Author: Created: 8/11/2011 1:36 PM RssIcon
Compliance Buzz will include comprehensive and practical updates on legislative, regulatory and court developments affecting employee benefit plans. The blog will also contain coverage on issues that impact benefits in general, and in particular, health care reform.
By Compliance on 11/16/2011 12:07 PM
The Supreme Court has agreed to review several challenges to health care reform, most likely in March, with a decision in June.   While the fact that the court has agreed to hear the case is not surprising, the time allotted to oral arguments highlights the significance of the case and the complexity of the issues involved – five and a half hours instead of the usual one. 

The court will focus on the following issues:

Individual Mandate - Whether Congress has the Constitutional power to require that Americans obtain health insurance by 2014 or pay a tax penalty; At issue is whether the commerce clause of the Constitution allows Congress to essentially force all Americans to buy an expensive product for the rest of their lives.  Severability  - Whether the rest of the health care reform law survives if the individual mandate is found to be unconstitutional, i.e., whether the individual mandate can be “severed” from the rest of the law; Anti-Injunction Act...
By Compliance on 11/11/2011 11:00 AM
On Friday November 4, 2011 Wisconsin Governor Scott Walker signed into law legislation that adopts the federal income tax treatment of employer-provided health coverage of adult children who have not attained age 27 as of the end of the tax year for Wisconsin state income tax purposes.   Prior to this recent change, Wisconsin was the only remaining state that had not adopted the federal income tax treatment.  The change is effective retroactive to January 1, 2011. 

Federal Income Tax Treatment

Effective March 30, 2010, under health care reform, the value of employer-provided health benefits for employee’s dependents that have not attained age 27 as of the end of the tax year is excluded from the employee’s gross income. 

What does this mean for administration of the BESTflex Plan and EBC HRA?

·         Reimbursement from a Health Care FSA or EBC HRA for expenses incurred by an eligible child, are excluded from the employee’s gross income for Wisconsin state income tax purposes, retroactive...
By Compliance on 11/4/2011 11:58 AM
You may have heard that health care reform imposes a $2,500 limit on annual salary reduction contributions to Health Care FSAs, effective for taxable years beginning after December 31, 2012.  The $2,500 limit is indexed for inflation for taxable years starting with 2014.  As we await more guidance from the IRS, we’d like to discuss a few issues related to the limit and offer some examples to help you in the interim. 


Are Employer Contributions included in the limit?

Possibly.  Employer contributions to Health Care FSAs will not factor into the limit unless it is a contribution that can also be received as additional compensation (i.e., cash) that the employee allocates to the Health Care FSA.  This makes sense because the limit really focuses on employee salary reduction contributions to the Health Care FSA. 


Example: Company DEF contributes $500 to each employee’s Health Care FSA.  The contribution cannot be cashed out or used for any other purpose.  Jim may still elect...
By Compliance on 10/31/2011 12:44 PM
Remember that a cafeteria plan is a plan that offers employees a choice between taxable benefits and qualified benefits.  Only qualified nontaxable benefits can be offered under a cafeteria plan. IRC §125(f)(1) defines the types of benefits that can be offered under a cafeteria plan.  Under Code §125(f)(1) a qualified benefit is “any benefit which . . . is not includable in the gross income of the employee by any reason of an express provision of this chapter (other than section 106(b) [medical savings accounts], 117 [qualified scholarships], 127 [ educational assistance programs] or 132 [fringe benefit programs])."

What does “not includable in the gross income by any reason of an express provision of this chapter” mean?  “This chapter” means Chapter 1 (addressing normal taxes and surcharges) of Subtitle A (income taxes) of the Code.  “Express provision[s] of this chapter” refers to certain items, excludable from gross income, found in Code §§101 through 138. 

Thus, qualified benefits under a cafeteria plan include the following:

By Compliance on 10/21/2011 10:07 AM
The Uniform Coverage Rule requires that “the maximum amount of reimbursement from a health FSA must be available at all times during the period of coverage (properly reduced as of any particular time for prior reimbursements for the same period of coverage).”  Prop. Treas. Reg. §1.125-5(d)(1).  Under the regulations, the maximum amount of reimbursement at any particular time during the coverage period cannot relate to the amount that has been contributed to the FSA at any particular time prior to the end of the plan year.  Thus, once the employee makes an election, the employee has uniform coverage of the entire amount, including the employer’s contribution as well. 

Essentially, the Uniform Coverage Rule causes the health FSA to operate like insurance, with the employer bearing risk similar to an insurance company that provides full coverage for a premium.  However, sometimes employers try to reduce their risk by limiting reimbursements to the amount of contribution or requiring repayment of excess reimbursements...

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