On October 12, 2017, the White House released an Executive Order, signed by President Trump, titled “Promoting Healthcare Choice and Competition Across the United States.”

It is important to note that the Executive Order (EO) does not implement any new laws or regulations, but instead directs various federal agencies to explore options relating to association health plans, short term limited-duration coverage (STLDI), and health reimbursement arrangements (HRAs), within the next 60 to 120 days.

The Department of Labor is ordered to explore expansion of association health plans (AHPs) by broadening the scope of ERISA to allow employers within the same line of business across the country to join together in a group health plan. The EO notes employers will not be permitted to exclude employees from an AHP or develop premiums based on health conditions. The Secretary of Labor has 60 days to consider proposing regulations or revising guidance.

Practically speaking, this type of expansion would require considerable effort with all state departments of insurance and key stakeholders across the industry. Employers should not wait to make group health plan decisions based on the EO, as it will take time for even proposed regulations to be developed.

The Department of the Treasury, Department of Labor, and Department of Health and Human Services (the agencies) are directed to consider expanding coverage options from STLDI, which are often much less expensive than Marketplace plans or employer plans. These plans are popular with individuals who are in and outside of the country or who are between jobs. The Secretaries of these agencies have 60 days to consider proposing regulations or revising guidance.

Finally, the EO directs the same three agencies to review and consider changing regulations for HRAs so employers have more flexibility when implementing them for employees. This could lead to an expanded use of HRA dollars for employees, such as for premiums. However, employers should not make any changes to existing HRAs until regulations are issued at a later date. The Secretaries have 120 days to consider proposing regulations or revising guidance.

By Danielle Capilla
Originally Published By United Benefit Advisors

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires group health plans to provide notices to covered employees and their families explaining their COBRA rights when certain events occur. The initial notice, also referred to as the general notice, communicates general COBRA rights and obligations to each covered employee (and his or her spouse) who becomes covered under the group health plan. This notice is issued by the plan administrator within the first 90 days when coverage begins under the group health plan and informs the covered employee (and his or her spouse) of the responsibility to notify the employer within 60 days if certain qualifying events occur in the future.

The initial notice must include the following information:

  • The plan administrator’s contact information
  • A general description of the continuation coverage under the plan
  • An explanation of the covered employee’s notice obligations, including notice of
    • The qualifying events of divorce, legal separation, or a dependent’s ceasing to be a dependent
    • The occurrence of a second qualifying event
    • A qualified beneficiary’s disability (or cessation of disability) for purposes of the disability extension)
  • How to notify the plan administrator about a qualifying event
  • A statement that that the notice does not fully describe continuation coverage or other rights under the plan, and that more complete information regarding such rights is available from the plan administrator and in the plan’s summary plan description (SPD)

As a best practice, the initial notice should also:

  • Direct qualified beneficiaries to the plan’s most recent SPD for current information regarding the plan administrator’s contact information.
  • For plans that include health flexible spending arrangements (FSAs), disclose the limited nature of the health FSA’s COBRA obligations (because certain health FSAs are only obligated to offer COBRA through the end of the year to qualified beneficiaries who have underspent accounts).
  • Explain that the spouse may notify the plan administrator within 60 days after the entry of divorce or legal separation (even if an employee reduced or eliminated the spouse’s coverage in anticipation of the divorce or legal separation) to elect up to 36 months of COBRA coverage from the date of the divorce or legal separation.
  • Define qualified beneficiary to include a child born to or placed for adoption with the covered employee during a period of COBRA continuation coverage.
  • Describe that a covered child enrolled in the plan pursuant to a qualified medical child support order during the employee’s employment is entitled to the same COBRA rights as if the child were the employee’s dependent child.
  • Clarify the consequences of failing to submit a timely qualifying event notice, timely second qualifying event notice, or timely disability determination notice.

Practically speaking, the initial notice requirement can be satisfied by including the general notice in the group health plan’s SPD and then issuing the SPD to the employee and his or her spouse within 90 days of their group health plan coverage start date.

