Brian Gilmore

All HRAs are group health plans subject to ERISA. So you will need the plan doc, SPD, Form 5500, etc. The retiree-only exception (fewer than two participants who are current employees) allows you to structure the plan to avoid the ACA market reform (and HIPAA portability) requirements. That means you can have a standard retiree-only stand-alone (i.e., not integrated with a group major medical) HRA without application of the ACA prohibition on individual policy reimbursement (or the need to use an ICHRA to avoid it). There is a special §105(h) rule for retired employees that basically just requires the plan not be structured to discriminate in favor of retirees who were highly compensated while active (e.g., the retiree coverage is not limited to or more generous for top management). Treas. Reg. §1.105-11(c)(3)(iii): (iii) Retired employees. To the extent that an employer provides benefits under a self-insured medical reimbursement plan to a retired employee that would otherwise be excludible from gross income under section 105(b), determined without regard to section 105(h), such benefits shall not be considered a discriminatory benefit under this paragraph (c). The preceding sentence shall not apply to a retired employee who was a highly compensated individual unless the type, and the dollar limitations, of benefits provided retired employees who were highly compensated individuals are the same for all other retired participants. If this subdivision applies to a retired participant, that individual is not considered an employee for purposes of determining the highest paid 25 percent of all employees under paragraph (d) of this section solely by reason of receiving such plan benefits. You may be able to avoid application of §105(h) altogether if you truly limited coverage to §106, but I think you would want to be very careful there because there would be many restrictions. My understanding is that these are almost always established as a retiree-only HRA (which is under §105).

I take the position that it likely creates a MEWA because otherwise there wouldn't be a special Form M-1 carve out where the non-employee directors are less than 1% of the total number of employees covered by the MEWA. Why would you need the carve out if there wasn't a MEWA? However, the DOL has not definitively opined to my knowledge, so there is at least some gray area. Note that a number of states prohibit self-insured MEWAs--which raises the stakes considerably if the plan is not fully insured. I posted a summary on this issue here a few years ago: https://www.theabdteam.com/blog/board-members-employee-benefits-2/

@austin3515 Amen. Preaching to the choir, my friend. I work for a broker/consulting firm, and I feel your pain when bringing in new clients at how much of this is never addressed in the industry. I've yet to meet a client that wanted to take employee contributions after-tax outside of a cafeteria plan. It's a near universal norm.

I take your point--maybe in an ideal world it would work that way. In reality, the broker should be the intermediary advising on the POP where there is no FSA. The health plan carrier or TPA isn't going to provide a cafeteria plan doc that relates only the the employee pre-tax contributions. It doesn't fall under their responsibility because it doesn't actually affect plan benefits. The carrier or TPA just thinks of that as an employer payroll function and an area of potential liability they want no part of.

@austin3515 Most employers offer a health FSA and/or dependent care FSA. Those are almost universally administered by a TPA, and the TPA almost always will provide a template cafeteria plan document that employers can adopt for this purpose. They will typically include a POP, too, since that's also a component of the Section 125 cafeteria plan. It's not a perfect arrangement, but in the vast majority of situations it covers the necessary bases.

Unfortunately, I think you have bigger fish to fry in that scenario. I assume you mean that this $2,000 amount was not properly recharacterized as taxable in 2020 before the end of the year. That's a problem because adjustments to pass the 55% average benefits test can't be made after year end. So if this amount caused the plan to fail the 55% average benefits test, all HCEs would theoretically need to have their full elections recharacterized as taxable in 2020. If on the other hand you already recharacterized that $2,000 as taxable in 2020, and the FSA TPA is just stating that the recharacterized balance remains in the account, then you would simply distribute those funds to the employee. I take the position that once they've been recharacterized as taxable they really aren't FSA funds anymore, and they can be distributed without qualifying expenses. There would be no taxation on the distribution because they were already taxed in 2020.

We're supposed to have IRS guidance on the CAA FSA election change rules any day now. This may be something they address. I've seen the FSA TPAs take every different position on these, and I don't think there is any right answer at this point. The CAA rules throw another curveball at the uniform coverage rule with the health FSA spend down option. That seems to almost by necessity involve an exception to the uniform coverage rule. The provision isn't practical unless the plan can limit the spend down to amounts contributed YTD (as with the dependent care FSA) prior to termination. But again, something I expect to be addressed when the IRS issues its much-anticipated CAA FSA guidance.

