This newsletter, written especially for employers, third party administrators and advisors, addresses recent legislative changes to Healthcare Reform and other administrative issues.

1. February 2011 Vol.1, No. 1
Healthcare Coverage Healthcare Reform
Message From for Adult Children Update: Recent
Raises Tax Issues Litigation and
The Firm
Legislation
Summer and I would like to welcome By Summer Conley, Esq. By Heather Bader-Abrigo, Esq.
you to a year of what we expect to be (SummerConley@Reish.com) (HeatherAbrigo@Reish.com)
constant activity! Already we have seen
Congress and the District Courts declare As most plan sponsors On Januar y 31, 2011,
provisions of the Patient Protection and are aware, under the i n a fe d e r a l d i s t r ic t
Affordable Care Act, as modified by the court in Florida, U.S.
He a l t h c a r e Refo r m
Health Care and Education Reconciliation
Act plans that cover Dist r ict Judge Roger
Act (together the “Healthcare Reform
dependents must Vi n son de cla r e d t he
Act”) unconstitutional. Not to be outdone,
the Internal Revenue Service has also been generally offer coverage Healthcare Reform Act
busy issuing guidance on cafeteria plans for children until age 26 regardless of unconstitutional. Approximately twenty-
as well as suspending the application of student, marital or dependent status. six states had joined in the lawsuit.
non-discrimination rules on fully insured (Grandfathered health plans do not In response, the Florida Insurance
group health plans. Summer and I address have to offer such coverage if the child Commissioner indicated that Florida
these changes and their effects in this has employer-provided coverage.) The would immediately stop implementing
newsletter. certain provisions of the Healthcare
Healthcare Reform Act also amends
We would also like to take this opportunity the Internal Revenue Code to provide Reform Act but did not specifically
to thank the more than 600 participants favorable tax treatment with respect to indicate which provisions.
who registered for our December, 2010 the coverage of adult children. In Notice On December 13, 2010, a federal district
Webinar on the Healthcare Reform Act: 2010-38, the Internal Revenue Service court in Virginia held that Section 1501
What Employers Need to Know. In May, provided guidance regarding this tax of the Healthcare Reform Act “exceeds
we will be conducting another webinar, treatment. The notice confirms that
which will continue where we left off, and the boundaries of congressional power.”
the value of coverage for an adult child Section 1501 of the Healthcare Reform Act
provide an update on the various changes
and how they affect employers.
through the end of the year in which requires uninsured Americans to obtain
the child turns age 27 is not included health insurance coverage or be subject
On behalf of our Benefits and Health in the employee’s income. However, to certain penalties, beginning in 2014.
Care Department, we hope you enjoy our not all states have adopted this tax The Virginia court held such mandate
articles. This newsletter, written especially position. For example, while California unconstitutional. The Justice Department
for employers, third party administrators generally conforms to federal tax law for
and advisors, addresses recent legislative has since filed a notice with the court that
laws enacted through January 1, 2009, it would be appealing such ruling. The
changes to Healthcare Reform and other
administrative issues.
California has not yet conformed to this Virginia Attorney General is expected
tax position. California Assembly Bill to request the United States Supreme
We encourage you to contact us with your 1178 proposed to amend California tax Court to consider the constitutionality
questions and feedback. laws to address this issue but has not been of the Healthcare Reform Act. Such
Heather Bader-Abrigo passed. Thus, until California conforms declaration is rare in that it would bypass
HeatherAbrigo@Reish.com to federal tax law, California employers appellate review of the decision, but the
are in the unenviable position of including Virginia Attorney General has indicated
Summer Conley
SummerConley@Reish.com Continued on page 2 Continued on page 2
11755 WILSHIRE BOULEVARD  10TH FLOOR  LOS ANGELES, CA 90025  310.478.5656  310.478.5831 FAX  WWW.REISH.COM

2. HEALTHCARE REFORM UPDATE February 2011 Vol.1, No. 1
will not be passed. Further, President
Health Reform Obama has promised to veto the Bill if
Non-Discrimination
continued from page 1 presented before him.
Requirements
What Does This Mean for Halted by the IRS
that in light of the conflicting lower court
Employers?
opinions, such review is necessary. It is
Not much...for now. The parts of the By Heather Bader-Abrigo
also expected that the Florida decision
will be appealed to the United States Healthcare Reform Act that became For many employers, the main reason
Supreme Court after review by the Court effective in 2010 and 2011 are still to grandfather their health plan was
of Appeals. effective. Failure to comply with these to “get out of” being subject to the
requirements may lead to penalties. new non-discrimination rules that
While the District Courts have been busy,
Some of these requirements include but apply to fully insured health plans.
