Category Archives: Affordable Care Act

2020 Benefits Update

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This PowerPoint deck covers:

  • SECURE Act mandatory and optional changes for employers that currently sponsor 401(k) or other defined contribution plans,
  • Proposed Department of Labor Regulations creating a safe harbor for posting certain retirement plan disclosures online, and
  • A quick update on the statuses of ACA repeal and the CalSavers program, respectively.

It was originally presented on March 4, 2020 as part of my firm’s 24th annual Employment Law Conference, held at the Four Seasons Biltmore, Santa Barbara, California.  As with all information posted here, it is provided general informational purposes only and does not create an attorney-client relationship between the author and the reader.  Readers should not apply the information to any specific factual situation other than on the advice of an attorney engaged specifically for that or a related purpose.  © 2020 Christine P. Roberts, all rights reserved.

Photo by Lora Ohanessian on Unsplash

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Filed under 401(k) Plans, 403(b) Plans, ADP and ACP Testing, Affordable Care Act, Benefit Plan Design, California Insurance Laws, California Secure Choice Retirement Savings Program, CalSavers Program, ERISA, Health Care Reform, Profit Sharing Plan, Qualified Birth or Adoption Distribution, SECURE Act, State Auto-IRA Programs

Rust Never Sleeps: ACA Large Employer Tax Liability is Forever

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Ordinarily under the Internal Revenue Code (Code), when a taxpayer files a return reporting tax liability (or absence thereof), the filing of the return triggers a period of time during which the IRS can challenge the reported tax liability.  This period is referred to as a “statute of limitations” and the customary period under Section 6501(a) of the Code expires three years after the “return” is filed.  As is explained below, a form must meet certain criteria to be considered a “return” that, once filed, starts the statute of limitations running.

The IRS Office of Chief Counsel has stated, in a memorandum dated December 26, 2019, that because there is no actual return filed reporting ACA taxes owed by Applicable Large Employers (ALEs) under Code Section 4980H, the statute of limitations on the IRS’s ability to collect the taxes never begins to run, even though ALEs annually file Form 1094-C transmittal forms with IRS each year, along with copies of Form 1095-C statements furnished to full-time employees (and part-time employees covered under self-insured group health plans).  Therefore, ALEs remain potentially liable for Code Section 4980H excise taxes for an indefinite period.  The IRS has been actively collecting ACA taxes from Applicable Large Employers owed for calendar years since 2015 and presumably will continue to do so.  This significant amount of potential tax liability will only grow, not wear away, under the IRS stated policy.

Below we spell out how the IRS concluded that it has an open-ended ability to assess ACA penalties.

By way of background, the IRS uses the term “Employer Shared Responsibility Payments” or “ESRP” to refer to the excise tax imposed on Applicable Large Employers under Code § 4980H if they don’t meet their ACA duties to offer affordable, minimum value or higher coverage to full-time employees.

There are two different taxes:

  • The 4980H(a) tax which applies if at least one full-time employee qualifies for premium tax credits on an exchange, and the employer fails to offer minimum essential coverage to at least 95% of its full time employees (or all but 5 of its full-time employees, if 5 is greater than 5%). This tax, currently set at $2,570 annually, is calculated by multiplying that amount times all full-time employees, minus the first 30.  (The tax was $2,500 for 2019).  Depending on the number of full-time employees, this tax can mount quickly.
  • The 4980H(b) tax applies if the employer fails to offer affordable, minimum value or higher coverage to that employee. This tax, currently set at $3,860 annually, is calculated by multiplying that amount times only the number of those full-time employees who qualify for premium tax credits on the exchange.  (The tax was $3,750 for 2019).  This tax can never exceed in amount what the ALE would owe under the (a) tax if it did not offer minimum essential coverage.

It is important to note that Applicable Large Employers do not calculate or report ESRP amounts on corporate or other business tax returns or on any other type of “penalty” return, even though other types of excise taxes are reported on dedicated IRS forms (e.g., Form 5330, Return of Excise Taxes Related to Employee Benefit Plans).