If the plan doesn’t rely on the SPD for furnishing the initial COBRA notice, then the plan administrator would follow the U.S. Department of Labor (DOL) rules for delivery of ERISA-required items. A single notice addressed to the covered employee and his or her spouse is allowed if the spouse lives at the same address as the covered employee and coverage for both the covered employee and spouse started at the time that notice was provided. The plan administrator is not required to provide an initial notice for dependents.

By Danielle Capilla
Originally Posted By www.ubabenefits.com

Cafeteria plans, or plans governed by IRS Code Section 125, allow employers to help employees pay for expenses such as health insurance with pre-tax dollars. Employees are given a choice between a taxable benefit (cash) and two or more specified pre-tax qualified benefits, for example, health insurance. Employees are given the opportunity to select the benefits they want, just like an individual standing in the cafeteria line at lunch.

Only certain benefits can be offered through a cafeteria plan:

  • Coverage under an accident or health plan (which can include traditional health insurance, health maintenance organizations (HMOs), self-insured medical reimbursement plans, dental, vision, and more);
  • Dependent care assistance benefits or DCAPs
  • Group term life insurance
  • Paid time off, which allows employees the opportunity to buy or sell paid time off days
  • 401(k) contributions
  • Adoption assistance benefits
  • Health savings accounts or HSAs under IRS Code Section 223

Some employers want to offer other benefits through a cafeteria plan, but this is prohibited. Benefits that you cannot offer through a cafeteria plan include scholarships, group term life insurance for non-employees, transportation and other fringe benefits, long-term care, and health reimbursement arrangements (unless very specific rules are met by providing one in conjunction with a high deductible health plan). Benefits that defer compensation are also prohibited under cafeteria plan rules.

Cafeteria plans as a whole are not subject to ERISA, but all or some of the underlying benefits or components under the plan can be. The Patient Protection and Affordable Care Act (ACA) has also affected aspects of cafeteria plan administration.

Employees are allowed to choose the benefits they want by making elections. Only the employee can make elections, but they can make choices that cover other individuals such as spouses or dependents. Employees must be considered eligible by the plan to make elections. Elections, with an exception for new hires, must be prospective. Cafeteria plan selections are considered irrevocable and cannot be changed during the plan year, unless a permitted change in status occurs. There is an exception for mandatory two-year elections relating to dental or vision plans that meet certain requirements.

Plans may allow participants to change elections based on the following changes in status:

  • Change in marital status
  • Change in the number of dependents
  • Change in employment status
  • A dependent satisfying or ceasing to satisfy dependent eligibility requirements
  • Change in residence
  • Commencement or termination of adoption proceedings

Plans may also allow participants to change elections based on the following changes that are not a change in status but nonetheless can trigger an election change:

  • Significant cost changes
  • Significant curtailment (or reduction) of coverage
  • Addition or improvement of benefit package option
  • Change in coverage of spouse or dependent under another employer plan
  • Loss of certain other health coverage (such as government provided coverage, such as Medicaid)
  • Changes in 401(k) contributions (employees are free to change their 401(k) contributions whenever they wish, in accordance with the administrator’s change process)
  • HIPAA special enrollment rights (contains requirements for HIPAA subject plans)
  • COBRA qualifying event
  • Judgment, decrees, or orders
  • Entitlement to Medicare or Medicaid
  • Family Medical Leave Act (FMLA) leave
  • Pre-tax health savings account (HSA) contributions (employees are free to change their HSA contributions whenever they wish, in accordance with the their payroll/accounting department process)
  • Reduction of hours (new under the ACA)
  • Exchange/Marketplace enrollment (new under the ACA)

Together, the change in status events and other recognized changes are considered “permitted election change events.”

Common changes that do not constitute a permitted election change event are: a provider leaving a network (unless, based on very narrow circumstances, it resulted in a significant reduction of coverage), a legal separation (unless the separation leads to a loss of eligibility under the plan), commencement of a domestic partner relationship, or a change in financial condition.

