Benefits Year-End To-Dos and New Year’s Resolutions

By: HUB’s EB Compliance Team

Many people make New Year’s resolutions, but before you do, it is important to close out the current year strong to set your benefit plans up for success in the coming year. Here are a few benefits issues you may want to address before the end of this year or early next year:

• Don’t Gag on Your First Attestation. Employers have yet another reporting obligation due no later than December 31^st. Employers and their providers must now attest to the government that their plans are not subject to any gag clauses that would prohibit disclosure of provider cost or quality data or deidentified claims and encounter data as required to comply with the transparency provisions of the Consolidated Appropriations Act (CAA). If you have not already made arrangements to provide the attestation, now is the time to start.
• Confirmation “Bias”. As the old saying goes, “An ounce of prevention is worth a pound of cure.” It’s much better to confirm elections before the end of the plan year than it is to try and make corrections once the new plan year starts. As we have noted previously, cafeteria plan rules generally do not allow mulligans once the plan year begins (unless there is a permitted change in status). Even if you can’t review all elections, encouraging employees to confirm them before year end is a good way to head off complaints down the road. A few common benefits issues include:
  • Employees enrolling in a high-deductible health plan and any other first-dollar coverage like a general purpose flexible spending arrangement (FSA). This “dual enrollment” will make the employee ineligible to make or receive health savings account (HSA) contributions. While employees may still enroll in certain limited-purpose or post-deductible FSAs without impact on HSA eligibility and participation, employees may easily miss such nuances in making their elections, especially when both general purpose and HSA-compatible FSAs are available.
  • Electing a dependent care flexible spending arrangement when an employee doesn’t have dependents. Even if an employee is expecting a baby, they should wait to make this election until the dependent actually arrives.
  • Employees newly hired during open enrollment (or shortly before) may assume they don’t need to elect benefits twice. Certain elections like FSA contributions must be elected every year – once for this year, and once for next year. Make sure employees understand which benefits will not continue without an affirmative election.
• Get Test-y. Don’t forget to nondiscrimination test your plan. Employers sponsoring pre-tax cafeteria plans under Section 125 are required to nondiscrimination test their plans on an annual basis to ensure highly compensated individuals and other key employees do not receive more favorable tax treatment. While the rules require the plan to be tested prior to the end of the plan year, best practice is to test the plan multiple times if there’s a risk of failing. As mentioned above, corrections cannot be made retroactively. Employers with concerns about their ability to pass should consider testing their plan after elections are made before the plan year starts and again prior to the end of the year.
• Set Yourself Up for Good Reports. The Form W-2 and the ACA reporting deadlines (for Forms 1094-C and 1095-C) are just around the corner once the new year starts. And, 2024 is the first year of near universal electronic filing. Now is a good time to work with your vendors to collect the information you need for ACA reporting, such as contribution amounts, coverage elections, etc. If you received a letter from the IRS about your prior year reporting (including possible coding errors), you will want to review it to avoid those errors in your current year’s returns as well. HUB can help you review and develop a response strategy and provide you with additional tools and resources. Additionally, employers must report the following items on employee W-2s:
  • The cost of group health plan coverage (for employers that were required to issue 250 or more 2016 W-2s) should be reported in Box 12 with code DD.
  • Imputed income (which is generally taxable income from non-cash items) will need to be included in the employee’s W-2 income for certain benefits items, such as:
    • Domestic partner health, dental, or vision coverage (if the domestic partner is not a tax dependent);
    • The value of group term life insurance that exceeds $50,000 in death benefits; and
    • Long-term disability insurance paid for by the employer, if the benefit (or a portion of the benefit) is non-taxable to the employee when received under the terms of the policy because all or a portion of the premiums are taxable to the employee.
  • Most contributions to an employee’s health savings account must be reported in Box 12 using Code W. These include both employer contributions (if any) and pre-tax payroll contributions made through the employer’s cafeteria plan.
• Avoid Payroll Feed “Frenzy.” Make sure your elections have been properly fed into your payroll system. If you do not have a way to confirm all employee elections in payroll, you may want to spot check a few employees’ payroll deductions in the first payroll of the year against their elections to make sure they match. If you find errors, you may want to review a broader set or consider reviewing them all. This helps reduce the chance that you will need to correct erroneous payroll deductions down the road.
• In HSAs, the “A” Does Not Mean “Automatic.” Occasionally, an employee will enroll in a high deductible health plan and elect payroll deduction health savings account (HSA) contributions, but will not have taken the additional steps necessary to set up his or her HSA. The employee may not understand the need to set up an account for the HSA or may think the employer is going to do it for them. Regardless, this can put an employer in a difficult bind because it will collect HSA contributions and not be able to deposit them. Likewise, if the employer plans to contribute to an employee’s HSA, the failure of an employee to establish an account interferes with the employer’s ability to provide its contribution. Additionally, employees who later incur medical expenses will not have an account from which to draw for payment or reimbursement. Reminding employees that they need to take steps to set up their HSAs is a good way to mitigate these issues.
• Election “Rules.” Even if you do all of the above, there may still be some employees who claim their elections are wrong. If you allow employees to pay for their coverage on a pre-tax basis through a cafeteria plan, the employee generally may not change his or her election after the plan year starts. Therefore, you may want to familiarize yourself with the IRS rules and your plan’s rules regarding changes in elections so that you can respond appropriately if those complaints come up.
• Be Prepared to be More Transparent and Caring in the New Year. 2024 will likely see additional transparency rules including prescription drug machine readable files and air ambulance reporting. Additionally, expect mental health parity final rules to be among the 2024 updates. With the upcoming election, it is likely the Biden administration will look to finalize rules well ahead of November. It is good to prepare early for upcoming changes to the extent you can.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.