Compliance Corner


FAQ: One of our employees contributed too much to their HSA in 2022 due to Medicare enrollment. And we missed a 2022 employer contribution for another employee. Can these errors be corrected now?

March 14, 2023

In both cases corrections are necessary. Generally, if the corrections are made before the 2022 income tax filing deadline, which is April 18, 2023, for most taxpayers, the process is greatly simplified. We can provide general information regarding the correction process for each situation. However, the employee and employer should consult with a tax advisor or counsel for specific advice and guidance.

Correction of Excess HSA Contribution

The 2022 contribution limit is $3,650 for self-only coverage and $7,300 for any tier of coverage other than self-only. Those aged 55 and older by the 2022 calendar year-end are permitted an additional catch-up contribution of $1,000.

Generally, an individual’s maximum annual contribution is limited by the number of months they were eligible for the HSA. Medicare coverage is impermissible for HSA eligibility purposes. So, when an employee enrolls in Medicare mid-year, their HSA annual contribution limit must be prorated. For example, an employee who was otherwise HSA-eligible but enrolled in Medicare on July 1, 2022, could not contribute more than half of the applicable maximum for the coverage tier ($1,825 for self-only coverage or $3,650 for coverage other than self-only) plus half of the $1,000 catch-up contribution ($500).

An employee’s HSA contribution that is greater than their 2022 applicable maximum is considered an “excess” contribution and should be removed from the HSA. Therefore, the employee should contact the HSA custodian promptly to request that the excess contribution and applicable earnings be removed from the HSA. These amounts would then be included in the employee’s gross income. If the employee fails to remove the excess contribution by the income tax filing deadline, an additional 6% penalty applies for each tax year the excess remains in the account.

IRS Publication 969 (2022), Health Savings Accounts and Other Tax-Favored Health Plans provides further information on excess contributions.

HSA Contribution for a Prior Year

Individuals who were HSA-eligible in 2022 have until the tax filing deadline to make or receive HSA contributions. So, 2022 HSA contributions, including employer contributions, must be made by April 18, 2023.

In the situation described, the employer should notify both the employee and HSA custodian that they will be making an HSA contribution for 2022. The employer should follow any specific instructions provided by the custodian to ensure the HSA contribution is designated for the prior year.

Both the employer and employee should review the proper reporting of the prior year HSA contribution with a tax advisor. Generally, the employer would report the prior year HSA contribution on the employee’s 2023 Form W-2. The employee would include this prior year contribution (along with any other HSA contributions reported on their 2022 Form W-2) when completing the 2022 IRS Form 8889, which is used to report HSA contributions and distributions, and subtract it (from the HSA contribution amount reported on their 2023 Form W-2) when completing the 2023 IRS Form 8889.

Once the 2022 income tax filing deadline has passed, the employer can no longer make an HSA contribution for 2022.

Accordingly, employers and employees should take action to address 2022 HSA contribution compliance failures before the tax filing deadline.

For further information on HSAs, please contact your NFP consultant or broker for a copy of our publication, Health Savings Accounts: A Guide for Employers.

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FAQ: How were retirement plan hardship distribution rules modified in the most recent final regulations?

February 28, 2023

In 2019, the IRS issued final regulations on hardship distributions, as directed under the Bipartisan Budget Act of 2018. The regulations made several changes to the requirements plan sponsors must impose on participants seeking hardship distributions. The changes were effective for hardship distributions made on or after January 1, 2020.

Uniform Standard and Participant Representation of Need
The final regulations changed the previous rules by requiring plan sponsors to apply a uniform standard for determining that a hardship distribution is necessary to meet an immediate and necessary financial need. The regulations require participants seeking a hardship distribution to take any distribution available to them under the plan or any other employer-sponsored plan. The distribution also can be no more than is necessary to meet the need. Additionally, the participant must certify in writing that they have no available cash or liquid assets to meet the financial need. If those requirements are met, a participant may take a hardship distribution from the plan.

