Moving With the Market: Defined Contribution Cost Delivery Model

At Spring we pride ourselves on helping employers find creative solutions for all of their insurance and benefits needs. In this market, rising healthcare costs, in tandem with a world in pandemic recovery and evolving workforce expectations, further necessitate innovative strategies. In this guide, we explore Defined Contribution (DC) Cost Delivery Models, outlining the different options, advantages, how to get started and a detailed client case study that exhibits proven results.

Download our guide here to ensure you are Moving With the Market.

Spring’s Managing Partner Makes Captive Review Power 50 List

Karin Landry Comes in at #17 of 50 Across the Globe

We are proud to announce that our Managing Partner, Karin Landry, has once again been named a Power 50 captive professional – a global accolade that recognizes the captive industry’s top performers and thought leaders. Karin has been named to this annual list for over a decade now, speaking volumes about her commitment to excellence within the captive space. It also exhibits her ability to meet and exceed expectations from clients, partners and colleagues, as it is driven by a peer-based voting system.

We want to thank Captive Review for assessing the top captive champions across the globe and giving them this esteemed acknowledgement, and we especially want to congratulate all the amazing talent represented on this list. We look forward to continuing to drive the industry forward with innovative thinking and quality, objective and results-driven work.

 

Harmonizing Your International Benefits

As Seen On Captive Insurance Company Reports

As organizations have grown and globalization has created an international workforce, a lot of employers are faced with challenges around the selection, administration, and management of their employee benefits across the globe. International benefits programs can be a complex maze to navigate, given the varying local cultures, business practices, and legislation.

We are seeing an uptick in organizations looking to harmonize their global programs. The COVID-19 pandemic has accelerated this need. With increasing globalization and limitations of travel, employees are spending more time online, virtually engaging with colleagues across the world. We have come to rely on digital connectivity, which makes it easier to share ideas and understand the experiences of others. As many organizations moved to a remote work environmeInternational Employee Benefitsnt, employees are wondering why they ever needed to be in a specific location every day, and relocation is on the rise. With all of this said, a siloed benefits program may not align with the upwards trend of globalization. As your international employees meet online, you will want them to find comparable policies and practices being followed, regardless of physical location.

Multinational corporations as employers are relying on businesses or consumers from other countries to drive business growth. It is important to understand how to appeal to a diverse customer and employee base—how to celebrate differences while bringing everyone together. Benefits and wellness programs can serve as a unifier, engrained in your culture as a way for employees to feel a sense of belonging. Creating and maintaining a strong culture are exceedingly difficult when you have an international workforce, and a synchronized benefits program is a great way to “unite” your people.

Traditionally, there have been two major schools of thought on international programs. One is to have a completely decentralized benefits program, where each country’s local teams have control over benefit offerings. This approach has the least resistance as local teams are able to make decisions in the best interest of the local employees. From a global perspective, this limits the benefits that accrue to the organization as there is no coordination of insurers, limiting the ability to get preferential pricing. From an employee’s perspective, moving from one country to another for short-term and long-term assignments can mean a complete overhaul of their benefits. Alternatively, the second approach is where the head office controls most major aspects of the benefit offerings globally—including the insurers and the benefit plan designs. This option usually generates savings for the company, as employers are negotiating for global contracts. However, local partners usually push back on this approach or require accommodations. Providing accommodations and carve-outs creates confusion and a lack of cohesiveness, eventually resulting in the slow disintegration of the global program.

One may wonder why creating such a program is the need of the hour. Most employers are interested in providing market competitive benefits in a cost-effective manner, while being able to leverage the scale of the company across the globe. A good benefits strategy also acknowledges and adjusts to local practices and cultural needs. Finally, employers are looking to ensure that the benefits they provide are valued by their employees, who represent a diverse population across the globe.

As you can see, both of the approaches mentioned have pros and cons, but most importantly, they do not provide a sustainable way to build a long-standing multinational employee benefits program. Luckily, there is a more advantageous option. Leveraging a captive can provide organizations with the ability to create a third kind of program structure, one which brings the positive aspects of the first two approaches and builds on them to create a framework that adds value to all stakeholders—employees, employer, local, and international human resources (HR) teams.

This approach allows for centralized decision-making as it relates to insurer selection. Most of the clients we work with choose to select one or two multinational insurers, creating flexibility for local teams. Due to a stronger employer negotiating position, the centralized insurer selection process ensures lower rates and pricing across benefit lines and geographies. The transaction is structured such that the risk associated with benefits is ceded by the insurers to the employer’s captive, where it is pooled across all lines of coverage and countries. This creates greater stability for the program as a whole and limits the possible rate increases for programs and countries due to one bad claims year. Using the captive also provides employers with the ability to go beyond what local insurers will provide. Since the risk of the plan is with the captive, the insurers operate as third-party administrators and are usually willing to provide better coverage terms than under traditional fully insured plans. In addition, in cases where employers are looking to go above and beyond to provide better-than-market benefits, the captive can help fund these elements at cost. For instance, we helped a major technology employer looking to provide HIV-related coverage for its employees across the globe, and they were able to have the benefit be administered by the insurers on a local basis and pay for it through the captive. Without a captive, funding for this coverage might be difficult as local insurers may not know how to price this coverage or may not want to cover it under their plan design at all. In addition to HIV, mental- and nervous-related benefits along with fertility programs are other popular coverage employers like our client mentioned are providing in this manner, as many countries do not offer these benefits as part of their standard offerings, but they are benefits yielding an increasing employee interest.

