Employers who prefer to only offer a “POP” (Premium Only Plan) can implement this Plan with our assistance. Arcadia Benefits Group will help with plan implementation (preparation of enrollment forms, change in benefit election forms, Plan document and Summary Plan Description required by the IRS, change in status assistance) so that the client can self-administer the Plan. This Plan can be a first step to implementing a FSA Plan, introducing an element of choice into the employee benefit plans, and can substantially save tax dollars paid by the employees and payroll taxes paid by the Employer.

Example:

  • Employee pays $100/month for medical/dental coverage
  • By paying with pre-tax or before-tax income, employee saves $40/month in taxes ($480/year)
  • Employer saves payroll taxes of 7.65% (matching FICA), or $92 (additional savings for FUTA applies)
  • 200 employees = payroll tax savings of $18,400 for Employer

Section 125 of the Internal Revenue Code permits Employers to sponsor this valuable benefit to its employees, which allows the employees to make a choice between cash (in their paycheck) and non-taxable benefits.

FSA Plans allow Employers to offer a low-cost benefit that is targeted to meet employee needs in critical benefit areas. Childcare costs are of vital concern to both single parents and married employees who must work and have young children. Moreover, employees of all ages and in all industries are experiencing increased health care costs, as employers are working to reduce those benefit costs through cost-sharing arrangements.

In addition to offering a Premium Only component (commonly referred to as “premium conversion”), two types of FSAs are offered under the Flexible Benefits Plan:

  • Health Flexible Spending Account (Health FSA) for out-of-pocket family health care expenses not covered by insurance (such as deductibles, co-payments, office visits, Rx co-payments and over-the-counter drugs for medical care, dental/orthodontia expenses and vision care expenses); and
  • Dependent Care Flexible Spending Account (Dependent Care FSA) for dependent care (i.e., child care) expenses paid to allow the employee and, if married, the spouse to work. For a tax savings calculator and comparison of participating in a Dependent Care FSA vs. taking the Child Care Tax Credit, go to this link and click on “Access the Tax Savings Calculator For Free

Employees set aside salary to pay these expenses on a pre-tax basis. Contributions are exempt from Federal, state (in most cases) and FICA tax. Tax savings vary from 28% to 43%, depending on the federal tax bracket of the employee. The employer receives a corresponding payroll tax savings because of the FICA tax savings (matching 7.65%) and Federal Unemployment Tax (FUTA) savings. State unemployment tax exemption varies from state to state. Employers may also make a contribution to one or both FSAs, or may offer an opt out of their underlying medical plan “cash in lieu of benefits” and contribute funds to one or both FSAs.

For a calculator to estimate your annual tax savings by participating in the plan, click here

Section 105 of the Internal Revenue Code allows Employers to establish a self-funded medical reimbursement plan commonly referred to as a Health Reimbursement Arrangement (HRA).

For most employers, the expenses for employee health care are spiraling out of control. Choices are being made to either reduce costs or reduce benefits. In order to attract and retain qualified employees, neither of these two options is very appealing.

A Defined Contribution 105(h) HRA Plan can help the cost conscious Employer solve the benefit puzzle, without alienating their employees. These plans are intended to encourage the efficient use of employer-provided health care by fixing employer contributions at a certain projected cost level (the “defined contribution”) rather than promising a specific benefit regardless of cost.

The typical HRA Plan is designed to accompany a High Deductible Health Plan (HDHP). The Employer increases the deductible in the underlying health plan and with the premium savings, contributes money to the HRA to reimburse a portion or all of the high deductible.

There is no IRS-prescribed dollar limit for HRA Plans; thus, the employer has considerable design flexibility.

Example:

ABC Company has a fully-insured health plan. The Company increases the deductible in its underlying medical plan from $250 to $1,000 for single coverage and from $500 to $2,000 for family coverage. By increasing the deductible, the Company reduces its increase at renewal from 24% to 10%. The HRA Plan is designed to reimburse the High Deductible Health Plan (HDHP). The employee must pay the first $250 of the $1,000 deductible for single coverage and the first $500 of the $2,000 deductible. The HRA Plan reimburses the excess of $750 and $1,500 respectively.

The objective is to decrease the overall health plan costs of the company, while not increasing the out-of-pocket costs to the employees. An FSA Plan can work concurrently with the HRA Plan to reimburse on a pre-tax basis other out-of-pocket costs (e.g., office visit co-pays, Rx, dental and vision expenses).

