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Kenneth A. (Ken) Mason

Partner

Spencer Fane attorney Kenneth A. (Ken) Mason square

T 913.327.5138
F 913.345.0736
kmason@spencerfane.com

IRS Again Grants ACA-Reporting Relief (Plus a Limited Bonus)

In Notice 2019-63, the IRS has granted health insurers and large employers 30 more days to issue the appropriate 2019 ACA-reporting forms to their insureds and full-time employees.  Rather than January 31, 2020, these Forms 1095-B and 1095-C will now be due by March 2, 2020.  The IRS has also extended the “good-faith” standard for compliance with these reporting rules.  Finally, in view of the zeroing out of the penalty for failing to comply with the ACA’s individual mandate, insurers and large employers will now have an additional compliance option.

2020 Inflation Adjustments

Following announcements by both the Internal Revenue Service and the Social Security Administration, we know most of the dollar amounts that employers will need in order to administer their benefit plans for 2020.  The key dollar amounts for retirement plans and individual retirement accounts (“IRAs”) are shown on the front side of our 2020 limits card.

The reverse side of the card shows a number of dollar amounts that employers will need to know in order to administer health flexible spending accounts (“FSAs”), health savings accounts (“HSAs”), and high-deductible health plans (“HDHPs”), as well as health plans that are not grandfathered under the Affordable Care Act.

A laminated version of our 2020 limits card is available upon request.  To obtain one or more copies, please contact any member of our Employee Benefits Group.  You also can contact the Spencer Fane Marketing Department at 816-474-8100 or marketing@spencerfane.com.

Federal Appellate Court Decision Highlights Importance of “Firestone” Language

In a recent decision, the Sixth U.S. Circuit Court of Appeals resolved an important question in a way that should put administrators of ERISA plans in a far stronger position vis-à-vis claimants who disagree with the administrators’ plan interpretations.  Essentially, the court in Clemons v. Norton Healthcare Retirement Plan held that the contract-interpretation doctrine of “contra proferentum” has no application once a court has determined that a plan document grants the administrator the type of broad discretion approved by the U.S. Supreme Court in its 1989 Firestone decision.

Congress Eases Restrictions on Hardship Withdrawals

Buried in Sections 41113 and 41114 of the recent Bipartisan Budget Act of 2018 are provisions designed to facilitate hardship withdrawals from 401(k) and 403(b) plans.  Because these provisions take effect for plan years beginning after December 31, 2018, sponsors of these plans will want to consider whether to broaden their hardship withdrawal provisions – or even add such provisions.

New Disability Claims and Appeals Procedures Finally Take Effect

When the Department of Labor (“DOL”) delayed by 90 days the date by which ERISA plans were required to comply with a set of disability claims and appeals regulations issued in the waning days of the Obama Administration, we predicted that a further delay – or even a complete withdrawal – of the regulations could be in the works.  As it turns out, we were wrong.  Instead, the DOL announced in early January that the regulations will become fully applicable on April 1st – and without change.

Tax Cuts and Jobs Act – New Tax Rules For Transportation Fringe Benefits

Although the recent Tax Cuts and Jobs Act largely retains the favorable tax treatment afforded employees who receive employer-provided transportation assistance, it denies employers any tax deduction for providing these tax-favored benefits. Moreover, tax-exempt employers will now be subject to unrelated business income tax on such benefits. Because the new rules took effect as of January 1, 2018, employers currently sponsoring such programs should promptly evaluate their options.

It’s a Three-Peat: ACA-Reporting Deadline Extended Once Again

The Affordable Care Act (“ACA”) imposed reporting requirements on health coverage providers (including self-funded employer plans) and “applicable large employers” (those with 50 or more full-time employees). For health coverage provided during both 2015 and 2016, the IRS extended the deadline for issuing certain of the required reporting forms. In Notice 2018-06, the IRS has now granted a similar extension with respect to reporting health coverage provided during calendar-year 2017.

IRS Issuing Employer Play-or-Pay Notices

Although the GOP tax reform bill reduces to zero the penalty for failing to comply with the Affordable Care Act’s individual coverage mandate, it does nothing to alleviate the employer ACA mandate.  Coincidentally, the IRS has just started issuing notices of potential penalty assessments under that employer mandate (commonly known as the “play-or-pay” provision).

These notices take the form of a “Letter 226J” (this notation appears in the footer of each page), and the Letter makes crystal clear the amount of the potential penalty assessment (which can be substantial).  This dollar amount appears in bold on the second line of the Letter’s text.

GOP Tax Bill Contains Benefits Surprises

Despite rumors to the contrary, the tax bill introduced into the House of Representatives by the Republican Party leadership would do nothing to restrict employees’ ability to make pre-tax deferrals to 401(k), 403(b), or 457(b) plans. Trial balloons had suggested that pre-tax deferrals might be limited to only half of the overall annual deferral limit (or even less), with any remaining deferrals made only on a “Roth” (after-tax) basis. But at least for now, “Rothification” appears to be dead.

