Brian Gilmore

One option would be to reach out to the applicable state banking regulator: https://www.consumerfinance.gov/ask-cfpb/how-do-i-find-my-states-bank-regulator-en-1637/ Another option would be to submit a complaint to the CFPB: https://www.consumerfinance.gov/complaint/ Note that even if your debit card is deactivated, you should still be able to perform withdrawals from your HSA account to your bank account.

The consistency rule is difficult to apply in some cases because it is often open to interpretation/judgment where there isn't an example in the regs directly on point. In this case my understanding is the employee and spouse have lost medical coverage through the spouse's employer, and they are going to use that event enroll in the HDHP through the employee's coverage. My reading of the consistency rule there is it likely would not permit the employee to drop the health FSA. As you noted, this means that the employee would not be HSA-eligible. However, I would be open to an argument that because the §1.125-4 rules predate HSAs, there should be wiggle room to treat revocation of the health FSA election as consistent with enrollment in the HDHP. It's a tough call.

Whether the employee can revoke the health FSA election depends on the type of permitted election change event that the employee experiences. The change in status events set forth in §1.125-4 include the consistency requirement that all election changes must be on account of and correspond with the event that affects eligibility for coverage. That will vary from event to event. This isn't an exhaustive list, but it attempts to summarize those events and the election changes they permit: 2024 Newfront Section 125 Permitted Election Change Event Chart Here's the cite: Treas. Reg. §1.125-4(c)(3): (3) Consistency rule. (i) Application to accident or health coverage and group-term life insurance. An election change satisfies the requirements of this paragraph (c)(3) with respect to accident or health coverage or group-term life insurance only if the election change is on account of and corresponds with a change in status that affects eligibility for coverage under an employer's plan. A change in status that affects eligibility under an employer's plan includes a change in status that results in an increase or decrease in the number of an employee's family members or dependents who may benefit from coverage under the plan. (ii) Application to other qualified benefits. An election change satisfies the requirements of this paragraph (c)(3) with respect to other qualified benefits if the election change is on account of and corresponds with a change in status that affects eligibility for coverage under an employer's plan. An election change also satisfies the requirements of this paragraph (c)(3) if the election change is on account of and corresponds with a change in status that effects expenses described in section 129 including employment-related expenses as defined in section 21(b)(2)) with respect to dependent care assistance, or expenses described in section 137 (including qualified adoption expenses as defined in section 137(d)) with respect to adoption assistance. (iii) Application of consistency rule. If the change in status is the employee's divorce, annulment or legal separation from a spouse, the death of a spouse or dependent, or a dependent ceasing to satisfy the eligibility requirements for coverage, an employee's election under the cafeteria plan to cancel accident or health insurance coverage for any individual other than the spouse involved in the divorce, annulment or legal separation, the deceased spouse or dependent, or the dependent that ceased to satisfy the eligibility requirements for coverage, respectively, fails to correspond with that change in status. Thus, if a dependent dies or ceases to satisfy the eligibility requirements for coverage, the employee's election to cancel accident or health coverage for any other dependent, for the employee, or for the employee's spouse fails to correspond with that change in status. In addition, if an employee, spouse, or dependent gains eligibility for coverage under a family member plan (as defined in paragraph (i)(5) of this section) as a result of a change in marital status under paragraph (c)(2)(i) of this section or a change in employment status under paragraph (c)(2)(iii) of this section, an employee's election under the cafeteria plan to cease or decrease coverage for that individual under the cafeteria plan corresponds with that change in status only if coverage for that individual becomes applicable or is increased under the family member plan. With respect to group-term life insurance and disability coverage (as defined in paragraph (i)(4) of this section), an election under a cafeteria plan to increase coverage (or an election to decrease coverage) in response to a change in status described in paragraph (c)(2) of this section is deemed to correspond with that change in status as required by paragraph (c)(3)(i) of this section.

