This notice is being sent to provide you with information regarding The Patient Centered Outcome Research Trust Fund (PCOR) fees and how they apply to your health Flexible Spending Account (FSA). Below you will find an overview of PCOR fees as well as details regarding fee calculation and filing.
Thank you for choosing DBS as your third party administrator for your account based benefit plans. Your business is greatly appreciated.
What is the PCOR Fee?
As part of the Affordable Care Act (ACA), a new fee has been introduced that applies to group health plans, health reimbursement arrangements (HRAs) and some health flexible spending accounts (FSAs). The fee is called PCOR (Patient Centered Outcome Research Trust Fund) and the purpose of the fee is to fund research that provides patients and providers with information to assist with making informed health care decisions. Health FSAs are subject to the fee if they are a HIPAA non-excepted benefit.
For a health FSA to be an excepted benefit two conditions must be satisfied:
1) The maximum benefit payable from the employer to any plan participant for the plan year cannot exceed: two times the employee’s salary reduction election, or if greater, the salary reduction amount plus $500.
2) Traditional group health coverage (such as a major medical plan coverage) must also be made available to all health FSA participants.
By way of example, a health FSA would meet the criterion in 1), above, if the employer does not make any contribution to the health FSA. Likewise, the criterion would be met if the employer limits its contribution to a dollar for dollar matching contribution.
Who Pays the PCOR FEE?
§ The plan sponsor is responsible for paying the fee. For health FSAs the plan sponsor is the employer.
§ If the employer has both an HRA and a health FSA that run on the same plan year, the PCOR fee only needs to be paid once.
§ If the employer has both an HRA and a health FSA that run on different plan years, the PCOR fee needs to be paid separately for each account based plan.
What is the Fee Amount?
PCOR Fees for health FSAs are based on the number of plan participants.
§ For plan years ending from 10/01/2012 and 9/30/2013, the fee is $1 per participant.
§ For plan years ending on or after 10/1/2013, the fee is $2 per participant.
How is the Average Number of Plan Participants Determined/Calculated?
Listed below are three methods that can be used to calculate the average number of plan participants. Plan sponsors can change the calculation method used for different plan years, but must use the same method within the same plan year.
1. Actual Count Method: Take the total number of plan participants on each day of the plan year and divide by the number of days in the plan year.
2. Snapshot Method: Take the total number of plan participants on one date in each quarter or an equal number of dates in each quarter and divide by 4 quarters or the number or dates used within each quarter.
3. Form 5500 Method (for ERISA-covered plans): This method allows a plan to use Form 5500 participant counts. For example, the plan sponsor could take the total number of plan participants on the first and last month of the plan year, add them together and divide by two.
When does the Plan Sponsor Report and What Form Should be Used?
The plan sponsor (employer) must file IRS Form 720 (Quarterly Federal Excise Tax Return) annually stating the PCOR fee liability. To access this form go to http://www.irs.gov/pub/irs-pdf/f720.pdf
§ PCOR fees must be paid annually by July 31 of the calendar year immediately following the last day of the plan year. For example, a calendar-year plan ending 12/31/2012 will have their first return and annual payment due by 07/31/2013.
§ Third Party Administrators (TPAs) are not allowed to act for plan sponsors by filing the return or paying the fees. However, in order to prepare the return and pay the fees, plan sponsors may need to obtain information about the number of plan participants from their TPA.
Please contact DBS at (800) 234-1229 if you have any questions.