IRS Guidance

The Department of Labor's Employee Benefits Security Administration has posted the following information on the COBRA page:

• COBRA Premium Reduction Fact Sheet in Spanish at
  http://www.dol.gov/ebsa/newsroom/
  fsCOBRApremiumreductionsp.html
• COBRA Model General Notice in Spanish at
  http://www.dol.gov/ebsa/
  COBRAgeneralnoticefullversionsp.doc
• COBRA Poster in Spanish at http://www.dol.gov/ebsa/pdf/
  joblossposter2sp.pdf for 8 1/2 x 11
  
  and
  
  http://www.dol.gov/ebsa/pdf/
  joblossposter1sp.pdf for 11 x 17
• COBRA Flyer for Employees in Spanish at
  http://www.dol.gov/ebsa/
  pdf/cobrastimulusflyer2sp.pdf
• COBRA Flyer for Employers in Spanish at
  http://www.dol.gov/ebsa/
  pdf/cobrastimulusflyer1sp.pdf
• COBRA Flyer for Employees on Application for Review in Spanish at
  http://www.dol.gov/ebsa/
  pdf/distributionflyer09sp.pdf

The Department of Labor's Employee Benefits Security Administration has posted new information on the COBRA page (www.dol.gov/COBRA), adding an updated fact sheet, FAQS for employees, and posters and flyers updated for the provisions extending the ARRA premium reduction in the Department of Defense Appropriations Act, 2010.

The American Recovery and Reinvestment Act of 2009 (ARRA), was amended on December 19, 2009 by the Department of Defense Appropriations Act, 2010 (2010 DOD Act) which extended the premium reduction for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). http://www.dol.gov/ebsa/COBRA.html

Federal Register /Vol. 74, No. 53 / Friday, March 20, 2009 /Notices (E9-6131.pdf)

Thursday March 19, 2009 the Department of Labor (“DOL”) released the new model COBRA notices clarifying the changes required by the American Recovery and Reinvestment Act (“ARRA”). Access your copies today at http://www.dol.gov/ebsa/COBRAmodelnotice.html.

The DOL also released additional guidance regarding the notification of all Qualified Beneficiaries.
Does ARRA impose any new notice requirements?
Yes, plans and issuers are required to notify qualified beneficiaries regarding the premium reduction and other information about their rights under ARRA as follows:

A general notice to all qualified beneficiaries, whether they are currently enrolled in COBRA coverage or not, who have a Qualifying Event during the period from September 1, 2008 through December 31, 2009. This notice may be provided separately or with the COBRA election notice following a COBRA Qualifying Event.

A notice of the extended COBRA election period to any Assistance Eligible Individual (or any individual who would be an Assistance Eligible Individual if a COBRA continuation coverage election were in effect); who had a Qualifying Event at any time from September 1, 2008 through February 16, 2009; and who either did not elect COBRA continuation coverage or who elected but subsequently discontinued COBRA. This notice must be provided within 60 days following February 17, 2009.

The U.S. Congress has passed the American Recovery and Reinvestment Act of 2009. President Obama signed the bill into law on February 17, 2009. The act's main purpose is to spur the creation of jobs in the faltering economy. Specifically it includes supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and state and local fiscal stabilization.

The act also includes provisions expanding COBRA health continuation coverage for those employees who involuntarily lose their jobs between September 1, 2008 and December 31, 2009. The act requires employers to subsidize 65 percent of the COBRA premium for nine months, leaving terminated employees to pay only 35 percent. Eligible employees involuntarily terminated September 1, 2008 or later who rejected COBRA coverage would be given an additional 60 days to reconsider and elect coverage. The COBRA coverage would stop if the terminated employee becomes eligible for Medicare or other group health coverage. There are also individual and family income limitations to qualify for the subsidy. The act includes related notification requirements. These provisions will take effect on March 1, 2009 for most plans.

With the recent stimulus plan signed into law by President Obama, many questions have been asked on how to implement the COBRA Subsidy provisions. WageWorks, formerly Creative Benefits, has several resources available to help you learn about the details of the provisions.

Below are several resource links to access; all items open in new windows.

COBRA Briefing - Overview and FAQs of the COBRA Subsidy Provisions

Top 11 COBRA Changes for which You Should Plan - How this affects your COBRA administration and roadmap to implement the provisions.

