Brian Gilmore

First of all, sorry to hear about your medical situation. Also, sorry to have to deal with the medical and health insurance side at the same time. That's always difficult. The good news is that you have an EBSA Benefits Advisor on the case and providing significant assistance. As long as the medical providers continue to provide services (fortunately the DOL was able to assist with that re the surgery), all the claims can be retroactively processed and paid correctly through COBRA if/when this issue gets resolved. The DOL can impose $110/day penalties. Even if there is some aspect of the situation that is somewhat more favorable to the employer's side that isn't mentioned here, at a minimum they failed to promptly provide the Notice of Termination as required. But generally the DOL will try to exhaust all efforts to resolve the issue informally without the need to take it the enforcement level If it doesn't get resolved. Absent the EBSA being able to satisfactorily resolve the issue, it sounds like you have an excellent case that any plaintiff side attorney should be salivating to take. That would allow you to pursue recovery of payment for any claims that should have been paid under the plan, plus "other relief" as the court deems proper. Again, an attorney would likely get creative here given the medical situation, etc.

HSA eligibility is determined as of the first day of each calendar month. You can therefore become HSA-eligible again once you satisfy all of the requirements on the first day of a month by a) no longer being enrolled in any part of Medicare, b) having no other disqualifying coverage, and c) enrollment in an HDHP. If this occurs mid-year, you will have a prorated contribution limit (including prorated catch-up amount) based on the number of months of HSA-eligibility. You can avoid that prorated limit if you take advantage of the last-month rule by maintaining HSA eligibility from December of the year at issue through the entire following year. Here's an IRS Information Letter addressing the issue and referring to the same form you mentioned: https://www.irs.gov/pub/irs-wd/17-0003.pdf The question of whether an employee enrolled in Medicare can withdraw from the program and thereby participate in an employer’s HSA program is not within the jurisdiction of the IRS. This question should be directed to the Social Security Administration at 1-800-772-1213; ask for Form CMS-1763, Request for Termination of Premium Hospital and/or Supplemental Medical Insurance. More details: https://www.newfront.com/blog/how-medicare-affects-hsa-eligibility https://www.newfront.com/blog/the-hsa-proportional-contribution-limit Slide summary: 2024 Newfront Go All the Way with HSA Guide

The Forms 1095-B were solely the carrier's responsibility and only addressing §6055 (MEC) reporting. The §6056 (ER mandate) reporting is the component missed by the employer not providing/filing the Forms 1095-C, assuming the employer is an ALE. So there is no action item for the 1095-B. That was never the client's responsibility, and it appears it was handled properly regardless. For the missed Forms 1095-C, the client will have to decide how to proceed. We're past the timeframe for the standard reduced penalty relief (that ended 8/1). If arguing for reasonable cause relief, filing asap will likely improve the chances of success. More details: https://www.newfront.com/blog/aca-reporting-requirements-in-2025 Slide summary: 2024 Newfront ACA Employer Mandate & ACA Reporting Guide

