Brian Gilmore

All good points, Dorian. But I believe the question was about mandatory HSA contributions. That's different from automatic contributions, which always has an opt-out option as you noted. I believe the question was asking if the employer can actually mandate employees contribute to the HSA--not just use default elections to automatically initiate contributions absent an affirmative election to the contrary. I also have posted some info on automatic/passive elections here if that's the context for the question: https://www.newfront.com/blog/automatic-enrollment-medical-plan-2 https://www.newfront.com/blog/passive-enrollments-with-rolling-elections

Luke, I suppose you could make it work, but you will have introduced ERISA concepts into multiple non-ERISA benefits (e.g., POP, DCAP), and introduced Section 125 restrictions to the wrap doc that otherwise don't apply under ERISA (e.g., prospective amendment only). You'd have to balance all those areas of law with every aspect of the document.

Agree with Luke that you would have to be very careful about the Section 125 cafeteria plan. Those have to be adopted/amended prospectively. If the amendment or restatement includes an effective date prior to the date of its adoption, it will not comply with Section 125. That would jeopardize the Section 125 safe harbor from constructive receipt--potentially resulting in all employee elections becoming taxable. There's even a couple bad case law precedents highlighting that very issues. Full details: https://www.newfront.com/blog/section-125-cafeteria-plan-document-effective-date-2 https://www.newfront.com/blog/the-section-125-safe-harbor-from-constructive-receipt You also from a practical standpoint couldn't change a health FSA component of the cafeteria plan to a short plan year mid-year because that would require a prorated salary reduction contribution limit. Employees have already made irrevocable elections that will exceed any prorated limit. Full details: https://www.newfront.com/blog/health-fsa-salary-reduction-contribution-limit-2 However, I disagree with Luke that it would be common to have the cafeteria plan combined with the ERISA wrap plan document. I've never done that and think it would create many problems. So assuming your ERISA wrap doc has not made a Frankenstein combo with your Section 125 cafeteria plan, I generally don't see any problem with changing the ERISA plan year under the wrap doc to a short plan year mid-year. Just don't forget if the plan is subject to Form 5500 filings you'll need a short plan year fling. So you'll need a filing by the end of June for the regular plan year, and a filing by the end of July for the short one-month transitional plan year. Full details: https://www.newfront.com/blog/short-plan-year-considerations

Here's the problem there--the ACA has rendered non-excepted health FSAs unlawful and subject to $100/day/employee penalties under IRC §4980D for violation of the ACA market reforms. DOL Technical Release 2013-3: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/13-03 2. Application of the Market Reforms to Certain Health FSAs Question 7: How do the market reforms apply to a health FSA that does not qualify as excepted benefits? Answer 7: The market reforms do not apply to a group health plan in relation to its provision of benefits that are excepted benefits. Health FSAs are group health plans but will be considered to provide only excepted benefits if the employer also makes available group health plan coverage that is not limited to excepted benefits and the health FSA is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the health FSA for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election). See 26 C.F.R. §54.9831-1(c)(3)(v), 29 C.F.R. §2590.732(c)(3)(v), and 45 C.F.R. § 146.145(c)(3)(v). Therefore, a health FSA that is considered to provide only excepted benefits is not subject to the market reforms. If an employer provides a health FSA that does not qualify as excepted benefits, the health FSA generally is subject to the market reforms, including the preventive services requirements. Because a health FSA that is not excepted benefits is not integrated with a group health plan, it will fail to meet the preventive services requirements.

I'm not familiar with Virta, but it certainly sounds like a medical expense. If so, the employer's coverage of the expense creates a group health plan subject to COBRA. Excepted benefits avoid the HIPAA portability provisions and ACA market reforms--but they don't avoid COBRA.