If the furlough period is unpaid, you may be required to pay the employee-share of the premium on an after-tax basis outside of the Section 125 cafeteria plan during the layoff period. However, they may offer pre-pay or catch-up payment options that allow you to pay on a pre-tax basis through the Section 125 cafeteria plan through compensation paid before or after the layoff period. If the furlough period is paid, it is likely that the company will continue to take the employee-share of the premium on a pre-tax basis through the cafeteria plan in the same manner as when actively at work. In short, there are multiple way to handle, so you'll want to check with your employer for the specifics. 2024 Newfront Health Benefits While on Leave Guide

For a single employer plan where the employer plan sponsor is the ERISA §3(16) plan "administrator" (essentially all single employer plans), the DOL enforces the 30/14 day rules as a combined 44-day limit. The COBRA TPA is not the ERISA "administrator"--they are just being delegated COBRA administrative responsibilities by the employer. So having a COBRA TPA doesn't change the timing approach here. Here's the cite: 29 CFR §2590.606-4(b): (2) In the case of a plan with respect to which an employer of a covered employee is also the administrator of the plan, except as provided in paragraph (b)(3) of this section, if the employer is otherwise required to furnish a notice of a qualifying event to an administrator pursuant to §2590.606-2, the administrator shall furnish to each qualified beneficiary a notice meeting the requirements of paragraph (b)(4) of this section not later than 44 days after: (i) In the case of a plan that provides, with respect to the qualifying event, that continuation coverage and the applicable period for providing notice under section 606(a)(2) of the Act shall commence with the date of loss of coverage, the date on which a qualified beneficiary loses coverage under the plan due to the qualifying event; or (ii) In all other cases, the date on which the qualifying event occurred. Here's a slide summary: 2024 Newfront COBRA for Employers Guide

No it's not out of compliance, it's just an unnecessarily restrictive plan design. I don't think I've ever seen a plan condition health FSA enrollment on simultaneous enrollment in the main health plan. There's no reason I'm aware of to impose that eligibility restriction.

The Section 125 cafeteria plan nondiscrimination rules are going to create issues here. A "stipend" in this context would likely have to be a flex credit to meet the §125 requirements and avoid constructive receipt. That flex credit would subject to the same Section 125 nondiscrimination issues as a simple increase to the employer contribution of the premium. In other words, HCPs generally could not have access to flex credit amounts that non-HCPs do not. The main exception would be for regional classes. The workaround here is far more simple. They can pay the affected employees more in wages. If those employees use those additional amounts to pay for the increased cost of coverage on a pre-tax basis through the cafeteria plan, the net result can be the same for both parties. Here's more discussion: https://www.newfront.com/blog/designing-health-plans-with-different-strategies Here's the relevant cite: Prop. Treas. Reg. §1.125-7(c)(2): (2) Benefit availability and benefit election. A cafeteria plan does not discriminate with respect to contributions and benefits if either qualified benefits and total benefits, or employer contributions allocable to statutory nontaxable benefits and employer contributions allocable to total benefits, do not discriminate in favor of highly compensated participants. A cafeteria plan must satisfy this paragraph (c) with respect to both benefit availability and benefit utilization. Thus, a plan must give each similarly situated participant a uniform opportunity to elect qualified benefits, and the actual election of qualified benefits through the plan must not be disproportionate by highly compensated participants (while other participants elect permitted taxable benefits)…A plan must also give each similarly situated participant a uniform election with respect to employer contributions, and the actual election with respect to employer contributions for qualified benefits through the plan must not be disproportionate by highly compensated participants (while other participants elect to receive employer contributions as permitted taxable benefits).Prop. Treas. Reg. §1.125-7(e)(2): (2) Similarly situated. In determining which participants are similarly situated, reasonable differences in plan benefits may be taken into account (for example, variations in plan benefits offered to employees working in different geographical locations or to employees with family coverage versus employee-only coverage). Here's a slide summary: 2024 Newfront Section 125 Cafeteria Plans Guide

First of all, do you feel confident you're meeting the other prongs of the DOL's voluntary plan safe harbor? They're notoriously difficult to satisfy--especially the "no endorsement" piece. As to your specific question, I agree with Peter that it matters whether the life plan is employer or employee-paid. If it's employer-paid basic life, I would see that as consideration to the employer that blows the safe harbor. There are probably other cases out there addressing this issue, but here's an example of a court grappling with something similar and finding it didn't blow the safe harbor: https://law.justia.com/cases/federal/district-courts/FSupp/849/1451/2139942/ Determining whether the life insurance plan meets the fourth criterion, whether AFC received any consideration in connection with the life insurance program, is also a close question. AFC did not receive any compensation for payroll deduction services from the life insurance plan. However, when employees signed up for the insurance plan, AFC received tax savings from their simultaneous participation in the cafeteria plan. AFC also saved the expense of having its own managers go to its various divisions and explain the cafeteria plan; Metropolitan Life agents went to the various divisions instead at the expense of Metropolitan Life. The court is nevertheless convinced that benefit AFC received was too indirect and tenuous to conclude that the Metropolitan Life plan falls outside the safe-harbor regulation. Here's an overview of the voluntary plan safe harbor generally: https://www.newfront.com/blog/the-erisa-voluntary-plan-safe-harbor Slide summary: 2024 Newfront ERISA for Employers Guide

