IRS Announces Increased 2015 Retirement Plan Contribution Limits

On October 23, 2014 the IRS announced 2015 cost-of-living adjustments for annual contribution and other dollar limits affecting 401(k) and other retirement plans.   A 1.7% rise in the September CPI-U over 2013 triggered $500 increases to the annual maximum salary deferral limit for 401(k) plans, and the catch-up limit for individuals age 50 or older. Citations below are to the Internal Revenue Code.

Limits That Increase for 2015 Are As Follows:

–The annual Salary Deferral Limit for 401(k), 403(b), and most 457 plans, currently $17,500, increases $500 to $18,000.

–The age 50 and up catch-up limit also increases $500, to $6,000 total. This means that the maximum plan deferral an individual age 50 or older in 2015 may make is $24,000.

–Maximum total annual contributions to a 401(k) or other “defined contribution” plans under 415(c) increased from $52,000 to $53,000 ($59,000 for employees aged 50 and older).

–Maximum amount of compensation on which contributions may be based under 401(a)(17) increased from $260,000 to $265,000.

–The compensation threshold for determining a “highly compensated employee” increased from $115,000 to $120,000.

–The compensation threshold for SEP participation increased from $550 to $600.

–The SIMPLE 401(k) and IRA contribution limit increased $500 to $12,500.

–The Social Security Taxable Wage Base for 2015 increased from $117,000 to $118,500.

Limits That Stayed The Same for 2015 Are As Follows:

–Traditional and Roth IRA contributions and catch-up amounts remain unchanged at $5,500 and $1,000, respectively.

–The compensation dollar limit used to determine key employees in a top-heavy plan remains unchanged at $170,000.

–The maximum annual benefit under a defined benefit plan remained at $210,000.

 

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New Cafeteria Plan Guidance Eases Transitions to Exchange Coverage

IRS Notice 2014-55, issued September 18, 2014, permits two new types of mid-year changes in cafeteria plan elections (other than health flexible spending account elections) that will enable employees to drop employer group coverage in favor of individual coverage offered on state and federally-facilitated health exchanges (collectively, “the Exchange.”)  Making that transition primarily will appeal to employees with household incomes in ranges that qualify them for financial assistance on the Exchange, in the form of premium tax credits and cost sharing.  Those ranges are between 100% and 400% of federal poverty level in states that have not expanded Medicaid, and between 138% and 400% of federal poverty level in states that have expanded Medicare.

Recap of Existing Change in Status Rules

Under existing cafeteria plan regulations, a participant may make a mid-year change in their plan elections only in the event of a “change in status,” and only to the extent that the election change is both “on account of” and “corresponds with” the change in status.  This latter requirement is referred to as the “consistency rule.”  An example of a change in election that satisfies the consistency rule is removing a spouse from coverage as a result of a change in status that is a legal separation or divorce.  By contrast, the participant dropping his or her own coverage in that situation would not satisfy the consistency rule.

Existing regulations set forth a finite list of changes in status that trigger the right to a mid-year cafeteria plan election.  The list does not currently include a change in employment status – such as a transition from full-time to part-time status – that is not accompanied by a loss of group health plan eligibility. In addition, under special enrollment rights that were introduced with HIPAA, employees may enroll in their employer’s plan in the event they lose other coverage (for instance, through exhausting COBRA coverage), may add to their coverage a dependent newly acquired through birth, marriage, or adoption, and may make mid-year cafeteria plan changes that are consistent with these events.  HIPAA’s special enrollment rights do not contain provisions that relate to availability of individual coverage on the Exchange.

Please note that references below to “changing cafeteria plan elections” may more accurately be described as revoking an election to make pre-tax salary deferral elections towards the purchase of group health premiums.

Notice 2014-55

Effective immediately, although at the option of employers, Notice 2014-55 permits mid-year cafeteria plan election changes in two different situations that are related to Exchange coverage.

The first situation applies when an employee who has been classified as full-time for ACA coverage purposes (averaging 30 or more hours of service per week) has a change in status which is reasonably expected to result in the employee averaging below full-time hours, without resulting in a loss of their group health coverage.  Under the look-back measurement method, as set forth in final employer shared responsibility regulations, an employee who averages full-time hours during an initial (following hire) or standard (ongoing) look-back measurement period generally will be offered coverage for the entire related initial or standard stability period (and associated administrative period) without regard to the actual hours worked during the stability period, such that a schedule reduction would not impact coverage.

Now, under Notice 2014-55, full-time employees whose average weekly hours are “reasonably expected” to remain below 30 – and whose reduced earnings may now qualify them for premium assistance on an Exchange, or increased assistance –  may revoke group coverage for themselves and covered dependents, provided it is for the purpose of enrolling in Exchange coverage or other “minimum essential coverage” that will take effect no later than the first day of the second month following the revocation.   (Minimum essential coverage is not limited to exchange coverage and may, for instance, include group health coverage offered by a spouse’s employer.)  Employers may rely on employee’ representations regarding the purpose of the election change.  Changes to health FSA elections are not permitted in this situation.

The second situation has two variations.  The first applies when an employee has special Exchange enrollment rights, including as a result of marriage, birth or adoption.  Similar to HIPAA special enrollment rights, these permit purchase of Exchange coverage outside of Exchange open enrollment. The second applies under a non-calendar year cafeteria plan when an employee wants to enroll in Exchange coverage during the Exchange open enrollment period, effective as of the first of the following calendar year.

In either instance an employee may prospectively revoke group health coverage for him or herself and family members, provided it is for the purpose of enrolling in Exchange coverage that will take effect no later than the day immediately following the last day of the original coverage that is revoked.  Employers may rely on employee’ representations regarding the purpose of the election change.  Changes to health FSA elections are not permitted in this situation.

Plan Amendments and Effective Dates

The IRS intends to amend cafeteria plan regulations to reflect the guidance in Notice 2014-55.  Employers may rely on the terms of the Notice until new regulations issue.

Employers who want to incorporate the new election changes into their cafeteria plans must amend their plan documents in order to do so.   Employers who put the changes into effect between now and the end of 2014 may amend their plan documents any time on or before the last day of their 2015 plan year (December 31, 2015 for a calendar year plan).  The amendment may be retroactive to the date the change went into effect, provided that participants are informed of the amendment and provided that, in the interim, the employer operates its plan in accordance with Notice 2014-55, or with subsequent issued guidance.

Employer Shared Responsibility Considerations

As mentioned, the first permitted change primarily relates to applicable large employers who use the look-back measurement period to identify full-time employees.  To minimize “pay or play” liability, these employers should continue to monitor, over subsequent measurement periods, the average hours worked by employees who migrate to Exchange coverage, and offer affordable, minimum value coverage over corresponding stability periods to those whose hours average 30 or more per week, or 130 or more per month.

Interestingly, this portion of Notice 2014-55 refers to individuals who were “reasonably expected” to average 30 or more hours of service prior to the change, but who are “reasonably expected” to average below that after the change.  This “reasonably expected” language  – which implies a measure of employer discretion – appears in the final shared responsibility regulations only in connection with assessment of an employee’s likely status (full-time, part-time, seasonable or variable hour) upon initial hire.   After an employee has remained employed throughout an entire standard stability period (which generally corresponds to the plan or policy year), he or she is an “ongoing employee” and his or her status as full-time or not full-time is determined solely based on average hours worked over the preceding look-back measurement method, or, under the “monthly” measurement period, over the preceding calendar month.  In other words, employer discretion is removed from the ongoing measurement process.  Now, it is reintroduced by Notice 2014-55 in the limited context of a schedule reduction during a stability period.

If the second permitted change is adopted by an applicable large employer, presumably that employer will continue to monitor employees who have migrated to the Exchange using the measurement method under which the employee previously qualified for an offer of group health coverage.

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Filed under Affordable Care Act, Benefit Plan Design, Cafeteria Plans, Covered California, Employer Shared Responsibility, Federally Facilitated Exchange, Health Care Reform, Health FSA, Health Insurance Marketplace, PPACA, State Exchange

Waiting Period Limits for California Small Group Early Renewals

The following post was published on September 5, 2014 and updated on September 23, 2014.

As we posted a few days ago, some uncertainty remains for California employers regarding eligibility waiting period limits for “late renewal” insured group health plans that follow, most commonly, a December 1 through November 30 cycle.   Many small to mid-sized California employers switched from a calendar year policy cycle to a late renewal cycle in 2013, in an effort to postpone their exposure to increased health premiums resulting from ACA coverage mandates and insurance market reforms taking effect in 2014.

The ACA permits an eligibility waiting period of up to 90 days for plan years beginning on and after January 1, 2014.  California law governing insurers and HMOs restricted the waiting period to 60 days under legislation that very recently has been repealed effective January 1, 2015.  The repeal left open the issue of whether carriers would hold employers renewing late in 2014 to the 60-day waiting period limit.

At least with regard to small group coverage (2 to 50 employees), the original answer to that question appeared to be “yes” for two major carriers in the state whose approach may be a bellwether for other carriers:  Anthem and Blue Shield.   Originally upon announcement of S.B. 1034’s passage, neither would permit a 90-day eligibility waiting period on small group policies or HMO contracts that are renewed or first issued during the remainder of 2014.  The permissible waiting period choices were to have been limited to first of month following date of hire, or first of the month following 30 days from the date of hire.  However Anthem later modified its position in this regard, and will permit employers to request, in writing, a waiting period extension (not to exceed 90 days total) to go into effect as of January 1, 2015.  Blue Shield appears to be sticking to the renewal options listed.

For small group policy renewals and new sales occurring on or after January 1, 2015, the carriers will permit waiting periods equal to 90 days from date of hire, first of month following date of hire, and first of month following 30 days from the date of hire.   One of the carriers may also offer first of month following 60 days, but this is not yet certain.  Another carrier will prorate premiums when the 91st day after hire falls in the middle of the month.

So far these carriers are silent on waiting periods for large group renewals and new sales occurring in the remainder of this year.  Employers in this category likely can establish their own waiting period limits within the overall ACA 90-day cap.

The carriers are permitting the 90-day waiting period limit for individuals whose small group coverage takes effect on or after January 1, 2015.  Therefore, coverage for individuals whose waiting period bridges the end of 2014 and the beginning of 2015 should begin at the end of the waiting period that began in 2014, rather than after “tacking on” additional wait time permitted in 2015.  Although not expressly required by carriers, this would seem to be a logical strategy for large group employers to take with regard to employees whose waiting periods began to elapse at a time when the maximum limit was 60 days, but end after the point at which the employer increased the maximum limit to 90 days.   This would also have the advantage of meeting ACA requirements so long as the total waiting period does not exceed 90 days.

The final regulations on the maximum ACA waiting period state that carriers (technically, “health insurance issuers”) may rely on eligibility information reported by the employer or other plan sponsor, and will not be considered to have violated the ACA waiting period rule in instances where both of the following requirements are met:

  • the carrier requires the employer/plan sponsor to disclose the terms of any eligibility conditions or waiting period, and to provide notice of any changes to these rules; and
  • the carrier has no specific knowledge of the imposition of a waiting period that would exceed the maximum 90-day period.

Imposing eligibility waiting periods in excess of the ACA 90-day cap other than will trigger excise taxes equal to $100 per day, per impacted plan participant, up to a maximum of $500,000.  Employers and other plan sponsors must voluntarily disclose and pay the tax on IRS Form 8928, Section II.   The excise tax may be abated in whole or in part if the violation was due to reasonable cause and not willful neglect.

