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January 2002    Volume I, Issue 1

Welcome to the first issue of dataPATH FOR SOLUTIONS,   DataPath's new monthly newsletter. Over the next few months, you will see it evolve in both appearance and content as we incorporate new features. If you have any suggestions about what you would like to see in this newsletter, just email your comments to mvinson@dpath.com.

CONTENTS

Today's Hottest Benefit: Defined Contribution.   Today's hottest benefit issue is the Defined Contribution approach to health care delivery.   More. . .

DataPath125: Version Two.   The beta-testing of Version 2 is winding down, and it will be shipping soon!    More. . .

New § 132(f) Regs now in effect.   It's a whole new ball game, but DataPath132 has all the bases covered!    More. . .

IRS Rules Against Double Dipping.    Finally!  IRS says it's a "no-no"!  Revenue Ruling 2002-3 formally rules against the controversial "Double Dip"  arrangement!    More. . .

Need help with 5500s?    DOL updated the Form 5500 Troubleshooter's Guide in May 2000, the first time it has been updated since 1996. This is a must for all Form 5500 filers.   More. . .

Regulatory Limits for 2002   Here's a list of some useful 2002 Regulatory Limits.   More. . .

2002 Key Man and HCE Definitions   EGTRRA changed the Key Man definition.   More. . .

Some of the links below access Adobe Acrobat PDF documents. If you do not have Adobe Acrobat Reader, you can download it here.)

Today's Hottest Benefit: Defined Contribution

Today's hottest benefit issue is the Defined Contribution approach to healthcare delivery. Under a Defined Contribution approach, an employer (or plan sponsor) states the amount of their contribution toward a benefit plan and the employee buys (selects) the benefit option(s) that amount will cover. If an employee wants to buy more benefits, the employee will pay for it either with after-tax payroll deductions or with pre-tax salary reductions through a cafeteria plan.

While the concept of "defined contribution" (first introduced with retirement plans) has been around for a long time, today's practitioners are searching for new, and workable, healthcare delivery models utilizing Defined Contributions.

In the past, the prevalent healthcare delivery system was for the employer to select a benefit package and present it to the employees. The employees could either accept or decline the package regardless of their needs or budgets. About two years ago, the marketplace started looking for alternative delivery systems. The reasons for this push included:

• The demand by employers for a solution to the ever-increasing health insurance rates.
  
  
• The breakdown of managed care's promise to hold down rates and provide access while at the same time maintaining network steerage.
  
  
• The expanding competition from new types of healthcare delivery solutions empowered by advancing technology and the Internet, which provides the ability for universal access to a single database of information.
  
  

You may not be aware of it, but DataPath has been a pioneer in the field of Defined Contributions. Since 1995, we have been assisting Personally Producing General Agents (PPGAs) and other Group Insurance Benefit Consultants to profitably market, propose, sell, implement, administer, and report Defined Contribution health plans through Max105.

Many of our users who are also Group Insurance Agents have benefited through Max105. Now DataPath is adding a new system, DataPath105, to give our users who are not insurance agents a way to benefit from the Defined Contribution approach.

DataPath105, soon to be released, is a complete system solution designed for Cafeteria Plan Service Providers to offer a Defined Contribution approach to healthcare delivery systems for their employer groups. This system will benefit a Service Provider whether or not the Service Provider is working in conjunction with group insurance agents.

The DataPath105 system supports a Medical Expense Reimbursement Plan (MERP) in a non-encapsulated (freestanding) format.

• Multiple benefits and options can be designed under a single 105 Plan.
  
  
• Each participant's claims experience is tracked within each of the different benefits contained in the plan.
  
  
• This design flexibility allows the benefit consultant to fashion the 105 Plan Benefits to appeal to various needs as well as conserve the employer's funds committed to the plan.
  
  

DataPath105 can be a stand-alone system or one of the integrated modules (DataPath125, DataPath132 and DataPath COBRA) within DataPath's Solution Suite. It consists of the following:

• Administration system
• Plan Documents and Summary Plan Description
• Forms
• Administrative Guide
• Service Agreement
• Benefit Summary
• Other documents necessary to communicate the plan to participants

An optional feature includes the ability to provide "carryover of the unused balance" for utilization in future plan years. DataPath105 offers various methods to allocate the carryover amount, and provides the necessary documents for this option.