A couple issues as you noted, Debb-- All employee HSA pre-tax contributions through payroll are made through the Section 125 cafeteria plan. The Section 125 rules require a choice between cash and qualified benefits. There's no choice in this scenario. State wage withholding laws generally require the employee to expressly authorize any withholding any benefits deduction in writing. That won't be preempted by ERISA here. Here's a couple relevant cites: IRC §125(d): The term “cafeteria plan” means a written plan under which— (A)all participants are employees, and (B) the participants may choose among 2 or more benefits consisting of cash and qualified benefits. California Labor Code §224: The provisions of Sections 221, 222 and 223 shall in no way make it unlawful for an employer to withhold or divert any portion of an employee’s wages when the employer is required or empowered so to do by state or federal law or when a deduction is expressly authorized in writing by the employee to cover insurance premiums, hospital or medical dues, or other deductions not amounting to a rebate or deduction from the standard wage arrived at by collective bargaining or pursuant to wage agreement or statute, or when a deduction to cover health and welfare or pension plan contributions is expressly authorized by a collective bargaining or wage agreement.

The general rule is that only expenses incurred after you first funded the HSA will be eligible for tax-free medical reimbursement. Full details: https://www.newfront.com/blog/hsa-establishment-date General HSA Establishment Rule: Ability to Incur Expenses That are Eligible for Tax-Free Medical Distributions Does Not Begin Until HSA is Funded Individuals may take a qualified tax-free medical distribution from an HSA only for medical expenses incurred after the individual established the HSA. State trust law determines when an HSA is considered “established.” Most state laws require that a trust be funded to be established. This means that in most cases an HSA is not established until a contribution is deposited. Example 1: – Aaron is hired November 15 by Cheese heads, Inc. with date of hire coverage. – Aaron enrolls in the company’s HDHP medical plan option. – Aaron did not establish an HSA previously. – On November 20, Aaron incurs $250 in deductible expenses under the Cheese heads, Inc. HDHP medical plan option. – The first deposit into Aaron’s HSA is made by Cheese heads, Inc. in December. Result 1: – Aaron’s HSA is established in December. – Aaron cannot use the HSA to pay for his $250 deductible expenses on a tax-free basis because they were incurred prior to the December establishment of the HSA. – Important Note: Aaron also is not HSA eligible (i.e., eligible to make or receive HSA contributions) in November because he was not covered by the HDHP as of the first day of the calendar month.

FYI--the updated version of the Form 720 with the $2.79 PCORI rate is out: https://www.irs.gov/pub/irs-pdf/f720.pdf

I've posted some materials addressing also in case it helps: https://www.newfront.com/blog/merger-acquisition-rules-health-fsa-2 2022 Newfront M&A for H&W Employee Benefits Guide

Yeah there is no prescribed timeframe in the Section 125 cafeteria plan rules for employees to make the election change request upon experiencing one of the permitted election change events. As a practical matter, virtually all cafeteria plans set this outer deadline at 30 days from the date of the event. The cafeteria plan document or summary materials should confirm. You need to stick to that outer limit to avoid potentially losing the safe harbor from constructive receipt. More details here: 2022 Newfront Section 125 Cafeteria Plans Guide A couple other items of note: Employees who are on parental leave (or their spouse is on parental leave) generally cannot incur reimbursable expenses under the dependent care FSA. Employees’ dependent care expenses are eligible for reimbursement under the dependent care FSA only if the expenses are “employment-related,” which means they enable the employee and spouse to be gainfully employed. More details here: https://www.newfront.com/blog/dependent-care-fsa-during-maternity-leave-2 The cafeteria plan rules with respect to the dependent care FSA rules are the most loose on what events will permit an election change. I read those rules as permitting employees the ability to change their dependent care FSA election upon virtually any change in their daycare situation. More details here (see slide 16): 2022 Newfront Section 125 Permitted Election Change Event Chart

The PCORI fee is exclusively filed on the second quarter Form 720. I assume they'll update it when we get closer to the July 31 Q2 filing deadline. The Q1 filing just ended on Monday. https://www.irs.gov/pub/irs-pdf/i720.pdf Reporting and paying the fee. File Form 720 annually to report and pay the fee on the second quarter Form 720 no later than July 31 of the calendar year immediately following the last day of the policy year or plan year to which the fee applies. Because the rate used to determine the fee varies from year to year, you should determine the fee using the instructions for the second quarter Form 720. If you file Form 720 only to report the fee, don't file Form 720 for the first, third, or fourth quarter of the year. If you file Form 720 to report quarterly excise tax liability for the first, third, or fourth quarter of the year (for example, filers reporting the foreign insurance tax (IRS No. 30) don't make an entry on the line for IRS No. 133 on those filings).