Yes, a general purpose health FSA blocks HSA eligibility for both the employee and spouse. Coverage under a general purpose health FSA for the employee or spouse is disqualifying coverage for both individuals. This is because an employee can reimburse pre-deductible expenses under the health FSA for both the employee and the spouse. The result is that if either spouse is enrolled in a general purpose health FSA, neither spouse is HSA eligible. They can still be covered by an HDHP, but they cannot make or receive HSA contributions. Here's an overview: https://www.theabdteam.com/blog/hsa-interaction-health-fsa-2/ Here's the relevant cite: IRS Notice 2005-86: https://www.irs.gov/pub/irs-drop/n-05-86.pdf Interaction Between HSAs and Health FSAs Section 223(a) allows a deduction for contributions to an HSA for an “eligible individual” for any month during the taxable year. An “eligible individual” is defined in § 223(c)(1)(A) and means, in general, with respect to any month, any individual who is covered under an HDHP on the first day of such month and is not, while covered under an HDHP, “covered under any health plan which is not a high-deductible health plan, and which provides coverage for any benefit which is covered under the high-deductible health plan.” In addition to coverage under an HDHP, § 223(c)(1)(B) provides that an eligible individual may have disregarded coverage, including “permitted insurance” and “permitted coverage.” Section 223(c)(2)(C) also provides a safe harbor for the absence of a preventive care deductible. See Notice 2004-23, 2004-1 C.B. 725. Therefore, under § 223, an individual who is eligible to contribute to an HSA must be covered by a health plan that is an HDHP, and may also have permitted insurance, permitted coverage and preventive care, but no other coverage. A health FSA that reimburses all qualified § 213(d) medical expenses without other restrictions is a health plan that constitutes other coverage. Consequently, an individual who is covered by a health FSA that pays or reimburses all qualified medical expenses is not an eligible individual for purposes of making contributions to an HSA. This result is the same even if the individual is covered by a health FSA sponsored by a spouse’s employer. However, as described in Rev. Rul. 2004-45, 2004-1 C.B. 971, an individual who is otherwise eligible for an HSA may be covered under specific types of health FSAs and remain eligible to contribute to an HSA. One arrangement is a limited-purpose health FSA, which pays or reimburses expenses only for preventive care and “permitted coverage” (e.g., dental care and vision care). Another HSA-compatible arrangement is a post-deductible health FSA, which pays or reimburses preventive care and for other qualified medical expenses only if incurred after the minimum annual deductible for the HDHP under § 223(c)(2)(A) is satisfied. This means that qualified medical expenses incurred before the HDHP deductible is satisfied may not be reimbursed by a post-deductible HDHP even after the HDHP deductible had been satisfied. To summarize, an otherwise HSA eligible individual will remain eligible if covered under a limited-purpose health FSA or a post-deductible FSA, or a combination of both.

@Christine ZinterThe standard HIPAA special enrollment right to enroll as of the first of the month following the special enrollment request would apply if the 30-day window did not run before the start of the Outbreak Period on 3/1/20. The retroactive enrollment would apply only for birth, adoption, or placement for adoption. Summary here: https://www.theabdteam.com/blog/hipaa-special-enrollment-events-2/ Here's the relevant cite: 29 CFR §2590.701-6(a)(4): (4) Applying for special enrollment and effective date of coverage. (i) A plan or issuer must allow an employee a period of at least 30 days after an event described in paragraph (a)(3) of this section to request enrollment (for the employee or the employee's dependent). (ii) Coverage must begin no later than the first day of the first calendar month beginning after the date the plan or issuer receives the request for special enrollment.

I have been taking the position that a dependent care FSA carryover from year one does not affect the year two election limit because that is how the rules have always applied to the health FSA carryover. I'd also be interested to hear if anyone is taking the position that carryovers affect the year two election limit.

