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Employee Benefits & ERISA Law

There are several new laws and regulations now in effect, or soon to be in effect, that make significant changes for health and welfare plans.  Below is a brief summary of these new developments (click here for article in PDF format).

 

Extension of Reimbursement Period under Cafeteria Plans

IRS Notice 2005-42, which was issued in May 2005, permits employers who sponsor cafeteria plans under Code Section 125 to amend their plans to provide for a 2 ½ month grace period immediately following the end of the plan year, in which qualified expenses incurred during such grace period can be reimbursed from benefits or contributions remaining unused at the end of the immediately preceding plan year. For example, a participant in a calendar year plan who has $200 in unused contributions to the health flexible spending account at the end of 2005 would have until March 15, 2006 to incur qualified expenses and be reimbursed from the 2005 contributions. This differs from the prior rule in which qualified expenses had to be incurred in the year in which benefits are accrued or contributions are made. This grace period must be available to all participants and unused benefits cannot be cashed out or converted to another benefit under the cafeteria plan. This new grace period does not apply automatically, and, if employers wish to provide for the grace period, cafeteria plans must be amended before the end of the current plan year for the grace period to apply effective for the current plan year. In addition to plan amendments, in order to implement this new grace period, coordination with cafeteria plan service providers and appropriate employee communications will also be required.

 

New COBRA Notice Regulations Effective January 1, 2005 for Calendar Year Plans

The final notice regulations under the Consolidated Omnibus Reconciliation Act (“COBRA”) are effective as of the first day of the first plan year that occurs on or after November 26, 2004.  For calendar year plans, this means that these new notice regulations are effective as of January 1, 2005.  Some of the important new requirements of the new COBRA regulations are:

 

· Timing and content requirements for the general notice (also called the initial notice) and the election notice.  Model general and election notices are available on the website of the Employee Benefits Security Administration (the “EBSA”). These model notices must be customized for each plan as appropriate.

· Plan administrators are required to have written reasonable procedures for qualified beneficiaries to provide notice of certain qualifying events (such as divorce or legal separation, child’s loss of dependent status, or disability determination). Procedures will be deemed to be reasonable if provided in the summary plan description and provide certain specified information.

 

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Health & Welfare Plan Update

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