1. Yes, NMSNs are an automatically qualifying standardized form of QMCSO. 2. If the employee is not currently enrolled and there are multiple plan options available, the employer will complete Response 3 to notify the issuing agency of those available plan options, and which option the employee and child(ren) will be enrolled in by default if the issuing agency does not respond within 20 business days selecting a specific plan option. It generally makes sense to rely on the lowest-cost plan as the default coverage for these purposes because the employee will be required to pay the employee-share of the premium for such coverage. 3. The Section 125 permitted election change event that applies here (Treas. Reg. §1.125-4(d)) addresses only enrollment of child(ren) subject to the order. I'm not seeing any basis for enrollment of the spouse. 4. If the employee is not already enrolled, DOL guidance and the NMSN instructions confirm that the NMSN will require the employer to enroll both the employee and the child(ren) to provide coverage. Lots more details here if you're interested: https://www.theabdteam.com/blog/employer-responsibilities-upon-receipt-of-a-nmsn/

Seems like purely an individual income tax issue. I don't know how there could be an exclusion from income for an independent contractor's coverage. Seems like the relevant cites on the individual deductibility side would be §162(l)(2)(C) and §213(d)(10). You also may have a MEWA issue with offering to outside directors.

You're misunderstanding how the look-back measurement method works. While it's true that employees who were in a limited non-assessment period or otherwise not full-time for all months in the calendar year do not need a 1095-C, that would apply only to new hires. In other words, a new full-time hire can have a LNAP of the first three calendar months. A new variable, part-time, or seasonal hire can have an LNAP based on the initial measurement period and initial administrative period of up to 13 months (plus a partial month for a mid-month hire) combined. But ongoing employees will be in a stability period based on the prior year's standard measurement period. Their status in 2021 is kept "stable" during the stability period based on the prior standard measurement period. For ongoing employees, the most common approach for a calendar plan year would look like this: Standard Measurement Period: 12 months, ending with a two-month gap before the start of the stability period. Calendar Plan Year Standard Approach: November 1, 2019 – October 31, 2020 Standard Administrative Period: 2 months, comprising the two-month period between the end of the standard measurement period and the start of the stability period. Calendar Plan Year Standard Approach: November 1, 2020 – December 31, 2020 Standard Stability Period: 12 months, tracking the employer’s plan year. Calendar Plan Year Standard Approach: January 1, 2021 – December 31, 2021 So even though there's a 12-month measurement period, that would have completed prior to the start of the stability period that applies to determine employees' full-time status in 2021. Ongoing employees' full-time status for 2021 is determined by the standard measurement period that ran from the end of 2019 to the end of 2020. Employees who averaged 30 hours per week (i.e., reached 1,560 hours of service) during that period are full-time for the 2021 stability period. Here's a longer overview: https://www.theabdteam.com/blog/key-decision-points-in-aca-reporting-vendor-setup-questionnaires-part-iii/