Did the employee's 30-day HIPAA special enrollment period based on the spouse's loss of eligibility (caused by termination of employment) finish running prior to the start of the Outbreak Period on 3/1/20? If not, that window is still open to enroll based on the initial event. As you noted, loss of subsidized COBRA coverage is not a HIPAA special enrollment event, but the initial loss of eligibility for active coverage upon termination of employment was. I can't think of any reason why the HIPAA special enrollment right would be voided by enrollment in COBRA.

Details and cites here if you need it still: https://www.theabdteam.com/blog/which-plan-options-must-be-offered-under-cobra-2/ Exception #2: Moving Outside HMO Regional Service Area If a COBRA participant moves outside the HMO service region, and the COBRA participant requests other coverage, the employer must offer the COBRA participant the opportunity to elect coverage under any other option that is available to active employees and provides coverage in the COBRA participant’s new location. In other words, if the employer offers a different plan option that would provide coverage in the COBRA participant’s new location, that plan option must be made available to the COBRA participant upon relocating (or, if later, the first day of the month following the month in which the COBRA participant requests the alternative coverage). ... Treas. Reg. §54.4980B-4: Q-. 4. Can a qualified beneficiary who elects COBRA continuation coverage ever change from the coverage received by that individual immediately before the qualifying event? A-4. (a) In general, a qualified beneficiary need only be given an opportunity to continue the coverage that she or he was receiving immediately before the qualifying event. This is true regardless of whether the coverage received by the qualified beneficiary before the qualifying event ceases to be of value to the qualified beneficiary, such as in the case of a qualified beneficiary covered under a region-specific health maintenance organization (HMO) who leaves the HMO’s service region. The only situations in which a qualified beneficiary must be allowed to change from the coverage received immediately before the qualifying event are as set forth in paragraphs (b) and (c) of this Q&A-4 and in Q&A-1 of this section (regarding changes to or elimination of the coverage provided to similarly situated nonCOBRA beneficiaries). (b) If a qualified beneficiary participates in a region-specific benefit package (such as an HMO or an on-site clinic) that will not service her or his health needs in the area to which she or he is relocating (regardless of the reason for the relocation), the qualified beneficiary must be given, within a reasonable period after requesting other coverage, an opportunity to elect alternative coverage that the employer or employee organization makes available to active employees. If the employer or employee organization makes group health plan coverage available to similarly situated nonCOBRA beneficiaries that can be extended in the area to which the qualified beneficiary is relocating, then that coverage is the alternative coverage that must be made available to the relocating qualified beneficiary. If the employer or employee organization does not make group health plan coverage available to similarly situated nonCOBRA beneficiaries that can be extended in the area to which the qualified beneficiary is relocating but makes coverage available to other employees that can be extended in that area, then the coverage made available to those other employees must be made available to the relocating qualified beneficiary. The effective date of the alternative coverage must be not later than the date of the qualified beneficiary’s relocation, or, if later, the first day of the month following the month in which the qualified beneficiary requests the alternative coverage. However, the employer or employee organization is not required to make any other coverage available to the relocating qualified beneficiary if the only coverage the employer or employee organization makes available to active employees is not available in the area to which the qualified beneficiary relocates (because all such coverage is region-specific and does not service individuals in that area). (c) If an employer or employee organization makes an open enrollment period available to similarly situated active employees with respect to whom a qualifying event has not occurred, the same open enrollment period rights must be made available to each qualified beneficiary receiving COBRA continuation coverage. An open enrollment period means a period during which an employee covered under a plan can choose to be covered under another group health plan or under another benefit package within the same plan, or to add or eliminate coverage of family members.

@Johanna Box 10 is only going include the amount that remained tax-advantaged dependent care benefits. That means dependent care FSA amounts elected by HCEs that are in excess of the reduced limit (caused by the 55% average benefits test failure) are not included in Box 10. Those excess amount are recharacterized as taxable income and reported as such (Boxes 1, 3, 5). For example, if an HCE's $5k election is reduced to $3,500, the Box 10 amount will show only the $3,500 of pre-tax contributions that remained. The HCE will have $1,500 in additional taxable income in Boxes 1, 3, and 5 that he or she otherwise would not have. IRS Form W-2 Instructions: https://www.irs.gov/pub/irs-pdf/iw2w3.pdf Box 10—Dependent care benefits (not applicable to Forms W-2AS, W-2CM, W-2GU, or W-2VI). Show the total dependent care benefits under a dependent care assistance program (section 129) paid or incurred by you for your employee. Include the fair market value (FMV) of care in a daycare facility provided or sponsored by you for your employee and amounts paid or incurred for dependent care assistance in a section 125 (cafeteria) plan. Report all amounts paid or incurred (regardless of any employee forfeitures), including those in excess of the $5,000 exclusion. This may include (a) the FMV of benefits provided in kind by the employer, (b) an amount paid directly to a daycare facility by the employer or reimbursed to the employee to subsidize the benefit, or (c) benefits from the pre-tax contributions made by the employee under a section 125 dependent care flexible spending account. Include any amounts over $5,000 in boxes 1, 3, and 5. For more information, see Pub. 15-B.

