OVERVIEW OF MODEL AMENDMENT to the

LOCKTON MODEL FLEXIBLE BENEFITS PLAN DOCUMENT

Attached is a model amendment clients may use to adopt one or both of two changes to the Lockton or Husch Blackwell model Flexible Benefits Plan. (A different form of amendment is available for the Husch Blackwell Pre-Tax Premium Only Plan—contact Craig Kovarik (contact information below) if you are unsure which document format you have.)

What this Model Amendment Includes. There are two changes reflected in the model amendment. The two changes are:

  • Marketplace related election change language. This portion of the amendmentpermits employees to change health plan pre-tax coverage elections mid-year, in order to drop coverage and enroll in a public health insurance Marketplace, due to one of three reasons: (i) a reduction in hours, (ii) acquisition of a new dependent or other public Marketplace “special enrollment event;” or (iii) a public Marketplace’s open enrollment period. We described the recent IRS guidance in an Oct. 3, 2014 Alert. While this amendment is optional, it is recommended except that plan sponsors who only offer plan options that do not meet the “minimum value” or “affordable” requirements under healthcare reform play or pay rules might consider not adopting this amendment for the reasons described below.
  • Language allowing for coverage of same-gender spouses under the flexible benefits plan. This portion of the model amendment allows for coverage of same-gender spouses under the flexible benefits plan. In light of the recent Obergefell decision and EEOC guidance we believe most plan sponsors will want to adopt this amendment if they haven’t already done so. See our July 20, 2015 Alert. Last year’s amendment, which preceded Obergefell included similar language, so many client will have already adopted this language. While this amendment is optional, it is recommended.

We also included a sample resolution to be used by a board of directors to approve the adoption of the amendments. Many clients will have their own resolution format or allow an officer to adopt the amendment without board approval, so this resolution will not be necessary in all cases.

We suspect these amendments have already been communicated to participants, so we have not included summaries of material modification.

These amendments are for the flexible benefits plan only. A separate amendment is available for the Lockton model wrap plan.

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Below we describe basic information about the amendments and their due dates. Remove all red text and any inapplicable amendment language, and insert effective dates where prompted. Upon review by the client and its legal advisors, the amendments should be timely signed and dated, and maintained in the files of the Flexible Benefits Plan.

If you have questions, please call email Ed, Mark, Liz or Scott. For questions about the Husch Blackwell model flexible benefits plan, you may also call or email Craig Kovarik at Husch Blackwell ( 816-983-8249).

Dec. 2013

KCP-4617744-12

AMENDMENT

to the

[Insert Name of Employer] FLEXIBLE BENEFITS PLAN [Modify Plan Name as Appropriate]

Article VII of the [insert name of employer] Flexible Benefits Plan (“the Plan’) provides that the Employer may amend the Plan at any time. In accordance with the authority granted by that provision, the Plan is hereby amended as follows:

Marketplace Related Election Change Amendment:

Generally, an employee paying premiums on a pre-tax basis under a cafeteria plan may not make coverage changes during the plan year unless he or she has a specific “change in status” or other qualifying event specified in IRS regulations. The IRS’s recently proposed rules expand the list of such events, and allow an employee to drop employer provided medical plan coverage midyear and buy coverage on an Marketplace in the following instances:

  • Reduced hours during stability period. An employee has his or her hours reduced, and as a result of the financial hardship would like to drop employer coverage and move to a Marketplace, even though he or she has not lost eligibility under the employer’s health plan.
  • Acquisition of a new dependent, or other public health insurance Marketplace “special enrollment event.” An employee gets married, has a baby or adopts a child, and wants to drop employer coverage and move to the Marketplace (or the employee qualifies for Marketplace-based coverage due to becoming a U.S. citizen, national or lawfully present alien, or due to a permanent move).
  • Marketplaces' annual open enrollment. An employee who is covered under a non-calendar year employer plan wants to drop coverage midyear and move to Marketplace coverage during the Marketplaces’ annual open enrollment period.