Taking a Plan Loan No Longer Required
Previously, participants had to take any available plan loan before taking a hardship distribution. The final regulations changed that requirement. While the employer may still choose to require that any potential plan loans be taken before allowing a hardship distribution, the IRS rules no longer impose this requirement.

Six-Month Contribution Suspension Eliminated
Similarly, the final regulations changed prior rules requiring participants to suspend contribution deferrals for the six months after they received a hardship distribution. Now, participants may continue deferring plan contributions following their hardship distribution.

Expanded Accounts from Which Participants May Take a Distribution
Retirement plan participants (who are not enrolled in custodial 403(b) plans) can now access hardship distributions from all the different funding sources, including:

  • Employee contributions
  • Vested matching and other employer contributions
  • Safe harbor contributions
  • Qualified matching contributions (QMACs)
  • Qualified nonelective contributions (QNECs)
  • Earnings on eligible sources

As employers continue to administer hardship distributions, they should familiarize themselves with the final regulations and continue to work with their service providers to ensure compliance.

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FAQ: Are we subject to any of the state individual mandate reporting (aka MEC reporting) requirements?

February 14, 2023

Largely in response to Congress reducing the federal ACA individual mandate penalty to $0 (effective since 2019), several states have passed their own individual mandates. Similar to the ACA’s federal mandate reporting requirements, each state’s individual mandate, as applicable, generally requires employers to submit employee coverage reports and distribute statements to covered employees. Meaning, employers with employees located in the states with an individual mandate may have to comply with state individual mandate reporting requirements in addition to complying with federal reporting requirements.

Whether an employer is subject to state individual mandate reporting requirements generally depends on the following: 1) The state(s) in which employees reside. 2) Whether the plan is self-insured or fully insured. 3) Whether an employer is an Applicable Large Employer (ALE) who is subject to the ACA employer mandate.

As to the first factor, if an employer has employee(s) who reside in any of the states listed in the below table, the employer is subject to the state’s individual mandate reporting requirement(s). (Importantly, an employee’s residence state triggers the reporting requirement regardless of the employee’s work location.)

As to the remaining factors, generally, insurers complete and file the required forms with the respective states for fully insured plans (except the District of Columbia). However, fully insured employers should confirm with their medical insurers regarding their intent to fulfill the state reporting requirements for the employers.

Below is a high-level overview of the state individual mandate reporting filing deadlines and employers’ (ERs) relative reporting responsibility under a fully insured or self-insured plan.

State Filing Due Date Responsible Reporting Entity
Fully insured ERs Self-insured ERs
CA 3/31/23 (No penalty if filed on or before 5/31/23) No Yes
DC 4/30/23 ALE: Yes, Non-ALEs: No Yes
MA 1/31/23 No, if insurer submits forms on behalf of ER Yes
NJ 3/31/23 No, if insurer submits forms on behalf of ER Yes
RI 3/31/23 No, if insurer submits forms on behalf of ER Yes

Regarding the type of required forms, except in Massachusetts and under certain circumstances in New Jersey, all the other above states require copies of ACA Form 1095. Massachusetts requires a different form called Form MA 1099-HC.

For more information regarding the Massachusetts individual mandate reporting requirement (aka “Minimum Creditable Coverage”), see the article published in the November 8, 2022, edition of Compliance Corner. Additionally, NFP’s State Individual Mandate Reporting Requirements publication outlines each state’s reporting requirements and the links to each state’s reporting site. For copies, contact your NFP benefits consultant.

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FAQ: Does my organization need to file a Part D Disclosure with CMS?

January 31, 2023

Employers that sponsor group health plans have an obligation to report whether the prescription drug coverage offered under the plan is creditable or non-creditable. Employers are likely more familiar with the obligation to notify employees, and their family members, regarding the creditable status of their plan(s) by each October 14, as this is the Part D notice that employers typically include with open enrollment documents. A second obligation also exists where employers must report the creditable status of the plan(s) to the CMS within 60 days after the start of the plan year. The second obligation is the focus of this FAQ.

