Brian Gilmore

@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/

@Ponderer33 Any individual covered by an HRA that is not specially designed to preserve HSA eligibility will have disqualifying coverage for HSA eligibility purposes. That means the individual will not be able to make or receive HSA contributions. The individual can still be covered by the HDHP. The same is true for a retiree HRA. If the HRA is not post-deductible, limited purpose, or suspended, the retiree and any covered dependents (i.e., any dependents whose health expenses are eligible for reimbursement through the HRA) will not be HSA-eligible. This is essentially the same issue as posed by an employee's health FSA enrollment. Overview here: https://www.theabdteam.com/blog/hsa-interaction-health-fsa-2/ In your situation, ideally there would be a plan feature in place permitting the retiree to elect to opt-out of/suspend coverage for any otherwise covered dependents if they want those dependents to maintain HSA eligibility. Otherwise, the retiree would have to opt-out of/suspend the HRA entirely to preserve HSA eligibility for covered dependents. Keep in mind that enrollment in any part of Medicare will also block HSA eligibility. Overview here: https://www.theabdteam.com/blog/how-medicare-affects-hsa-eligibility/ Here are a couple useful pieces of IRS guidance: IRS Rev. Rul. 2004-45: https://benefitslink.com/src/irs/revrul2004-45.pdf Under section 223, an eligible individual cannot be covered by a health plan that is not an HDHP unless that health plan provides permitted insurance, permitted coverage or preventive care. A health FSA and an HRA are health plans and constitute other coverage under section 223(c)(1)(A)(ii). Consequently, an individual who is covered by an HDHP and a health FSA or HRA that pays or reimburses section 213(d) medical expenses is generally not an eligible individual for the purpose of making contributions to an HSA. ... Retirement HRA. A retirement HRA that pays or reimburses only those medical expenses incurred after retirement (and no expenses incurred before retirement). In this case, the individual is an eligible individual for the purpose of making contributions to the HSA before retirement but loses eligibility for coverage periods when the retirement HRA may pay or reimburse section 213(d) medical expenses. Thus, after retirement, the individual is no longer an eligible individual for the purpose of the HSA. IRS Notice 2008-59: https://www.irs.gov/irb/2008-29_IRB#NOT-2008-59 Q-8. Is an individual with family HDHP coverage who is also covered by a post-deductible HRA or post-deductible health FSA an eligible individual under § 223(c)(1) if the post-deductible HRA or post-deductible health FSA reimburses § 213(d) medical expenses of a spouse or dependent incurred before the minimum family HDHP deductible under § 223(c)(2)(A)(i)(II) has been satisfied? A-8. No. If an individual with family HDHP coverage is covered by a post-deductible HRA or post-deductible health FSA that reimburses the § 213(d) medical expenses of any covered individual before the minimum family HDHP deductible under § 223(c)(2)(A)(i)(II) has been satisfied, that individual is not an eligible individual under § 223(c)(1). Example 1. Employee C has family HDHP coverage. Employee C’s spouse and children (but not Employee C) are also covered by non-HDHP family coverage provided by the spouse’s employer. Employee C and Employee C’s spouse and children are also covered by a post-deductible health FSA. The health FSA pays for unreimbursed medical expenses of the spouse and child without regard to the satisfaction of the deductible of the family HDHP. Because the health FSA covering Employee C reimburses medical expenses before the minimum family HDHP deductible is satisfied, Employee C is not an eligible individual. Example 2. Same facts as Example 1, except the health FSA does not cover Employee C. Employee C is an eligible individual.

@401 Chaos I'd suggest finding one of the FSA vendors that can perform the NDT here. My guess is that one of the major vendors in this space could handle it. That might be something you want to arrange with outside ERISA counsel to have attorney-client privilege to protect the confidentiality of the results.

@alexa Again, be very careful about offering the HDHP or any other major medical plan to terminated employees on severance. That likely is creating an unintended retiree plan, and you would need to be extremely cautious about first receiving carrier/stop-loss approval. The standard way to accomplish that goal is through COBRA subsidies. No issues with contributing to the HSA of a retiree or COBRA participant enrolled in the HDHP. They could also make pre-tax contributions through the cafeteria plan through severance. That's an unusual post-employment offering because the HSA is not a GHP, but it's permitted.

