AGENDA REGION V UPDATE: RETIREMENT PLANS, 125 PLANS, HRA. Welcome and Introductions Review of Changes: 3/14/2018 MARCH 2018

Transcription

1 REGION V UPDATE: RETIREMENT PLANS, 125 PLANS, HRA MARCH 2018 AGENDA Welcome and Introductions Review of Changes: 403(b) Plan Document 125 Plans Health Reimbursement Arrangements (HRA) 1

2 403(B) PLAN UPDATE Original Model Plan Documents were very basic and (in our opinion) were considered temporary From the very beginning, informed that the IRS would develop a Plan Document approval process In 2013 the process was established and EBC submitted documents for approval June 13, EBC received a favorable advisory letter for a 403(b) pre approved plan. This means that the IRS determined that the plan satisfied the requirements of Internal Revenue Code Section 403(b) (these requirements are specifically outlined in the advisory letter). 6/23/2017 EBC: For Informational Purposes Ony 3 403(B) PLAN DOCUMENT UPDATES When will the IRS establish a determination letter program for individually designed 403(b) plans? At this time, the IRS does not anticipate opening a determination letter program for individually designed 403(b) plans Employers eligible to sponsor 403(b) retirement plans for their employees may want to consider adopting a pre approved plan that has received a favorable letter instead of a having an individually designed plan 6/23/2017 EBC: For Informational Purposes Ony 4 2

3 BENEFITS OF USING A PRE APPROVED PLAN Cost Typically, the cost for a pre approved plan is less than for an individually designed plan. Reliance Employer generally has peace of mind that the form of the preapproved plan meets the legal requirements. However, employer should review the favorable opinion or advisory letter for complete details on the scope of the plan s letter. In addition to having all legally required provisions, a preapproved plan may offer optional plan provisions that employer can choose, usually by selecting them in the adoption agreement. 6/23/2017 EBC: For Informational Purposes Ony 5 PRE APPROVED PLAN: WHAT IT DOES NOT DO NON RELIANCE The pre approved Plan does not ensure that: Investment agreements meet all legal requirements even if these are incorporated into the plan by reference. These investment agreements include: annuity contracts, custodial accounts, or other ancillary documents. Pre approved Plan Documents (for example EBC pre approved Plan Document) meet all legal requirements unless (EBC, Other) cause it to become an individually designed plan by changing the 403(b) pre approved plan document. Please note that the IRS does not intend to establish a determination letter program for individually designed 403(b) plans at this time. Employers can t rely on a 403(b) pre approved plan s favorable opinion or advisory letter for whether the plan is subject to, or satisfies, the requirements of ERISA. 6/23/2017 EBC: For Informational Purposes Ony 6 3

4 ADDITIOANL BENEFITS OF USING A PRE APPROVED PLAN Remedial amendment period Section 21 of Revenue Procedure establishes a remedial amendment period under which an eligible employer can retroactively correct form defects in its written 403(b) plan in order to satisfy the written plan document requirement of the 2007 final regulations. An eligible employer who adopts on or before March 31, 2020, a Prototype or Volume Submitter Plan with an opinion or advisory letter (i.e., an approved P or VS plan) retroactive to the first day of such remedial amendment period will automatically be considered to have corrected any form defects 6/23/2017 EBC: For Informational Purposes Ony 7 INTERNAL REVENUE CODE 125: 125 PLAN A 125 plan is the only employer sponsored group plan that provides an individual the choice between taxable and non taxable benefits. IRC identifies which benefits are allowed in the 125 plan IRC identifies which benefits are taxable or tax free 4

5 125 PLAN A 125 Plan can be very basic or very elaborate Depending on the component benefits offered the 125 Plan may be referred to as a Premium Only Plan, or a 125 Flexible Benefits Plan or if the plan offers a menu of benefit choices it may be referred to as a Cafeteria Plan 125 PLAN ELIGIBLE BENEFITS Under the 125 umbrella a number of benefit categories are allowed: Premium Only Plan(s) Employee s share of cost for employer sponsored group insurance coverage Individually owned supplement insurance Flexible Spending Account Health Flexible Spending Account Full Use or Limited Use Dependent Care Flexible Spending Account Group Term Life Health Savings Account (HSA) Not to be confused with Health Reimbursement Arrangement (HRA) Transit Plans Taxable cash in lieu of benefits 5

