Description: Crosby Connection

 

February 2012: In This Issue

Don't Let Your FSA Participants Lose Their 2011 Funds

Hope For Pre-Tax Commuter Benefits?

The Complex Account Team Grows

Helping You Understand The 2013 FSA Limit Change

Calendar

Feb 20: Our offices will be closed for President's Day. 


Apr 1
: April Fools!

Apr 22-24: Crosby will be attending the CUPA-HR Eastern Region Conference, in Philadelphia, PA.

 

Did You Know . . .

. . . We can manage your HIRD Form process? Are you complying with your 30-day deadlines?

> After Open Enrollment

> New hires who turn
down coverage

> Employees who drop coverage

Our process is designed to distribute, track and store Employee HIRD Forms so that you don't have to. 

 


 

. . . You can streamline your commuter program and add revenue?

> Quick Implementation

> Easy-To-Use

> All Major Metro Areas Covered

> Fully Automated

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For more information about any of our services, please contact Jean Sicurella via email or call 617-630-0496.

 

Get A Team Roster

We use a client-centered team approach to best meet your needs. For your team roster, please email us here.  

Special Summary Statements For FSA Run Out

Remind Your Employees To Use Their 2011 Funds


Description: ReimbursementDid you know that for any FSA Plan Year, Crosby can mail an extra Summary Statement during run out to participants with a remaining FSA balance? For only $1.50/statement, we will remind your employees that they have only a short time left to spend their remaining funds and/or submit claims for a specified plan year. Now is a great time to send these extra reminder statements to 2011 Plan Year account holders. You may learn more by emailing Darla Rosenfeld, Linda Fulton or Max Crosby.

 

Hope For Pre-Tax Commuter Benefits?

Congress Still Mulling Adjustments For 2012 Limits


Description: CommuterThere's reason to hope that Congress may still pass a Transit pre-tax limit change for 2012. Partly based on pressure from industry groups and individuals to extend the Parking and Transit limit parity, transportation bills being considered in Congress now could include a bump up from the $125/month limit for Transit. Additionally, the idea of a retroactive change has been proposed. We'll continue to monitor progress and keep you abreast of any pre-tax limit change news.

 

News Flash: Complex & Billing Teams Combined


Description: News FlashOur Billing Accounts Team and Complex Accounts Teams were recently merged into one larger, Complex Accounts Team. We made this change to better serve our clients, reduce response times to client inquiries and improve our quality control processes. Clients using the billingaccts@ email address may now use complexaccts@crosbybenefits.com.

 

National Health Care Reform Update: FSA Limits

Important Information About the $2500 Medical FSA Cap 

 

Description: Reimbursement2013 is fast approaching and many employers must prepare for the new Medical FSA limit of $2,500. While we know this health care reform change means plans starting on January 1, 2013 and beyond must limit Medical FSA contributions to $2,500, it's less clear how the limit affects plans starting January 2, 2012 through December 31, 2012. It is our understanding that the literal language of the rule states that a plan year, for example, beginning February 2, 2012 must adhere to the limit. However, there's some hope that the IRS may "clarify" the rule and allow plans starting January 2, 2012 through December 31, 2012 to postpone using the new limit. That may be wishful thinking, however. Below is a more complete explanation of the current rule and the options to consider.


When is the new rule effective?

The rule, which caps the amount of elections made for a taxable year, is effective for taxable years beginning after December 31, 2012. The taxable year is typically a calendar. Alternatively, the rule applies to elections made for tax years starting with the tax year beginning January 1, 2013. 


Note: The statute fails to reference the "plan year" of the Health FSA, even though Health FSA elections are typically made for a plan year. The failure to reference the term plan year creates compliance and operational challenges for plan sponsors that maintain Health FSAs with a fiscal plan year.

For Health FSAs that have a calendar plan year, applying the effective date is relatively simple due to the plan year and the taxable year being the same. However, the failure to reference the plan year creates challenges for Health FSAs that have a fiscal plan year.

 

Thus, there are three potential interpretations regarding how the rule is applied to Health FSAs with fiscal years--each of which is addressed below (in no particular order). 

 

To better illustrate the application of each interpretation, we will use as our exemplar a Health FSA sponsored by ABC Company with an April 1 through March 31 plan year.

 

Interpretation #1: The rule may impact any salary reductions made during the calendar year, without regard to the plan year of the Health FSA or when the election was made. Thus, ABC's compliance with the new rule would be measured by looking at an employee's salary reductions made during the last 3 months of the 2012 plan year (January, February and March 2013) and the employee's salary reductions for the first 9 months of the 2013 plan (April through December).