I would argue that in the asset deal scenario it's no different than going on a hiring spree. Employees of the seller are first termed then (if continuing) rehired by the buyer, and the buyer does not acquire the corporate entity (stock) itself. Under that approach, you stick to the standard rule that ALE status is always based on prior-year headcount. So the influx of new employees wouldn't potentially make the buyer an ALE until the next calendar year--and even then only if it averaged 50+ full-time employees (including full-time equivalents) over the course of the whole preceding year. More details: https://www.newfront.com/blog/becoming-an-ale-subject-to-the-aca-employer-mandate-2 Slide summary: 2024 Newfront ACA Employer Mandate & ACA Reporting Guide

I think what's going on here is this plan has taken a nugget of something important and taken it a step too far. Health FSAs need to be an excepted benefit to avoid violating the ACA market reforms. One component of excepted benefit status is the "footprint rule." In short, this says that the health FSA eligibility footprint can't be broader than the major medical eligibility footprint. Put another way, every employee eligible for the health FSA must also be eligible for the major medical. Nothing about this rule requires actual enrollment in the major medical. As for the vision, that's almost certainly an excepted benefit itself. That makes the vision plan irrelevant for purposes of this health FSA excepted benefit analysis. Here's some more details: https://www.newfront.com/blog/aca-and-hipaa-excepted-benefits Common Excepted Benefit #2: Vision Plan Fully Insured Vision Plan Excepted Benefit Status: Limited Scope: Substantially all benefits are for treatment of the eye; and Separate Policy: Vision benefits are provided under a separate vision policy, certificate, or contract of insurance. Note: Self-insured vision plans cannot meet this test. Self-Insured Vision Plan Excepted Benefit Status: Limited Scope: Substantially all benefits are for treatment of the eye; and Not Integral to Group Health Plan: At least one of the following two conditions is satisfied: Participants May Decline Coverage: Employees must be permitted to decline (i.e., waive, opt-out from) the vision plan, regardless of whether there is an employee contribution required for the coverage; or Separate Claims Administration Contract: The employer has entered into a contract with a TPA to administer the vision plan benefit claims that is separate from any contract with a TPA for claims administration of any other group health plan benefits. Note: Although not common, fully insured vision plans also may meet this “not integral” approach for excepted benefit status if they do not satisfy the “separate policy” approach. Common Excepted Benefit #3: Health FSA Health FSAs must qualify as an excepted benefit to avoid violating the ACA market reform provisions. The general requirements for a health FSA to be considered an excepted benefit are: The Footprint Rule: All employees eligible for the health FSA must also be eligible for the major medical plan; and The $500 Rule: Employer nonelective contributions to the health FSA cannot exceed $500. Under the footprint rule, all employees eligible for the health FSA must also be eligible for (regardless of enrollment in) the major medical plan. In other words, the health FSA eligibility “footprint” cannot be broader than the major medical plan’s eligibility “footprint.” For more details, see our prior post: The Health FSA Eligibility Footprint Rule. The $500 rule typically is not an issue because most employers do not make employer contributions to the health FSA. Those employers that do contribute to the health FSA generally will have to limit that employer health FSA contribution to no more than $500 to preserve the plan’s excepted benefit status. Employers wishing to contribute in excess of $500 to the health FSA can generally do so only if the structure the employer contribution as a matching contribution. This is because the health FSA “maximum benefit” rule technically prohibits employers from contributing any amount that exceeds two times the employee’s salary reduction election (or, if greater, $500 plus the employee’s salary reduction election). Here's the relevant cites: 29 CFR §2590.732(c)(3)(v): (c) Excepted benefits. … (v) Health flexible spending arrangements. Benefits provided under a health flexible spending arrangement (as defined in section 106(c)(2)) are excepted for a class of participants only if they satisfy the following two requirements— (A) Other group health plan coverage, not limited to excepted benefits, is made available for the year to the class of participants by reason of their employment; and (B) The arrangement is structured so that the maximum benefit payable to any participant in the class for a year cannot exceed two times the participant’s salary reduction election under the arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election). For this purpose, any amount that an employee can elect to receive as taxable income but elects to apply to the health flexible spending arrangement is considered a salary reduction election (regardless of whether the amount is characterized as salary or as a credit under the arrangement). DOL Technical Release 2013-3: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/13-03 2. Application of the Market Reforms to Certain Health FSAs Question 7: How do the market reforms apply to a health FSA that does not qualify as excepted benefits? Answer 7: The market reforms do not apply to a group health plan in relation to its provision of benefits that are excepted benefits. Health FSAs are group health plans but will be considered to provide only excepted benefits if the employer also makes available group health plan coverage that is not limited to excepted benefits and the health FSA is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the health FSA for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election). See 26 C.F.R. §54.9831-1(c)(3)(v), 29 C.F.R. §2590.732(c)(3)(v), and 45 C.F.R. § 146.145(c)(3)(v). Therefore, a health FSA that is considered to provide only excepted benefits is not subject to the market reforms. If an employer provides a health FSA that does not qualify as excepted benefits, the health FSA generally is subject to the market reforms, including the preventive services requirements. Because a health FSA that is not excepted benefits is not integrated with a group health plan, it will fail to meet the preventive services requirements.