Unlike the “Use it or Lose it” Rule established by the IRS under Section 125 Plans, the IRS permits a “carryover” under an HRA Plan. HRA Plans must be funded solely by the Employer. If the HRA Plan and the FSA Plan reimburse the same expenses, most Employers structure the FSA Plan to “pay first” to incent the employees to use the money in their FSA account so that no forfeiture exists, and use the HRA funds last (Employer-funded) to carry funds over from year to year, possibly for retiree medical expenses.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives employees and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan.

COBRA generally requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage (called continuation coverage) in certain instances where coverage under the plan would otherwise end.

COBRA outlines how employees and family members may elect continuation coverage. It also requires employers and plans to provide notice.

What is COBRA continuation health coverage?

Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions in 1986. The law amends the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Service Act to provide continuation of group health coverage that otherwise might be terminated.

What does COBRA do?

COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available when coverage is lost due to certain specific events. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves. It is ordinarily less expensive, though, than individual health coverage.

Who is entitled to benefits under COBRA?

There are three elements to qualifying for COBRA benefits. COBRA establishes specific criteria for plans, qualified beneficiaries and qualifying events:

Plan Coverage – Group health plans for employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA. Both full and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction of an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full time.

Qualified Beneficiaries – A qualified beneficiary generally is an individual covered by a group health plan on the day before a qualifying event who is either an employee, the employee’s spouse, or an employee’s dependent child.

Qualifying Events – Qualifying events are certain events that would cause an individual to lose health coverage. The type of qualifying event will determine who the qualified beneficiaries are and the amount of time that a plan must offer the health coverage to them under COBRA.

Qualifying Events for Employees:

  • Voluntary or involuntary termination of employment for reasons other than gross misconduct
  • Reduction in the number of hours of employment

Qualifying Events for Spouses:

  • Voluntary or involuntary termination of the covered employee’s employment for any reason other than gross misconduct
  • Reduction in the hours worked by the covered employee
  • Covered employee’s becoming entitled to Medicare
  • Divorce or legal separation of the covered employee
  • Death of the covered employee

Qualifying Events for Dependent Children:

  • Loss of dependent child status under the plan rules
  • Voluntary or involuntary termination of the covered employee’s employment for any reason other than gross misconduct
  • Reduction in the hours worked by the covered employee
  • Covered employee’s becoming entitled to Medicare
  • Divorce or legal separation of the covered employee
  • Death of the covered employee

Arcadia Benefits Group COBRA Administrative Services:

Did you know the IRS estimates that 90% of all employers subject to COBRA are not in compliance with IRS regulations? If an Employer is found to be in noncompliance of the law, severe penalties may be assessed by the IRS for every day of non-compliance.

Outsourcing COBRA administration to Arcadia Benefits Group will give you the peace of mind that you need to ensure that your group health plans are in compliance with COBRA regulations. We provide the following critical service elements within our administration process:

  • Provide the required initial (general) COBRA notice to newly covered employees;
  • Notify participants of their rights to continue coverage following a COBRA qualifying event, within the time periods specified by the regulations;
  • Record and maintain accurate eligibility files for COBRA elections
  • Produce and distribute payment coupons to COBRA participants
  • Premium collection and remittance of same to Employers or Insurance Carriers
  • Provide timely reporting of participation to all carriers/administrators responsible for claim payments
  • Produce and distribute termination notices and HIPAA certificates of creditable coverage, as required, to all participants and dependents discontinuing coverage.
  • Determine if COBRA continuation is applicable to the Health FSA or HRA (seamless if Arcadia also administers the Health FSA or HRA Plan for the Employer)
  • Notify the Employer when COBRA rates are due for renewal. Upon receipt of the new rates, Arcadia will notify the participants of the applicable rate changes.

Health Savings Accounts (HSAs) are tax-favored IRA-type accounts that eligible individuals who are covered by certain high deductible health plan (HDHPs) can establish to pay for qualifying medical expenses incurred by the eligible individual and their spouses and dependents. HSAs first became available as of 1/1/04, after being created by the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The rules governing HSAs are found in Code Section 223. Unlike HRAs and Archer MSAs, HSAs can be funded on a pre-tax basis through a cafeteria plan (through the premium conversion component as mentioned above).

An HSA must be established with a qualified HSA Trustee or Custodian. No permission or authorization from the IRS is necessary to establish an HSA. However, the individual must have a high deductible health plan coverage and no impermissible coverage. Also the individual must not be entitled to Medicare and cannot be claimed as a tax dependent by another taxpayer.

