It’s Time for ALEs to “Do the Math” on Controlled Group Status

Applicable Large Employers (ALEs) subject to the ACA’s employer shared responsibility and reporting duties are running out of time in which to ascertain whether or not they are part of an “Aggregated ALE Group,” the members of which are treated as a single employer for benefit plan and certain ACA purposes. This in turn requires an analysis under Internal Revenue Code controlled group rules, as discussed below.

A definitive answer to the question of aggregated group status is required in order to file the Form 1094-C transmittal for employee statements (Forms 1095-C), which is due in hard copy by May 31, 2016, or via e-filing by June 30, 2016. (E-filing is encouraged for all ALEs but is mandated for those filing 250 or more Form 1095-C employee statements).

Specifically, Part II of Form 1094-C, line 21 asks whether the “ALE Member” filing the Form is part of an “Aggregated ALE Group,” and if the answer is yes, the ALE Member must identify, in Part III, the name and EIN of all other ALE Members of the Aggregated ALE Group.  Form 1094-C, like other IRS forms, must be signed under penalty of perjury.

Some ALEs with fewer than 50 full-time employees, including full-time equivalents (FTEs), are subject to employer shared responsibility only because they are part of an Aggregated ALE Group that collectively employs 50 or more full-time/FTE employees (or, in 2015, 100 or more).

Larger employers that have always had 100 or more full-time/FTE employees of their own may also have had to determine their status as part of an Aggregated ALE Group in order to determine who should furnish Form 1095-C employee statements for employees who worked for more than one aggregated employer during the same calendar month. (Generally the employer for whom the employee worked the most hours of service would be considered the reporting employer for that month.)

In either situation, these ALEs should already know that they are members of an Aggregated ALE Group and be in a position to identify other members of the Group on Part III of Form 1094-C.

However, employers that have always had 100 or more full-time/FTE employees of their own, and who have not shared employees with other group members as described above, may not have had occasion to determine whether or not they are part of an Aggregated ALE Group with other companies related in ownership. Now they must do so in order to accurately complete Form 1094-C.

In addition to Form 1094-C reporting duties, accurate knowledge of controlled group status is necessary in the event an ALE is subject to excise tax penalties under Internal Revenue Code (“Code”) § 4980H(a).  Before applying the excise tax rate ($270 per month, in 2016) to all full-time employees, the ALE may subtract the first 30 full-time employees.  That “budget” of 30 excludible full-time employees (80, in 2015) must be allocated among members of the Aggregated ALE Group in proportion to their total number of full-time employees.[1]

The three types of Aggregated ALE Groups are:

  • a “controlled group” consisting solely of corporations as defined under Code § 414(b);
  • a group of trades or businesses that includes partnerships and LLCs, that are under “common control” as defined under Code § 414(c); or
  • businesses, usually professional service organizations, that together form an “affiliated service group” (ASG) as defined under Code § 414(m).

The controlled group/common control/ASG rules (collectively, the “common control rules”) have applied for benefit plan purposes for many years but they have achieved new prominence under the ACA employer shared responsibility and ALE reporting rules. Determining whether or not common control exists requires identification and analysis of the relevant facts and application of the law to them, in the form of the above-cited Code sections, related Treasury Regulations, other agency guidance and federal case law.  The rules governing common control status are complex and can require a significant amount of factual digging, including when business ownership interests are held by family members or in trust, and where ownership interests must be traced through several layers of entity ownership.  Applicable large employers that share ownership with other business entities, particularly those with employees, and that have not already ascertained their common control status for ACA purposes, are encouraged to get this process started without further delay.

 

[1] Although aggregated group status is used to determine status as an ALE, and in order to allocate the budget of 30 excludible full-time employees, excise tax liability is determined separately for each ALE member within the group.

 

Leave a comment

Filed under Affordable Care Act, Applicable Large Employer Reporting, Benefit Plan Design, Common Control Issues, Employer Shared Responsibility, Health Care Reform, PPACA

ACA Reporting for Large Employers: Top 10 Rules for Success

Applicable Large Employers have approximately one month, until March 31, 2016,  to furnish Form 1095-C to full-time employees in relation to group health coverage offered (or not offered) in 2015.  Self-insured employers must also provide Form 1095-Cs to part-time employees who were covered under their plans in 2015.  Related IRS filing deadlines (transmittal Form 1094-C and attached Forms 1095-C) come later in the year, but the March 31, 2016 deadline to furnish employee statements is hard and final.  The attached PowerPoint presentation lists the Top 10 Rules for Success in completing Applicable Large Employer reporting, and includes bonus tips on opt-out payments, and increased ACA penalty amounts for 2015 and 2016.

