PPI Benefit Solutions

COVID-19 Update

COVID-19 Vaccine FAQ, Updated 2/25/21

COVID-19 State Quick Reference Chart,Updated 1/22/21

Federal Updates

IRS Provides Guidance on CAA Changes to FSAs and DCAPs

On February 28, 2021, the IRS issued Notice 2021-15, which provides guidance for the benefits-related provisions in the Consolidated Appropriations Act of 2021 (CAA), specifically those related to health FSA and DCAP relief. The IRS also provided new guidance regarding additional mid-year election changes permitted for plan years ending in 2021.

The IRS guidance provided in Notice 2021-15 explains that:

With respect to health FSAs and DCAPs, a plan cannot adopt both a carryover and an extended grace period for the same plan year (which is consistent with general rules). Further, any health FSA or DCAP can adopt an extended grace period or carryover, even if the plan did not previously offer such provision.
An employer may choose to adopt an extended grace period less than 12 months in length. Similarly, an employer may choose to limit the carryover amount to less than the entire unused account balance and may limit the carryover to apply only up to a specified date during the plan year.
Unused DCAP amounts carried over from prior years or made available during an extended period for incurring claims are not considered in determining the annual limit applicable for the following year. However, Notice 2021-15 does not indicate whether amounts above $5,000 are subject to taxation. Without further guidance, DCAP benefits used above $5,000 in a calendar year will likely be treated as taxable income when participants file their tax returns. See this edition’s FAQ .
Prospective election changes may include an initial election to enroll in a health FSA or DCAP, which means that participants who initially waived coverage could make a new election to enroll mid-year without a qualifying life event. Further, employers may allow amounts contributed to a health FSA or DCAP after the prospective election change to be used for claims incurred prior to the election change.
- For example, Deborah elects $1,000 for her calendar year health FSA. Deborah’s employer implements the health FSA election relief allowing for a mid-year election change without a qualifying life event. In March, Deborah increased her election to $2,000. Deborah can be reimbursed on a $2,000 claim from January (even though the claim was incurred prior to her increased election). This also applies if she enrolled in coverage mid-year through an election change.
A plan can be amended to permit employees, on an employee-by-employee basis, to opt-out of a carryover or extended grace period. In addition, an employer may permit employees to switch from a general-purpose health FSA to an HSA-compatible FSA (e.g., limited-purpose dental/vision or post-deductible FSA) mid-year.
A plan may limit the time frame for which mid-year election changes may be made. Likewise, a plan can limit the number of mid-year election changes permitted without a qualifying life event.
Plans may limit post-termination participation in a health FSA to employee contribution amounts made during the plan year prior to termination (also known as the health FSA spend-down provision). In addition, this option is available to participants who cease participation in a health FSA because of termination of employment, change in employment status (such as a furlough), or a new election during calendar year 2020 or 2021. The IRS reiterates that a post-termination participant still has COBRA rights.
The special age limit relief for certain dependents who turned age 13 during the plan year is separate from the carryover and extended grace period relief. An employer that adopts the special age limit relief does not have to adopt the carryover or an extended grace period for employees to continue to use funds remaining from the previous plan year for such children.

Other Permitted Mid-Year Election Changes

In addition, the IRS provides that plans are permitted to allow participants to make mid-year election changes for employer-sponsored health coverage for plan years ending in 2021. Similar to earlier guidance provided in 2020 via IRS Notice 2020-29, a plan may permit employees to make a new prospective election if they originally declined coverage or revoke an existing election and make a new election to enroll in another group health plan sponsored by the same employer or other health coverage not sponsored by the employer (as long as the employee provides a written attestation to verify that they are or will be enrolled in coverage not sponsored by the employer).

Employer Action

Importantly, employers may choose to implement this relief, but are not required to do so. However, if employers do implement any or all this relief, it should be clearly communicated with employees. In addition, plan amendments are required. Further, the amendments can be retroactive if they are completed by the last day of the calendar year following the end of the plan year for which the change is effective (and, in the meantime, the plan operates in accordance with the terms of the amendment). This means amendments to plan years ending in 2020 would have to be completed by December 31, 2021.

