Return to Work: Benefit Considerations
Following California Gov. Gavin Newsom's recent reveal of the phased reopening plan for California, what will returning to work look like and what role will employee benefit programs play in this process?
For employees returning to their previous employment status following a change in employment status arising from COVID-19, there are several items employers may need to consider.
If employees voluntarily dropped coverage upon the change in employment status (even though eligibility was not lost) or previously waived coverage, will they have another opportunity to enroll in benefits upon returning to a full-time position? Or will such employees have to wait until the next open enrollment? And if employees lost benefit eligibility upon the change in employment status (e.g. reduced hours, leave of absence, furlough or layoff), what are the plan eligibility rules for an employee who is returning to an eligible position? Does a new waiting period apply?
For either scenario, if plan eligibility rules are unclear, or if the employer would like to alter them, the employer should confirm what the carrier (or stop-loss vendor) will permit and then implement a return-to-work policy that can be followed uniformly for all similarly situated employees. When making such determinations, consider the following rules.
Waiting Period Rules. Under the ACA waiting period rules, employers of all sizes are permitted to impose a new waiting period of up to 90 calendar days each time an employee becomes eligible. In other words, waiting period rules permit an employer to impose a new waiting period upon employees returning to an eligible position.
For small employers, there is flexibility to impose a new waiting period or shorten the waiting period subject to any carrier restrictions.
However, applicable large employers (ALEs) with 50 or more FTEs must also consider the break in service rules imposed under §4980H, which may limit the ability to impose a new waiting period.
§4980H Rules (the “Employer Mandate”). The §4980H rules, which apply to ALEs, impose rules restricting when the employer may impose a new waiting period or initial measurement period for employees returning to a full-time position following a break in service. A “break in service” is a period of time in which the employee is not receiving any pay (due to termination of employment, furlough, or leave of absence). The rules apply whether the ALE is using the monthly measurement method or the look-back measurement method, as set forth below:
Following a break in service of <13 weeks (26 weeks for educational organizations), employees must be treated as continuing employees. If they were covered prior to the break in service, coverage must be made available no later than the 1st of the month following their return to an eligible position; nothing is required for those who previously waived coverage.
Following a break in service of 13 weeks or more (26 weeks for educational organizations), employees may be treated as new hires, allowing the employer to impose a new waiting period or initial measurement period as applicable.
In addition to eligibility upon return to work, ALEs who use the look-back measurement method should consider how the change in employment status might affect eligibility in the next plan year. Although it is necessary to count all hours paid, including federally protected paid leave or employer-provided paid time off, employees with reduced hours or a period of time with no pay might average less than full-time hours over their measurement period and not be considered full-time for the employer’s next stability period. Some employers may choose to exclude such period of time from their measurement period, or impute hours equal to the employee’s regular average, to ensure that those who are normally considered full-time employees will continue to be full-time in the next stability period in spite of the temporary change in employment status.
If employers adjusted the employer/employee monthly contributions toward benefits to be more or less generous as needed, is there a need to make additional adjustments? Some employers only intended the contribution adjustments to be temporary. Employers should carefully communicate employee payment responsibilities for benefits.
The employer should also consider any payroll adjustments that may be required. For example, if employers agreed to pay 100% of the premium costs during the change in employment status, but employees are required to make catch-up employee contributions upon return, the employer may need to adjust salary reductions when employees first return, and then again once the employee makes all catch-up contributions. Employers should consider allowing employees to make catch-up contributions over several payrolls rather than all up front if the amount due is significant, both to help employees and to avoid violating any state wage and withholding requirements.
If employers adjusted HRA funding or employer HSA contributions, is there a need to make any further changes? Employees may want to adjust health FSA, DCAP, transportation, and/or HSA contributions through the employer’s cafeteria plan to the extent permitted by §125 rules and the employer’s cafeteria plan.
§125 Election Changes
Upon changes in eligibility or changes in employment status, as well as upon changes in the cost of coverage or benefits provided, employees may want to make pre-tax election changes to correspond with an increase or decrease in coverage. Employers should be ready to address various employee requests that may come regarding changing to pre-tax elections and should understand what §125 rules permit.
If there is a change in employment status that affects plan eligibility, employees may make pre-tax election changes. Similarly, if the employer makes significant changes to plan coverage or adjusts employer contributions, employees are generally permitted to make pre-tax election changes (but not for the health FSA). However, if the change in employment status does not affect plan eligibility, the rules do not clearly permit a pre-tax election change. A change in pay or hours without a corresponding change in eligibility does not permit a pre-tax election change either.
For Dependent Care Assistance Plans (DCAPs), a change in eligibility due to a change in employment status permits a pre-tax election change. In addition, a change in provider or change in cost of care will also permit a pre-tax election change.
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