From a local HR perspective, such a program provides some flexibility for insurer selection while being able to control local plan offerings. The additional plan offerings that may not be provided on a local level create a huge value proposition, ensuring local HR buy-in for this program.

Captives and multinational benefits programs not only save money while providing better benefits, but they also provide a holistic view of the programs from a risk management perspective and lower the administrative burden. To recap, here are some advantages that make such a program extremely attractive.

  • Fill gaps in critical coverage. Cultural norms and market availability play a huge role in what your employees across the globe want and what they can access. A benefit available in the United States may not be available through commercial insurers in Brazil. A captive allows for customized coverage and can help even the playing field for your international employees. For instance, COVID-19 has heightened the need for covered mental health assistance as a component of a health plan. A lot of international plans do not provide this essential benefit. A captive is a cost-effective way of obtaining this coverage for all of your employees.
  • Obtain higher limits. Using multinational pooling programs and captives allows employers to increase the coverage limits available to local employees. For instance, most insurers have filed local policies allowing for life insurance benefits of up to $5 million in most countries. However, they offer guaranteed issue limits of around $500,000 in international markets. Using this approach, we have seen insurers increase guaranteed issue limits.
  • Improve your reporting. A captive allows the parent organization to be one step closer to claims and plan activity. With fewer intermediaries than a traditional insurance structure, a captive leads to greater transparency and faster access to data. As a result, captive owners have enhanced data management and tracking capabilities they can use to inform decisions in real-time. This way, you can follow your investment closely and understand your return or where changes need to be made. With a global workforce, this becomes critical.
  • Gain flexibility. In traditional fully insured programs, there are limitations on the plan designs you can create. A captive creates an opportunity to customize your plans according to your unique workforce, and with a range of international needs, this will become even more valuable. COVID-19 has shed light on the importance of such flexibility, with organizations seeing changes in exposures and gaps they did not know existed.
  • Lessen your administrative burden. By eliminating conflicts and engagements with local brokers, employers reduce the time spent on administration as these needs are met by a centralized team of support staff who have all your plan information and do not need to be brought up to speed on the cultural nuances of the programs and geographies. Also, captives eliminate the need for bidding exercises and negotiations on both the central and local levels. Due to the transparency of a captive program, there is almost no need for the bidding of insurers to get lower pricing. The captive is capturing any surplus in pricing and using it to provide improved benefits to the employees.
  • Answer to a hardening market. We saw markets starting to harden last renewal season, which is a phenomenon caused by a culmination of regulatory changes and financial markets. These, along with a global pandemic, have caused insurance markets to harden at a faster rate. Today, insurers are dealing with poor investment income. With most being public companies, insurers are facing pressure to keep their share prices buoyant, requiring higher profit margins. This series of challenging circumstances is likely to result in an increase in premiums. Globalization means that no region is isolated from such conditions, and by harmonizing your international benefits, you will have more leverage to negotiate based on economies of scale. A captive is a tactical response to a hardening market with their ability to customize the coverage and fund unique expenses such as those related to COVID-19.

Maintaining an international benefits program that is comparable in value across your diverse workforce is no small feat. With globalization, digitization, and relocation on the rise, your employees are not siloed within their geography, and an integrated benefits program can serve to bring your employees together and improve your corporate culture. We have seen great success with multinational corporations moving toward a more centralized approach, where the same robust set of benefits can be offered to employees across the globe. By pairing this strategy with a captive, you can offer enhanced benefits, additional coverage, and plan designs customized for your population, all while generating savings, improving your data and reporting, and “future-proofing” your benefits program. If you have questions about how to get started on harmonizing your international benefits or are not convinced why you should, please get in touch.

Congress Passes the American Rescue Plan Act

Congress has passed, and President Biden has signed, the American Rescue Plan Act, 2021 (ARPA), the third COVID-19 stimulus bill.  This new $1.9 trillion stimulus package includes several health and welfare benefits-related provisions relevant to employers and plan sponsors, as summarized below. COVID-19 law

FFCRA Paid Leave Extended and Enhanced

While COVID-19 vaccines are starting to become more readily available, the pandemic continues. In recognition, Congress extended through September 30, 2021, the refundable payroll tax credits for emergency paid sick leave (EPSL) and extended family and medical leave (E-FMLA), which were enacted pursuant to the Families First Coronavirus Response Act.  As with the extension through March 31, 2021 under the second stimulus package (the Consolidated Appropriations Act, 2021), only the tax credits are extended, which means compliance with the EPSL or E-FMLA requirements is voluntary for employers after December 31, 2020.

