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Compliance Corner


FAQ: If a participant is reimbursed more than $5,000 in a calendar year for dependent care FSA (DCAP) expenses due to an extended grace period or carryover provision, is the amount above $5,000 subject to taxation?

March 02, 2021

In short, likely yes.

Generally, a participant’s DCAP reimbursement amount in a calendar year is limited to $5,000 if the employee is married and filing a joint return or if the employee is a single parent (or $2,500 if the employee is married filing separately). Further, any account balances available at the end of the plan year are forfeited (unless the DCAP permits a grace period).

That said, the Consolidated Appropriations Act of 2021 (CAA) provides employers with relief options related to administering health FSAs and DCAPs. One such option provided by the CAA is that employers are permitted, if they choose, to allow up to the full year-end DCAP account balance to carry over into the subsequent plan year (a feature otherwise limited to health FSAs and capped at $550 as indexed). The CAA also permits an extended grace period up to 12-months (otherwise limited to 2.5 months) after the end of the plan year. Both the carryover and extended grace period provisions are applicable to plan years ending in 2020 and 2021.

The IRS released Notice 2021-15, clarifying much of the guidance provided in the CAA and confirming that unused DCAP amounts carried over from prior years or made available during an extended period for incurring claims are not taken into account in determining the annual limit applicable for the following year. Meaning, a participant who takes advantage of an extended carryover or grace period can still contribute up to the annual limit in the subsequent plan year.

However, despite having the ability for a carryover or extended grace period, neither the CAA nor Notice 2021-15 amend the annual DCAP limit permitted to be excluded from income. So any amount reimbursed over $5,000 in a calendar year will seemingly be subject to taxation. Let’s look at an example:

Robert had $1,000 in unused DCAP contributions in 2020. His employer chooses to adopt a carryover feature for the DCAP permitting the total unused account balance to be carried over into the following plan year. For 2021, Robert elects $5,000 in salary reductions for his DCAP. During 2021, Robert incurs and is reimbursed for $6,000 in DCAP expenses. When Robert files his tax return, he is only able to exclude from taxable income a maximum of $5,000 in DCAP expenses. The other $1,000 will likely be treated as taxable income.

While the DCAP relief allows participants to forgo forfeiting year-end account balances, any reimbursements over the annual limit will likely be treated as taxable income, without any further guidance. If employers choose to implement this relief, they should be sure to communicate that amounts over $5,000 reimbursed in a calendar year will likely be taxable income.

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FAQ: Can employers provide employees an incentive, such as a gift card or other cash payment, to receive the COVID-19 vaccine?

February 17, 2021

Many employers are considering doing this, but they will need to be mindful of the compliance obligations that would come with such a decision.

The biggest concern with an employer offering an incentive to employees who obtain the vaccine is that doing so is likely considered offering a group health plan. This would make the reward subject to many benefits-related laws. Specifically, when an employer offers an incentive to employees who receive medical care (in the form of a vaccine in this case), they are creating a wellness program that will need to comply with ERISA, COBRA, HIPAA, the ACA, etc.

If the incentive is provided only to employees on the major medical plan, then the employer is already meeting most of those compliance obligations through that plan and could simply tack on the vaccination reward as a part of the pre-existing plan. However, if it is also offered to employees who are not enrolled on the major medical plan, then the employer is creating a stand-alone wellness program and compliance becomes much more difficult (and virtually impossible for the program to meet the ACA’s requirements prohibiting annual and lifetime limits).

It is possible that the IRS and DOL will choose not to enforce the rules surrounding COVID-19 vaccination wellness programs in the interest of public health; however, the agencies have made no public announcement to that effect. If an employer wishes to offer an incentive to employees who aren’t on the medical plan they should consult with their own legal counsel about their options.

You can find more information on this and related topics in a recent seminar hosted by NFP.

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FAQ: If the individual mandate penalty is zero, do I still need to provide the Form 1095-C to employees? If so, can these forms be provided electronically?

February 02, 2021

Yes; the Form 1095-C must still be distributed to employees.

ALEs with an average of 50 or more full-time employees (including full-time equivalent employees) during the preceding calendar year must report to the IRS how they complied with the employer mandate. Specifically, under Code Section 6056, ALEs must complete a Form 1095-C for each full-time employee and report whether that full-time employee was offered coverage meeting the minimum value and affordability requirements. This reporting obligation applies regardless of whether the plan is insured or self-funded.