IRS Notice 2021-15 »

Tenth Circuit Holds Divorce Decree Meets QDRO Requirements

In Festini-Steele v. ExxonMobil Corporation , No. 20-1052 (10th Cir. 2021), the US Court of Appeals for the Tenth Circuit recently held that a divorce decree can satisfy the ERISA requirements for a qualified domestic relations order (QDRO). As a result, the court determined that a deceased employee’s former spouse was entitled to his life insurance proceeds.

Under ERISA, plan benefits are generally not assignable. As federal law, ERISA supersedes any conflicting state law. An exception to the ERISA anti-assignment principle is a QDRO, which allows for a participant’s benefits to be payable to a spouse or dependent pursuant to a divorce or separation.

For a state court order to qualify as a QDRO, certain information must be included. Specifically, the order must include the name and address of the participant and alternate payee(s) (i.e., the spouse or dependent with a right to plan benefits), each plan to which the order applies, the amount or percentage of the participant’s benefits to be assigned (or the way such an amount would be determined), and the number of payments or period to which the order applies.

In this case, Billy Steele and Stela Festini-Steele were divorced in Colorado in 2014. Their separation agreement (which was incorporated in the divorce decree) required Billy, who worked for ExxonMobil, to maintain life insurance with Stela as beneficiary until the couple’s minor daughter, A.S., attained age 18. After the divorce, Billy remarried. In 2017, he died in a car accident; his daughter A.S. was four years old at the time.

Following the death, Stela contacted ExxonMobil, provided a copy of the divorce decree, and requested the benefit from Billy’s ExxonMobil life insurance plan. ExxonMobil denied the request and informed Stela that she was not a named plan beneficiary. In the denial letter, ExxonMobil determined the submitted divorce decree did not meet QDRO requirements because it failed to specify the insurance amount or benefit plan name.

Stela filed an ERISA civil enforcement claim against ExxonMobil. The district court ruled that the divorce decree was not a QDRO because it failed to identify a plan, the life to be insured or the named beneficiary. Additionally, in the district court’s view, the order did not clearly specify the amount or percentage of the participant’s plan benefits to be paid.

On appeal, the Tenth Circuit’s review focused upon the plan administrator’s denial of Stela’s claim (as opposed to the district court’s prior determination). Accordingly, the court discussed arguments raised by ExxonMobil during litigation, but emphasized that their ruling was based upon the issues cited in the plan’s administrative records.

In the opinion, the Tenth Circuit first addressed the requirement that a QDRO clearly specify the amount or percentage of the participant’s benefits to be paid by the plan to each alternate payee. The court determined that the divorce decree met this requirement by directing Billy to designate his former spouse as beneficiary and not identifying other beneficiaries, thus indicating she was the sole beneficiary and entitled to the full benefit.

The Tenth Circuit then considered the issue of whether the plan subject to the order was clearly identified. Here, the court highlighted language in the divorce order stating that “[t]he parties agree to the following terms relating to all life insurance accounts.” This provision was interpreted to require the participant to name his former spouse as beneficiary of all life insurance plans or policies insuring his life until their daughter A.S. turned eighteen.

Finally, the court noted that although the parties’ separation agreement warned that a separate QDRO may be necessary with respect to retirement plan benefits, this admonition does not preclude a plan administrator from determining that a DRO within which a separation agreement is incorporated is a QDRO.

As a result, the Tenth Circuit held the terms of the separation agreement incorporated within the divorce decree met the requirements of a QDRO. The district court’s judgment was reversed and the case remanded for entry of judgment in favor of the former spouse.

ERISA plan sponsors of group life insurance benefits, particularly those within the jurisdiction of the Tenth Circuit, should be aware of this ruling. Employers may want to review their QDRO procedures, to determine if any modifications are advisable.

Festini-Steele v. ExxonMobil Corporation »

Announcements

Reminder: Upcoming IRC 6055 and 6056 Reporting Deadlines

Employers that were ALEs in 2020 must comply with IRC Section 6056 reporting in early 2021. Specifically, ALEs must complete and distribute a Form 1095-C to full-time employees by March 2, 2021 (the IRS changed this from January 31, 2021). The form should detail whether the employee was offered minimum value, affordable coverage during 2020. The forms may be mailed, electronically delivered, or delivered by hand (although proof of delivery in some manner is recommended).