The ARPA expands FFCRA leave in several ways for employers who choose to offer it from April 1, 2021 through September 30, 2021:

  • The 10-day limit for EPSL resets as of April 1, 2021. Employees were previously limited to 80 hours from April 1, 2020 through March 31, 2021.
    • Paid leave continues to be limited to $511 per day ($5,110 total) for an employee’s own illness or quarantine (paid at the employee’s regular rate), and $200 per day ($2,000 total) for leave to care for others (paid at two-thirds of the employee’s regular rate).
  • A new “trigger” is added under both the EPSL and E-FMLA provisions.  Employees qualify for leave if they are:
    • seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19, and the employee has been exposed to COVID–19 or the employee’s employer has requested such test or diagnosis;
    • obtaining immunization related to COVID–19; or
    • recovering from any injury, disability, illness, or condition related to such immunization.
    • MBWL Note:  The ability of an employer to receive a tax credit for providing paid time off for an employee to receive the vaccine is a clear indication of the federal government’s desire to facilitate employees receiving a vaccine.
  • Leave under the E-FMLA provision is increased from $10,000 to $12,000, with $12,000 being the maximum an employer may claim for an employee in 2021.
  • Leave under the E-FMLA provision is expanded to be available for any EPSL-qualifying reason, which is when an employee is unable to work or telework because the employee:
    • is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
    • has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
    • has COVID-19 symptoms and is seeking medical diagnosis;
    • is caring for an individual who is subject to a quarantine or isolation order;
    • is caring for a child if the school or day care center has been closed, or the child-care provider is unavailable, due to COVID-19 precautions; or
    • is experiencing any other substantially similar condition specified by the regulatory agencies.
  • E-FMLA leave taken on or after April 1, 2021 is not subject to the 10-day elimination period that applied previously under FFCRA.
    • An employee’s eligibility for E-FMLA may depend on when they used E-FMLA previously and how the employer establishes its 12-month FMLA period (e.g., calendar year, fixed period, measure-forward, or “rolling” 12 months).
  • For leave taken on or after April 1, 2021, the employers may take a credit against Medicare payroll tax only (1.45%); however, the credit continues to be refundable.
    • ESPL and E-FMLA credits are available for qualified health plan expenses and for the employer’s share of Medicare and Social Security taxes.
  • ARPA clarifies that refundable credits may be received by state and local governments that are tax exempt under Code 501(a).
  • ARPA adds a new nondiscrimination requirement that eliminates the credit for any employer that discriminates in favor of highly compensated employees, full-time employees, or employees based on tenure.

Dependent Care Assistance Program Limit Increase

In February, the IRS released Notice 2021-15, which provides guidance related to the relief for health FSAs and dependent care assistance programs (DCAPs) contained in the second stimulus bill. Unfortunately, the Notice failed to clarify with any certainty whether an employee may be taxed on any DCAP reimbursements in excess of $5,000 for the calendar year.  That issue is now settled by the ARPA, which increases the DCAP exclusion from $5,000 to $10,500 (from $2,500 to $5,250 in the case of a separate return filed by a married individual) for 2021. This relief is only available for calendar year 2021; however, it also implies that an employee could elect to increase their DCAP election to the newly available $10,500 limit for 2021 (based on the relief in Notice 2021-15).  A DCAP must be amended by the end of the 2021 plan year to take advantage of the increased exclusion limit.

Temporary Premium Tax Credit Enhancements

The Affordable Care Act’s premium tax credit program is significantly enhanced for 2021 and 2022. The existing income limit of 400% of the federal poverty level, after which individuals will no longer qualify for a premium tax credit, is lifted for 2021 and 2022. In addition, the applicable percentage of household income that individuals must pay for Marketplace coverage has been reduced at all income levels.  Special rules also apply to those individuals receiving unemployment compensation during 2021.

MBWL Note: The increased eligibility for premium tax credits makes it ever more important for applicable large employers (ALEs) to offer affordable, minimum value coverage to their full-time employees to avoid potential penalty exposure.

Temporary PTC Percentages Under ARPA
In the case of household income (expressed as a % of poverty line) within the following income tier: The initial premium percentage is— The final premium percentage is—
Up to 150.0% 0% 0%
150% to 200% 0% 2%
200% to 250% 2% 4%
250% to 300% 4% 6%
300% to 400% 6% 8.5%
400% and up 8.5% 8.5%

 

2021 PTC Percentages (Pre-ARPA)
In the case of household income (expressed as a % of poverty line) within the following income tier: The initial premium percentage is— The final premium percentage is—
Up to 133.0% 2.07% 2.07%
133% to 150% 3.10% 4.14%
150% to 200% 4.14% 6.52%
200% to 250% 6.52% 8.33%
250% to 300% 8.33% 9.83%
300% to 400% 9.83% 9.83%
400% and up Ineligible for PTC

COBRA Subsidy

The ARPA provides significant assistance to employees and their families who are eligible for COBRA (or state mini-COBRA) due to an involuntary termination of employment or reduction in hours.  The law provides a 100% subsidy for COBRA premiums from April 1, 2021 through September 30, 2021. The subsidy applies to group health plans other than health FSAs.

