Qualified Medical Child Support Order (QMSCO) & National Medical Support Notices (NMSN)

question 06272019

The Employee Retirement Income Security Act (ERISA) requires employment-based group health plans to extend health care coverage to the children of a parent-employee who is divorced, separated, or never married when ordered to do so by state authorities.

Generally, a State court or agency may require an ERISA-covered health plan to provide health benefits coverage to children by issuing a medical child support order. The court order forces coverage under the plan, even if the employee is not interested in obtaining plan coverage for the child.

Under ERISA §609(a), the group health plan must have procedures established to determine whether the medical child support order is “qualified”. Such an order is referred to as a Qualified Medical Child Support Order (QMCSO).

In addition, a State child support enforcement agency may obtain group health coverage for a child by issuing a National Medical Support Notice (NMSN). A NMSN is treated like a QMSCO if the group health plan determines it to be qualified (i.e. it’s appropriately completed by the agency).

Under the terms of the law, child support or other court orders which do not meet all the qualification requirements, are not “qualified” and plans are not required to provide any benefits to child, unless the deficiencies are later corrected.

Once a medical child support order has been determined to be a QMCSO, then the plan administrator must act in accordance with the order’s provisions as if it were part of the plan. (Qualified Medical Child Support Orders, Q/A 1-25)

Thus, plan administrators must comply with general QMCSO requirements when processing and administering benefits.  For instance: 

  • If the employee is eligible to participate in the plan, the child must be covered.
  • If, the employee is not enrolled in the plan, but as a condition for covering his dependents, the employee must be enrolled, the plan must enroll both.
  • If the employee named in a medical child support order has not satisfied the plan’s generally applicable waiting period, the administrator should have procedures in place so that the child will begin receiving benefits upon the employee’s satisfaction
    of the waiting period.
  • If a group health plan does not provide any dependent coverage, an order may not require a plan to provide dependent coverage when that option is not otherwise available under the plan
  • A child covered pursuant to a QMCSO is a “qualified beneficiary” with the right to elect continuation coverage under COBRA, if the plan is subject to COBRA and if the child loses coverage as a result of a qualifying event.

Employers are required to have written procedures for assessing and responding to QMSCOs/NMSN notices and may be subject to sanctions or penalties imposed under State law and/or ERISA for failure to respond and/or for non-compliance with a QMSCO/NMSN notice.

For additional information, check out:

  1. The DOL’s QMCSO Compliance Guide
  2. HHS Office of Child Support Enforcement Medical Support FAQs

 

 

 

Dependent Care FSA & Leave of Absence

daycare

When an employee takes a leave of absence (LOA), protected (e.g. FMLA) or unprotected, they may no longer be eligible for reimbursements from their dependent care FSA (which IRS regulations call a “DCAP” = dependent care assistance program) during their leave. However, they may still be able to participate in the DCAP depending on their employer’s LOA policy. 

REIMBURSEMENT

There are 2 conditions required for dependent care expenses to be eligible for reimbursement:

  1. employee must incur the expense to enable the employee and the employee’s spouse to be gainfully employed” – a facts and circumstances test
  2. the expense must be for the “care” of one or more “qualifying individuals”

In general, condition #1 is determined on a daily basis, however there are exceptions to the “daily basis” rule for certain, short, temporary absences (e.g. vacation, minor illnesses) and part-time employment.

This “exception” is based on the IRS regulations establishing a “safe harbor” under which an absence of up to two consecutive calendar weeks is treated as a short, temporary absence. However, whether an absence for longer than 2 weeks qualifies as short and temporary is determined on the basis of facts and circumstances.

Likewise, when it comes to FMLA, the IRS does not agree that one’s entire absence under FMLA (which guarantees eligible employees up to 12 weeks of unpaid leave for certain purposes) is appropriate as a temporary absence safe harbor, noting that an absence of 12 weeks “is not a short, temporary absence” within the meaning of the regulations See Preamble to Treas. Reg. §§1.21-1 through 1.21-4, 72 Fed. Reg. 45338 (Aug. 14, 2007).

PARTICIPATION

Although the employee may not be eligible to reimburse dependent care expenses while on leave, an employee on LOA may be able to continue to participate in (and make contributions to) a DCAP but any reimbursements from the DCAP will still be subject to the gainfully employed rule and would have to fall within the exception for short, temporary absences.

A DCAP (a non-health benefit) is not subject to FMLA continuation requirements, therefore it would be based on the employer’s policies regarding a leave of absence as to whether they are allowed to continue or revoke their election of “non-health benefits” under the cafeteria plan and how contributions are handled during an unpaid leave.

