Important Changes Relating to Section 125 Plans May Require Immediate Action

by Foley Hoag LLP
Contact

Last week, there were two important developments relating to Section 125 cafeteria plans. First, Massachusetts announced that employers will no longer be required to maintain a Section 125 plan. Second, the IRS has modified the “use or lose” rule relating to Flexible Spending Arrangements (FSAs) under Section 125 plans. These new rules may warrant immediate changes to employers’ Section 125 plans.

1. Massachusetts Eliminates Section 125 Plan Requirement

Under the Massachusetts health care reform law, an employer with 11 or more Massachusetts-based employees was required to offer a cafeteria plan, so that all employees, including those not benefits eligible, could purchase health insurance using pre-tax dollars. In response, many employers adopted premium-only Section 125 plans or amended their existing plans in order to enable employees to purchase health insurance through the Connector, the state health insurance exchange. On October 28, 2013, the Connector issued an administrative bulletin, announcing that it would no longer enforce the Section 125 requirement and that it would be seeking its repeal.

The impetus for this change is that the U.S. Department of Labor and the Internal Revenue Service issued guidance under the Affordable Care Act that for plan years beginning in 2014, employers will not be able to offer Section 125 plans to employees for the purchase of non-group health insurance, such as from the Connector, using pre-tax income. Massachusetts employers may need to terminate their premium-only plans or amend their Section 125 plans before the beginning of the 2014 plan year. Note that employers may continue to offer Section 125 plans for other purposes, such as the purchase of group health insurance or other benefits.

2. Changes to the “Use or Lose” Rule for FSAs

Last week, the IRS issued guidance modifying the “use-or-lose” rule. Under that rule, amounts credited to an employee’s health FSA account that remained unused after the plan year plus a grace period of up to two and half months were forfeited. According to the new guidance, employers may amend their Section 125 plans to allow employees to carryover up to $500 to the next immediate plan year. That carryover amount may be used to pay or reimburse medical expenses incurred during the next plan year. However, an employer that chooses to incorporate the new carryover rule may not also provide for a grace period for employees to use amounts after the end of the plan year. Employers who wish to amend their Section 125 plans to adopt the carryover provision will need to think about the timing of such change and ensure that participants are given appropriate notice, particularly if the employer is replacing the permitted grace period with the carryover provision.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Foley Hoag LLP | Attorney Advertising

Written by:

Foley Hoag LLP
Contact
more
less

Foley Hoag LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!