Presenting a live 90-minute webinar with interactive Q&A HSAs, HRAs and FSAs: Employee Benefits After the ACA and Latest DOL/IRS Guidance Navigating New Compliance Requirements and Leveraging Defined Contribution Plans in the Current Environment TUESDAY, NOVEMBER 19, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Elizabeth Kappenman, Senior Counsel, Wells Fargo & Company , Minneapolis Stanley Baum, Of Counsel, Cary Kane , New York Kenneth A. Mason, Partner, Spencer Fane Britt & Browne , Overland Park, Kan. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
FOR LIVE EVENT ONLY Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-888-601-3873 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail sound@straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again.
FOR LIVE EVENT ONLY For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps: In the chat box, type (1) your company name and (2) the number of • attendees at your location Click the word balloon button to send •
C ARY K ANE LLP HSAs, HRAs and FSAs : Employee Benefits After theACA and Latest DOL/IRS Guidance Stanley D. Baum sbaum@carykane.com November 11, 2013 www.carykane.com New York
C ARY K ANE LLP 1. What is an FSA? In general, a health care flexible spending account (for convenience, an “FSA”) is an account offered under a cafeteria plan, under Section 125 of the Internal Revenue Code (the “Code”). This account provides a benefit designed to reimburse an employee for medical care expenses (as defined in Code Section 213(d)), other than premiums, incurred by the employee, or the employee’s spouse, dependents, and any children who, as of the end of the taxable year, have not attained age 27. Typically, reimbursements from an FSA will be applied to pay medical expenses not covered by the employer’s general group health care plan, such as deductibles, co-payments and other cost sharing, and medical items not covered, such as cosmetic surgery, infertility treatment, long-term care and weight loss programs. 5
C ARY K ANE LLP Technically, to be an FSA, Code Section 106(c)(2) requires that the arrangement must be a benefit program which provides an employee with coverage under which: (a) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions) and (b) the maximum amount of reimbursement which is reasonably available to the employee for the coverage is less than 500% of the value of the coverage. Thus, the maximum reimbursement which is reasonably available cannot exceed 5 times the employee’s salary reduction contributions plus employer contributions. The proposed cafeteria plan regulations generally use this definition (see Prop. Treas. Reg. Sec. 1.125-5(a)). The reimbursements are not taxable to the employee, under Code Section 105. The account is funded by before-tax contributions made by the employee, under a salary reduction arrangement with the employer, through the cafeteria plan (i.e., the employee is not taxed on salary applied to make these contributions, under Code Section 125(a)). 6
C ARY K ANE LLP Employers may provide additional contributions, in excess of the salary reduction amount, to the account (e.g.,, the employer may offer “flex credits” that may be applied toward various benefits, but may not be taken in cash). The additional contributions are also not taxable to the employee, under Code Section 106. In general, amounts the employee contributed to the account for a plan year, but not applied to reimburse medical expenses incurred during the plan year, are forfeited at year end under the “use -it-or- lose it rule” (employers may allow a grace period of two months and 15 days after year end to incur expenses that may be reimbursed prior to any forfeiture). 7
Cary Kane LLP 2. Which medicines and drugs are reimbursable by an FSA? An FSA may reimburse the cost of prescribed medicines and drugs, and the cost of insulin whether or not prescribed. Under the Affordable Care Act (for convenience, the “ACA”), effective January 1, 2011 and other than insulin, an FSA may not reimburse the cost of over-the-counter medicines, drugs and other items for which no prescription has been provided. 8
C ARY K ANE LLP 3. Are an employee’s salary reduction contributions to an FSA capped? Effective for plan years beginning after 2012, under Code Section 125(i), the ACA has limited to $2,500 the amount of the salary reduction contributions that an employee may make to the FSA each plan year. The $2,500 amount will be indexed and increased for inflation for plan years beginning after 2013. Additional employer contributions, and total amounts reimbursable by the FSA, are not limited by Code Section 125(i). 9
C ARY K ANE LLP Under IRS Notice 2012-40, the following rules apply to the $2,500 cap: Cafeteria plans may adopt the required amendments to reflect the $2,500 limit at any time through the end of calendar year 2014. In the case of a plan providing a grace period for incurring expenses after year end, unused salary reduction contributions to the FSA for plan years beginning in 2012 or later , which are “carried over” into the grace period for that plan year, will not count against the $2,500 limit for the subsequent plan year. The $2,500 limit applies on an employee-by-employee basis. Thus, $2,500 limit is the maximum salary reduction contribution each employee may make for a plan year, regardless of the number of other individuals (for example, a spouse, dependents, or adult children whose medical expenses are reimbursable under the FSA). As such, each of two spouses, with the same employer, may elect to make salary reduction contributions of up to $2,500 in each plan year. 10
C ARY K ANE LLP For purposes of applying the $2,500 limit, all employers aggregated under Code Sections 414(b), (c) or (m) are treated as being a single employer. If an employee participates in multiple FSAs maintained by employers, who are so aggregated and treated as being a single employer, the employee’s total salary reduction contributions under all of the FSAs are limited to $2,500. However, an employee of two or more employers who are not so aggregated may elect salary reduction contributions of up to $2,500 under the FSA maintained by each of those employers. 11
Cary Kane LLP 4. What is the status of the “use -it-or- lose it rule” after the ACA? Nothing in the ACA had abolished or otherwise affected this rule. But under IRS Notice 2013-71 (issued October 31, 2013), a carryover (as opposed to forfeiture) of unused amounts in the FSA is permitted, under the following rules: The employer, at its option, is permitted to amend its Section 125 cafeteria plan document, including the provisions governing the FSA, to provide for the carryover to the immediately following plan year of up to $500 of any amount remaining unused as of the end of a plan year. A lower carry over amount may be specified. The amount carried over may be used to pay or reimburse medical expenses under the FSA incurred at any during the entire plan year to which it is carried over. 12
C ARY K ANE LLP The amount remaining unused as of the end of the plan year is the amount unused after medical expenses have been reimbursed at the end of the plan’s “run - out period” (i.e., the period immediately following the end of a plan year during which an employee can submit a claim for reimbursement of medical expenses incurred during that plan year). The amount carried over does not count against the $2,500 salary reduction contribution limit for the plan year to which it is carried, but does count against the 5 times rule in the definition of FSA, and against the 2 times amount in the excepted benefits Safe Harbor discussed below. An FSA using the carry over cannot have a grace period in a plan year to which unused amounts may be carried over. 13
C ARY K ANE LLP The amount carried over cannot be converted to cash or applied to acquire a benefit other than medical expense reimbursement. For ease of administration, the FSA may treat reimbursements of all claims for expenses that are incurred in the current plan year as reimbursed first from unused amounts credited for the current plan year and, only after exhausting these current plan year amounts, as then reimbursed from unused amounts carried over from the preceding plan year. Any unused carried over amounts then reduce the amounts available to pay prior plan year expenses during the run-out period. 14
Recommend
More recommend
