eligible for the same plan option as an HCP must be offered at least the same employer contribution amount that is available to the HCPs for that plan. More details: https://www.newfront.com/blog/nondiscrimination-rules-for-different-health-plan-contribution-structures-2 Now there are a couple reasonable arguments that if there is no HCP contribution to the plan, the §125 rules do not apply. One argument is based on the so-called "American Can Plan" approach. However, the American Can Plan proposition I've always understand as there actually not being a Section 125 cafeteria plan in place. That's different in my opinion than arguing the non-highs are using the 125 plan but the highs aren't because they're not required to contribute. Then there's the argument that what happens if you violate the 125 NDT rules with this type of structure. The rules technically provide that the HCPs would lose the safe harbor from constructive receipt, and thereby be taxed on any pre-tax contribution. But there are no pre-tax contributions in this situation. So my argument is essentially that the IRS would try to force them to lose the tax-free premium treatment under §106 as you noted. In short, I've just always thought it is pretty ridiculous to believe the IRS would be ok with highs paying zero, but not with them paying one cent pre-tax. But there's no guidance I'm aware of directly on point. So that's how I advise unless the highs at issue are ineligible for the cafeteria plan, such as more-than-2% S corp owners, K-1 partners, LLC members, etc. In that case I'm fine taking the position that because they're treated as self-employed and therefore ineligible to participate in the cafeteria plan, the employer is prebaby fine providing a larger employer contribution.

Assuming the new entity is within the original controlled group, I would just amend the Section 125 cafeteria plan doc to include the new plan sponsor information going forward. If the new entity is from outside the original controlled group, I would just follow he standard M&A approach. Here's an overivew: https://www.newfront.com/blog/merger-acquisition-rules-health-fsa-2 Here's a slide summary: Newfront Office Hours Webinar: M&A for H&W Employee Benefit Plans

Yes, the full carryover option from the CAA FSA relief has expired. Here's a quick overview: https://www.newfront.com/blog/2023-health-fsa-limit-increased-to-3050 What About the Carryover Limit into 2024? The indexed carryover limit for plan years starting in calendar year 2023 to a new plan year starting in calendar year 2024 will increase to $610. The $500 carryover limit is indexed at 20% of the maximum health FSA salary reduction contribution for the plan year. The indexed carryover limit increases in multiples of $10. The adjustment to $610 (20% of the $3,050 limit) for amounts carried into 2024 represents a $40 increase to the $570 carryover limit in effect for amounts carried into 2023. Note that the CAA FSA relief provisions permitted employers to offer carryovers of the full unused FSA balance from plan years ending in 2020 and 2021 into the subsequent plan years ending in 2021 and 2022, respectively. This relief has expired and is no longer available for carryovers into 2023 or carryovers into 2024. Carryover Limit from a Plan Year Starting in 2022 to a Plan Year Beginning in 2023: $570 Carryover Limit from a Plan Year Starting in 2023 to a Plan Year Beginning in 2024: $610 Here's a quick slide summary: Newfront Office Hours Webinar: 2021 Year in Review

I'm one of those who takes the position that this probably isn't a Section 125 eligibility test violation. But accepting the premise that it does violate the rules, I read the regs to say that all HCEs would have all cafeteria plan pre-tax contributions for the full plan year recharacterized as taxable income. I think there would likely be a standard three-year statute of limitations for going back to prior years and issuing corrected Forms W-2c. Prop. Treas. Reg. §1.125-7(m): (m) Tax treatment of benefits in a cafeteria plan. (1) Nondiscriminatory cafeteria plan. A participant in a nondiscriminatory cafeteria plan (including a highly compensated participant or key employee) who elects qualified benefits is not treated as having received taxable benefits offered through the plan, and thus the qualified benefits elected by the employee are not includible in the employee's gross income merely because of the availability of taxable benefits. But see paragraph (j) in §1.125-1 on nondiscrimination rules for sections 79(d), 105(h), 129(d), and 137(c)(2), and limitations on exclusion. (2) Discriminatory cafeteria plan. A highly compensated participant or key employee participating in a discriminatory cafeteria plan must include in gross income (in the participant's taxable year within which ends the plan year with respect to which an election was or could have been made) the value of the taxable benefit with the greatest value that the employee could have elected to receive, even if the employee elects to receive only the nontaxable benefits offered.