In March, DataPath will begin its 2002 Seminar Series with a three-day seminar: 105 Plans and the Concept of Defined Contribution Health Delivery.    On the first day, this seminar will cover the Defined Contribution concepts in general and how DataPath105 can open marketing opportunities for you.

The second and third day will consist of hands-on training for the DataPath105 system and explanation of the plan documents and support materials—everything you need to know to start servicing your clients in this new way.

Sign up today for the seminar. You can come the first day to learn about the concept, or come for three days to take the solution home to your marketplace. We look forward to introducing you to this new, and profitable, system.

One of our users authored an article last year in Life Insurance Selling  on Defined Contributions. If you would like a copy, just email us at bbush@dpath.com., and one will be sent you.

DataPath125: Version Two

The beta-testing of Version 2 is winding down, and it will be shipping soon! I spoke with one of our users who has been beta-testing it and, according to him,  "It's a huge step forward...much faster, and moving around in the program seems to be much more logical."  He particularly liked the redesign of the cash management system with its new features and the multi-employer contribution processing.

Listed below are just some of the exciting new changes you will find in Version 2.

Tools

• Replaced the System Settings option with Workstation Settings, and added the ability to locate the Letters, Reports, and Formats folders on the server, available to all users.
  
  
• Added Update System Keys option to Database Recondition, which lets you verify the latest keys are being used, thus preventing any duplication of system keys.
  
  
• Added Administrative Settings option to the Tools menu, allowing you to pay claims based either on the Beginning or Ending Service Date.

Employer Screen

• Added filter to choose Employers based on whether they have a POP plan or a POP plus FSA plan.
  
  
• Added Deduction Grouping field to Benefit screen.
  
  
• Added right-click menu on Pay schedule screen for more options for editing the pay schedules.
  
  
• Moved Employer fees to the Invoicing screen.
  
  

Employee Screen

• Added ability to filter out terminated employees or view only the terminated employees.

Contribution Reporting

• Added ability to arrange the benefit order before printing.

Contribution Processing

• Added ability to save and reload adjustments when you unpost a pay period.

Contribution Processing (Multi-Employer)

• Added option on Admin menu to permit posting multiple pay periods for multiple employers.

Claims Processing

• Redesigned the Enter Claim screen to facilitate claim entry.
  
  
• Added ability to import Health FSA claims.
  
  
• Added ability to assign claim form to another batch.
  
  
• Added feature warning you that a service date straddles two plan years.

Claim Search

• Removed History tab from Claim Processing and added a Claim Search option to the Admin menu, allowing you to find (and edit) claims by such criteria as type, claim number, amount, employee name, and employer name.

Payment Search

• Removed History tab from Payment Processing and added the option Payment Search to the Admin menu, allowing you to search for payments by such criteria as method of payment, amount, date, and payee.

Invoicing

• Added ability to create invoices by division.
  
  
• Added ability to invoice for terminated employees with balances/credit available.
  
  
• Added ability to bill for employees on COBRA and/or LOA.
  
  
• Added ability to bill for employees who are active but do not have deductions.
  
  
• Added ability to invoice during the claims grace period
  
  
• Added ability to include FSA deductions on the invoice.
  
  
• Added ability to setup all parameters, including fees, for each Employer.
  
  

Cash Management

• Redesigned Cash Management screen.
  
  
• Added Bank Reconciliation option, allowing you to clear checks and reconcile your bank account.
  
  
• Added Partial Return option allowing you to record a full or partial repayment by employee.

Year End Close Out

• Added option under Services menu to allow you to calculate a credit (and generate a check) or a debit (and generate an invoice) after the end of the grace period to close out the accounts.

Cafeteria Plan Testing

• Added ability to import POP information for testing purposes.
  
  
• Added ability to recapture settings for prior plan years for testing.

Enrollment Manager

• Added ability to import employees into the Enrollment.

Reports/Letters

• Updated reports/letters as needed to reflect changes in regulations.
  
  
• Added ability to amend or restate Adoption Agreement.

The new § 132(f) regulations are now in effect.