If an employer sponsored a self-insured plan during 2020, it must comply with Section 6055 reporting in 2021. Self-insured employers with 50 or more FTEs must complete Section III of Form 1095-C detailing which months the employee (and any applicable spouse and dependents) had coverage under the employer’s plan. If the self-insured employer has fewer than 50 FTEs, it must complete and distribute a Form 1095-B with such information. Again, the forms must be delivered to employees by March 2, 2021.

Employers must also file the forms with the IRS by March 1, 2021 (as February 28, 2021 falls on a Sunday), if filing by paper, and March 31, 2021, if filing electronically. Those that are filing 250 or more forms are required to file electronically. Lastly, the employer is required to file the transmittal Form 1094-C (if filing Forms 1095-C) or Form 1094-B (if filing Forms 1095-B).

As a reminder, the IRS recently provided penalty relief for employers that will allow them to forego distributing the Form 1095-B to individuals. This comes after the IRS accepted comments on the necessity of the Forms 1095-B now that the individual mandate penalty has been zeroed out. If employers post a notice on their website that the document is available upon request, and fulfil any such request within 30 days, then they will not have to distribute the Forms 1095-B to covered individuals. But keep in mind that there is no such penalty relief for Form 1095-C.

Form 1094-B »
Form 1095-B »
Form 1094-C »
Form 1095-C »
Instructions for Forms 1094-B and 1095-B »
Instructions for Forms 1094-C and 1095-C »

FAQ

If a participant is reimbursed more than $5,000 in a calendar year for dependent care FSA (DCAP) expenses due to an extended grace period or carryover provision, is the amount above $5,000 subject to taxation?

In short, likely yes.

Generally, a participant’s DCAP reimbursement amount in a calendar year is limited to $5,000 if the employee is married and filing a joint return or if the employee is a single parent (or $2,500 if the employee is married filing separately). Further, any account balances available at the end of the plan year are forfeited (unless the DCAP permits a grace period).

That said, the Consolidated Appropriations Act of 2021 (CAA) provides employers with relief options related to administering health FSAs and DCAPs. One such option provided by the CAA is that employers are permitted, if they choose, to allow up to the full year-end DCAP account balance to carry over into the subsequent plan year (a feature otherwise limited to health FSAs and capped at $550 as indexed). The CAA also permits an extended grace period up to 12-months (otherwise limited to 2.5 months) after the end of the plan year. Both the carryover and extended grace period provisions are applicable to plan years ending in 2020 and 2021.

The IRS released Notice 2021-15, clarifying much of the guidance provided in the CAA and confirming that unused DCAP amounts carried over from prior years or made available during an extended period for incurring claims are not taken into account in determining the annual limit applicable for the following year. Meaning, a participant who takes advantage of an extended carryover or grace period can still contribute up to the annual limit in the subsequent plan year.

However, despite having the ability for a carryover or extended grace period, neither the CAA nor Notice 2021-15 amend the annual DCAP limit permitted to be excluded from income. So any amount reimbursed over $5,000 in a calendar year will seemingly be subject to taxation. Let’s look at an example:

Robert had $1,000 in unused DCAP contributions in 2020. His employer chooses to adopt a carryover feature for the DCAP permitting the total unused account balance to be carried over into the following plan year. For 2021, Robert elects $5,000 in salary reductions for his DCAP. During 2021, Robert incurs and is reimbursed for $6,000 in DCAP expenses. When Robert files his tax return, he is only able to exclude from taxable income a maximum of $5,000 in DCAP expenses. The other $1,000 will likely be treated as taxable income.

While the DCAP relief allows participants to forgo forfeiting year-end account balances, any reimbursements over the annual limit will likely be treated as taxable income, without any further guidance. If employers choose to implement this relief, they should be sure to communicate that amounts over $5,000 reimbursed in a calendar year will likely be taxable income.

State Updates

Colorado

March 2, 2021

Emergency Regulation Establishes SEP for State Exchange

Effective February 5, 2021, the Division of Insurance adopted Emergency Regulation 21-E-02. This emergency regulation establishes a SEP for the state’s health insurance exchange, Connect for Health Colorado. The SEP begins on February 8, 2021, and extends through May 15, 2021.

