Clients
A Response to COVID-19 and the Benefits We Administer on Your Behalf
As we move through these unprecedented times with COVID-19 we want to keep you—our valued clients and partners—as up to date as possible. As a country we are now coming to terms with the fact that many employers are confronted with placing some of their employees on furlough or terminating employment altogether. Below is information on how that impacts ThrivePass products and services.
COBRA
Layoffs vs. Furloughs and Leaves of Absence
Different rules apply for layoff and leave of absence. Please check your own internal policies to ensure that you handle them appropriately, and speak with your benefits broker and/or benefits counsel on this topic.
Layoffs
Layoffs are generally straightforward in that they are typically handled like other employment termination events. There is a COBRA Qualifying Event for the health benefits (medical, dental, vision, health FSA, etc.)—and for life insurance benefits in the State of Minnesota—for those covered under any of those benefits. Employers can choose, but are certainly not required, to subsidize COBRA for terminated employees. Other employers may subsidize their employees' enrollment in the public exchange.
Employers must also consider whether they will require employees who are rehired after 13 weeks of separation to complete a new waiting period or whether they will waive that period and make employees immediately eligible upon rehire. Employers should consult their plan documents, carriers (fully-insured), stop-loss providers (self-insured) and benefits counsel to determine the appropriate approach to waiting periods for rehires.
Furloughs / Leaves of Absence
Leaves can be more complicated, in that the leave does not necessarily constitute a COBRA Qualifying Event. FMLA governs many leaves and presents a totally different set of rules and requirements, and the
Families First Coronavirus Response Act has instituted additional requirements. Each employer's specific leave policy determines whether the leave results in immediate termination of coverage or if that potential exists at a later date. If the leave does lead to a COBRA Qualifying Event, similar to a layoff, employers will have the option to also subsidize all or a portion of the COBRA premiums or to subsidize the employee's enrollment in the public exchange.
COBRA Premium Subsidy?
Many employers are wondering whether there might be a federal subsidy, similar to that implemented with the American Recovery and Reinvestment Act of 2009 (ARRA). At this point, we have not heard that a subsidy is being considered. However, things are changing day by day, and we will keep you informed should there be any new legislation.
Flexible Spending Accounts
Dependent Care FSAs
Many employers are mandating that their employees work from home on a temporary basis, and many daycare facilities are being forced to close temporarily. These events will impact the need for daycare. The Section 125 "cost and coverage" election change rules are very flexible for employees who may need to change their dependent care FSA elections because of changes in work or daycare status.
Let's look at a couple real-life scenarios:
- An employee is required to work from home. In this case, child-care most likely would not be required because the employee or spouse is providing childcare. This would permit an employee to decrease his or her election amount or cease salary reductions altogether. When the employee returns to the office full-time and child-care is necessary, the employee would be able to increase his or her election and begin salary reductions again.
- An employee is considered essential and must still go to work but is forced to switch to a new daycare facility or finds "emergency" care that costs more than the original provider. In this case, the employee could increase his or her election amount to accommodate the cost increase.
Please note, however, that absent any sort of legislative relief, employees cannot be refunded amounts that have already been contributed to their Dependent Care account.
Health Care FSA
The current regulations specifically exclude the Health Care FSA from the "cost and coverage" election change rules. In order to change a Health FSA election, a participant must have a specific status change (marriage or divorce, birth of a child, etc.), and the IRS has not provided relief from those requirements. Consequently, changes made to the health plan in response to the requirements of the
Families First Coronavirus Response Act would not likely permit a health FSA election change. In some cases, a change in employment status may trigger an election change, if the change in employment affects eligibility for one of the health plans.
Extending Deadlines for FSAs
Employers may consider extending the claim run-out period for both HealthCare and Dependent Care accounts to allow employees additional time to obtain documentation and file their claims. The claim run-out period is not federally mandated and is up to each individual Plan Sponsor. Note that if you do extend the claims run-out period, you should make sure that your plan document is updated accordingly.
Employers are also asking whether there will be a retroactive extension of the March 15 grace period or increase in the $500 health FSA carryover. We have heard nothing to-date, but we will keep you apprised should there be any legislative changes.
