Common Questions about Medical Reimbursement Plans:
Q. Are there special rules employers must follow to ensure that the plan is properly installed?
A. Yes. Employers must commit themselves to certain rules about benefit payments, and the plan must be made clear to the employees.
Q. What documents are needed?
A. The employer must complete and sign the Non-Discriminatory Medical Reimbursement Plan Adoption Agreement. Employees will receive a Summary Plan Description along with their certificate of insurance booklet.
Q. What are the tax implications regarding this type of medical reimbursement plan?
A. Generally, the benefits are not taxable to the employee, and the employer may deduct 100% of the cost of the benefits paid to the employee; this is under Treasury Reg. §1.162-10(a) and Section 105(e) of the Tax Code. However, there are additional restrictions and the regulations and tax code provisions should be reviewed with your tax advisor.
Q. What are the requirements in determining if a plan will be considered non-discriminatory?
A. The plan must: provide benefits for 70% or more of the employees; and, benefit 80% or more of those employees participating in the plan; or, benefit a classification of employees that does not discriminate in favor of highly compensated employees.
Q. What are the ERISA reporting requirements?
A. Most welfare benefit plans are required to complete a reporting document such as Form 5500; however, there is a small welfare plan exemption. This exemption applies to plans with fewer than 100 participants that are fully insured and/or benefits are paid out of the general assets of the business on a pay-as-you-go basis. Also, these plans are not required to file a Summary Plan Description;
Q. Do COBRA benefits apply to the Partially Self-Insured Medical Expense Reimbursement Plan?
A. Yes, all COBRA benefits apply. Additionally, individual State Continuation Benefits may apply depending on which state the business is located in. Regardless of where the employer is located, we suggest that if the state offers any type of Continuation Benefits, the employer extend the plan to match those benefits.
Q. May an employer cancel the plan?
A. Yes. We suggest giving employees a thirty day notice of cancellation.