They could get an individual policy on the exchange or go uninsured.

Hey Peter. I don't think that would happen, but I suppose the rules could be read to permit it. But the more interesting question is could any QMCSO/NSMN situation support an election change from employee + child to nothing. In other words, is there any situation related to a QMCSO/NMSN that would allow the employee to revoke the employee's election. That's what the original question here was driving at.

First of all, I'm assuming the employee is paying the employee-share of the premium pre-tax through the Section 125 cafeteria plan. That's just about always the case, but making that assuming clear up front. This is an interesting question because the -4 regs that apply here only specifically address mid-year enrollment of a child to accommodate a newly imposed QMCSO/NMSN. They don't say anything about the employee's ability to drop the election for the employee upon the QMCSO/NMSN terminating (or in this case being rescinded) and the employee no longer being required to cover the child (and by necessity, the employee). The only opportunity to drop they recognize is when a QMCSO/NMSN is requiring coverage for the child under the other parent's plan, and even then it only recognizes the ability to drop the child's coverage. So I'd say that unfortunately there doesn't appear to be any permitted election change event here that would allow the employee to revoke the election mid-year on account of a QMCSO/NMSN terminating. In other words, the irrevocable Section 125 cafeteria plan pre-tax payment must remain in effect through the rest of the plan year, or until an earlier permitted election change event. It doesn't feel fair to the employee, but I can't see a way to accommodate the election change in the rules. Would love for someone to point out one that I'm missing, though. Treas. Reg. §1.125-4(d): (d) Judgment, decree, or order. (1) Conforming election change. This paragraph (d) applies to a judgment, decree, or order order) resulting from a divorce, legal separation, annulment, or change in legal custody (including a qualified medical child support order as defined in section 609 of the Employee Retirement Income Security Act of 1974 (Public Law 93-406 (88 Stat. 829))) that requires accident or health coverage for an employee's child or for a foster child who is a dependent of the employee. A cafeteria plan will not fail to satisfy section 125 if it— (i) Changes the employee's election to provide coverage for the child if the order requires coverage for the child under the employee's plan; or (ii) Permits the employee to make an election change to cancel coverage for the child if: (A) The order requires the spouse, former spouse, or other individual to provide coverage for the child; and (B) That coverage is, in fact, provided.

I don't see any issue with them stopping the COBRA subsidy practice going forward to new terms. Those who have been promised a subsidy should receive the promised amount to avoid issues. As for how to handle COBRA subsidies, lots of employers simply provide a taxable cash payment regardless of the employee's COBRA election. Aside from the downside of being taxable, this has multiple advantages including avoiding the Section 105(h) nondiscrimination limitations that apply to self-insured plans. That's basically a standard payment in the amount of the intended COBRA subsidy, which a gross-up if they want to offer it. Here's some more discussion of that issue: https://www.newfront.com/blog/cobra-subsidies-reimbursement-2 Here's a quick slide summary: 2024 Newfront COBRA for Employers Guide

That's true, but you won't have actually contributed $3,200 to a health FSA in a two-month span. You'll have contributed a fraction of that, although you will have had the full $3,200 available. You could have had the full $3,200 election amount available reimbursed without affecting your HSA eligibility for the other ten months.

