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The Advantages for Health Saving Accounts (HSAs): Employees find balance between health and wealth
The Advantages fo Health Saving Accounts (HSAs): Employees find balance between health and wealth
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The Employee Benefits Security Administration (EBSA) within the U.S. Department of Labor (DOL), the Treasury Department, and the Internal Revenue Service (IRS) issued four notices or other guidance intended to provide flexibility during the COVID-19 crisis to both plan sponsors and plan participants and beneficiaries:
Disaster Relief Notice 2020-01 issued by EBSA on April 29, 2020
Notification of Relief and Extension of Timeframes (NRET) jointly issued by EBSA and IRS on April 29, and effective May 4, 2020 (NRET)
Notice 2020-29 issued by IRS on May 12, 2020
Notice 2020-33 also issued by IRS on May 12, 2020.
To learn more about the guidance, listen to replays of Alight’s webinars where our experts provided a deeper dive into this important issue. Replays are available here. Frequently asked questions on the guidance is available here.
The guidance issued by EBSA and the IRS on April 29, 2020 generally permits plans to take additional time to provide otherwise required notices and disclosures under certain circumstances, and more broadly affords participants and beneficiaries additional time to take actions to elect and maintain coverage and submit claims/appeals for benefits to which they may be entitled.
The guidance issued by the IRS on May 12 provides employers with the flexibility to allow participants to make midyear election changes without an otherwise required qualified status change (QSC) and to add more flexibility to certain healthcare and dependent care flexible spending accounts (FSAs). The notices also provide some “housekeeping” from prior guidance and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) related to COVID-19 testing and treatment and telehealth for high deductible health plans (HDHPs).
Many of the provisions require plan amendments to adopt, but employers are permitted to enact the changes and then put the amendments in place by specific future deadlines. Plan sponsors are also required to notify participants and beneficiaries of any changes so that they can use the additional flexibility or benefits as they need them during the crisis. It’s expected that employers will need to confer with their legal/tax counsel and make plan and administrative changes to the otherwise applicable deadlines and practices in order to ensure continued compliance.
Much of the relief is based on the Declaration of a National Emergency signed by President Trump on March 13, 2020, establishing the start of the emergency period as March 1, 2020 (ending date is yet to be determined). Using the national emergency start date, the agencies created an important time period called the “Outbreak Period” which is used to anchor many parts of the guidance. The Outbreak Period is defined as March 1, 2020 until 60 days past the end of the declared national emergency period.
Certain otherwise applicable deadlines (described below) are suspended until after the Outbreak Period. If a period with a deadline starts during the Outbreak Period, it is entirely suspended until after the Outbreak Period.
If a period with a deadline started before, but would end during the Outbreak Period, the portion within the Outbreak Period is suspended and resumes after the Outbreak Period.
The guidance allows plans additional time, if needed, to furnish benefit statements, annual funding notices, and other notices and disclosures required by the Employee Retirement Income Security Act (ERISA). Although the additional time is available, we generally expect most large employers to be able to continue to meet the otherwise applicable deadlines and to consider any extensions in situations where they truly need the additional time.
This flexibility enables plans that fail to provide required notices, disclosures, or documents that otherwise must be furnished during the Outbreak Period to provide them as soon as administratively practicable as long as the plan/fiduciaries are acting in good faith to provide the materials. The notice describes “good faith” as including the use of electronic alternative means of communicating with plan participants and beneficiaries who the plan reasonably believes have effective access to electronic means of communication, including email, text messages, and continuous access websites.
The notice also provides or reiterates certain other conditional relief for:
COVID-19 related retirement plan loan and distribution documentation, verifications, and amendments;
Timing of forwarding participant retirement contributions and loan repayments to the plan;
Providing retirement plan “blackout notices;”
Form 5500 and Form M-1 (MEWA) filing deadlines; and
Fiduciaries, plans, and service providers that, in the face of disruption to a place of business, act reasonably and attempt to mitigate benefit losses or undue delay to otherwise applicable timeframes.
The guidance and changes described in this notice are generally required for all private sector employer plans, and encouraged for non-federal governmental plans (i.e., public sector government employers). The relief effectively suspends certain deadlines (described below) that would have otherwise elapsed any time during the Outbreak Period for individuals to take the following actions in regard to their plans:
Request a HIPAA special enrollment opportunity for a loss of coverage, changed eligibility status for ACA marketplace premium assistance, or changes to spouse or dependent status in accordance with the HIPAA special enrollment rules.
Elect COBRA continuation coverage.
Pay for COBRA continuation coverage; note that although the coverage cannot be cancelled for non-payment during the Outbreak Period, the plan will ultimately only be required to pay for claims incurred during months for which COBRA premiums are actually received on or before the extended due date.
Notify the plan of COBRA qualifying or extending events, e.g., a dependent aging out or a qualifying disability determination.
For welfare plans (including health and disability plans) and retirement plans (including defined contribution and defined benefit plans):
submit a claim for benefits under a plan’s claim procedures
appeal an adverse benefit determination (e.g., full or partial denial) of a claim by the plan
Submit and/or perfect (i.e., finalize/provide full documentation for) a request for external review of a benefit denial under a group health plan.
Additionally, for employer group health plans, the deadlines for the plans to provide COBRA election notices to qualified beneficiaries is also suspended for the Outbreak Period. However, plans may still wish to send the COBRA notices to the extent that they are able to stay current in order to help avoid a backlog and possibly missing deadlines once they resume.
