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You Ought To Know - November 25 2013 - Reminder About Updating Plan Materials

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  • 1. You Ought To Know: November 25, 2013 – Reminder About Updating Plan Materials The passage of the Patient Protection and Affordable Care Act of 2010 (PPACA) has brought with it additional requirements for plan administration, insurance, documentation, and communication. Accordingly, as 2014 approaches, Willis issues a reminder that plan sponsors should assure that their plan documents are updated to reflect PPACA provisions which must be in place by 2014. In addition, recent guidance has addressed Health Reimbursement Arrangements (HRAs) and the specific requirements that must be met in order to avoid PPACA’s market reform requirements. Finally, latitude has recently been granted to plan sponsors offering Health Flexible Spending Accounts (FSAs); while plan sponsors are not required to make changes to the administration of their Health FSAs, employers may wish to implement the new refinement into their Health FSAs in order to allow employees to carry over up to $500 in unused Health FSA funds from one FSA plan year to the next. Since plan documents and amendments have unique legal significance, plan documents and amendments should be drafted and reviewed by your legal counsel. To assist in that process (and with the caveat that Willis cannot draft legally binding plan documents), Willis’ National Legal & Research Group has drafted the following sample amendments and SMMs that may be helpful to plan sponsors and their legal counsel for use in updating current plan materials. The model amendments and SMMs must be reviewed by legal counsel in order to assure that they do not conflict with existing plan materials. What Amendments/SMMs Should Plan Sponsors Consider Before 2014? PPACA Amendment and SMM – If your wrapper plan document and SPD have not been updated during 2013, those plan materials likely do not reflect the PPACA requirements that apply to plans in 2014. The model PPACA Amendment and model PPACA SMM (both of which may be accessed by clicking on links at the end of this section) address pre-existing condition exclusions, lifetime/annual limits, preventive care cost sharing, dependent child definition, rescission, selection of providers, emergency services, cost sharing limits, clinical trials, and provider discrimination. Because there are many plan design variations concerning waiting periods, the model PPACA Amendment and model PPACA SMM do not address the prohibition on waiting periods longer than 90 days. Plan sponsors will need to ensure compliance with this requirement, and if the existing waiting period must change in order to comply with the PPACA requirements, then the model PPACA Amendment and the model PPACA SMM must also be updated to reflect that plan change. model PPACA Amendment model PPACA SMM HRA Amendment and SMM – As part of PPACA’s reform requirements, plan sponsors generally may not impose annual or lifetime dollar limits on essential health benefits. Because of the nature
  • 2. of an HRA and the fact that it offers a limited amount of money to be used for medical expenses, if not otherwise exempt from PPACA’s requirements, an HRA would be impermissible (and such is the case for a stand-alone HRA that is not a retiree-only HRA). In 2010, interim final rules were issued which permitted HRAs to continue in operation as long as they were “integrated” with other group health plan coverage that complied with PPACA’s reform requirements. The definition of “integration” was somewhat unclear until the Internal Revenue Service and the Department of Labor issued guidance on September 13, 2013, which outlined the requirements that must be met in order for an HRA to be integrated with a group health plan (see Willis News Flash, September 16, 2013, “Federal Regulators Have Been Busy; Two New Developments”). Any employer that offers an HRA that is not a retiree-only HRA must assure that the HRA is integrated with another group health plan (and that group health plan is not required to be the employer’s own plan). The model HRA Amendment and model HRA SMM (both of which may be accessed by clicking on links at the end of this section) will add a provision to the HRA benefit which permits an employee to opt out of the HRA and waive future HRA reimbursements. This provision will be helpful to HRA account holders because the opt out and waiver will not preclude account holders from qualifying for premium assistance in the event that account holders obtain coverage through a health insurance exchange. Without the provision that is included with the model Amendment and model SMM, the HRA would offer “minimum essential coverage,” and if an employer offers minimum essential coverage with the continued availability of reimbursements, the HRA account holder would not have the possibility of a subsidy under the marketplace exchange. If an HRA is not currently integrated, then the plan sponsor will need to consult with legal counsel in order to modify the plan and accomplish integration. The below links to a model HRA Amendment and a model HRA SMM will not create integration where it does not currently exist. Rather, the amendment and SMM create an opt out provision for an integrated HRA. model HRA Amendment HRA SMM $500 FSA Carryover – IRS Notice 2013-71 allows employers to adopt a carryover provision under which up to $500 in unused Health FSA funds may be carried over to the next plan year (see Willis News Flash, November 1, 2013, “Two Developments – Plans May Permit Participants to Roll Over $500 in Unused Health FSA Funds to the Next Plan Year; Further Clarification Concerning the Transition Rule Permitting Employees in a Non-Calendar-Year Plan to Make Limited Election Changes Without a Change in Status Event”). The newly-permitted $500 carryover does not affect the next year’s $2,500 maximum health FSA election, so it is possible that an employee would be able to incur $3,000 in reimbursable medical expenses within a plan year. The model FSA Amendment and model FSA SMM are generic and do not account for the variations permissible in some Health FSAs. While typically the IRS requires that plan amendments be prospective and finalized within the plan year that the change is effective, the IRS has adopted a lenient standard for the $500 FSA Carryover, and plan sponsors have until December 31, 2014 in order to amend their plan materials and offer the carryover in either the 2013 plan year or the 2014 plan year. Presumably the IRS leniency is due to the late-in-the-year release of the carryover provision
  • 3. and the recognition that plan sponsors are engaged in open enrollment and may find it difficult to accomplish plan amendments before the end of 2013. Plan sponsors should note that the $500 carryover is not possible if a Health FSA grace period is in place. FSA Carryover Amendment FSA Carryover SMM How Do Employers Incorporate Desired Changes to Update their Plans? Plan changes require documentation that changes were intended and adopted by the plan sponsor and in order to communicate the changes to affected employees. Therefore, in order to effectuate desired changes, plan sponsors need to: 1. Update the legal plan document (usually accomplished through an “Amendment”). 2. Update and distribute he summary plan description to covered individuals -- (usually accomplished through the creation of a summary of material modifications (SMM)). We suggest sending before year end for changes effective in 2013 and 2014. The information in this publication is not intended as legal or tax advice and has been prepared solely for informational purposes. You may wish to consult your attorney or tax adviser regarding issues raised in this publication.

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