On June 7, 2017, the U.S. Department of Labor (DOL) withdrew a 2015 administrative interpretation on classifying workers as employees or independent contractors. The withdrawal became effective immediately.
Employers are still required to properly classify workers as employee or independent contractors. By withdrawing the 2015 guidance, the DOL is returning to more reliance on existing judicial interpretations of the law’s requirements, rather than providing its own guidance on how employers should follow the law. Employers may want to evaluate whether their current classification procedures are affected by the withdrawal of this guidance.
Refer to the attached compliance bulletin for details about this change and contact your NEEBCo representative with any questions you may have.
DOL Withdraws Worker Classification Guidance
On June 5, 2017, the U.S. Supreme Court issued a decision holding that an employee benefit plan may be exempt from the Employee Retirement Income Security Act (ERISA) as a “church plan” even if a church did not establish it. The court held that the ERISA exemption for church plans applies to certain organizations that are affiliated with churches, regardless of how their benefit plans were established.
Employers with church affiliations should be aware of the specific criteria an employee benefit plan must meet to qualify for ERISA’s church-plan exemption.
ERISA generally defines a church plan as any employee benefit plan “established and maintained” by a church or group of churches. The definition also includes any plan maintained by “principal-purpose organization,” which is an organization that:
- Is controlled by or associates with a church or a convention or association of churches; and
- Has a principal purpose or function of funding or administering benefits to the employees of the church or convention or association of churches.
Refer to the attached compliance bulletin and see your NEEBCo representative with any questions you may have.
Supreme Court Rules Church-Affiliated Plans are Exempt from ERISA
For plan years beginning in 2018, the ACA’s affordability contribution percentages are reduced to:
- 9.56 % under the pay or play rules
- 9.56 % under the premium tax credit eligibility rules
- 8.05 % under an exemption from the individual mandate.
These updated affordability percentages are effective for taxable years and plan years beginning Jan. 1, 2018. This is the first time since these rules were implemented that the affordability contribution percentages have been reduced.
Refer to the attached compliance bulletin and contact your NEEBCo representative with any additional questions.
Affordability Percentages Will Decrease for 2018 5-17-17
As reported by Reuters, health insurer Aetna announced it will exit the 2018 individual market in the last two states it currently sells in – Nebraska and Delaware.
Aetna projected around $225 million in losses from its exchange plan businesses this year following a loss of $700 million for 2014 through 2016.
Refer to the below link for the full story, and contact your NEEBCo representative with any questions you may have.
The Affordable Care Act (ACA) requires health insurance issuers and sponsors of self-insured health plans (including qualified Health Reimbursement Arrangements/HRA) to pay Patient-Centered Outcomes Research Institute fees (PCORI fees). The PCORI fees generally apply to insurance policies providing accident and health coverage and self-insured group health plans. The fees are reported and paid annually using IRS Form 720 (Quarterly Federal Excise Tax Return).
The entity that is responsible for paying the PCORI fees depends on whether the plan is insured or self-insured.
- For insured health plans, the issuer (insurance carrier) of the health insurance policy is required to pay the research fees.
- For self-insured health plans (including HRAs) the research fees are to be paid by the plan sponsor (employer).
PCORI fees will be due by July 31, 2017, for plan years ending in 2016. IRS instructions for filing form 720 include information on reporting and paying the PCORI fees.
Using Part II, Number 133 of Form 720, issuers and plan sponsors will be required to report the average number of lives covered under the plan separately for specified health insurance policies and applicable self-insured health plans. That number is then multiplied by the applicable rate for that tax year, as follows:
- $2.17 for plan years ending on or after Oct. 1, 2015, and before Oct. 1, 2016
- $2.26 for plan years ending on or after Oct. 1, 2016, and before Oct. 1, 2017
- For plan years ending on or after Oct. 1, 2017, and before Oct. 1, 2019, the rate will increase for inflation.
If your HRA plan originated in 2016 but does not end until 2017, no fee is due until July 31, 2018.
Health insurance issuers have the following options for determining the average number of covered lives:
- The Actual Count Method—This method involves calculating the sum of lives covered for each day of the plan year and dividing that sum by the number of days in the plan year.
- The Snapshot Method—This method involves adding the total number of lives covered on a date in each quarter of the plan year, or an equal number of dates for each quarter, and dividing the total by the number of dates on which a count was made.
- The Form Method—As an alternative to determining the average number of lives covered under each individual policy for its respective plan year, this method involves determining the average number of lives covered under all policies in effect for a calendar year based on the data included in the National Association of Insurance Commissioners Supplemental Health Care Exhibit (Exhibit) that some issuers are required to file (called the member months method). For issuers that are not required to file an Exhibit, there is a similar available method that uses data from equivalent state insurance filings (called the state form method).
