Voluntary Benefits Webinar Q&A the following questions were asked

Transcription

1 Voluntary Benefits Webinar Q&A the following questions were asked during the two webinar sessions in November 2014 Q: We offer a group dental plan (employer and employee share premium cost). Will these premium deductions for the employees still be eligible for pre-tax deduction after 1/1/2015? A: Yes. This is clearly a group dental plan and the premiums can be pre-tax. Even if this was a voluntary dental plan that the employee paid the full cost of, the premiums can be pre-tax. Q: Is it legal to put service charges on an HSA account that falls below a certain $ amount? A: Bank fees can be charged as long as they are within banking laws for the state and federal governments Q: If we have AFLAC listed in our Handbook as a voluntary benefits offering, but we do not give the employees any information when they start unless they ask for it. Are we ok in relation to being minimally involved? A: This sounds like minimal involvement, especially if you don t include the information in open enrollment packets, only take the payroll deductions, don t endorse the plan, etc. Q: Is AFLAC specified health coverage or cancer coverage considered "insurance coverage"? AFLAC states that their products are not insurance. A: Yes, they are, but typically they fall under the exception for voluntary benefits to not qualify as a health plan. They certainly are insurance, the employee pays premium for the coverage and AFLAC accepts the risk of paying out benefits for the payment of premium. Q: What does it mean "select the insurer" on slide 14? We selected Aflac for our employees (who else would do it?) A: Many voluntary benefit plans are plans that the employer selected to offer and the insurer of those plans. Selecting the insurer by itself is not enough to be considered endorsement, under which the voluntary plan would become an employer sponsored plan. But selection of the plan and insurer combined with other factors could be considered endorsement. For example: If the details of that plan are outlined in an employee handbook, if the HR department assists the employee in selecting the plans they would like, if the HR department assists with claim disputes, or if there are meetings held on company time. These factors along with the selection could be enough to not satisfy the safe harbor from becoming an employer sponsored group plan. Q: I need to be clear on the Individual Medical Insurance plans. Does this include the voluntary group and individual plans through AFLAC, Colonial, Allstate and similar carriers (Cancer, Accident, Critical

2 Illness, etc.) - that these cannot be pre-taxed any longer after 2014 renewals? A: They cannot be pre-taxed if they are non-excepted benefits (e.g., are considered to provide major medical benefits). Most AFLAC plans and those of the insurers you mention are excepted benefits, Please refer to the HIPAA section of the slides to determine if they are HIPAA excepted benefits. If they are HIPAA non-excepted benefits, they cannot be pre-tax. Q: What defines them as "excepted"? A: The HIPAA regulation defines excepted, non-excepted and exempt benefits. Non-excepted health plans are those that provide major medical coverage and must comply with the portability and accountability provisions of HIPAA. Excepted benefits are excepted from compliance with the portability provisions, but must comply with the accountability provisions (i.e., keep health information private). Exempt benefits are not subject to HIPAA life insurance is an example of an exempt benefit. Q: When you refer to "individual medical insurance" what plans are you referring to exactly? A: An individual medical insurance plan is a major medical plan that the employee purchases either directly from an insurer or through the Exchange. Q: Some AFLAC plans are group plans, some are individual. Does that make a difference? A: To my knowledge, AFLAC does not market major medical health plans. Rather, they market supplemental insurance plans. Some of these plans are marketed as group plans; meaning AFLAC provides a group rate for the premium versus individual plans where the premium is usually a function of age, health, compensation, etc. Q: To clarify, AFLAC and others sell Group Accident and Individual Accident. Makes a difference in how it is written and filed. I am not necessarily speaking about disability as they should not be pretaxed. A: You are correct. However, the way the plan is marketed isn t what makes it a group plan when it comes to ERISA and the voluntary plan safe harbor from a plan becoming subject to ERISA. The ERISA and DOL safe harbor for voluntary plans is based on the employer being minimally involved. Minimally involved does not depend on group or individual. The group discount provided by the insurer who then markets the plan as a group plan doesn t make it a group plan under ERISA. How involved the employer is in that plan is what makes it an ERISA or non-erisa plan. Q: Information I received regarding listing the voluntary plans in a cafeteria plan is that it is better to just say Voluntary benefits or Worksite benefits and not even list the vendor so you don't have to amend the plan. A: The most technically correct way to deal with voluntary benefits is to list each type of voluntary plan (e.g., critical illness, cancer care, hospital indemnity, etc.) and not the vendor. The reason is that the cafeteria plan is supposed to describe each of the pre-tax benefits that an employee can choose. The employer doesn t list its group medical plan with an insurer listed, it just lists that medical insurance is a