Unlike some compliance requirements, the disclosure to CMS exists for health plans regardless of employer size, plan funding type (i.e., fully insured or self-insured) or whether the plan is primary or secondary to Medicare. The disclosure requirement also applies to church plans and federal, state and local government plans. For entities that are part of a controlled group and participate in the same plan, the requirement applies to the plan sponsor, not necessarily to each participating entity.

As mentioned above, disclosures are due within 60 days after the start of the plan year. Plan sponsors may be required to file an additional disclosure in limited circumstances:

  • Within 30 days after any change in the creditable coverage status of the plan.
  • Within 30 days after the termination of the plan (regardless of whether the termination is midyear or at the end of the plan year).

The CMS Disclosure Instructions provide detailed information on the two situations above and how to properly report that information.

Currently, there are no specific penalties for failing to timely file the disclosure, and CMS does not have a correction process for failures. However, plan sponsors have a fiduciary duty under ERISA to comply with all federal laws related to their plans, so it is important employers comply with this requirement in a timely manner. Additionally, employers that fail to meet the disclosure requirements are unable to claim retiree drug plan subsidies.

NFP clients can request a copy of our publication Medicare Part D Disclosures: A Guide for Employers from your consultant for additional information on how to file the disclosures.

Disclosure to CMS Form »

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FAQ: What should an employer do if they become aware that an employee made a mistake after open enrollment ends?

January 18, 2023

Employers should consider all the facts and circumstances surrounding the mistake before taking any action to correct it.

Under section 125, the employee's election must occur prior to the coverage effective date, and the related deduction should come out of a future paycheck. Section 125 also states that employees should not have the ability to change their elections after the effective date of coverage (i.e., during the plan year) unless the employee experiences a qualifying event. Under ERISA, the employer should operate/administer the plan according to the plan terms, according to relevant laws and in the best interest of plan participants/beneficiaries. So, for all those reasons, the employer should not allow election changes for any period following the effective date of coverage. Rather, allowing election changes after the effective date could be viewed as a violation of section 125 and ERISA. Accordingly, the practice of allowing those changes post effective date should generally be discouraged.

However, employers can allow election changes AFTER open enrollment and BEFORE the coverage effective date. That's a good idea and practice to keep in place to catch errors before the coverage period starts. Also, it's permissible to correct true errors and mistakes that are discovered after the coverage period begins. But it must be a true mistake, not an employee simply changing their mind.

There is a lack of formal guidance when it comes to correcting mistakes, but the general notion from the IRS is that if there's clear evidence of some type of mistake, then the employer can take steps to place everyone back in the position they would've been absent the mistake. Whether the clear and convincing standard is satisfied depends on the nature of the mistake, including when it occurred and when it was discovered. Generally, employer clerical or data entry type mistakes would qualify. Additionally, situations in which the employee could not have benefitted from the election are clear and convincing. For example, if an employee made a dependent care deferral election at enrollment but did not have a dependent, this seems rather clear and convincing evidence of a mistake.

Essentially, it is a facts and circumstances analysis. Factors to consider include:

  • The employee's past elections and benefit usage.
  • Assessment of the employee's truthfulness.
  • Time that has elapsed since the first payroll date after the election was in force.
  • Changed circumstances experienced by the employee that might be evidence of reconsideration rather than a mistake.
  • Other extrinsic evidence of a mistake.

These factors should be applied on a consistent and nondiscriminatory basis and documented.

In the end, it would be the employer’s decision as a plan sponsor to determine whether there is clear and convincing evidence of a mistake. However, the employer should consider the situation carefully before making exceptions because the employer has an obligation to follow the terms of the plan document. Additionally, the employer has an obligation to treat all eligible employees in a like manner. Finally, making an exception may also create an undesirable precedent.

If the employer chooses to recognize the mistake, the insurer or stop loss carrier would need to be agreeable. From a payroll perspective, again, there is no formal guidance, but the general principle is that corrections should put the plan and the participant in the same position as if the mistake had not occurred. The document should be reviewed to see if there is any language that addresses the correction of mistaken elections and recoupment of amounts not withheld. The employer should also confirm that any necessary withholding from an employee’s pay does not violate any state wage withholding laws.

