Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

Navigating the intricacies of Dependent Care Assistance Programs (DCAP) can be challenging, especially when it comes to understanding what expenses qualify for reimbursement. One common question that arises is whether application fees, deposits, and similar expenses can be reimbursed. Here, we break down the IRS regulations and provide clarity on this topic.

What Are Indirect Expenses?

Indirect expenses are costs that are not directly for care but are necessary to obtain care. Examples include application fees and deposits paid to day-care centers or preschools. According to IRS regulations, these expenses may qualify for reimbursement under a DCAP if they meet specific criteria.

Criteria for Reimbursement

To be eligible for reimbursement, indirect expenses must:

  1. Be Required for Care: The employee must be required to pay these expenses to obtain related care.
  2. Meet DCAP Rules: The expenses must comply with DCAP rules and the plan document.
  3. Relate to Provided Care: The care to which these expenses relate must actually be provided.

Examples of Reimbursable and Non-Reimbursable Expenses

  • Reimbursable: If a DCAP participant pays a $100 application fee to secure a spot at a new day-care provider, this fee can be reimbursed once the care is provided.
  • Non-Reimbursable: If a participant pays a $100 deposit to a preschool but later decides not to enroll the child, the deposit is not reimbursable since the care was not provided.

Timing of Reimbursement

The IRS does not specify whether indirect expenses can be reimbursed in full once care commences or if they must be reimbursed proportionately over the duration of the care agreement. To err on the side of caution, it is advisable to prorate the reimbursement over the agreement’s duration. For instance, if the agreement is month-to-month, the entire fee might be reimbursed after the first month of care. For longer agreements, the fee should be prorated accordingly.

Conclusion

Understanding the nuances of DCAP reimbursements for indirect expenses like application fees and deposits is crucial for both employers and employees. By ensuring these expenses meet the necessary criteria and timing the reimbursements appropriately, you can navigate the DCAP rules effectively and make the most of your benefits.

Source: Thomson Reuters

Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

Understanding Employee Benefit Acronyms: A Quick Guide

Employee benefits often include a lot of acronyms. What do these and other acronyms mean? They are primarily used in Cafeteria PlansConsumer-Driven Health CareERISA Compliance, COBRA, HIPAA, and Group Health Plan Mandates manuals. The list below provides a comprehensive collection of all the acronyms used.

AD&D Plan – Accidental Death and Dismemberment Plan

ADA – Americans with Disabilities Act

ASG – Affiliated Service Group

ASO – Administrative-Services-Only

ATIN – Adoption Taxpayer Identification Number

CE – Covered Entity

CMS – Center for Medicare and Medicaid Services

COB – Coordination of Benefits

COBRA – Consolidated Omnibus Budget Reconciliation Act

COLA – Cost-of-Living Adjustment

CONUS – Continental United States

DCAP – Dependent Care Assistance Program

DCTC – Dependent Care Tax Credit

DFVC Program – Delinquent Filer Voluntary Compliance Program

DOL – Department of Labor

EAP – Employee Assistance Plan

EBHRA – Excepted Benefit HRA

EBSA – Employee Benefits Security Administration

EDI – Electronic Data Interchange

EFAST2 – ERISA Filing Acceptance System II (electronic submission of Form 5500s)