Hi Bill, yes I agree with your assessment. Lots of interesting issues teed up here. As to when you can make the contributions up to that proportional limit--I interpret the rules to require that you wait until you are HSA-eligible. When you lose HSA eligibility mid-year you can still contribute up to the proportional limit up to the tax filing deadline in the period following the loss of HSA eligibility, but I do not believe you can front-load HSA contributions (even when restricting up to the eventual proportional limit) prior to a period of HSA eligibility. This point does matter because you cannot take tax-free medical distributions for expenses incurred prior to establishment of your HSA. I've copied the relevant cites below for you to consider with your personal tax adviser if you want to press the issue. More details: https://www.newfront.com/blog/hsa-establishment-date Keep in mind that you could still take advantage of the last-month rule to make the full 2025 contribution. That would require you remain HSA-eligible through all of 2026. More details: https://www.newfront.com/blog/the-hsa-proportional-contribution-limit As to the grace period, unfortunately this will block your HSA eligibility for an additional three months (July, August, September) unless you wife spends down the FSA balance to zero prior to the end of the plan year (6/30). So I would definitely make that a priority. Use sites that specialize in FSA expenses to spend it down timely if necessary. More details: https://www.newfront.com/blog/health-fsa-carryover-grace-period-affect-hsa-eligibility-2 Here's the relevant cites re when you can start funding in 2025-- IRS Notice 2004-2: https://www.irs.gov/pub/irs-drop/n-04-2.pdf Q-2. Who is eligible to establish an HSA? A-2. An “eligible individual” can establish an HSA. An “eligible individual” means, with respect to any month, any individual who: (1) is covered under a high-deductible health plan (HDHP) on the first day of such month; (2) is not also covered by any other health plan that is not an HDHP (with certain exceptions for plans providing certain limited types of coverage); (3) is not enrolled in Medicare (generally, has not yet reached age 65); and (4) may not be claimed as a dependent on another person’s tax return. … Q-26. What are the “qualified medical expenses” that are eligible for tax-free distributions? A-26. The term “qualified medical expenses” are expenses paid by the account beneficiary, his or her spouse or dependents for medical care as defined in section 213(d) (including nonprescription drugs as described in Rev. Rul. 2003-102, 2003-38 I.R.B. 559), but only to the extent the expenses are not covered by insurance or otherwise. The qualified medical expenses must be incurred only after the HSA has been established. For purposes of determining the itemized deduction for medical expenses, medical expenses paid or reimbursed by distributions from an HSA are not treated as expenses paid for medical care under section 213. IRS Notice 2008-59: https://www.irs.gov/pub/irs-drop/n-08-59.pdf Q-38. When is an HSA established? A-38. An HSA is an exempt trust established through a written governing instrument under state law. Section 223(d)(1). State trust law determines when an HSA is established. Most state trust laws require that for a trust to exist, an asset must be held in trust; thus, most state trust laws require that a trust must be funded to be established. Whether the account beneficiary’s signature is required to establish the trust also depends on state law. Slide summary: 2024 Newfront Go All the Way with HSA Guide

1. Will this make me ineligible for HSA even if we don't plan on using any FSA distributions for my expenses? We will strictly make sure FSA distributions are only used by my wife. This will make both of you HSA-ineligible. It doesn't matter who actually uses the arrangement, what matters is you have the coverage in place. HSA eligibility is blocked by any disqualifying coverage, which generally includes any pre-deductible health coverage for non-preventive medical expenses. The health FSA is disqualifying for both your spouse and you because it enables both of you to incur reimbursable expenses pre-deductible. 2. Does my wife being in a PPO plan also makes me ineligible for HSA assuming she denies FSA? HSA eligibility is determined on an individual by individual basis. If your wife enrolls in a PPO, that will block her ability to make and receive HSA contributions in an HSA in her name. It will have no effect on your HSA eligibility--assuming she does not enroll you as a dependent in the PPO. I find it weird that both husband and wife can have their own HSA (if on HDHP) and have their own FSA (if both on PPO) but one HSA and one FSA is not allowed. That's not correct. The PPO is disqualifying coverage that blocks HSA eligibility for anyone enrolled in the PPO. What makes the health FSA different from the PPO is that the health FSA covers both spouses if just one is enrolled. More details if interested-- 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.

For an example, here's one I looked at recently with this issue: PREMIUM RATE CHANGES FOR MEDICAL PLANS The premium rates in effect on the Policy Effective Date are shown in the policy’s Premium Rate Schedule. [redacted] has the right to change the premium rates as of any of these dates: The Policy Effective Date, or if later, any subsequent Policy Anniversary Date, if: It is discovered that the group is offering employees alternate health care benefits with an insurance company(ies) and/or health care service plan(s) other than [redacted] without the written concurrence of [redacted]; … Any date that [redacted] determines that the group is modifying, or has modified, plan benefits, by changing an insured person’s financial liability under the plan, by it paying a part of the insured person’s deductibles, coinsurance, co-payments, out-of-pocket maximums, or for non-participating providers, the balance-billed charges, if any. The group may not partially pay, reimburse, or otherwise reduce, the insured person’s financial responsibility under the plan without first notifying [redacted] in writing in at least 30-days advance of implementing such a practice and [redacted] agreeing, in writing, to that practice. In the absence of [redacted] agreeing to such a practice, the group must communicate the plan benefits to the insured employees without modification.

