Legal Alert

Upcoming Compliance Deadlines for Health and Welfare Plans

by Brian M. Pinheiro, Edward I. Leeds, and Paige A. Haughton
November 2, 2021

Summary

Throughout 2020 and 2021, employers sponsoring health and welfare plans have needed to respond to a myriad of legislative and regulatory changes arising from the COVID-19 pandemic and new health legislation. To comply with these changes, employers may need to work with their vendors, amend their plans, and take other action. In this alert, we identify some key considerations and deadlines that employers need to keep in mind as we approach year-end.

The Upshot

If an employer has taken advantage of any of the temporary relief opportunities offered on account of the COVID-19 pandemic for cafeteria plans or flexible spending arrangements, the employer must amend relevant plan documents to reflect those changes.

To the extent that plans have not been amended to reflect other changes in coverage related to COVID-19, they should be amended now.

Plan administrators should be working with their vendors to make sure that they will be in a position to provide timely and accurate reports under the Affordable Care Act (without the delays and good faith standards that have applied in the past) and to meet the new and very significant compliance requirements introduced by the transparency regulations and Consolidated Appropriations Act.

The Bottom Line

For more information on the actual requirements, you may wish to connect to our Health Care Reform Dashboard or COVID-19 Resource Center or contact a member of our Employee Benefits and Executive Compensation Group.

Throughout 2020 and 2021, employers sponsoring health and welfare plans have needed to respond to a myriad of legislative and regulatory changes arising from the COVID-19 pandemic and new health legislation. To comply with these changes, employers may need to work with their vendors, amend their plans and take other action. The following list identifies some key considerations and deadlines that employers need to keep in mind as we approach year-end.

Cafeteria and FSA Changes. If an employer has taken advantage of any of the temporary relief opportunities offered on account of the COVID-19 pandemic for cafeteria plans or flexible spending arrangements, the employer will need to amend relevant plan documents to reflect changes that they made. These changes include:

  • Special mid-year enrollment periods. (Available in calendar years 2020 and 2021.)  
  • The extension of a grace period for incurring claims after the end of the year from 2.5 months to 12 months. (Available for amounts unused as of the last day of plan years ending in 2020 and 2021.)
  • The opportunity to carry forward the full unused balance of a health FSA or dependent care FSA. (Available (if no grace period applies) for amounts unused as of the last day of plan years ending in 2020 and 2021.) The amount for future years is limited, but it has been indexed to increase with inflation.
  • The opportunity to reimburse health FSA expenses incurred during the applicable plan year, but after an employee’s termination of coverage. (Available for employees who terminate coverage in 2020 or 2021.)
  • The ability to reimburse dependent care expenses for a child up to age 14. (Available (subject to certain complexities) for expenses incurred by a 13-year-old dependent in plan years ending in 2020 and 2021.)
  • An increase in the maximum annual tax-favored reimbursement limit under dependent care assistance plans. (Available for 2021.)

In general, if an employer implemented any of these changes for a calendar year plan in 2020, it must amend relevant plan documents to reflect the change by December 31, 2021. Employers with non-calendar year plans will have until the end of the plan year that began in 2020. If the changes were not made until the 2021 plan year, the deadline for amending the plan is one year later. For the last bullet, increasing the limit under dependent care FSAs, the amendment must also be adopted by the last day of the plan year in which the increase is effective, which would be December 31, 2021, for a calendar year plan. 

It is important to recognize that, absent further guidance, these changes are temporary. For example, a calendar-year heath FSA balance that is unused as of December 31, 2022, will be subject to a prescribed limit of $550 (indexed for inflation).

COVID-19 Coverage Changes. To the extent that plans have not been amended to reflect changes in coverage related to COVID-19, they should be amended now. All plans now need to cover the full cost of COVID-19 testing and vaccinations, but plan amendments may be especially important for discretionary changes, such as the coverage of over-the-counter drugs and menstrual products under a health FSA or the elimination of any deductible for telemedicine expenses in a high-deductible health plan. Employers should keep in mind that, apart from the health FSA expansion, the changes are temporary, and the plan amendments should reflect their temporary status.

Extended Deadlines. Employers that have not yet amended their plans to reflect the deadline extensions for notices, elections, and certain other actions relating most prominently to COBRA and claims and appeals may consider setting forth how (and for how long) those extensions will apply.

Affordable Care Act Reporting. Employers subject to the ACA’s employer mandate have long been accustomed to having a 30-day delay in the deadline for distributing Forms 1095 to plan participants. They are also accustomed to the IRS’s application of a good faith compliance standard, which has allowed them to correct errors and omissions in the forms after the fact (and even after discovery by the IRS). It currently appears that neither the good faith compliance standard nor the 30-day delay in distribution of the Forms 1095 will apply to the reports that employers need to file for the 2021 year. Thus, the deadline for distributing Form 1095 to individuals will be January 31, 2022. With the end of the good faith compliance standard, employers will want to make sure that the forms are complete and accurate prior to distribution and prior to their submission to the IRS (required by February 28, 2022, for paper filings, and March 31, 2022, for electronic filings). 

Employers should make sure that they and their vendors are able to produce forms early enough for appropriate review and handling before the distribution deadline. If an employer foresees difficulty in meeting any of the deadlines, it may apply to the IRS for a 30-day extension. An application for the IRS filing is automatically granted. However, an application for an extension of the distribution deadline must be approved. Unless the IRS offers some additional relief, employers should gauge their ability to comply with the January 31 deadline early enough to submit an application for an extension that leaves a reasonable amount of time for approval.

Transparency Regulations and Consolidated Appropriations Act. The transparency regulations published last November and the Consolidated Appropriations Act enacted last December introduce very significant compliance requirements that plans will be able to meet only with the cooperation of their plan vendors. Some of these requirements (such as the need to conduct a comparative analysis of nonquantitative treatment limitations under the Mental Health Parity and Addiction Equity Act and the prohibition against gag clauses) are already in effect. Others (such as the rules governing payments to out-of-network providers in certain situations to avoid surprise billings and the requirement to collect information about the revenue sources of health insurance brokers and certain consultants) will take effect soon. Governmental enforcement of certain rules (such as the new requirement for plans to publicly–and transparently–post information about the amounts they pay for in-network, out-of-network, and prescription drug expenses) have been delayed. However, the delay for some of the information is only six months, and the statutory date for compliance remains unchanged, at January 1, 2022, for calendar-year plans.   

Employers should be addressing compliance with these new requirements with relevant plan vendors and considering the measures that they themselves should be taking in response to the requirements.

This alert focuses on the deadlines for a wide array of changes. For more information on the actual requirements, you may wish to connect to our Health Care Reform Dashboard or COVID-19 Resource Center or contact a member of our Employee Benefits and Executive Compensation Group.

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.