Note: This interpretation would require that ABC either amend its plan prior to the start of the 2012 plan year to cap all Health FSA salary reductions made during the 2012 plan year at $2500 or amend the plan prior to the start of the 2013 plan year and simply limit the salary reduction amount for the 2013 plan year. This would ensure that the sum of each employee's salary reductions in the last 3 months of the 2012 plan year (i.e. January, February, and March 2013) and the salary reductions made by each employee during the first 9 months of the 2013 plan year do not exceed $2500. While this seems like an arduous task, it likely isn't, at least for plan sponsors whose current FSA annual maximum isn't excessive.


Interpretation #2: The rule applies only to elections with an effective date in 2013, without regard to the plan year. Unlike Interpretation #1, elections with an effective date in 2012 would not be subject to the new cap, even though such elections include a coverage period that extends into 2013. But, those making an election with an effective date in 2013, even if for the 2012-13 plan year, would be subject to the $2500 cap.

Note: Under Interpretation #2, ABC would need to amend its plan prior to January 1, 2013.

 

Interpretation #3: The rule first applies to plan years beginning on or after January 1, 2013. Thus, the rule would first apply to ABC's Health FSA on April 1, 2013 and no one making an election for the 2012 plan year, even if the election included coverage months, or was first effective in 2013, would be subject to the cap.
 

Note: This interpretation provides the greatest amount of administrative flexibility. For example, ABC would have to amend its plan prior to April 2013-not before the 2012 plan year or January 1, 2013, as in the first two interpretations-and employees making an election for the 2012 plan year would not be subject to the cap, thereby delaying application of the rule for ABC and other plan sponsors with fiscal plan years. Unfortunately, this interpretation simply isn't consistent with the literal language of the statute, which makes no reference to the plan year on which this interpretation is based. 


What are the next steps?
We expect the IRS to issue guidance in the near future that will clarify the effective date of the rule-hopefully in a way that is administratively convenient for plan sponsors and administrators. However, in the absence of formal guidance from the IRS, plan sponsors with fiscal plan years will need to make a decision regarding the appropriate action to take. Ultra conservative plan sponsors may feel compelled to adopt Interpretation #1 and amend their plan prior to the beginning of the 2012 plan year so that all 2012 elections are subject to the $2500 cap. Others will decide to take a wait and see approach and we don't necessarily disagree with this. Even if the IRS formally adopts interpretation #1 after your 2012 fiscal plan year begins (i.e. the 2500 cap applies to salary reductions made in 2013 without regard to the plan year), adjustments can be made to the 2013 plan year elections to ensure compliance, which gives plan sponsors some flexibility to take a wait and see approach. Interpretations #2 and 3 have flexibility built into them so there is no possible interpretation that absolutely requires you to take action now. 


Does the new rule require a plan amendment?

Yes, the new rule requires a plan amendment to the extent that your current Health FSA annual salary reduction maximum is greater than $2500. Thus, if ABC's maximum annual salary reduction election is $2000, no amendment is needed.


Practice Pointer: Don't forget that plan amendments must be "formally" adopted by the individual(s) authorized by the company's governing documents to amend plans. Moreover, the formal amendment must be completed prior to the effective date.

Does the cap apply also to any non-elective employer contributions, such as matching contributions?
The literal language of the statute appears to impose a cap ONLY on an employee's Health FSA salary reduction elections. Thus, absent a contrary clarification from the IRS, an employer's non-elective contributions to the Health FSA, such as matching contributions, would not be subject to the cap.
 

Practice Pointer: If the cap ultimately does not apply to employer's non-elective contributions, the Health FSA reimbursement maximum could be higher than $2,500. For example, an employer who establishes a $2500 cap on salary reductions could also provide matching contributions to raise the maximum annual reimbursement to $5,000.


Does the new rule affect any other cafeteria plan salary reductions?

No, the amendments to Code Section 125 made by Section 9005 of PPACA apply only to Health FSA elections. 

 

Source: Alston & Bird LLP

 



Please continue to help promote our Reimbursement Account Go Green! initiative, offering E-Communications and Direct Deposit. Enrollees will benefit by receiving faster claims payment and many communications via email. Participants may sign up via MyCrosbyBenefits.com.

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The Crosby Connection Newsletter is intended for Crosby Client Contacts.

2012 Crosby Benefit Systems

 

 

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