There are some events not in the regulations that could allow an individual to make a mid-year election change, such as a mistake by the employer or employee, or needing to change elections in order to pass nondiscrimination tests. To make a change due to a mistake, there must be clear and convincing evidence that the mistake has been made. For instance, an individual might accidentally sign up for family coverage when they are single with no children, or an employer might withhold $100 dollars per pay period for a flexible spending arrangement (FSA) when the individual elected to withhold $50.

Plans are permitted to make automatic payroll election increases or decreases for insignificant amounts in the middle of the plan year, so long as automatic election language is in the plan documents. An “insignificant” amount is considered one percent or less.

Plans should consider which change in status events to allow, how to track change in status requests, and the time limit to impose on employees who wish to make an election.

Cafeteria plans are not required to allow employees to change their elections, but plans that do allow changes must follow IRS requirements. These requirements include consistency, plan document allowance, documentation, and timing of the election change. For complete details on each of these requirements—as well as numerous examples of change in status events, including scenarios involving employees or their spouses or dependents entering into domestic partnerships, ending periods of incarceration, losing or gaining TRICARE coverage, and cost changes to an employer health plan—request UBA’s ACA Advisor, “Cafeteria Plans: Qualifying Events and Changing Employee Elections”.

By Danielle Capilla
Originally published by www.ubabenefits.com

On December 13, 2016, former President Obama signed the 21st Century Cures Act into law. The Cures Act has numerous components, but employers should be aware of the impact the Act will have on the Mental Health Parity and Addiction Equity Act, as well as provisions that will impact how small employers can use health reimbursement arrangements (HRAs). There will also be new guidance for permitted uses and disclosures of protected health information (PHI) under the Health Insurance Portability and Accountability Act (HIPAA). We review the implications with HRAs below; for a discussion of all the implications, view UBA’s Compliance Advisor, “21st Century Cares Act”.

The Cures Act provides a method for certain small employers to reimburse individual health coverage premiums up to a dollar limit through HRAs called “Qualified Small Employer Health Reimbursement Arrangements” (QSE HRAs). This provision will go into effect on January 1, 2017.

Previously, the Internal Revenue Service (IRS) issued Notice 2015-17 addressing employer payment or reimbursement of individual premiums in light of the requirements of the Patient Protection and Affordable Care Act (ACA). For many years, employers had been permitted to reimburse premiums paid for individual coverage on a tax-favored basis, and many smaller employers adopted this type of an arrangement instead of sponsoring a group health plan. However, these “employer payment plans” are often unable to meet all of the ACA requirements that took effect in 2014, and in a series of Notices and frequently asked questions (FAQs) the IRS made it clear that an employer may not either directly pay premiums for individual policies or reimburse employees for individual premiums on either an after-tax or pre-tax basis. This was the case whether payment or reimbursement is done through an HRA, a Section 125 plan, a Section 105 plan, or another mechanism.

The Cures Act now allows employers with less than 50 full-time employees (under ACA counting methods) who do not offer group health plans to use QSE HRAs that are fully employer funded to reimburse employees for the purchase of individual health care, so long as the reimbursement does not exceed $4,950 annually for single coverage, and $10,000 annually for family coverage. The amount is prorated by month for individuals who are not covered by the arrangement for the entire year. Practically speaking, the monthly limit for single coverage reimbursement is $412, and the monthly limit for family coverage reimbursement is $833. The limits will be updated annually.

Impact on Subsidy Eligibility. For any month an individual is covered by a QSE HRA/individual policy arrangement, their subsidy eligibility would be reduced by the dollar amount provided for the month through the QSE HRA if the QSE HRA provides “unaffordable” coverage under ACA standards. If the QSE HRA provides affordable coverage, individuals would lose subsidy eligibility entirely. Caution should be taken to fully education employees on this impact.

COBRA and ERISA Implications. QSE HRAs are not subject to COBRA or ERISA.

