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Industry & Regulatory News
What to Consider When Choosing an HSA Beneficiary

Health Savings Account (HSA) owners can choose to name their spouse, adult children, other individuals, or a trust as their beneficiary. If no beneficiary is named, the HSA will be distributed to the estate.

Careful consideration should be made when choosing a beneficiary as there are different tax implications depending on who is listed, or not listed, as the beneficiary of the HSA. It is also important to note that some states require spousal consent if the accountholder wishes to name someone other than their spouse.

When the employee’s spouse is named as the beneficiary, the account can remain a an HSA and the spouse can continue to take advantage of all that the HSA offers. They may make contributions to the account (if they are otherwise eligible to do so), earn interest tax-free and use the account for their own healthcare expenses without any tax consequences. If they choose to use the account for expenses that are not health-related, they will be required to pay income tax on those amounts and an additional 20% penalty if they are under age 65.

When an individual or group other than the employee’s spouse is named as the HSA beneficiary, the funds must be distributed and taxed at the fair market value of the account on the date of the employee’s death. Each beneficiary will pay taxes at their own income tax rate. If the money is invested, the account can make gains between the time of the account holder’s death and the closing of the account. These gains would be taxed like any other capital gains.

When a trust (revocable or irrevocable) is named as the HSA beneficiary, the fair market value of the account will be included on the employee’s final tax return. This may be the best option if your chosen beneficiary is a minor. We recommend seeking professional tax advice due to the complexity of trust accounts.

When no beneficiary is named, the HSA ends on the date of the accountholder’s death. The fair market value of the account will be included on the employee’s final income tax return and the HSA will be distributed to the estate (even if there is a surviving spouse). Another downside to this is that when requesting distribution of the HSA, the estate will need to provide additional documentation confirming the identity of the executor of the estate in the form of a small estate affidavit, a letter from an attorney, or a document from the court.

 

In any of these cases, the funds may be used for the health expenses that were incurred by the deceased accountholder for up to one year following their death.

March 28 2022
Industry & Regulatory News
From the Ascensus Health & Benefits Companies Compliance Manager: Impact of the Continued COVID-19 National Emergency

As the United States anticipates the illusive end of the COVID-19 pandemic, there is cause to be continually mindful of ongoing regulatory guidance and changes. Although legislative activity including new laws and regulations is not near the level seen in the early months of the pandemic, it is important to understand what is temporary, what is renewed, and what is the new standard. Following are a couple of key developments. 

Continuing Extensions

On February 18, 2022, President Biden once again extended the National Emergency until February 28, 2023. The extended National Emergency provides relief to health and welfare plans related to the following:

  • COBRA notices (i.e., employer and employee), payment, and election
  • HIPAA special enrollment requests
  • Claims and appeals request and claims perfection

EBSA Notice 2020-01 defined a new term “Outbreak Period” to signify disregarded periods of time for critical deadlines related to items listed above. Until the end of the pandemic is announced, employees continue to have an additional year to meet certain deadlines.

Specifically, periods are disregarded until the earlier of one year from the date they were first eligible for relief, or 60 days after the announced end of the National Emergency (the end of the Outbreak Period). As clarified in Notice 2021-01, the Department of Labor, the Internal Revenue Service, and the Department of Treasury explained the disregarded period applies on a person-by-person basis and cannot exceed one year.

Potential Expiration

When the President declared a National Emergency due to the COVID-19 outbreak in March 2020, effective March 1, 2020, there was no expectation of the Outbreak Period end. The Outbreak Period had been set to expire on February 28, 2022. As that deadline drew near, it was extended to February 28, 2023. Note that on March 3, 2022, the U.S. Senate passed a bill to end the National Emergency. This bill has yet to make it through Congress.

