Attention Employers Who Used Excepted Benefits HRAs in 2014 to Comply with San Francisco's Health Care Security Ordinance!
You will recall from our 2015 Health Care Expenditure Rates Just Released Under the San Francisco Health Care Security Ordinance Alert that the Affordable Care Act (ACA) significantly restricted HRAs to those that are integrated with underlying ACA-compliant group health plans, unless the HRA exclusively benefits retiree and/or other former employees, or is limited to reimburse vision and dental care expenses. Employers may also retain "spend-down" HRAs that don't allow for any additional contributions, but allows employees to exhaust their account balances with current eligible expenses.
As a result of this restriction, the San Francisco HCSO was amended to require Covered Employers to make "irrevocable" Health Care Expenditures. In other words, any amount of Health Care Expenditure cannot be retained by, recovered or returned to the Covered Employer. There are several ways that the irrevocable spending requirement under the HCSO can be satisfied. For example, payment of employee's health insurance premiums, contributions to a City fund or to a Medical Reimbursement Account created by the City. Further, the irrevocable spending requirement must be satisfied in accordance with a three year phase-in schedule.
New guidance extends the deadline to "true up" HRAs
Additional guidance was issued on January 29, 2015 for Covered Employers who used excepted benefits HRAs to comply with the HCSO during 2014. Covered Employees are allowed 90 days to submit reimbursement requests for eligible expenses incurred in calendar year 2014, if an employer: 1) allocated funds to an excepted benefits HRA on behalf of employees covered by the HCSO for hours payable in 2014; and 2) made allocations for more than an average of 20 hours per week to that account. Since employees have 90 days to submit reimbursement requests for eligible expenses incurred in 2014, the deadline for "truing up" those accounts has been extended from January 30, 2015 to April 10, 2015.
If, at the end of calendar year 2014, an employee has not used the full amount of revocable contributions to an excepted benefits HRA and those contributions exceeded the Required Health Care Expenditures (for an employee working an average of 20 hours per week), the employer must make replacement Health Care Expenditures equivalent to the unused amount in excess of 20 hours. Replacement Health Care Expenditures must be made by April 10, 2015 for the Office of Labor Standards Enforcement (OLSE) to count those expenditures toward the 2014 Employer Spending Requirement. If the employer does not make sufficient replacement expenditures, the Employer Spending Requirement for 2014 will not be satisfied and penalties will apply.
A Medium-Sized employer allocated Revocable Expenditures for 30 Hours Payable per week to an employee's excepted benefits HRA account for all of calendar year 2014.
The total allocated is: $1.63 expenditure rate x 30 hours x 52 weeks = $2,542.80
The employer only reimburses the employee the amount required for 15 Hours Payable.
$1.63 expenditure rate x 15 hours x 52 weeks = $1,271.40
The employee did not "actually use" any of the funds allocated in excess of 20 hours per week. The employer would be required to make replacement Health Care Expenditures on behalf of the employee for all hours in excess of 20 hours per week. Thirty hours per week allocated minus 20 hours per week, assumed to be "reasonably calculated to benefit the employee," results in an excess of 10 hours per week.
10 hours per week remaining x $1.63 x 52 = $847.60
The replacement Health Care Expenditures of $847.60 must be made by April 10, 2015 to be counted toward the employer's 2014 Spending Requirement.
New guidance updates reporting requirements for excepted benefits HRAs
The OLSE has updated the anticipated HCSO Annual Reporting Form due April 30, 2015. The form will be available on the HCSO website by April 1, 2015 and employers will be required to provide aggregate information on allocations, reimbursements and "true-up" spending, if applicable. Employers who made revocable contributions to excepted benefits HRAs for more than an average of 20 hours per week for any Covered Employee are required to answer additional questions on the HCSO Annual Reporting Form. It is important to note that employers are responsible for maintaining records demonstrating that valid expenditures were made for each individual Covered Employee.
For details about these and other requirements or other resources, please visit the San Francisco government website at www.sfgov.org/olse/hcso.
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