Trion's Focus on Compliance
Important Information Concerning Your Flexible Spending Benefits
Trion takes spending plan compliance seriously. Employer penalties for non-compliance are very costly, ranging from fines for each ineligible claim to retroactive tax implications and even plan disqualification. Trion’s innovative technology utilizes carrier data to substantiate transactions, validating most purchases at the point of sale and keeping you IRS compliant at all times. We do this in most case without burdening your employees with follow up documentation requests.
Published in January 2007, Notice 2007-2 clarifies some of the previously published debit card rules. To follow are three areas of focus and clarification:
1) Substantiation of medical expenses - Even though the use of FSA debit cards was authorized by the IRS for medical expense reimbursement in Rev. Rule 2003-43, in order to get the exclusion from gross income, the medical expenses must be substantiated.
2) Approved merchants – Health Debit cards are to be limited to merchants and service providers with a merchant code (MCC) relating to healthcare which was later expanded to certain non-healthcare providers in Notice 2006-69.
3) Substantiation of unmatched transactions - card transaction that cannot be substantiated through co-pay matching, verified recurring transactions or third party data matching through a PBM, must be confirmed by the employee's submission of a bill, receipt or other form of evidence that verifies the charge was for a qualified medical reimbursement. The ruling specifically provided that the substantiation requirements could not be met by using sampling techniques or payment threshold techniques.
Employer Responsibility
There has been confirmation that the employer is ultimately responsible for ensuring that the plan is in compliance. Since the employer is responsible for the validity of W2s, the employer is responsible for any incorrect information, including the tax on invalid FSA transactions. The existence of a Third Party Administrator (TPA) in the process does not diminish the responsibility of the employer. A violation could open up a three year audit process resulting in a significant tax and penalty liability.
Vendor Responsibility
Many TPAs are still employing non-compliant methods of substantiation or none at all. The IRS has indicated they know who those TPAs are which puts all of their employer groups at risk. It is clear that the IRS intends to curb the abuse in health debit card transactions and is keeping track of issues.
Trion's Responsibility
Trion keeps flexible spending plans 100% in compliance. To ensure that our clients will pass an IRS audit Trion employs all approved methods of substantiation including limiting merchant codes, data matching, co-pay matching, and education of employees regarding FSA Stores and when those methods are not sufficient, collection of receipts from participants. Trion's focus is on compliance to ensure that our clients maintain their tax advantage. In addition to our day to day compliance focus, Trion performs routine non discrimination testing of your medical flexible spending accounts, health flexible spending accounts and dependent care flexible spending accounts.
If you are not currently a Trion client and are working with another provider, this is a service announcement that will help you determine if your current administrator is doing everything they can to keep you in compliance. They should be able to provide you with a report showing you your plan auto substantiation rates by reimbursement type. With carriers file feeds, PBM feeds, co-pay matching and utilization of FSA stores, your Auto Substantiation rate should be in excess of 90%.
Trion Alerts
If you have any questions related to your plans or are not clear how to ensure you are compliant, feel free to contact Trion for advice.
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