Both Employers and employees may contribute to an HSA, subject to the lesser of 100% of the annual deductible under the HDHP or an indexed amount 4. (for 2012, $3,100 for self-only coverage and $6,250 for family coverage. These amounts increase to $3,250 and $6,450 for 2013). An additional annual “catch up” amount can be contributed for eligible individuals who are age 55 or over. As mentioned above, employees may contribute to an HSA on a pre-tax basis through the cafeteria plan. However, if the Employer is a sole proprietorship, Subchapter S corporation, partnership or L.L.C., the sole proprietor, owners of more than 2% of the stock in the Sub S corporation, partners in the partnership or members of the L.L.C., are not eligible to contribute on a pre-tax basis through the cafeteria plan, as they are not eligible to participate in a cafeteria plan. They must instead take an above the line deduction for the HSA contributions on their Form 1040 when their tax return it filed. Balances in the individual’s HSA carry over from year to year, allowing the individual to save for future medical expenses.

Arcadia Benefits Group can assist Employers in the preparation of the required cafeteria Plan documents allowing for pre-tax contributions to the HSA, and education on what qualifies as a medical expense under an HSA. We believe that it makes more sense to educate up front, rather than to audit after the fact and then notify the individual that they are required to pay income tax and excise tax on non-qualifying expenses. Arcadia can also administer Limited-Purpose Health FSAs and General-Purpose Health FSAs for the Employer. If an employee elects coverage under the HDHP with an HSA, they are not eligible to participate in a traditional General-Purpose Health FSA. However, they may still participate in a Limited-Purpose Health FSA and set aside pre-tax dollars for their dental and vision expenses so that they may save dollars in the HSA for future medical expenses. Arcadia can keep track of which individuals are covered under the HDHP and administer both the Limited- and General-Purpose Health FSAs accordingly.

Employers today are looking for new ways to improve benefits with minimal cost to the Employer. By providing a Section 132 Qualified Transportation Fringe Benefit Plan, the Employer can provide a new benefit for the employees at little or no cost to the Employer.

The Employees do not pay federal, state (in most cases) and FICA tax on contributions to the plan. The Plan operates much like a Dependent Care FSA. The employee may only be reimbursed based on the amount of salary reductions contributed to the Plan. Elections may be changed from month to month, based on the needs of the employees (if the parking cost increases, the employee can increase the amount deducted from their paycheck on a pre-tax basis).

Benefits that may be offered under the Plan are:


  • Qualified Parking Expenses—permits employees to pay for their share of expenses for parking on or new the Employer’s premises or at a location from which they commute to work. The maximum contribution for parking for 2012 and 2013 is $240 per month.
  • Transit Pass & Commuter Highway Vehicle (aka Van Pool) Expenses—permits employees to pay for their share of expenses for mass transit passes, vouchers, etc. for commuting to work on a pre-tax salary reduction basis. The Transit Pass/Commuter Highway Vehicle combined maximum contribution for 2012 and 2013 is $125 per month.

 

Cash reimbursements for transit passes qualify only if a voucher or a similar item that the employee can exchange only for a transit pass is not readily available for direct distribution by the Employer to employees. A voucher is readily available for direct distribution only if an employee can obtain it from a voucher provider that does not impose fare media charges or other restrictions that effectively prevent the employer from obtaining vouchers.

There is no “use-it-or-lose-it” requirement under these Plans; thus, employees may carryover balances from year to year. Also, nondiscrimination rules that are applicable to Section 125 Plans do not apply to Section 132 Qualified Transportation Plans.

If your employees pay for parking, this is a valuable benefit that can attract and retain employees, and maintain high employee morale. For a calculator to estimate your tax savings, click here.

Arcadia can assist in the preparation of a Wrap Document/SPD for the purpose of combining group health plans (medical, dental, vision, etc.) into one SPD vs. having SPDs with different 3-digit plan numbers. For employers with over 100 employees, it also serves as a way to combine the plans so that only one Form 5500 is required to be filed with the DOL.

The purpose of the Wrap Document/SPD is to inform participants of eligibility requirements, claims and appeal procedures and rights under ERISA and HIPAA. The company must also provide the insurance carrier’s Summary of Benefits and Coverage (SBC) each Plan year.

Arcadia can prepare and file the annual Form 5500 required for employers with over 100 participants in a welfare benefit plan as of the beginning of the Plan Year, along with appropriate Schedules.