On January 1, 2002, the new regulations for §132(f) Tax-Free Transportation Programs went into effect. It's a whole new ball game under these regulations. For instance:

• Elections are irrevocable for the length of the coverage period;  however, the coverage period can be as short as one period and as long as one year.
  
  
• The IRS imposes monthly limits on both the contributions and the claims.
  
  
• Unused funds can be rolled over into following coverage periods, but will be forfeited if the participant terminates employees.

DataPath132 administrations adheres to these regulations.   For more information on the regs and DataPath132's response, go to http://www.dpath.com/products/files/DPI132Compliance.pdf.

For more information on DataPath132, go to http://www.dpath.com/products/dpi132.asp

IRS Rules against "Double Dipping"

IRS formally ruled against the controversial "Double Dip" arrangement through Revenue Ruling 2002-3. The arrangement was to work as follows.

1. The employer provides group health coverage to the employees.
   
   
2. The employees pay for the coverage pre-tax through their cafeteria plan.
   
   
3. The employer then reimburses the employees by an amount to make the employees' after-tax pay to be the same as it would have been before the pre-tax contribution.
   
   
4. The employer does not include the reimbursements in the employees' gross income, and does not pay FICA and FUTA withholding taxes on the reimbursements.
   
   

See the Revenue Ruling 2002-3 for an analysis of why IRS has ruled against this arrangement.   It will soon be available at http://www.irs.ustreas.gov/prod/bus_info/bullet.html.  If you don't find it there, try http://ftp.fedworld.gov/pub/irs-drop/rr-02-3.pdf.

Need Help with 5500s?

DOL updated the Form 5500 Troubleshooter's Guide in May 2000, the first time it has been updated since 1996. This is a must for all Form 5500 filers.

Although it doesn't have all the details that the 5500 Instructions hold, it is great to find out what items apply to your situation. It's also great for persons new to the 5500 to learn about the reporting process. The format is much easier to read than the 5500 instructions and the language is simpler.

The guide also includes the following useful sections:

• Schedules and Attachments. Here you will find a short summary of all the Form 5500 Schedules and Attachments. This is an easy way for you to find out what is needed for your purposes.
  
  
• Potential Filing Errors and How to Avoid Them. This simply alerts you to the most common ways that 5500 filers mess up.
  
  
• Checklists and Quick Reference Chart. Find the checklist for your type of plan to learn exactly what you need to file. The Quick Reference Chart will give you more details how the schedules are completed for various plans.
  
  
• Guidelines for Completing Form 5500 and Schedules. Here's a line-for-line explanation for completing the 5500 and Schedules.
  
  

To download a copy of Troubleshooter's Guide to Filing the ERISA Annual Report (Form 5500), DOL Publication, May 2001, click here.

Regulatory Limits for 2002

Below are some of the 2002 regulatory limits that may be useful to you

• §415 Limits:
       Defined Contributions Plans:   $40,000
       Defined Benefit Plans:   $1600,000
  
  
• Highly Compensated Employers:    §414(q):  $90,000
  
  
• §613 EGTRRA - Key Employee in top-heavy plans:
       §416(i)(1)(A)(i):   $130,000
  
  
• §132 Transportation Benefits
       Parking:   $185.00
       Transit:   $100.00
  
  
• FICA Taxable Wage Base:
       Social Security (Tax Rate 6.20%):   $84,900
       Medicare (Tax Rate 1.45%):   No Limit

2002 Key Man and HCE Definitions

EGTRRA changed the Key Man definition beginning after December 31, 2001 to the following:

An employee is considered a Key Man if the employee meets at least one of the criteria below during any time of the plan year. (The four-year lookback was repealed.)


• An officer of the company with annual compensation greater than $130,000 (as indexed for cost-of-living adjustments), or
  
  
• A greater than 5% owner, or
  
  
• A greater than 1% owner and has an annual compensation in excess of $150,000.

The HCE definition for Dependent Care is as follows:

An employee is considered to be a HCE if the employee meets at least one of the below criteria. (This definition uses the Code §414(q) definition of HCEs.)

The employee was a more-than-5% owner at any time during the current or preceding plan year, applying the attribution rules of Code §318, or


• In the preceding year, the employee earned more than $85,000 (if the preceding year is 2001) or $90,000 (if the preceding year is 2002).