What the House bill would do, however, is perhaps even more surprising. A slew of tax-favored fringe benefits would be eliminated. And nonqualified deferred compensation as we now know it would be entirely transformed. Incredibly enough, most of these changes would take effect as of January 1, 2018 – less than two months after the bill’s introduction.

Administration Proposes Delay of Disability Claims and Appeals Procedures

The Department of Labor has proposed a 90-day delay in the applicability of disability claims and appeals regulations that were finalized in the waning days of the Obama Administration. Rather than applying to claims filed on or after January 1, 2018, the regulations would now apply to claims filed on or after April 1, 2018. Moreover, it seems likely that a further delay – or even a complete withdrawal – of the regulations could be in the works.

IRS Clarifies Permissible Substantiation Procedures for Hardship Withdrawals

In recent years, sponsors and administrators of 401(k) and 403(b) plans have received conflicting advice on the steps they should take to substantiate an employee’s entitlement to an in-service withdrawal on account of financial hardship. For instance, an April 2015 IRS newsletter seemed to require that plan sponsors obtain and retain documentary proof of an employee’s entitlement to a hardship withdrawal. However, two recent internal IRS memos outline a permissible approach to this substantiation requirement that need not involve conditioning a hardship withdrawal on an employee’s provision of supporting documents. Plan sponsors should thus consider this new alternative.

IRS Extends Deadline for Providing Small-Employer HRA Notices

As explained in our December 19, 2016, article, the 21st Century Cures Act allows small employers (those that are not subject to the Affordable Care Act’s “play-or-pay” requirements because they have fewer than 50 full-time employees, including full-time equivalents) to offer their employees a premium reimbursement arrangement that would otherwise violate the ACA. By establishing a “qualified small employer health reimbursement arrangement” (or “QSEHRA”), such an employer may subsidize its employees’ purchase of individual health insurance coverage. In its recent Notice 2017-20, the IRS has granted these employers additional time to comply with the QSEHRA notification requirement.

IRS: No More Closing Agreements Under FICA “Special Timing Rule”

A recent IRS Chief Counsel Memorandum (AM 2017-01) raises the stakes for employers that fail to apply the proper FICA taxation rules to nonqualified deferred compensation. An option previously available to those employers has been taken off the table. Under this option – which required a formal “Closing Agreement” with the IRS – both employer and employee FICA taxes could be minimized by voluntarily paying those taxes for years as to which IRS assessments were otherwise barred under the Tax Code’s three-year statute of limitations. Without this correction option, employers have an even greater incentive to apply the proper FICA taxation rules to their deferred compensation arrangements.

Cures Act Allows for Small-Employer HRAs

Before leaving DC for the winter holidays, Congress and President Obama agreed on a provision granting small employers a bit of relief from the Affordable Care Act. Tucked at the very end of the 21st Century Cures Act is a provision allowing certain small employers to offer their employees a health reimbursement arrangement (“HRA”) that need not be “integrated” with a group health plan. Employees may then use their employer’s pre-tax contributions to such an HRA to pay premiums under individual health insurance policies.

ACA-Reporting Deadline Extended by 30 Days

The Affordable Care Act (“ACA”) imposed additional reporting requirements on health coverage providers (including self-funded employer plans) and “applicable large employers” (those with 50 or more full-time employees). In Notice 2016-70, the IRS has granted coverage providers and employers 30 more days to issue the appropriate ACA-reporting forms to their insureds and full-time employees for coverage provided during 2016. Rather than January 31, 2017, these Forms 1095-B and 1095-C will now be due by March 2, 2017. In addition, the IRS has extended by one year the period of “good-faith compliance” with these reporting rules. As of now, however, the IRS has not extended the deadline for coverage providers and employers to transmit these ACA-reporting forms to the IRS.

EEOC Releases Sample ADA Notice for Employee Wellness Programs

In our June 2, 2016, article summarizing final wellness program regulations issued by the EEOC under Title I of the Americans with Disabilities Act (“ADA”), we noted the EEOC’s promise to post on its website a sample notice by which employers could satisfy the ADA’s notification requirements. The EEOC has today posted such a sample notice, along with a series of FAQs shedding further light on the notification requirement. Although employers are not required to use this sample notice, they should make sure that their notice covers all the points addressed in the EEOC sample.

New EEOC Guidance on Employee Wellness Programs

Final regulations issued by the Equal Employment Opportunity Commission (“EEOC”) under both the Americans with Disabilities Act (“ADA”) and the Genetic Information Nondiscrimination Act (“GINA”) will require modifications to many employee wellness programs. These modifications may include the deletion of certain questions from health risk assessments, additional employee notification requirements, and a reduction in the incentives used to discourage tobacco usage. Although certain aspects of these regulations will not apply until the first day of the 2017 plan year, others are already in effect.