Employers need to understand the rules regarding DCAPs when an employee is on a leave, and make sure it was “reasonable to believe” that a expense is reimbursable or there may be adverse consequences (e.g. taxes, interest, penalties).  Likewise, if using a third-party administrator, ensure that appropriate measures are being taken too, because in general the employer will ultimately be responsible for such procedures, both under the services agreement with the TPA and under governing law.

 

Self-Insured Plans & Form 5500

Form 5500

When a plan is self-insured unless the assets are held in a trust* (e.g. VEBA), there usually is no Schedule A nor Schedule C included for the self-insured plan in a Form 5500 filing.

Schedule A is used to report “insurance contracts information” so by definition, a self-insured policy is not an “insurance contract”. They are self-insured benefits from the employer to the employee group and not reportable on a Sch A. Per the Form 5500 instructions: 

“Schedule A (Form 5500) must be attached to the Form 5500……if any benefits under the plan are provided by an insurance company, insurance service, or other similar organization (such as Blue Cross, Blue Shield, or a health maintenance organization)”

An ASO carrier may provide Schedule A information automatically to an employer leading to confusion. Some carriers do this proactively in the event the employer is required to file a Schedule A for the stop-loss coverage.  However, stop-loss insurance is fully insured benefits on the employer (vs employees) and typically not reportable unless the fund assets are held in a trust*.

Schedule C is used to provide information about service providers’ compensation & fees. However, there are rules exempting plans that satisfy Technical Release 92-01 and also welfare plans that satisfy DOL regulation § 2520.104-44 from having to complete and file a Sch C. Which in a nutshell means, self-insured plans that pay claims through the company’s general assets and take employee contributions pre-tax usually do not have a Schedule C requirement. It is only for “service providers” of plans funded via a trust*.

How Are Self-Insured Plans Reported?

The self-insured benefits on the employee’s, are included in the 5500 by virtue of a benefit code on line 8B (e.g. 4A=health coverage) of the Form 5500 and by checking general assets on line 9A/9B. (General assets would not be checked if all plans were fully insured.)

Form 5500 self insured

It is most common for a self-insured plan to pay claims from the employer’s general assets and take employee contributions via a cafeteria plan pretax, therefore no Schedule A nor C would be included for those self-insured plans in a Form 5500 filing.

*NOTE: The general rule is a Form 5500 is required for a plan with 100+ participants as of the first day of the plan year. There is an exception to this rule. A plan that is funded through a trust, is considered “funded” (the money is set aside for payment of claims) and therefore also would be required to file a form 5500 even if less than 100 participants.  

Mergers and Acquisitions – COBRA Continuation Coverage

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There are numerous implications for benefit plans as a result of a merger or acquisition (M&A). One question raised frequently by HR departments is, who is responsible for COBRA for the COBRA qualified beneficiaries?

In simplified terms, the COBRA M&A qualified beneficiaries consists of—

  • those qualified beneficiaries already receiving COBRA coverage before the sale under a plan of the seller as a consequence of employment associated with the assets or the entity being sold; and
  • those qualified beneficiaries who experience their qualifying event in connection with the sale.

Often during the M&A negotiations, the only due diligence done in regards to benefit plans is a quick check to make sure Forms 5500 have been filed (if applicable) and to make sure there are no outstanding lawsuits or audits. Therefore, when the purchase agreement is silent in regards to COBRA, or the agreement is not followed, one can look to the guidelines the IRS has established in the COBRA regulations as to which party is liable to provide COBRA continuation coverage in a business reorganization.

In general, unless the purchase agreement stipulates otherwise, if the selling group maintains a group health plan after the sale, then a group health plan maintained by the selling group must provide COBRA coverage to M&A qualified beneficiaries.

i.e. If the seller maintains any health coverage, even if the entity sold (or employees terminating) never participated in that particular coverage, then that health plan must be made available to M&A qualified beneficiaries

If no plan remains (e.g. the selling group ceased providing any group health plan) COBRA liability may shift to buyer if the sale is a stock sale, or it may also shift to the buyer if the sale is an asset sale and the buyer is a successor employer (which is a legal determination).

When in doubt, it is best to work with qualified counsel to ensure liability issues regarding COBRA continuation coverage in connection with a M&A are properly addressed.

REMINDER: Social Security No-Match Letter

what

The Social Security Administration has mailed “no-match letters” to more than 570,000 employers since March. (Some feel it’s been most heavily in the construction & agricultural industries.) The notices do not necessarily require employers to take action, but direct them to take steps to reconcile mismatches, which would require contacting the workers.

