Seems like everything and everyone has been impacted by the Coronavirus outbreak. The same is true for our alphabet soup type programs. We’re seeing emergency policies enacted at the federal and state levels, as well as at the private level, that either directly or indirectly effect these programs. While things are changing rapidly, here is what we are telling clients today.
As is par for the course these days, our normal counsel to clients regarding when to send COBRA notices and whether to use a classification of “Termination of Employment” or “Reduction of Hours” is temporarily altered largely due to 1) certain accommodations made by insurance companies to allow employees to stay covered as Active employees for a period of time, even when working below the minimum required hours and, 2) the use of correct classifications of employees to not adversely affect their qualification for unemployment benefits (e.g. furloughed, temporarily laid off). We encourage them to seek the advice of their insurance broker to understand these insurance accommodations and classification impacts to their employees before marking an employee as having a “Termination of Employment” or “Reduction of Hours” COBRA qualifying event.
Our vagueness is not meant as an evasion, rather we are trying to avoid giving advice that may ultimately harm either the employee or employer. In these uncertain times, there is no crystal ball that can tell us how quickly an employee may be able to return to work, yet how an employee is classified impacts a number of financial considerations. And, often there are pros and cons to any action. Let me illustrate this below.
Furloughing the employee:
- Pro: If the employer elects to “furlough” the employee, that gives the employee greater access to unemployment benefits.
- Con: A “furlough” is not a COBRA Qualifying Event, so the employee could face losing health benefits at a later date and denying them a Qualifying Event.
Keeping an employee Active:
- Pro: An employer elects to keep an employee who would otherwise be laid off on as an Active employee on the group insurance plans, allowing them to continue benefits, assuming they will be able to return to work in relatively short order.
- Con: In the event this layoff period lasts longer than expected, the employer will have to pick a qualifying event date back to the original “layoff” (possibly months earlier). Now the employee has lost his window of opportunity to sign up for an individual plan. COBRA becomes their only choice for coverage until the following January 1st.
You can see in some cases this becomes a lessor of two evils choice – thus our vague response.
Flexible Spending Accounts:
FSAs are potentially impacted in a variety of ways. Here are a few:
Previously planned expenses. A participant’s surgery gets cancelled that had been planned for months. In fact, the participant’s FSA election, at the beginning of the plan year, was made based on the assumption they’d be paying for that surgery expense. Can the participant reduce their election due to these unforeseeable circumstances? Unfortunately, as of this writing, the answer is no. Given the state of change we are in, we could see some relief here, or maybe not.
One thing an employer, whose plan doesn’t currently have a $500 carryover or 2.5 month extended grace period provision in their FSA, could do is add this provision before the end of the plan year. It might help participants who find themselves in this situation. Please note, if an employer adds a provision to the FSA plan, the Summary Plan Description must be amended. But, there is some leeway regarding the issuance of new SPDs. Anything that comes in writing from the plan sponsor qualifies as a change to the plan. In this instance, a memo or an email from an officer with authority to amend the plan will work in a pinch. Put it with the documents in case of audit in the future. Update the plan documents when times return to normal.
For plans with a 2.5 month extended grace period provision: We’ve been asked if it can it be extended longer than 2.5 months when an employee’s medical expenses were lower due to a cancelled procedure as in our example above? Again, right now, the answer is no.
That leads us to, can an employer suspend an FSA plan? Only two options are available for an FSA plan:
- Terminate the plan (which has its own complications – see our past blog post)
- Keep the plan alive with a few active participants and many on a leave of absence (see another past blog post). If you terminate an employee, then they are not a participant in the plan.
Dependent Care Assistance Plan:
Childcare has always been important, but this crisis has taken it to a new level. In this area, there is some good news. If a daycare center closes, a participant’s DCAP election is eligible to be changed due to a change in cost or coverage. The participant can adjust the election either up or down based on need and provided it is consistent with the center’s changes (an election reduction in this case). If an employee is now requiring daycare for their child because schools are closed, this is a special enrollment right and the employee must enroll in the DCAP within 30 days of putting the child(ren) in daycare. Again, they can elect to stop contributing once they stop incurring the expense.
Health Reimbursement Arrangements and Health Savings Accounts:
The IRS did issue guidance in this area. Medical plans can provide pre-deductible coverage for COVID-19 testing and treatment. For an HRA, if it reimburses deductible expenses, this means an employer will not have to reimburse any COVID-19 related expenses because they will not apply to the deductible.
With respect to HSA’s, typically treatments that aren’t subject a deductible can prevent an HDHP from being HSA qualified – thus disabling the ability for participants to contribute. The IRS has specifically stated that any non-deductible COVID-19 related expenses will not impact HSA eligibility.
Additionally for HSA’s, the 2019 contribution deadline has been extended to July 15, 2020.
Commuter Transit election changes:
With employees being terminated, laid off or working from home, many are no longer incurring commuting costs. Can employees stop contributions and carry over money in their account to use when expenses resume? Some good news here as well. Full-time employees can start, stop and change a Transit election at any time throughout the year – and yes, the money will stay in their account to use for the remainder of the plan year. If an employee is terminated, however, they forfeit any money left in their account.
But, what about a furloughed employee? This is a gray area. Because a full-time employee can start, stop and change a Transit election throughout the year, I am guessing a “furloughed” employee would not be considered a terminated employee and might have Transit funds in his account available to him when he returns to full-time status and starts participating in the plan again. We’ll be looking for guidance to answer this question.
Whatever you decide to do with respect to any of the above programs, heed this wise advice from the COBRA lady: if you mailed a COBRA notice using “Termination of Employment” as the qualifying event, don’t treat that ex-employee as having a leave of absence in the FSA, HRA or transit plans.
It probably goes without saying, but everything here is subject to change – literally at a moment’s notice. We will keep you updated as we receive guidance. Our best advice is to recommend that clients contact us and their broker (and possibly legal counsel) before they make employment classifications. We may not be able to give them definitive answers, but at the very least we can help them figure out what questions they need to be asking.
Oh, and no, toilet paper is not an eligible Code 213(d) expense, so no reimbursements allowed. We do not anticipate that it ever will be an eligible expense so don’t hoard TP and expect any tax benefit, just sayin’….