Current Cafeteria Plan and Plan Documentation Issues June 2015

Agenda Health – FSA as an “Excepted Benefit” ACA Related Plan Document Issues Cafeteria Plan Basics Cafeteria Plan Status Changes Cafeteria Plan Administrative Issues

Health FSA as an Excepted Benefit

Health FSA as an Excepted Benefit IRS has indicated that a health FSA must maintain “excepted benefit” status Otherwise a health FSA will violate the health care reform rules by failing to provide preventive coverage  IRS Notice 2013-54 stated a health FSA that is not an excepted benefit will fail the ACA preventive services coverage requirement Exposes employer to the $100 per day per affected individual penalty for violation of the ACA market reform rules

Health FSA as Excepted Benefit For health FSA to retain its excepted benefit status it must satisfy 2 conditions: Maximum Benefit Condition. Maximum benefit payable to any participant for a year cannot exceed two times the participant's salary reduction election (or, if greater, the amount of the participant's salary reduction election plus $500) Examples of allowable designs Employer contributions that match dollar for dollar the employee payroll reductions Employer contributions that are $500 or less

Health FSA as Excepted Benefit For health FSA to retain its excepted benefit status it must satisfy 2 conditions (continued): Availability Condition. Other non-excepted group health plan coverage (e.g., major medical coverage) must be made available for the year to the class of participants by reason of their employment. NOTE – this requirement is that the individuals with a health FSA are eligible for a non-excepted health plan, not that they are enrolled in it

ACA Related Plan Document Issues

ACA Related Plan Document Issues Our goal for today’s discussion Is not to address specifics of various provisions of the ACA Is not to provide specific plan document language that will apply in every case Is not intended to be all inclusive and identify every plan document revision required… or suggested… by the ACA It is to identify the major issues plan sponsors will need to consider… and likely address… in their post-ACA plan documentation and related employee notifications

ACA Related Plan Document Issues Employee Eligibility Dependent Eligibility Mandated Plan Design Requirements Claim Appeal and Review Integrated Benefits Wellness Programs

ACA Related Plan Document Issues Effective Date of Coverage Pre-Existing Limitations MLR Rebates Retained by Plan Sponsor General “ACA Compliance” Statement Definition of Spouse

ACA Related Plan Document Issues Considerations Related to Employee Eligibility Definition of full-time employee for eligibility purposes Treatment of variable-hour, part-time, seasonal, temporary, etc. employees Is measurement/stability safe harbor to be employed? Should standard measurement/stability periods be stated in plan? Might entire issue be better addressed as an employment policy? Eligibility provisions that discriminate in favor of highly compensated individuals

ACA Related Plan Document Issues Considerations Related to Dependent Eligibility Change in definition of dependent children How far is the plan sponsor willing to go in extending eligibility to participate in the plan? Will coverage be extended to spouses?

ACA Related Plan Document Issues Mandated Plan Design Requirements Prohibition on annual and lifetime limits on essential health benefits Elimination of pre-existing condition limitation/exclusion Prohibition on rescissions Coverage of adult children to age 26 Limitation on waiting periods

ACA Related Plan Document Issues Mandated Plan Design Requirements Coverage of preventive health care without cost sharing Internal claims appeal process and external review Guaranteed availability and renewability Insurance market reforms Requirement to provide essential health benefits

ACA Related Plan Document Issues Claim Appeal and Review Process Existing DOL claim denial/appeal requirements still apply ACA expands upon these requirements by: Expanding the scope of adverse benefit determinations Requiring an effective internal claim appeal process Requiring an external review by an Independent Review Organization (IRO) consistent with state requirements If state does not have an external review process that meets required standards, a federally established review process must be used Internal claim appeal process and applicable state/federal external review process must be addressed in plan document

ACA Related Plan Document Issues Integrated Benefits Some ACA mandates can be satisfied by a combination of “integrated” benefits e.g., determination of the applicable PCORI Fee e.g., determination of a plan’s minimum value Although no definition is provided in the ACA, integrated benefits are generally those that: Have the same plan year, Are components of the same ERISA plan, and Are inter-related as to eligibility/participation Integration can be easily established by use of a wrap-around plan document

ACA Related Plan Document Issues Wellness Programs The ACA expands the wellness program requirements originally imposed under HIPAA Where wellness benefits are incorporated into the medical plan, the plan document will need to formalize the related requirements, rewards (or penalties), alternative standards, etc. To the extent that a stand-alone wellness program provides medical benefits (rather than simply promoting good health), it could be considered a group health plan and thereby become subject to ERISA’s plan documentation requirements