Leaves of Absence and FSA Elections
If furloughed employees lose their eligibility for flexible spending accounts at the start of an unpaid leave, it may be necessary to offer COBRA to health FSA participants. Employees with available account balances that exceed the COBRA premium for the remainder of the plan year would be able to elect COBRA coverage in order to utilize those dollars for expenses incurred after the date they have lost eligibility for health FSA coverage. COBRA is not typically offered to those employees who have spent more of their election than they have had deducted from payroll as of the date of leave, however, each employer's plan document would verify the specific requirements.
Employers are generally prohibited from automatically reducing employees' annual elections to reflect reduced contributions during a leave period—the employees generally control that decision. If the employer's plan is set up to maintain eligibility during a furlough or leave period and the employee wishes to maintain coverage, employers generally have three options to collect the required "premium" for FSA's and other cafeteria plan contributions. (1) The employer may allow an employee to "pre-pay" benefits for the intended leave period. This, of course, assumes that the employee knows about the leave ahead of time. (2) The employer can ask the employee to "pay-as-you-go" and deduct premiums from the employee's paycheck if paid leave or have the employee remit payment on an agreed-upon schedule. (3) The employer can offer a "catch-up" option, though which no premiums are collected during the leave, and when the employee returns from leave, the employer collects amounts due for the full leave period. If the employee fails to make payment, the employer may terminate coverage.
Health Savings Accounts
As long as employees remain covered by a qualified High Deductible Health Plan during the leave, they are still eligible to contribute to their HSA. For periods of unpaid leave, when no pre-tax salary reductions are possible, employees may suspend HSA contributions and resume when they return to active employment. Or they can make after-tax contributions to their HSA directly and deduct those contributions on their tax returns for that calendar year. Note that employees may generally contribute to their HSA's until the tax filing deadline for the calendar year (April 15 of the year following the year for which the contribution is being made, but the IRS just announced that the deadline for making contributions to 2019 HSA's has been extended to July 15, 2020).
Since there are no restrictions on HSA elections under the cafeteria plan status change rules, employees may increase their election on return to active employment for the remainder of the calendar year.
Many employers and participants have asked whether the extension of benefits for COVID-19 testing and treatment affect HSA Eligibility. The answer is no. The IRS has indicated that employees who are otherwise eligible will not be disqualified from HSA eligibility solely because a plan provides benefits for COVID-19 testing and treatment before the deductible is satisfied (see Notice 2020-15). Note that neither the FFCRA nor the IRS Notice provides for telehealth services unrelated to COVID-19 testing or treatment.
Commuter Benefits
Employees will have little or no parking or transit expenses while they are working from home, but they do not necessarily lose pre-tax salary reductions for parking or transit that were made before the mandate to work from home. The Section 132 regulations allow funds to carry over each month as long as they are spent within 180 days and before an employee terminates employment. Employees will, however, be able to reduce their monthly election to $0 while working from home if they choose to do so. Most employer's plans are set up to allow month-to-month elections (some employers only allow quarterly or semi-annual elections changes, so check your specific plan to be sure). This should enable most employees to use any unused contributions when they return without accruing a surplus.
Wellness Savings / Lifestyle Accounts
Although these types of accounts are not directly affected from a legislative standpoint, many employers are looking at adding these accounts to offer their employees assistance during these difficult times. Categories include things like mindfulness and meditation apps, therapy services and apps, telemedicine. Employers that already offer these accounts are expanding their existing set-ups to include categories such as food delivery and expenses that employees may incur due to the work-from-home / shelter-in-place mandates related to COVID-19 such as office equipment, internet stipends, childrens' online learning tools.
Our Continuing Goal
We will do our best to keep you as up to date as possible on legislative updates and industry best-practices relating to the COVID-19 pandemic. We will work with you to offer your employees and plan participants guidance as they adapt to these new times. We will continue to investigate new and innovative ideas to enhance your employees' overall wellbeing. As always, we are committed to providing exceptional service, and we welcome input from you—our valued partners—as your needs change.