Leave a comment

Filed under Affordable Care Act, Applicable Large Employer Reporting, Employer Shared Responsibility, Health Care Reform, Minimum Essential Coverage Reporting, Payroll Issues, Plan Reporting and Disclosure Duties, PPACA, Self-Insured Group Health Plans

IRS Extends Tax-Free Status to Proactive Identity Theft Protection

The Internal Revenue Service has announced that it will treat identity theft protection as a non-taxable, non-reportable benefit, even when offered proactively before any data breach, and whether offered by an employer to employees, or by other businesses (such as online retailers) to its customers.

The announcement comes only four months after an earlier earlier announcement by the Service that it would take the same approach with regard to identity theft protection offered to employees or customers in the wake of a data breach.   In the earlier announcement, the Service requested public comments from providers of identity protection services on whether they provide such services other than as a result of a data breach, and received four comments collectively indicating that identity theft protection often is provided proactively, because many businesses view a data breach as “inevitable” rather than as a remote risk.

The announcements reflect the Service’s immediate view of identity theft protection as a non-taxable benefit that need not be reported on a Form W-2 (provided to a common-law employee) or Form 1099-MISC (provided to a customer or other non-employee). Other specifics are as follows:

  • The Service defines “identity protection services” to include credit reporting and monitoring services, identity theft insurance policies, identity restoration services, or other similar services, however proceeds received under an identity theft insurance policies will be treated under existing tax provisions applicable to insurance benefits and are not affected by the announcements.
  • Tax-exempt treatment will not apply to cash provided to an employee or customer in lieu of identity protection services.

Notably, the Service itself had to provide identity theft protection earlier this year in response to a hack of its online database of past-filed returns and other filed documents which ultimately affected over 300,000 taxpayers.

Clearly these announcements are a boon to providers of identity protection services such as Experian and Lifelock, but due to the trending phenomenon of “identity theft fatigue” actual consumer enrollment in such services may remain low (under 10% of those potentially affected actually do so, according to Experian). This in turn may dictate the degree to which employers add identity protection services to their menu of tax-qualified employment benefits.

POST UPDATE:  More precisely, the IRS is not saying that identity theft protection is non-taxable, but that the IRS will not assert violations of the Internal Revenue Code for failure to include the value of the protection in gross income, or report it as income.  Where an employer (or retailer) provides the full cost of protection there is no dollar difference to an employee (or consumer), but were employees asked to contribute towards the cost of protection they would not be able to do so on a pre-tax basis through a Section 125 cafeteria plan.

Leave a comment

Filed under Benefit Plan Design, Fringe Benefits, Identity Protection Services

Reason to Celebrate: IRS Extends ACA Reporting Deadlines

On December 28, 2015, the IRS gave Applicable Large Employers (“ALEs”) a last-minute extension of their 2015 ACA reporting deadlines via Notice 2016-4.  The original and new, extended deadlines, which apply only to reporting for 2015, are as follows:

Capture ACA II.JPGThe same extensions apply to providers of minimum essential coverage such as insurance carriers and government-sponsored programs (Medicare, Medicaid), who are required to file Form 1094-B and furnish statements to covered individuals on Form 1095-B.  Employers generally are not required to perform minimum essential coverage reporting although, as discussed in this prior post, there are circumstances under which it is required.

The extended deadlines are hard deadlines to which the IRS will not apply automatic and permissive extensions of time that would otherwise be available. Notice 2016-4 also functions as the Service’s response to any pending extension requests, which will not be formally granted.  Reporting penalties will apply for failure to timely file returns or furnish statements but the IRS may abate penalties on a demonstration of “reasonable cause”; in this regard the employer’s “reasonable efforts” to prepare for timely reporting will be taken into account as will efforts to comply for 2016.  Although not exactly clear from the Notice it would appear that the IRS is still offering penalty relief for timely filed and/or furnished but incomplete or incorrect returns and/or statements, where the filer can show that it made good faith efforts to provide complete and correct information.    Further clarification on that point would be helpful.