While the creation of the SEP will affect individuals that will enroll on the marketplace, employers should be mindful of this extension in case there are employees who seek to drop coverage under their plans to take advantage of the SEP. Specifically, the permissible qualifying event for a revocation due to enrollment in a qualified plan will allow an employee to drop their employer’s plan mid-year if they intend to enroll in the marketplace.

Emergency Regulation 21-E-02 »

Emergency COVID-19 Regulation Extended

Effective February 24, 2021, the Division of Insurance adopted Emergency Regulation 21-E-03. This emergency regulation is an extension of regulation 20-E-17, which requires carriers to provide covered people with treatment related to COVID-19 and access to COVID-19 vaccines without cost sharing. This emergency regulation also ensures that out-of-network providers rendering emergency services for emergency medical conditions, including but not limited to COVID-19, are appropriately compensated for per regulation without delay. The regulation is in effect for 120 days or during any period in which a disaster declaration is in effect in the state of Colorado due to the presence of COVID-19, whichever is shorter.

Employers with plans regulated by the state should be aware of this emergency regulation.

Emergency Regulation 21-E-03 »

Hawaii

March 2, 2021

Voluntary Special Enrollment Period for Off-Marketplace Health Plans

On February 26, 2021, Commissioner Hayashida issued Memorandum 2021-1H, encouraging insurers to offer a special enrollment period (SEP) to permit individuals to enroll in ACA-compliant off-marketplace health plans. This SEP is encouraged as the federal marketplace will reopen for a 90-day SEP pursuant to President Biden’s executive order.

Insurers that choose to provide this parallel SEP to plans outside the marketplace should submit an informational filing with a letter and documents as required by the commissioner.

This information may be of use to employees who have not been able to enroll in other coverage. However, this SEP for non-exchange coverage would likely not give rise to a qualifying event that would allow employees to terminate their employer group health plan coverage. It is also important to note that these private health plans often meet ACA requirements, but consumers would not qualify for premium tax credits to help pay for them.

Employers with employees in Hawaii should be aware of this development.

Memorandum 2021-1H »

Illinois

March 2, 2021

Extension of Transition Policies for Non-ACA Compliant Plans

On February 10, 2021, Gov. Pritzker issued Company Bulletin 2021-01, permitting health insurance carriers to continue transitional health insurance plans that renew for a policy year starting on or before October 1, 2022, as long as the coverage comes into compliance by January 1, 2023. As background, on January 19, 2021, CMS provided guidance for a transition policy extension that allows insurers the option to renew non-grandfathered non-ACA-compliant plans, as long as the state allows. Such transition policies are not required to comply with certain ACA mandates including community rating, coverage of essential health benefits, prohibition on pre-existing condition exclusions, and the annual out-of-pocket maximum limit.

Transitional relief for these “grandmothered” plans has been extended several times before, and this bulletin applies the most recent federal extension to Illinois and allows insurers to renew policies in the individual market and the small group market according to the extended transitional policy for a policy year starting on or before October 1, 2022. This bulletin reflects the guidance allowing states the option to extend transitional policies for individual and small group health insurance plans that have continually been renewed since 2014.

Carriers must notify the Department of Insurance of their intention to operate under this transition guidance by April 30, 2021.

Small employers that are interested in renewing their non-ACA-compliant plan should work with their advisors and insurers.

Company Bulletin 2021-01 »

New Mexico

March 2, 2021

Superintendent of Insurance Issues Notice of SEP for State Exchange

On February 16, 2021, Superintendent Toal issued a notice announcing a special enrollment period (SEP) for the state’s health insurance exchange, beWellnm. The SEP follows that of the federal exchange: from February 15, 2021, through May 15, 2021.

Notice of Special Enrollment Period for Health Insurance »

New York

March 2, 2021

Coverage of Infertility Treatments Regardless of Sexual Orientation or Gender Identity

On February 23, 2021, the Department of Financial Services (DFS) issued Circular Letter No. 3 to insurers authorized to write accident and health insurance in the state, amongst other entities. The purpose is to direct insurers to provide immediate coverage of diagnostic and treatment services, including prescription drugs, for the diagnosis and treatment of infertility for individuals who are unable to conceive due to their sexual orientation or gender identity and are covered under individual, small group, and large group health insurance policies and contracts.