6 BENEFITS NOT ALLOWED UNDER THE 125 PLAN UMBRELLA 403(b)Plans 457 Plans (some exceptions in private sector) Health Reimbursement Arrangements (HRAs) Tax Free Reimbursement of the cost of Individually owned Health Coverage COMMON MISTAKES INDIVIDUAL CHOICE No Individual Choice Outside the 125 Plan If employees are provided a choice between taxable and non taxable benefits outside the 125 Plan umbrella the legal doctrine referred to as assignment of income applies 6

7 EXAMPLES Not compliant Example: provide an option for employees to choose between a cash payout and a contribution into a 403(b) plan or into a Health Reimbursement Arrangement. Why: because 403(b) nor HRAs are a qualified benefits under the 125 Plan umbrella no individual choice may be given. Compliant Example: All employees with 15 or more years of service at the School District shall have their unused vacation pay out, deposited into a Health Reimbursement Arrangement at separation of employment Why: No individual choice is allowed. The contribution is mandated not voluntary. ACA CHANGES/REQUIREMENTS 125 PLAN Restrictions on Individual Premium Reimbursement Employer may not give an employee cash with the intent that they purchase individual insurance coverage from the private market; No 125 Plan funds can be used to purchase insurance from a public exchange 7

8 ACA CHANGES/REQUIREMENTS 125 PLAN Review of Recent Changes No offer of employer sponsored group coverage from employer or family member s employer = not eligible to elect in the Medical Flexible Spending Account Does not impact other benefits under 125 Plan umbrella Definition of Dependent Child can be coverage by insurance through the month they turn age 26 Definition of Spouse Legally married same sex spouse Grace Period or $500 carryover HEALTH REIMBURSEMENT ARRANGEMENTS (HRA) In order to maintain the integrity of the Affordable Care Act (ACA) prohibition on annual and lifetime limits it is necessary to create a compliant HRA plan design The compliant plan design is based on IRS guidance that defines: Is the HRA plan design exempt for ACA Is the HRA design such that the participant is not exposed to an annual or lifetime insurance coverage limit 8

9 COMPLIANT HRA DESIGNS Limited Purpose HRAs Only reimburses vision and dental expenses Vision and dental plans are exempt from ACA rules Retiree Only HRAs Can have no more than 1 active employee in the plan on the first day of the plan year Retiree Only HRAs are exempt from the ACA rules Integrated HRAs Must be enrolled in an employer sponsored group health plan The employer sponsored group health plan provides insurance with NO annual or lifetime coverage limits INTEGRATED HRA ELIGIBILITY RULES: CONTRIBUTIONS Employee must be enrolled in an employer sponsored group health plan (the Health Plan) Enrollment in employer s Health Plan; and if the Plan Document allows Enrollment in a Health Plan provided by the employer of another family member (e.g., spouse or parent) TriCare is not employer sponsored insurance The Exchange does not provide employer sponsored group health insurance 9

10 INTEGRATED HRA ELIGIBILITY RULES: REIMBURSEMENTS Single Coverage HRA If employee enrolls in single coverage employee may only seek reimbursement for expenses incurred by employee Family Coverage HRA If employee enrolls in family coverage employee may seek reimbursement for expenses incurred by employee, legal spouse and legal dependent(s) INTEGRATED HRA ELIGIBILITY RULES: REIMBURSEMENTS Single Coverage HRA Employer can expand reimbursements to other family members if they are enrolled in an employersponsored group health plan This has to be written into the HRA Plan Document Processing Claims TPA claim processor will need to know which family members are covered so expenses can be reimbursed properly Third party claim adjudication is required by IRS Provide Attestation Form Or, submit coverage file to claim processor 10

