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Phia Group Media


How Flexible Can Your Plan Be?

By: Kelly Dempsey, Esq.

Many federal regulations are set up to be a floor and not a ceiling – meaning employers and plans are permitted to be more generous than the federal regulation requires. This concept is important as we wade into unknown territories with the constant changes associated with coronavirus and the relevant employer and plan considerations. Two of the more common exceptions here are (1) permitted election changes for cafeteria plans under Code Section 125 and (2) requirements under HSA-qualified high deductible health plans (HDHPs), so we’ll review those quickly.

Section 125 contains specific events that qualify as permitted election changes – meaning if a specific event occurs, a participant may opt to modify their elections in the cafeteria plan (for example, stop paying premiums for medical coverage on a pre-tax basis or change how much is being contributed to an FSA or DCAP during the plan year). The rules indicate that an employer may include any of the permitted election changes in the cafeteria plan, but the employer is not permitted to provide options in addition to what the rules provide. Employers also do not have to include every permitted election change in their cafeteria plan, although most do choose to do so.

Our other example, IRS rules for HSA-qualified HDHPs, also have certain parameters for HDHPs where employers and plans are not allowed to be more generous (specifically, the minimum HDHP deductible and the maximum contribution to HSAs). Each year the IRS reviews these figures to determine if they should be modified based on cost of living changes.

In the absence of any federal or state law, employers with self-funded ERISA plans are generally permitted to expand continuations of coverage associated with leaves of absence or layoffs/furloughs (i.e., leaves and continuations not associated with FMLA or COBRA) for a timeframe that aligns with the employer’s business practices. In this time of great uncertainty with the spread of COVID-19, we understand many employers are in the process of laying off or furloughing employees due to financial strain or simply a stoppage or suspension of business operations. It’s highly likely that the federal government will issue additional guidelines related to leaves of absences and continuations of coverage in the near future, but until then, employers have broad discretion to amend their plans as they see fit. The key word here is “amend” – employers must go through the formal process of amending their SPD/PD if it does not align with the policy the employer is creating. Updating the SPD/PD to addressed modified continuations of coverage is crucial to ensure compliance with ERISA requirements and minimize the potential for creating a coverage gap with stop-loss. It’s still a bit unclear how stop-loss carriers will modify their processes (if at all) to accept changes to SPD/PDs in light of COVID-19 (i.e., if they will accept changes with less notice or if they’ll waive their right to modify premiums). The answers will likely reveal themselves soon.