Annual Notice Requirement. The new QSE HRA benefit has an annual notice requirement for employers who wish to implement it. Written notice must be provided to eligible employees no later than 90 days prior to the beginning of the benefit year that contains the following:

  • The dollar figure the individual is eligible to receive through the QSE HRA
  • A statement that the eligible employee should provide information about the QSE HRA to the Marketplace or Exchange if they have applied for an advance premium tax credit
  • A statement that employees who are not covered by minimum essential coverage (MEC) for any month may be subject to penalty

Recordkeeping, IRS Reporting. Because QSE HRAs can only provide reimbursement for documented healthcare expense, employers with QSE HRAs should have a method in place to obtain and retain receipts or confirmation for the premiums that are paid with the account. Employers sponsoring QSE HRAs would be subject to ACA related reporting with Form 1095-B as the sponsor of MEC. Money provided through a QSE HRA must be reported on an employee’s W-2 under the aggregate cost of employer-sponsored coverage. It is unclear if the existing safe harbor on reporting the aggregate cost of employer-sponsored coverage for employers with fewer than 250 W-2s would apply, as arguably many of the small employers eligible to offer QSE HRAs would have fewer than 250 W-2s.

Individual Premium Reimbursement, Generally. Outside of the exception for small employers using QSE HRAs for reimbursement of individual premiums, all of the prior prohibitions from IRS Notice 2015-17 remain. There is no method for an employer with 50 or more full time employees to reimburse individual premiums, or for small employers with a group health plan to reimburse individual premiums. There is no mechanism for employers of any size to allow employees to use pre-tax dollars to purchase individual premiums. Reimbursing individual premiums in a non-compliant manner will subject an employer to a penalty of $100 a day per individual they provide reimbursement to, with the potential for other penalties based on the mechanism of the non-compliant reimbursement.

By Danielle Capilla
Originally published by www.ubabenefits.com

By Jennifer Kupper
In-house Counsel & Compliance Officer for iaCONSULTING, a UBA Partner Firm

BenefitPlanForm 5500 is the annual report that group benefit plans use to report required information about the plan’s financial condition and operations. Most group and pension plans that are subject to ERISA are required to file a Form 5500. With the July 31 deadline for calendar year plans fast approaching, and higher penalties for not filing taking effect in August, this is a good time to review this important plan filing.

What is a Form 5500?

Generally, the Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) all require an annual benefit plan report filing, although there are many exemptions. A single annual report, known as a Form 5500 or Form 5500-SF, satisfies all three. It includes basic plan, sponsor, and administrator identifying information, the type of annual report being filed, and any related Schedules as attachments to the Form 5500.

Who must file the Form 5500?

Form 5500 is needed for both qualified retirement plans and group welfare plans. For this article, we’ll focus on group welfare plans, which include plans that provide medical, prescription drug, dental, vision, long term and short term disability, group term life insurance, health flexible spending accounts, accidental death and dismemberment benefits, long term care, formal severance policies, and telehealth. While other plans may also be considered welfare plans, these are the most common.

Group welfare plans generally must file Form 5500 if:

  • The plan is fully insured and had 100 or more participants on the first day of the plan year (dependents are not considered “participants” unless they are covered because of a Qualified Medical Child Support Order).
  • The plan is self-funded and it uses a trust, no matter how many participants it has.
  • The plan is self-funded and it relies on the Section 125 plan exemption, if it had 100 or more participants on the first day of the plan year.
Are there exemptions?

Yes, there are several exemptions to Form 5500 filing. The most notable are:

  • Church plans defined under ERISA section 3(33)
  • Government plans, including tribal government plans
  • “Top hat” plans that are unfunded or insured and benefit only a select group of management or highly compensated employees.
  • Small insured or unfunded welfare plans. This includes plans with fewer than 100 participants (including qualified former employees and COBRA beneficiaries) at the beginning of the plan year that are fully insured, entirely unfunded, or a combination of both. An unfunded plan has its benefits paid as needed directly from the general assets of the sponsoring organization.
How many Forms 5500 must be filed?

Generally, the number of Forms 5500 depends on the number of ERISA benefits the sponsor maintains, whether those ERISA benefits are combined into one plan, and whether the sponsor is part of a controlled group or is part of a multiemployer welfare arrangement (MEWA).