ACA Related Plan Document Issues Effective Date of Coverage General rule is that the waiting period cannot exceed 90 days “Cumulative service requirements” of not more than 1,200 hours and bona fide “orientation periods” of not more than 1 month are permitted as long as they don’t work to avoid compliance with the 90- day service waiting period maximum Any such requirements need to be reflected in the plan document

ACA Related Plan Document Issues Pre-Existing Condition Limitations Pre-existing condition limitations no longer allowed Reference to pre-ex and/or Certificates of Prior Coverage must be removed MLR Rebate Retained by Plan Sponsor Absent language to the contrary MLR rebates must be treated as plan assets and distributed proportionately between employer and participants Employer can establish the right to retain MLR rebates by incorporating appropriate language in the plan document

ACA Related Plan Document Issues General “ACA Compliance” Statement One documentation approach to ACA Compliance Definition of Spouse Supreme Court decision in Windsor overturned Section 3 of the Defense of Marriage Act (DOMA) As a result, a legally married same-sex partner is now a “spouse” for all federal law purposes However, repeal of DOMA does not mandate that (self-funded) plans extend coverage to same-sex spouses Therefore, careful attention must be directed to the plan’s definition of eligible dependents… specifically, the term “spouse”

Cafeteria Plans Cafeteria plans

Cafeteria Plan Basics Fundamental Concepts Constructive Receipt Not an ERISA Plan! Rather a “Delivery Mechanism” for Traditional Benefits Written Plan Requirements & Timing Per August 2007 Proposed Regulations, if there is no plan document… there is no cafeteria plan! Creation of plan document/amendments and adoption must be prospective!

Cafeteria Plan Basics Irrevocable Election Elections must be prospective and once made (absent a recognized change in status) are irrevocable for the “period of coverage” Status Changes are Optional The Code indicates what is permitted… not what is required Plan sponsors are free to include all… or some… or none… of the status changes recognized by the Code Therefore the ultimate answer for most status change questions lies in the plan document

Cafeteria Plan Basics Irrevocable Election Elections must be prospective and once made (absent a recognized change in status) are irrevocable for the “period of coverage” Status Changes are Optional The Code indicates what is permitted… not what is required Plan sponsors are free to include all… or some… or none… of the status changes recognized by the Code Therefore the ultimate answer for most status change questions lies in the plan document

Cafeteria Plan Status Changes Changes in Status Marital Status Changes Change in Number of Dependents Employment Status Dependent Eligibility Change in Residence Adoption Cost or Coverage Changes Cost Changes / Significant & Insignificant Coverage Changes (significant improvement & curtailment) Coverage Changes under other Employer’s Plan

Cafeteria Plan Status Changes (continued) Other Laws and Court Orders HIPAA Special Enrollments COBRA Coverage HSA Contributions and Changes FMLA Medicare/Medicaid Entitlement Exchange Enrollment

Cafeteria Plan Administrative Issues Maximum Salary Reduction Contributions (ACA) For plan years on or after 12/31/2012, maximum salary reduction contribution limited to $2,500/year/employee Maximum contribution is indexed annually Plan document should reflect indexing… unless plan sponsor intends to hold limit at or under $2,500 Grace Period Rules FSAs may include a 2 ½ month “Grace Period” Unused prior year contributions can be used to reimburse expenses incurred during the Grace Period

Cafeteria Plan Administrative Issues HSA Contributions May be made directly to trustee/custodian or through the cafeteria plan If made directly, IRC § 223 Comparable Contribution rules apply If made through cafeteria plan, IRC §125 nondiscrimination rules apply If through the cafeteria plan, contributions may be changed monthly without a change in status

Cafeteria Plan Administrative Issues Grace Period vis-à-vis HSA Eligibility To establish/contribute to a HSA the individual’s only medical coverage must be a HDHP So if the prior year’s cafeteria plan includes a H-FSA grace period, a HSA may not be established until April 1 (assuming a calendar year cafeteria plan) Solutions include: Elimination of the Grace Period Automatic transition to Limited Scope and/or Post Deductible H-FSA Special Provision… If the balance in the H-FSA is zero as of the last day of the plan year, HSA eligibility is immediate

Cafeteria Plan Administrative Issues Roll-Over Rules A maximum of $500 can be “rolled-over” from one plan year to the next The roll-over amount is not cumulative Cafeteria Plan can include either a Roll-over or a Grace Period… but not both

Questions and Discussion?