Due to the lack of formal IRS guidance regarding the recognition of mistakes and related corrections, the employer should consult with counsel for guidance. Generally, to avoid section 125 and ERISA compliance issues, the best practice is not allowing employees to change their elections once the coverage period has begun and once salary has been taken from their paychecks — unless there is clear evidence of a mistake.

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FAQ: Which group health plans are subject to MHPAEA?

January 04, 2023

Most group health plans and insurers that provide either mental health or substance use disorder (MH/SUD) benefits in addition to medical/surgical benefits (MED/SURG) are subject to the Mental Health Parity and Addiction Equity Act (MHPAEA). This means plans and insurers cannot impose financial requirements (e.g., deductibles, copays, coinsurance or out-of-pocket maximums), quantitative treatment limitations (e.g., number of covered days, visits or treatments) or non-quantitative treatment limitations (e.g., coverage exclusions, prior authorization requirements, medical necessity guidelines or network restrictions) on MH/SUD benefits that are more restrictive than those applied to MED/SURG benefits. In other words, MH/SUD benefits must be provided in parity with MED/SURG benefits. MHPAEA applies to both fully insured and self-insured plans. There are limited exemptions from MHPAEA, including:

  • Self-insured plans with 50 or fewer employees (including employees of related employers in a controlled group).
  • Stand-alone retiree-only medical plan that does not cover current employees.

Church plans are not exempt from MHPAEA.

The Consolidated Appropriations Act, 2023 (CAA 2023) sunset a MHPAEA opt-out for self-insured non-federal governmental group health plans. As of September 2022, 229 group health plans covering municipal employees, public school teachers, firefighters, police and public healthcare workers were opting out of MHPAEA. With the enactment of the CAA 2023, new opt-out elections are no longer permitted and existing elections expiring on or after June 30, 2023, cannot be renewed.

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FAQ: We understand that group health plans must provide participants with new price comparison tools beginning in January. Can you please explain these requirements?

December 20, 2022

Effective for plan years beginning on or after January 1, 2023, the Transparency in Coverage Final Rule (TiC) requires most group health plans and carriers to make personalized out-of-pocket cost information available to participants through an internet-based self-service tool or in paper format (upon request). The requirements do not apply to grandfathered plans, account-based plans (e.g., HRAs and FSAs) and excepted benefits (e.g., stand-alone dental and vision benefits).

The purpose of the self-service tool is to provide participants with real-time, accurate estimates of their cost-sharing liability for healthcare items and services from different providers. This information may help participants to understand how costs for covered items and services are determined by their plan and to shop and compare healthcare costs prior to receiving care.

Specifically, the internet self-service tool must provide a participant with the following information:

  • An estimate of the participant’s cost-sharing liability for a requested covered item or service.
  • Accumulated amounts to date that the participant has incurred towards the plan deductible and out-of-pocket limit.
  • The in-network (INN) rate (expressed as a dollar amount) and if applicable, the fee schedule for an INN provider’s services.
  • The out-of-network (OON) allowed amount if the request is for an OON provider’s services.
  • If the request involves a bundled payment arrangement, a list of the items and services for which the cost-sharing information is being disclosed.
  • Any prerequisites (e.g., pre-authorization, concurrent review, step therapy or first-fail protocols) applicable to an item or service.

The information must be provided in plain language and be accompanied by a notice that reflects certain disclosures. Amongst other items, the notice must indicate that the cost-sharing is only an estimate, not a guarantee of coverage, and that participants may still be balanced billed for OON services.

Participants must be able to conduct a search using the tool by entering a descriptive term (e.g., rapid flu test) or billing code, provider name and other factors relevant to determine cost-sharing (e.g., facility name, service location). Where there are multiple results for in-network services, the search must allow participants to reorder information by geographic proximity and estimated cost-sharing amount. If information is requested in paper form, it must be mailed not later than two business days after the request is received.