3 pre-tax benefit. Similarly, listing voluntary benefits or worksite benefits doesn t describe what benefits can be chosen. And, listing an insurer, such as AFLAC or Colonial Insurance, doesn t describe what benefits can be chosen. Q: How can a health insurance plan be voluntary? Aren't all employers REQUIRED to provide insurance? A: No, there is no requirement that an employer is required to provide a group medical plan or any insurance benefits. Therefore, in the context of a voluntary plan, an individual that purchases a medical insurance plan directly from the insurer and pays the entire premium has purchased an individual voluntary plan. In the apst, some employers that did not offer a group medical plan allowed their employees to pay the premiums for those individual voluntary plans on a pre-tax basis through he employer s cafeteria plan or the employer reimbursed some or all of the premium through a health reimbursement arrangement (HRA). However, the regulators have provided guidance that employers can no longer pay for the premiums through an HRA or allow pre-tax reimbursement of those premiums through a cafeteria plan (see IRS Notice ). Q: If a private sector employer offers AFLAC (gives new hires an AFLAC folder of information & tells them to contact the broker if they are interested) and the employer only pays the AFLAC bill so that employees can pay their premium pre-tax is this "minimally involved"? A: In our opinion, yes, this is minimal involvement if that s all that the employer does. Q: On our BESTflex Premium Only Plan (POP) "My company plan"(mcp) document, it states "group insurance premiums are automatically withheld from your paycheck before taxes for:. I was told AFLAC should be listed. But these are individual plans, not group plans. Should AFLAC be listed on the MCP document if it is an individual voluntary plan? A: Yes, it does need to be listed on your MCP since the cafeteria plan regulation states that each benefit offered by an employer that can be paid for pre-tax needs to be communicated to the employees. The reference to group premiums is intended to indicate that once enrolled in the employer s group pre-tax benefits, the deduction for the employee s share of those premiums will be taken pre-tax. Q: But is it a problem that it says "group insurance premiums" when AFLAC is not? A: We will take a look at the language and consider making modifications. Q: Is it best to just list "AFLAC" or to list the specific benefit products like Accident, Dental, hospital indemnity on the My Company Plan document? A: The most technically correct way to deal with voluntary benefits, such as AFLAC, is to list each type of voluntary plan (e.g., critical illness, cancer care, hospital indemnity, etc.) and not the vendor. The reason is that the cafeteria plan is supposed to describe each of the pre-tax benefits that an employee can

4 choose. The employer doesn t list its group medical plan with an insurer listed, it just lists that medical insurance is a pre-tax benefit. Similarly, listing AFLAC doesn t describe what benefits can be chosen. Q: The only post-tax benefit is AFLAC Short Term Disability. Could we list "AFLAC except STD" on the My Company Plan? A: As stated above, it is most correct to list the actual plans offered and not the vendor. Q: Can you recommend a contact to help with compiling an ERISA Plan document and SPD for a group medical plan? Milwaukee area? I wish EBC offered assistance with this. A: We are currently offering Wrap Document services. We can have a Sales Associate reach out to you following today's webinar. Q: Would it be okay to offer voluntary benefits via payroll deduction on an after-tax basis only and if so what are the ramifications? A: It is certainly OK to offer voluntary plans on a post-tax basis. But doing so, does not affect their status as being voluntary or becoming employer-sponsored if the employer becomes more than minimally involved. Since there are tax advantages for several of the voluntary plans being offered pre-tax (e.g., hospital indemnity, accident insurance) versus the tax issues involved with disability plans being offered pre-tax, an employer could offer some plans pre-tax and others post tax. Q: The voluntary plan insurer usually will meet with an employee(s) at the company for convenience, but all other items you referenced are upheld to not fall under ERISA. A: Assuming there is no endorsement of the plan by the employer, such as assisting with claims disputes, inclusion of the voluntary plan enrollment materials in the employer s open enrollment packets, etc., then allowing the meetings (especially if not on company time) for enrollment should not cause the plan to lose its safe harbor status under ERISA. Q: Disability benefits are subject to FICA whether the premiums were paid post tax or pre-tax. Benefits are only exempt from income tax if the premiums were paid post tax. A: This statement is incorrect. Disability benefits are taxable to the extent that the premiums were paid pre-tax. If neither the employer opr employee pays any of the premium pre-tax, then the benefit is not taxable. If the employer pays any portion of the premium and/or the employee pays any portion of the premium pre-tax then the ebefnit is taxable based on that portion. For example, if the employer pays half of the premium and the employee pays the other half post-tax, then only half of the benefit is taxable. If the employer pays all of the premium or the employer pays a portion and the employee pays their portion of premium pre-tax, the whole benefit is taxable.