The health FSA plan year is irrelevant for HSA eligibility purposes. What's relevant is the period you could incur reimbursable expenses and submit them as claims to the health FSA. That would be July and August. The FSA limit is however much you elected regardless of the amount contributed or months of coverage. It operates very differently from the HSA rules.

HSA eligibility is determined as of the first day of each calendar month. So for the months of July and August you were not HSA eligible based on the FSA coverage in those months. All that means is your prorated HSA limit is 10/12 of the statutory limit ($6,916 for family coverage), which can increase to the full limit if you take advantage of the last-month rule. So I disagree with the advice you received that all you HSA contributions were ineligible. That advice would be appropriate only if you had the health FSA for the entire year. Some vendor reps have only a rudimentary understanding of these rules.

I've seen many interpretations of that provision. The way I read it is that a plan not meeting the integrated standard in 4(c) can follow the 1, 2, 3, and either 4(a) or 4(b) approach. As you noted, an HDHP will not meet the integrated standard because its deductible by definition is higher than the 4(c) $250 limit. So HDHPs (even if they have a prescription drug benefit combined with the medical), will use the alternative the 1, 2, 3, and either 4(a) or 4(b) approach. That approach basically makes the entire point of emphasis on meeting the 60% Rx standard in 3. The others generally are not in question or irrelevant since ACA. Here's my take in more detail: https://www.newfront.com/blog/ira-changes-affect-notice-of-creditable-coverage-considerations Determining Part D Creditable Status of Employer’s Health Plan There are currently two permitted approaches to determine a group health plan’s creditable status: Simplified Determination; or Actuarial Equivalence Determination Simplified Determination: May Not Be Available After 2025 Though the simplified determination is not as “simple” as the title might suggest, it at least avoids the need to work with an actuary. Initial draft CMS guidance stated the simplified determination would no longer be available starting in 2025 because the IRA changes provide that “it will no longer be a valid methodology to determine whether an entity’s prescription drug coverage is creditable or not.” Fortunately CMS backtracked on this approach in the final guidance after receiving a wave of upset commenters at the approach, and perhaps also in part because they “received no comments supporting the elimination of the simplified methodology.” Commenters appropriately “opined that, without a simplified methodology…plans would be required to make an annual actuarial determination…which would represent a substantial new burden on these plan sponsors.” Nonetheless, CMS has not pledged to maintain the simplified determination beyond 2025. The final guidance states that CMS will “permit use of the existing creditable coverage simplified determination methodology for CY 2025 and will re-evaluate the continued use of the existing or a revised simplified determination methodology for CY 2026 in future guidance.” Under the simplified determination as it currently stands at least through 2025, different tests apply depending on the plan’s structure and deductible. In most situations, employer’s prescription drug coverage is considered “integrated” for purposes of the simplified determination because it is combined with medical coverage. These typical employer plans that are integrated but have a deductible in excess of $250 must meet the following requirements to be considered creditable under the simplified determination: Provides coverage for brand and generic prescriptions; Provides reasonable access to retail providers; The plan is designed to pay on average at least 60% of participants’ prescription drug expenses; and The prescription drug coverage has no annual benefit maximum benefit or a maximum annual benefit payable by the plan of at least $25,000, or the prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare eligible individual. In most situations, the only aspect of this criteria in question is whether the plan is designed to pay on average at least 60% of participants’ prescription drug expenses. Employers often are aware of that the plan’s overall actuarial value for purposes of determining is at least 60% for purposes of meeting the ACA minimum value standard (i.e., at least as rich as Bronze-level plan on the Exchange), which is also specified in the plan’s SBC. It is often not as clear whether the prescription drug component by itself meets that 60% standard. Bottom Line: In many cases, the plan’s insurance carrier or third-party administrator will perform the creditable status determination and notify the employer of that determination. However, such access and expectations can vary regionally, and may be in jeopardy more broadly if the simplified determination is no longer available or more burdensome in 2026 and beyond. Actuarial Equivalence Determination This approach requires the assistance of an actuary to perform an analysis as to whether the cost of prescription drugs under the employer’s plan is at an actuarial value that equals or exceeds the actuarial value of Part D coverage. Again, employers often have the ability to rely on a determination performed by their insurance carrier or TPA that avoids the need to directly engage with an actuary. However, that access may be in jeopardy going forward, particularly as creditable status becomes more difficult to achieve and determine. CMS Commentary on HDHP Creditable Coverage Status The most common type of employer-sponsored coverage to face challenges meeting the Part D creditable standard are high deductible health plan (HDHP) options designed to be HSA-compatible. Such coverage must impose a minimum deductible to qualify for HDHP status, which is $1,650 for individual coverage and $3,300 for family coverage in 2025. In the 2025 Part D Redesign Program Instructions addressing the changes made by the IRA, CMS responded as follows to a concerned commenter that Part D eligible individuals may have reduced access to creditable HDHP coverage: “We agree that it may be more difficult for high deductible health plans to qualify as creditable coverage. Sponsors of group health plans can address this by offering plan choices that do meet creditable coverage requirements…Part D eligible individuals that choose not to enroll in Part D or a plan that provides creditable coverage may face a Part D late enrollment penalty (Part D LEP) later if they do enroll in Part D.” Accordingly, HDHP plan options will be less likely to meet the creditable coverage standard in 2025 and beyond under the higher bar set by the IRA. Bottom Line: Employers sponsoring creditable HDHP plan options in 2024 should not assume the plan option will remain creditable in 2025. Employers should be working with their vendors to ascertain the creditable status of their plans—and particularly their HDHP plan options—early this year to be aware of any potential changes heading into 2025.

