Voluntary Benefits, such as critical illness, are no longer the only way Employers are expanding benefits options for employees. To prevent stagnation, employers are diving into new territories that may need to be included in the Form 5500 reports. Recently, brokers have asked for our comments on three benefits that have emerged in this group.
1. Paid Family Medical Leave
Paid Family Medical Leave, generally speaking, has been listed as a non-ERISA benefit since it has been considered a payroll practice where the employer sends funds to a state-run program. This may not be the case for all.
Employers may consider implementing a self-funded benefit which would require an ongoing administrative program maintained by the employer. They would deduct the funds from the employees, hold those funds, and then administer their own leave program. This arrangement, as a result, would not be considered a payroll practice.
Instead, the program/benefit under these statutes would be under the mandates and provisions of ERISA. As a result, the employer/plan sponsor is under obligation to distribute the SPD to participants and the 5500 report would be required if the reporting threshold was met.
As several states (with more to come) plus cities and counties require PFML, this self-funded arrangement may be seen more and more.
- At the forefront is Massachusetts where, starting in October, employers in this state will be required to deduct from employees’ wages and send those funds to a state fund.
- Alternatively, employers may opt to create a private plan exemption.
- To qualify, the plan needs to meet or exceed the state’s arrangement and receive approval from the Massachusetts Department of Family Medical Leave.
States that Require Paid Family Leave
- Connecticut – in the works
- New Jersey
- New York
- Oregon – in the works
- Rhode Island
- District of Columbia
2. Employee Rx Discount Programs
Employers are implementing benefits that provide negotiated discounts on RX prescriptions and pharmaceuticals. Would these be an ERISA-reportable benefits?
Before we look at the specifics, we first need to take a step back to double-check the foundation is in place. Have all of the following elements of the definition of an employee welfare plan been met?
A plan, fund, or program; that is established or maintained by an employer; for the purpose of providing specifically listed benefits (through the purchase of insurance otherwise); to participants and their beneficiaries.
If yes, we then make sure the benefit fits within one of the categories of ERISA, in this case, medical which does fit into the health category. If the discount was on clothes, which does not fit into an ERISA category, it would not be ERISA reportable.
EBIA, a resource reviewed and prepared by ERISA attorneys, suggests that if the benefit gives employees access to a healthcare provider networks that can only be accessed through employment-related status, there is the likelihood of the benefit being ERISA-reportable. This is supported by the IRS COBRA regulations on what is deemed as a group health plan: “coverage under the plan would not be available at the same cost to an individual but for the individual’s employment-related connection to the employer.”
[Treas. Reg. §54.4980B2, Q/A1(a)., Treas. Reg. §54.4980B2, Q/A1(a)]
For more clarity, Wrangle asked the DOL’s Office of the Chief Accountant to comment. The request was denied because Wrangle’s DOL contact felt that there was still too much grey area. The DOL’s Office of Regulations and Interpretations was recommended (this division of the DOL handles questions where there is no written material for reference). At the time this blog was to be released, the DOL had not responded. Wrangle, therefore, encourages an ERISA attorney to review and advise if you have a similar type of benefit.
3. Onsite Clinics
Employers carve out space for an onsite clinic. If the clinic provides only first aid, this is not ERISA-reportable. On the other hand, if the clinic provides more medical care, has a RN onsite and/or provides preventive services, then the benefit would be ERISA reportable.
Reminder on Using Safe Harbor to Not be an ERISA Reportable Benefit:
- Employee participation is voluntary.
- The benefits plan must be completely employee paid. Salary contributions made on a pre-tax basis through a Cafeteria/Section 125 plan are employer contributions, so all employee contributions must be after-tax to meet the safe harbor.
- The employer cannot endorse, educate or market the plan to employees. The insurer can collect premiums through payroll deductions.
- Employers receive no compensation or profit from the program, although they can be compensated for administrative services.
Overall, before any quick decision is to be made on including a benefit in a Form 5500, the Wrap Plan Document and SPD need to be reviewed to see if guidance has been stated. Also, an ERISA attorney should be called into the picture for any instance when there is uncertainty. The decision should not be taken lightly because this also has a ripple effect going into HIPAA, COBRA, etc.