Important Announcement

Our COBRA employer portal has a new look! We’ve refreshed our COBRA employer portal to provide our clients with improved usability, updated terminology, intuitive navigation, and more. For detailed instructions and information, please refer to the updated Online Help tab. You can access it by selecting the Learning Central option from the Help menu in the employer portal. We will also be offering a WebEx training within the next month and an updated PDF User Manual. Expect additional details soon. In the meantime, please feel free to contact your dedicated COBRA analyst or email cobra@upmc.edu with any questions.

Issue 10

The COBRA Notice of Unavailability

While the COBRA Notice of Unavailability may not receive as much attention as other COBRA notices, it is still a required notice under the Department of Labor’s COBRA regulations and may be subject to statutory penalties for noncompliance. When does a Notice of Unavailability need to be issued? It depends on a few factors we will discuss here.

COBRA requires a covered employee or qualified beneficiary (QB) to notify the plan administrator of specific COBRA qualifying events. These events include:

  • Divorce or legal separation.
  • A child’s loss of dependent status under the plan.
  • A second COBRA qualifying event.
  • Being deemed disabled by the Social Security Administration (SSA).

An employer should have procedures in place for how to give notice of these qualifying events. These procedures should be described in both the general notice and the plan’s summary plan description (SPD). The plan can set a time limit for providing this notice, but it cannot be less than 60 days from whichever of these dates occurs latest:

  1. The date on which the qualifying event occurs
  2. The date on which the QB would lose coverage under the plan due to the qualifying event
  3. The date on which the QB was informed of the responsibility to notify the plan administrator and the procedures for doing so

If an employee or QB provides notice of a qualifying event to the plan administrator and requests to receive COBRA coverage (or an extension of COBRA coverage), the plan administrator may determine that COBRA coverage (or an extension of COBRA coverage) is not available due to any of the following reasons:

  • The qualifying event was reported late (past the specified time limit as indicated in the plan’s general notice and SPD).
  • The QB did not meet the requirements for a disability extension.

If the plan administrator determines that COBRA coverage (or an extension of COBRA coverage) is unavailable, the plan administrator is required by the DOL’s COBRA regulations to provide a Notice of Unavailability. This notice must be written in an easily understood format and must explain why the individual is not entitled to COBRA (or an extension of COBRA). It must be issued within the same time frame that would apply to providing a COBRA Election Notice, which is within 14 days after the date the plan administrator received notice of the event. The notice must be provided to the individual that is expecting to receive COBRA (or an extension of COBRA).

If you have any questions concerning the Notice of Unavailability, our team of dedicated COBRA analysts will be happy to assist you. Feel free to contact your dedicated account analyst at any time, or the COBRA Department at COBRA@upmc.edu.

Sources:
An Employee's Guide to Health Benefits Under COBRA
Should We Provide a COBRA Notice of Unavailability To a Spouse or Child Who Is Not Covered Under Our Plan?

Nondiscrimination Testing Q&A

What is nondiscrimination testing?
Each year, employers are required to ensure that their Section 125 and 129 plans do not discriminate in favor of highly compensated employees (HCE).

Do we offer these types of plans to our employees?
Section 125 plans are commonly known as a health care spending account or Cafeteria Plans, a dependent care spending account, and/or a premium payment plan, while Section 129 plans are known as dependent care plans.

What are the requirements for me as an employer who offers these types of plans?
Nondiscrimination testing is a required exercise for all plan sponsors (employers) providing health care and dependent care flexible spending accounts (FSA) to their employees.

These calculations and tests can be confusing and challenging. Meanwhile, employers who fail to test annually risk the possibility of a host of fines and penalties.

Is assistance available to UPMC Consumer Advantage® clients?
UPMC Benefit Management Services (UPMCBMS) will assist our FSA clients with three key nondiscrimination tests at no additional charge to our UPMC Consumer Advantage clients.

We will provide a template to our clients to obtain pertinent data to perform the following three utilization tests:

  1. The key employee concentration test
    1. No more than 25 percent of the benefits paid under the plans during a plan year may be provided to key employees.
    2. If the key employees elect no more than 25 percent of the total benefits elected under the plans, then the employer's plan will pass this test.
      The general practice is to run the key employee concentration (Section 125) test once each plan year.
  2. More than 5 percent owners test
    1. No more than 25 percent of the amounts paid or incurred by the employer for dependent care for a plan year may be provided to shareholders or owners (or their spouses or dependents) who own 5 percent or more in the stock, capital or profits interest in the employer.
    2. If owners with 5 percent or more (or their spouses or dependents) elect no more than 25 percent of the total benefits under the plan, then the employer's plan will pass this test.
  3. 55 percent average benefits test
    1. The average benefit provided to non-HCEs under all dependent care spending account plans offered by the employer must be at least 55 percent of the average benefit provided to HCEs under all dependent care spending account plans offered by the employer.
    2. This test ensures that HCEs do not participate disproportionately in the plan.
    3. If the average benefit (or election amount) of all non-HCEs is at least 55 percent of the average benefit of all HCEs, then the employer's plan will pass this test.

UPMC Consumer Advantage clients should note these final points:

  • IRS Regulations dictate that the spending account plans being tested for nondiscrimination must pass—if they do not, HCE and key employees must lower their annual elections.
    • Performing these tests early enough in the plan year is key. This allows you to communicate any corrections needed to your employees in a timely manner.
  • Once the client has provided a completed template, UPMCBMS will complete testing and notify the employer of the test results within one week.
  • UPMCBMS recommends that all clients review these tests with their employee benefits legal counsel and tax advisors.

Source:
Publication 15-B (2017), Employer's Tax Guide to Fringe Benefits

The above information is for informational purposes only and is not legal or tax advice. UPMC Health Plan and UPMC Benefit Management Services do not provide legal or tax advice. For legal or tax advice, please contact your attorney or tax adviser.