As your partner in employee benefits administration, we are here to assist you in reviewing and executing employee benefit regulations to ensure your compliance and help prevent any adverse consequences. Please do not hesitate to reach out with any questions to

MasonComplianceGroup@ascensus.com

Michelle Fowler
Compliance Manager

March 28 2022
Industry & Regulatory News
Temporary Telehealth HSA Coverage Extended

On March 15, 2022, President Biden signed the $1.5 trillion omnibus spending package known as the Consolidated Appropriations Act, 2022 (CAA 2022). Included in the bill is a provision that temporarily reinstates health savings account (HSA) relief, which allows high deductible health plans (HDHPs) to waive the deductible for telehealth and other remote care services, regardless of the plan year and without causing plan participants to lose HSA eligibility. The provision allows the deductible to be disregarded for the period April 1, 2022, through December 31, 2022.

Previously, the Coronavirus Aid, Relief, and Economic Security (CARES) Act amended the same provision to temporarily cover telehealth and remote care services without meeting the deductible for the period after January 1, 2020, for plan years beginning on or before December 31, 2021.

While the provision in CAA 2022 allows additional temporary flexibility for HSA owners to cover telehealth expenses from their accounts before meeting deductibles, due to the timing of the expiration of the CARES Act relief and the extension provided in the legislation, telehealth services for the period January 1, 2022, through March 31, 2022, are subject to the HDHP deductible requirements before they would be considered a qualified medical expense for HSA purposes.

Some key points about the extension:

  • Telehealth services do not need to be preventative or related to COVID-19 to qualify for the relief;
  • An employer is not required to offer these restored CARES Act exceptions;
  • Under CAA 2022, the relief applies “in the case of months beginning after March 31, 2022, and before January 1, 2023”; and
  • This relief applies on a monthly basis as opposed to a plan year basis. Consequently, for non-calendar year plans, the HDHP will need to make a midyear change on or after January 1, 2023 to make applicable telehealth visits subject to the Code’s minimum deductible requirements.

If offering the temporary flexibility, employers will be required to:

  • Determine whether their plans can and should apply the minimum deductible to telehealth and other remote care services on a retroactive basis during the gap period;
  • Clearly communicate all changes to their employees as the relief provided can be confusing (e.g., for some plans, including calendar year plans, the relief will not apply for the months of January through March, and non-calendar year plans will not be able to offer this relief for months after December 31, 2022);
  • Update plan documents to explain adopted changes;
  • Confirm for fully insured plans whether their insurer will be permitting this relief; and
  • Work with their third-party administrator for self-funded plans to see if their systems are able to accommodate these changes.
March 28 2022
Industry & Regulatory News
DOL Guidance for Over-the-Counter COVID-19 Tests

Group health plans and health insurance issuers must provide benefits for certain items and services related to testing for the detection and diagnosis of COVID-19, including over-the-counter (OTC) COVID-19 tests. Effective January 15, 2022, the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act require that these services be provided without imposing cost-sharing requirements, prior authorization, or other medical management requirements.

While the guidance significantly expands access to low-cost or no-cost COVID-19 at-home tests, the various range of solutions and implementation creates a communication challenge to employers. Sponsors of group health plans must review and carefully guide participants through the coverage details such as “direct coverage” or “reimbursement” options. Clear communication is especially important if the employer offers plans from multiple carriers.

On February 4, 2022, the Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury (collectively, the Departments) issued Frequently Asked Questions (FAQs). These FAQs provide additional guidance on the requirement to provide coverage for OTC COVID-19 tests without a prescription or individualized clinical assessment from a health care provider.

Prior to the expansion of the health plan free testing mandate to include OTC COVID tests, the IRS issued a reminder that at-home testing expenses are eligible expenses under a health FSA, HRA, or HSA. The guidance confirmed that COVID testing is an eligible expense because the cost to diagnose COVID is a Section 213(d) medical expense.

Worth noting however, the IRS imposes a blanket rule prohibiting individuals from “double dipping” with account-based plans that prevents using the account for expenses reimbursed by the health plan. The prohibition also includes tax deductions. Now that OTC COVID tests are generally covered by the health plan, employees will need to carefully consider the best way to be reimbursed for OTC tests, considering that health plans will pay in full and leaving health FSA, HRA, or HSA dollars for other expenses. Employers are responsible to communicate all necessary facts to aid in the decision.