Additionally, as required by Code Section 6055, an ALE must report to the IRS those who were covered by the plan and for which months. A self-insured ALE would include this information in Part III of the Form 1095-C. The carrier would report this information for an insured plan.

The 2020 1095-C forms must be filed with the IRS by March 1 (if filing by paper) or March 31 (if filing electronically). These fillings should be submitted to the IRS with the transmittal Form 1094-C. As in past years, the deadline for distributing the forms to individuals is extended from January 31 to March 2, 2021.

Congress reduced the federal mandate penalty to zero, so individuals will not pay a federal tax penalty for failing to have coverage. However, the Form 1095-C is used to determine if an ALE is complying with the employer mandate and to determine if an individual is eligible for a premium tax credit for coverage purchased on the exchange. So the form still needs to be filed AND distributed to employees.

Furthermore, if the employer has employees residing in DC, CA, NJ, RI or MA, these regions have individual mandates that would rely upon the information reported in the Form 1095-C. Although the federal individual mandate penalty was reduced to zero, employees residing in these states could face state penalties for failing to maintain coverage. An employer with employees residing in these states may also be subject to additional state filing requirements.

The Form 1095-Cs must be mailed or hand-delivered, unless the recipient affirmatively consents to receive the statement in an electronic format. If mailed, the statement must be sent to the employee’s last known permanent address, or if no permanent address is known, to the employee’s temporary address.

For electronic delivery, the recipient’s affirmative consent must relate specifically to receiving the Form 1095-C electronically. An individual may consent on paper or electronically, such as by email. If consent is on paper, the individual must confirm the consent electronically. This affirmative consent requirement is designed to ensure that statements are furnished electronically only to individuals who can access them. Once an individual provides such affirmative consent to receive the Form 1095-C electronically, the form may be furnished either by email or by informing the individual how to access the statement on the employer’s website.

An ALE’s failure to file the Form 1095-C with the IRS, or to distribute it to employees, could result in significant penalties. The penalty is $280 per failure. For example, if an employer failed to file the form with the IRS and to distribute it to one employee, the penalty could be $560. Accordingly, if the employer fails to file or distribute the Form 1095-C for numerous employees, the potential liability could be substantial.

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FAQ: What are the benefits compliance implications of lifestyle spending accounts?

January 20, 2021

Lifestyle spending accounts (LSAs) are reimbursement accounts in which employers deposit a set amount of money for employees to spend on certain benefits that are determined by the employer. These accounts generally allow for the reimbursement of various wellness activities such as fitness classes, gym memberships, fitness competition entries, nutritional coaching, food supplements, work-out equipment, or other items or activities that will promote health amongst their employees. Some employers even use LSAs to include other non-wellness benefits such as pet or child care benefits, financial services, travel or entertainment.

Keep in mind, though, that the nature of the LSA will determine the compliance aspects of such a program. The first compliance concern to be aware of is that LSA benefits will likely be taxable to the employee. As a reminder, any benefit provided to employees would be included in their taxable income unless the tax code provides an exclusion. Notable exclusions are in place for benefits provided through a Section 125 plan, transportation plan or education plan. However, LSAs generally don’t include benefits that would be excluded from gross income under any of those exceptions (in fact, employers sponsoring LSAs likely have other plans in place that provide pre-tax benefits under those exclusions). So it’s most likely that employees would be taxed on the benefits provided through an LSA.

Another big question we get about LSAs is whether these arrangements are subject to ERISA. LSAs are generally not subject to ERISA for the same reason that they are taxable; the fact that they do not offer medical care or any of ERISA’s enumerated benefits would not subject them to ERISA as a health and welfare benefit. Specifically, if the employer wants to offer the benefit without it being subject to ERISA, then the employer would need to make sure that they do not allow reimbursement for medical treatment that would make the wellness plan an ERISA-covered plan. For example, offering mental health/psychiatry services or reimbursement of medication would likely be considered medical care and make the plan one that would be subject to ERISA. This is important because many employers do not want to have to meet all the ERISA requirements (Form 5500 filing, SPD, COBRA, etc.) for these types of plans. So in designing the activities that can be reimbursed through the LSA, the employer would want to work with counsel to ensure that none of them would lend the LSA to becoming subject to ERISA.

One final compliance consideration is how the LSA would impact employees’ HSA eligibility. When it comes to offering these accounts and an HSA, it would just be important to make sure that the plan does not offer first-dollar reimbursement for medical care. (Notice the theme here in ensuring that medical care is not offered through the LSA.) The reason for that is that employees who have an HDHP and want to be eligible to contribute to an HSA cannot have impermissible coverage (which is generally any coverage for medical care that pays before the deductible is met). So employers would need to make sure that the employees could not use the LSA to pay for their medical care if they want to preserve their employees’ HSA-eligibility.