EIN – Employer Identification Number

EOB – Explanation of Benefits

EOI – Evidence of Insurability

EPP – Employer Payment Plan

ERISA – Employee Retirement Income Security Act

ePHI – Electronic Protected Health Information

FAVR – Fixed and Variable Rate

FICA – Federal Insurance Contributions Act

FITW – Federal Income Tax Withholding

FLSA – Fair Labor Standards Act

FMLA – Family and Medical Leave Act

FSA – Flexible Spending Arrangement

FUTA – Federal Unemployment Tax Act

GCPCA – Gag Clause Prohibition Compliance Attestation

GHP – Group Health Plan

GTL Insurance – Group Term Life Insurance

HCE – Highly Compensated Employee

Source: Thomson Reuters

HCI – Highly Compensated Individual

HCP – Highly Compensated Participant

HDHP – High-Deductible Health Plan

Health FSA – Health Flexible Spending Arrangement

HHS – Department of Health and Human Services

HIPAA – Health Insurance Portability and Accountability Act

HMO – Health Maintenance Organization

HRA – Health Reimbursement Arrangement

HSA – Health Savings Account

ICHRA – Individual Coverage HRA

IIAS – Inventory Information Approval System

LTCI – Long-Term Care Insurance

LTD Plan – Long-Term Disability Plan

MACRS – Modified Accelerated Cost Recovery System

MCC – Merchant Category Code

MEWA – Multiple Employer Welfare Arrangement

OCR – Office for Civil Rights

PBM – Pharmacy Benefit Manager

PCORI – Patient-Centered Outcomes Research Institute

PEO – Professional Employer Organization

PHI – Protected Health Information

POP – Premium-Only Plan

PPO Plan – Preferred Provider Organization Plan

PTO – Paid Time Off

QB – Qualified Beneficiary

QE – Qualified Event

R&C – Reasonable and Customary

RRTA – Railroad Retirement Tax Act

SAR – Summary Annual Report

SBC – Summary of Benefits and Coverage

SIFL – Standard Industry Fare Level

SIHP – Self-Insured Health Plan

SMM – Summary of Material Modification

SPD – Summary Plan Description

STLDI – Short-Term, Limited-Duration Insurance

TPA – Third-Party Administrator

UCR Rate – Usual, Customary, and Reasonable Rate

VEBA – Voluntary Employees’ Beneficiary Association

Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

Is Health Club Membership an ERISA Benefit? Understanding Employer Contributions and On-Site Fitness Centers

When companies contribute to the cost of health club memberships or provide on-site fitness centers, questions often arise about whether these benefits fall under the Employee Retirement Income Security Act (ERISA). Understanding the nuances of ERISA and how it applies to health-related benefits is crucial for employers.

What is ERISA?

ERISA is a federal law that sets standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans. For a benefit program to qualify as an ERISA plan, it must provide one or more of the benefits listed in the ERISA definition, such as medical, sickness, or disability benefits.

Health Club Memberships and ERISA

Generally, paying for employees’ health club memberships does not constitute an ERISA plan. Health and fitness clubs promote general good health but are typically made available without regard to sickness or disability. They do not diagnose or treat specific medical conditions, so they usually do not provide medical care or any other ERISA benefit. Therefore, a policy or program of paying for health club memberships would not be considered an ERISA plan.

On-Site Fitness Centers and ERISA

Similarly, providing an on-site fitness center for employees does not typically make the program subject to ERISA. On-site fitness centers, like health clubs, promote general wellness but do not provide medical care or benefits in the event of sickness. Thus, they do not meet the criteria for an ERISA plan.

Exceptions: Disease-Management Programs

In rare cases, health club memberships or access to on-site fitness centers may be part of a disease-management program that includes diagnostic, therapeutic, or preventive care. These programs might offer “coaching” for specific health conditions or risks. Such arrangements could be viewed as providing a medical benefit, potentially making them subject to ERISA and applicable group health plan rules. The complexity and fact-specific nature of these programs mean that legal counsel should be consulted to determine ERISA applicability.

Tax Considerations

Whether a benefit is subject to ERISA does not affect whether it produces taxable income for participants or beneficiaries. However, an employer’s payment or reimbursement of health club dues or provision of an on-site fitness center may raise tax issues, which should also be reviewed with legal counsel.

Conclusion

While health club memberships and on-site fitness centers generally do not fall under ERISA, exceptions exist, particularly when these benefits are part of a broader health management program. Employers should carefully evaluate their programs and consult with legal counsel to ensure compliance with ERISA and tax regulations.

Source: Thomson Reuters

Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

Can an Employee Drop a DCAP Election Midyear If Free Childcare Becomes Available?

Question: One of our employees would like to drop his DCAP election under our calendar-year cafeteria plan because a neighbor has offered to take care of his child at no cost. Can we allow this midyear election change?