Instead, ALEs annually file with the IRS Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, together with copies of the individual Form 1095-C Employer-Provided Offer and Coverage statements furnished to full-time employees.  Using this information, the IRS determines which full-time employees might have triggered an ESRP each month in a given year based on the reported offer of coverage (or lack thereof), their employment status for the month, and, among other factors, the cost of coverage offered for the month.  The IRS also receives reports from the exchanges (Form 1094-A Health Insurance Marketplace Statement) on advance payment of premium tax credits to individuals.  By checking the employees’ Form 1040 returns, the IRS then determines, based on household income, which of those full-time employees were entitled to retain some or all of the premium tax credits advanced to them by the exchanges.  Full-time employees’ retention of premium tax credits, teamed with the information reported on Forms 1094-C and 1095-C, triggers imposition of the ESRP on the Applicable Large Employer.  The IRS notifies the ALE of its intention to assess ACA penalties via Letter 226-J, related forms, and subsequent correspondence.

Applicable Large Employers have advocated that Form 1094-C and attached employee statements are returns that, when filed, trigger the three-year statute of limitations under Code Section 6501.  In its memorandum, the Office of Chief Counsel concludes that this is not the case, because the data disclosed on Forms 1094-C and 1095-C is insufficient to calculate tax liability – it only provides part of the information the IRS needs to calculate the tax, the rest of which is obtained from the exchanges, and from full-time employees’ tax returns.  Disclosure of information that is sufficient to calculate tax liability is one of four criteria used to determine when a tax form, when filed, is sufficient to trigger the running of the statute of limitations, as set forth in Beard v. Commissioner, 82 Tax Court 766, 777 (1984), aff’d. 793 F.2d 139 (6th Cir. 1986).[1]

Because the ACA forms do disclose sufficient information to calculate tax liability and thus do not trigger the “filed return” statute of limitations, any other applicable statute of limitations would have to be set forth by Congress in Section 4980H itself.  Citing numerous federal cases holding that no statute of limitations may be imposed absent Congressional intent, and noting that Section 4980H contains no statute of limitations, the memorandum concludes that the Service is not subject to any limitations period for assessing Section 4980H payment.

What this means to Applicable Large Employers is that they now have an added incentive, in the form of minimizing open ended potential tax liability, to ensure that they are offering affordable, minimum value or higher coverage to their full-time employees for so long as the ACA’s ESRP provisions remain in place.  They must also continue to timely and accurately file and furnish Forms 1094-C and 1095-C, respectively, as failing to do so triggers its own tax penalties, which were recently increased.  However, because these Forms do not trigger running of any statute of limitations on collection of the underlying Section 4980H excise tax, there is no “value add” in ongoing ACA reporting compliance.

[1]  The other criteria are that the document must purport to be a return, there must be an honest and reasonable attempt to satisfy the requirements of the tax law, and the taxpayer must execute the return under penalties of perjury.

The above information is provided for general informational purposes only and does not create an attorney-client relationship between the author and the reader.  Readers should not apply the information to any specific factual situation other than on the advice of an attorney engaged specifically for that or a related purpose.  © 2020 Christine P. Roberts, all rights reserved.

Photo credit:  Annie Spratt (Unsplash)

 

 

 

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Filed under Affordable Care Act, Applicable Large Employer Reporting, Covered California, Employer Shared Responsibility, Federally Facilitated Exchange, Health Care Reform, Health Insurance Marketplace

Texas Court ACA Ruling: 5 Takeaways

If you are in the benefits business you have already heard about a December 14, 2018 ruling by a federal trial court judge in Texas, that the entirety of the Affordable Care Act is unconstitutional.  The following 5 takeaway points put the ruling into context and provide some indications of where things could head from here.

1.  For now, the ACA remains in effect.

The ruling did not stop the government, via “injunction,” from continuing to enforce the ACA as it currently stands. Instead it reached a legal conclusion (holding) that (a) the individual mandate (which imposed a tax on individuals who failed to secure coverage) was integral to the whole ACA (“the ACA keystone”), that (b) the individual mandate was constitutional because it fell within Congress’s power to levy taxes (as determined by the Supreme Court in NFIB v. Sebelius), and that (c) the reduction of the tax imposed under the individual mandate to $0 (via the 2017 Tax Cut and Jobs Act) rendered the individual mandate, and hence the entire ACA, unconstitutional.  The Departments of Health and Human Services (“HHS”) and the IRS were defendants in the Texas court case, supporting the ACA, and following the ruling the Trump Administration issued a statement that HHS “will continue administering and enforcing all aspects of the ACA as it had before the court issued its decision.” As one consequence, applicable large employers (ALEs) must continue to comply with employer shared responsibility rules (both offers of coverage, and ACA reporting due in early 2019).

