By Greta Cowart
As employers start to think about asking their employees to return to work, in addition to all of the employment law issues, there are also employee benefit plan considerations. Employers need to consider all their benefit plans and the impact the drop in work hours caused by the coronavirus as well as the significant drop in the financial markets will cause on benefits under their plans.
Economic challenges from the Coronavirus have caused employers to reduce employees’ hours, furlough, and in some cases, lay off employees. Such changes impacting an employee’s employment relationship also change an employee’s eligibility for health benefits and other benefits. For employers using the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Internal Revenue Service (the “Service”) provided some additional relief for those who maintain employees’ health coverage – even though such employees are not currently being paid wages – by permitting those employers to claim the cost of the maintained healthcare coverage as amounts eligible for the Employee Retention Credit.
Benefit Election Changes
While the regulations addressing when an employee can make changes in benefit elections have always permitted employees to alter their benefit elections when the employment status of the employee or the employee’s spouse changes, the Service provided some additional relief for employees and employers in Notice 2020-29 by permitting mid-year changes to pre-tax benefit elections during calendar year 2020 with respect to the employee’s election
- to enroll in coverage under the employer’s health plan on a prospective basis after previously declining such coverage;
- to revoke an existing election of health plan coverage and make a new election of a different health plan coverage sponsored by the same employer on a prospective basis;
- to revoke an existing health plan coverage election on a prospective basis, provided the employee attests in writing that the employee is enrolled or immediately will enroll in other coverage;
- to revoke an election and make a new election with respect to the amount of health flexible spending account coverage for the remainder of the plan year;
- to revoke and make a new election to decrease or increase the amount of dependent day care flexible spending account or assistance on a prospective basis.
An employer may amend its cafeteria plan to permit any or all of the above election changes for 2020 on or before December 31, 2021, with such amendment effective retroactively to January 1, 2020. An employer can rely on an employee’s attestation in writing that he or she is enrolled in other coverage or will be enrolled in other coverage immediately, and thus is eligible to change his or her election under the employer’s cafeteria plan. A proposed form of attestation was included. An employer is entitled to so rely as long as the employer does not have knowledge to the contrary. An employer may limit the employee’s ability to make election changes to prevent adverse selection impacting the employer’s other plans.
Flexible Spending Account Changes
An employer can limit changes to flexible spending accounts (FSA) so that employees cannot reduce their contributions below the level necessary to fund the amounts already incurred under each type of FSA plan.
The Service also provided that employees can submit claims for unused amounts remaining in a health FSA or dependent daycare FSA that exist as of the end of the plan’s grace period or the 2020 plan year to permit those unused amounts in the FSAs to pay such respective expenses incurred through December 31, 2020. Originally, health FSAs had a use it or lose it rule and amounts set aside in the health FSA for a calendar year were only available to reimburse expenses incurred in that same plan year. The grace period, if elected in the health FSA design, permitted an individual who did not use his or her full health FSA with expenses incurred during the plan year to also use expenses incurred within the first 2 and ½ months of the next following year to utilize funds set aside in the health FSA for the prior plan year. For FSAs designed with a grace period which permits expenses incurred after the end of the plan year to be reimbursed for a limited period in the next plan year against the health FSA amount for the prior plan year, the guidance permits any amounts not used in the health FSA at the end of the plan year which are available to be carried forward to be used in the 2020 grace period( which ends on March 15, 2020 for 2019 calendar year health FSA plans) to be used for expenses incurred through December 31, 2020. Plans that used the grace period rule previously could not also use the carryover rule which was established in the Service’s Notice 2013-71.
For employers that permit employees to carryover a limited amount of unused health FSA funds the amount permitted to be carried over is the lesser of (1) the unused amount of health FSA coverages of the end of the health FSA plan year, or (2) $500. to a subsequent plan year, the carryover dollar limit is increased to $550 for 2020. The increase to $550 for the carryover is effective for an unused amount form a plan year starting in 2020 to be carried over to the plan year beginning in 2021.(Amounts carried over to subsequent plan years do not count against the annual limit on health FSAs of $2,750 for 2020.) Employees are still limited to only electing to contribute up to the indexed dollar limit on employee contributions to a health FSA of $2,750 for 2020. Employers must adopt the amendment to incorporate the indexing of the carryover limit at any time before the last day of the plan year beginning in 2021.