Although the guidance doesn’t explicitly state that employers must provide notice of these extensions to the participants, we anticipate that certain communications may need to be updated or supplemented in order to make sure that employees are aware of the longer applicable time periods.
IRS guidance providing additional flexibility for employer cafeteria plans, healthcare and dependent care flexible spending accounts, and individual coverage health reimbursement accounts
This notice provides two broad areas of new flexibility for plans:
Allows participants to prospectively change certain pre-tax elections (payroll deductions) mid-year during 2020; and
For certain plans, allows employees to use any leftover 2019 healthcare and dependent care flexible spending accounts (dependent care FSA) amounts for applicable expenses incurred through December 31, 2020.
This notice also does some “housekeeping” from prior guidance and the CARES Act related to COVID-19 testing and treatment and telehealth for High Deductible Health Plans (HDHPs). Plans adopting these changes need to complete plan amendments by December 31, 2021.
Employers are permitted to amend a section 125 cafeteria plan to allow participants to prospectively change their 2020 elections for health coverage, dependent care FSAs, and/or healthcare FSAs even if they don’t experience a qualified status change, which is normally required. The employer can apply its own limits and conditions to these otherwise very broad allowances, but may allow changes up to and including:
Health plan coverage:
newly electing coverage mid-year (even if previously declined);
changing to another coverage option (increasing or decreasing the coverage or cost);
revoking a coverage election (with a written attestation of enrollment or immediate intent to enroll in other coverage not sponsored by the employer).
Health and Dependent Care FSAs:
newly electing FSA coverage mid-year;
increasing or decreasing the amount to be contributed to the FSAs. Note, that for the health care FSA decreases, employers should be mindful of any claims amounts already paid-out under the “universal coverage rule,” which made the entire higher FSA amount available before the contributions were received from the payroll deductions.
Employers should bear-in-mind “adverse selection” risks when considering allowing some or all of these changes so that they may avoid people changing their elections throughout the year to suit their evolving needs and avoiding paying premiums when they aren’t using the coverage. Employers with insured plans will want to discuss any potential changes with the applicable carrier(s) prior to adopting them in order to ensure that the carrier will accept the enrollment change given the insurance policy terms.
Generally, healthcare and dependent care FSA amounts are subject to a “use-it-or-lose-it rule” that may result in forfeiture of any unused FSA amounts to the employer at the end of the applicable plan year. There are two limited exceptions that plans can adopt:
For healthcare FSAs, these two options are mutually exclusive meaning that if an employer’s healthcare FSA uses one, it can’t use the other.
However, for calendar year 2020, regardless of whether the plan usually uses a grace period or the carryover, if the 2019 grace period ends or the 2019 plan year ends in 2020 and there is money leftover that would normally be forfeited to the employer, the employer can allow the participant to continue to use that money under the FSA to pay for claims incurred through 2020. This is in addition to any amount the participant has elected or newly elects for a 2020 plan year FSA, as applicable.
While the suspension of the “lose-it” part of the rule, may be welcomed by some participants, employers should be aware that it may cause participants who have transitioned in 2020 from the 2019 general purpose healthcare FSA to a Health Savings Account (HSA) to no longer be able to make contributions to their HSA. This is because HSA contributions are prohibited in any month during which there is other coverage (including a general purpose FSA) available to pay medical claims before the required high deductible health plan (HDHP) deductible is met (with certain exceptions for preventative care and under COVID-19 relief). Employers should be careful to ensure any extension to use the leftover FSA amount is done with this in mind and potentially structured using a limited purpose FSA feature to avoid this negative consequence.
Because HDHPs are limited in what can be paid for by the plan before a covered person meets the required minimum deductible without disqualifying the person from contributing to an HSA, IRS Notice 2020-15 and the CARES Act previously specified that testing and treatment for COVID-19 and telehealth would not disqualify the covered person from making HSA contributions if the plan provided them prior to the deductible being met. This notice clarifies that this relief will apply for testing, treatment, and telehealth received anytime on or after January 1, 2020 (which is before Notice 2020-15 or the CARES Act was in effect). This means that a covered person whose plan pays for one or more of these items incurred anytime in 2020 won’t be disqualified from making an HSA contribution in 2020.
Indexing of the healthcare FSA carryover and ICHRA guidance
This notice allows healthcare FSA plans that use the $500 annual “carryover” feature to start indexing the $500 for the 2020 plan year. This means that for plan years beginning in 2021, plans are able to let participants carryover up to $550 from their 2020 elections (20% of the 2020 healthcare FSA limit of $2,750). It further specifies that each year after 2020, the carryover amount can be set at up to 20% of the applicable healthcare FSA limit. This will allow the carryover amount to keep-pace with the healthcare FSA maximum amount each year. Plans adopting this change need to do a plan amendment by the last day of the plan year for which the change is effective. For example, to allow plan participants to carryover up to $550 into 2021, calendar year plan amendments must be completed by December 31, 2020.
This notice also provides that employers using an ICHRA to reimburse employee-paid premiums for qualified comprehensive individual medical coverage may consider the premium paid as qualifying expenses for reimbursement as of one of three dates:
The first day of each month of coverage (pro rata for that month);
The first day of the period of coverage; or
The date the premium is paid (even if it’s before the ICHRA plan year).
This give plans more flexibility in reimbursing premiums and in particular will allow a person who had to pay some or all of the individual coverage premium in advance of the plan year to be reimbursed by the ICHRA right away.
Read the frequently asked questions for additional information on the guidance.