2.  The ruling is not the last word on the ACA’s fate.

As mentioned the ruling is at the trial court level in the federal court system.  It almost certainly will be appealed to the Fifth Circuit Court of Appeals and then possibly to the Supreme Court. Legal scholar Nicholas Bagley has opined that the Fifth Circuit Court may have little patience for the court’s holding.  The appeals process could take months, in any event.

3.  The ruling creates uncertainty re: the ACA’s fate.

The ACA has survived two Supreme Court challenges, plus two years of full control of Congress and the White House by its most severe opponents. It had seemed to reach safe ground in recent months; indeed, some ACA concepts such as no pre-existing condition exclusions and coverage of dependents to age 26 had broad appeal in the mid-term elections, including among some Republicans. With the Texas court’s ruling, the ACA’s fate is back in watch and wait mode.  Resolution of the uncertainty will have to await completion of the legal processes described in Point No. 2.  Generally speaking, uncertainty is not good for employers, insurers, or the general economy, so eyes will be on how these sectors react in the wake of the ruling.

4.  The political landscape has changed since the last time the ACA’s constitutionality was in question.

As mentioned, some ACA provisions now appear to be “baked in” to the public’s concept of government entitlements.  Unlike in prior years, elected officials are now loathe to align themselves with the law’s total repeal. (Even the HHS notice regarding continued enforcement of the ACA expressly mentioned the ban on pre-existing condition exclusions.) So reaction to the ruling from known ACA foes has been measured, if made at all.  Prior legal setbacks for the ACA have become political footballs, but  public debate over the issues hopefully will have a more civil tone, this time around.

5.  As the ACA’s fate hangs in the balance, more radical health care reform proposals are just around the corner.

Some of the newly empowered Democratic winners of the mid-term elections are entering Washington, D.C. with ideas for health care reform that go far beyond what the ACA accomplished, including single payer systems.  Single payer systems, including, for instance, a major expansion of the Medicaid program, would disrupt the nexus between healthcare and employment that exists for many Americans.  These concepts first got broad national attention in the last presidential campaign and you can expect buzz around them to increase as the next presidential election in 2020 approaches.

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Filed under Affordable Care Act, Employer Shared Responsibility, Post-Election ACA, PPACA, Pre-Existing Condition Exclusion, Single Payer Health Systems, Tax Cuts and Jobs Act

It’s (Summer) Time for Wellness Plan Re-Design

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Now that summer is here, there are only a few more months until benefit plan open enrollment for 2019 gets underway. Employers who maintain a wellness program that includes biometric testing, health risk assessments (HRAs), or medical questionnaires need to think now about how they will design their plan in the new year, as changes to the rules governing these wellness features go into effect.  This post outlines the changes and discusses the new design landscape for 2019.

What are the Changes?

During 2017 and 2018, final regulations under the Americans with Disabilities Act (ADA) limit the financial incentive employers may offer in exchange for participating in biometric testing, HRAs or medical questionnaires, to an amount equal to 30% of the cost of individual coverage (both the employee and employer portions.) The same limit applies to surcharges or penalties for not taking part.  Companion regulations under Title II of the Genetic Information Nondiscrimination Act (GINA) apply the same cap to completion of an HRA or medical questionnaire by an employee’s spouse, because manifestation of a disease or disorder in a family member comprises genetic information on the employee.  The ADA regulations also disallow the 20% additional incentive tied to tobacco use, if the wellness program includes a blood test for nicotine or cotinine.  The ADA and Title II of GINA apply to employers with 15 or more employees.   We discussed the ADA and GINA rules in a prior post.

The American Association of Retired Persons (AARP) challenged the 30% incentive limit in court on the grounds that the Equal Employment Opportunity Commission (EEOC) failed to prove that this cap was necessary in order for participation in the biometric testing or health risk assessment (HRA) to be “voluntary” and not coercive, which is an ADA requirement.