As background, the state’s definition of “infertility’ has evolved over time. In, 2019, this definition was amended to recognize that the determination of infertility may be made prior to the exhaustion of a 6 to 12 month period resulting in a failure to conceive, if warranted based upon an individual’s medical history or physical findings.

According to the letter, DFS became aware of issuers requiring some individuals to incur costs, due to their sexual orientation or gender identity, that heterosexual individuals do not incur to meet the definition of infertility. The issuers apparently denied coverage of basic infertility treatments for some individuals who were unable to conceive without such treatment due to their sexual orientation or gender identity. This resulted in these individuals incurring high costs of basic infertility treatments for up to 12 months to demonstrate infertility in order to qualify for insurance coverage due to their sexual orientation or gender identity, in violation of the state’s insurance laws.

Therefore, the letter requires issuers to provide immediate coverage for basic infertility treatments that are provided to individuals covered under an insurance policy or contract who are unable to conceive due to their sexual orientation or gender identity to prevent discrimination.

Although the letter is directed at insurers, employers may want to be aware of this communication.

Circular Letter No. 3 »

Virginia

March 2, 2021

Workplace Safety Standards Related to COVID-19

On February 15, 2021, the Virginia Department of Labor and Industry issued final regulations related to COVID-19 workplace safety standards. The rules were effective January 27, 2021, and apply to all employers subject to the authority of the Virginia Occupational Safety and Health Program (VOSH, which is the state version of OSHA). The purpose of the standards is to help control, prevent and mitigate the spread of COVID-19.

Employers must adopt and maintain the following standards until VOSH declares the end of the pandemic.

Employers must inform employees on how to self-monitor for signs and symptoms of COVID-19 and encourage employees to do so.
Employers may require COVID-19 testing as a condition to return to work. Employees cannot be required to pay for the cost of testing, though the group health plan may provide benefits. An employer may not require an antibody test as a condition to return work as the agency believes that is has not been determined that an individual with a positive test result is immune from infection.
Employers shall establish and implement policies and procedures that ensure employees observe physical distancing while on the job and during paid breaks on the employer's property, including the use of verbal announcements and signage promoting physical distancing. Limit access for non-employees. Close or control access to common areas, breakrooms and lunchrooms.
Make handwashing facilities and hand sanitizer available to employees.
Require face coverings when six feet of distance between individuals is not possible, including incidental events such as passing in a hallway. An exception must be made for any employee for whom doing so would be contrary to the employee's health or safety because of a medical condition.
All common spaces, including bathrooms (including port-a-potties), frequently touched surfaces and doors, shall at a minimum be cleaned and disinfected at least once during or at the end of the shift. Where multiple shifts are employed, such spaces shall be cleaned and disinfected no less than once every 12 hours.
All shared tools, equipment, workspaces and vehicles shall be cleaned and disinfected prior to transfer from one employee to another.
Employers shall develop and implement policies and procedures for employees known or suspected to be infected to return to work. Symptomatic employees are excluded from returning to work until all three of the following conditions have been met:
- The employee is fever-free (below 100.0° F) for at least 24 hours, without the use of fever-reducing medications
- Respiratory symptoms, such as cough and shortness of breath have improved
- At least 10 days have passed since symptoms first appeared
Asymptomatic employees who are known to be infected with COVID-19 must not return to the worksite until 10 days after the date of their first positive RT-PCR test for SARS-CoV-2 RNA.
Employers shall develop and implement policies and procedures for employees to report when they are experiencing signs or symptoms consistent with COVID-19, and no alternative diagnosis has been made.
If an employee or other person is known or suspected to be infected with COVID-19, the employer cannot permit that individual to remain at the worksite or customer location.
Employers must discuss with subcontractors and companies that provide contract or temporary employees the requirement to exclude from work employees or other persons (e.g., volunteers) who are known or suspected to be infected with COVID-19, and the importance of this requirement.
To the extent permitted by law, including HIPAA, employers shall establish a system to receive reports of positive tests by employees, subcontractors, contract employees and temporary employees who were present at the place of employment within two days prior to symptom onset (or positive test if the employee is asymptomatic) until 10 days after onset (or positive test). Following such a report, the employer must notify its employees who may have been exposed, as well as employees of another employer who were present at the worksite during the same period. The notification must be made within 24 hours of knowledge. The identity of the infected person must be kept confidential.
- Following a report of a positive test by an employer who had been at the worksite, the employer must also notify the building or facility owner. The owner must take the necessary steps to sanitize the common areas of the building and notify other tenants.
- When an employer has received two or more confirmed COVID-19 cases (of its own employees) within a 14 days, the employer must notify the Virginia Department of Health. For this purpose only, the employer must report the individual's name, date of birth and contact information. Such notification must be made within 24 hours of knowledge.