Note that these changes apply only to the medical plan and not to other types of benefits (e.g., dental, vision, or health care reimbursement program).

These election changes are subject to the employee’s intention to obtain other coverage. For convenience, we have included a model form for employees to request an election change and certify their intention to obtain other coverage.

Like existing change in status and similar qualifying events, employers are permitted, but not required, to implement the new rules. We expect most employers to embrace the new proposal, though employers not offering “affordable” or “minimum value” coverage might choose to not permit these election changes. Employers will avoid both tier one and tier two penalties under the play or pay rules if an employee elects coverage, even if that coverage is not minimum value or not affordable. An employee who disenrolls from the employer’s plan and enrolls in marketplace coverage could trigger “tier 2” play or pay penalties if the coverage offered to the employee was not minimum value or affordable. Below, we give the employer the opportunity to limit these election change rights only to medical plans that meet minimum value and affordability requirements at the time of the election change.

The IRS permitted plan sponsors to begin administering these new rules as early as Sept. 18, 2014, provided that a plan amendment be adoptedby the last day of the plan year beginning in 2015 (Dec. 31, 2015 for calendar year plans).

Insert the following if the sponsor desires to amend the Plan to add the optional Marketplace election change rule discussed above:

  1. The following is added to the end of the portion of Article III “Benefit Elections” with the heading “Mid-Year Changes to Elections:”

Public Health Marketplace Related Events Entitling You to Change Elections Concerning Payment of Medical Plan Premiums. You may prospectively cancel your coverage election with respect to the medical plan benefit in the following circumstances and in accordance with IRS Notice 2014-55 and any subsequent guidance related thereto:

  • Reduction in Hours Not Causing Loss of Eligibility: You have been in an employment status under which you were reasonably expected to average at least 30 hours of service per week and there is a change in your status so that you will reasonably be expected to average less than 30 hours of service per week after the change, even though that reduction does not result in you ceasing to be eligible under the medical plan. Your revocation must correspond with the intended enrollment of you (and any related dependents who cease coverage due to your revocation) in another plan that provides minimum essential coverage with the new coverage being effective no later than the first day of the second month following the month that includes the date of your election was revoked.
  • Eligibility for Public Health Marketplace Coverage: You become eligible to enroll for coverage in a public health marketplace during a marketplace special or annual open enrollment period. Your revocation must correspond to the intended enrollment of you (and any related dependents who cease coverage due to your revocation) in a qualified health plan through a public health marketplace for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked.

Insert if employer wants to limit the election change events to apply only to coverage options that provide minimum value and meet the affordability requirements under the healthcare reform play or pay rules.

In addition to the foregoing restrictions, the ability to make an election change in accordance with this section applies only to a medical plan that is both “affordable” and provides “minimum value” pursuant to Code Section 4980H and the guidance thereunder.

This change is effective for Plan Years beginning on or after [insert a date, not earlier than September 18, 2014, on which these changes were or will be allowed].To the extent this amendment is adopted after the effective date, the Amendment conforms the Plan document to Plan practice and procedure as of that effective date.

Same-gender spouse amendment:

Health coverage provided to an employee’s same-gender spouse receives the same federal and now state and local tax treatment (the coverage is nontaxable) as coverage for opposite-gender spouses, if the employee and the same-gender spouse are legally married. This means employees may pay premiums for coverage of a same-gender spouse on a pre-tax basis through the Flexible Benefits Plan, and may receive, from the Plan’s Health Care Reimbursement Program, reimbursement of a same-gender spouse’s medical expenses even if the spouse is not the tax “dependent” of the employee.

This amendment addresses these same-gender spouse issues. It allows the Employer to indicate whether, where the Flexible Benefits Plan uses the word “Spouse,” that term includes lawfully-wed same-gender spouses, or it does not include same-gender spouses (except where otherwise required by law).

WARNING: In light of the Supreme Court’s decision in Obergefell and indications form the Equal Employment Opportunity Commission (EEOC), we think it is risky to exclude same gender spouses, and encourage clients to obtain guidance from legal counsel if they wish to do so.

