Benefits for Participants

Date: April 15, 2013
To: Boards and Administrators of Member Organizations Not Participating
From: Howard Van Mersbergen, Vice President of Employee Benefits

 

Flexible Benefits Plan Recent Update

We provide the Flexible Benefits Plan (Section 125 Plan) for our schools. Many of our schools find value with the Plan. The Plan provides for: (1) the deduction of insurance premiums pre-tax from employees’ paychecks; (2) a Health Flexible Spending Account (paying eligible medical expenses up to $2,500 per year with pre-tax dollars) ; (3) a Dependent Care FSA (paying for dependent care expenses up to $5,000 per year with pre-tax dollars); and (4) the ability to have Health Savings Account contributions deducted pre-tax from paychecks. Allowing for pre-tax deductions automatically leaves more money in the employee’s take home pay.

Employees save on taxes and the school saves on payroll taxes for every dollar contributed to the Plan.

We have recently updated the Plan as follows:

  • Health FSA election limits of $2500 (it used to be $3,000). The annual contribution to a Dependent Care Account is still $5,000 per calendar year.
  • Prohibition on Health FSA reimbursements for OTC (over-the-counter) drugs without a prescription
  • Coverage for expenses incurred by an adult child up to age 26, through the calendar year.
  • Elimination of the 2 - 1/2 month Grace Period. For more information, please see Update 63.
  • New HIPAA special enrollment rights relating to Medicaid and Children's Health Insurance Program coverage and premium assistance subsidies.
  • Clarification of rules regarding Dependent Care FSA qualifying expenses
  • “Excepted Benefits” information. Please keep reading for more information.


Top Seven Items Employers Miss With a Section 125 Plan

For Pre-tax Payroll Deductions the School Must Have a Section 125 Plan
If your school offers a medical or dental plan (or any other insurance plan) and has the employees’ premiums deducted pre-tax from their paychecks, the school must have a Section 125 in place. This is a federal regulation.

In addition, for pre-tax employee contributions to an HSA (a health savings account linked with a high -deductible medical plan), you are permitted to contribute to your HSA using one of these two methods: (1) you may contribute on a pre-tax basis through a Section 125 Plan, or (2) contribute to the HSA post-tax and claim the credit on your federal income tax return.

Using the Health FSA with HSA Plans
The Health FSA (flexible spending account) may be used for eligible expenses not reimbursed through another insurance plan. However, for a high-deductible health plan with an HSA component, FSA reimbursement is limited to dental and vision expenses only.

COBRA for the Flexible Benefit Plan
Federal COBRA law applies to participating schools that employ at least 20 full-time equivalent employees on a typical day of the calendar year. Employers who have fewer than 20 full-time employees may , however, be subject to mini-COBRA laws that a number of states have enacted to provide similar benefits for individuals whose employer is exempt from federal COBRA requirements.

Where federal or state COBRA laws do not apply, employers will have the flexibility to make such coverage available as they see fit (as long as any insurers whose coverage is involved agree to the arrangement).

For schools participating in the Flexible Benefits Plan, this COBRA election for eligible employees with a positive balance in their account can be done via the Insurance Office at no cost to the employer.

Participants Need to Re-Enroll or Waive Coverage Every Year
Every year at Open Enrollment all eligible staff need to sign an enrollment/waive form whether they plan to participate or not.

Some Eligible Expenses May Surprise You
While the most common covered expenses include co-pays, deductibles, prescription drugs, dental and vision care, there are plenty of expenses often eligible for reimbursement that may come as a surprise. They include acupuncture treatments; doctor-ordered weight loss programs; the additional costs of gluten free food items for those with diagnosed gluten sensitivity issues; mileage to/from medical appointments; and smoking cessation programs.

Plan Document, SPD, Non-Discrimination Testing and 5500’s
Every school that offers a Section 125 Plan is required to have (1) a plan document, (2) summary plan description (SPD) and (3) an annual non-discrimination test completed. In addition, for schools with more than 100 employees an annual 5500 report has to be filed with the IRS.

Every eligible employee should receive a copy of your summary plan description (SPD) when they are first eligible for the plan; and when there are any restatements or amendments to your SPD.

Therefore, you will want to have a copy of the plan document, SPD and the annual non-discrimination testing on file. For schools that are required to file an annual 5500 you will want to keep a copy of that document on file.

Schools save money on Payroll Taxes
As mentioned earlier, if the school offers the Flexible Spending Account portion of a Section 125, every dollar contributed by staff to a Flexible Spending Account (either the Medical Flexible Spending Account or the Dependent Care FSA), the school does NOT pay any payroll taxes on those employee contributions. Therefore, schools can actually save money by offering a Section 125 to staff.


Excepted Benefits

Health FSAs that are offered to employees who are NOT eligible for medical coverage are not considered "excepted benefits" and therefore become subject to ERISA and Tax Code requirements that otherwise would not apply.

Health FSAs that are not considered "excepted benefits" are subject to the following requirements:

  • Must offer full COBRA rights to those particular participants (rather than the limited COBRA rights that normally apply to Health FSAs).
  • Must offer an external review to individuals who appeal a denied request for benefits.
  • Must issue a HIPAA Certificate of Creditable Coverage to individuals who terminate their participation. 
  • Must provide Coverage for expenses incurred by an adult child up to age 26.
  • Are subject to the annual fees to fund comparative effectiveness research - IRS Form 720. Talk to your tax advisor / CPA.
  • Must allow individuals who experience HIPAA Special Enrollment Events to add or drop coverage, consistent with the event. 
  • Are subject to HIPAA nondiscrimination rules (usually a factor if the employer is providing a contribution to the FSA as a wellness program incentive).

Because these additional requirements can be administratively burdensome, you may want to consider (1) a rule that limits Health FSA participation to employees who are also eligible for coverage under the participating school's medical plan (i.e. have the same eligibility requirement for both plans); or (2) have a more generous set of rules for both groups of employees – i.e. one set of rules versus two.

Contacting Us for Support

If you have questions about the Flexible Benefits Plan or any previous Update, please visit our website at www.CSIonline.org –or- contact Sharon by phone at 616-284-3228 or
877-274-8796 x228, or by email at sfeikema@CSIonline.org.