so has Congress. On January 19, 2011, the
are not limited to: (i) grandfathered plans Pursuant to Section 2716 of the
House of Representatives voted to pass
making the appropriate disclosures; (ii) Healthcare Reform Act, the non-
the Repealing the Job Killing Health Care
non-grandfathered plans continuing to discrimination rules under Section
Law Act (the “Repeal Act”). If passed by
offer coverage for adult children and 105(h) of the Internal Revenue Code
the Senate and signed by the President,
eliminating cost-sharing for preventive (“Code”) are generally applicable
the Repeal Act would retroactively repeal
health ser vices; and (iii) both non- to group health insurance plans for
the Healthcare Reform Act as well as Title
grandfather plans and grandfathered plan years beginning on or after
I and Subtitle B of Title II of the Health
plans continuing to eliminate any lifetime September 23, 2010. Under Section
Care and Education Reconciliation Act
annual limits and decrease annual limits 105(h) of the Code, this means that a
of 2010. With a Democratic-controlled
on essential health care and eliminating plan must not discriminate in favor of
Senate, most expect that the Repeal Act highly compensated individuals as to
waiting periods in excess of 90 days.
These requirements were effective eligibility to participate or benefits.
for plan years beginning on or after The consequences for failing such
September 23, 2010. non-discrimination requirements
Don’t Forget to Amend include a $100 penalty per day per
We w i l l c o n t i n u e t o u p d a t e yo u non-highly compensated employee
Your Cafeteria Plans on t he prog ression of bot h t he that was discriminated against
By Summer Conley l it ig a t io n a n d leg i sl a t io n b u t fo r (subject to certain exceptions).
now we strongly recommend that all
The Healthcare Reform Act amended employers continue to comply with The law has been very unclear as to
the Internal Revenue Code to provide the currently applicable provisions of how these non-discrimination rules
that for expenses incurred on or after the Healthcare Reform Act.  apply to group health plans, but with
January 1, 2011, reimbursement for such steep penalties, employers have
a medicine or drug is an eligible been scrambling. But on December
medical expense only if the medicine
Tax Issues
22, 2010, the Internal Revenue
or drug (1) requires a prescription, Service issued Notice 2011-1 which
(2) is available without a prescription provides that compliance with Section
continued from page 1
but the individual has a prescription,
2716 of Healthcare Reform Act is not
or (3) is insulin. Cafeteria plans with
the value of coverage for adult children required until after either regulations
health flexible spending accounts may
who do not meet tax dependent status or other guidance has been issued.
need to be amended to address this
in the employee’s income for state tax Once this guidance is issued, it is
limitation. Pursuant to Notice 2010-
59, any such amendments must be purposes but not federal tax purposes. anticipated that non-grandfathered
adopted no later than June 30, 2011. Essentially, this is the reverse situation health plans will have some time to
Additionally, employers allowing the from what California employers must comply with the non-discrimination
use of debit cards for health flexible do with respect to domestic partner rules. Until then, the delay gives
spending accounts must address the coverage. Employers in California (and employers some additional time
substantiation requirements related other states that have not conformed to to look at their non-grandfathered
to the prescription. Check your the federal rules) should check to make health plans and look to alternative
plans now to see if you need an sure they are properly addressing this arrangements, if necessary. 
amendment!  tax issue. 
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3. HEALTHCARE REFORM UPDATE February 2011 Vol.1, No. 1
Around the Firm
Speeches: On December 8th, Heather Bader-Abrigo and Summer Conley conducted a webinar on “Healthcare Reform for
Employers” to R&R’s clients and advisors. On January 13th, Bruce Ashton presented a workshop on “Fiduciary Fallout: Educating
Clients on Fiduciary Duties and Protecting Yourself” at the Los Angeles Benefits Conference, held in Los Angeles, on January 12th
to the 14th.
Quotes: In the Year In Review 2010 issues of the Plan Sponsor magazine, Fred Reish was interviewed for the article “In the Footsteps
of a Fiduciary.” He was also quoted in the article “Excessive Forces,” published in the December 2010 issue.
Articles: In the Fall 2010 issue of WP&BC, Steven Wilkes wrote an article on “Your Retirement Plan Services Agreements: Every
Word counts!” In the December Issue of the Plan Sponsor magazine, Fred wrote a column entitled “Class—ifying Mutual Funds: The
Duty to Understand Mutual Fund Costs.”
Any tax advice contained in this communication (including any attachments) is neither intended nor written to be used, and cannot be used, to avoid penalties under
the Internal Revenue Code or to promote, market or recommend to anyone a transaction or matter addressed herein.
©2011 Reish & Reicher, A Professional Corporation. All rights reserved. The ERISA Audit Report is published as a general informational source. Articles are general in nature
and are not intended to constitute legal advice in any particular matter. Transmission of this report does not create an attorney-client relationship. Reish & Reicher does not
warrant and is not responsible for errors or omissions in the content of this report.
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