Another Court Rejects EEOC Position on ADA and Wellness Programs

Following the lead of Seff v. Broward County, another federal court has disagreed with the EEOC on the scope of an ADA exemption for employee benefit plans. In EEOC v. Flambeau, Inc., the court held that this benefit-plan “safe harbor” could be used to justify a wellness program that included both a health risk assessment and a biometric screening.

IRS Extends ACA-Reporting Deadlines

In a belated Christmas present, the IRS on December 28th extended the deadlines for large employers and health insurers to comply with certain reporting requirements imposed by the Affordable Care Act (“ACA”).  Notice 2016-4 grants an additional two months to provide statements to employees, and an additional three months to transmit those statements to the IRS.

IRS Issues Guidance for Integrated HRAs

In a recent Chief Counsel Advice (CCA 201547006), the IRS has provided guidance for employers wishing to offer health reimbursement arrangements (“HRAs”) that both (1) provide reimbursements on a tax-free basis, and (2) satisfy the “market reform” requirements of the Affordable Care Act (“ACA”). In particular, this CCA focuses on HRAs (and similar “employer payment plans”) that reimburse employees for medical premiums paid for coverage under a health plan maintained by a spouse’s employer.

Certain Mid-Sized Employers May Have Even MORE Time to Comply with the ACA’s Play-or-Pay Rules

Thanks to a special transition rule, employers with 50 to 99 full-time employees (including full-time equivalents) are generally shielded from the Affordable Care Act’s “play-or-pay” penalties until January 1, 2016. Moreover, in a wrinkle that is easily overlooked, any such “mid-sized” employer that already sponsors a health plan operating on a non-calendar-year basis has even more time to comply with these rules.

IRS Eases Correction Rules for Missed Elective Deferrals

The IRS has just given sponsors of 401(k) and 403(b) plans a number of additional options for correcting a failure to honor an employee’s election to defer a portion of his or her pay. These new options, as announced in Revenue Procedure 2015-28, will be particularly helpful to sponsors of plans that provide for automatic enrollment (including those with an automatic escalation feature).

Another Court Enforces DOL’s Electronic SPD Rules

At some point, as electronic communication becomes the norm – and as paper virtually disappears from the workplace – we will surely see a softening of the conditions imposed by the Department of Labor (“DOL”) on the electronic distribution of summary plan descriptions (“SPDs”). But a recent decision by a New York federal court confirms that we are not yet at that point.

Davidson v. Henkel: A Rather Taxing Decision

A recent decision by a Michigan federal trial court serves as a warning to employers that their failure to shield participants in nonqualified deferred compensation plans from adverse tax consequences may subject the employers to unanticipated liability. Although this decision (in Davidson v. Henkel Corporation) involved FICA taxation, the court’s reasoning would seem to apply equally to the 20% penalty tax and interest assessments triggered by a violation of Code Section 409A.

IRS Grants Limited Transition Relief to Small-Employer Premium Reimbursement Arrangements

In a series of notices and FAQs, the IRS has clearly enunciated its view that an employer’s reimbursement of an employee’s premiums for individual health insurance violates certain provisions of the Affordable Care Act (“ACA”). While reiterating this key point, Notice 2015-17 does grant a limited period of relief for smaller employers. Nonetheless, even those employers should be working toward a June 30 deadline to comply with these ACA constraints.

No Good Deed…: Allowing Part-Time Employees to Make Health FSA Contributions May Trigger ACA Penalties

When it comes to health coverage, many employers draw a distinction between full-time and part-time employees. To be eligible to enroll in the employer’s health plan, an employee must work a minimum number of hours per pay period. But many of those same employers then allow even part-time employees to contribute to a health flexible spending account (“health FSA”). After all, doing so costs the employer nothing (and even saves a modest amount in employment taxes), and why not at least give those employees an opportunity to pay some of their medical expenses on a pre-tax basis? Unfortunately, this paternalistic approach may now subject an employer to substantial daily penalties under the Affordable Care Act (“ACA”).

Agencies Plug Several Holes in the ACA Dike

In the years since the 2010 enactment of the Affordable Care Act (“ACA”), the agencies charged with enforcing the ACA have worried that certain responses to the law’s requirements could negatively affect the overall health insurance system. For instance, because the ACA requires insurers to issue individual health insurance coverage without regard to health status, sponsors of self-funded employer plans may be tempted to shift their high-risk employees into the individual market. But by leaving only healthier employees in the self-funded plans, this approach could result in “adverse selection” – leading to an erosion of the individual insurance market.

When Does 9.5% Equal 9.56%?

Although 9.5% has been a key threshold in determining the “affordability” of employer health coverage, the IRS has just announced (in Revenue Procedure 2014-37) that this threshold will be adjusted to 9.56% for 2015. This adjustment reflects the fact that health insurance premiums have risen more rapidly than incomes. Similar adjustments have also been announced for related percentage thresholds.