I posted an extensive overview on this very topic. Copying the relevant part here for reference. Approach #3 is the employer "eating" the cost approach you referred to, which I think is fine (and common) as a corrective measure. https://www.theabdteam.com/blog/correcting-missed-cafeteria-plan-contributions/ Prior-Year Mistakes: Missed Cafeteria Plan Contributions from the Prior Plan Year Where an employer discovers that it is has inadvertently failed to take the correct elected employee salary reduction contribution amount through payroll in the prior plan year, the employer has three potential options available to correct the mistake: 1. Employee Pre-Tax Contributions in Year Two for Year One Missed Contributions There is no formal IRS guidance confirming that an employer can take employee pre-tax contributions in year two to address missed contributions for year one. However, we think this is a low-risk approach that is very unlikely to present any issues. In practice, this is essentially the same approach that employers will commonly apply to address employee pre-tax contributions for a period of leave where the employee is utilizing the catch-up payment option. In that case, employers generally feel comfortable taking an employee pre-tax contribution upon return from leave to cover the full period of the leave—even where that leave straddles two plan years. Again, although the IRS has not formally approved of that approach, it is a common practice that is generally considered low risk. Note that the pre-pay contribution option is not available to address a period of leave extending to a subsequent plan year because that would violate the Section 125 prohibition of deferral of income rules. For full details, see: 2022 Newfront Health Benefits While on Leave Guide Health Benefits During Protected Leave Furthermore, the employee pre-tax payment in year two approach may also be a good fit to address a situation where the employer discovers a missed contribution error late in year one and wants to spread the repayment over more pay periods than remain available in year one. Employers utilizing this pre-tax employee contribution option in year two to address missed contributions in year one will want to keep the following issues in mind: Although it is unlikely to present any issues with the IRS, there is no formal guidance approving this approach; If the correction relates to missed FSA contributions from year one, it may require a manual override in year two to exceed the annual limit because payroll systems generally are setup to prevent pre-tax FSA contributions in excess of the applicable annual limit; and Employees may terminate employment in year two prior to the full amount of missed contributions being repaid, which would require the employer to either a) absorb the cost, or b) attempt to seek repayment by check. Employers should notify employees of this approach in advance so they will be aware of the additional withholding from their payroll in year two to address the retroactive contributions from year one. Employees will have already authorized the full withholding by making the original election to contribute, and therefore employers do not need employees’ approval to proceed with the corrective measure to take the corrective pre-tax contributions in year two. Sample employee communication: During a recent system audit, we discovered that your [Enter Year] payroll contributions for [Medical/Dental/Vision/FSA/etc.] were underfunded. We will be correcting this error by taking your missed contribution amounts through [an upcoming pay period or upcoming pay periods]. These corrective contributions will be [a one-time or per pay period] amount of [Enter Amount] taken on a pre-tax basis. Please contact People Operations with any questions. 2) Employee After-Tax Contributions in Year Two for Year One Missed Contributions The more conservative approach would be to require that the employee make the missed year one contributions on an after-tax basis. Employees could make these after-tax contributions in year two through payroll or by direct payment (e.g., check). This approach is of course less advantageous from a tax perspective to both parties. Where utilizing after-tax payroll contributions, employers should notify employees of this approach in advance so they will be aware of the additional withholding from their payroll in year two to address the retroactive contributions from year one. Employees will have already authorized the full withholding by making the original election to contribute, and therefore employers do not need employees’ approval to proceed with the corrective measure to take the corrective after-tax contributions in year two. Sample employee communication: During a recent system audit, we discovered that your [Enter Year] payroll contributions for [Medical/Dental/Vision/FSA/etc.] were underfunded. We will be correcting this error by taking your missed contribution amounts through [an upcoming pay period or upcoming pay periods]. These corrective contributions will be [a one-time or per pay period] amount of [Enter Amount] taken on an after-tax basis. Please contact People Operations with any questions. 3) Convert Missed Amounts to Employer Contributions One final approach is for employers to simply forgive the missed employee contributions without requiring the employee to repay the missed amount. There should not be any issue with taking this approach in a corrective context to address a bona fide employer error. This approach is the costliest for the employer, but also the simplest and least likely to cause employee relations issues related to the mistake. Under this approach, the affected employees still need to have had the full elected coverage (e.g., premium only plan contributions for medical/dental/vision) or balance available for reimbursement (e.g., health FSA or dependent care FSA) in the prior plan year despite missing some amount of the contributions associated with that election. In other words, this approach is effectively the equivalent of converting the missed employee contributions to employer contributions as a corrective measure—the employer is covering the cost for the amount they failed to withhold from the employee’s paycheck. Sample employee communication: During a recent system audit, we discovered that your [Enter Year] payroll contributions for [Medical/Dental/Vision/FSA/etc.] were underfunded. We will be correcting this error by forgiving your missed contributions. Despite the error on our end, you still had access to the full benefits you elected for the [Enter Year] plan year. Please contact People Operations with any questions. Terminated Employees: How to Correct Where Salary Reduction Contributions No Longer Possible Where employees with missed contributions have already terminated from employment, payroll contributions are no longer an option. Employers could in theory request employees directly repay the missed amounts to the employer (e.g., by check). However, the practical reality is that it is unlikely the employer will ever recover these missed amounts, and therefore the best practice is generally to simply forgive the missed contributions as a corrective employer contribution. Overcontributions: Returned as Taxable Income Any amounts that an employer discovers were over-withheld from employees (i.e., salary reduction contributions in excess of the employee’s election) should be returned to employees as standard taxable income subject to withholding and payroll taxes. This may require corrections to the employee’s Form W-2 if discovered after the end of the year.