Hi Peter, it's not really an opt-out that could be an underwriting issue--or at least I've never seen it. But any form of cost-sharing vehicle paired with the plan (e.g., a cost-sharing HRA for deductible/copay/coinsurance) would be subject to an underwriting review in many agreements. Every once in a blue moon I'll see a carrier or stop-loss push back on that. So I agree it would be a good idea to get their prior approval.

I would recommend against that approach. This would be what I refer to as a "taxable HRA". That's basically an oxymoron, but I don't know what else to call it. Any employer reimbursement of medical expenses with an ongoing administrative scheme is a group health plan. Other than for purposes of determining whether the §105(h) rules apply, it doesn't matter whether those reimbursements take advantage of the otherwise available §105 exclusion from income. That means this arrangement still needs to deal with: ERISA ACA COBRA HIPAA HSA (eligibility issues) So I would recommend you create an HRA to address this since a) it's already a group health plan, and therefore b) might as well get the tax advantage. If it's employees moving to a spouse's plan, this is what generally is referred to as a Spousal Incentive HRA (SIHRA). Here's an overview of the SIHRA compliance considerations: https://www.newfront.com/blog/ten-spousal-incentive-hra-compliance-considerations Outside of that, here's my more general take: https://www.newfront.com/blog/addressing-employee-health-plan-exception-requests-part-vi Solution #2: Avoid Creating a Group Health Plan The employer can always provide additional taxable cash compensation to employees that is not conditioned in any way on the employee’s actual medical expenses incurred. For example, the employer can provide an employee experiencing unexpected medical expenses with a standard raise/bonus/stipend that is taxable and subject to withholding and payroll taxes. These payments cannot be a direct or indirect reimbursement of any medical expenses incurred (taxable or non-taxable). In other words, the employer could not determine the amount of the payment based on the actual medical expenses incurred by the employee, nor could the employer condition the additional payment on the employee’s submission of medical receipts. Any such form of reimbursement would trigger a group health plan and the issues outlined above. Note: Employers often question why they cannot simply reimburse medical benefits on a taxable basis to avoid application of the group health plan legal restrictions. However, reimbursement of medical expenses on a taxable basis would still be a group health plan subject to all the group health plan laws described above (with the exception of the §105(h) nondiscrimination testing requirements), and therefore it is also not a viable solution. That taxable reimbursement approach would no longer be an HRA because it would not be designed as a tax-advantaged vehicle under IRC §105 and §106, although some refer to the approach as a “taxable HRA” because it would still be a (non-tax advantaged) defined contribution group health plan arrangement. ... Relevant Cites: ERISA §733(a): (a) Group health plan.
For purposes of this part— 
 (1) In general. The term “group health plan” means an employee welfare benefit plan to the extent that the plan provides medical care (as defined in paragraph (2) and including items and services paid for as medical care) to employees or their dependents (as defined under the terms of the plan) directly or through insurance, reimbursement, or otherwise. Such term shall not include any qualified small employer health reimbursement arrangement (as defined in section 9831(d)(2) of the Internal Revenue Code of 1986).
 Slide summary: 2024 Newfront Fringe Benefits for Employers Guide

If the employee's general purpose health FSA reimbursed only the employee's expenses, it would not be disqualifying coverage for the spouse. It would only be disqualifying coverage for the employee. But I don't think I've actually seen a real-world health FSA with that plan design. In this case, we're talking about the FedFlex Plan, which (like just about all other health FSAs) does reimburse spouse's expenses: https://www.opm.gov/healthcare-insurance/flexible-spending-accounts/reference-materials/fedflex.pdf