Employers who are subject to COBRA under ERISA (private employers) or the PHS Act (state and local governmental employers) are responsible for complying with the COBRA subsidy provisions.  Insurance companies are responsible for complying with the COBRA subsidy provisions for insured group health plans that are not subject to federal COBRA (e.g., when state “mini-COBRA” requirements apply to small plans that are not subject to federal COBRA, or to large group plans after federal COBRA is exhausted).  Additional highlights include:

  • The subsidy applies to an “assistance eligible individual” (AEI) who is any COBRA qualified beneficiary who is eligible for, and elects, COBRA during the period of April 1, 2021 through September 30, 2021, due to an involuntary termination of employment or reduction in hours.  (The reduction in hours is not required to be involuntary.)
  • AEIs must be offered at least a 60-day window within which to elect COBRA coverage.
    • The 60-day period begins April 1, 2021 and ends 60 days after the date the notice is provided to the individual.
    • AEIs include individuals in their COBRA election period, and individuals who would be AEIs but whose COBRA coverage lapsed due to non-payment prior to April 1, 2021.
    • MBWL Note: Many AEIs will still be within their COBRA election period as a result of the Department of Labor’s disaster relief (Notice 2021-01).
  • COBRA coverage elected during the subsidy period will be effective April 1, 2021; employees are not required to elect retroactive to the date of their qualifying event or any other date prior to April 1, 2021, nor are they required to pay outstanding premiums for prior periods of coverage in order to secure subsidized coverage.
  • Employers will be entitled to an advanceable, refundable tax credit against Medicare payroll taxes (1.45%) to pay for coverage during the subsidy period. The DOL will provide forms and instructions for employers to apply for the credit.
    • Additional guidance is expected for multiemployer (union) plans and professional employer organizations (PEOs).
  • The subsidy is available until the first to occur of:
    • the qualified beneficiary becoming eligible for other group health plan coverage (other than coverage consisting only of excepted benefits, such as dental or vision, coverage under a health FSA, or coverage under a qualified small employer health reimbursement arrangement (QSEHRA));
    • the qualified beneficiary becoming eligible for Medicare;
    • the end of the qualified beneficiary’s maximum COBRA duration; or
    • September 30, 2021.
  • Qualified beneficiaries who fail to notify the plan that they are no longer assistance-eligible can be liable for a $250 penalty, which may be waived if the failure was due to reasonable cause and not willful neglect. An intentional failure can result in a penalty of $250 or 110% of the amount of premium assistance received, if greater.
  • Employers may allow currently enrolled AEIs to select new plans.  An individual has 90 days from the date they are notified of the enrollment option to elect a different plan.  This option is available only if:
    • the premium for such different coverage does not exceed the premium for coverage in which such individual was enrolled at the time such qualifying event occurred;
    • the different coverage in which the individual elects to enroll is coverage that is also offered to similarly situated active employees; and
    • the different coverage is not coverage consisting only of excepted benefits, such as dental or vision, coverage under a health FSA, or coverage under a QSEHRA.
  • Required Notices to Individuals
    • General Notice / Notice of Subsidy Availability. Individuals who become eligible to elect COBRA during the subsidy period (April 1, 2021 – September 30, 2021) must be provided a notice that describes the availability of the premium assistance. The notice requirement may be satisfied by amending existing notices or by including a separate attachment. The notice must include:
      • the forms necessary for establishing eligibility for premium assistance;
      • the name, address, and telephone number to contact the plan administrator and any other person maintaining relevant information in connection with such premium assistance;
      • a description of the extended election period;
      • a description of the obligation of the qualified beneficiary to notify the plan when they are no longer eligible for a subsidy and the associated penalty for failure to do so;
      • a description, displayed in a prominent manner, of the right to a subsidized premium and any conditions thereon; and
      • a description of the option to enroll in different coverage if the employer so permits.
    • Notice of Extended Election Period. AEIs must be offered at least a 60-day window within which to elect COBRA coverage.
      • The 60-day period begins April 1, 2021 and ends 60 days after the date the notice is provided to the individual.
      • This includes:
        • individuals terminated on or after April 1, 2021;
        • individuals in their COBRA election period on April 1, 2021 (including any COVID-19-related extensions); and
        • individuals who would be AEIs but whose COBRA coverage lapsed due to non-payment prior to April 1, 2021.
    • Notice of Subsidy Expiration. Informs AEIs that the subsidy period is ending.
    • The notice must disclose that:
      • premium assistance for the individual will expire soon and the date of such expiration;
      • the individual may be eligible for coverage without any premium assistance through COBRA or coverage under a group health plan.
    • The subsidy expiration notice is not required if the subsidy is ending due to the individual becoming eligible for another group health plan or Medicare.
    • This notice must be provided not more than 45 days but no less than 15 days before the premium assistance ends.
    • Model Notices. The DOL must issue model notices of subsidy availability and extended election period within 30 days of enactment, and a model notice of subsidy expiration within 45 days of the law’s enactment.