The plan’s governing documents and operations determine whether benefits are being provided under a single plan and can be reported on one Form 5500. The Summary Plan Description (SPD), required by ERISA, is a document which designates the ERISA plan number and can be used to bundle multiple benefit lines into a single plan for Form 5500 filing purposes.

When must Form 5500 be filed?

A plan’s Form 5500 must be filed by the last day of the seventh month after the close of the plan year. The filing date is based on the “plan year,” which is designated in the SPD or other governing document. If a plan does not have a SPD, the plan year defaults to the policy year.

For calendar year plans, the due date for the Form 5500 is July 31. Employers may obtain an automatic 2-1/2 month extension by filing Form 5558 by the due date of the Form 5500.

Can the Form 5500 be amended?

Yes, it is recommended that the plan sponsor file an amendment for any of the following situations:

  • The original filing omitted a benefit
  • The original filing created a gap in benefit reporting
  • The Schedule A forms were updated with a 10 percent or more increase in commissions or premiums than originally reported by the carrier
  • Mandatory information critical to the report was incorrect or omitted
What happens if the plan has failed to file a Form 5500?

Penalties!! Under ERISA Section 502, the Secretary of Labor may assess civil penalties of up to $1,100 per day against a plan administrator who fails or refuses to file Form 5500. The DOL is able to assess penalties in connection with Form 5500 failures reaching as far back as the 1988 plan year. Penalties are based on whether the Form 5500 was incomplete, deficient, filed untimely or never filed, and if there was willful disregard for refusing to file.

The current penalty for failure or refusal of a plan administrator to file a Form 5500 is up to $1,100 per day. In August 2016, those penalties will increase from $1,100 per day to $2,063 per day, regardless of whether the violation occurred before or after August 2016. If an annual report is rejected for failure to provide material information, it is treated as not having been filed.

In order to encourage sponsors to file, the DOL created the Delinquent Filer Voluntary Compliance Program (DFVCP). It was created as a means for sponsors to “self-report” their non-compliance, and includes a monetary incentive. If a plan sponsor qualifies for the DFVC Program, the penalties are reduced significantly to $10 per day for the first 199 days. If the plan is within a year of being late, the penalty it is capped at $2,000 per plan. If the plan is more than a year late in filing, there is a $4,000 per plan cap.

If the DOL notifies a plan sponsor of its failure to file a Form 5500 or of the assessment of penalties for failure to file, the plan sponsor is no longer eligible to participate in the DFVCP. Penalties may be assessed for the date the reports were initial due, not the date the sponsor was notified of its delinquency.

It is important to note that criminal sanctions and imprisonment are also possible for willful violations of the reporting and disclosure requirements.

As an example, Employer A and Employer B both sponsor a fully insured medical plan and group term life (GTL) plan for their employees. Each employer has the same number of participants in their medical and GTL plans: 75 participants in the medical plan, and 150 participants in the GTL plan.

The plan year for Employer A’s medical plan is December 1 through November 30. The GTL plan is on a calendar year contract. Employer A does not have an SPD wrap document combining these two plans. Employer A does not have to file a Form 5500 for the medical plan because it is fully insured and has fewer than 100 participants. However, it must file Form 5500 for the GTL plan because it has more than 100 participants. Since the GTL plan is on a calendar year (January 1 to December 31) contract, its Form 5500 is due by July 31, the end of the seventh month following the last day of the plan year.

Employer B, on the other hand, has an SPD wrap document which combines the medical and GTL plans into the same ERISA plan year and plan number. The employer chose that plan year to align with the medical plan’s December 1 – November 30 contract year. In this case, Employer B must file a single Form 5500 for both the medical and GTL benefits information because at least one of the plans has more than 100 participants. Its Form 5500 is due by June 30.

Employers should note that government agencies recently proposed significant changes to Form 5500 reporting, and should ensure they stay up to date on requirements as they change.