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Waiting Period Uncertainty Remains for Some California Employers

Recently enacted California Senate Bill 1034 prohibits California insurers and HMOs from imposing any waiting or affiliation period on group health coverage, other than that imposed by the employer sponsoring the group health plan.  As described in earlier posts, SB 1034 negates the effect of a prior law, AB 1083, that for 2014 imposed a maximum 60-day eligibility waiting period on California group health insurance policies and HMO contracts.   As a result, many California employers with insured group health plans have been foreclosed from using the maximum 90-day eligibility waiting period permitted under the ACA, which went into effect for plan years beginning on and after January 1, 2014.

The repeal under SB 1034 does not go into effect until January 1, 2015.  Employers with calendar year plans/policies that currently are subject to the 60-day limit can make a clean transition to the 90-day maximum waiting period effective January 1, 2015.  However, many employers who chose “early renewal” in 2013 in order to lock in pre-ACA rates for an additional 11 months will start new policy/plan years on December 1, 2014, raising the question of whether carriers will require compliance with the 60-day waiting period limit (a) for the balance of the 2014 calendar year; (b) for the entire 2014-2015 policy year; or (c) not at all, once the 2013-2014 policy year has come to a close.  Early renewal was most prevalent among small group plans, although it also was available to some large employers who were grandfathered into small group coverage. 

In the wake of the repeal measure, the major players in the California group coverage market are taking a cautious approach with regard to transition guidance.  Some carriers stopped enforcing the 60-day waiting period earlier this year when repeal of AB 1083 appeared certain, and logically these carriers would not hold employers to compliance through 2014.  Other carriers that followed the letter of California law in this regard will hopefully announce soon whether they will require compliance through December 31, 2014 or the end of 2014-2015 policy years.   We will post updates as further word from carriers becomes available.

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Filed under 90-Day Waiting Period, Affordable Care Act, California AB 1083, California Insurance Laws, Health Care Reform, PPACA

California Progresses Towards Parity with ACA Waiting Period Rule

Editor’s Note:  Governor Brown signed SB 1034 into law on August 15, 2014.

California Senate Bill 1034, which will remove the 60-day limit on eligibility waiting periods under California insurance and HMO group health contracts earlier mandated by Assembly Bill 1083, is in the late stages of legislative approval in Sacramento. Senate and Assembly Floor and committee votes have been unanimous in the bill’s favor. As discussed in an earlier post, once passed the bill will:
• permit California-licensed carriers and HMOs to administer employer-imposed eligibility waiting periods so long as they do not exceed the ACA’s 90-day limit, and
• prohibit such carriers and HMOs from imposing any separate, additional affiliation or waiting periods.

Pending passage of this bill, it appears that California carriers and HMOs are writing coverage without requiring that employers limit waiting periods to 60 days in accordance with AB 1083 as codified in the California Insurance and Health and Safety Codes. Those provisions went into effect on January 1, 2014 but almost immediately met resistance from brokers and benefit advisors and their clients.

Passage of SB 1034, which is slated to take effect on January 1, 2015, will permit employers with California-issued or renewed group health coverage to simply follow the ACA’s 90-day maximum limit on eligibility waiting periods (which apply to all employers, not just “applicable large employers” with 50 or more full-time employees, counting full-time equivalents). This will simplify these employers’ lives in number of ways:

• It will remove any doubts that they may impose “substantive” eligibility requirements such as licensure or attainment of a job level (e.g., assistant manager or higher), separate and apart from the 90-day waiting period, provided that the substantive requirement is not designed to avoid compliance with the 90-day limit. The federal waiting period regulations make it quite clear that this is permitted, but the separate California waiting period rules introduced a measure of uncertainty. That will no longer be the case.
• It will permit ALEs to use a “limited non-assessment period” of up to three full calendar months after hiring a full-time employee, such that an offer of coverage can be postponed until the first day of the fourth full calendar month after hire.

On this last point, the final ACA 90-day waiting period regulations state that a 3-month period cannot be substituted for 90-days. However, separate regulations were proposed, and finalized, that permit employers to impose a bona fide and employment-based orientation period of up to one month, beginning immediately after hire or after transfer to a new, benefitted job position. After the one month orientation period is up, the eligibility waiting period of up to 90 days would begin to elapse. Therefore, if properly administered, the orientation period may be combined with the 90-day waiting /limited non-assessment period to cover the entire period between the date of hire, and the first day of the fourth full month after hire.

Note in this regard that the orientation period cannot simply be an arbitrary stretch of time but instead must be used for the new hire/transfer and the employer to evaluate each other, and for the new hire/transfer to undergo orientation and training for his or her position. There are other implementation details to be aware of, and employers should get expert benefit advice in order to ensure compliance with these brand new rules.

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Filed under 90-Day Waiting Period, Affordable Care Act, Benefit Plan Design, California AB 1083, California Insurance Laws, Health Care Reform, PPACA

Summaries of Benefits and Coverage: Another Year of Eased Enforcement

In ACA Frequently Asked Questions Part XIX, issued on May 2, 2014, the Departments of Labor, Treasury and Health and Human Services (Departments) have extended transition relief with regard to Summaries of Benefits and Coverage (SBCs) for another year.  Specifically, relief that the Departments first issued in April 2013 (and which is summarized in this prior post) will continue to apply for plan years starting on or after January 1, 2015, and until such time as the Department of Labor issues further guidance.

Plan sponsors (which include insurers and employers with self-funded group health plans) have been required to provide SBCs during open enrollments beginning on or after September 23, 2012, (and at other specified intervals) making 2013 the “first year of applicability” for SBC duties.  For 2015, the third such year, and until further notice, plan sponsors may continue to use the SBC and glossary templates published in April 2013 (with minor changes including deletion of a now obsolete reference to annual limits on essential health benefits (EHB)).

In addition, the Departments will maintain an overall emphasis on cooperation with plan sponsors over SBC duties, rather than penalty enforcement, provided that the plan sponsor has worked “diligently and in good faith” to fulfill SBC duties on its own.  (Penalties would apply only in the case of “willful” failure to provide required SBC information, in any event.)

Lastly the Departments will continue to apply previously issued enforcement and transition relief , including the following (not an exhaustive list):

  • Not requiring SBCs with regard to Medicare Advantage plans;
  • Not requiring SBCs with regard to expatriate health plans;
  • Not requiring SBCs for “carve out” benefit arrangements (such as through pharmacy benefit managers and behavioral health organizations) where the outside vendor has contracted to provide the SBCs, and where the sponsor or insurer monitors for vendor compliance and is either unaware of any noncompliance or identifies and corrects noncompliance);
  • Safe harbors for providing SBCs to participants and beneficiaries electronically, including in connection with online enrollment or online renewal of coverage, or in response to requests for copies made online.  Specifically:
    • SBCs may be provided electronically as part of online enrollment or online renewal of coverage under a group health plan, and in response to an online request for an SBC, provided that the individual has the option to receive a paper copy of the SBC upon request.  Similar rules apply to carriers in the individual market.

 

Transition relief of this type continues to be a welcome relief to employers and other plan sponsors.

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Unpacking the 1-Year Pay or Play Delay for Limited Workforce Employers

Most readers of this blog are aware that that the Internal Revenue Service and Treasury Department postponed the compliance deadline under the ACA’s employer shared responsibility rules from January 1, 2014 to January 1, 2015, via IRS Notice 2013-45. This was an across-the-board, 1-year extension under which no penalties under Internal Revenue Code (“Code”) Sections 4980H(a) or (b) would be imposed during 2014 on applicable large employers (“ALEs”) who failed to offer affordable, minimum value or higher group health coverage to its full-time employees, meaning those working 30 or more hours per week.