@ERISA-Bubs A COBRA qualifying event occurs where a COBRA-prescribed triggering event causes a loss of coverage. Amendment of the plan to eliminate coverage for certain employees who were previously eligible is not one of those triggering events. See Treas. Reg. §54.4980B-4, Q/A-1. I think the point of @B. PARVARANDEH is that the deferred loss of coverage rule should apply. In other words, that COBRA should be triggered on a delayed basis because the loss of coverage was constructively caused by the reduction in hours (i.e., the disability). This would apply as long as the loss of coverage occurs within the 18-month period following the triggering event (reduction in hours). The deferred loss of coverage rule would provide that the additional period of coverage continued after the triggering event (I'm assuming reduction of hours) would apply toward the COBRA maximum coverage period to reduce the period that the qualified beneficiary could continue coverage through COBRA. See Treas. Reg. Sec. 54.4980B-4, Q/A-1(c). That would mean the COBRA maximum coverage period would be 18 months reduced by the period in which active coverage continued prior to this amended to eliminate active coverage eligibility for LTD participants. This example from the regs seems to be on point for that position: Treas. Reg. Sec. 54.4980B-4, Q/A-1(g), Example 5: Example (5). (i) An employer maintains a group health plan for both active employees and retired employees (and their families). The coverage for active employees and retired employees is identical, and the employer does not require retirees to pay more for coverage than active employees. The plan does not make COBRA continuation coverage available when an employee retires (and is not required to because the retired employee has not lost coverage under the plan). The employer amends the plan to eliminate coverage for retired employees effective January 1, 2002. On that date, several retired employees (and their spouses and dependent children) have been covered under the plan since their retirement for less than the maximum coverage period that would apply to them in connection with their retirement. (ii) The elimination of retiree coverage under these circumstances is a deferred loss of coverage for those retirees (and their spouses and dependent children) under paragraph (c) of this Q&A-1 and, thus, the retirement is a qualifying event. The plan must make COBRA continuation coverage available to them for the balance of the maximum coverage period that applies to them in connection with the retirement. I suggest confirming with your carriers (fully insured) and/or stop-loss providers (self-insured), but that is the position I would take.

@alexa A number issues to be aware of: Your Section 125 cafeteria plan almost certainly provides that participants remain eligible for the health FSA only while employed. Upon termination, they likely have standard run-out period (typically 90 days), with the option to continue coverage through COBRA if the account is underspent. Failure to follow the terms of the written cafeteria plan document jeopardizes the Section 125 safe harbor from constructive receipt, potentially resulting in all cafeteria plan elections becoming taxable for all employees. COBRA is available only through the end of the plan year in which the qualifying event occurs (with the exception of carryover funds that may continue to be available for the standard maximum coverage period). Employees will have no way to contribute pre-tax to the health FSA after termination of employment unless they continue to receive a standard payroll stream of payment as severance. I suppose in theory you could create a sort of retiree eligibility for the health FSA for as long as the cafeteria plan provided, the TPA could accommodate, and the terminated employee continued to receive regular severance payments, but I've never seen that attempted. What I would recommend is dropping that approach and simply moving to COBRA subsidies--while being careful to avoid potential §105(h) nondiscrimination issues. That's typically the only way you can accomplish employer-paid continuation of any H&W benefit without creating a retiree plan (which likely isn't your goal or blessed by the carriers/stop-loss). A couple posts that may be helpful: https://www.theabdteam.com/blog/health-fsa-reimbursements-termination-employment-2/ https://www.theabdteam.com/blog/cobra-subsidies-reimbursement-2/

@my2greenize Yes, have no fear there. When you enroll in active coverage again as a rehire, your COBRA continuation coverage will terminate. When you subsequently lose active coverage again because of termination of employment or reduction of hours, you will experience a new COBRA qualifying event with a new 18-month maximum coverage period. There is no limit on the number of COBRA qualifying events you may experience with the same employer/plan. A couple posts that may be helpful in case you're near Medicare age (65): https://www.theabdteam.com/blog/early-termination-of-cobra-upon-enrollment-in-other-group-health-plan-or-medicare/ https://www.theabdteam.com/blog/how-cobra-and-medicare-interact-for-retirees/

@Belgarath "Employer-sponsored health coverage" refers to any group health plan in this context. So that includes dental and vision elections. The IRS has informally confirmed this. Note that the relaxed election change rules don't actually come from the CARES Act. They come from IRS Notice 2020-29: https://www.irs.gov/pub/irs-drop/n-20-29.pdf Also note that any mid-year enrollment or plan option change outside of a standard §125 permitted election change event would have to be approved by the carrier (or stop-loss provider if self-insured). Easier said than done.