Are the physicians ineligible for the Section 125 cafeteria plan? If so, that structure would make sense. If not, that seems unlikely to fly under the uniform election rule cited above.

Great point, Peter. I think you're right that those ADA rules can be read to apply only to the employee. Under that interpretation, the main consideration would turn to the HIPAA/ACA nondiscrimination rules. Assuming this is a "participatory" wellness arrangement (i.e., does not require the individual to satisfy a standard related to a health factor), the only HIPAA/ACA nondiscrim requirement is that the program be available to "similarly situated individuals" regardless of health status. We don't have the 30% limit or reasonable alternative standard rules that apply to health-contingent (activity-only and outcome-based) programs to worry about. Those regs say that "relationship to the participant" (e.g., spouse, child) can be a separate category of similarly situated individuals from the employee or other types of dependents. So in this case, they could argue that the spouse category is a separate group of similarly situated individuals with a permissible condition to enroll in the health plan based on the participatory wellness program requirement that they complete the annual physical. All of that is probably aggressive and would need to be viewed as a potential litigation risk, but I can at least see now how the theoretical pieces would fit together after considering Peter's response. Here's what I would look to if trying to justify that approach-- 29 CFR §2590.702: (d) Similarly situated individuals. The requirements of this section apply only within a group of individuals who are treated as similarly situated individuals. A plan or issuer may treat participants as a group of similarly situated individuals separate from beneficiaries. In addition, participants may be treated as two or more distinct groups of similarly situated individuals and beneficiaries may be treated as two or more distinct groups of similarly situated individuals in accordance with the rules of this paragraph (d). Moreover, if individuals have a choice of two or more benefit packages, individuals choosing one benefit package may be treated as one or more groups of similarly situated individuals distinct from individuals choosing another benefit package. ... (2) Beneficiaries. (i) Subject to paragraph (d)(3) of this section, a plan or issuer may treat beneficiaries as two or more distinct groups of similarly situated individuals if the distinction between or among the groups of beneficiaries is based on any of the following factors: (A) A bona fide employment-based classification of the participant through whom the beneficiary is receiving coverage; (B) Relationship to the participant (for example, as a spouse or as a dependent child); (C) Marital status; (D) With respect to children of a participant, age or student status; or (E) Any other factor if the factor is not a health factor. (ii) Paragraph (d)(2)(i) of this section does not prevent more favorable treatment of individuals with adverse health factors in accordance with paragraph (g) of this section. ... (f) Nondiscriminatory wellness programs — in general. A wellness program is a program of health promotion or disease prevention. Paragraphs (b)(2)(ii) and (c)(3) of this section provide exceptions to the general prohibitions against discrimination based on a health factor for plan provisions that vary benefits (including cost-sharing mechanisms) or the premium or contribution for similarly situated individuals in connection with a wellness program that satisfies the requirements of this paragraph (f). (1) Definitions. The definitions in this paragraph (f)(1) govern in applying the provisions of this paragraph (f). ... (ii) Participatory wellness programs. If none of the conditions for obtaining a reward under a wellness program is based on an individual satisfying a standard that is related to a health factor (or if a wellness program does not provide a reward), the wellness program is a participatory wellness program. Examples of participatory wellness programs are: (A) A program that reimburses employees for all or part of the cost for membership in a fitness center. (B) A diagnostic testing program that provides a reward for participation in that program and does not base any part of the reward on outcomes. (C) A program that encourages preventive care through the waiver of the copayment or deductible requirement under a group health plan for the costs of, for example, prenatal care or well-baby visits. (Note that, with respect to non-grandfathered plans, §2590.715-2713 of this part requires benefits for certain preventive health services without the imposition of cost sharing.) (D) A program that reimburses employees for the costs of participating, or that otherwise provides a reward for participating, in a smoking cessation program without regard to whether the employee quits smoking. (E) A program that provides a reward to employees for attending a monthly, no-cost health education seminar. (F) A program that provides a reward to employees who complete a health risk assessment regarding current health status, without any further action (educational or otherwise) required by the employee with regard to the health issues identified as part of the assessment. (See also §2590.702-1 for rules prohibiting collection of genetic information.) ... (2) Requirement for participatory wellness programs. A participatory wellness program, as described in paragraph (f)(1)(ii) of this section, does not violate the provisions of this section only if participation in the program is made available to all similarly situated individuals, regardless of health status.