Outside of the concepts mentioned above, there would not seemingly be any other compliance issues with providing an LSA to employees. But to be sure that the benefit is designed, implemented and communicated in an appropriate manner, employers should work with an LSA vendor or legal counsel in establishing the LSA.

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FAQ: What are some group health plan compliance issues that employers should consider at the beginning of 2021?

January 05, 2021

There are some compliance items that apply in January and February each year regardless of the group health plan year start date. First, by January 31, employers must report the value of group health plan coverage on employees’ Forms W-2. (There is an exception to this reporting for employers that filed fewer than 250 Forms W-2 in the previous calendar year.) While most employers rely on payroll providers (as they prepare W-2s on behalf of many employers), it’s important to work closely with the provider in ensuring proper reporting.

Second, employers will have to prepare for employer mandate reporting (IRS Forms 1094/95-C and/or 1094/95-B). Due to IRS extensions, there are three different dates to consider for reporting, all in March. By March 1, 2021, employers must file 2020 Forms 1094/95-C with the IRS (if filing by paper). By March 2, 2021, employers must distribute 2020 Form 1095-C (or a similar statement) to employees. By March 31, 2021, employers must file 2020 Forms 1094/95-C with the IRS (if filing electronically, which is required if filing 250 or more forms). In connection with those three dates, during January and early February employers should work closely with payroll providers and filing vendors in gathering information relating to the reporting, including offers of coverage, enrollment, waivers and required employee contribution amounts.

Third, employers will have to consider pandemic-related extensions to FFCRA leave tax credits and to COBRA elections and premium payments. On FFCRA tax credit extensions, end-of-2020 legislation allows (but does not require) employers to provide FFCRA-related leave and receive the associated tax credits through March 31, 2021. Employers will have to decide whether to extend FFCRA leave availability to employees, considering the continued availability of the tax credits. On COBRA election and premium payment extensions, as the end of the so-called “outbreak period” approaches (by statute, it will end on February 28, 2021), employers will need to work closely with COBRA vendors on any additional communications to affected employees (or former employees). The extension rules place the burden of employee notification on both the employer and the vendor (the employer, as plan sponsor, has the fiduciary obligation to ensure notification, though). Thus, employers should review whether the extensions were communicated properly to affected employees or former employees (at the time of the COBRA event), and whether additional communications are necessary.

Lastly, MEWA sponsors must file Form M-1 with the DOL by March 1. MEWA sponsors will need to work with their administrator and potentially with outside counsel in preparing and filing Form M-1.

For employers with calendar year plans (i.e., those with plan years beginning on January 1), there are additional items to consider in January. First, employers should review nondiscrimination tests (for self-insured plans, cafeteria plans, and both health and dependent care FSAs) to assess whether the plan will somehow favor the more highly compensated employees. While adjustments can be made at any point before the end of the plan year to bring the plan into compliance with the tests, knowing early whether adjustments are necessary will help with difficult conversations with those highly compensated employees (whose elections may need to be adjusted).

Second, and similarly, employers should double check their election and enrollment systems to ensure employees’ elections were properly administered. Catching errors earlier in the year helps avoid more difficult administrative problems (and employee conversations) later in the year.

Finally, employers should prepare their Medicare Part D disclosure to CMS form, which is due within 60 days of the plan year start date (March 1, 2021, for calendar year plans). The CMS disclosure is meant to notify CMS whether the employer’s prescription drug coverage is on par with Medicare Part D. Filing is straightforward and can be completed online.

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FAQ: We are an ALE and preparing our Forms 1095-C for the 2020 reporting year. Are there any special reporting codes or considerations for the months in which some employees were furloughed?

December 22, 2020

There are no codes specifically for furloughed employees. The answer depends upon whether the employer continued coverage during the furloughed period, whether the employee was enrolled in that coverage, the measurement method used by the employer, and the applicable affordability safe harbor, if any.

Furloughed employees who were still covered by the plan during a period of zero work hours would be reported as normal with the respective offer of coverage on Line 14 (for example 1E) and 2C (employee enrolled) on Line 16. Any employee who is enrolled in the employer’s coverage cannot trigger a penalty for the employer, regardless of the cost of coverage or affordability.