Insert the following if the sponsor desires to amend the Plan’s definition of “Spouse”:

  1. The Plan’s definition of “Spouse” is amended to read as described below:

Insert the following if the sponsor desires to extend all tax benefits under the Flexible Benefits Plan to same-gender spouses.

“Spouse” means your legal spouse (regardless of gender). Your spouse will cease to be considered your Spouse” under this Plan upon the entry of a decree of divorce.

Insert the following if the sponsor desires to limit tax benefits under the Flexible Benefits Plan to opposite-gender spouses, except where required by law to extend benefits to same-gender spouses.See the “Warning” above.

“Spouse” means your legal spouse, except thata Spouse shall not include a person of the same gender as you unless required by federal or state law. Your spouse will cease to be considered your Spouse” under this Plan upon the entry of a decree of divorce.

This change is effective [insert the date, not earlier than June 26, 2013, on which same-gender spouses began benefiting under the Plan, or insert “June 26, 2013,” if same gender spouses have never been permitted to benefit]. To the extent this amendment is adopted after the effective date, the Amendment conforms the Plan document to Plan practice and procedure as of that effective date.

*****

[PLAN SPONSOR]

By: ______

Title: ______

Date:

1

RESOLUTION

WHEREAS [Insert Name of Employer] (“the Employer”) sponsors a Flexible Benefits Plan (the “Plan”) under Section 125 of the Internal Revenue Code, for the benefit of its eligible employees and their eligible dependents.

WHEREAS the Employer deems it advisable to amend the Plan in the manner set forth in the attached Plan amendments.

NOW THEREFORE BE IT RESOLVED

THAT the Plan be and hereby is amended as described in the amendments which are attached hereto and incorporated herein by reference; and

THAT the officers or any other authorized employee or representative of the Employer be and hereby are authorized to take all necessary and appropriate action to implement this Resolution. To the extent an officer or other authorized employee or representative executed the attached Amendment prior to the date of these Resolutions, the Employer hereby ratifies and affirms such action.

[ PLAN SPONSOR ]

______

for the Board of Directors

Request to Change Health Insurance Coverage Election

Due to Change to Part-Time Status, Marketplace Special Enrollment Period, or

Marketplace Open Enrollment Period

Employee name: ______Date: ______

I request that the [Employer] medical plan disenroll me and, as applicable, my covered dependents from the [Employer] medical plan (“Plan”) effective ______, 20___, due to:

 Change from Full-Time to Part-Time Employment. I am transitioning from a position under which I was reasonably expected to average at least 30 hours of service per week to a position in which I will reasonably be expected to average less than 30 hours of service per week. I certify that I intend to enroll myself and any covered dependents who cease coverage under the Plan due to this change in my health insurance coverage election in another plan that provides minimum essential coverage (this plan may be a qualified health plan obtained through a public health insurance marketplace), with the new coverage effective no later than the first day of the second month following the month that includes the date as of which my coverage under the Plan is revoked.

Eligibility for Marketplace Special Enrollment Period.I am eligible for a public health insurance marketplace “Special Enrollment Period” pursuant to guidance issued by federal authorities. I certify that I intend to enroll myself and any covered dependents that cease coverage under the Plan due to this change in my health insurance coverage, with the new coverage effective no later than the day immediately following the last day I am covered under the Plan.

Include the following option only if the Plan is a non-calendar year plan.

Enroll in a Marketplace Plan During Marketplace Open Enrollment. I intend to enroll in a Qualified Health Plan through a Marketplace during the Marketplace’s annual open enrollment period. I certify that I intend to enroll myself and any covered dependents that cease coverage under the Plan due to this change in my health insurance coverage, with the new coverage effective no later than the day immediately following the last day I am covered under the Plan.

I understand that, pursuant to IRS rules, this request applies only to my election for the Plan and does not affect any other election (e.g., I cannot change my health flexible spending account (FSA) election).

Employee signature: ______

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