A federal court agreed with the AARP, and vacated the 30% incentive cap effective January 1, 2019.  (Other provisions of the ADA regulations, including notification and confidentiality rules, remain in effect.)  The court also lifted a requirement that the EEOC publish new proposed regulations on the voluntary standard by August 31, 2018.   The EEOC may issue regulations in the future (and could appeal the court decision), but wellness program design for 2019 must get underway in the absence of clear guidance on the voluntariness standard.

2019 Design Landscape

The chart below illustrates the wellness rule landscape effective January 1, 2019 for employers that are subject to the ADA. Wellness regulations under HIPAA and the ACA will continue to apply, but they do not impose any limit on incentives (or penalties) for biometric testing or HRAs that are “participation only” i.e., that do not require physical activity, or specific health outcomes.

Despite the vacated EEOC standard, employers should exercise caution in setting financial incentives for biometric testing, HRAs or medical questionnaires.  Even prior to issuing regulations, the EEOC had challenged wellness programs in several court actions, ranging from a program that conditioned biometric testing and completion of an HRA on a $20 per paycheck surcharge, to one that conditioned 100% of the premium cost on taking part in an HRA. Although the cases generally were resolved in favor of the employer, they make clear that EEOC may view even modest incentives as failing the voluntary standard.

Employers should also make sure that their wellness program follows up after gathering health data through biometric testing, HRAs or medical questionnaires, with information, advice, or programs targeted at health risks.  A wellness program that fails to do so would not qualify as an employee health program under the ADA and the voluntary wellness program exceptions would not be available.

So what are some options for 2019? There are several design “safe harbors” that do not trigger the ADA voluntariness standard:

1) Eliminating biometric testing/HRAs/medical questionnaires altogether.

2) Keeping biometric testing/HRAs/medical questionnaires, but removing any financial incentive or penalty that applied to them.

3) Offering smoking cessation programs that request self-disclosure as a tobacco user (no blood test for nicotine, cotinine).

Limiting financial incentives/penalties for biometric testing/HRAs/medical questionnaires to an amount that does not exceed 10 – 15% of the individual premium is another option. This range is just high enough to encourage participation, but it is under 20%.  In AARP v. EEOC, the court’s August 2017 ruling on summary judgment cited a RAND study noting that “high powered” incentives of 20% or more may place a disproportionate burden on lower-paid employees.

What about different incentive levels for different groups of employees? First, this may be administratively impractical, and second, it might run afoul of the HIPAA/ACA requirement that the full wellness incentive or reward be made available to all “similarly situated” individuals.  Groupings of employees for this purpose must be based on bona fide, employment-based classifications that are consistent with the employer’s usual business practice, such as between full-time and part-time employees, hourly and salaried, different lengths of employment, or different geographic locations.   For many employers, these criteria may not always neatly overlap with different compensation levels.

In sum, employers who do not wish to eliminate biometric testing and HRAs/medical questionnaires from their wellness programs should anticipate living with some uncertainty about whether their financial incentives meet ADA standards.   Engaging in careful planning in the coming weeks, together with benefit advisors and legal counsel, can help keep the risk to a minimum.

 

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Filed under Affordable Care Act, Americans with Disabilities Act, Benefit Plan Design, GINA/Genetic Privacy, HIPAA and HITECH, PPACA, Uncategorized, Wellness Programs

California’s Dynamex Decision: What it Means for ERISA Plans

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The California Supreme Court ruled on April 30, 2018 that, for purposes of coverage under California wage orders, employers must start with the presumption that a worker is a common law employee, and then may properly classify him or her as an independent contractor only if all of the following three criteria are met:

  1. The worker is free from the control and direction of the hiring business in connection with the performance of the work;
  2. The worker performs work that is outside the usual course of the hiring entity’s business; and
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Although the Dynamex ruling is limited to classification of workers under the California wage orders, it’s practical effect is likely to be much broader, as employers are unlikely to use one definition of employee for wage and hour purposes, and another definition for, say, reimbursement of business expenses, or benefit plan eligibility.

Speaking of which, what is the likely impact of the Dynamex ruling on employee benefit plans? Will employers have to offer coverage retroactively to the hire date of the now-reclassified independent contractors? Must they offer coverage going forward?