What Does This Mean For Employers?

Employers and plan sponsors should consider whether they will adopt the extended FFCRA leave provisions and/or use them to incentivize employees to receive a COVID-19 vaccine. They should also ensure their COBRA vendors are prepared to assist in identifying and notifying assistance eligible individuals within 60 days of April 1, 2021.  The DOL also plans to provide outreach consisting of public education and enrollment assistance relating to premium assistance. Their outreach will target employers, group health plan administrators, public assistance programs, States, insurers, and other entities as the DOL deems appropriate. The outreach will include an initial focus on those individuals eligible for an extended election period. We also expect the DOL and other agencies to issue guidance on various issues related to the subsidy in the coming weeks.

About the Author.  This alert was prepared for Alera Group by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on ERISA-governed and non-ERISA-governed retirement and welfare plans, executive compensation and employment law.  Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2021 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

Legal Alert: IRS Provides Guidance on FSA Relief Authorized in the Consolidated Appropriations Act, Grants Other Cafeteria Plan Relief

IRS Provides Guidance on FSA Relief Authorized in the Consolidated Appropriations Act, Grants Other Cafeteria Plan Relief

We are just weeks shy of the one-year anniversary of the President’s declaration of the COVID-19 National Emergency, and the COVID-19 National and Public Health Emergencies are still in effect.  As a result of the long-term impact of the pandemic, many employees faced forfeiting their unused health FSA and dependent care assistance program (DCAP) funds at the end of the 2020 plan year.COVID-19 law

As a result, and as we previously reported, a second stimulus relief bill (the Consolidated Appropriated Act, 2021) was signed into law on December 27, 2020, which provided much-needed relief for health FSAs and DCAPs.  On February 18, 2021, the IRS released Notice 2021-15, which provides additional guidance related to the relief in the stimulus bill as well as further relief for cafeteria plans and HRAs.  The guidance and relief are summarized in more detail below.

IRS Guidance Related to the Second Stimulus Bill (CAA, 2021)

Health FSA and DCAP Carryovers – The stimulus bill authorized employers offering a DCAP or health FSA to allow participants to carry over all unused DCAP and health FSA contributions or benefits remaining at the end of the 2020 plan year to the 2021 plan year.  Notice 2021-15 clarifies that:

  • Employers may require employees to make an election in the 2021 or 2022 plan year to access the carryover from the previous plan year.
  • The carryover relief applies to all health FSAs, including limited purpose health FSAs.
  • If an employee uses the mid-year election change relief discussed elsewhere in this alert to prospectively elect to participate in the health FSA mid-year, the employee can access the full amount of their carryover from 2020 retroactive to January 1, 2021.
  • Employers can restrict the amount employees can carryover, i.e., they do not have to allow the full unused amount from 2020 or 2021. Employers need to specify the limit to employees in the plan amendment and any communications to employees.
  • Employers may allow employees to opt out of the carryover to preserve HSA eligibility.
  • The amount carried over may be from multiple plan years, i.e., if an employee has a remaining balance at the end of the 2020 plan year and it is still remaining after the end of the 2021 plan year, it will be accessible during the 2022 plan year (as a carryover) if the employer adopts the carryover relief for the 2021 plan year.

Extended Grace Period – Employers offering a DCAP or health FSA may extend the grace period for using any benefits or contributions remaining at the end of a plan year ending in 2020 or 2021 to 12 months after the end of the applicable plan year.  The Notice clarifies that:

  • The extended grace period is available for up to 12 months, meaning employers may elect a shorter period of time.
  • The relief applies to both general purpose and limited purpose health FSAs.
  • For purposes of HSA eligibility, employers can permit employees to opt out of the extended grace period.

 

Spend Down – Similar to DCAPs, employers offering a health FSA may allow participants who cease participation during the 2020 or 2021 plan year to continue to be reimbursed from any unused benefits through the end of the plan year (and applicable grace period) in which participation ceased.  In Notice 2021-15, the IRS clarified the following:

  • Employers do not have to allow employees who terminate mid-year to spend down for the remainder of the plan year.  Instead, they can adopt a shorter period of time.
  • The spend-down can be used for anyone who terminates employment, loses eligibility for the plan due to a reduction in hours, or loses eligibility because they made a new election during calendar year 2020 or 2021.
  • Even if the employer adopts the spend-down relief, it must still offer COBRA for individuals with an underspent health FSA account.  The COBRA premium established by the employer cannot include the amount carried over or available due to the extended grace period relief.

