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. Following are common benefits issues employers and plan sponsors may want to address prior to the end of this year or early next year:

• Don’t Gag on This Attestation. Employers have yet another reporting obligation due no later than December 31^st. Employers and their providers must 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). Most insurers and many third party administrators (TPAs) will attest on the employer’s behalf, however, self-funded plan sponsors should confirm attestation by their vendors in writing as a best practice.
• Confirmation “Bias”. As the old saying goes, “An ounce of prevention is worth a pound of cure.” It is 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 prior articles have noted, cafeteria plan rules generally do not allow mulligans once the plan year begins (unless there is a permitted change in status). Even for employers that 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 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 any applicable plans. 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. Employers with self-funded plans (including HRAs and FSAs) or dependent care assistance plans are also subject to separate nondiscrimination rules. While the rules require the plan to be tested prior to the end of the plan year, a good practice is to test the plan multiple times if there’s a risk of failing. As mentioned above, corrections cannot be made retroactively to cafeteria plan elections. 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.
• Get Set Up for Good Reports. Form W-2 and ACA reporting deadlines (for Forms 1094-C and 1095-C) are just around the corner once the new year starts. As of 2024, there is near universal electronic filing. Now is a good time to work with vendors to collect information needed for ACA reporting, such as contribution amounts, coverage elections, etc. If an employer received a letter from the IRS about prior year reporting (including possible coding errors), they will want to review it to avoid those errors in the current year’s returns. HUB can help review and develop a response strategy and provide 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 W-2s in the preceding year) 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 elections have been properly fed into the payroll system. If there is not a way to confirm all employee elections in payroll, consider spot checking a few employees’ payroll deductions in the first payroll of the year against their elections to make sure they match. If there are errors, it may be worth the time to review a broader set or consider reviewing them all. This helps reduce the potential 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 an employer does all of the above, there may still be some employees who claim their elections are wrong. If employees 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, employers want to familiarize themselves with the IRS rules and their plan’s rules regarding changes in elections to be able to respond appropriately if those complaints come up.
• No More “Free” Telehealth. As detailed here, employees enrolled in high deductible health plans cannot receive telehealth benefits on a first-dollar basis (i.e., pre-deductible) for plan years beginning on or after January 1, 2025. If they do, they will be ineligible to contribute to an HSA. As a result, employers offering telehealth pre-deductible (whether under the plan or as part of a separate policy) will need to end that practice in the new year.
• Get Mental Health Coverage Right. Given the recently finalized Mental Health Parity and Addiction Equity Act rules, employers with self-funded plans should consider preparing now, and early in the new year, to complete their non-quantitative treatment analysis so that it is available if requested by a regulator or someone making a claim under the plan.
• Focus on Cyber Hygiene. Given the Department of Labor’s updates to its cybersecurity guidance and the HIPAA focus on cyber compliance, employers should consider a New Year’s resolution to take a close look at their cyber readiness for any systems holding sensitive information.
• Be Prepared to Produce Attestation Forms. With the recent HIPAA changes related to disclosures of reproductive health care information, employers should familiarize themselves with the rules, the model attestation, and the broad situations in which they apply. Self-funded plan sponsors should also review their business associate agreements (BAAs) and policies and procedures to make any necessary updates to comply with the new rules.
• Keep an Eye on the Courts and the Agencies in the New Year. Given recent Supreme Court rulings, there will likely be increased litigation over regulations in the coming year. Additionally, with a change in Presidential administrations, there will be a change in the focus and scope of regulatory activity. The content and reach of the rules is anyone’s guess, but one certainty is that there will be changes.

 

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.