Many of you are also aware that the final employer shared responsibility regulations published in February of this year included an additional one-year extension – to 2016 – for ALEs with between 50 and 99 full-time employees, including full-time equivalents (referred to herein as the “limited workforce” extension). The limited workforce extension is also described in Questions 34 through 37 of a recently-posted IRS FAQ on employer shared responsibility provisions.

This second 1-year extension is not “across the board” like the earlier one; the limited workforce requirement is just one of several distinct requirements that ALEs must satisfy, before they can qualify for the transition relief. This post breaks down the requirements into their component parts:

Limited Workforce Size
To be eligible for the 1-year extension for 2015 an ALE must employ on average, on business days during the 2014 measurement period, at least 50 full-time employees, but fewer than 100 full-time employees, including, in either instance, full-time equivalents. This headcount must take into account full-time employees and full-time equivalent employees of separate businesses related by ownership to the ALE (controlled group rules). However, the ALE may make use of the seasonal worker exception in the headcount process, such that the additional 1-year extension would apply if the ALE employs more than 99 full-time employees, including full-time equivalents, for 120 days or fewer during a calendar year, and the employees over the 99 employee headcount are seasonal workers. Note that the seasonal worker exception is only available if employee hours are averaged over all 12 months of a calendar year. For simply determining employees’ full-time status for the 2015 plan year, transition relief in the final regulations permit the 2014 measurement period to be the entire calendar year, or a period of no less than six consecutive months in 2014, starting no later than July 1, 2014 and ending no earlier than 90 days before the first day of the plan year beginning on or after January 1, 2015. Like the seasonal worker exception, the shortened measurement period may be used in connection with the 1-year extension for limited workforce employers.

Maintenance of Workforce and Aggregate Hours of Service
For the period beginning on February 9, 2014 through December 31, 2014, the ALE must not reduce the size of its workforce, or reduce the overall hours of service of its employees, in order to satisfy the limited workforce criterion. Reductions in workforce or schedules that are for “bona fide business reasons” are permitted, however. Examples given in the preamble to the final regulations include reduction in workforce size or aggregate hours because of business activity such as the sale of a division, changes in the economic marketplace in which the employer operates, terminations of employment for poor performance, or other similar changes unrelated to the extension criteria.

Maintenance of Previously Offered Health Coverage
The third requirement for the extension is that, during the applicable “coverage maintenance period” the ALE does not eliminate or materially reduce group health coverage that was in place as of February 9, 2014, which is the day before the final regulations were released to the public. The restrictions here are similar to those that apply to plans that are grandfathered under the ACA and generally apply to employee-only coverage. Specifically, the ALE must not reduce the dollar amount of the employer contribution towards employee-only coverage by more than 5% , it must maintain or increase the employer percentage towards such coverage in place as of February 9, 2014, it must not allow benefits to drop below “minimum value” or “bronze” level, and it may not narrow or reduce the class or classes of employees (or employees’ dependents) who were offered coverage as of February 9, 2014. The coverage maintenance period or “CMP” over which the ALE must continue to meet these conditions is, for plans following a calendar year cycle, the period from February 9, 2014, through December 31, 2015. For non-calendar year plans, the CMP is the period from February 9, 2014 through the last day of the plan year that begins in 2015.

Certification by Applicable Large Employer
ALEs that qualify for the limited workforce exception do not have pay or play duties in 2015 but must nonetheless comply with ALE reporting duties under Code Section 6056 that go into effect for 2015, with initial reporting due in early 2016. For this initial reporting year ALEs must certify that they met the requirements for the additional 1-year delay. Certification will be made on IRS Form 1094-C (not yet released by the IRS).

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Filed under Affordable Care Act, Employer Shared Responsibility, ERISA, Health Care Reform, Plan Reporting and Disclosure Duties, PPACA