Read more here …

By Danielle Capilla
Chief Compliance Officer at United Benefit Advisors

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers to offer covered employees who lose their health benefits due to a qualifying event to continue group health benefits for a limited time at the employee’s own cost. COBRA provisions are found in the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code (Code), and the Public Health Service Act (PHSA). Employers with 20 or more employees and group health plans are subject to COBRA provisions. Most governmental plans, church plans, and certain plans of Indian tribal governments are exempt from COBRA. Employers should always consult with counsel about state continuation laws that are similar to COBRA and apply to small employers.

Only seven events can trigger COBRA obligations and offers of coverage. They are:

  • Termination of employment
  • Reduction of hours
  • Divorce or legal separation
  • Death of the covered employee
  • A dependent child ceasing to be a dependent under the plan
  • Entitlement to Medicare
  • Bankruptcy

These events must lead to an individual’s loss of coverage. For example, if a reduction of hours or entitlement to Medicare did not result in an employee’s loss of benefit eligibility, there would be no obligation to offer COBRA coverage. Conversely, employees might experience a loss of coverage that does not trigger COBRA; for example if they fail to pay their portion of the premium or their employer stops offering coverage to spouses.

Affordable Care Act Impact on COBRA

The Patient Protection and Affordable Care Act (ACA) did not directly impact or change COBRA obligations for employers, but other changes in related regulations will determine how and when employers offer COBRA coverage to employees.

Beginning in 2015, to comply with the ACA large employers must offer their full-time employees health coverage, or pay one of two employer shared responsibility (play or pay) penalties. An employer is considered large, or an applicable large employer (ALE), if it has 50 or more full-time or full-time equivalent employees. Full-time employees are employees that average 30 hours a week or more. There are two methods that an ALE can use to determine which employees must be offered coverage to avoid penalties: the monthly method, and the measurement and look-back method. ALEs are also required to report on coverage that they did or did not provide.

For an in-depth review of the measurement and look-back methods and options, as the reporting obligations and FSA carryovers, request UBA’s ACA Advisor, “Cobra and the Affordable Care Act”.

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By Elizabeth Kay, Compliance & Retention Analyst
AEIS Advisors
A UBA Partner Firm

CautionHave you ever overheard the new employee in the break room, bragging about how good their health insurance was with their previous employer, and how much less expensive it was than the coverage they are currently being offered?

You may think ”If it was so good, then why give it up?” There are always a number of factors that can lead to someone making a job change, but what happens when COBRA becomes a part of the negotiating process when they are working out the terms of employment with the new company?

We know that, as of November 2014, the Department of Labor (DOL) made it very clear that an employer cannot pay the premium for an individual plan of an employee or an employee’s dependents, period. If they do, the employer could pay an excise tax of $100 per day they are out of compliance per employee affected. That could be up to $36,500 for ONE employee, for ONE year!

But what if a prospective employee were coming to work for you, and the plan with their current employer had similar coverage but lower premiums because the employer was a larger company, the employees were in very good health overall and the employer had negotiated very low rates with its carrier as a result, or the employer was based in a different state where health care costs were lower? What if that prospective employee tells you that you could pay their COBRA premiums and pay less premium for them than if they enroll in your plan? Many employers would love to save $500 a month for one employee. But the deal is not nearly as sweet as it sounds, and here’s why.

While it is not illegal for an employer to pay for COBRA premiums, if it is for a group plan and not an individual plan, it can create other problems with regard to ERISA and COBRA compliance.

As soon as an employer pays the premium on a pre-tax basis on behalf of an employee for its company policy or another policy, an employer-sponsored plan is created, and is therefore subject to both ERISA and COBRA regulations.

ERISA requires that the plan sponsor distribute notifications to enrollees of the plan, including a Summary Plan Description, and other documents that contain specific plan details. If the employee’s plan benefits were under another employer’s plan, it may be difficult to get that information and distribute it to your employee.

Federal COBRA regulation requires that the employee have access to the same coverage for up to 18 months after he or she loses eligibility for the plan due to termination of employment, for example. What happens if the COBRA plan terminates because that previous company goes out of business and its group plan dissolves? Now the current employer is obligated to continue the employee’s coverage, perhaps without a means to do so.

