2018 Year-End Update

It is that time of year…the holidays. BUT it is also the end of the tax year and the end of the plan year for plans operating on the calendar year. It is time to evaluate whether you need to take action to ensure your health and welfare plans remain compliant with applicable law.

Plan Document Updates

The start of a new plan year often brings changes to health and welfare plans. As a result, employers should ensure that documents are updated (or an amendment is adopted and a Summary of Material Modification issued) to reflect any changes being made for the new plan year. Employers should also take the opportunity to review plan documentation (e.g., written plan documents, Summary Plan Descriptions (SPDs), wrap plan documents, and wrapper documents) to ensure all previous changes to the plan have been incorporated into the documentation. Such actions are necessary to ensure compliance with both the Internal Revenue Code and, if applicable, ERISA.

This year, employers should specifically review their plan documentation to confirm that it has been updated to reflect the new ERISA disability claims and appeal procedures that became effective April 1, 2018. For ERISA plans that provide disability benefits (including non-disability plans under which a benefit is provided upon an employee becoming disabled), the written plan document and SPD must include a description of the procedures used under the plan for deciding claims and appeals. Those provisions need to be updated to incorporate the new rules. Such provisions may be found in insurance contracts, wrap plan documents and SPDs, wrapper plan documents and SPDs, and self-insured plan documents and SPDs.

Nondiscrimination Testing

Employers that sponsor plans operating on a calendar year plan year should be thinking about nondiscrimination testing.

Remember: No corrective action is allowed once the plan year closes. Any adjustments need to be made prior to the close of the plan year.

Various health and welfare benefit plans, including Section 125 cafeteria plans, self-insured medical and dental plans, health flexible spending accounts, dependent care assistance programs, health reimbursement arrangements (HRA), and group term life insurance plans, are subject to nondiscrimination requirements under the Internal Revenue Code. Those nondiscrimination requirements apply on a plan year basis.

As the end of the plan year nears, employers should consider whether a pre-test should be conducted prior to close of the plan year. To the extent there is a chance an employer’s plan might not pass the nondiscrimination requirements, testing the plan prior to the close of the plan year allows the employer to take corrective action. The end of the plan year also means employers should be preparing to have final testing done after the close of the plan year.

Notices

Year end is a good time to review compliance with the various federal laws that require sponsors of group health plans to notify employees or plan participants of certain information. In some cases, these laws require notices to be distributed annually, often at the start of the plan year. In other cases, notices must be distributed only when an employee is hired or enrolls in the plan for the first time or when a specific event occurs.

The following is a list of the key notice and disclosure requirements (primarily applicable to group health plans) with a brief explanation of when the notice/disclosure is required.

COBRA:

COBRA Notice of Initial Rights (General Notice) – must be provided upon enrollment in the plan.
COBRA Election Notices – must be provided at the time of a qualifying event.
COBRA Notice of Unavailability of Coverage – must be provided if COBRA continuation coverage is unavailable.
COBRA Termination Notice – must be provided when COBRA coverage terminates prior to exhaustion of the maximum COBRA period.

ERISA:

Summary Plan Description (SPD) – must be distributed to all participants when they become covered under the plan.
Summary of Material Modifications (SMM) – must be distributed when a change is made to the plan that impacts the information contained in the SPD. An amended SPD may be distributed instead.
Summary of Benefits and Coverage (SBC) – must be distributed annually during open enrollment.
Summary Annual Report (SAR) – applies to employers who must file a Form 5500; must be distributed after the Form 5500 is filed.
Notices related to claims and appeals determinations – must be provided in response to claims and appeals.
Notices regarding Qualified Medical Child Support Orders (QMCSO) – must be provided upon receipt of a medical child support order and once the plan administrator (employer) has determined whether the order is a QMCSO.
Electronic Distribution Notices – must be provided if the employer distributes documents to participants electronically.

HIPAA:

HIPAA Special Enrollment Notice – must be provided at or before the employee is initially offered the opportunity to enroll in the plan.
Notice of Privacy Practices – must be provided to covered employees at the time of enrollment in the plan. The insurance carrier is responsible for distributing the notice for fully insured plans.
Breach Notifications – must be provided when a breach occurs.
Children’s Health Insurance Program Reauthorization Act (CHIPRA) Notice (in states providing premium assistance) – must be distributed annually to all eligible employees by the first day of each plan year.