These letters are not the same as a TIN mismatch for ACA reporting, rather these no-match letters are related to the name and SSN reported on W-2s. There are many possible reasons for discrepancies between names and Social Security numbers, including typographical errors, clerical mistakes and name changes, the lack of lawful immigration status is a common one.

It remains unclear whether the Social Security Administration will share information about discrepancies with the immigration-enforcement agency and the mere receipt of a no-match letter does not lead to penalties. But Immigration and Customs Enforcement routinely asks firms subjected to I-9 audits whether they have received no-match letters, which can be used to prove that they had “constructive knowledge” of employing undocumented immigrants and raise the potential for criminal charges and hefty fines.

What do employers need to do if they receive one?

See my previous blog “Did you receive a “Social Security No-Match Letter?” for more details.

Not All Cafeteria Plans Are The Same

different

cafeteria plan is a mechanism that offers employees a choice between cash (i.e. their full salary as taxable income) or non-taxable qualified benefits (i.e. allows employees to pay with pre-tax dollars.)  All cafeteria plans are salary reduction plans based on Internal Revenue Code §125, however, there are many plan design variations and not all cafeteria plans are the same.

A Premium Only Plan (POP, also sometimes called a Premium Conversion Plan, PCP) is the simplest form of a cafeteria plan under IRS Code §125. It’s a “premium payment plan” and allows for employers to take certain employee paid premiums for insurance benefits pretax. (e.g. group health, dental, vision)

When you have a health and/or dependent care flexible spending account (FSA), that goes beyond the premium payment plan format because you are permitting employees to reduce their salaries before taxes to reimburse medical/childcare expenses.

In addition to the “rules” under IRS Code §125 found in a POP plan, FSAs are subject to special requirements contained in other IRS regulations.

Health FSAs are subject to requirements under Code §105 (self-insured medical reimbursement plans) Code §106 (the requirements for accident and health plans) and Code §125.

Dependent Care FSAs are subject to requirements under Code §129 (“Dependent care assistance programs”) and various special FSA requirements in Code §125 and IRS regulations. 

Therefore you need a more complex cafeteria plan document (often called a flexible spending plan) than a POP document to be in compliance when offering an FSA.  

The most complex form of a cafeteria plan, sometimes referred to as a “full flex” plan is where an employer provides employees “flex credits” to “spend” on qualified benefits. Depending on the plan design, the employee may be eligible to receive in cash, taxable compensation if the employee doesn’t “spend” all of his flex credits on benefits.

cafeteria

One requirement that every cafeteria plan must meet, is having a written plan document that includes all content specified in the IRS code. e.g. participation rules, election and election change procedures, manner of contributions, etc. 

While it is permissible to have separate cafeteria plan documents. i.e. a POP plan document for the insurance premiums and a separate cafeteria plan document for an FSA, for ease of administration most will include a POP component with in their flexible spending plan document.

According to the 2007 proposed cafeteria plan regulations (Treas. Reg. §1.125-1(c)(6))

(6) Failure to satisfy written plan requirements. If there is no written cafeteria plan, or if the written plan fails to satisfy any of the requirements in this paragraph (c) (including cross-referenced requirements), the plan is not a cafeteria plan and an employee’s election between taxable and nontaxable benefits results in gross income to the employee.

In simple terms, failure to have a written plan document employees would be treated as if they had a taxable benefit (e.g wages) even though they received a nontaxable benefit (e.g. health insurance).

The cafeteria plan document is what allows pretax salary reductions and contains the rules the IRS permits. It’s an important document to have and to understand.

 

 

 

REMINDER – PCORI Fees Due July 31, 2019

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Background:

The ACA imposes a Patient-Centered Outcomes Research Institute (PCORI) fee for all medical plans* ending on or after Oct. 1, 2012, and before Oct. 1, 2019.

If the plan is fully insured, the insurance carrier pays the fee on behalf of the plan sponsor (employer). If the plan is self-insured, the plan sponsor has the obligation to file Form 720 with the IRS by 7/31/2019.

NOTE: Health reimbursement arrangements (HRAs) are considered a self-insured health plan and are subject to PCORI fees. When an employer has an HRA with a fully insured medical plan, it’s considered two separate plans. The carrier pays the PCORI fee for the medical plan and the plan sponsor pays the fee for the HRA. When the employer has an HRA with a self-insured medical plan, they may be treated as one plan for purposes of calculating the PCORI fee.  