Additional requirements apply based on the risk level of exposure to COVID-19 in the workplace. For example, healthcare delivery is considered high risk level. Such an institution would have additional requirements related to ventilation and filtration systems.

While this issue is generally outside the scope of Benefits Compliance, we recognize the value of this information for our clients and encourage employers to work with outside counsel in developing policies and procedures in compliance with the state standards.

Regulations »

Washington

March 2, 2021

Extension of Emergency Orders on COVID-19 Testing and Surprise Billing

On February 19, 2021, Gov. Kreidler issued orders further extending emergency orders 20-01 and 20-06. Emergency Order 20-01, which has been extended through March 21, 2021, requires health insurers to waive copays and deductibles for COVID-19 testing. The order also requires insurers to allow a one-time early refill for prescription drugs.

Emergency Order 20-06, which has also been extended through March 21, 2021, protects consumers from receiving surprise bills for lab fees related to COVID-19 diagnostic testing. The order also encourages insurers to report out-of-network labs that are not publishing or honoring the cash price of COVID-19 diagnostic testing.

These orders apply to insurers but provide employers with information about the continued coverage of COVID-19 testing.

Further Extending Emergency Order 20-01 »
Further Extending Emergency Order 20-06 »

This material was created by PPI Benefit Solutions to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The service of an appropriate professional should be sought regarding your individual situation. PPI does not offer tax or legal advice. "PPI^®" is a service mark of Professional Pensions, Inc., a subsidiary of NFP Corp. (NFP). All rights reserved.

PPI in the News Compliance Corner - March 4, 2021 Archive
You are here: Home / PPI in the News / Compliance Corner - March 4, 2021 Archive

COVID-19 Update

Federal Updates

IRS Provides Guidance on CAA Changes to FSAs and DCAPs

Tenth Circuit Holds Divorce Decree Meets QDRO Requirements

Announcements

Reminder: Upcoming IRC 6055 and 6056 Reporting Deadlines

FAQ

If a participant is reimbursed more than $5,000 in a calendar year for dependent care FSA (DCAP) expenses due to an extended grace period or carryover provision, is the amount above $5,000 subject to taxation?

State Updates

Colorado

March 2, 2021

Hawaii

March 2, 2021

Illinois

March 2, 2021

New Mexico

March 2, 2021

New York

March 2, 2021

Virginia

March 2, 2021

Washington

March 2, 2021

FAQ

Compliance Corner Archive

PPI in the News Compliance Corner - March 4, 2021 Archive You are here: Home / PPI in the News / Compliance Corner - March 4, 2021 Archive

COVID-19 Update

Federal Updates

IRS Provides Guidance on CAA Changes to FSAs and DCAPs

Tenth Circuit Holds Divorce Decree Meets QDRO Requirements

Announcements

Reminder: Upcoming IRC 6055 and 6056 Reporting Deadlines

FAQ

If a participant is reimbursed more than $5,000 in a calendar year for dependent care FSA (DCAP) expenses due to an extended grace period or carryover provision, is the amount above $5,000 subject to taxation?

State Updates

Colorado

March 2, 2021

Hawaii

March 2, 2021

Illinois

March 2, 2021

New Mexico

March 2, 2021

New York

March 2, 2021

Virginia

March 2, 2021

Washington

March 2, 2021

FAQ

Compliance Corner Archive

PPI in the News Compliance Corner - March 4, 2021 Archive
You are here: Home / PPI in the News / Compliance Corner - March 4, 2021 Archive