Federal Mandates (note, additional notice requirements apply to governmental plans that opt out of complying with various federal mandates.):

Medicare Part D Notice of Creditable Coverage – must be distributed as various times to Medicare eligible participants; obligation primarily met by distributing the notice to all participants annually prior to the Medicare annual enrollment period, which begins on October 15^th.
Michelle’s Law Notice – must be provided along with any notice regarding the requirement to certify student status under the plan (to the extent eligibility for dependent coverage is based on student status).
Newborns’ and Mothers’ Health Protection Act (NMHPA) Notice – SPDs of ERISA-covered plans and plan documents of governmental plans must include specific information regarding the NMHPA.
Women’s Health and Cancer Rights Act (WHCRA) Notices – must be provided to participants when they enroll in the plan and annually
Mental Health Parity & Addiction Equity Act (MHPAEA) – if the plan relies on a specific exemption included in the Act (i.e., the increased cost exemption), a notice must be provided to participants.

Patient Protection and Affordable Care Act (ACA):

Rescission Notice – must be provided prior to rescinding coverage under the plan.
Patient Protections Notice – must be provided each time the SPD (or other similar description of plan benefits) is provided to participants, if the plan requires participants to designate a primary care provider.
Grandfathered Plan Status Notice – must be provided in any plan communication that describes benefits (e.g., the SPD) if the plan claims grandfathered status under the ACA.
Notice of Exchange – must be distributed to new employees within 14 days of their start date.
Section 1557 Nondiscrimination Notice & Taglines – must be provided by an employer if its self-insured plan is subject to Section 1557 of the ACA, which generally is the case if the employer operates a health program or activity that receives federal financial assistance.

ADA:

Wellness program notice – must be provided annually by employers that offer a wellness program that is subject to the ADA (i.e., the wellness program collects medical information).

ACA Reporting

The end of the calendar year means it is time again for employers that are “applicable large employers” for purposes of Section 4980H of the Internal Revenue Code (a/k/a the employer mandate) or that sponsor self-insured health plans constituting minimum essential coverage to prepare for ACA reporting. Although the individual coverage mandate is repealed effective January 1, 2019, insurance carriers and employers that sponsor self-insured health plans constituting minimum essential coverage (MEC) continue to have an obligation to report coverage provided under the plan to covered individuals and the IRS. Furthermore, applicable large employers remain obligated to report offers of coverage to their full-time employees.

The IRS recently announced an extension of the deadline for providing statements (Forms 1095-B and 1095-C) to participants and full-time employees (respectively) from January 31^st to March 4^th. The due date for filing the relevant forms with IRS was not extended. Forms must be filed with the IRS by February 28^th if filing by mail or April 1^st if filing electronically.

Cash In Lieu Arrangements

Although there have been no recent developments regarding cash in lieu of coverage arrangements (i.e., when an employer provides an employee with the ability to waive major medical coverage and instead receive a cash payment), we continue to receive questions about these arrangements. Employers intending to provide cash in lieu in 2019 should review their arrangement to ensure it does not create any compliance problems under the Internal Revenue Code and/or the ACA.

Providing cash in lieu creates compliance issues for all employers under the constructive receipt doctrine and the cafeteria plan rules. Furthermore, providing cash in lieu can create affordability issues for applicable large employers that are subject to the ACA’s employer mandate found in Section 4980H of the Internal Revenue Code.

Constructive Receipt Issue. To avoid constructive receipt of the taxable compensation by those who enroll in the medical plan, the option for taxable cash must be part of the employer’s cafeteria plan. By definition, providing the choice of a taxable benefit (the cash payment) and a non-taxable benefit (the medical coverage) must be accomplished through a cafeteria plan in order to avoid constructive receipt of the entire amount.
Affordability Issue. An employer’s cash in lieu arrangement might create issues regarding the affordability of the employer’s coverage for purposes of Section 4980H unless the employee must provide proof that the employee and all family members (all persons for whom the employee reasonably expects to claim a personal exemption credit) have minimum essential coverage (MEC) through a source other than individual coverage (without regard to whether the individual coverage is through the marketplace or outside the marketplace) in order to receive the cash payment. Cash in lieu arrangements that do not impose such conditions are referred to as unconditional opt-out arrangements. According to guidance issued by the IRS in 2015 and 2016, the cash in lieu available under unconditional opt-out arrangements is treated as increasing employees’ required contributions for coverage under the employer’s health plan, which could cause the coverage to be unaffordable.