COBRA Subsidy Webinar - http://go.wageworks.com/mod-1787-cobra-creative-
benefits/cobra_web/Viewer.html. Online briefing to become more informed. Be sure to have your speakers turned on.

Government resources and forms:

IRS-News: http://www.irs.gov/newsroom/ article/0,,id=204505,00.html. IRS site with information for employers, employees and forms.

Dept of Labor: http://www.dol.gov/ebsa/COBRA.html. US Dept of Labor. COBRA Continuation coverage Assistance page which includes an overview of the COBRA provisions as well as the COBRA Premium Reduction Provision and Fact Sheet, Job Loss Posters, Flyers for Employers and Employees, FAQ's and more.

COBRA Answers for Employers: http://www.irs.gov/newsroom/article/
0,,id=204708,00.html

Text of the Act: COBRA Section of the Act http://www.dol.gov/ebsa/pdf/
COBRAPremiumReductionProvision.pdf

Joint Explanatory Statement of the Committee of
Conference on the COBRA Premium Reduction Provision http://www.dol.gov/ebsa/pdf/JointStatement
COBRAPremiumReduction.pdf

Full Text of the Act: HR 1
http://frwebgate.access.gpo.gov/cgi-
bin/getdoc.cgi?dbname=111_cong_bills
&docid=f:h1enr.pdf

Conference Report: http://frwebgate.access.gpo.gov/
cgi-bin/getdoc.cgi?dbname=111_cong_reports&
docid=f:hr016.111.pdf

Additional resources:

Stimulus Bill Ushers in Sweeping COBRA Requirements - Nixon Peabody

The COBRA Premium Subsidy Law: Understanding Your Compliance Obligations - McDermott, Will & Emery

COBRA Subsidy Provisions Included in the Stimulus Act: What Plan Sponsors and Administrators Need to Do NOW - Alston & Bird

Stimulus Plan Requires Immediate COBRA Action - Morgan Lewis

COBRA Provisions in American Recovery and Reinvestment Act - Groom Law Group

Congress Establishes Premium Subsidy for COBRA Beneficiaries - Aon Consulting

Immediate Action Needed to Implement Stimulus Act Changes to COBRA Coverage - Butzel Long

Important News for Employers and Other Health Plan Sponsors - Proskauer Rose

Stimulus Bill Provides Subsidized COBRA Coverage
- Watson Wyatt

Stimulus Package Includes 65% COBRA Premium
Subsidy - Spencer Fane

On February 10, 2009, the Senate approved final passage of H.R. 1, the American Recovery and Reinvestment Act, by a vote of 61-37. Only three Republicans (Susan Collins (ME), Olympia Snowe (ME)and Arlen Specter (PA)) voted in favor of the bill, which the Congressional Budget Office says would cost $838 billion over 10 years. The House passed their $819 billion version of the bill on January 28 by a vote of 244-188, with no Republican support. A conference will now work to resolve the differences between the two bills. The Senate Conferees include: Max Baucus (D-MT), Chairman, Finance; Chuck Grassley (R-IA), Ranking Member, Finance; Daniel Inouye (D-HI), Chairman, Appropriations; Thad Cochran (R-MS), Ranking Member, Appropriations; and Jack Reed (D-RI). House conferees include David Obey (D-7th, WI), Chairman, Appropriations; Charles Rangel (D-15th, NY), Chairman, Ways & Means; Henry Waxman (D-30th, CA), Chairman, Energy and Commerce; Jerry Lewis (R-41st, CA), Ranking Member, Appropriations; and David Camp (R-4th, MI), Ranking Member, Ways & Means.

Given that the Senate bill represents a compromise, there is expectation that the reconciled bill will look more like the Senate version rather than the House version. It is expected that the conference committee will complete its work in the near term so that President Obama can sign the bill prior to the upcoming President's Day recess that begins on February 16th. Below we have included a brief summary of two key COBRA provisions. We will update you with a summary of the final bill when enacted. In addition, a special session at the upcoming ECFC Conference, chaired by Jody L. Dietel, Compliance Officer for WageWorks, Inc. will highlight plan sponsor and administrator obligations under the new law. To register go to www.ecfc.org. In addition, please see below for a description of ECFC's activities on these matters.