If an employer uses the monthly measurement method and the employee has a change of status from full-time to unpaid leave (a period of zero hours), the employee is no longer considered full-time at the end of the month in which the change occurs. A furloughed employee, under this method, who was still eligible for active coverage during the period of zero hours, but was not enrolled (due to a previous waiver), would not be reported as a full-time employee for the furloughed months. The employer would still report the offer of coverage on Line 14 and the employee’s required contribution on Line 15. Line 16 would indicate that the employee was not a full-time employee during the furloughed period (2B).

If an employer uses the look-back measurement method, an employee who has earned full-time status during an initial or standard measurement period is considered full-time during the entire stability period regardless of the number of hours worked (assuming there was not a termination of employment). A furloughed employee, under this method, who was still eligible for active coverage during the period of zero hours, but was not enrolled (due to a previous waiver), would be reported as a full-time employee for the furloughed months occurring during the stability period. The employer would report the applicable offer of coverage on Line 14 with the employee’s required contribution on Line 15. Line 16 would be the employer’s affordability safe harbor, if one applies. If none of the safe harbors apply, Line 16 would be left blank and would indicate potential risk under Penalty B for the employer.

As a reminder on the affordability safe harbors, if the employer is using:

  • Rate of Pay, the code would be 2H on Line 16. The rate is affordable if it is not greater than 9.78% of the employee's monthly salary or 9.78% of the employee's hourly wage multiplied by 130 hours, regardless of how many hours are actually worked.
  • Federal Poverty Level, the code is 2G. The employee's required contribution would have to be $101.79 or less per month. This is the only safe harbor that is not based on the employee’s specific earnings.
  • Form W-2 safe harbor, the code is 2F. The employee’s cost of coverage is affordable if it is less than 9.78% of the employee's 2020 Form W-2 Box 1 earnings divided by 12. This will be the most difficult safe harbor to satisfy for furloughed employees. If the employee had a number of months with zero compensation, the cost of coverage very likely will not be affordable.

If an employee was terminated from the plan and offered COBRA, the coding is different based on whether the loss was triggered by termination of employment or reduction of hours. For termination of employment, the employee would be treated as any other terminated employee. COBRA coverage is not considered an offer of coverage for this purpose following a termination of employment. Line 14 would be 1H (no offer of coverage); Line 15 would be blank; and Line 16 would be 2A (not employed). If the employee was offered COBRA due to a reduction of hours, COBRA coverage would have to be reported as an offer of coverage. Please see IRS FAQ #23 for guidance on reporting this scenario.

Questions and Answers about Information Reporting by Employers on Form 1094-C and Form 1095-C »

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FAQ: Will leave granted under the FFCRA end when the law expires on December 31, 2020?

December 08, 2020

Currently, the FFCRA is set to expire on December 31, 2020, and has not yet been extended. An individual who is currently on FFCRA paid leave as of December 31, 2020, and who has not exhausted said leave, will not be able to continue their leave into 2021. In other words, December 31 appears to be a hard stop.

As background, the FFCRA provides for temporary paid leave provisions – including emergency paid sick leave (EPSL) and expanded FMLA leave (EFMLA) – for specific circumstances related to COVID-19. To review, to qualify for EPSL, an employee must be unable to work or telework because the employee:

  • Is subject to a federal, state or local quarantine or isolation order related to COVID-19;
  • Has been advised by a healthcare provider to self-quarantine related to COVID-19;
  • Is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
  • Is caring for an individual subject to an order described in item one or self-quarantine as described in item two;
  • Is caring for a child whose school or place of care is closed (or childcare provider is unavailable) for reasons related to COVID-19; or
  • Is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.

In order to qualify for EFMLA, an employee must have been employed for 30 calendar days immediately prior to the day the employee’s leave would begin and they must be unable to work or telework due to a need to care for their son or daughter under 18 years of age whose school or place of care has closed, or whose childcare provider is unavailable, for reasons related to COVID-19, among other requirements.

These FFCRA provisions apply to private employers with fewer than 500 employees and public employers of any size, and provide up to 80 hours of EPSL and 10 out of 12 weeks of paid EFMLA for qualified employees. Additionally, employers who provide such leave are eligible for a federal tax credit. Note that the tax credit expires at the end of the year too.

