A Section 105 Plan allows tax-free reimbursement of medical and insurance expenses. The Section 105 Plan Document describes the terms and conditions related to the operation and administration of the Section 105 Plan.
What is a Section 105 Plan?
The most common type of Section 105 plan is a self-funded (or self-insured) health plan, where the employer self-funds (or self-insures) health benefits rather than pay premiums to an insurance company.
A businesses might also implement a Section 105 Plan alongside a conventional employer-sponsored health insurance plan (to reimburse deductible amounts).
When discussing Section 105 Plan Document requirements in this article, we are focusing on Section 105 Plans used as a limited-purpose medical reimbursement plan (i.e. a Healthcare Reimbursement Plan or HRP).
Section 105 Plan Documents must comply with IRS and ERISA rules
Section 105 Plans are subject to ERISA and therefore a legal Plan Document must be provided in writing. A Summary of Benefits is not considered an Plan Document or a Summary Plan Description (SPD). If a Section 105 Plan exists without a written Plan Document then it is out of compliance.
A Section 105 Plan Document should contain the following:
- Name of the Section 105 Plan Document Administrator
- Designation of any Named Fiduciaries other than the Plan Administrator under the claims procedure for deciding benefit appeals
- A description of the benefits provided
- The standard of review for benefit decisions
- Eligibility criteria (e.g., classes of employees, waiting period for new hires, and hours worked per week)
- The effective date of participation (e.g., next day or first of month following satisfaction of the Plan Document eligibility waiting period)
- Amount the Participant must pay towards the cost of coverage (typically $0)
- Plan Sponsor's amendment and termination rights and procedures, and what happens to Plan assets, if any, in the event of Plan termination
- Rules restricting and regulating the use of Protected Health Information (PHI), if Plan Sponsor uses PHI
- Coordination of benefits provisions
- Procedures for allocating and designating administrative duties to a Section 105 TPA or committee
- How the Section 105 plan is funded
- Information regarding COBRA, HIPAA, ACA, and other federal mandates
Can a Business Self-Administer a Section 105 Plan?
The short answer is yes, but most experts do not recommend self-administering a Section 105 Plan without proper IRS/HIPAA/ERISA/ACA Defined Contribution Admin Software. Many employers that self-administer a Section 105 Plan often overlook important compliance obligations that put them at financial risk. Failure to comply with the following requirements is common and can be costly:
- COBRA - A Section 105 plan is subject to COBRA rules
- HIPAA Privacy - A Section 105 plan is governed by HIPAA Privacy rules
- Medicare Reporting - A Section 105 plan is subject to Medicare Secondary Payer (MSP) provisions
- Legal Plan Documents - ERISA requires that Section 105 plans be established and maintained pursuant to a written instrument
- ACA - A Section 105 Plan must be designed and administered to comply with ACA and associated regulations such as PHS 2711 (prohibition on annual limits) and PHS 2713 (preventive care) -- as well as numerous new administrative requirements
What questions about Section 105 Plan Document requirements do you have?