COBRA Provisions
As you know, both the House and Senate bills include a series of provisions related to COBRA. Specifically, the House bill calls for a 65 percent employer subsidy of COBRA for up to 12 months with up to an additional six months of unsubsidized coverage. Individuals eligible for the subsidy include those who have been involuntarily terminated from employment on or after 9/1/08 through 12/31/09. An earlier Senate version provided for the same subsidy amount, but the subsidy was reduced to 50 percent in negotiations on the Senate compromise bill approved today. The Senate version also provides for up to 12 months of subsidized coverage followed by up to 6 months of unsubsidized coverage.

In addition, the House bill would grant extended COBRA benefits to individuals age 55 and older who have 10 or more years of service with an employer. Such individuals could remain on COBRA until becoming Medicare eligible or obtaining coverage through a different group health plan. The Senate bill does not include a comparable provision.

ECFC is preparing a letter to all conferees to convey its concerns about the impact of the subsidy and the 55/10 COBRA expansion on employers. Over the next few days, we urge you to contact your Senators and Representatives to alert them to the concerns about these provisions.

Commuter Parity
The stimulus package also contains a commuter parity provision that would increase the Transit exclusion for the remainder of 2009 and for 2010 to the monthly amount available for parking. The next step is the House-Senate conference committee which will work out the differences in the two bills. Because both the House and Senate version have the same provisions with respect to this change, the revisions should remain in the final bill, unless they are struck for cost issues.

Contact information for Representatives and Senators can be found at www.house.gov and www.Senate.gov.

The Joint Committee on Taxation's publishes comments on the proposed "Health Insurance Assistance For The Unemployed Act Of 2009", including a government provided, employer administered COBRA subsidy for the unemployed as well as a potentially retroactive extension of COBRA eligibility. Stimulus COBRA Provisions

(Excerpt from Dec. 10th IRS Bulletin 2007-50 I.R.B.) reaffirms that medically related diagnostic procedures qualify as medical care. The ruling includes examples of diagnostic procedures eligible under Section 213, even if the medical condition does not exist. However, please take caution with respect to "procedures" that are not designed to identify a medical condition or change in functioning of the body. For example, genetic testing to determine future height or some other non-medical characteristic would not be eligible under Section 213. IRB 2007-50

Download and review the new regulations here (REG-142695-05).

Dec. 4, 2008: Today, the IRS released Notice 2008-104, which delays the need for all pharmacies and drug stores to implement an Inventory Information Approval System (IIAS) or certify that 90% of their gross receipts were derived from the purchase of eligible medical expenses in order for payment cards to be used at their locations. The notice delays the impact of this from January 1, 2009 to July 1, 2009. Therefore, participants can continue to use their payment cards at all pharmacies and drug stores up until July 1. Substantiation continues to be required for all transactions that are completed at merchants without an IIAS in place. IRS Notice 08-104

Notice N-2007-02 Amounts Received Under Accident and Health Plans: This notice provides transition relief with respect to the use of debit cards for medical expense reimbursements at certain merchants with non-health care related merchant category codes. It also addresses the use of debit cards for medical expense reimbursements at stores with the Drug Stores and Pharmacies merchant category code. Notice N-2007-02

The IRS has issued new guidance on the use of debit cards, credit cards, and stored value cards (electronic payment cards) for health FSAs, HRAs, and--for the first time--dependent care assistance programs (DCAPs). This guidance expands on the original electronic card guidance issued in 2003, and adds new methods of substantiation and much more. Notice 2006-69

Employer-provided reimbursement through debit or credit cards are excludable from income 2003-43

WASHINGTON — The Internal Revenue Service today issued the 2010 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be 16.5 cents per mile driven for medical or moving purposes.

Revenue Procedure 2009-54 contains additional details regarding the standard mileage rates.

November 25, 2008: IRS announces standard mileage rates for 2009 of 24 cents per medical mile. See Revenue Procedure 2008-72.

The Heroes Earnings Assistance and Relief Tax Act of 2008 (the HEART Act), enacted June 17, 2008, Pub. L. No. 110-245, amended section 125 of the Internal Revenue Code to provide a special rule allowing distributions of unused amounts in a health Flexible Spending Arrangement (health FSA) to reservists ordered or called to active duty. Section 114 of the HEART Act applies to distributions made on or after June 18, 2008.

Generally, this new subsection 125(h) provides that a plan or other arrangement does not fail to be a cafeteria plan or health FSA merely because the arrangement provides, in certain circumstances, for "qualified reservist distributions" (QRDs) to an employee of all or a portion of the balance of the employee's unused amounts in the health FSA. IRS Notice 2008-82 provides guidance on how to make these distributions from health FSAs. It also includes a transition rule allowing plans to be retroactively amended for QRDs made before January 1, 2010. Read the article here.