@401 Chaos I'm with you on that part. Putting aside the plan design insanity of not letting certain employees make pre-tax contributions for the employee-share of the premium (which benefits both the employee and employer), I agree you have a potential eligibility test issue there. I think you'd have to look to whether that's a reasonable classification based on objective business criteria, and then even so if the plan can still meet the safe harbor or unsafe harbor percentage test for the ration of highs to non-highs participating.

@401 Chaos Which part of the 125 NDT are you concerned about? The uniform election component of the contributions and benefits test is the most commonly addressed piece on that front. In that case, it simply prohibits a larger employer contribution for an HCP than made available to a non-HCP eligible for the same plan option. If I understand the situation correctly, that's not going to be a concern here because there are different plan options at issue. Also, most interpret the rules the permit the employer to create separate cafeteria plans with different contribution strategies for each division within a controlled group. I've written about that here if you're interseted: https://www.theabdteam.com/blog/nondiscrimination-rules-for-different-health-plan-contribution-structures-2/ What they should be worried about is the indefinitely delayed set of fully insured plan nondiscrim rules from the ACA. Those would likely be a problem here if they ever see the light of day. Summary here: https://www.theabdteam.com/blog/cadillac-tax-fully-repealed/

@chibenefits For some reason this guidance didn't appear again in the annual ACA reporting delay notice for 2019, but it was in the 2018 notice and all prior years: IRS Notice 2018-06: https://www.irs.gov/pub/irs-drop/n-18-06.pdf Employers or other coverage providers that do not comply with the due dates for furnishing Forms 1095-B and 1095-C (as extended under the rules described above) or for filing Forms 1094-B, 1095-B, 1094-C, or 1095-C are subject to penalties under section 6722 or 6721 for failure to timely furnish and file, respectively. However, employers and other coverage providers that do not meet the relevant due dates should still furnish and file. The Service will take such furnishing and filing into consideration when determining whether to abate penalties for reasonable cause. I take that to mean you have a better chance of avoiding the $270/form penalties if you come forward and file late than wait for the IRS Letter 5699 upon IRS discovery. I have seen clients receive the IRS Letter 972CG imposing the full potential penalties for late filings. So it definitely doesn't always work. Worst case scenario is they may be a good candidate for a reasonable cause reduction. Good summary in IRS Publication 1586: https://www.irs.gov/pub/irs-pdf/p1586.pdf

@KdGal That's arguably more of an cashable flex credit than an opt-out credit, but it doesn't really matter. Either way, the cash option is always standard taxable income. That's the whole reason we have Section 125 in the first place--as a safe harbor from the doctrine of constructive receipt of the taxable cash option for those who elect the non-taxable qualified benefits. I've got a summary of those rules on slides 5-6 here: ABD Office Hours Webinar: Section 125 Cafeteria Plans Summary of the opt-out credit and flex credit affordability concerns here: https://www.theabdteam.com/blog/how-the-aca-affordability-increase-to-9-83-affects-employers/ If you want to go direct to the source, I recommend the IRS "Potluck Guidance" in Notice 2015-87: https://www.irs.gov/pub/irs-drop/n-15-87.pdf Lots of discussion there about the opt-out credits and cashable flex credits as taxable income (and more significantly, how they affect ACA affordability).

@Christine Roberts I agree, these are on the upswing. As soon as the FSA TPAs start offering it, you can tell there's at least a push to create a market for them. I've heard from a couple clients that they are popular in Canada and that's why they're starting to be offered here. My basic feeling is it doesn't really matter how you classify an LSA because it's not an ERISA benefit and it's not tax-advantaged. So there is not set legal scheme we're trying to make it operate within. The constructive receipt question is one where I think the IRS is going to have to weigh in at some point on both LSAs and employee rewards programs. They both offer a bucket of funds (sometimes with a specific "coin of the realm" in the form of points that act as funds) that can be used or converted to purchase items. While there is an argument that the doctrine of constructive receipt should apply to make the amount available taxable (as opposed to the amount used/reimbursed), I have never seen an employer actually take that position in practice. Every employer I have seen with this type of arrangement has made only the amount used/reimbursed taxable to the employee. But I agree that in theory the §451 constructive receipt rules seem to potentially apply to make the amount made available taxable. This is the best post I've seen tackling that issue: https://www.thetaxadviser.com/issues/2011/jan/takacs-jan2011.html