Notice 2020-33 also reminds that there are deadlines on employee elections that were addressed in Notice 2020-29. As a general rule, employees are required to elect benefits for the next plan year prior to the beginning of the plan year. This means an employee could not change his or her benefit elections for health FSA or dependent day care FSA for a calendar year plan after January 1, 2020, even though the cafeteria plan may be amended now to change the carryover amount for the health FSA for the 2020 plan year carrying over amounts to 2021. Notice 2020-29 (discussed above) permits employees to make certain election changes for 2020 during 2020 due to the impact of the Coronavirus pandemic in 2020, within the parameters of such Notice. Neither Notice permits a cafeteria plan or individual coverage health reimbursement arrangement to reimburse expenses incurred before the beginning of the plan year.
Relief for Employees Offered Telehealth with a High Deductible Health Plan (HDHP) to Permit the Employees to Be Eligible to Make Tax Deductible Health Savings Account (HSA) Contributions for All of 2020
The Service also extended the relief provided in the CARES Act for permitting the use of telehealth services with an HSA-eligible HDHP to allow such services to be covered for all of calendar year 2020. Prior to the CARES Act’s enactment, telehealth coverage was not permitted, and when added to an HDHP, coverage would have disqualified the individual from making a tax-deductible contribution to an HSA. The CARES Act made the exception to permit telehealth coverage with an HDHP, but only for periods after March 27, 2020. This guidance expands this relief for individuals so that they can make a tax-deductible HSA contribution for all of 2020, if otherwise eligible.
The Service and the Employee Benefit Security Administration (EBSA) within the U.S. Department of Labor collaborated to provide relief to individuals by requiring plans to disregard a period of time designated as the coronavirus “Outbreak Period.” The Outbreak Period that must be disregarded in imposing the specified limits starts on March 1, 2020, and ends 60 days after the end of the National Emergency or the date announced by the agencies in a future notice. No declaration has been made that the National Emergency has ended, nor has any agency provided a different date to end the Outbreak Period as of the time this is being written.
Deadlines Impacted by Outbreak Period Tolling
Many plans specify the maximum time limits for certain tasks, such as paying COBRA premiums or making COBRA elections. Because these types of statutes provide a minimum period and the extension for the Outbreak Period is generally for the minimum period. Employers should review their plan provisions – particularly the claim and appeal rules – because the prior maximum limits on filing certain actions such as appeals of denials may need to be altered due to the tolling of these periods during the Outbreak Period. The requirement to disregard the Outbreak Period (similar to a tolling period for incapacity) in determining whether the deadlines have been exhausted may require plan amendments for retirement as well as health, disability and other benefits using the ERISA claim procedures.
The final rule extending the deadlines did not address when plan amendments need to be made to consider the Outbreak Period. This will likely impact most summary plan descriptions that explain the process employees must follow for filing a claim or appeal and that set forth COBRA deadlines. Claim denial letters, which communicate the next steps a participant must take to appeal a denial, COBRA rights notices, and COBRA election forms should also be affected. While EBSA issued updated COBRA notices on May 1, 2020, such model notices do not address the deadline changes in the final rule.
Employers should verify that they are editing their communications and internal claim and appeal, COBRA, and other plan administrative processes to consider the Outbreak Period extensions.
Other Health Plan Coverage Clarifications
EBSA and the IRS clarified required COVID related testing under the CARES Act. This clarification included a statement that retiree-only plans and benefits that are not health coverage, such as on-site clinics or “excepted benefits” (as such concept was added by HIPAA) and limited scope benefits (e.g., dental or vision) are not subject to the mandated coverage of COVID-19 testing under the CARES Act. This clarification did not exempt any of the plans sold as Minimum Essential Coverage or MEC plans from complying with the CARES Act COVID-19 testing mandates.
Greta E. Cowart has counseled employers for more than 30 years on best practices in human resources and employee relations issues related to benefits and executive compensation. In her practice, Greta routinely develops strategies for effective administration of claims and other disputes, including defense of grievances, and in litigation considering implications under ERISA, while also considering applicable labor and employment laws. Greta also provides fiduciary training and review of fiduciary operations to improve the documentation of the fiduciary process. Greta is a former chair of the Employee Benefits Committee of the ABA Section of Taxation, and has served on the U.S. Department of Health and Human Services CHIP Working Group.
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