Hi there, congrats on the marriage. Yes, you are correct that both you and your spouse would be blocked from HSA eligibility if your spouse enrolls in a general purpose FSA through her workplace. This is because the health FSA would reimburse both your spouse's and your medical expenses pre-deductible. However, if your spouse is merely eligible for a general purpose health FSA, but doesn't actually enroll, that will not affect the HSA eligibility of either you or your spouse. If that is the case can i contribute up to the HSA max of 8550 instead? I've already completed my enrollment with self-only coverage and she is not associated to any of my insurance(s). If your spouse enrolls in the general purpose health FSA, neither of you can contribute to a HSA because you both would have disqualifying coverage. If #1 is not possible. Can she enroll in a Limited Expense Health Care FSA? Definitely. Limited purpose FSAs are not disqualifying coverage because they reimburse only dental/vision/preventive expenses (i.e., they do not reimburse pre-deductible, non-preventive medical expenses). Regardless of the above answers am i allowed to use HSA funds for my personal expenses with contributions I've made before getting married? Definitely. HSA eligibility is relevant only to the ability to make and receive HSA contributions. Tax-free distributions for medical expenses are available for the HSA holder, spouse, and qualifying children regardless of whether the HSA holder or those dependents are currently HSA-eligible.

Yeah I think that would be a problem in the sense that it would expose the employer to B Penalty liability, but the question this is whether that's really a "problem". The B Penalty would be $371.67/month (2024), which is lower than the $400 contribution anyway. So the employer comes out ahead in that a) some employees in this type of leave situation probably won't trigger the B Penalty, and b) for those who do, the company pays less than the cost of the health plan to be affordable. Your follow-up question is a good one that I'm not aware of any clear answer. I think if they were trying to avoid the B Penalty (again, not a major concern anyway) they would probably need to continue the $400 contribution. But I take your point that they weren't in the plan option that's designed to meet the affordability safe harbor in the first place, so there's an argument no contribution should be required.

This is an interesting one I've had come up too in various forms. Basically the overriding issue is a conflict between the plan's definition of full-time eligible and the ACA's definition (via the look-back measurement method) of full-time. The options I always offer here are: Treat the employees on non-protected leave as full-time eligible (not just full-time ACA) for any stability period in which the employee is considered full-time, thereby continuing active coverage. This might not be possible if there are carrier/stop-loss limitations. Continue the current practice of terminating active coverage for employees in a stability period as full-time but on non-protected leave, and expose the employer to potential B penalties for that employee because the COBRA offer is not affordable under any of the ACA safe harbors. The potential B penalty liability is often less than (or comparable to) the employer contribution anyway. Continue the current practice of terminating active coverage for employees in a stability period as full-time but on non-protected leave, and subsidize COBRA by providing the amount needed to meet the applicable affordability safe harbor.

Work with your personal tax adviser for the details, but in general that would mean your spouse's HSA contribution limit would be 2/12 of $4,150 + 2/12 of $1,000. I'm getting $858 as the result. Any amount contributed in excess of that would need to be pulled out as a corrective distribution by 4/15/25. By my math, that's an excess contribution of $642 (plus earnings) that she'll need to take as a corrective distribution. Your HSA custodian and personal tax adviser should be able to help with the details.

Yes, common mistake. HSA eligibility is determined as of the first day of each calendar month. Your wife therefore would presumably have had two months of HSA eligibility (Jan and Feb) before your health FSA enrollment caused her to have disqualifying coverage. That means any of her contribution amounts in excess of 2/12 the $8,300 statutory limit ($1,383) are excess contributions that need to be distributed by the tax filing deadline to avoid the 6% excise tax. Some more details that may be helpful: https://www.newfront.com/blog/the-hsa-proportional-contribution-limit https://www.newfront.com/blog/correcting-excess-hsa-contributions Slide summary: 2024 Newfront Go All the Way with HSA Guide

Interesting, I see your point now. The IRS appears to do the same thing here: https://www.irs.gov/affordable-care-act/employers/determining-if-an-employer-is-an-applicable-large-employer That one is a mystery to me. It doesn't make sense that the ALE status FTE determination would be based at 120 if the full-time definition for the same purpose wasn't also based on the same 120 threshold. On top of the basic confusion/complexity of the dual thresholds for the same determination, you would also have a weird situation for 120-130 hour employees where they would seem to be counted as a non-full-time employee but greater than 1 FTE. The ABA IRS response you quoted is the way I have always understood it to work.