@RubiksCube Employers can always limit the FSA eligible expenses through the terms of the Section 125 cafeteria plan document. From a practical perspective, employers generally always permit the universe of eligible expenses to be reimbursed under the FSA. Limiting expenses to only a subset of FSA-eligible expenses creates a few concerns I can think of: Employee communication issues and misunderstanding; Additional forfeitures; Reduced elections (and thereby reduced employer tax benefit from the employer-share of FICA); Incorrect plan materials (because so many materials are templates prepared by the FSA TPAs. Generally I think you'd have a significant employee relations issue by deciding to continue imposing the Rx requirement on OTCs. Plus, part of the motivation was to avoid the need to waste the time of medical practitioners by writing scripts for OTC medicines and drugs. On an interesting sidenote, keep in mind that the CARES Act also added menstrual care products to the list of eligible FSA (and HSA/HRA) expenses. It didn't add those products as a 213(d) expense though. Instead, it directly amended 223 and 106 to provide that they "shall be treated as incurred for medical care." So there's an interesting trivial pursuit answer as to a non-213(d) FSA-eligible expense. There are also some 213(d) expenses (e.g., premiums) that can't be reimbursed through an FSA.

@Nubee What you're describing actually isn't an opt-out credit, but rather cashable flex credits. That is a problem for ACA affordability issues because flex credits need to be designed as "health flex contributions to count toward the employer-share of the premium. Cashable flex credits are not health flex contributions for this purpose. Here's an overview: https://www.theabdteam.com/blog/how-the-aca-affordability-increase-to-9-83-affects-employers/ How Do Flex Credits Affect the Affordability Determination? Flex credits will reduce the dollar amount of the employee-share of the cheapest plan option providing minimum value that is used to determine affordability if they meet a three-part test to qualify as a “health flex contribution”: The employee may not opt to receive the amount as a taxable benefit (i.e., it is not a cashable flex credit); The employee may use the amount to pay for minimum essential coverage (i.e., the employer’s major medical plan); and The employee may use the amount exclusively for medical/dental/vision coverage costs. Action Item: If you offer a defined contribution-style flex credit approach to employees, make sure that a sufficient portion are designated as “health flex contributions” to qualify under an affordability safe harbor. This will require at least some of the flex credits be non-cashable and designated for health plan purposes only. For more details, see our ABD Alert How the ACA Affects Flex Credits.

Keep in mind there are ACA employer mandate affordability considerations with opt-out credits. The approach you described might not quite fit an "eligible opt-out arrangement" without some additional tweaking. Here's a short summary: https://www.theabdteam.com/blog/how-the-aca-affordability-increase-to-9-83-affects-employers/ How Do Opt-Out Credits Affect the Affordability Determination? The general rule is that the amount of the opt-out credit must be added to the employee-share of the cheapest plan option providing minimum value that is used to determine affordability. Example: The employee-share of the premium for the employer’s cheapest plan option providing minimum value is $75/month for employee-only coverage. The plan offers a $25/month opt-out credit for employees who decline enrollment. Under the general rule, the plan costs $100/month ($75/month premium plus $25 opt-out credit) for purposes of the affordability rules to reflect the $25/month an employee forgoes when electing to enroll. To avoid the need to add the opt-out credit amount to the cost of the plan, the opt-out credit must meet the definition of an “eligible opt-out arrangement,” which requires: The opt-out credit is conditioned on the employee declining to enroll in the major medical plan; and The opt-out credit is conditioned on the employee providing reasonable evidence (including an employee attestation) annually that the employee and all members of the employee’s expected tax family have or will have minimum essential coverage under a group health plan during the period of coverage to which the opt-out credit applies. Note: In late 2016, the IRS indefinitely delayed these eligible opt-out arrangement rules for opt-out credits in place prior to December 16, 2015. Action Item: If you are adding an opt-out credit, make sure that you follow these eligible opt-out arrangement conditions to ensure that the opt-out credit does not affect whether your offer of coverage meets an affordability safe harbor.