2015 is lurking: are your health and welfare and cafeteria plans up-to-date?

The snow falling outside my window right now is a stark reminder that the end of 2014 is right around the corner. With 2015 approaching, employers should take a moment to ensure their health and welfare plans and cafeteria plans are up-to-date. While very few changes are mandatory, there have been several legal developments over the past year that present the opportunity to make design changes to these plans. So curl up by the fire with a hot cup of cocoa and those plan documents and review this list of potential year-end health and welfare and cafeteria plan amendments. And, if changes are required (or prudent), we would recommend working with your insurer, third-party administrator, or legal counsel to ensure that they are appropriately reflected in plan documents.

 Amendments Impacting Health and Welfare Plans and Cafeteria Plans

  • Spouse Definition (Optional): Under the Supreme Court’s recent Windsor decision and subsequent IRS guidance, for federal law purposes, the term “spouse” includes same-sex spouses who are married in a jurisdiction that recognizes same-sex marriage, even if the individual resides in a state that does not recognize such marriages. In other words, if a participant resides in Ohio (which does not recognize same-sex marriage) but married a same-sex spouse in Maryland (which does recognize same-sex marriage), that participant’s spouse would need to be recognized as a “spouse” for federal law purposes.

While neither the IRS nor the Department of Labor have issued guidance specifically requiring amendments to health and welfare plans or cafeteria plans in response to this ruling, the Windsor decision impacts health and welfare and cafeteria plans in a variety of ways, many of which may require amendments. For example, the cost of employer-provided health coverage for same-sex spouses is now excluded from federal income tax and employment tax. So, while this ruling and subsequent guidance do not require plans to offer coverage to same-sex spouses, many employers are using this ruling as an opportunity to extend health coverage to same-sex spouse. And if an employer does offer coverage to same-sex spouses, the Windsor decision would also dictate that covered same-sex spouses be considered qualified beneficiaries entitled to COBRA. Regardless of whether coverage is extended to same-sex spouses, health plan and cafeteria plan amendments may be needed to clarify coverage and eligibility of same-sex spouses and to ensure that plan language matches plan administration.

Keep in mind that this ruling impacts other arrangements as well, including health and dependent care flexible spending accounts, health reimbursement accounts, and health savings accounts. Accordingly, we suggest that all health and welfare arrangements and cafeteria plan arrangements be examined to make sure that they are operated and administered properly in light of the Windsor decision, and to determine if any amendments are appropriate.

  • Eligibility (Optional): If any eligibility changes are being made for the 2015 plan year to comply with the Affordable Care Act employer coverage mandate (e.g., if an average of 30 hours per week will be considered “full-time” for eligibility purposes), amendments to health plans and cafeteria plans may be needed to reflect this change.

Amendments Impacting Cafeteria Plan Features Only

  • $2,500 Health Flexible Spending Account Limit (Required): The Patient Protection and Affordable Care Act imposed a $2,500 limit on pretax employee contributions to health FSAs. The change took effect for plan years beginning on/after January 1, 2013, but IRS guidance allows employers to adopt retroactive amendments to impose the $2,500 limit any time before December 31, 2014. If you haven’t already amended to incorporate this change, now is the time to do so.
  • Health Flexible Spending Account Carryover Rule (Optional): The IRS has issued guidance providing that cafeteria plans may be amended to allow up to $500 of unused health FSA funds remaining at the end of a plan year to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year, provided that the plan does not also incorporate the grace period rule. The amendment must be adopted on or before the last day of the plan year from which amounts may be carried over and may be effective retroactively to the first day of that plan year. A plan may be amended to adopt the carryover provision for a plan year that begins in 2013 at any time on or before the last day of the plan year that begins in 2014.
  • Expanded Change in Status Rules (Optional): The IRS recently issued guidance adding two new change in status rules for cafeteria plans. The first rule allows an employee who has a reduction in service per week to below 30 hours to change a cafeteria plan election if he intends to enroll in another plan that provides minimum essential coverage with the new coverage effective no later than the first day of the second month following the month in which the prior coverage was revoked. The second rules allows an employee who becomes eligible to enroll in a Qualified Health Plan in the Marketplace under a Special or Open Enrollment Period to revoke his or her coverage in the employer group health plan if the employee intends to enroll in a Qualified Health Plan through a Marketplace for new coverage that is effective immediately on the day following the last day that the employer group medical plan is effective. A plan that incorporates these rules must be amended on or before the last day of the plan year in which the elections are allowed. However, a plan may be amended to allow the election changes for a plan year that begins in 2014 at any time on or before the last day of the plan year that begins in 2015.
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Attention All You Procrastinators!

The Centers for Medicare and Medicaid Services (CMS) has postponed to 11:59 pm on December 5, 2014, the deadline for health insurance issuers and self funded plans to submit their annual enrollment count for the transitional reinsurance program. The deadline was otherwise November 15, 2014. The payment deadlines of January 15, 2015 and November 15, 2015 have not been extended. (more…)

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Summary Plan Description Format Voids Benefit Limitations – Court Applies “Reasonable Participant” Standard Of Review

The “Limitation of Action” provision, buried deep in Section 9, is not in “close conjunction” to benefits provisions, Sections 1 and 2. Nor is there any reference, adjacent to the benefits description, to the page number on which the “Limitation of Action” provision appears.  . . .

If we were to hold that the placement of the limitation provision in Section 9 satisfies [the] “reasonable plan participant” standard under § 2520.102-2(b), we would, in effect, require a plan beneficiary to read every provision of an SPD in order to ensure that he or she did not miss a limitation provision.

Such a requirement is what the regulation is specifically designed to avoid.

Spinedex Physical Therapy USA Inc. v. United Healthcare of Ariz., Inc., 2014 U.S. App. LEXIS 21132 (9th Cir. Ariz. Nov. 5, 2014) (emphasis added).

(more…)

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