Importantly, the TiC provided phased-in effective dates for the internet self-service tool requirement. An initial list of 500 “shoppable” items and services must be made available through the tool for plan years beginning on or after January 1, 2023. The current list of 500 items and services is available on the CMS website: CMS 500 Items and Services List for Price Comparison Tool. The list will be updated quarterly. For plan years beginning on or after January 1, 2024, all items and services, including prescription drugs and durable medical equipment (e.g., blood testing strips for diabetics), must be made available.

Employers that sponsor group health plans should consult with their carriers or third-party administrators (TPAs) to ensure the implementation of the self-service tool requirement, including any instructional materials for participants, is on schedule. Like the other TiC requirement (the machine-readable file disclosures), it is anticipated that employers will contract with their carriers and TPAs to assist with fulfilling the requirements. Fully insured plans can contract with their carrier to assume liability for the tool disclosures. Self-insured plans can contract with TPAs or other vendors but remain responsible for satisfying the requirements. It is advisable for employers to engage counsel in the contracting process.

For further information regarding the TiC and self-service tool requirements, please review the following: Transparency in Coverage Final Rule, Fact Sheet and our November 10, 2020 article.

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FAQ: We have failed to file the required Forms 5500 for one of our benefits offerings for several years. What can we do to come into compliance?

December 06, 2022

Because the failure to file Forms 5500 would be a compliance failure, it would be best to consult with legal counsel to determine a path forward. One option that counsel could suggest would be to utilize the DOL’s Delinquent Filer Voluntary Correction Program (DFVCP) to file delinquent filings.
The DFVCP gives delinquent plan administrators an opportunity to avoid higher civil penalty assessments if they satisfy the program’s requirements and voluntarily pay a reduced penalty amount. The program is only an option if the DOL or IRS has not already contacted the employer concerning the delinquent filings.

Participating in the DFVCP is a two-part process. First, the employer would electronically file a complete Form 5500 with EFAST2 for each year for which relief is requested. The employer would then electronically submit the filing information and payment to the DFVCP using the DFVCP calculator and webpage.

The basic penalty under the program is $10 per day for delinquent filings. However, the DFVCP allows for a “per plan” cap, which is designed to encourage reporting compliance of employers who have failed to file a Form 5500 for one plan for multiple years. Under the per plan cap, the penalty for small plans is limited to $1,500, and the penalty for large plans is limited to $4,000.

For more information, see the following DOL resources:

DFVCP Penalty Calculator, Online Payment Instructions, Examples and Manual Calculations »

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FAQ: How do employers comply with the Massachusetts Minimum Creditable Coverage (MCC) and Health Insurance Responsibility Disclosure (HIRD) requirements?

November 08, 2022

Employers with employees in Massachusetts should be aware of MCC and HIRD requirements and take necessary actions even when their primary business is located outside of the state. These two requirements are outlined below.

Health Insurance Responsibility Disclosure (HIRD)

About HIRD: The HIRD form is a state annual reporting requirement in Massachusetts. The HIRD form collects employer-level information about employer-sponsored health insurance plans to assist MassHealth (the state’s Marketplace) in identifying members who can participate in and who may be eligible for premium assistance from MassHealth.

Covered employers: An employer who has (or had) six or more employees in Massachusetts any month during the past 12 months prior to the HIRD due date must comply with the HIRD form requirement.

Due date: December 15 of the reporting year annually (the form is available on the MassTaxConnect website starting November 15).

Information reported on HIRD: Covered employers must report a separate HIRD form for each FEIN. Further, employers that maintain multiple plan options must file a separate HIRD form for each plan.

The HIRD form(s) should include information on the plan(s) offered to Massachusetts employees for the employer’s upcoming plan year. If plan information for the upcoming plan year is not available, then employers must provide information only for a plan or plans offered to Massachusetts employees for the current plan year. If the employer’s current plan year ends on or before December 31 (e.g., a calendar year plan), an employer must report plan information for the upcoming plan year.