At a minimum, the ADA side of the (sprawling) wellness program rules aren't going to permit that approach. The ADA rules require that any incentives involving medical examinations be "voluntary." That means there can't be any requirement to participate or denial of coverage for non-participation. Those rules are a bit murky because the regs were pulled and not replaced, but this is a pretty obvious one that doesn't really need to get into the weeds. 29 CFR §1630.14: (d) Other acceptable examinations and inquiries. A covered entity may conduct voluntary medical examinations and activities, including voluntary medical histories, which are part of an employee health program available to employees at the work site. (1) Employee health program. An employee health program, including any disability-related inquiries or medical examinations that are part of such program, must be reasonably designed to promote health or prevent disease. A program satisfies this standard if it has a reasonable chance of improving the health of, or preventing disease in, participating employees, and it is not overly burdensome, is not a subterfuge for violating the ADA or other laws prohibiting employment discrimination, and is not highly suspect in the method chosen to promote health or prevent disease. A program consisting of a measurement, test, screening, or collection of health-related information without providing results, follow-up information, or advice designed to improve the health of participating employees is not reasonably designed to promote health or prevent disease, unless the collected information actually is used to design a program that addresses at least a subset of the conditions identified. A program also is not reasonably designed if it exists mainly to shift costs from the covered entity to targeted employees based on their health or simply to give an employer information to estimate future health care costs. Whether an employee health program is reasonably designed to promote health or prevent disease is evaluated in light of all the relevant facts and circumstances. (2) Voluntary. An employee health program that includes disability-related inquiries or medical examinations (including disability-related inquiries or medical examinations that are part of a health risk assessment) is voluntary as long as a covered entity: (i) Does not require employees to participate; (ii) Does not deny coverage under any of its group health plans or particular benefits packages within a group health plan for non-participation, or limit the extent of benefits (except as allowed under paragraph (d)(3) of this section) for employees who do not participate; (iii) Does not take any adverse employment action or retaliate against, interfere with, coerce, intimidate, or threaten employees within the meaning of Section 503 of the ADA, codified at 42 U.S.C. 12203; and (iv) Provides employees with a notice that: (A) Is written so that the employee from whom medical information is being obtained is reasonably likely to understand it; (B) Describes the type of medical information that will be obtained and the specific purposes for which the medical information will be used; and (C) Describes the restrictions on the disclosure of the employee's medical information, the employer representatives or other parties with whom the information will be shared, and the methods that the covered entity will use to ensure that medical information is not improperly disclosed (including whether it complies with the measures set forth in the HIPAA regulations codified at 45 CFR parts 160 and 164). Slide summary: 2024 Newfront Wellness Program Guide