Here's why it's confusing-- To determine ALE status, the threshold is 120 hours of service for full-time or full-time equivalent status. To determine whether an employee of an ALE is full-time for purposes of §4980H ACA employer mandate penalty liability, the 30 hours/week monthly equivalency threshold is 130 hours of service (under the monthly measurement method or look-back measurement method). It's not really worth trying to understand the why--but those are clearly the rules. So use 120 when determining ALE status. Once they're an ALE, you forget about 120 and only use 130. Here's the cites-- Treas. Reg. §54.4980H-2: (c) Full-time equivalent employees (FTEs) —(1) In general. In determining whether an employer is an applicable large employer, the number of FTEs it employed during the preceding calendar year is taken into account. All employees (including seasonal workers) who were not employed on average at least 30 hours of service per week for a calendar month in the preceding calendar year are included in calculating the employer's FTEs for that calendar month. (2) Calculating the number of FTEs. The number of FTEs for each calendar month in the preceding calendar year is determined by calculating the aggregate number of hours of service for that calendar month for employees who were not full-time employees (but not more than 120 hours of service for any employee) and dividing that number by 120. In determining the number of FTEs for each calendar month, fractions are taken into account; an employer may round the number of FTEs for each calendar month to the nearest one hundredth. Treas. Reg. §54.4980H-1(a): (21) Full-time employee —(i) In general. The term full-time employee means, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week with an employer. For rules on the determination of whether an employee is a full-time employee, including a description of the look-back measurement method and the monthly measurement method, see § 54.4980H-3. The look-back measurement method for identifying full-time employees is available only for purposes of determining and computing liability under section 4980H and not for the purpose of determining status as an applicable large employer under § 54.4980H-2. (ii) Monthly equivalency. Except as otherwise provided in paragraph (a)(21)(iii) of this section, 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week, and this 130 hours of service monthly equivalency applies for both the look-back measurement method and the monthly measurement method for determining full-time employee status. Here's an overview on how to perform the calculation: 2024 Newfront ACA Employer Mandate & ACA Reporting Guide