Certainly not definitive, but at least one major TPA lists this as an eligible FSA expense: https://www.payflex.com/en/employers-brokers/products-programs-health-care-fsa.html

I consider including the forfeiture approach for uncashed checks in the terms of the cafeteria plan document to be the best practice here. Cafeteria plans often provide that if any benefit checks are not cashed for a set period (e.g., the end of the plan year following the plan year in which the expense was incurred), the funds are forfeited to the plan. Uncashed benefit checks could eventually be subject to state escheat laws if they remained uncashed indefinitely. The forfeiture approach should address the issues you described above and the possibility of state escheat laws applying. There are strict rules on how to handle experience gains from forfeitures. Here's an overview: https://www.theabdteam.com/blog/fsa-experience-gains-from-forfeitures/

I've also been thinking about this recently. In many cases, the plan will not have a public website. In that case, I don't believe the employer-plan sponsor has an obligation to post the notice. For example, if the only website for the plan is an employer intranet or password protected site, the guidance from HHS in the preamble states that would not be a public website. Although that guidance is in the context of providers and facilities posting the notice, it seems to indicate the "public" standard generally. The employer's public website is not the plan's website, and therefore should not be subject to the posting requirement. https://www.federalregister.gov/documents/2021/07/13/2021-14379/requirements-related-to-surprise-billing-part-i Section 116 of the No Surprises Act also added section 9820(c) of the Code, section 720(c) of ERISA, and section 2799A-5(c) of the PHS Act, which include similar disclosure requirements applicable to plans and issuers. In general, under these provisions, plans and issuers must make publicly available, post on a public website of the plan or issuer, and include on each explanation of benefits for an item or service with respect to which the requirements under section 9816 of the Code, section 716 of ERISA, and section 2799A-1 of the PHS Act apply, information on the requirements applied under these aforementioned sections, as applicable; on the requirements and prohibitions applied under sections 2799B-1 and 2799B-2 of the PHS Act; on other applicable state laws on out-of-network balance billing; and on contacting appropriate state and federal agencies in the case that an individual believes that such a provider or facility has violated the prohibition against balance billing. These disclosure requirements are applicable for plan years beginning on or after January 1, 2022. ... HHS is of the view that the required disclosure information would not be publicly available unless displayed in a manner that is easily accessible, without barriers, and that ensures that the information is accessible to the general public, including that it is findable through public search engines. For example, HHS is of the view that a public website must be accessible free of charge, without having to establish a user account, password, or other credentials, accept any terms or conditions, and without having to submit any personal identifying information such as a name or email address.

Great question. I assumed that the direct-to-consumer shipping costs would have have to be covered. I don't see how the PBM is reading "no upfront out-of-pocket expenditure" to permit an out-of-pocket expenditure for shipping. What's next--refusing to cover taxes? https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/aca-part-51.pdf For purposes of this safe harbor, direct coverage of OTC COVID-19 tests means that a participant, beneficiary, or enrollee is not required to seek reimbursement post-purchase; instead, the plan or issuer must make the systems and technology changes necessary to process the plan’s or issuer’s payment to the preferred pharmacy or retailer directly (including the direct-to-consumer shipping program) with no upfront out-of-pocket expenditure by the participant, beneficiary, or enrollee.

I've never seen that specific approach, but at a high-level it sounds basically like the trendy LSA benefit that's had pretty widespread adoption in the past couple years. Here's an overview: https://www.theabdteam.com/blog/lifestyle-spending-account-compliance-considerations/

It's a good question that comes up quite a bit. I posted some thoughts about the options on slide 31 here: 2022 Newfront Health Benefits for Domestic Partners Guide. With standard health coverage, all employers use some metric of the FMV of the cost of coverage (incremental approach or COBRA rate) for non-tax dependent DPs. That makes sense because the value of the benefit may far exceed the cost of coverage. That approach isn't as well suited for defined contribution arrangements like an HRA because that cost of benefits will never exceed the cost of coverage. So it's far better to have the benefits (reimbursements) taxable for the non-tax dependent DP with respect to an HRA. I haven't been able to fine any clear guidance supporting that taxable reimbursement approach, outside of the standard §104 and §105 principles for accident or health insurance. But the IRS goes hint at it in PLR 201415011. Regardless, that approach is definitely the industry norm, so I don't see it as being aggressive at this point.

