LTD and health FSA

[alexa]

We have an employee who just got approved for LTD after 6 months. He has been working part-time (about 20 hours/week) after his STD expired 6 months ago

He has decided to continue to work part-time. Our benefits eligibility is 20 hours/week 

He currently has a health FSA. Our policy has been to terminate all benefits with exception of continuing medical and employer paid basic life at 1x pay and offering COBRA for dental & vision one someone gets approved for LTD. This is the first LTD who has returned to work 

Can we terminate his health FSA or other benefits since still actively employed and benefits eligible?

Is LTD status a "change in status" event? if so what benefits can be changed?

Our fully insured carrier has a Return to Work Incentive of up to 12 months as long as monthly earnings from job+ LTD benefit not more than 100% of predisability pay

For him to get full LTD he will need to reduce his hours to no more than 16 hours/week which makes him ineligible for benefits

To make things more interesting we are no longer going to terminate anyone on an LTD status so not sure yet how that affects the equation:)

Thanks in advance for any help

Lexy

 

 

 

 

[Brian Gilmore]

A lot of variables there, but to keep it simple: If the employee is working sufficient hours to be eligible for the health FSA, then active health FSA participation would continue.  I don't see how the LTD benefits would be relevant here.

I suppose you could have a cafeteria plan eligibility provision that stated employees otherwise eligible but receiving LTD benefits are excluded from health FSA participation, but I'm not sure why you would want to go there.

LTD benefits won't be a permitted election change event.  Any change in employment status that affects eligibility (e.g., loss of eligibility caused by reduction in hours to part-time ineligible status) will be a permitted election change event for those benefits affected.

[alexa]

Thanks Brian

I had thought the employee was going to drop down to the 16 hours/week but he has decided to do closer to 30 hours/week. He is only 30.

If he had gone down to 16 hours he would have been benefits ineligible and been able to change his health FSA to 0 deduction correct? I am reading that it is trickier to change health HSA

 

[Brian Gilmore]

If the employee loses eligibility for the medical plan from the reduction in hours, he would need to also lose eligibility for the health FSA.  That would mean the health FSA election is automatically revoked and treated in the same manner as a terminated employee (i.e., standard run-out period, COBRA option if underspent).

The footprint rule component of the health FSA excepted benefit status rules require that any employee eligible for the health FSA also be eligible for the major medical plan.  As a practical matter, a health FSA could not survive as a non-excepted benefit in the ACA era.

https://www.newfront.com/blog/aca-and-hipaa-excepted-benefits

 

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.”

...

29 CFR §2590.732(c)(3):

(3)  Limited excepted benefits.

...

(v)   Health flexible spending arrangements. Benefits provided under a health flexible spending arrangement (as defined in section 106(c)(2) of the Internal Revenue Code) 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:

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.

[alexa]

Thanks Brian for your help.

We are not terminating the employee's benefits since he is working >20 hours/week and he is able to keep some LTD $ as long as combined co wages + LTD benefit < 100% of pre-disability pay

And he does not have medical with us just the Health FSA, vision and life.