| Test Your Human Resources Knowledge | ||
|
| Labor Law Journal Submissions | ||
|
| Labor Arbitrators' Awards and Biographies | ||
5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
from Spencer’s Benefits Reports: Following are recent benefits questions that were submitted by subscribers and the answers from Spencer editors.
HSAs And Subchapter S Owners
Q: If an Subchapter S corporation makes a contribution to a 2% shareholder’s health savings account (HSA), is that amount treated as taxable income ,but also treated by the shareholder/employee as his own contribution to the HSA?
A: Because the law allows anyone to contribute to an individual’s HSA, an S corporation could make a contribution, although more than 2% owners in an S corporation are not employees for purposes of HSA contributions. Rather, they are considered self-employed.
Note that:
However, for non-employees, including partners and subchapter S owners, the employer is not prohibited from making a contribution, but it must be made with after-tax contributions (and is not considered, for HSA purposes, to be an employer contribution).
Any after-tax contributions can then be deducted by the individual—and any self-employment tax is computed by a self-employed individual (including Subchapter S owners) in the normal way.
Medicare, COBRA, And ARRA Subsidy
Q: An employee was laid off in January 2010. He elected COBRA for himself and his family and chose the subsidy under the American Recovery and Reinvestment Act of 2009 (a 65% subsidy for COBRA premiums for up to 15 months for certain involuntarily terminated employees and their covered dependents).
In June 2010, the employee turned 65 and decided to enroll in Medicare. Can his family remain on COBRA with the ARRA subsidy until the 15 months of ARRA is over? Does the family’s COBRA eligibility remain at 18 months because of the employee’s termination in January, or can the family now remain on COBRA for 36 months due to his change to Medicare?
A: An ARRA eligible individual can be any qualified beneficiary associated with the relevant covered employee (such as a spouse or dependent who is covered immediately prior to the involuntary termination), and such qualified beneficiary can independently elect COBRA (as provided under present law COBRA rules) and independently receive a subsidy. Thus, the subsidy for an assistance eligible individual can continue after the covered employee no longer is COBRA eligible.
Therefore, the family members who were covered under the employer plan immediately before the termination of employment and do not have any other group health coverage or Medicare may continue to receive the subsidy for the maximum 15 months. The maximum COBRA coverage period for the termination remains 18 months; the former employee’s entitlement to Medicare is not a second qualifying event for the family as the family members would not normally lose the employer-sponsored coverage due to the employee’s Medicare entitlement. As specified in the COBRA law, the only events that qualify as a second qualifying event for qualified beneficiaries other than the employee when the event occurs during an 18-month coverage period are the employees death, divorce, or legal separation, or a dependent that ceases to qualify as a dependent under the requirements of the plan.
Formulary Change And Grandfather Status In Health Reform
Q: If a carrier/pharmacy benefit manager (PBM) changes their formulary, and the employer has no choice in this change, does this cause loss of grandfathered status to a group? If the group does have a choice, would this cause loss of grandfathered status?
A: There are six specific changes that affect grandfather status, and if a plan modification does not affect one or more of these six, there is no loss of grandfather status:
Regarding the specific question concerning a formulary change, it does not make any difference whether the PBM or the employer changes the plan—the change will have the same effect on the plan’s grandfather status.
The Employee Benefit Security Administration has released some guidance (http://www.dol.gov/ebsa/faqs/faq-aca6.html) regarding changes in a formulary, as follows:
A plan bases the level of cost sharing for brand-name prescription drugs on the classification of the drugs under the plan as having or not having generic alternatives. The classification of a drug that had no generic alternative changes because a generic alternative becomes available and is added to the formulary, with a resulting increase in the cost-sharing level for the brand-name drug.
This increase does not cause the plan to relinquish its grandfather status.
For example, assume that, on March 23, 2010, the terms of the plan included prescription drug benefits with different cost sharing divided into tiers as follows:
A drug was previously classified in Tier 2 as a brand name drug with no generic available. However, a generic alternative for the drug has just been released and is added to the formulary. Since the generic is now available, the plan moves the brand name drug into Tier 3 and adds the generic to Tier 1. This movement of the brand name drug into a higher cost-sharing tier does not cause the plan to relinquish grandfather status.
Discrimination Rules For Sec. 132 Plans
Q: I know that an IRC Sec. 125 flexible benefit plan that only has owners as participants would fail the nondiscrimination testing. Is this the same situation for IRC Sec. 132 fringe benefit plans?
A: The rules are not the same for Sec. 132 plans.
IRC Sec. 132 provides a tax exclusion from the gross income of an employee for the following types of fringe benefits provided by the employer:
Sec. 132 establishes nondiscrimination rules only for no additional-cost services, qualified employee discounts, and meals provided at employer-operated eating facilities.
In general, a fringe benefit will be nondiscriminatory if one of two conditions is met:
(1) the benefit is available on substantially the same terms to all employees; or
(2) the benefit is available on substantially the same terms to a group of employees under a reasonable classification of employees that does not discriminate in favor of the highly compensated. Regulations under IRC Sec. 410(b) describe such a classification as “reasonable and established under objective business criteria.”
If one of these two conditions is not met, then the value of the fringe benefit will be includible in the gross income of the highly compensated employee.
Regulations specify that the Sec. 132(f) exclusion for qualified transportation fringe benefits applies only to employees, and that partners, 2% or more shareholders in Subchapter S corporations, and independent contractors are not considered employees for purposes of these benefits.
However, the regulations note that the working condition and de minimis fringe benefit exclusions under Sec. 132(a)(3) and (4) may be available to individuals who are partners, 2% shareholders in Subchapter S corporations, and independent contractors for transit passes; and that the de minimis fringe rules under Sec. 132(e) may be available for parking provided to these individuals.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
Visit our News Library to read more news stories.
©2005-2024 CCH Incorporated or its affiliates