Transition Relief Still Available But Is Limited. In IRS Notice 2015-87, the IRS provided transition relief for certain arrangements established on or before December 16, 2015. The transition relief addresses how the amount of available cash is treated for purposes of the affordability determination. Such transition relief does not provide relief from the requirement to provide the cash in lieu through a cafeteria plan. Employers that offer cash in lieu should carefully review their arrangements to ensure compliance with the cafeteria plan requirement and to determine the impact of the arrangement on the affordability of the employer’s coverage.

New Tax Rules Regarding Employer Provided Parking

Beginning in 2018, the Tax Cuts and Jobs Act changed the tax rules that apply to qualified transportation fringe benefits provided by employers to employees, such as transit and parking benefits. In general, under the new rules, for-profit employers are unable to take a deduction for qualified transportation fringe benefits provided to employees and non-profit employees are deemed to have unrelated business taxable income (UBTI) in the amount of the qualified transportation fringe benefits provided to employees. The application of these rules to employers that sponsor transportation plans under which employees’ transit and/or parking expenses are paid or reimbursed (either by the employer or through employee salary reduction contributions) are fairly straight forward. The rules, however, also apply in situations in which an employer provides parking for employees in an employer-owned or leased parking facility.

On December 10, 2018, the IRS issued interim guidance to assist employers that provide parking to employees in employer-owned or leased parking facilities apply the new rules. That guidance is available at https://www.irs.gov/pub/irs-drop/n-18-99.pdf. In general, the guidance provides that all or portion of the expenses an employer incurs to maintain the employer-owned or leased parking facility are non-deductible (or included in UBIT) depending on the manner in which the parking facility is used (e.g., whether there are parking spots reserved for employee use, the primary usage of non-reserved spots, the amount of employee usage, etc.).

One important provision of the guidance is relevant to employers who have parking arrangements in which parking spots are reserved for employees. That provision allows such employers to reduce the amount of non-deductible expenses (or additional UBTI) by reducing or eliminating the number of spots reserved for employees on or before March 31, 2019. All employers that own or lease parking lots or facilities that are used by employees should review this interim guidance and discuss it with their tax or legal counsel.

Watch for Future Regulatory Developments in 2019

ADA and GINA Wellness Regulations. Effective January 1, 2019, a portion of the EEOC’s regulations addressing the application of the Americans With Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) to wellness programs becomes ineffective by order of a federal court. Specifically, the portion of those regulations providing that a wellness incentive up to 30% of the cost of coverage is considered voluntary under the ADA is being vacated as of January 1, 2019. The EEOC is reportedly working on new regulations, which could be released in 2019. In the meantime, employers that sponsor wellness programs that are subject to the ADA (i.e., wellness programs that request/collect health information via health risk assessments, biometric testing, etc.) and that involve rewards or incentives are somewhat in limbo given the lack applicable regulatory guidance. Such employers should consider their options with respect to the 2019 wellness program in light of this uncertainty.
HRA Regulations. In late October, the IRS proposed regulations that, if finalized, will enable employers to offer HRAs in lieu of traditional group health insurance and allow employees to obtain reimbursements for individual health insurance policies premiums through that HRA. Those proposed regulations also will enable employers sponsoring traditional group health plans to offer an HRA to employees who waive the group health plan and are not necessarily covered under another employer’s group health plan. Although employers are not able to rely on the proposed regulations yet, we are hopeful that the IRS will finalize the regulations sometime in 2019. Employers who are interested in the possibility of expanded opportunities to use HRAs should pay attention for those final regulations.

If you have any questions about the foregoing items, or need assistance bringing your plans, policies, or notices into compliance, please contact us.