@dmwe Yes, I agree. My position is the excess contributions (i.e., amounts contributed in excess of the reduced cap caused by the NDT) are no longer dependent care FSA balance amounts. Therefore, any amounts not already distributed prior to the reduction need to be directly returned or made available without the need to submit qualifying dependent care expenses. Here's a summary: https://www.theabdteam.com/blog/failing-dependent-care-55-average-benefit-test-2/ Excess Contributions Not Distributed: Refunded as Taxable Income or Recharacterized as Taxable Income The amount of HCE contributions in excess of the reduced limit that have not yet been reimbursed to the HCEs must also be made taxable income before the end of the year. There are two possible approaches: Refund/Return: Have the TPA refund the excess contributions to the company (skip if amounts are not held by the TPA), and then the company will distribute the excess back to the HCEs through payroll as standard taxable wages included in gross income and subject to withholding and payroll taxes by the end of the year. Recharacterize: Recharacterize the excess contributions as taxable income in the same manner as the excess distributions. Then inform HCEs that they may take a distribution of the excess contributions (which no longer have pre-tax status) from the FSA without the need to submit qualifying dependent care expenses.

Correct, it does not affect the POP. The carryover is relevant only for the health FSA--which, like the POP, is a component of the Section 125 cafeteria plan where offered.

The health FSA carryover increase to $550 (from $500) is optional, but basically every employer offering the carryover is going to adopt it. It's indexed going forward now, too. Here's an overview: https://www.theabdteam.com/blog/the-550-carryover-vs-the-grace-period/

@BelgarathThere really aren't required cafeteria plan amendments in the same sense as a qualified plan. There have been some changes that employers may have needed to adopt to comply with changes to law (e.g., ACA capping health FSA salary reduction contributions and prohibiting individual policy payment) or wanted to adopt to based on changes to law (e.g., ACA-related permitted election change events, Covid-related relaxed election change rules). But it's certainly conceivable that a plan would not have needed (or an employer would not have wanted) to adopt any cafeteria plan amendments since that timeframe. If you're working off an old doc, you would just want to check if any of the provisions are inconsistent with current legal requirements or administrative practice.

@JSR_Kris Visa status should not affect your COBRA rights. As a general matter, immigration, visa, SSN, or citizenship status is irrelevant for purposes of health plan eligibility. Eligible employees and their eligible spouses, domestic partners, or children under age 26 in the U.S. can enroll when residing in the U.S. regardless of their immigration, visa, SSN, or citizenship status. None of that changes when you're a qualified beneficiary on COBRA continuation coverage. The COBRA maximum coverage period will be 18 months where the qualifying even is loss of coverage caused by termination of employment. Note that the child will become a COBRA qualified beneficiary upon birth if you are enrolled in COBRA at the time. Full details here: https://www.theabdteam.com/blog/enrolling-new-dependents-and-changing-plan-options-under-cobra/ Treas. Reg. §54.4980B-3: Q-1. Who is a qualified beneficiary? A-1. (a)(1) Except as set forth in paragraphs (c) through (f) of this Q&A-1, a qualified beneficiary is— (i) Any individual who, on the day before a qualifying event, is covered under a group health plan by virtue of being on that day either a covered employee, the spouse of a covered employee, or a dependent child of the covered employee; or (ii) Any child who is born to or placed for adoption with a covered employee during a period of COBRA continuation coverage.