ERISA plans look to the federal definition of common law employee, which in turn looks to federal case law and an IRS multi-factor test.   So the Dynamex decision does not itself create eligibility under an ERISA plan.   What if individuals who were reclassified as employees under the ABC test were to claim retroactive eligibility under an ERISA plan, however?  As a starting point, it is helpful to look at how most plan documents currently define “eligible employee” and how they treat the issue of workers who were engaged as independent contractors, but later are classified as common law employees.

Most prototype 401(k) plan documents – and some health plan documents in use by “self-insured” employers – contain what is commonly referred to as “Microsoft language” — under which plan eligibility will not extend retroactively to individuals who are hired as independent contractors, even if they later are classified as employees. The language came into common use after the Ninth Circuit ruling in Vizcaino v. Microsoft Corp., 120 F.3d 1006 (9th Cir. 1997), cert. denied.522 U.S. 1098 (1998), which held that long-term, “temporary” workers, hired as independent contractors, were employees for purposes of Microsoft’s 401(k) and stock purchase plan.[1]

For example, a prototype 401(k)/profit sharing plan that is in wide use provides as follows:

“Eligible Employee” means any Employee of the Employer who is in the class of Employees eligible to participate in the Plan. The Employer must specify in Subsection 1.04(d) of the Adoption Agreement any Employee or class of Employees not eligible to participate in the Plan. Regardless of the provisions of Subsection 1.04(d) of the Adoption Agreement, the following Employees are automatically excluded from eligibility to participate in the Plan:

(1) any individual who is a signatory to a contract, letter of agreement, or other document that acknowledges his status as an independent contractor not entitled to benefits under the Plan or any individual (other than a Self-Employed Individual) who is not otherwise classified by the Employer as a common law employee, even if such independent contractor or other individual is later determined to be a common law employee; and  (2) any Employee who is a resident of Puerto Rico.

And a self-insured group health plan document from a well-known provider states as follows:

The term “Employee” shall not include any individual for the period of time such individual was classified by the Employer as an independent contractor, leased employee (whether or not a “Leased Employee” under the Code section § 414(n)) or any other classification other than Employee. In the event an individual who is excluded from Employee status under the preceding sentence is reclassified as an Employee of the Employer pursuant to a final determination by the Internal Revenue Service, another governmental entity with authority to make such a reclassification, or a court of competent jurisdiction, such individual shall not retroactively be an Employee under this Plan. Such reclassified Employee may become a Covered Person in this Plan at such later time as the individual satisfies the conditions of participation set forth in this Plan. (Emphasis added.)

The Microsoft language, if present, may resolve the issue of retroactive coverage. What about coverage going forward? If a worker has provided services as an independent contractor but cannot retain that status under the ABC test, and is hired as a common-law, W-2 employee, does the first hour of service counted under the plan begin the day they become a W-2 employee, or the date they signed on as an independent contractor? The Microsoft provisions quoted above would suggest that service would start only when the common-law relationship starts, however employers are cautioned to read their specific plan documents carefully and to consult qualified employment and benefits law counsel for clarification. If the desire is to credit past service worked as an independent contractor, it may be advisable to seek IRS guidance before doing so, as fiduciary duties require that plan sponsors act in strict accordance with the written terms of their plan documents.

Finally, what about insured group health and welfare documents, such as fully insured medical, dental, vision, disability or life insurance? The policies and benefit summaries that govern these benefits probably won’t contain Microsoft language and may define eligible status as simply as “you are a regular full-time employee, as defined by your [Employer].”

Employers that are “applicable large employers” under the Affordable Care Act must count individuals who have been re-classified as common-law employees under the ABC test toward the group of employees to whom they offer minimum essential coverage; this group must comprise all but 5% (or, if greater, all but 5) of its full-time employees.  Unfortunately, there is potential ACA liability for failing the 95% offer on a retroactive basis. Public comments on the final employer shared responsibility regulations requested relief from retroactive coverage when independent contractors were reclassified as common-law employees, but the Treasury Department specifically failed to grant such relief, noting in the preamble to the final regulations that doing so could encourage worker misclassification.  Whether the customary 3-year tax statute of limitations would apply in such situations is not entirely clear; also unclear is whether employers could successfully argue that workers that fail the ABC test still somehow could classify as non-employees for federal common-law purposes.