Notable guidance within the FAQs include:

Limits on Coverage: Plans or issuers may limit reimbursement to the lesser of the actual price of the test, or $12 per test. Each covered participant, beneficiary, or enrollee may be reimbursed for at least eight tests per 30-day period (or per calendar month). The plan or issuer must calculate the reimbursement based on the number of tests in a package.

Direct-to-Consumer Coverage: Plans or issuers that provide direct coverage of OTC COVID-19 tests through both a pharmacy network and a direct-to-consumer program, and otherwise limits reimbursement for OTC COVID-19 tests from nonpreferred pharmacies or other retailers to the lesser of the actual price of the test, or $12 per test, will not be subject to enforcement action. To provide adequate access, the plan or issuer must make OTC COVID-19 tests available through at least one direct-to-consumer shipping mechanism and at least one in-person mechanism. The direct-to-consumer mechanism may include online or telephone ordering, but the plan or issuer must cover the cost of shipping.

FSA/HRA/HSA: The cost of OTC COVID-19 tests purchased after January 15, 2022, are eligible for reimbursement from a group health plan or issuer. Individuals may not seek reimbursement more than once for the same medical expense. When notifying individuals about any direct coverage or reimbursement, the plan or issuer must include a reminder stating that the same medical expense may not be submitted to a health flexible spending account (FSA), health reimbursement arrangement (HRA), or health savings account (HSA).

Impact of Supply Shortage: Plans or issuers will not be out of compliance if they temporarily cannot provide adequate access because of a supply shortage.

Fraud or Abuse: Plans or issuers may take reasonable steps to prevent, detect, and address fraud and abuse. For example, a plan or issuer can require tests to be purchased from an established retailer, substantiate the purchase by carefully reviewing receipts and documentation, and require the individual to attest that the product will not be resold.

Self-Collected Sample with Lab Processing: OTC COVID-19 tests must be self-administered and self-read without the involvement of a health care provider. The OTC COVID-19 coverage rules do not apply when an individual sends the specimen to be processed in a laboratory. These tests must be ordered by a healthcare provider.

 

March 28 2022
Industry & Regulatory News
Proposed RMD Regulations Initial Highlights

As announced on February 23, 2022, the Internal Revenue Service (IRS) has released proposed regulations related to required minimum distributions (RMDs). The IRS released the proposed regulations due in large part to changes made by the SECURE Act, including increasing the RMD age from age 70½ to age 72 and eliminating the life expectancy options for many beneficiaries. While review of these substantial regulations is ongoing and additional details will be provided, a few initial highlights are worth noting.

  • If an account owner dies after the required beginning date, the proposal would require that the 10-year rule include annual payments. Although the SECURE Act is silent regarding the applicability of annual distributions under the 10-year rule, the IRS is contending that the old “at least as rapidly” rule applies in conjunction with the new 10-year rule.
  • Spousal beneficiaries would need to elect to treat a decedent’s IRA as their own by the later of December 31 in the year following the year of the account owner’s death, or age 72.
  • The proposed regulations clarify that the age of majority for minor eligible designated beneficiaries is age 21.
  • An exception has been added that allows an automatic waiver of the 50 percent excess accumulation penalty tax if a year-of-death RMD was missed and the beneficiary removes the required amount by his tax return due date, plus extensions for the year that the RMD should have been taken.
  • If an account owner has multiple beneficiaries and one or more of the beneficiaries is not an eligible designated beneficiary, then the account owner is generally treated as having no eligible designated beneficiaries. Exceptions apply to children of the account owner and to multi-beneficiary trusts.

The regulations are proposed to become effective in 2022 for 2022 calendar distribution years. But because written comments are being accepted until May 25, 2022, and a public hearing is scheduled for June 15, 2022, the anticipated timing of the final rule is likely to be late summer or fall—at the earliest. For 2021, the existing regulations must be applied, along with a good faith application of the increased RMD age and the change in beneficiary options. Application of the proposed regulations for 2021 will result in compliance with the good faith requirement.