*PCORI Fees do not apply to

  • Plans providing HIPAA-excepted benefits e.g. stand-alone dental, vision, health FSAs (if other group health coverage is available and the employer contributes $500 or less)
  • Health Savings Accounts (HSAs)
  • Wellness programs, EAPs, disease management programs that do not provide significant benefits for medical care
  • Stop-loss insurance policies

Calculating the fee:

The amount of PCORI fees due for a self-insured medical plan is based upon the average number of covered lives (i.e. employees, dependents, COBRA participants, and covered retirees) under the self-insured medical plan and the applicable ERISA plan year (see table below).

The amount of PCORI fees due for an HRA is based upon the average number of covered employees (not belly buttons) under the HRA and the applicable plan or policy year.

Plan Year

Fee per average covered life

When fee must be paid

February 1, 2017 through January 31, 2018

$2.39

July 31, 2019

March 1, 2017, through February 28, 2018

$2.39

July 31, 2019

April 1, 2017 through March 31, 2018

$2.39

July 31, 2019

May 1, 2017 through April 30, 2018

$2.39

July 31, 2019

June 1, 2017 through May 31, 2018

$2.39

July 31, 2019

July 1, 2017 through June 30, 2018

$2.39

July 31, 2019

August 1, 2017 through July 31, 2018

$2.39

July 31, 2019

September 1, 2017 through August 31, 2018

$2.39

July 31, 2019

October 1, 2017 through September 30, 2018

$2.39

July 31, 2019

November 1, 2017 through October 31, 2018

$2.45

July 31, 2019

December 1, 2017 through November 30, 2018

$2.45

July 31, 2019

January 1, 2018 through December 31, 2018

$2.45

July 31, 2019

There are 3 acceptable methods for calculating the average number of covered lives:

  1. Actual Count Method – A plan sponsor may determine the average number of lives covered under a plan for a plan year by adding the totals of lives covered for each day of the play year and dividing that total by the total number of days in the plan year.
  2. Snapshot Method – A plan sponsor may determine the average number of lives covered under an applicable self-insured health plan for a plan year based on the total number of lives covered on one date (or more dates if an equal number of dates is used in each quarter) during the first, second or third month of each quarter, and dividing that total by the number of dates on which a count was made.
  3. Form 5500 Method – An eligible plan sponsor may determine the average number of lives covered under a plan for a plan year based on the number of participants reported on the Form 5500, Annual Return/Report of Employee Benefit Plan, or the Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan.

Once the average number is calculated, Form 720 is what is used to report and pay to the IRS the amount of the PCORI fee due.

Some tips for completing Form 720 for PCORI fees:

An employer/plan sponsor needs to complete:

  • Company information and quarter ending “June 2019” (e.g. for 2018 plan year filing) – although the fee is paid annually, the tax period for the fee is the 2nd quarter of the year
  • Part II, IRS No. 133 Applicable self-insured health plans
    • Column (a), row (c) if plan ended before October 1, 2018, – enter “Avg. number of lives covered for self-insured health plans”

OR

    • Column (a) row (d) if plan ended on or after October 1, 2018 and before October 1, 2019 – enter “Avg. number of lives covered for self-insured health plans”

AND

    • Column (c) – enter total Fee (lives x $)
  • Part II, Line 2 – enter Total Tax (from calculation in IRS No. 133)
  • Part III, Line 3 – enter Total Tax (from Part II, Line 2)
  • Part III, Line 10 – enter Balance Due (from Part III, Line 3)
  • Signature section
  • Payment voucher with “2nd Quarter” checked,
    • Send the form, payment voucher, and check to:
      Department of the Treasury
      Internal Revenue Service
      Cincinnati, OH 45999-0009

July 31, 2020 will be the final year for paying PCORI fees under the current ACA Risk & Market Stabilization Programs for plan years ending before October 1, 2019.

e.g.

Plan Year Fee per average covered life When fee must be paid
February 1, 2018 through January 31, 2019 $2.45 July 31, 2020
March 1, 2018, through February 28, 2019 $2.45 July 31, 2020
April 1, 2018 through March 31, 2019 $2.45 July 31, 2020
May 1, 2018 through April 30, 2019 $2.45 July 31, 2020
June 1, 2018 through May 31, 2019 $2.45 July 31, 2020
July 1, 2018 through June 30, 2019 $2.45 July 31, 2020
August 1, 2018 through July 31, 2019 $2.45 July 31, 2020
September 1, 2018 through August 31, 2019 $2.45 July 31, 2020
October 1, 2018 through September 30, 2019 $2.45 July 31, 2020
November 1, 2018 and all following renewals Fee expires for plans ending before 10/1/2019. No further payments required.