I have also encountered this argument, and I agree with your take. What they've done is created what I refer to as a "taxable HRA". That's basically an oxymoron, but I don't know what else to call it. The one piece of the other adviser's argument I agree with is they avoid the §105(h) issues here by making the arrangement taxable. I just disagree with everything else. Any employer reimbursement of medical expenses with an ongoing administrative scheme is a group health plan. Other than for purposes of determining whether the §105(h) rules apply, it doesn't matter whether those reimbursements take advantage of the otherwise available §105 exclusion from income. That means this arrangement still needs to deal with: ERISA ACA COBRA HIPAA HSA (eligibility issues) So I'm on your side on this one. In my opinion, they've received some poor advice on this one. Definitely more mountain than molehill until they strip out the medical components. Here's my take: https://www.newfront.com/blog/addressing-employee-health-plan-exception-requests-part-vi Solution #2: Avoid Creating a Group Health Plan Employers may have a strong desire to preserve the informal “one-off” exception-based approach to a specific employee request to address a medical expense outside the group heath plan. The employer can always provide additional taxable cash compensation to employees that is not conditioned in any way on the employee’s actual medical expenses incurred. For example, the employer can provide an employee experiencing unexpected medical expenses with a standard raise/bonus/stipend that is taxable and subject to withholding and payroll taxes. These payments cannot be a direct or indirect reimbursement of any medical expenses incurred (taxable or non-taxable). In other words, the employer could not determine the amount of the payment based on the actual medical expenses incurred by the employee, nor could the employer condition the additional payment on the employee’s submission of medical receipts. Any such form of reimbursement would trigger a group health plan and the issues outlined above. Note: Employers often question why they cannot simply reimburse medical benefits on a taxable basis to avoid application of the group health plan legal restrictions. However, reimbursement of medical expenses on a taxable basis would still be a group health plan subject to all the group health plan laws described above (with the exception of the §105(h) nondiscrimination testing requirements), and therefore it is also not a viable solution. That taxable reimbursement approach would no longer be an HRA because it would not be designed as a tax-advantaged vehicle under IRC §105 and §106, although some refer to the approach as a “taxable HRA” because it would still be a (non-tax advantaged) defined contribution group health plan arrangement. ... Relevant Cites: ERISA §733(a): (a) Group health plan.
For purposes of this part— 
 (1) In general. The term “group health plan” means an employee welfare benefit plan to the extent that the plan provides medical care (as defined in paragraph (2) and including items and services paid for as medical care) to employees or their dependents (as defined under the terms of the plan) directly or through insurance, reimbursement, or otherwise. Such term shall not include any qualified small employer health reimbursement arrangement (as defined in section 9831(d)(2) of the Internal Revenue Code of 1986).
 Slide summary: 2024 Newfront Fringe Benefits for Employers Guide

I suggest checking the plan's HIPAA Notice of Privacy Practices. It should address your options in this area. More generally, the HIPAA rules do permit the plan to send EOBs to the employee for all covered dependents. However, there are rules that allow you to request delivery at a different address if you feel the disclosure of information to the employee could endanger you. https://www.govinfo.gov/content/pkg/FR-2000-12-28/pdf/00-32678.pdf Comment: Certain commenters explained that third party administrators usually communicate with employees through Explanation of Benefit (EOB) reports on behalf of their dependents (including those who might not be minor children). Thus, the employee might be apprised of the medical encounters of his or her dependents but not of medical diagnoses unless there is an over-riding reason, such as a child suspected of drug abuse due to multiple prescriptions. The commenters urged that the current claim processing procedures be allowed to continue. Response: We agree. We interpret the definition of payment and, in particular the term ‘‘claims management,’’ to include such disclosures of protected health information. ... For example, if an individual requests that a health plan send explanations of benefits about particular services to the individual’s work rather than home address because the individual is concerned that a member of the individual’s household (e.g., the named insured) might read the explanation of benefits and become abusive towards the individual, the health plan must accommodate the request.

Yes, that's a common mistake. As noted previously in this thread, enrollment in a general purpose health FSA blocks HSA eligibility (i.e., the ability to make or receive HSA contributions) for both you and your spouse. The best approach in this hypothetical would simply be to prevent any HSA contributions from occurring in 2025 (both by notifying the spouse's employer of HSA ineligibility and revoking any employee HSA contribution election). And if you somehow couldn't stop the contributions, you would want to avoid taking distributions (other than corrective distributions). But to play along--if those HSA contributions were made, you would need to take a corrective distribution by the tax filing deadline (4/15/26) to avoid the 6% excise tax on those ineligible excess contributions. The HSA custodian (bank) should have a process in place for how to handle a corrective distribution of funds already withdrawn from the account. They might be able to simply convert the prior distributions as a corrective distribution. Or they might treat those distributions under the mistaken distribution rules, which would require you first to return your HSA funds to the account and then process the corrective distribution. More details: https://www.newfront.com/blog/correcting-mistaken-hsa-distributions https://www.newfront.com/blog/correcting-excess-hsa-contributions