 

DCAP Reimbursement for Children Who Turned 13 During the Pandemic – Employers offering DCPAs in plan years with open enrollments that ended on or before January 31, 2020 may choose to reimburse employees for dependent care expenses for children who turned 13 during the pandemic. The relief applies for the subsequent plan year (e.g., calendar year 2021 plans) to the extent the employee has a balance at the end of the 2020 plan year after any relief adopted by the employer.  The IRS clarified that:

  • The employer may adopt this relief without also adopting the extended grace period or carryover.

Health FSA and DCAP Election Changes – Employers offering a health FSA or DCAP may allow employees to make prospective election changes (subject to annual limitations) to their 2021 contributions without experiencing a change in status event. The IRS clarified the following:

  • Employers may allow employees to make the following changes on a prospective basis:
    • Revoke an election
    • Make one or more elections; or
    • Increase or decrease an existing election

If an employee elects to revoke DCAP or health FSA expenses, the employer may not refund any contributions to employees.  The employer may choose to treat the contributions made before the elections are revoked the following ways:

  • The contributions may remain available to reimburse medical or dependent care expenses incurred for the rest of the plan year;
  • The contributions are only available to reimburse expenses incurred before the revocation takes effect (and not later incurred expenses); or
  • The contributions are forfeited.

If the employer takes the second or third approaches listed above, then the health FSA is no longer treated as HSA-disqualifying coverage.  Therefore, an impacted employee could begin participating in an HSA as soon as health FSA participation is terminated.

Other FSA Clarifications

The IRS further clarified that employers may adopt an extended grace period or carryover, but not both.  Employers can adopt some, all, or none of the FSA relief provided under the stimulus bill.  The relief is also available to employers who previously did not offer a carryover or grace period – they can adopt them for the 2020 and 2021 plan years so employees may benefit from the relief.

Further, the employer can adopt relief for some, but not all health FSA or DCAP participants, subject to nondiscrimination rules; however, any amount carried over or the extended grace period will not be taken into account for purposes of nondiscrimination testing.

Additionally, the IRS clarified that, for purposes of the relief, employers may amend the plan to allow employees to make a mid-year election to be covered by a general purpose health FSA for part of the year and a limited purpose health FSA for the remainder of the year. If the employee does so, then any permissible HSA contribution is based on the number of months the employee was covered under the limited purpose health FSA.  Further, unused amounts in the limited purpose health FSA can be transferred to the general purpose health FSA or vice versa; however, the general purpose or limited purpose health FSA can only reimburse applicable (based on the type of health FSA), allowable expenses incurred after the change in coverage, respectively. If, under the relief, an employee makes a mid-year election change from an HDHP to a non-HDHP mid-year and elects to participate in a health FSA, then the health FSA must be operated as a limited purpose health FSA for the months the employee was otherwise HSA-eligible, and then may operate as a general purpose health FSA for the remaining months (when the employee was not enrolled in HDHP coverage).

Finally, the IRS clarified that in no instance can an employee receive a refund of any unused FSA contributions in cash or in another form of taxable or non-taxable benefits.

Unfortunately, the IRS failed to clarify with any certainty whether an employee may be taxed on any DCAP reimbursements in excess of $5,000 for the calendar year.  While the relief provides that the annual limits under Section 129(a) of the Code apply to amounts contributed to the DCAP for the plan year, not the amounts reimbursed or available for reimbursement, if the employer adopts the extended grace period or carryover, this does not directly answer the question.  The guidance does, however, clarify that the W-2, Box 10 amount for the DCAP does not need to be adjusted to take into account the amount available in the extended grace period or carryover.  We also note that the American Rescue Plan Act of 2021, a bill to enact President Biden’s COVID-19 relief package, includes a provision that, if passed, would increase the DCAP exclusion from $5,000 to $10,500 (from $2,500 to $5,250 in the case of a separate return filed by a married individual) for 2021.

Additional IRS Relief

Notice 2021-15 also includes additional relief for cafeteria plans and HRAs.

Election Changes for Health Coverage – Similar to the IRS’ initial COVID-19 relief issued last year in Notice 2020-29, Notice 2021-15 allows employers to amend their cafeteria plan to allow employees to make mid-year election changes with respect to employer-sponsored health coverage. Specifically, employers may allow employees to do the following on a prospective basis:

    • Make a new election if the employee initially declined coverage;
    • Revoke an existing election and make a new election to enroll in different health coverage sponsored by the employer; or
    • Revoke an existing election on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer.

As was the case in 2020, the employer can adopt all, some, or none of this relief.  Employers can limit the number of election changes permitted and/or designate a time period during which such changes can be made, and the employer may limit the ability of employees to change from one type of health plan to another. Finally, the employee may not revoke an existing election for comprehensive health coverage by attesting to enrollment in a limited purpose dental and/or vision plan.

 

HRAs and FSAs

Pursuant to the CARES Act, employers were permitted to amend their plans to allow HRAs, health FSAs to reimburse expenses incurred for over-the-counter drugs without a prescription, as well as menstrual care products effective January 1, 2020. These expenses can also be reimbursed under HSAs and Archer MSAs.  In the Notice, the IRS permits employers to amend their cafeteria plans (for purposes of the health FSA) and HRAs to reimburse these expenses effective January 1, 2020.