5 Q: Question on the endorsements that would make a plan subject to ERISA. Would doing any one of the items on the slide make the plan subject to ERISA or only if you do the majority of them? A: It really is determined by the level of involvement in the plan that the employer takes. For example, saying that the plan is subject to ERISA in a handbook is enough to make it so. Including the plan in an ERISA plan document is enough to make it so. For other items, it could a combination of items that lead to more than minimal involvement. For example, assisting an employee with one claim dispute probably doesn t lead to more than minimal involvement. But, communicating to employees that the HR department is the contact for any claims disputes that arise with the plan probably leads to more than minimal involvement. Q: If a plan is deemed to be subject to ERISA is that clearly a negative or in some situations is it beneficial to have the plan become subject to ERISA as opposed to state law? A: Generally, ERISA preempts state law. So, if both laws apply, ERISA becomes the ruling law. In the case of penalties and suits, ERISA usually exposes the employer to lesser financial liability than what could occur if sued under state law. Q: So are you saying that state law restrictions may apply to ERISA plans and apply more restrictive rules? I thought some employers litigated to have ERISA apply so as to not have to comply with multiple state laws? A: As noted above, there are some benefits to having a plan be subject to ERISA, including the state law pre-emption. However, where the distinction comes is that ERISA applies to the plan meaning the underlying health and welfare plan. The state law issues we raised in the webinar are restrictions on paying for some voluntary plans through a cafeteria plan. By definition, a cafeteria plan is not an ERISA plan it is not a health and welfare plan. The health FSA or day care FSA that are in the cafeteria plan are ERISA plans. So, what the states, like Texas, are saying is that the voluntary plans, which might be ERISA plans, can t be offered in a cafeteria plan and the state law is not pre-empting ERISA since the cafeteria plan for payment of premiums is not an ERISA plan. Q: I assume by disability insurance you mean Short Term Disability (STD)? A: We are referring to short term disability and long term disability Q: Our STD policy states the employees deductions are pre-tax. A: If you are saying the insurer requires that the premiums are pre-tax, then the benefits the individual receives from that policy need to be taxed, which would have to be done by the insurer. The individual would owe state and federal withholding and FICA tax for the first six months of benefits. You, as the employer, owe FICA tax for the first six months,too,

6 Q: I'm on Medicare. Can I be reimbursed for copays, doctor visits, etc., on the company flex plan? A: Yes, the out-of-pocket expenses from Medicare can be reimbursed through a Health Care FSA. The Medicare premiums, however, cannot be paid for by the employer or by the employee pre-tax through the Cafeteria Plan. Q: Could an employer increase salary amounts at the time they cease to offer a group medical benefit plan, without violating the new rules? A: As long as all eligible employees receive the increase in compensation and there is no stipulation that the employee must purchase an individual medical insurance plan to receive the compensation this is OK. Q: Wouldn't it be true that--if an employer "sponsored" individual medical plans--they would become a group plan? To your previous point, e.g. "We endorse this program, and think you should all participate"? A: In fact what you saying is what the guidance is getting at. The reimbursement or payment of individual medical insurance plans creates an employer payment plan which in itself becomes a group health plan. But, the guidance stipulates that the employer payment plan cannot be integrated with the individual medical plan and therefore cannot satisfy the ACA s provisions to provide reimbursement of essential health benefits and have no annual limt. Q: How does ERISA effect an employer who pays 100% for dental, STD and AD&D Life? A: If you are an employer who is subject to ERISA, then those are all ERISA plans because they do not qualify for the voluntary benefit exemption. Q: Is optional life insurance subject to portability? A: Life insurance is not a health plan as it does not pay for health-related expenses. Therefore, it is not subject to HIPAA at all and the rules pertaining to HIPAA s portability provisions do not apply. However, if you are an employer in Minnesota, your state insurance continuation rules do include the right to continue optional life insurance when employment is terminated or hours are reduced. Q: Are you saying we should not be taking out insurance premiums pretax this year through our cafeteria plan for our employees? Premium only plan. A: No. Group insurance premiums are fine, as are most individual insurance premiums. But you cannot have any individual medical insurance premiums pre-tax this year.

7 Q: You mean if employees get medical insurance on their own and not through our plan? A: correct Q: Is it true that an employer cannot reimburse medical insurance under ACA on an AFTER-TAX basis either? A: No. An employer can provide payment of individual medical plans on an after-tax basis. From Technical Release Number and IRS Notice : An employer payment plan, as the term is used in this Technical Release, does not include an employer-sponsored arrangement under which an employee may choose either cash or an after-tax amount to be applied toward health coverage. Individual employers may establish payroll practices of forwarding post-tax employee wages to a health insurance issuer at the direction of an employee without establishing a group health plan, if the standards of the DOL s regulation at 29 C.F.R (j) are met.