Yes, this is a bit of a messy situation unfortunately. Enrollment in a general purpose health FSA blocks HSA eligibility (i.e., the ability to make or receive HSA contributions) for both you and your spouse. So going forward you will either want to decline your company's health FSA or direct your spouse not to make (or receive employer) HSA contributions. Alternatively, if offered by your employer, you could enroll in a limited purpose health FSA without affecting your spouse's HSA eligibility. As for this year and prior years, all of your spouse's HSA contributions for months in which you were covered by the general purpose health FSA are technically ineligible excess HSA contributions subject to a 6% excise tax each year until removed. You will want to work with a personal tax adviser to address those. Here's some more details for reference: https://www.newfront.com/blog/hsa-interaction-health-fsa-2 https://www.newfront.com/blog/correcting-excess-hsa-contributions Slide summary: 2024 Newfront Go All the Way with HSA Guide

This often occurs where the employee fails to timely establish the HSA with the employer’s designated custodian. It's frequently because the employee has not completed the Customer Identification Program (CIP) to satisfy requirements set forth in the USA Patriot Act. Here's a short summary on how to handle-- https://www.newfront.com/blog/employee-fails-to-establish-hsa-2 Best practice is to have a consistent policy in place to address situations for both active and terminated employees who do not take the steps required to open the HSA with the employer’s custodian. Employee HSA Contributions For employee HSA contributions, the employer must either deposit or return the employee’s salary reductions. Any reasonable administrative policy would be fine here. For example, failure to open the account within 90 days (or during the period of employment, if sooner) will result in a refund to the employee in the following payroll. That avoids the need to hold and potentially refund large amounts of employee contributions. Remember that any refund must be taxable income subject to withholding and payroll taxes. Employer HSA Contributions For employer HSA contributions, it is reasonable to have a consistent administrative policy providing that employees forfeit the employer contribution if they fail to timely open the account. For example, there will be no retro contributions beyond the last day of February of the following year. And if the account isn’t opened during the period of employment, all employer contributions are forfeited. The employer should provide employees with advance notice of the consequences of failing to timely establish the HSA. Note that although IRS guidance does not directly address these types of policies generally, there are provisions in the comparability rules providing that employers may have a policy for employees to forfeit the employer contribution if they do not establish the HSA within a set period. Although most employers are not subject to the comparability rules (in almost all cases the Section 125 nondiscrimination rules apply instead), this provision at least provides a basis for the IRS approval of this type of approach generally.

I don't think that's an ACA anti-abuse rule you cited. But to the point--I'd suggest making sure the client gets a clear legal opinion as to controlled group status under Treas. Reg. §1.414(c)-5 and moving forward on that basis. What you're really looking at here is the ACA employer mandate rules. Those rules apply to ALEs, which is determined across all entities in the controlled group. You need to have clear direction on controlled group status before you can proceed, and you're only going to get that by through a formal opinion. That's not something that can be handled on a forum like this. More details: https://www.newfront.com/blog/aca-reporting-for-controlled-groups ALE Status: Employers Subject to the ACA Employer Mandate The ACA employer mandate pay or play rules apply to employers that are “Applicable Large Employers,” or “ALEs.” In general, an employer is an ALE if it (along with all members in its controlled group) employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year. ALEs are subject to both the ACA employer mandate under §4980H as well as the ACA reporting requirements under §6056 via Forms 1094-C and 1095-C. ... Regulations Treas. Reg. §54.4980H-1(a): (4) Applicable large employer. The term applicable large employer means, with respect to a calendar year, an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. For rules relating to the determination of applicable large employer status, see §54.4980H-2. … (16) Employer. The term employer means the person that is the employer of an employee under the common-law standard. See § 31.3121(d)-1(c). For purposes of determining whether an employer is an applicable large employer, all persons treated as a single employer under section 414(b), (c), (m), or (o) are treated as a single employer. Thus, all employees of a controlled group of entities under section 414(b) or (c), an affiliated service group under section 414(m), or an entity in an arrangement described under section 414(o), are taken into account in determining whether the members of the controlled group or affiliated service group together are an applicable large employer. For purposes of determining applicable large employer status, the term employer also includes a predecessor employer (see paragraph (a)(36) of this section) and a successor employer. Slide summary: 2024 Newfront ACA Employer Mandate & ACA Reporting Guide