It depends on the event. If it's a HIPAA special enrollment event, the employer will have to offer the ability to change medical plan options. Otherwise that's not required (and typically not offered). The following events qualify as HIPAA special enrollment events: Loss of eligibility for group health coverage or individual health insurance coverage; Loss of Medicaid/CHIP eligibility or becoming eligible for a state premium assistance subsidy under Medicaid/CHIP; and Acquisition of a new spouse or dependent by marriage, birth, adoption, or placement for adoption. Here's a quick summary and an example confirming from the regs: https://www.newfront.com/blog/hipaa-special-enrollment-events-2 HIPAA Special Enrollment Events: Right to Change Plan Options Upon experiencing a HIPAA special enrollment event, the plan is required to allow the employee to select any medical benefit package under the plan (e.g., move from Aetna to Blue Shield, Anthem to Kaiser, HMO Low to PPO High, etc.). ... 29 CFR § 2590.701-6(b): Example (2) (i) Facts. Individual D works for Employer X. X maintains a group health plan with two benefit packages–an HMO option and an indemnity option. Self-only and family coverage are available under both options. D enrolls for self-only coverage in the HMO option. Then, a child, E, is placed for adoption with D. Within 30 days of the placement of E for adoption, D requests enrollment for D and E under the plan’s indemnity option. (ii) Conclusion. In this Example 2, D and E satisfy the conditions for special enrollment under paragraphs (b)(2)(v) and (b)(3) of this section. Therefore, the plan must allow D and E to enroll in the indemnity coverage, effective as of the date of the placement for adoption. Here's a short overview from the DOL's FAQ piece: https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/hipaa-consumer.pdf What coverage will I get when I take advantage of a special enrollment opportunity? Special enrollees must be offered the same benefits that would be available if you are enrolling for the first time. Special enrollees cannot be required to pay more for the same coverage than other individuals who enrolled when first eligible for the plan. Here's a quick slide summary: Newfront Office Hours Webinar: Section 125 Cafeteria Plans

In that unusual situation, I'd only feel comfortable that the employer's offer meets the rate of pay affordability safe harbor if they satisfied it on both the employee's hourly rate and monthly salary. So I'd plug in the employee's hourly rate of pay and monthly salary in the examples below and see if that came out as passing both based on the employee-share of the premium for the lowest-cost plan at the employee-only tier. https://www.newfront.com/blog/how-the-2023-aca-affordability-decrease-to-9.12-affects 2) The Rate of Pay Affordability Safe Harbor Action Item: In most cases, ALEs that do not qualify to use the federal poverty line affordability safe harbor because the lowest possible employee contribution for the major medical plan exceeds $103.28 will want to use the rate of pay affordability safe harbor. The rate of pay affordability safe harbor applies the applicable affordability percentage based on two separate tests—one for hourly full-time employees, and one for salaried full-time employees. Hourly Full-Time Employees Test: 9.12% (2023) of the employee’s hourly rate of pay as of the first day of the coverage period x 130 hours Note: The hourly rate of pay is multiplied by 130 regardless of actual hours of service performed. The IRS uses 130 hours of service in a calendar month as a proxy for the 30 hours of service/week full-time status definition in §4980H. Example: Widget Co. has a calendar plan year, and their lowest-paid full-time hourly employees are paid at a rate of $15/hour in 2023 130 hours of service x $15/hour = $1,950 assumed monthly income Full-time employee monthly contribution rate for lowest-cost, employee-only coverage cannot exceed 9.12% (2023) of $1,950 $1,950 x. 0.0912 = $177.84/month maximum Salaried Full-Time Employees Test: 9.12% (2023) of the employee’s monthly salary as of the first day of the coverage period Note: Special rules apply if the employee’s hourly rate or monthly salary is reduced. Example: Widget Co. has a calendar plan year, and their lowest-paid full-time salaried employees are paid a salary of $36,000 in 2023 $36,000 / 12 = $3,000 monthly salary Full-time employee monthly contribution rate for lowest-cost, employee-only coverage cannot exceed 9.12% (2023) of $3,000 $3,000 x 0.0912 = $273.60/month maximum Action Item: An ALE will meet the rate of pay affordability safe harbor for all full-time employees if the employee-share of the premium for the lowest-cost plan at the employee-only tier does not exceed these monthly maximum thresholds. In the examples above, Widget Co.’s plan would be affordable for all full-time employees (hourly and salaried) if the lowest possible amount that an employee could pay to enroll in the employer’s major medical plan does not exceed $177.84/month.