March 01 2022
Industry & Regulatory News
IRS Issues User Fee Guidance for EAs and ERPAs

The IRS has issued a proposed rule to increase the renewal fee for Enrolled Agents (EA) and Enrolled Retirement Plan Agents (ERPA) from $67 to $140. Public comments will be accepted within 71 days of publication in the federal register.

Additionally, final regulations increase user fees related to the special enrollment examination for enrolled agents (EA SEE). That fee has been increased from $81 (plus an amount payable to a third-party contractor), to $99 (plus an amount payable to a third-party contractor). The final regulations removed the user fee for the special enrollment examination for enrolled retirement plan agents (ERPA SEE), because the IRS no longer offers the ERPA SEE or new enrollment as an enrolled retirement plan agent.

The new fees are to be effective 30 days after publication of the final rule(s) in the federal register.

March 01 2022
Industry & Regulatory News
Legislation Proposed to Expand Qualified Medical Expenses to Include Infant Diapers

Senator Joni Ernst (R-IA) has introduced the Diaper Inclusion in Accounts for Parental Expense Reduction (DIAPER) Act. The bipartisan bill would allow the use of flexible spending accounts (FSAs) and health savings accounts (HSAs) to be used to purchase disposable infant diapers as qualified medical expenses. Any progress of the bill through Congress will be monitored, and details provided as they become available.

February 28 2022
Industry & Regulatory News
IRS Priority Guidance Plan Includes Retirement Items

The IRS has issued its 2021-2022 2nd Quarter guidance plan update, in which it describes guidance projects in the current fiscal year. Many items in the plan have appeared in prior years’ Priority Guidance Plans. A number of the guidance items deal with retirement savings arrangements, including the following.

  • Regulations and guidance relating to the 10 percent early distribution tax
  • Comprehensive IRA regulations
  • Regulations and guidance updating electronic delivery rules for providing applicable notices and making participant elections
  • Regulations relating to SECURE Act modifications to certain rules governing 401(k) plans
  • Guidance on student loan payments and their interplay with qualified retirement plans and 403(b) plans
  • Regulations on the exception to the unified plan rule for Internal Revenue Code Section 413(e) multiple employer plans (proposed regulations issued in July 2019)
  • Regulations on the definition of "governmental plan"
  • Final regulations updating minimum-present-value requirements for defined benefit pension plans (proposed regulations issued in November 2016)
  • Regulations on mortality tables to determine present value for single-employer defined benefit pension plans
  • Final regulations for withholding on distributions when payments are made to a non-U.S. address (proposed regulations issued in May 2019)
  • Regulations relating to the Section 6057 reporting requirements (proposed regulations issued in June 2012)
  • Guidance updating electronic filing requirements for employee plans to reflect changes made by the Taxpayer First Act.
February 28 2022
Industry & Regulatory News
Legislation Proposed to Promote Retirement Plan Lifetime Income Options

Legislation to promote retirement plan lifetime income options has been reintroduced by Representatives Donald Norcross (D-NJ) and Tim Walberg (R-MI). The Lifetime Income For Employees (LIFE) Act of 2022 would modify the qualified default investment arrangement rules under ERISA to allow annuity investments as part of a default in employer-provided 401(k) plans. The proposal is intended to provide employees with a steady guaranteed income during retirement and allow greater peace of mind that their income will last throughout retirement.

February 25 2022
Industry & Regulatory News
COVID-19 Relief Extended for Another Year

In March 2020, the President declared a national emergency effective March 1, 2020, due to the COVID-19 outbreak. The national emergency was extended for one year until February 28, 2022. On February 18, 2022, the President once again extended the national emergency until February 28, 2023.

The extended national emergency provides relief to health and welfare plans related to the following.

  • COBRA notices (i.e., employer and employee), payment, and election
  • HIPAA special enrollment requests
  • Claims and appeals request and claims perfection

As clarified in Notice 2021-01, the Department of Labor, the Internal Revenue Service, and the Department of Treasury explained the disregarded period applies on a person-by person basis and cannot exceed one year, as follows:

  • one year from the date an individual was first eligible for relief, or
  • 60 days after the announced end of the National Emergency.

Employers should continue to monitor deadlines pursuant to prior guidance.

February 25 2022