With the FFCRA expiration quickly approaching, the following example illustrates how FFCRA paid leave can be impacted:

Tracy qualifies for both EPSL and EFMLA under the FFCRA because she is unable to work (or telework) due to a need to care for her children whose school is closed for reasons related to COVID-19. She qualifies for leave beginning December 7, 2020. The 80 hours of EPSL will expire on December 18, 2020. Although 10 additional weeks are permitted for EFMLA, Tracy’s FFCRA paid leave will end on December 31, 2020 (using less than two weeks of the benefit) because the FFCRA is set to expire at that time.

Importantly, many states have enacted their own COVID-19-related leave laws, which may provide for leaves into 2021, but they would not carry the federal tax credit. As a result, any related leave provided may be at employer cost.

Employers administering paid leave under the FFCRA should be mindful of the approaching expiration date and communicate with employees, especially if the expiration impacts the length of their leave. It remains to be seen whether Congress will extend the FFCRA beyond the end of the year; if they do, we will report that in Compliance Corner.

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FAQ: How does COBRA coverage affect Medicare entitlement?

November 10, 2020

COBRA coverage can have a big impact on a person’s entitlement to Medicare coverage. If a Medicare-enrollee is unaware of how COBRA affects Medicare entitlement, they may find themselves paying higher premiums for as long as they are covered by Medicare and could experience gaps in coverage when COBRA coverage expires.

Remember that a person is “entitled to” Medicare Parts A and B when they become eligible (generally, when the person turns 65) and actually enroll in the coverage. An eligible person becomes enrolled automatically if they sign up for Social Security benefits; otherwise, there is a window of time within which they must enroll in Medicare Parts A and B to avoid a penalty. If they enroll in Medicare within a seven-month window that begins three months before the month they turn 65, covers their birthday month, and ends three months following their birthday month, then they will not have to pay higher premiums for enrolling later. If they do not enroll during this window, they will have to wait until a subsequent Medicare general enrollment period, which runs from January 1 through March 31 of every year.

However, there is a special enrollment period for people who didn’t enroll when first eligible because they were covered by a group health plan based upon their current employment status. This special enrollment period ends eight months after the earlier of the date someone loses group health plan coverage or the date the current employment ends. Importantly, COBRA coverage is not considered a group health plan based upon current employment. So a Medicare-eligible person that has COBRA coverage and delays Medicare would not experience a special enrollment period when the COBRA ends and would be subject to premium increases if they fail to enroll when first entitled to Medicare.

So if the person does not enroll in Medicare Parts A and B in a timely manner because they chose COBRA coverage, then not only are they subject to higher premiums for enrolling late, but they would also have to wait until Medicare general enrollment rolls around to enroll.

As you can see, the Medicare rules can be difficult to follow. As such, employers should consult with Medicare-knowledgeable advisors when employees have questions about how their coverage decisions affect Medicare enrollment.

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FAQ: If an employer sponsors a cafeteria plan, do employees need to make affirmative elections each year or are default, or “rolling,” elections permitted?

October 27, 2020

Under the Code Section 125 cafeteria plan rules – which apply to benefits that are paid on a pre-tax basis – eligible employees should be provided the opportunity to change their elections no later than 12 months after their last election. Additionally, ALEs subject to the ACA’s employer mandate provisions should ensure that they provide an adequate opportunity to opt into or out of medical coverage annually; otherwise, the requirement to offer coverage at least once a year (or to offer a chance to decline coverage that fails to meet minimum value or affordability mandates) will not be satisfied.

However, the plan is not required to obtain affirmative elections from eligible employees. Of course, some employers prefer the affirmative method because it provides a clear written record of the employee’s choice and consent to payroll deductions.

But a plan is permitted to use a negative or “default” election approach, under which employees who do not want health coverage must affirmatively elect not to participate in the cafeteria plan. In addition, the employer could continue the default approach on an ongoing basis through the use of rolling or “evergreen” elections for re-enrollment.

With default elections, it is important that at the time of hire and again before the beginning of each subsequent plan year, the employer provides a detailed notice to employees. Specifically, the notice must include all of the following:

  • An explanation of the automatic enrollment process and the employee's right to decline coverage and have no salary reduction
  • The salary reduction amounts for employee-only coverage and family coverage
  • Procedures for exercising the right to decline coverage
  • Information on the time by which an election must be made
  • The period for which an election will be effective
  • For a current employee, a description of the employee's existing coverage

The plan documents, election forms and enrollment communications should be drafted to clearly and consistently incorporate the default process. The employer will also want to allow employees adequate time to determine whether they wish to affirmatively opt out of the coverage.