11 INTEGRATED HRA ELIGIBILITY RULES: REIMBURSEMENTS Third party administrator may require a list of HRA eligible employees that includes the following information: Name of employee Names and SSNs of employee s spouse and dependent(s) Type of coverage (e.g., single or family); and Depending on whether employer allows for other family member s insurance to qualify a dependent for reimbursement, an attestation form or confirmation from employee that one or all are covered by other appropriate insurance INTEGRATED HRA ELIGIBILITY: REIMBURSEMENTS Question: What if Employee, Spouse or Dependent(s) are Not Covered by Employer Sponsored Group Health Insurance? Answer: No reimbursements can be made from Integrated HRA if individual is not covered. 11

12 INTEGRATED HRA ELIGIBILITY: REIMBURSEMENTS Options: 1.Leave funds in Integrated HRA in case employee re enrolls in the future 2.Move funds to Limited Purpose HRA. Once funds are moved to Limited Purpose HRA they can not be moved back to Integrated HRA Regardless of whether option 1 or option 2 is chosen, Employer may design HRA integrated plan so that at separation of employment the funds can be moved to a Retiree Only HRA. (EBC option. Must be allowed by Plan Documents) INTEGRATED HRA ELIGIBILITY Moving to Retiree Only HRA Pros Opens up expenses to all IRC 213(d) including individually owned health insurance premiums Cons Hiring back separated employees may jeopardize the Retiree Only status of the HRA exposing it to the annual and life time limit prohibition which it would fail to pass 12

13 HRA ELIGIBILITY Cons (continued) Hiring back separated employees may jeopardize the Retiree Only status of the HRA exposing it to the annual and life time limit prohibition which it would fail to pass To mitigate that risk employer can have rehires waive access to their HRA funds on an annual basis. Note: This is one of the Opt Out scenarios in next slides HRA OPT OUT AND/OR FORFEITURE SITUATIONS Situation 1: Participant has enrolled in a High Deductible Health Plan and wishes to fund a Health Savings Account. Access to a Health Reimbursement Arrangement makes an individual ineligible to contribute to a Health Savings Account. It does not matter what the contribution source is. 13

14 HRA OPT OUT AND/OR FORFEITURE SITUATIONS Options 1. Employee waives access to HRA on an annual basis 2. The HRA plan design can be remodeled to include a premiumonly HRA or a limited purpose HRA. HRA OPT OUT AND/OR FORFEITURE SITUATIONS Situation 2: Employee has qualified for a premium tax subsidy and is going to purchase insurance from the Exchange (MNSure) Access to HRA funds makes an individual ineligible to receive a premium tax subsidy. HRA accounts are reported to IRS on a Form 1095 each year. 14

15 HRA OPT OUT AND/OR FORFEITURE SITUATIONS Options: 1. A permanent forfeiture of HRA funds. Participant must be given an annual opportunity to forfeit funds and an opportunity to forfeit at separation of employment 2. Temporary forfeiture (new option available eff. Jan. 1, 2017). HRA OPT OUT AND/OR FORFEITURE SITUATIONS Temporary forfeiture (new option available eff. Jan. 1, 2017). Each year that employee is eligible to be covered under this HRA employee has the ability to waive access (opt out) of the HRA Plan. The decision to opt out and waive access to HRA contributions and reimbursements is irrevocable. However at the Plan level (decision of employer), the Plan can reinstate access to the HRA Account upon one of the following events: i. A fixed date or event ii. The participant s death, or iii. The earlier of (i) or (ii) above 15

16 HRA OPT OUT AND/OR FORFEITURE SITUATIONS Situation 3: Employee separates from employment and has funds in a Retiree Only HRA. In order to protect the Retiree Only status of the HRA an HRA Plan can have no more than 1 active employee in the plan on the first day of the plan year. Not maintaining this status could make the HRA subject to the prohibition on annual and lifetime limits and result in a bad IRS audit result Option 1. Employee waives access to HRA funds on an annual basis QUESTIONS? Thank you for attending Educators Benefit Consultants summer workshop! If you would like more information, please contact us! Toll Free: Metro: Fax: