FSA and HRA Amendment Alert

Last year's Health Reform Act prohibited tax-free reimbursement of over-the-counter medicines obtained without a prescription (other than insulin) by health care flexible spending accounts (FSA) and health care reimbursement accounts (HRA), beginning with expenses incurred after December 31, 2010 (after January 15, 2011 for FSA/HRA debit card purchases).

Although FSA's and HRA's should have stopped reimbursing over-the-counter medicines obtained without a prescription at the beginning of this year, the deadline for formal amendment of the plan document is the end of this month, June 30, 2011. So, if you have not already amended your FSA or HRA plan document, you have a few more weeks to make the required amendments. Most employers are choosing to permit reimbursement of over-the-counter medicines with substantiation of the prescription, rather than prohibit reimbursement of over-the-counter medicines altogether.

Supreme Court Speaks on Summary Plan Descriptions

In recent years, the courts have tended to allow participants to claim a plan benefit based on the terms of the plan's summary plan description (SPD) or the failure of the SPD to summarize a plan provision, even though that benefit was not provided by the formal plan document. But, in a recent decision (CIGNA Corp. v. Amara, May 16, 2011), the Supreme Court held that an SPD was not a formal plan document and a claim for benefits "under the terms of [the] plan" could not be based on the SPD. The Court noted that the plan document was the creation of the plan sponsor and that the SPD was the responsibility of the plan administrator, a fiduciary, who was not necessarily the plan sponsor.

Although the Court foreclosed benefit claims based on the terms of the SPD, the Court's decision opens up another way for participant-plaintiffs to achieve their desired benefits. Federal pension law also allows a participant to "obtain other equitable relief" but courts had been giving this right a narrow interpretation. The Court held that that participants who had received misleading or inaccurate SPD's or other communications could make a claim for equitable relief and the equitable relief could include estoppel, reform of the plan document, and monetary compensation for the participant's loss caused by a breach of fiduciary duty or to prevent a fiduciary's unjust enrichment. The Court also held that the participant-plaintiff would have to show detrimental reliance on a misleading or inaccurate communication only if the specific equitable remedy awarded traditionally required such a showing.

So, even though the Supreme Court has held that an SPD is not a plan document and that a regular benefit claim cannot be made based on the terms of the SPD, plan sponsors need to continue to ensure that the summary plan descriptions and other plan communication are accurate. In fact, the Court's discussion of equitable relief, including when detrimental reliance must be shown, may make litigation of some types of claims attractive for the first time.