@BSI S125 The spouse can continue coverage through COBRA until the first of the following occurs: The spouse exhausts the COBRA maximum coverage period (18 months of a termination of employment qualifying event); or The spouse enrolls in Medicare (or another group health plan). The spouse will want to enroll in Medicare upon becoming eligible to avoid a late enrollment penalty and the potential for the plan (COBRA) to assume Medicare primary coverage. Full details here: https://www.theabdteam.com/blog/how-cobra-and-medicare-interact-for-retirees/ Note that in some scenarios the COBRA maximum coverage period for a spouse or dependent can extend beyond 18 months if the employee recently enrolled in Medicare prior to terminating employment. In that situation, the maximum coverage period for the spouse or dependent is the later of: 36 months from the date the employee enrolled in Medicare; or 18 months from the date of termination (or reduction in hours). Full details on Slide 12 here: ABD Office Hours Webinar: Medicare for Employers.

@leevena good question. I was assuming this was a COBRA situation for an aged out child. Can't think of any other situation where that would be in question.

@Cate I'm assuming you're a business associate for an employer plan sponsor of a covered entity (i.e., a self-insured group health plan). The point of confusion here probably stems from the fact the enrollment/disenrollment information (that does not include any substantial clinical information) is not PHI if it is maintained by the employer. That information is considered an employment record held by the plan sponsor (not a covered entity) rather than PHI held by the plan (covered entity). In this case, you are not the employer. You are the TPA acting as a business associate to the employer's covered entity health plan. Therefore, I agree with you that the enrollment information is PHI and cannot be disclosed absent an authorization from the adult child. Note that there are exceptions where a CE/BA can disclose PHI to a family member. The details depend on the capacity of the individual. Overview here: https://www.theabdteam.com/blog/disclosing-phi-to-family-members-under-hipaa/ Relevant cites below-- 45 CFR §160.103: (2) Protected health information excludes individually identifiable health information: (i) In education records covered by the Family Educational Rights and Privacy Act, as amended, 20 U.S.C. 1232g; (ii) In records described at 20 U.S.C. 1232g(a)(4)(B)(iv); (iii) In employment records held by a covered entity in its role as employer; and (iv) Regarding a person who has been deceased for more than 50 years. 67 Fed. Reg. 53181, 53208 (Aug. 14, 2002): While the standard enrollment and disenrollment transaction does not include any substantial clinical information, the information provided as part of the transaction may indicate whether or not tobacco use, substance abuse, or short, long-term, permanent, or total disability is relevant, when such information is available. However, the Department clarifies that, in disclosing or maintaining information about an individual’s enrollment in, or disenrollment from, a health insurer or HMO offered by the group health plan, the group health plan may not include medical information about the individual above and beyond that which is required or situationally required by the standard transaction and still qualify for the exceptions for enrollment and disenrollment information allowed under the Rule. 65 Fed. Reg. 82461, 82496 (Dec. 28, 2000): The preamble to the Transactions Rule noted that plan sponsors of group health plans are not covered entities and, therefore, are not required to use the standards established in that regulation to perform electronic transactions, including enrollment and disenrollment transactions. We do not change that policy through this rule. Plan sponsors that perform enrollment functions are doing so on behalf of the participants and beneficiaries of the group health plan and not on behalf of the group health plan itself. For purposes of this rule, plan sponsors are not subject to the requirements of § 164.504 regarding group health plans when conducting enrollment activities.