What Does This Mean For Employers

Pursuant to Notice 2021-15, employers must amend their plan to adopt any of these changes no later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective.  In other words, employers must amend a calendar year 2020 plan by December 31, 2021, and a calendar year 2021 plan by December 31, 2022.  In the meantime, the employer must communicate these changes to employees and must operate the plan in accordance with the changes between the time the amendment is effective and when it is ultimately adopted by the employer.  Employers should effectively communicate the changes to employees and ensure they operate in accordance with those communicated changes, including any limits they intend to impose.


About the Author.  This alert was prepared for Alera Group by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on ERISA-governed and non-ERISA-governed retirement and welfare plans, executive compensation and employment law.  Contact Stacy Barrow or Nicole Quinn-Gato at sbarrow@marbarlaw.com or nquinngato@marbarlaw.com.

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

© 2021 Marathas Barrow Weatherhead Lent LLP.  All Rights Reserved.

This International Women’s Day, Let’s Get Back On Track

International Women’s Day is one time of year that I always think of my daughters and my granddaughter. As a mother, I want them to have a better life than I’ve had – and I’m lucky I’ve had a good life. As I think about my colleagues and other women I know, I think we’ve had some real setbacks this year because of the pandemic. Pre-pandemic, we were moving towards equity in wage, opportunity, and education. On this day last year, I wrote about the need for an increase in female financial independence, and for women to suInternational Women's Daypport women. There was a long road ahead of us, but certainly progress was being made. For all the growth women in the workforce have achieved, and all the diversity and inclusion efforts made by organizations in recent years, much of this momentum came to a halt when COVID-19 hit.

In September of 2020, 865,000 women dropped out of the labor force, as compared to 216,000 men. It is estimated that across the globe, female job losses due to COVID-19 are 1.8 times higher than male job losses. In fact, the National Women’s Law Center reports that women labor participation is at its lowest (57%) since 1988.

Prior to the pandemic, 46% of women worked in low-wage jobs, earning a median of $10.93 an hour. Women of color are even more likely to have a low-paying job. Even women who were in high-paying industries were still earning $0.92 compared to the dollar of a man with a similar background.

This past year, though, the disparities were much more severe. In low-paying, female-dominated industries like retail sales, food services and hospitality there were significant layoffs. Further, healthcare professionals, the majority of which are women, did not necessarily lose their jobs but were faced with unprecedented risk of exposure, inflexible schedules, and stress. Job loss also meant a decrease in benefits such as health insurance for women, making access to healthcare further inequitable, and during a pandemic, no less.

COVID-19 highlighted the already present childcare crisis, which grew with the closure or cancelation of schools, daycare and other childcare centers such as camps and recreational activities and left working parents in an impossible situation. Further, remote learning became the norm, and for those with younger kids, this has meant a lot of hands-on time for parents, typically during work hours. All of this during what has been an overwhelming time for even the luckiest of us. The results?

A survey from May and June of 2020 reports that one in four women who left the workforce during that time did so due to lack of childcare. Between last February and August, mothers of children ages 12 years and younger lost 2.2 million jobs, compared to 870,000 jobs lost for fathers of that same group.

If we think about the future of women in the workforce, according to McKinsey and Oxford Economics, employment for women may not recover until 2024, which is two years past the estimate for men. A domino effect could play out, if nothing is done to stop it. For example, when women exit the workforce, even if they view it as temporary, they will be disadvantaged when and if they want to return, likely to miss out on promotions, pay and career paths similar to the trajectory they once were on. Further, they will be in a worse spot when it comes to retirement savings, even without the assistance of an employer-sponsored retirement plan (which is another factor). Since Social Security is based on lifetime earnings, time out of the workforce will lessen that assistance down the road.

So, what can we do to turn the clock back? Here are some things that policymakers and businesses should consider:

  • Wage parity, period!
  • A revamp of the childcare system such as more federal funding and/or tax credits that incentivize both parents to work
  • An increase in flexible work schedules
  • Initiatives that support digital literacy in women, in addition to general education, so that they have the same kinds of opportunities in a remote world
  • Continue to implement paid leave policies for family and medical leave as well as sick leave
  • Implement flexible benefits programs that allow furloughed and laid off people to cover this temporary period

Although this has been a challenging time, we can’t give up! Let’s remember that this year we welcomed the first ever female Vice President, a woman of color, into the White House. We are seeing more focus on diversity and we are hearing more women speak out publicly about their inequitable experiences. Let’s use this encouragement to get back on track and create a better future for our daughters and granddaughters. If there’s one thing we women have proven, it’s our resilience. So, don’t lose hope. Regroup and press on!  Happy International Women’s Day!