Bottom line? Every California employer paying workers other than as W-2 employees should be re-examining those relationships under the ABC test and should be consulting qualified employment law counsel, and benefits law counsel, about the consequences of any misclassification, both on a retroactive basis (particularly with regard to the ACA), and going forward (all benefit plans).

[1] Another Ninth Circuit case, Burrey v. Pacific Gas & Elec. Co., 159 F.3d 388 (9th Cir. 1998), essentially followed the Microsoft ruling, but with specific regard to “leased employees” as defined under Internal Revenue Code § 414(n). A discussion of leased employees is beyond the scope of this post.

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Filed under 401(k) Plans, Affordable Care Act, Benefit Plan Design, Employer Shared Responsibility, Gig Economy, Independent Contractor, PPACA, Worker Misclassification

Top 10 Questions re: Management Carve Outs in Group Health Plans

            Employers value flexibility in designing their group health benefits so as best to attract and retain qualified personnel. One issue that remains perpetually murky, in this regard, is the legality of management carve-outs, whereby an employer offers certain group health insurance options or classes of coverage only to management or other highly paid groups.   The following true or false discusses some of the rules that come into play.

  1. The ACA contains a rule that restricts employers’ ability to offer different insured group health benefits to highly compensated employees, than to other employees.

             TRUE:  Under Section 2716 of the Public Health Service Act, which was incorporated into the Affordable Care Act (ACA), non-grandfathered, insured group health plans generally must satisfy nondiscrimination rules similar to those that apply to self-insured group health plans under Section 105(h) of the Internal Revenue Code (“Code”). These rules generally require some measure of parity between higher-paid employees, and non-highly paid employees.  Limited scope dental or vision plans provided under policies separate from group medical coverage are excepted.

  1. However, the IRS is not currently enforcing the ACA nondiscrimination rules for insured group health plans.

             TRUE:  In 2011 the IRS postponed enforcement of these rules, pending publication of regulations that will guide employers as to how to comply. As we approach the ACA’s eighth anniversary in March 2018, regulations have yet to issue.  When regulations do issue they will apply on a prospective (going forward) basis.

  1. Therefore employers have free reign to offer different benefits to management employees or other highly-compensated groups of employees.

             FALSE:   Although there are some circumstances in which employers may offer different and/or better group health insurance to management or other highly-paid employee groupings, the Section 125 cafeteria plan rules do impose some design restrictions.  These rules will apply to employers that have any type of Section 125 cafeteria plan arrangement, including premium-only plans (e.g., employees’ share of premiums are paid on a pre-tax basis, with no other cafeteria plan features) and to employers with other cafeteria plan features such as a health flexible spending account or dependent care flexible spending account.  The rules are explained in the questions that follow.

  1. All management employees are “highly-compensated employees” for cafeteria plan testing purposes.

             FALSE: First, the technical term is “highly-compensated individuals,” and it includes the following groups, which will not necessarily overlap 100% with an employer’s management group population:

  • Officers during the prior plan year
  • Greater than 5% shareholders (in either the preceding or current plan year)
  • Highly compensated employees (those earning more than $120,000 in 2017 are highly compensated employees in 2018)
  • Spouses or dependents of any of the above.
  1. If I maintain just a premium-only plan and all employees can participate and elect the same salary reductions for the same benefits, the premium only plan is nondiscriminatory.

             TRUE.  Proposed cafeteria plan regulations that issued in 2007 provide this safe harbor rule. Employers may rely on the proposed rules.

  1. If I maintain just a premium-only plan and don’t meet the requirements of the safe harbor, the POP is automatically discriminatory.

            FALSE.  Under these circumstances your premium-only plan will not satisfy the safe harbor mentioned above, but it could still pass other applicable nondiscrimination tests.  There is some uncertainty, under the 2007 proposed regulations, as to whether the only applicable test applies to eligibility, or whether there is a benefits component of the test.  It may be best to consult a seasoned third party administrator, or benefits attorney, if you have questions.

  1. If my cafeteria plan fails all types of nondiscrimination testing, all is lost.

             FALSE. The 2007 proposed regulations permit “disaggregation” – breaking up one plan into separate component plans – one benefitting participants who have completed up to three years of employment, and another benefitting those with three or more years of employment.  Each component plan must separately pass cafeteria nondiscrimination rules applicable to eligibility, and contributions and benefits.  Plans that fail nondiscrimination testing as a whole may pass testing after permissive disaggregation.  The proposed regulations did not discuss whether plans may be disaggregated based on factors other than length of employment, and further guidance on this point would be welcome.