@Isneeze great user name ?. In general, the answer is yes--you can each open a dependent care FSA with your employers and submit dependent care expenses incurred for the children for whom you qualify as the custodial parent. Custodial parent status generally requires the parent to have custody for a greater portion of the calendar year. This post hopefully will address your situation: https://www.theabdteam.com/blog/dependent-care-fsa-for-parents-who-are-divorced-separated-or-living-apart/ There are some complexities, but her is the general rule: Dependent Care FSA Available Only to Custodial Parent Where parents are divorced, separated, or living apart, only the custodial parent is permitted to utilize the dependent care FSA for the child’s day care expenses. The “custodial parent” is defined as the parent with whom the child resides for the greater number of nights during the calendar year. When the number of nights with each parent is the same, the parent with the higher adjusted gross income is treated as the custodial parent. Special rules also apply for determining the custodial parent where a child lives for a greater number of days, but not nights, with a parent because of the parent’s nighttime work schedule. The noncustodial parent cannot utilize the dependent care FSA for the child even if the noncustodial parent is financially responsible for paying for the child’s care, the child lives with the noncustodial parent for some significant portion of the year, or the noncustodial parent can claim the child as a tax dependent. Here are some split custody examples that may be helpful: Where the Child Resides with Each Parent for a Portion of the Year Where the child resides with each parent for part of the year, only the parent who is the “custodial parent” can have eligible dependent care FSA expenses for the child. For example: The custodial parent can have eligible daycare expenses for the period the child resides with the custodial parent (even if the noncustodial parent can claim the child as a tax dependent). If the noncustodial parent pays for the daycare expenses while the child resides with the custodial parent (e.g., if required by the terms of the divorce decree), neither parent has eligible daycare expenses because the expenses were not incurred by the custodial parent. If the noncustodial parent pays for the daycare expenses while the child resides with him or her, neither parent has eligible expenses because the noncustodial parent cannot have eligible expenses (even for the period of the year in which the child resides with the noncustodial parent). If the custodial parent pays for the daycare expenses while the child resides with the noncustodial parent, neither parent has eligible daycare expenses for that period because the expense does not permit the custodial parent to work. I copied the applicable cites at the bottom of the post if you want to dig through the details. You may want to consult with your personal tax advisor to confirm custodial parent status and eligible expenses here.

@dmwe I believe the FSA TPA vendors (that are generally the entity tasked with performing these cafeteria plan NDT) include all of the benefits run through Section 125 (i.e., all 125-qualified benefits for which the employer permits a pre-tax employee contribution) in one amount lumped together. So H&W premiums run through the POP, FSA, and HSA all as one. As long as they haven't structured contributions in a discriminatory manner by violating the uniform election rule, it's extremely unlikely to fail the C&B test. It's really only the 55% average benefits test component of the dependent care FSA that's typically a concern.

@tsrl01 @Johearain Any state order purporting to extend active coverage beyond the point the plan would cause the spouse to lose eligibility is preempted by ERISA and should be ignored. The only exception would be if there is a state insurance law requiring extension of active coverage, and the plan is fully insured and sitused in that state. The only state I'm aware of with such a state insurance mandate is Massachusetts. Full summary here: https://www.theabdteam.com/blog/erisa-preemption-state-court-orders-2/ Effect of Preemption: Court Order Not Effective Against Plan The example you raise is a court order purporting to require an individual to cover a former spouse under a health plan. For purposes of an employer-sponsored group health plan subject to ERISA, the order is not enforceable against the plan. In other words, where there is a court order purporting to require an individual to cover a former spouse under an employer-sponsored group health plan subject to ERISA, the order is not enforceable against the plan. The order simply has no effect. Plan Terms Govern Eligibility: Former Spouses Not Eligible Instead, the written terms of the plan govern eligibility. The plan terms in virtually all cases do not offer coverage to a former spouse, and therefore the employee’s former spouse is not be eligible for coverage. The former spouse’s only option to continue coverage is through COBRA.

@ERISAQuestions1234 The preamble to the final regs addresses that point. You look only to the number of affected individuals associated with each particular covered entity when determining whether the breach involves 500 or more residents of a state of jurisdiction. https://www.federalregister.gov/documents/2013/01/25/2013-01073/modifications-to-the-hipaa-privacy-security-enforcement-and-breach-notification-rules-under-the The Department also recognized that in some cases a breach may occur at a business associate and involve the protected health information of multiple covered entities. In such cases, a covered entity involved would only be required to provide notification to the media if the information breached included the protected health information of more than 500 individuals located in any one State or jurisdiction. For example, if a business associate discovers a breach affecting 800 individuals in a State, the business associate must notify the appropriate covered entity (or covered entities) subject to § 164.410 (discussed below). If 450 of the affected individuals are patients of one covered entity and the remaining 350 are patients of another covered entity, because the breach has not affected more than 500 individuals at either covered entity, there is no obligation to provide notification to the media under this section. More details generally on the covered entity's notice obligations here: https://www.theabdteam.com/blog/hipaa-breach-notifications-for-employers/