As an alternative to the default approach, an employer may prefer that an employee make an initial affirmative election, which would thereafter roll over for future years unless the employee made an affirmative election to change it. If such rolling or “evergreen” elections are used, the employer must distribute open enrollment materials to all participants each year, preferably including a copy of their current elections. The disclosures should include any changes to plan design and employee contribution rates, as well as other information. The use of rolling elections should also be disclosed in the plan documents and in the initial affirmative election form signed by the participant. There may also be state wage withholding laws to consider.

However, the rolling election feature is typically not used for certain benefit offerings, such as HSAs and FSAs. Instead, employers offer active enrollment, so employees can choose how much they want to fund these accounts for the year based upon the annual IRS maximum contribution levels and any changes in their personal lives and budgets since the prior year. Additionally, requiring HSA active enrollment each year reminds the employee to reassess their eligibility. (Perhaps in the upcoming year, an employee will be covered by a spouse’s FSA or other medical plan that would make the employee ineligible to contribute to the HSA.) Furthermore, regardless of the open enrollment approach, HSA accountholders must still be given the opportunity to change their contribution deferral elections at least monthly.

Accordingly, it is permissible for a cafeteria plan to be designed to allow for initial default and/or ongoing rolling elections, so long as the participants are provided with the necessary disclosures and the opportunity to change elections at least once during a 12-month period. The employer would need to keep the above considerations in mind and determine the benefits for which such an approach may be appropriate.

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FAQ: Our insurance carrier has agreed to extend our coverage period for an additional two months. What are the compliance implications of a 14-month plan year?

October 13, 2020

Although insurance carriers are often willing to extend the insurance contract beyond 12 months, employers must consider what that will mean for the plan’s compliance. Specifically, the employer will have to consider what will need to be done to avoid violating the Section 125/Cafeteria plan rules, ERISA and the ACA.

Section 125/Cafeteria Plan
If employees are able to contribute towards their premiums on a pre-tax basis, then the plan is a Section 125/cafeteria plan. The Section 125 rules require employees to have the option to prospectively elect coverage for the “coverage period” (also called the “plan year”). The related rules state that a “plan year” must be 12 consecutive months, although there is an exception for a shorter plan year (if it's justified by a business purpose).

The plan year can begin on any day of any calendar month and must end on the preceding day in the immediately following year. So, if the employer has a cafeteria plan, the employer must allow employees to change their elections at the end of the plan year (i.e., prospectively elect or not elect coverage for the following plan year). This would mean that the employees would have to be given a chance to change their elections no later than 12 months after their last election.

Similarly, under ERISA, a plan year can be no longer than 12 months. The plan year must be identified in the SPD and the Form 5500 filing is based on a 12-month plan year (unless there is a shorter plan year).

The Form 5500 filing instructions make this clear when they mention that:

All required forms, schedules, statements, and attachments must be filed by the last day of the 7th calendar month after the end of the plan or GIA year (not to exceed 12 months in length)…

Thus, the Form 5500 filing would need to be completed for a 12 month period and could not be done for a 14-month period. Instead, the employer would likely have a 12-month ERISA plan year that would be followed by a two-month short plan year (or vice versa depending on the particular situation).

Employers with more than 50 employees are likely applicable large employers (ALEs) subject to the ACA’s employer mandate. Generally, an employer is an “applicable large employer” for a calendar year if it employed an average of at least 50 full-time employees on business days during the preceding calendar year. To comply with the employer mandate, a large employer must offer full-time employees minimum value, affordable coverage.

An employer makes an offer of coverage to an employee if it provides the employee an effective opportunity to enroll in the health coverage (or to decline that coverage) at least once each plan year. Treasury Regulation 54.4980H-4(b)(1) states:

An applicable large employer member will not be treated as having made an offer of coverage to a full-time employee for a plan year if the employee does not have an effective opportunity to elect to enroll in the coverage at least once with respect to the plan year.

As mentioned with the laws above, a plan year can be no more than 12 months. So, if a previously waived employee, who has not experienced a qualified event, is not given an annual opportunity to enroll in coverage — the employer will be considered to have failed to make an offer of coverage to the employee under the employer mandate and the employer would be at risk for a penalty.

The employer mandate requires an offer of coverage to be made at least annually, ERISA requires a plan year of no more than 12 months, and IRC Section 125 requires employees to have the option to make a prospective election for each coverage period (12 months). So even if the carrier is willing to extend the renewal date/contract “year,” the employer will likely need to host an additional open enrollment opportunity for the short plan year.

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