Important Update on §125 Cafeteria Plan Extension and Updates Related to COVID-19 Legislation
As we notified you last week, the IRS had just released
Notice 2020-29 and
Notice 2020-33. We are sending this message to provide additional clarification. Following are the most significant changes made available by the two notices:
- With respect to employer-sponsored health coverage, an employer may amend its plan to allow participants to make the following changes (on a prospective basis only):
- Make a new election for coverage if they initially declined coverage.
- Revoke an existing election and make a new election to enroll in different health coverage (for example, terminate coverage, change from individual to family coverage, or change from one plan to another).
- Revoke coverage, if they confirm in writing that they either already have other health coverage or will enroll in other coverage.
- With respect to Flexible Spending Accounts, an employer may amend its plan to make the following changes:
- Allow participants to revoke an election, make a new election, or decrease or increase an existing election fora healthcare or dependent care FSA, on a prospective basis.
- Increase the healthcare FSA carryover amount from $500 to $550, effective for plan years beginning in 2020.
- Allow unused funds in healthcare and/or dependent care FSA’s ending in 2020 (i.e. plan years beginning in 2019 and ending in 2020) or having a Grace Period that ends in 2020 (i.e. for a 2019 plan year), to reimburse expenses incurred through December 31, 2020. The Notice provides two examples to illustrate this extension. Keep in mind that extending the Grace Period may affect participants’ eligibility to contribute to an HSA.
Note that the above changes are voluntary, and it is up to each employer to determine whether or not to modify its plan design. Employers who do choose to implement any or all of the changes must consider how and when to amend their plan documents and update their communication materials. If you utilize ThrivePass plan documents, we will prepare the necessary amendments. And we are happy to assist with sample language to communicate the changes to plan participants.
The regulations give a wide timeframe within which to formally amend the plan, indicating that an amendment for the 2020 plan year must be adopted on or before December 31, 2021 and may be effective retroactively to January 1, 2020 – provided that the plan operates in accordance with one or both Notices, as applicable, and the employer informs all employees eligible to participate in plan of the applicable plan changes.
Additional Thoughts and Reminders
- The Departments of Labor and Treasury collectively issued guidance at the end of April extending claim filing and appeal deadlines.
- As of March 1, 2020, there are basically no deadlines to file claims or appeals until after the end of the Outbreak Period, which is currently undefined. At the end of the Outbreak Period, healthcare FSA participants will have whatever amount of time remained from the original claim run-out period as of March 1, 2020 to submit their claims.
- This includes health FSA and HRA expense reimbursement requests, which are generally set to end a few months after the end of the plan year, as well as appeals for denials of the reimbursement requests (remember that these extensions do not apply to dependent care FSA’s).
- (Example: Claim run-out for 2019 calendar year is March 31, 2020 and the Outbreak Period ends on August 31, 2020. Participants would have 30 additional days – through September 30, 2020 – to submit claims for reimbursement of claims incurred in 2019.)
- Note that this extension is NOT voluntary, and we are working to update our claim processing system to accommodate the claim filing extension. At this point, we are extending through the end of 2020 for applicable plans with a claim run-out period that occurs on or after March 1, 2020.
- (Example: Claim run-out for 2019 calendar year is March 31, 2020 and the Outbreak Period ends on August 31, 2020. Participants would have 30 additional days – through September 30, 2020 – to submit claims for reimbursement of claims incurred in 2019.)
- We are also querying our system to identify participants whose claims may already have been denied as having missed the end of the claim run-out period.
- The COVID-19 stimulus package permanently expanded the list of eligible items for reimbursement to include menstrual products and over-the-counter medications that for years have required a doctor’s prescription.
- The latest regulations have no bearing on an employer’s ability to offer a Grace Period and a carryover. FSA plans cannot offer a combination of both a Grace Period and the $500 (now $550) carryover.
We are committed to providing exceptional service and will do our best to keep you advised of any additional changes. As always, feel free to contact us if you have any questions.
Thank you for your partnership!
ThrivePass is not a law firm and does not provide legal advice. This is not a legal document, and all employers should check with their benefits attorney before taking any action.
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