Subrogation/reimbursement situations are commonly negotiated by the employer plan sponsor and plaintiff counsel. This is an unusual one because the counsel is using the document production failures as leverage on the reimbursement amount, but that does not change the general positioning here. I think this is a key point from Peter above. If this is a plan where benefits are paid from the employer's general assets, I don't consider there to be a significant fiduciary issue with respect to potential reimbursement amount. Yes, and the employee funds are not held in trust, so they are just comingled with the employer's general assets. Where the plan is not funded by a trust, there is effectively no connection between the reimbursement amount and the plan. It effectively just means the employer has paid more for plan benefits than it otherwise might have. So I view this more as an employer budgetary/business decision than a fiduciary one since there is no pool of plan assets (i.e., trust) to make whole here. Here's some commentary on a similar issue re the recent J&J litigation: https://www.newfront.com/blog/j-and-j-case-practical-considerations-the-erisa-trust-rules-for-health-plans-part-1 https://www.newfront.com/blog/j-and-j-case-practical-considerations-the-erisa-trust-rules-for-health-plans-part-2

If it's replacing the current vision plan, I think it's clear you would have to offer it through COBRA per the plan modification rule below. If it's a new vision plan option in addition to what the employee was enrolled in while active, it's a bit less clear. In that case you only have the right to continue coverage in effect at the time of the event, and you aren't considered a QB with OE rights until you reach the election period. So if the OE occurs before the COBRA election period, it's something of a gray area because the individual is not a QB at the time of OE. I would still offer the ability to change where possible, but it's not clear that's required. More details: https://www.newfront.com/blog/which-plan-options-must-be-offered-under-cobra-2 Exception #3: Plan Changes for Active Employees If the employer changes plan coverage for active employees, the same changes will also apply to COBRA qualified beneficiaries. For example, if the employer changes its active health coverage from Anthem to Cigna, all COBRA participants will also have their coverage change to the new Cigna benefit package option. ... Treas. Reg. §54.4980B-5: Q-1. What is COBRA continuation coverage? A-1. (a) If a qualifying event occurs, each qualified beneficiary (other than a qualified beneficiary for whom the qualifying event will not result in any immediate or deferred loss of coverage) must be offered an opportunity to elect to receive the group health plan coverage that is provided to similarly situated nonCOBRA beneficiaries (ordinarily, the same coverage that the qualified beneficiary had on the day before the qualifying event). See Q&A-3 of §54.4980B-3 for the definition of similarly situated nonCOBRA beneficiaries. This coverage is COBRA continuation coverage. If coverage is modified for similarly situated nonCOBRA beneficiaries, then the coverage made available to qualified beneficiaries is modified in the same way. If the continuation coverage offered differs in any way from the coverage made available to similarly situated nonCOBRA beneficiaries, the coverage offered does not constitute COBRA continuation coverage and the group health plan is not in compliance with COBRA unless other coverage that does constitute COBRA continuation coverage is also offered. Any elimination or reduction of coverage in anticipation of an event described in paragraph (b) of Q&A-1 of §54.4980B-4 is disregarded for purposes of this Q&A-1 and for purposes of any other reference in §§54.4980B-1 through 54.4980B-10 to coverage in effect immediately before (or on the day before) a qualifying event. COBRA continuation coverage must not be conditioned upon, or discriminate on the basis of lack of, evidence of insurability. Slide summary: 2024 Newfront COBRA for Employers Guide

COBRA participants have the same OE rights as actives. Nothing about OE rights changes the standard 60-day election period or 45-day period to make the first premium payment. I'll defer to you and your COBRA TPA for the specific procedures of the distribution of materials and election process for your plan. More details: https://www.newfront.com/blog/open-enrollment-rights-for-fmla-leaves-and-cobra-participants-2 Slide summary: 2024 Newfront COBRA for Employers Guide