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November 4, 2019

New California Law Imposes Notice Obligation

A new, very short California law (AB 1554), enacted on August 30, 2019, is grabbing much attention.  This law adds a new subsection to California Labor Code, as follows:

Labor Code - Division 3. Employment Relations - Chapter 2. Employer and Employee - Article 2. Obligations of Employer

2810.7.  (a) An employer shall notify an employee who participates in a flexible spending account, including, but not limited to, a dependent care flexible spending account, a health flexible spending account, or adoption assistance flexible spending account, of any deadline to withdraw funds before the end of the plan year. Notice shall be by two different forms, one of which may be electronic.

(b) Notices made pursuant to subdivision (a) may include, but are not limited to the following:

(1) Electronic mail communication.

(2) Telephone communication.

(3) Text message notification.

(4) Postal mail notification.

(5) In-person notification.

What this language seems to mean is that employers who sponsor spending account plans such as a medical flexible spending account (FSA) plan, dependent care assistance plan, or an adoption assistance plan, have a dual notice obligation.  It appears that the intent of the law is to ensure that plan participants are aware of their obligations to submit claims, in accordance with the terms of the plan.

A notice obligation would arise if an event occurs that would require claim submission prior to the end of the plan year.  For example, a notice obligation would be triggered if an individual terminates coverage, and the plan requires that claims be submitted within a period of time following termination, such as 60 or 90 days.  It could also occur, for example, if a plan terminates prior to the end of a plan year, such as in the event of a business reorganization.  If the terms of the plan allow claim submission through the end of a plan year, including any grace period, then the notices would not be required. 

The law requires that the notice be provided in two forms, although only one of the notices can be delivered electronically.  As noted above, the permissible methods for providing the notice are email, telephone, text, US mail, or hand delivery.  Presumably, including the information in a summary plan description or other benefit communication, such as enrollment materials, or communications provided upon termination of coverage, should satisfy these obligations.  Many plans probably already provide two forms of notices. 

An argument can be made that plans subject to ERISA, such as a medical flexible spending account plan (other than those sponsored by churches or government entities) would not be subject to this notice requirement.  However, dependent care assistance plans and adoption assistance plans are generally not subject to ERISA; and, therefore would be subject to this notice requirement without regard to the type of sponsoring employer.  Employers may want to consider providing the notice for all spending account plans, even if the ERISA preemption might apply.  At this point, no guidance has been issued further defining this law. 

The law takes effect on January 1, 2020.  Whether this means the law applies to claims incurred on or after January 1, 2020, or whether it applies for plan years beginning on or after January 1, 2020, is unclear.  Nonetheless, plans should begin preparing for this notice obligation.  The first step is, determine whether any spending account type plans cover California residents.  Next, review the types of notices relating to claims submission that are already provided to plan participants. Then, determine whether any of the current delivery methodologies of these notices could be tweaked, if necessary, to satisfy the dual notification obligation, or if modifications are needed to be consistent with the law.

 

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

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