Retiree Premium Reimbursement - Categorization

[EBECatty]

I'm having trouble finding a clear answer on the precise definition of an arrangement. 

Say a mid-size employer has a written policy, or a series of individual agreements, that applies to executives (say VP or above) who retire with 10 years of service at age 55 or later. Once they retire, the employer will reimburse them up to a fixed dollar amount per month for the retired executive's personal payment of individual health insurance premiums. Reimbursement will last until Medicare eligibility. Substantiation is required. No other medical benefits are provided; just a capped premium reimbursement for a fixed amount of time. 

What, exactly, is this? An HRA or something less? For purposes of ACA market reforms and related guidance, it's called an "employer payment plan," and the guidance seems to draw a distinction between an HRA and an employer payment plan. (In any event, if limited to retirees only, it's not subject to the market reforms.) The guidance makes it clear that this arrangement is a "group health plan," but it's not exactly clear to me what that would require given the exemption from the market reforms and lack of penalties. 

Does this need an ERISA plan document, SPD, 5500 if covering 100+ participants? COBRA rights? 

Any input appreciated.

[Luke Bailey]

EBECatty, I think based on the definition the IRS used in the final ICHRA rule this is an HRA.

How would it not be an ERISA plan, it provides welfare benefits to retired employees?

If an ERISA plan, how would it not need a document, SPD, and 5500?

Regular COBRA rules, which means a diminished COBRA exposure for retiree plans. When they retire they need COBRA election opportunity. If choose this instead, that is their choice and the termination of employment expires for the individual as a qualifying event, but can pop-back up, e.g. for widow/er, divorcee, etc. if coverage would terminate for that person. See Treas. reg. 4980B-3.

 

[EBECatty]

Thanks Luke. 

The ICHRA regulations are helpful (at least in determining categories). Based on those and some more research, it seems:

• This could be called an "employer payment plan" but is included in the broader group of "account-based group health plans" defined in the ICHRA regulations. HRAs fall under the same category. It may be a matter of semantics if they both end up in the same place. But after reviewing it does seem the arrangement would properly be called a "retiree-only HRA" (albeit one that covers only premiums). 
• It's not technically an "individual coverage HRA" as defined in those regulations because its goal is not to be integrated with other coverage. It's a retiree-only HRA so does not need to be integrated. The ICHRA preamble makes it clear that it is not changing the rules for retiree-only HRAs that do not require integration. Therefore, no need to follow all the rules generally applicable to ICHRAs.
• It is not subject to the nondiscrimination rules under 105(h) as it's only reimbursing premiums. Notice 2018-88 confirms the exemption. So participation can be limited to executives only. 
• It's exempt from Part 7 of ERISA because it covers fewer than 2 active employees. 
• It would be subject to ERISA's plan document and SPD rules and ERISA's fiduciary/enforcement provisions. 
• It would not need any disclosure or filing. It may be exempt as a "top hat" welfare plan under 2520.104-24, so would only need to provide plan documents to the DOL upon request. Or, in this case, it will be limited to well under 100 participants so will not require a 5500 in any event. 
• It will be subject to limited aspects of COBRA.

 

[Luke Bailey]

Makes sense to me, EBECatty.

[Scooter]

Two sources to review as yes Retiree HRA or Retirement HRA, 

Retiree-only HRAs: An ACA-friendly benefits strategy ...

www.rehmann.com › resources-insights › business-wisdom-2 › item

 

1.  

But if you have a retiree-only HRA, the caps apply to only the amounts you reimburse in those accounts. For example, suppose that, with a regular retiree health ...

 

 

201805002 - Internal Revenue Service

www.irs.gov › pub › irs-wd

 

1.  

PDF

Feb 2, 2018 - Taxpayer adopted a retiree-only Health Reimbursement Account Plan (“Retiree HRA”), effective the beginning of Year 2. The Retiree HRA ...

sources to review as yes Retire HRA

[BenefitJack]

Thanks for asking this.

What did the mid-size employer do with respect to retired executives and reimbursing health insurance premium prior to IRS Notice 2018-88?  Wouldn't it have been a self-insured health care plan subject to IRC 105(h) non-discrimination rules?  Or did they just impute as taxable compensation the premium reimbursement?

And, assuming it is an ICHRA, such a plan is a self-funded health plan.  Check IRS Notice 2018-88 that says an ICHRA that only reimburses insurance premiums and not medical expenses is not subject to IRC 105(h) - even if it includes Highly Compensated Individuals.  The notice includes Example 3 (Individual Coverage HRA is not Subject to Section 105 (h)) – Only Reimburses Premiums). "...  Facts: In 2020, Employer C offers all full-time employees, including HCIs, an individual coverage HRA that only reimburses premiums for individual health insurance coverage.  Conclusion: The individual coverage HRA would not be a covered HRA because it would only reimburse premiums for individual health insurance coverage. Therefore, it would not be subject to the nondiscrimination requirements in section 105(h) and the regulations thereunder. ..."

However, while different classes are permitted in an ICHRA, not sure where it says an ICHRA can discriminate in favor of highly compensated individuals if the benefit is limited to the reimbursement of insurance.   

See Treasury Regulation 1.105-11(c)(3)(iii) that discrimination rules would apply "...  to a retired employee who was a highly compensated individual unless the type, and the dollar limitations, of benefits provided retired employees who were highly compensated individuals are the same for all other retired participants."

Am I missing something?  Is there other guidance out there?  

 

[EBECatty]

BenefitJack, part of what makes this topic confusing (to lesser minds like mine, at least) is that so much of the guidance is in the context of other types of arrangements, so it's like trying to figure out what it's not before you can figure out what it is. 

Notice 2018-88 didn't create a new rule for exempting premium reimbursements only from 105(h). See 1.105-11(b)(2) ("However, a plan which reimburses employees for premiums paid under an insured plan is not subject to this section."). If you look at Notice 2018-88, footnote 47 and its related text reference 1.105-11(b)(2). So, even prior to Notice 2018-88, I don't think there was any problem reimbursing only retired HCEs for health insurance premiums on individual coverage. This would be different if the employer continued to pay or reimburse only retired HCEs' (and not non-HCEs') premiums for post-retirement coverage under the employer's self-insured group health plan, which may require imputing taxable income, but that same concern would not apply under 105(h) if the employer was reimbursing retired HCE premiums under an insured plan. 

Under the ICHRA final rules, I agree these "employer payment plans" (if you Ctrl+F it will take you to a few mentions) are "account-based group health plans" under those rules. However, the preamble discussing the impact on retiree-only HRAs says the following:

"The Departments received a number of comments on retiree-only HRAs in response to the proposed rules. Although the final rules do not modify the rules for retiree-only HRAs, the Departments note that the market requirements do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year.[95] Therefore, a retiree-only HRA need not satisfy the requirements of any integration test, including the same terms requirement."

So, even though a retiree-only HRA reimbursing only premiums for insured plans is an "account-based group health plan," there's no need to comply with the same terms requirement of the ICHRA rules or the ACA market reforms requiring integration. The final rule also refers to ICHRAs as HRAs intended to meet the integration rules; retiree-only HRAs do not need to meet these rules.