On June 17, 2008, President Bush signed the Heroes Earnings Assistance and Relief Tax (HEART) Act (HR 6081). The legislation addresses the treatment of certain payments made to individuals who are called to active military service. Specific to health flexible spending accounts ("FSA"), the HEART Act permits "qualified reservist distributions."

A qualified reservist distribution is a distribution to an individual of all or a portion of the balance in their account if they are called to active military service for a period in excess of 179 days.

The bill states that the qualified reservist distribution may be made during the period beginning with the call to active duty and ending on the last day of the coverage period of the health FSA that includes the date of the call to active duty. This is an exception from the"use-or-lose-it"requirement that all amounts contributed to a health FSA must be used for qualified medical expenses or the amounts will be forfeited at the end of the plan year. Read the article here.

IRS increases the medical mileage rate by eight (8) cents for the last six months of 2008. The medical mileage rate increased from 19 cents to 27 cents a mile for expenses incurred between July 1 until December 31, 2008. Read the announcement here.  For IRS information go to http://www.irs.gov/newsroom.

Nov. 27th, 2007 - IRS announces standard mileage rates for 2008. Revenue Procedure 2007-70.

Wonders never cease!
The IRS has reversed a long-standing posture regarding reimbursement of non-prescription drugs and medicines with Health FSAs or Health Reimbursement Arrangements (HRA). Items such as antacid, allergy medicine, pain relievers, and cold medicine are now considered eligible medical expenses under Code Section 105 (b).

Most Plan Documents have followed the language of the IRS' prior position and only allow for Section 213 defined medical expenses deductible on Form 1040 Schedule A. If your Plan Document specifically references Section 213 rather than Section 105 (b), it will need to be amended before participants may take advantage of the new ruling. Creative Benefits is moving as rapidly as possible to support the new ruling.

Vitamins and supplements taken to promote general well-being are still not considered reimbursable expenses under an FSA or HRA plan.

Approving these "Over-the-Counter" drugs is one of the most significant changes in IRS policy in years. We welcome the change and hope it is a foreshadowing of more good news from the IRS regarding Flexible Spending Accounts and Health Reimbursement Arrangements. We are monitoring industry response to the news to understand the implications of the announcement. We will continue to keep you informed as developments unfold. Please contact us if you have specific questions that we can help you address.

Read the official press release here or the Ruling - Rev.Rul.2003-102

Dealing with dependent care expenses, replacing regulations that were issued 22 years ago. Prop. Treas. Regs. Secs. 1.21-1, 1.21-2, 1.21-3, and 1.21-4, 71 Fed. Reg. 29847

By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. However, this year for 2010 the monthly limits remain the same. Read the release to find out more information about these limits and other tax benefits.

The American Recovery and Reinvestment Act of 2009 included the parity for the Transit monthly limit to be increased to $230 per month under Section 132(f). This now is equal to the IRC Section 132(f) Parking monthly limit of $230.

The Senate Bill (S.1), cited as the "American Recovery and Reinvestment Act of 2009" includes Parity for Mass Transportation Fringe Benefits that increases the amount for Transit so that it equals the existing limit for Parking. Currently, the Mass Transportation-Commuter monthly tax-free benefit is $120 and the Parking benefit is $230 per month.

This increase in transit benefits for commuting to and from work could save employees and employers taxes on transit expenses and potentially increase the use of mass transit, possibly conserving energy.

Beginning on or after the date of S.1 acceptance, it would apply to tax years beginning after Dec. 31, 2010. You can find this information in Sec. 1251 of the proposed Senate Bill.

We will keep you informed of the updates as they unfold.

By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2009. Read the release to find out more about the key changes affecting 2009 returns.

The bail out package, signed into law by President Bush on Friday includes an expansion of the pre-tax transit benefits under Section 132(f). Essentially, workers who regularly commute to work using a bicycle, can be reimbursed up to $20 per month to store, purchase, improve or repair their bicycle.

Here's the details of the applicable section of the law: SEC. 211. TRANSPORTATION FRINGE BENEFIT TO BICYCLE COMMUTERS.

