What's New

December 2003

Health Savings Accounts Created By Medicare Legislation

The House and Senate have passed Medicare legislation that creates a new type of tax favored account called a Health Savings Account (HSA). This can be used by individuals that are covered by high deductible health plans to pay for certain medical expenses. The HSA rules are contained in new Code Section 223. The legislation was signed by President Bush on December 8, 2003.

September 2003

Over-the-Counter Drugs May Now Be Reimbursed by Health FSA's, HRA's and Other Employer Provided Health Plans

This is the biggest news for Health FSA's in quite some time! The IRS has announced that the cost of over-the-counter drugs and medicines may be reimbursed by Health FSA's, HRA's and other employer-provided health plans. A new Revenue Ruling (Rev. Rul. 2003-102) states that "reimbursements by an employer of amounts paid by an employee for medicines and drugs purchased by the employee without a physician's prescription are excludable from gross income under Code Section 105(b). However, the Ruling does not allow the reimbursement of dietary supplements, such as vitamins and herbal remedies, that are "merely beneficial to the general health" of an employee or the employee's dependents.

Please note, in most cases Plan Documents will need to be amended to reflect the allowance of Over-the-Counter Drugs. Claims for OTC's should not be allowed or paid until the Documents have been amended.

April 2002

IRS Suspends Schedule F Reporting Requirement for Cafeteria Plans - But ERISA Plans Must Still File a Form 5500 Unless an Exemption Applies.

The IRS has announced that employers are no longer required to file annual information returns (Schedule F attached to Form 5500) for their cafeteria plans. This relief applies to current and future years, and also to all prior years for which information returns have not been files.

Caution!
Administrators must still file a Form 5500 and applicable Schedules to satisfy ERISA's annual reporting requirement for component plans that are subject to ERISA (such as health insurance plans and health FSA's), unless an exemption applies.

September 2001

DOL Issues Compliance Relief for Form 5500 Filers and Others Affected by September 11 Terrorist Attacks

As a result of the disruptions caused by the September 11 terrorist attacks, the DOL's Pension and Welfare Benefits Administration (PWBA) together with the IRS and PBGC, has announced extensions to Form 5500 filing deadlines. The Press Release also provides guidance on other fiduciary matters. For a complete copy: http://www.dol.gov/dol/pwba/public/media/press/Pr091401.htm

Form 5500 Relief.

The PWBA has extended the due dates for certain Form 5500 filers. The extnesions apply to (1) Plan administrators, employers and other entities actually located in the federal disaster areas designated in connection with the attacks; and (2) filers located outside those disaster areas "who are unable to obtain the information necessary for filing from service providers, banks or insurance companies whose operations are directly affected by the disasters."

The extensions are as follows:

Filers with original due dates between 9/11/01 and 11/30/01: extension for six months plus 120 days.

Filers with extensions expiring between 9/11/01 and 11/30/01: extension for 120 days.

The Press Release also includes what appears to be a general catchall extension to 11/15/01 for other filers who have experienced disrupted deliveries due to the attacks. According to the Press Release, filers falling into the last category are those "who have difficulty in meeting filing deadlines because of disruption of transportation and delivery of documents by mail or private delivery service resulting from the disasters, and who do not otherwise qualify for the extensions described above."

To take advantage of any of these extensions, filers must check Part 1, Box D, of the Form 5500 (Part 1, Box B on the Form 5500-EZ) and attach a statement labeled "September 11, 2001 Terrorist Attack" that explains the basis for the extension being claimed under the Press Release. Form 5558 may not be used to obtain a further extension of these dates.

Above information can be found in the Employee Benefits Institute of America Weekly E-Mail Newsletter, September 20, 2001.

December 2000

IRS advises that Kindergarten is not an eligible employment related expense for Dependent Care

The IRS confirmed that only expenses that are primarily for custodial care qualify for the credit, and that kindergarten expenses are generally for education, not custodial care.

The IRS issues revised Publication 503 (Child and Dependent Care Expenses) and revised Publication 502 (Medical and Dental Expenses). Copies of these Publications may be obtained from the IRS Web Site.

www.irs.ustreas.gov

Cost of Weight Loss Program Not a Deductible Expense.

"If the cost of participating in a weight loss program does not qualify as a medical expense, it is also not reimbursable under a health FSA." A weight loss program may be a deductibe medical expense only if the treatment is prescribed by a physician as medically necessary to prevent or alleviate a specific medical defect or illness (for example, hypertension, arteriosclerosis or diabetes).

Above information can be found in the Employee Benefits Institute of America Cafeteria Plan Manual, Current Developments, December 2000.

April 2000

March 23, 2000
Section 125 Changes

Following is an update on legislative changes that were put into law beginning March 23, 2000 regarding all Section 125 plans:

Final Regulations

A. Change in Status

    1. Change in employee’s legal
         marital status
    2. Change in the number of
         dependents
    3. Change in the employment
         status. This now applies to
        any employment status change
         that affects benefit eligibility.
         Any of the following events
         that change the employment
         status of the employee, the
         employee’s spouse, or the
         employee’s dependent could
         qualify: termination or
         commencement of employment;
         a strike or lockout; a
         commencement of or return
         from an unpaid leave of
         absence; a change in worksite;
         and switching from full time to
         part time or part time to full
         time only if benefit eligibility is
         affected.
    4. Dependent satisifies or ceases to
         satisfy dependent eligibility
         requirements.
    5. Residence Change. An election
        change is permissible where a
        change in residence affects the
        employee’s eligibility for
        coverage.

There are 13 other events, besides those previously mentioned, in the final and proposed regulations that would permit mid year election changes. They are as follows: HIPPA special enrollment events; judgements, decrees or orders; COBRA events; entitlement to Medicare or Medicaid; changes in cost of a plan with automatic salary reduction adjustments; significant changes in cost; significant curtailment of coverage; changes in coverage under the plan of the employer of a spouse or dependent; addition or elimination of a benefit package option; separation from service; cessation of contributions; 401K changes; and FMLA leave.

Proposed Regulations

A. Change in Status
The rules have been expanded to apply to DCAPs and Adoption Assistance Plans.

    1. Cost or coverage change rules
        have been expanded to apply to
        all qualified benefits, including
        dependent care assistance and
        self funded medical coverage
        (other than Health FSAs).

B. Change in Cost
The proposed regulations provide that a plan can require an automatic election increase or decrease in the cost of coverage. If there is a significant cost increase, a plan may allow participants to either make a corresponding election increase or elect alternative coverage.

    1. Dependent Care - cost
        motivated election changes are
        allowed, except where the care
        giver is a relative.

C. Change in Coverage
The new proposed regulations seem to expand slightly on the prior rule. If the coverage under a plan is significantly curtailed or ceases during a period of coverage, the cafeteria plan may permit affected employees to revoke their elections under the plan. Employee "may" make a new election for coverage under another benefit package option providing similar coverage.

Additionally, the new coverage change rules allow for election changes in the event that a newly-added option is made available or an existing benefit option is eliminated.

Above information can be found in the Employee Benefits Institute of America Cafeteria Plan Manual, Current Developments, April 2000.