9 Areas of Focus for HR Right Now – Parts 8 and 9

We are wrapping up our thoughts on key issues industry professionals are still up against as a result of the pandemic. We appreciate you taking the time to tune in, and we hope you numbers 1-7 provided some useful insights, or at least reassured you that you’re not alone. Here are our final thoughts (for now), numbers 8 and 9.Remote Corporate Culture

 

  1. Benefits & Culture

No matter where you work, things looked markedly different this year. HR professionals have been tasked with maintaining a culture virtually. Benefits professionals are wondering if what they offer is what is needed. Employees are facing so many challenges that engaging with their organization might be the last thing on their mind – they just want to do their jobs and get by. Some employers are implementing outside-the-box ideas for fringe benefits, such as:

  • Childcare assistance
  • Caregiver benefits
  • Paying for Netflix or other streaming services
  • Money toward grocery delivery
  • Fitness app subscriptions
  • Virtual classes on meditation, cooking, or language learning
  • Sharing recipes
  • Start a virtual book club
  • Anything that can boost mental, physical, social and financial health

In addition, telehealth services are obviously more pertinent than ever, and employers need to be sure they have some sort of telehealth option. If you have employees that aren’t wild about the idea of telehealth, have conversations about why, or share your own experiences.

Another new trend we noticed popping up was that some organizations have taken “flexibility pledges”, where meetings are prohibited during certain hours, employees are encouraged to decline meetings they truly don’t need to attend, etc.

Something that has stuck with me and should stick with employers is that employees will remember what kind of support they received from their company during this time. When the dust settles, that will impact their loyalty. So, whatever you do, do something. Don’t pretend that nothing has changed.

When it comes to leadership, executives and managers need to be talking the talk. If you want to encourage work-life balance, maybe avoid sending emails at 9PM. Schedule calls that all parties take while on a walk outside. Say thank you on a regular basis for all of the hard work being put in.

  1. Beyond COVID

As employers and employees alike get more comfortable with what is more like the “normal” now, versus the “new normal”, it’s important for us to look to the future, one that hopefully does not involve COVID-19. Regardless of any changes made by the Biden administration, the consensus seems to be that we’ve all seen the value and importance of having paid leave options, and we expect this to be more than passing trend. We are starting to see a movement for caregiver leave specifically, and there was discussion around possible changes to the Fair Labor Standards Act (FLSA) to accommodate more flexible work schedules. We definitely expect state leave laws to continue to develop at an increasing rate and to encompass a gamut of areas: sick leave, caregiver leave, paid family and medical leave, parental leave, etc.

While we are still in the thick of the pandemic, there are positive signs ahead – treatments are improving, vaccines being administered, and we’ve figured out to some degree what safe behavior looks like. Once COVID-19 passes, testing and treatment of other viruses, like the flu or strep throat, might change when it comes to the workplace, and you can bet employees will think twice before showing up to work when sick.

 

At the end of the day, employers should remember that, above all else, we need to be extra human right now. This may manifest in different ways depending on the organization, but I hope these reflections on COVID challenges have given you some food for thought, and some ideas to take back to your company.

Understanding the Impacts of Massachusetts’ New Healthcare Law

Massachusetts has long been a leader in the provision of quality, affordable and accessible healthcare. At the beginning of this year, Governor Charlie Baker signed off on ‘Laura’s Law’ which addresses a range of healthcare issues highlighted as a result of the COVID-19 pandemic.Massachusetts Healthcare Law

  • Telehealth: the law mandates equal coverage for virtual visits, including for behavioral health. It also provides a short-term model for how these services should paid. This should provide Massachusetts residents to expanded access to safe, virtual healthcare.
  • COVID-19: Laura’s Law states that treatment and testing for COVID-19 must be covered by insurance companies, including MassHealth. This applies to all inpatient, emergency and cognitive rehab services as well as necessary outpatient services related to the virus. Testing for the asymptomatic is also covered in this provision.
  • Surprise Billing: the new law states that providers must tell patients in advance of anything out-of-network, and Massachusetts plans to recommend a default rate for out-of-network billing later this year.
  • Expansion of Care for MassHealth Members: Laura’s Law eliminates referral requirements so that MassHealth subscribers can access urgent care facilities more easily.
  • Medicaid: under the new legislation, community hospitals will receive two years of enhanced Medicaid reimbursements, a 5% bump in the average monthly Medicaid payment at a collective cost of up to $35 million per year.
  • Scope of Practice: the pandemic necessitated an increase in scope of service for certain healthcare workers to meet the surging demand for care. Under Laura’s Law, this increase in scope will remain permanent for Advanced Practice Nurses and Optometrists.

Lastly, the state is calling for the undergoing of a study to examine the impact of COVID-19 on the healthcare system, especially in Massachusetts.

Governor Baker referenced a silver lining upon rollout of this law, wherein the pandemic garnered the momentum needed for policymakers to support changes, and the collective healthcare experience of Massachusetts residents in 2020 informed the legislation, so it should be effective in addressing the gaps in healthcare that became obvious. We won’t be surprised if other states being to issue similar policies.