As has often been the case with ACA relief, this extension is offered so close to the original compliance deadlines that some ALEs may not need or even be operationally able to take full advantage of it, and the Notice makes clear that the IRS will be prepared to accept ACA returns beginning in January 2016. However even those ALEs that had already invested substantial time and money in fulfilling the original reporting and statement deadlines were struggling with the complexity of the forms and reporting codes, and the extension will allow for a less frenzied and hopefully more accurate reporting process. The extension will be even more welcome to the many employers who qualified for pay or play relief applicable to ALEs with 50 to 99 full-time employees, including full-time equivalents, and who may only now be learning of their 2015 reporting duties.

 

Leave a comment

Filed under Affordable Care Act, Applicable Large Employer Reporting, Employer Shared Responsibility, Health Care Reform, Health Reimbursement Accounts, Minimum Essential Coverage Reporting, PPACA

Automatic Enrollment: Another Bone in the ACA Graveyard?

UPDATE:  President Barack Obama signed into law H.R. 1314, the Bipartisan Budget Act of 2015 described below, on November 2, 2015.

In the five years since the Affordable Care Act was enacted, a number of its provisions have died the legislative death known as repeal.  If enacted, the Bipartisan Budget Act of 2015 currently pending in Congress would add another bone to the ACA graveyard, in that it would repeal Section 1511 of the Affordable Care Act, which, through amendment of the Fair Labor Standards Act, would have required employers with more than 200 full-time employees to automatically enroll new full-time employees in their group health plans, subject to later opt-out.  The original effective date of this provision was unclear, but the Department of Labor put its enforcement on hold until regulations issued.  No regulations were issued, and now it looks like this provision, which was never a high-priority ACA item for the government, may never go into effect.

Other ACA measures that have previously been repealed include the mandated expansion of the definition of a “small employer,” for small group market purposes, from 50 to 100 employees. Although originally slated to take effect nationally for plan or policy years beginning on or after January 1, 2016, the PACE Act of 2015 made expansion of the definition is now a state-by-state decision (and as we discussed earlier, California’s expansion is slated to go into effect for 2016).

Another prior ACA casualty of note to employers was repeal of the cap on annual deductible amounts for health plans in the small group market, which happened (essentially retroactively) under the Protecting Access to Medicare Act of 2014.   (The repealed limits would have been $2,000 for an individual and $4,000 for a family.)  The ACA continues to cap annual maximum out-of-pocket amounts, and further requires that, effective for 2016 plan years, that a separate individual out-of-pocket maximum (an “embedded” maximum) applies to each person covered under family coverage, even before the family maximum is reached.

In the ACA’s earlier days, legislators put a stake in the heart of the free choice voucher provisions, which would have required employers who offered a group health plan to provide vouchers to certain employees to enable them to purchase exchange coverage.  The first major ACA casualty was and the public long-term care insurance program for employees, (“CLASS Act”), which was repealed, without ever having gone into effect, in the American Taxpayer Relief Act of 2012.

The last two ACA provisions that employers would most like to see repealed are the Cadillac tax, slated to go into effect in 2018, and nondiscrimination rules for fully-insured group health plans. Plans to implement the Cadillac tax, set forth in Internal Revenue Code § 4980I, appear to be progressing forward, as the IRS has issued two pieces of guidance this year, in the form of Notices 2015-16 and  2015-52, proposing interpretations of the rule and soliciting public comments on a number of points.  The fate of the nondiscrimination rule for insured plans, codified at Public Health Service Act § 2716, and incorporated into the Code via Section 9815, is less certain.  The rule is intended to provide, for non-grandfathered insured plans, a parallel to the nondiscrimination rules applicable to self-insured plans under Code § 105(h). In general terms, such a rule may make certain plan designs, including many executive/management “carve outs” such as special coverage tiers and accelerated plan entry, difficult or impossible to sustain.  In 2011, the IRS delayed enforcement of the rule until regulations were issued and no regulations have issued to date.  And since then, it has not included the rule on its annual list of priority tax guidance projects, including the most recent version for the fiscal year ending June 30, 2016, as updated for the first quarter of that period.  The IRS could still issue nondiscrimination guidance any time, however, and employers with non-grandfathered, insured plans should not assume that repeal will rescue them from this additional compliance burden.