This is a plan design question. The default position is that the carryover from year one is available in year two regardless of whether the employee makes a year two election. However, the cafeteria plan can specify that the carryover is available only for employees who make a year two election. So you'll have to check the Section 125 cafeteria plan doc to confirm. Here's the overview-- https://www.newfront.com/blog/health-fsa-500-carryover-conditioned-on-new-plan-year-election-2 Default Rule: Access to Health FSA Carryover Regardless of Subsequent Plan Year Election For health FSAs that offer the $500 carryover, the default position is the employee will continue to have access to the carryover amount in subsequent plan years regardless of whether the employee elects to contribute to the health FSA again in the subsequent plan year. Where the employee does not elect to contribute to the health FSA for the subsequent plan year, the employee would have access to only the carryover amount under the health FSA for the subsequent plan year. ... Plan Terms May Condition Carryover On Subsequent Plan Year Health FSA Election The plan may restrict carryover funds to only those employees who elect to contribute for the subsequent year. The plan terms may therefore provide that employees must make a minimum election of some amount (e.g., $100) to the health FSA for the subsequent plan year in order to participate and have access to the up to $500 carryover from the prior year. In this situation, employees who do not make the minimum election to participate in the health FSA for the subsequent year will forfeit any unused amount at the end of the plan year and any associated run-out period. In other words, there will not be any carryover amount available in the subsequent plan year. ... IRS Notice 2015-87: https://www.irs.gov/pub/irs-drop/n-15-87.pdf Question 24: May a health FSA condition the ability to carry over unused amounts on participation in the health FSA in the next year? Answer 24: Yes. A health FSA may limit the availability of the carryover of unused amounts (subject to the $500 limit) to individuals who have elected to participate in the health FSA in the next year, even if the ability to participate in that next year requires a minimum salary reduction election to the health FSA for that next year. Example. Facts: Employer sponsors a cafeteria plan offering a health FSA that permits up to $500 of unused health FSA amounts to be carried over to the next year in compliance with Notice 2013-71, but only if the employee participates in the health FSA during that next year. To participate in the health FSA, an employee must contribute a minimum of $60 ($5 per calendar month). As of December 31, 2016, Employee A and Employee B each have $25 remaining in their health FSA. Employee A elects to participate in the health FSA for 2017, making a $600 salary reduction election. Employee B elects not to participate in the health FSA for 2015. Employee A has $25 carried over to the health FSA for 2017, resulting in $625 available in the health FSA. Employee B forfeits the $25 as of December 31, 2016 and has no funds available in the health FSA thereafter. Conclusion: This arrangement is a permissible health FSA carryover feature under Notice 2013-71.

The technically correct approach would probably be to amend past 5500s and file for each line of H&W coverage. The reality of what happens in practice (at least from my experience) is the employer gets comfortable with some form of argument that there was an umbrella mega wrap in place encompassing all of the ERISA H&W benefits the whole time--even if not perfectly documented. Then you get a proper set of wrap docs in place asap (amended and restated) and continue to file a single plan 501 going forward. That's typically the most reasonable approach given how burdensome and wasteful it would be to perform a big DFVCP project for all lines when virtually nobody files that way anymore anyway.

I have encountered similar issues before. My position has been that the employer mandate obligations for the buyer (with respect to Z's full-time employees in this example) trigger only as of first of the month following the close. That's not clear in the rules, but nothing else seems viable/reasonable. B can't offer coverage for the full month when the employee onboards mid-month. I therefore treat the first partial month of employment with the buyer in the same manner as a new hire. In other words, you get a limited non-assessment period (2D in Line 16). As for the seller, I treat this in the same manner as where an employee terminates mid-month. So the seller (A in this example) gets to use Code 2B in Line 16 to avoid any potential ACA employer mandate penalty liability for the 1H in line 14. IRS Form 1094-C and 1095-C Instructions: https://www.irs.gov/instructions/i109495c 2B. Employee not a full-time employee. Enter code 2B if the employee is not a full-time employee for the month and did not enroll in minimum essential coverage, if offered for the month. Enter code 2B also if the employee is a full-time employee for the month and whose offer of coverage (or coverage if the employee was enrolled) ended before the last day of the month solely because the employee terminated employment during the month (so that the offer of coverage or coverage would have continued if the employee had not terminated employment during the month). ... Limited Non-Assessment Period. ... First calendar month of employment. If the employee’s first day of employment is a day other than the first day of the calendar month, then the employee’s first calendar month of employment is a Limited Non-Assessment Period.

I suggest starting with the DOL EBSA either via phone or their online message system. Their Benefit Advisors can often handle these situations easily/quickly. Usually it's just someone made a mistake. https://www.dol.gov/agencies/ebsa/about-ebsa/ask-a-question/ask-ebsa