It's a good question because there are hardly any situations where that's actually at issue. In other words, since employers generally don't have to hold the plan assets in trust (thanks to 92-01) I've never really had to face a situation where we had to parse distribution of general assets vs. plan assets. My general sense would be that you would follow the same approach in distribution as you would in allocation. In other words, if the contribution scheme is 80%/20%, then the distribution scheme would be 80%/20%. That proportional approach seems to be supported by DOL guidance in the MLR context above, as well as the demutualization context: https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2001-02a It is the view of the department that, in the case of an employee welfare benefit plan with respect to which participants pay a portion of the premiums, the appropriate plan fiduciary must treat as plan assets the portion of the demutualization proceeds attributable to participant contributions. In determining what portion of the proceeds are attributable to participant contributions, the plan fiduciary should give appropriate consideration to those facts and circumstances that the fiduciary knows or should know are relevant to the determination, including the documents and instruments governing the plan and the proportion of total participant contributions to the total premiums paid over an appropriate time period. In both the MLR and demutualization context, I think it's the same issue as you raised--just from a third-party entity as the distribution agent.

The DOL's MLR guidance in Technical Release 2011-04 is a good overview. That guidance generally states that the MLR rebate is considered plan assets under ERISA to the extent it is attributable to employee contributions. https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/11-04 ERISA does not expressly define plan assets. The Department has issued regulations describing what constitutes plan assets with respect to a plan's investment in other entities and with respect to participant contributions. See 29 C.F.R. §2510.3-101 and 29 C.F.R. §2510.3-102. In other situations, the Department has indicated that the assets of an employee benefit plan generally are to be identified on the basis of ordinary notions of property rights. ... Similarly, assuming the plan documents and other extrinsic evidence do not resolve the allocation issue, the portion of a rebate that is attributable to participant contributions would be considered plan assets. Thus, if the employer paid the entire cost of the insurance coverage, then no part of the rebate with respect to this particular policy would be attributable to participant contributions. However, if participants paid the entire cost of the insurance coverage, then the entire amount of the rebate would be attributable to participant contributions and considered to be plan assets. If the participants and the employer each paid a fixed percentage of the cost, a percentage of the rebate equal to the percentage of the cost paid by participants would be attributable to participant contributions. If the employer was required to pay a fixed amount and participants were responsible for paying any additional costs, then the portion of the rebate under such a policy that does not exceed the participants' total amount of prior contributions during the relevant period would be attributable to participant contributions. Finally, if participants paid a fixed amount and the employer was responsible for paying any additional costs, then the portion of the rebate under such a policy that did not exceed the employer's total amount of prior contributions during the relevant period would not be attributable to participant contributions.

Treas. Reg. §1.125-1(a)(3) lists 401(k) deferrals as a cafeteria plan qualified benefit, and the issue is discussed in (o)(3) of the same reg. It's similarly addressed in Treas. Reg. §1.401(k)-1(e)(2)(i), highlighting that employees must have the right to take the amounts as taxable cash. The bottom line result is that you can use a cafeteria plan to facilitate 401(k) deferrals through cashable flex credits. Here's a short summary: https://www.newfront.com/blog/how-aca-affects-flex-credits-2 In this case, the employee has already actually cashed out the PTO benefit as taxable cash. In other words, we're not talking about the standard flex credit situation which could go either way (cashable or non-cashable) depending on plan design. This is a benefit specifically resulting in a taxable cash out. Once that PTO benefit is cashed out, I view it as effectively removed from the cafeteria plan because the choice between cash or qualified benefits has already been made. At that point, I would just look to to the 401(k) plan's definition of eligible comp as you noted to ensure PTO cashouts are included as eligible. Assuming the plan treats the cashout as eligible comp, I see no §125 issues in the analysis.