Leave a comment

Filed under Affordable Care Act, Benefit Plan Design, California AB 1083, California Insurance Laws, California SB 125, Health Care Reform, Health Insurance Marketplace, Nondiscrimination Rules for Insured Health Plans, Small Group Coverage, Small Group Expansion

Few Changes Are Made to 2016 Benefit Plan Limits

On October 21, 2015 the IRS announced 2016 cost-of-living adjustments for annual contribution and other dollar limits affecting 401(k) and other retirement plans.   There are few changes to be noted, as the increase in the cost-of-living index stayed below many thresholds necessary to trigger adjustments. Citations below are to the Internal Revenue Code.

Limits That Remain the Same for 2016 Are As Follows:

–The annual Salary Deferral Limit for 401(k), 403(b), and most 457 plans, currently $18,000, stays the same.

–The age 50 and up catch-up limit, currently $6,000, also remains the same. For 2016 as in this year, the maximum plan deferral an individual age 50 or older may make is $24,000.

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

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

–Maximum amount of compensation on which contributions may be based under 401(a)(17) remains at $265,000.

–The compensation threshold for determining a “highly compensated employee” remains unchanged at $120,000.

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

–The compensation threshold for SEP participation remained the same at $600.

–The SIMPLE 401(k) and IRA contribution limit remained the same at $12,500.

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

–The Social Security Taxable Wage Base for 2016 remains at this year’s level, $118,500.

Limits That Changed for 2016 Are As Follows:

  • The deductibility of IRA contributions made by someone who is not covered by an employer’s retirement plan but is married to someone who is, phases out if their joint income is between $184,000 and $194,000, up from $183,000 and $193,000.
  • The deductibility of contributions to a Roth IRA phases out over the following adjusted gross income ranges:
    • $184,000 to $194,000 for married couples filing jointly, also up from $183,000 and $193,000;
    • $117,000 to $132,000 for singles and heads of households, up from $116,000 to $131,000.
  • The retirement savings contribution tax credit (saver’s credit) for low and moderate-income workers is limited to those whose adjusted gross income does not exceed:
    • $61,500 for married couples filing jointly, up from $61,000;
    • $46,125 for heads of households, up from $45,750; and
    • $30,750 for married filing separately and for singles, up from $30,500.

 

Leave a comment

Filed under 401(k) Plans, 403(b) Plans, COLA Increases, ERISA, IRA Issues, Nondiscrimination Rules for Insured Health Plans, Profit Sharing Plan

California Scheduled to Expand Small Group Definition Despite PACE Act

On October 7, 2015, President Obama signed into law the Protecting Affordable Coverage for Employees (PACE) Act which repeals provisions of the Affordable Care Act, and the Public Health Service Act, that effective January 1, 2016 would otherwise mandate expansion of the definition of “small employer” subject to insurance market reforms, from employers with 1 to 50 employees, to those with up to 100 employees. (This is actually a “look-back” test based on employee headcounts over the prior calendar year).  As discussed in this prior post, the market reform provisions, including modified community rating to determine premiums, and prohibitions on dollar limits on essential health benefits, are expected to significantly increase the cost of coverage for employers with 51 to 100 employees who will be joining the small group market for the first time.

Although the PACE Act repeals the federally-mandated expansion of the “small employer” definition, it leaves states the discretion to expand the definition on their own schedule.  As previously reported, California already enacted legislation in 2012, A.B. 1083, that expands the definition of small employer to employers with 1 to 100 employees, effective for plan or policy years beginning on or after January 1, 2016.  And in S.B. 125, earlier this year, California also adopted the use of the ACA’s full-time and full-time equivalent method of counting employees towards the small employer threshold.  When enacting S.B. 125, California had the opportunity to postpone small group expansion but did not do so.  Therefore the California small group market expansion will occur in 2016 unless California legislators take quick action by the end of the year to repeal the expansion, now codified in the California Insurance and Health and Safety Codes, or extend its effective date.  Of course, if is possible that the California legislature will not make any changes to the small employer definition, and small group expansion will occur in 2016.

We will continue to monitor developments on this topic.

Please note that an additional provision of S.B. 125 – changing open enrollment under the California state health exchange – Covered California, to match the November 1 – January 31 open enrollment period used by the federally-facilitated exchange, is scheduled to take effect November 1, 2015.

Leave a comment

Filed under Affordable Care Act, Benefit Plan Design, California Insurance Laws, California SB 1034, California SB 125, Covered California, Federally Facilitated Exchange, Health Care Reform, Health Insurance Marketplace, PACE Act of 2015, PPACA, Small Group Coverage, Small Group Expansion, State Exchange