(a) In General- Paragraph (1) of section 132(f) is amended by adding at the end the following:

'(D) Any qualified bicycle commuting reimbursement.'.

(b) Limitation on Exclusion- Paragraph (2) of section 132(f) is amended by striking `and' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting `, and', and by adding at the end the following new subparagraph:

'(C) the applicable annual limitation in the case of any qualified bicycle commuting reimbursement.'.

(c) Definitions- Paragraph (5) of section 132(f) is amended by adding at the end the following:

'(F) DEFINITIONS RELATED TO BICYCLE COMMUTING REIMBURSEMENT-

'(i) QUALIFIED BICYCLE COMMUTING REIMBURSEMENT- The term `qualified bicycle commuting reimbursement' means, with respect to any calendar year, any employer reimbursement during the 15-month period beginning with the first day of such calendar year for reasonable expenses incurred by the employee during such calendar year for the purchase of a bicycle and bicycle improvements, repair, and storage, if such bicycle is regularly used for travel between the employee's residence and place of employment.

'(ii) APPLICABLE ANNUAL LIMITATION- The term `applicable annual limitation' means, with respect to any employee for any calendar year, the product of $20 multiplied by the number of qualified bicycle commuting months during such year.

'(iii) QUALIFIED BICYCLE COMMUTING MONTH- The term `qualified bicycle commuting month' means, with respect to any employee, any month during which such employee--

'(I) regularly uses the bicycle for a substantial portion of the travel between the employee's residence and place of employment, and

'(II) does not receive any benefit described in subparagraph (A), (B), or (C) of paragraph (1).'.

(d) Constructive Receipt of Benefit- Paragraph (4) of section 132(f) is amended by inserting `(other than a qualified bicycle commuting reimbursement)' after `qualified transportation fringe'.

(e) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2008.

Since HSAs were created as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Treasury and the IRS have issued a large number of formal guidance items containing questions and answers on HSAs. Notice 2008-59 contains over 40 new frequently asked questions and answers that cover a wide range of topics, including: Who is an Eligible Individual; Issues related to High Deductible Health Plans; Contributions to HSAs; Distributions from HSAs; and Establishing an HSA. Notice 2008-59

Treasury, IRS Issue Guidance Helping Employees Transition To HSAs

February 15, 2007: The U.S. Treasury and Internal Revenue Service today issued guidance regarding how employers can rollover their health Flexible Spending Arrangements (health FSAs) and Health Reimbursement Arrangements (HRAs) to Health Savings Accounts (HSAs) for their employees.

The Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432, enacted December 20, 2006, allowed employers to amend their health FSAs or HRAs, with balances on September 21, 2006, for a one-time roll over to an HSAs by 2012. The guidance clarifies the requirements for making these rollovers, which must be made directly to the custodian or trustee of the HSA.

Under the guidance, a Health Care Flexible Spending Account or Health Reimbvursement Arrangement (HRA) must be amended and a rollover selected by an employee before the end of the plan year. The balance amount must be transferred to the HSA by March 15 of the following year. The ability to make these transfers will facilitate the transition to an HSA-eligible health plan when employees are covered by an HRA or FSA.

In addition, the guidance provides a special transition rule for transfers for 2006. Under the transition rule, the amendment, election and transfer must take place by March 15, 2007. Read the Guidance here

The guidance clarifies preventive care that can be provided under a high deductible health plan (HDHP) and how the HDHP interacts with other prescription drug benefits. In addition to the press release, there are four separate pieces of guidance provided.

Read the Treasury press release

Notice 2004-23 defines the types of preventive care that can be provided under an HDHP.

Notice 2004-25 provides transition relief for 2004, so that HSA distributions for medical expenses incurred between the date on or after January 1, 2004 that an individual becomes an eligible individual (is covered by a HDHP, etc.) and the date on or before April 15, 2005 that the individual establishes his or her HSA will be tax-free if the various HSA requirements are met.

Rev. Rul. 2004-38 clarifies that individuals covered by a health plan that provides prescription drug benefits before the minimum annual deductible of an HDHP has been satisfied may not make contributions to an HSA.

Rev. Proc. 2004-22 provides transition relief for individuals covered by a HDHP who would be eligible individuals but for the fact that they are covered by a prescription drug plan that provides benefits before the deductible of the HDHP is satisfied. Under the transition relief, for 2004 and 2005 such individuals will be considered to be eligible individuals who can contribute to an HSA.