  1. The IRS does not audit cafeteria plans so it doesn’t matter anyway.

FALSE. Although audits specific to a cafeteria plan are seldom seen, the IRS could expand a payroll audit or other business or benefit plan audit to encompass operation of a cafeteria plan, even a premium-only plan.  Therefore it is important to comply with the cafeteria plan nondiscrimination rules.

  1. Our company pays 100% of health premiums for highly compensated individuals directly to the carrier (or the employees pay themselves on an after-tax basis), so there is no cafeteria plan nondiscrimination issue.

             TRUE.  However, any insured group health plan design that provides better treatment for higher paid employees may fall afoul of the ACA nondiscrimination regulations mentioned in questions 1 and 2, when they issue; although the regulations will apply prospectively, neither employers nor their highly compensation staff should assume that preferential health plan designs are more than temporary.

  1. A “Simple” Cafeteria Plan is exempt from Section 125 nondiscrimination rules.

             TRUE.  A nondiscrimination safe harbor applies to “simple” cafeteria plans under Code Section 125(j), however those plans are subject to other design restrictions that may prove unworkable for many employers, including mandated employer matching or non-elective contributions. They are also limited to employers with 100 or fewer employees on business days during either of the two preceding years.

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Filed under Affordable Care Act, Benefit Plan Design, Cafeteria Plans, Health Care Reform, Nondiscrimination Rules for Insured Health Plans, PPACA, Premium Only Plans

IRS Gifts Large Employers an ACA Reporting Extension

Under the ACA, Applicable Large Employers (ALEs) must comply with annual reporting and disclosure duties under Section 6056 of the Internal Revenue Code (“Code”). These include filing, with the IRS, a Form 1094-C transmittal form, together with copies of Form 1095-C individual statements that must also be furnished to full-time employees (and to part-time employees who enroll in self-insured group health plans).

In a holiday-time gift to ALEs, the IRS just extended the deadline to furnish Form 1095-Cs to employees by 30 days, from January 31, 2018, to March 2, 2018. ALEs must still file Form 1095-C employee statements with the IRS by the normal deadline of February 28, 2018 (paper) or April 2, 2018 (e-file). However, due to the across-the-board extension to March 2, 2018, the IRS will not be granting any permissive 30-day extensions to furnish Form 1095-C to employees. And, while granting the extension, the IRS still encourages ALEs to furnish the 2017 employee statements as soon as they are able, and also to file or furnish late rather than not file or furnish at all, where applicable. ALEs may still obtain an automatic extension on the filing deadlines by filing Form 8809, and may obtain an additional, permissive 30-day filing extension upon a showing of good cause. In summary, the deadlines for 2017 ACA reporting are as follows:

File 2017 Form 1094-C with IRS:           February 28, 2018 (paper); April 2, 2018, (e-file)

File 2017 Form 1095-Cs w/IRS:               February 28, 2018 (paper); April 2, 2018 (e-file)

Furnish 2017 Form 1095-Cs to Employees:       March 2, 2018

Additionally, the IRS extended, for another year, the transition relief that has been in place since ACA reporting duties first arose in 2015. Under the transition relief, the IRS will not impose penalties on employers who file Forms 1094-C or 1095-C for 2017 that have missing or inaccurate information (such as SSNs and dates of birth), so long as the employer can show that it made a good faith effort to fulfill information reporting duties. There is no relief granted for ALEs who fail to meet the deadlines (as extended) for filing or furnishing the ACA forms, or who fail to report altogether.

This news is be welcome given that all U.S. employers will be grappling with new income tax withholding tables early in 2018 given the passage of the Tax Cuts and Jobs Act of 2017, which President Trump signed in to law on December 22, 2018. We’ll be providing more information on the Act’s impact on employment benefits after the Christmas holiday.

 

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Filed under Affordable Care Act, Applicable Large Employer Reporting, Health Care Reform, Minimum Essential Coverage Reporting, Payroll Issues, Post-Election ACA, PPACA, Tax Cuts and Jobs Act