No, the FSA cannot reimburse expenses incurred prior to the employee's period of coverage. In your example, that period of coverage does not begin until 11/1 when the employee becomes a participant. So only expenses incurred 11/1/22 - 12/31/22 are reimbursable in that example. Full details: https://www.newfront.com/blog/when-fsa-expenses-are-incurred General Rule: Expenses Must be Incurred in the Period of Coverage An FSA can reimburse only expenses incurred during the participant’s period of coverage. The period of coverage is the period of the FSA plan year in which the employee is enrolled (including any grace period for such plan year). This means that any expenses incurred before or after the employee’s FSA period of coverage are not reimbursable. Allowing an expense incurred outside the period of coverage to be reimbursed by the FSA would be a plan operational failure. The Section 125 regulations provide that operational failures can result in the entire Section 125 cafeteria plan being disqualified if discovered by the IRS—which would result in all cafeteria plan elections becoming taxable for all employees. Example 1: Tim incurs $240 in glasses expenses in March 2020. Tim changes jobs and is a new hire with a new employer in May 2020. The new employer maintains a calendar plan year health FSA. Tim enrolls in the health FSA, making a $1,000 election for coverage beginning June 2020 through the end of the plan year. Result 1: Tim’s March 2020 glasses expenses are not reimbursable under the FSA because the expenses were incurred prior to his period of coverage. Only health expenses incurred from June through December 2020 (plus any associated grace period) are within his period of coverage for the 2020 plan year. ... Regulations 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. Prop. Treas. Reg. §1.125-6(a)(2): (2) Expenses incurred. (i) Employees’ medical expenses must be incurred during the period of coverage. In order for reimbursements to be excludible from gross income under section 105(b), the medical expenses reimbursed by an accident and health plan elected through a cafeteria plan must be incurred during the period when the participant is covered by the accident and health plan. A participant’s period of coverage includes COBRA coverage. See §54.4980B-2 of this chapter. Medical expenses incurred before the later of the effective date of the plan and the date the employee is enrolled in the plan are not incurred during the period for which the employee is covered by the plan. However, the actual reimbursement of covered medical care expenses may be made after the applicable period of coverage. (ii) When medical expenses are incurred. For purposes of this rule, medical expenses are incurred when the employee (or the employee’s spouse or dependents) is provided with the medical care that gives rise to the medical expenses, and not when the employee is formally billed, charged for, or pays for the medical care.

Assuming they're not going to operate outside the safe harbor for electronic disclosure, the rules say to use an approach that is "likely to result in full distribution." The examples they use are to provide by mail or hand delivery. 29 CFR §2520.104b-1(b)(1): (b) Fulfilling the disclosure obligation. (1) Except as provided in paragraph (e) of this section, where certain material, including reports, statements, notices and other documents, is required under Title I of the Act, or regulations issued thereunder, to be furnished either by direct operation of law or on individual request, the plan administrator shall use measures reasonably calculated to ensure actual receipt of the material by plan participants, beneficiaries and other specified individuals. Material which is required to be furnished to all participants covered under the plan and beneficiaries receiving benefits under the plan (other than beneficiaries under a welfare plan) must be sent by a method or methods of delivery likely to result in full distribution. For example, in-hand delivery to an employee at his or her worksite is acceptable. However, in no case is it acceptable merely to place copies of the material in a location frequented by participants. It is also acceptable to furnish such material as a special insert in a periodical distributed to employees such as a union newspaper or a company publication if the distribution list for the periodical is comprehensive and up-to-date and a prominent notice on the front page of the periodical advises readers that the issue contains an insert with important information about rights under the plan and the Act which should be read and retained for future reference. If some participants and beneficiaries are not on the mailing list, a periodical must be used in conjunction with other methods of distribution such that the methods taken together are reasonably calculated to ensure actual receipt. Material distributed through the mail may be sent by first, second, or third-class mail. However, distribution by second or third-class mail is acceptable only if return and forwarding postage is guaranteed and address correction is requested. Any material sent by second or third-class mail which is returned with an address correction shall be sent again by first-class mail or personally delivered to the participant at his or her worksite.

The standard ERISA disclosure rules provide that ERISA-required documents must be provided to participants in a manner that’s “reasonably calculated to ensure actual receipt” by the intended recipient. The DOL has a safe harbor under which plans will be deemed to meet this standard. This method is sometimes misunderstood as a requirement—it is not. It is merely the only guaranteed way to satisfy ERISA’s disclosure requirements by electronic media. The safe harbor generally requires either (a) the employee has work-related computer access that is integral to his or her job duties (i.e., employee works at a desk with a computer), or (b) the employee’s electronic affirmative consent to electronic disclosure. There are no specific penalties for failure to properly distribute these documents (unless there is a written request for the document, in which case the penalty is $110/day if the employer does not provide the document within 30 days of the request). However, the employer may not be able to enforce the written terms of the plan in a claim for benefits lawsuit if the plan documentation was not properly disclosed. There are many unfortunate cases where courts have come to this conclusion. Summary: If all of the company’s employees have work-related computer access that is integral to their job duties, it is clear that no authorization is required to distribute ERISA documents electronically. If there are employees who don’t meet this standard, the safer approach is to meet the DOL’s safe harbor by receiving their affirmative consent to electronic disclosure of ERISA documents. Here's a quick slide summary: Newfront Office Hours Webinar: ERISA for Employers