Answer: Absolutely! However, there are specific conditions to consider. If your plan document has been drafted expansively, in line with IRS rules, midyear election changes due to changes in cost or coverage are permissible. Let’s break it down:

  1. Broad Application of Rules:
    • The IRS rules apply broadly to DCAPs, allowing midyear election changes in various circumstances.
    • These circumstances include changes in care providers or adjustments in the cost of care.
  2. Childcare Provider Switch:
    • A DCAP election change is permitted when a child transitions from a paid provider to free care (or no care, in the case of a “latchkey” child).
    • So, your employee’s situation aligns with this provision.
  3. Other Allowable Changes:
    • Beyond provider switches, other scenarios also warrant a DCAP election change:
      • Adjustments in the hours for which care is provided.
      • Changes in the fee charged by a provider.
  4. Relative Exception:
    • Be cautious: An election change isn’t allowed if the cost change is imposed by a care provider who is the employee’s relative (as defined by IRS rules).
  5. Health FSAs vs. DCAPs:
    • Remember that the cost or coverage election change rules apply broadly to DCAPs but not to health flexible spending arrangements (health FSAs).
    • This distinction is essential for employers to navigate effectively.

As an employer, staying informed about DCAP rules ensures that you can accommodate midyear changes when necessary. By understanding the nuances, you can support your employees while maintaining compliance with IRS guidelines. If you have further questions, consult your tax or employee benefits advisors.

Remember, flexibility within the rules allows for better employee experiences and smoother transitions.

Source: Thomson Reuters

Understanding DCAP Reimbursements: Application Fees, Deposits, and Indirect Expenses

When Are Disability Benefit Programs Exempt From ERISA?

QUESTION: I am reviewing our company’s employee benefit programs and confirming that they are treated appropriately for ERISA compliance purposes. Our disability program provides income-replacement benefits to employees who are unable to work because of illness or injury; payments commence once an employee is out of work for more than two weeks. Benefits are paid from the company’s general assets, not from a trust or separate account. Am I right that for this reason, our program is not an ERISA plan, or do additional conditions apply?

ANSWER: You are correct that a DOL regulation exempts certain “payroll practices,” including disability payments, from ERISA-plan status. You are also correct that the main condition of this regulatory exemption (often referred to as a safe harbor) is that the payments come from the employer’s general assets. It sounds like your program meets this requirement—but several other elements also must be considered to determine whether your program falls within the exemption. If a disability program has any of the following features, the payroll practice safe harbor is not available, and the program is most likely subject to ERISA:

  • Trust or Separate Account. As noted above, making payments from the employer’s general assets is a key component of the exemption, so funding the program through a trust or separate account will take it outside the safe harbor. It is, however, generally permissible to earmark funds for the program within the employer’s general assets, so long as the funds remain available for other purposes, such as to pay the employer’s creditors.
  • Insurance. Payment of benefits through insurance is not payment from the employer’s general assets, so using insurance will take the program outside the safe harbor.
  • Paying More Than Normal Compensation. To fall within the safe harbor, the program may pay eligible employees only their normal compensation, or less (for example, 60% of normal compensation).
  • Paying Benefits to Former Employees. The safe harbor covers only payments to employees while absent from work, not to former employees—the exemption does not apply if payments continue after an individual terminates employment. You will need to consider the duration of benefits available under the program and ensure that it does not extend beyond when the company considers termination of employment to occur. For example, if an employee who does not return to work is treated as having terminated employment before exhaustion of the disability benefits available under the program, the program does not fall within the safe harbor. As a practical matter, long-term disability programs are more likely to provide benefits beyond termination of employment and thus not meet the requirements, even if paid from the employer’s general assets.

Although it is possible that an arrangement that does not fall within the regulatory exemption may still avoid ERISA’s application under the general standard (a plan, fund, or program established or maintained by an employer to provide ERISA-listed benefits to employees), such a result is unlikely. Thus, any variations from the safe harbor requirements should be discussed with legal counsel. As a final caution, if your company wishes to treat this program as not subject to ERISA, make sure that any program documents, descriptions, and employee communications are consistent with this intent. Even though an employer generally cannot make a non-ERISA arrangement subject to ERISA by simply calling it an ERISA plan, the employer’s treatment is a factor—at least one court has found that treating a potentially exempt payroll practice as an ERISA plan was a “strong reason to find ERISA coverage.” If the company uses a single “umbrella” or “wrap” document to bundle multiple benefit programs, the document should specify which programs are—and are not—intended to be subject to ERISA.

Source: Thomson Reuters