Luke--I said it's "likely" a breach of the exclusive benefit rule to apply experience gains from forfeitures to another benefit. I don't see that a black and white position. It's my interpretation of the rule and my word of caution for employers who are generally always looking to adopt best practices that minimize potential liability. Applying experience gains to other benefits would likely breach that exclusive benefit rule because not all health FSA participants would be participants in those other benefits, and therefore the funds would not be used for the health FSA participants’ exclusive benefit. Peter--thanks, agreed.

If anyone is still interested in this one, I posted some more thoughts here: https://www.theabdteam.com/blog/fsa-experience-gains-from-forfeitures/

Most Section 125 cafeteria plans will limit eligibility to employees on the U.S. payroll. So the plan terms may exclude these ex-pats depending on the arrangement. In any case, the only "benefit" of an FSA (assuming no employer contribution) is the tax exclusion for employee salary reduction contributions. So if these employees are not receiving U.S. source income and are not subject to U.S. taxes, there is no reason for such employees to enroll the FSA (even in the case where they are technically eligible).

We're not in the HIPAA special enrollment category here because there is no loss of eligibility for the parent's plan. In other words, this isn't a loss of coverage caused by the parent terminating employment (or otherwise losing eligibility) or the child reaching age 26 and aging out. So the special Outbreak Period extensions won't apply, and employer is not required to offer the enrollment opportunity. But this would still qualify under the Section 125 permitted election change event based on the employee and parent having different plan years. So the child could use that permitted election change event to enroll in your plan mid-year as of 11/1/21 (then use OE to enroll for the 1/1/22 plan year). You'll just want to confirm that the carrier (or stop-loss if self-insured) permits mid-year enrollment on the basis of this different plan year permitted election change event. You'll also want the employee to certify the she has coverage through a parent that is ending as of 11/1 because of the different plan year for the parent's employer (and have no reason to believe that the employee's certification is incorrect). Here's the reg on point: Treas. Reg. §1.125-4(f): (f) Significant cost or coverage changes. (1) In general. Paragraphs (f)(2) through (5) of this section set forth rules for election changes as a result of changes in cost or coverage. This paragraph (f) does not apply to an election change with respect to a health FSA (or on account of a change in cost or coverage under a health FSA). … (4) Change in coverage under another employer plan. A cafeteria plan may permit an employee to make a prospective election change that is on account of and corresponds with a change made under another employer plan (including a plan of the same employer or of another employer) if— (i) The other cafeteria plan or qualified benefits plan permits participants to make an election change that would be permitted under paragraphs (b) through (g) of this section (disregarding this paragraph (f)(4)); or (ii) The cafeteria plan permits participants to make an election for a period of coverage that is different from the period of coverage under the other cafeteria plan or qualified benefits plan. … (6) Examples. The following examples illustrate the application of this paragraph (f): … Example (2). (i) Employer N sponsors an accident or health plan under which employees may elect either employee-only coverage or family health coverage. The 12-month period of coverage under N’s cafeteria plan begins January 1, 2001. N’s employee, A, is married to B. Employee A elects employee-only coverage under N’s plan. B’s employer, O, offers health coverage to O’s employees under its accident or health plan under which employees may elect either employee-only coverage or family coverage. O’s plan has a 12-month period of coverage beginning September 1, 2001. B maintains individual coverage under O’s plan at the time A elects coverage under N’s plan, and wants to elect no coverage for the plan year beginning on September 1, 2001, which is the next period of coverage under O’s accident or health plan. A certifies to N that B will elect no coverage under O’s accident or health plan for the plan year beginning on September 1, 2001 and N has no reason to believe that A’s certification is incorrect. (ii) Under paragraph (f)(4)(ii) of this section, N’s cafeteria plan may permit A to change A’s election prospectively to family coverage under that plan effective September 1, 2001. Here are more details in the context of spouses with different plan years (same rule applies): https://www.theabdteam.com/blog/changing-health-plan-elections-based-on-spouses-different-plan-year/