Or, what if this employee terminates from your company after 12 months? It now becomes your responsibility to provide the employee with 18 months of COBRA coverage, except the employee has already used a portion of his or her COBRA eligibility while under your employment. Since COBRA is an employer obligation, you could be responsible for providing COBRA coverage to an employee who was never enrolled in your company’s group policy in the first place.

It becomes a sticky mess, indeed!

On the flip side, what about negotiating an employee’s severance package? If an employee is leaving your company and you are putting together a severance package, be careful when including paying for the employee’s COBRA continuation coverage. Many employers will offer to pay for three, six or 12 months of COBRA premiums on behalf of the terminated employee.

While this can be done, be careful how you word it in the severance agreement. Most employer sponsored plans are on a 12 month contract. If you make a very general statement saying you will pay to continue the employee’s COBRA coverage at your expense for 12 months, and your premiums skyrocket at renewal, or if you change carriers, and the terminated employee chooses a more expensive plan with richer benefits, you could be on the hook for the increase in premiums.

If you are clear in the severance agreement about the amount you will commit to pay on the employee’s behalf, or clear about the level of coverage to be provided (platinum, gold, silver, or bronze level plan, for example), then you will be better protected.

If you are paying COBRA premiums on a tax-exempt basis for a current employee, or you are concerned about a severance agreement that you made with a terminated employee, please seek advice from your ERISA or employment law attorney.

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By Danielle Capilla

Chief Compliance Officer at United Benefit Advisors

CafeteriaLineThe Employee Retirement Income Security Act (ERISA) was signed in 1974. The U.S. Department of Labor (DOL) is the agency responsible for administering and enforcing this law. For many years, most of ERISA’s requirements applied to pension plans. However, in recent years that has changed, and group plans (called “welfare benefit plans” by ERISA and the DOL) now must meet a number of requirements.

Generally, ERISA applies to:

  • Health insurance – medical, dental, vision, prescription drug, health reimbursement arrangements (HRAs) and health flexible spending accounts (FSAs) (Health savings accounts are not governed by ERISA but the related high deductible health plan is.)
  • Group life insurance
  • Disability income or salary continuance unless paid entirely by the employer from its general assets
  • Severance pay
  • Funded vacation benefits, apprenticeship or other training programs, day care centers, scholarship funds, and prepaid legal services
  • Any benefit described in section 302(c) of the Labor Management Relations Act (other than pensions on retirement or death)

Cafeteria plans, or plans governed by IRS Code Section 125, allow employers to help employees pay for expenses such as health insurance with pre-tax dollars. Employees are given a choice between a taxable benefit (cash) and two or more specified pre-tax qualified benefits, for example, health insurance. Employees are given the opportunity to select the benefits they want, just like an individual standing in the cafeteria line at lunch.

Cafeteria plans are not ERISA plans, but many of the components benefit plans offered through a cafeteria plan are subject to ERISA. This is because a cafeteria plan serves as a vehicle for employees to elect benefits and pay for them. This can create confusion for plan sponsors when they determine what ERISA obligations they have in relation to their cafeteria plan, as well as to their individual offerings.

Only certain benefits can be offered through a cafeteria plan and not all benefits offered under a cafeteria plan can or will be subject to ERISA. Employers should take care to understand the distinctions and interplay between ERISA requirements and cafeteria plan requirements. Request UBA’s ACA Advisor, “Reporting and Plan Documents Under ERISA and Cafeteria Plan Rules” for comprehensive information on reporting, Form 5500, and requirements for plan documents.

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Dear Ron, Thank you so much for generously supporting [us] and our AIDS walk team this year. It was a lovely foggy Sunday morning in Golden Gate Park, with thousands of folks walking to fight AIDS. It has been a pleasure working with you over the years. You have saved us LOTS of money! I want you to know how much we appreciate all that you do!

- San Francisco, Non-profit organization

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