Preparing for benefits open enrollment
Amazingly, October is here already and the end of the year is in the not-so-distant future. With the arrival of fall, plan sponsors of calendar year plans know that benefits open enrollment season is upon us. Employers have reviewed their current benefit offerings and considered whether to make any adjustments for the new year. Soon those options will be presented to employees to make elections for the new year. In addition to offering benefit options that suit employees’ needs, it is important to think about a few key compliance considerations for open enrollment.
5 key compliance considerations for benefits open enrollment
1. Review eligibility and covered employees
Picking the right benefits is an important part of open enrollment, but so too is offering those benefits to the right employees. Open enrollment is a great time to review the eligibility requirements for various benefits and ensure that benefits are offered to all employees meeting the eligibility requirements, and only those employees. Compliance concerns arise when eligibility requirements are not administered appropriately.
Different benefits may have different eligibility requirements. For example, Applicable Large Employers (ALEs) subject to the Affordable Care Act’s employer mandate should ensure they are accurately tracking hours under either the look-back or monthly measurement methods and offering group health plan coverage accordingly. Health FSA benefits should only be offered to employees eligible for the employer’s group health plan, so the FSA can maintain “excepted benefits" status. Similarly, some employees may expect auto-enrollment in certain benefits. The steps that employees may or may not need to take to enroll in benefits should be clearly communicated.
2. Incorporate new plan limits.
The new year also brings adjustments to certain plan limits. Sponsors of account-based plans should be on the lookout for new limits from the IRS and communicate those limits to employees.
2024 maximum and limits
3. Distribute updated plan documents
At renewal, employers often adopt plan design changes to various benefits. In many cases, those design changes should be incorporated into the plan’s legal documents, specifically the Summary Plan Description (SPD). It is possible to update the SPD either by adopting a Summary of Material Modification (SMM) or restating the SPD in its entirety. In either case, the changes should be adopted, and the updated documents distributed to plan participants.
Updated SPDs and SMMs must be distributed within 210 days of a material change or 60 days if there is a material reduction in health plan services or benefits. However, it is advisable to provide the updated documents as soon as practical so plan administrators can ensure compliance so participants do not continue to rely on the information in the original SPD and plan administrators can fulfill their fiduciary obligations.
In addition to the SPD, self-insured health plans, including HRAs, must distribute a Summary of Benefits and Coverage (SBC) annually to plan participants. The SBC should be provided at open enrollment, no later than the date renewal materials are distributed, or if enrollment is automatic, no later than 30 days before the start of the plan year.
4. If adding an HSA, take steps to ensure eligibility
Employers planning to offer a High Deductible Health Plan (HDHP) with Health Savings Account (HSA) for the first time in the coming year should be aware of how other account-based plans can impact HSA eligibility. Coverage under a general-purpose Health FSA or HRA disqualifies a participant from HSA eligibility. In other words, for any month that a participant is covered by a general-purpose Health FSA or HRA, the participant is not eligible to make or receive contributions to an HSA. Therefore, employers should educate their employees and remind current Health FSA participants not to elect Health FSA coverage for the new year if they want to contribute to an HSA. The health FSA grace period and carryover can also negatively impact HSA eligibility in the new year. For more information about transitioning to an HSA, including workarounds to deal with the Health FSA grace period and carryover, read here.
5. Effectively communicate open enrollment
Finally, once all decisions have been made for the coming year, it is important to communicate benefits options and election rules effectively, so employees know exactly how to enroll in or revoke coverage. For example, if evergreen elections apply to any benefits, employees should be notified that an affirmative election is required to change coverage that is currently in place. Similarly, some employees may expect auto-enrollment in current coverages. It should be clear to employees that they must take steps to enroll in such benefits.
It is also important to remind employees about deadlines to enroll and effective dates for elections. Some employees and employers believe that election changes can be made within a certain period after the start of the year. While some carriers may allow a grace period, any pre-tax election under the Section 125 plan is effective on the first day of the plan year and cannot be changed after that date unless the participant experiences a qualifying life event. This should be clear to employees electing benefits.
Be prepared for open enrollment
In addition to the pointers above, the end of the year is always a great time to review the compliance of your benefits offerings. By taking a few simple steps, plan sponsors can make open enrollment a smooth and efficient process for employees while ensuring plan compliance.
For more information on compliance considerations critical for open enrollment or in general <span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">schedule a consultation</span> with one of our experts. We’d be happy to help you.