Though the employer is ultimately responsible for ensuring the information is provided in a timely and accurate manner, the form may be completed by its payroll vendor.

Filing method: The HIRD reporting is filed through the MassTaxConnect (MTC) web portal electronically only, and paper forms are not accepted.

MassTaxConnect (MTC) »
MA HIRD Form Instructions »

MA Individual Mandate — Minimum Credible Coverage (MCC) and Form MA 1099-HC

About MCC and Form MA 1099-HC: Massachusetts requires its residents (over the age of 18) to carry minimum creditable coverage (MCC) or pay a penalty. It is a similar requirement to the now repealed ACA Individual Mandate; however, a MCC determination involves a more in-depth review. Employers that provide MCC to Massachusetts residents are required to distribute Form MA 1099-HC to those residents and submit reporting electronically to the Department of Revenue (DOR) by January 31, following the end of the medical plan year. However, employers are not required to offer MCC, and there's no penalty if the coverage the employer offers does not meet the MCC standard. For fully insured plans issued in MA, the insurers generally administer these requirements on behalf of the employers.

Covered employers: All employers with at least one Massachusetts resident employee must comply with the Form MA 1099-HC requirement. For fully insured plans sitused in the state, insurers generally prepare and provide Form MA 1099-HC to the state resident employees and report to the DOR on behalf of employers. It is recommended that employers that sponsor fully insured group health plans confirm with their carriers accordingly. For self-insured plans and non-Massachusetts employers, employers are required to distribute Form MA 1099-HC with their Massachusetts resident employees and file with the DOR by January 31. Employers can obtain draft copies of Form 1099-HC on the DOR website.

If an employer is unsure if its plan is considered MCC, the employer can request the Health Connector to make the determination.

Due date: January 31, following the end of the medical plan year.

Information reported on MA Form 1099-HC: A Form 1099-HC indicates the months that the employees and any dependents had MCC in the previous year.

Filing method: Employers must submit Form MA 1099-HC information to DOR electronically in properly formatted XML through MassTaxConnect. For additional information about how to file Form MA 1099-HC information, please refer to the state site, “Submitting Information to DOR.”

The Form MA 1099-HC needs to be sent only to the primary subscriber.

Mass Healthcare – Frequently Asked Questions for Employers »
Health Connector – Employer Advisory »
Health Connector – HDHPs and MCC Requirements »

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FAQ: What COBRA compliance considerations exist when an employee’s domestic partnership ends?

October 25, 2022

When eligibility for coverage is lost due to a change in relationship status, employees and employers may assume COBRA is always offered to the individual losing coverage. However, when a domestic partnership ends that is not necessarily the case.

Federal COBRA requires most employers to offer qualified beneficiaries who lose coverage as a result of a COBRA qualifying event (e.g., termination of employment, reduction of hours, divorce) the opportunity to continue health coverage for a specified time period. Unlike spouses and dependent children, domestic partners are not considered qualified beneficiaries under COBRA and therefore do not have independent election rights. In the event a domestic partnership ends, the nonemployee domestic partner does not have continuation rights under COBRA.

However, children of the domestic partnership who were considered dependents under the plan terms may have COBRA continuation rights. (Termination of a domestic partnership that causes a domestic partner's child to lose coverage under the plan is likely a qualifying event for the child, if the child will have ceased to be a dependent under the terms of the plan).

Some states have their own continuation of coverage laws (often known as “mini-COBRA”) which may apply to domestic partnerships. Employers should review state continuation laws to determine whether mandatory coverage continuation rules apply.

Additionally, employers that offer domestic partner coverage can design their health plans to provide domestic partners with COBRA-like continuation coverage. Employers interested in adding continuation coverage need to work with their insurance carrier or TPA and stop-loss provider prior to implementing continuation of coverage. Any addition to continuation coverage rights beyond what COBRA requires should be drafted in clear terms with the assistance of legal counsel.

NFP has a whitepaper that can assist you in addressing benefits issues involving domestic partners. Please ask your consultant for a copy of “Domestic Partner Benefits: A Guide for Employers.”

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