Sponsors of self-insured plans (including HRAs) may determine the average number of covered lives by using the actual count method or the snapshot method.
For additional information please refer to the attached compliance bulletin and contact your NEEBCo representative.
Reporting and Paying the PCORI Fees 5-4-17
On May 5, 2017, the Internal Revenue Service (IRS) released Revenue Procedure 2017-37 to announce the inflation-adjusted limits for health savings accounts (HSAs) and high deductible health plans (HDHPs) for 2018. These limits include:
- The maximum HSA contribution limit;
- The minimum deductible amount for HDHPs; and
- The maximum out-of-pocket expense limit for HDHPs.
These limits vary based on whether an individual has self-only or family coverage under an HDHP.
The IRS limits for HSA contributions and HDHP cost-sharing will all increase for 2018. The HSA contribution limits will increase effective Jan. 1, 2018, while the HDHP limits will increase effective for plan years beginning on or after Jan. 1, 2018.
The following chart shows the HSA/HDHP limits for 2018 as compared to 2017. It also includes the catch up contribution limit that applies to HSA eligible individuals who are age 55 or older, which is not adjusted for inflation and stays the same from year to year.
Contact your NEEBCo representative with any questions you may have.
IRS Announces HSA-HDHP Limits for 2018
On May 4, 2017, members of the U.S. House of Representatives voted 217-213 to pass the American Health Care Act (AHCA), after it had been amended several times. The AHCA is the proposed legislation to repeal and replace the Affordable Care Act (ACA).
The AHCA needed 216 votes to pass in the House. Ultimately, it passed on a party-line vote, with 217 Republicans and no Democrats voting in favor of the legislation. The AHCA will only need a simple majority vote in the Senate to pass.
If it passes both the House and the Senate, the AHCA would then go to President Donald Trump to be signed into law.
The AHCA will now move on to be considered by the Senate. It is likely that the Senate will make changes to the proposed legislation before taking a vote.
However, unless the AHCA is passed by the Senate and signed by President Trump, the ACA will remain intact.
Refer to the attached compliance bulletin for details, and contact your NEEBCo representative with any questions you may have.
House Republicans Pass Amended AHCA 5-4-17
On April 7, 2017, the Treasury Inspector General for Tax Administration (TIGTA) released the results of its audit to assess the Internal Revenue Service’s (IRS) preparations for ensuring compliance with the employer shared responsibility rules and related reporting requirements under the Affordable Care Act (ACA).
The TIGTA audit revealed a number of major system and operational problems that have hindered or delayed the IRS’ enforcement of these provisions. As a result, the IRS has been unable to identify the employers potentially subject to an employer shared responsibility penalty or to assess any penalties.
Although no penalties have been assessed under the employer shared responsibility rules at this time, the TIGTA report emphasized that the IRS’ systems could be up and running as early as May 2017.
To enforce these rules going forward, the IRS plans to mail a letter to Applicable Large Employers (ALE’s) informing them of their potential liability for a penalty. These letters will:
- Include the names of the employees who received a subsidy for the applicable tax year; and
- Provide ALEs with an opportunity to respond before any penalty liability is assessed or notice and demand for payment is made.
These letters are separate from the Section 1411 Certification sent by the Department of Health and Human Services (HHS) that employers began receiving in 2016. The Section 1411 Certifications are sent to all employers with employees who receive a subsidy to purchase coverage through an Exchange (including both ALEs and non-ALEs). Section 1411 Certifications do not trigger or assess any penalties for any employers.
Refer to the attached compliance bulletin for additional detail, and contact your NEEBCo representative with any questions you may have.
Pay or Play Enforcement Issues
Employer-sponsored wellness programs often incorporate rewards or incentives to encourage employees to participate. Because there are numerous legal requirements for wellness program design, employers sometimes overlook the federal tax implications of a program’s rewards.
Federal tax law does not include a specific exemption for wellness program incentives. While coverage by an employer-provided wellness program that provides medical care is generally excluded from an employee’s gross income, wellness incentives are subject to the same tax rules as any other employee rewards or prizes. Unless a specific tax exemption applies to the incentive, the amount of the incentive (or its fair market value) is included an employee’s gross income and it is subject to payroll taxes. The two main tax exemptions that apply to wellness incentives are the exclusions for medical care under Code Sections 105 and 106 and employee fringe benefits under Code Section 132.
Please see the attached compliance overview and contact your NEEBCo representative with any questions you have.
Taxability of Wellness Plan Rewards
There has been a recent resurgence of Section 125 “abusive tax arrangement” plans. Many times these programs are marketed to smaller employers, with several variations that all appear to be too good to be true – allow a larger portion of an employee’s income to be put through a Section 125 program as a pre-tax premium payment for a qualified employee benefit program (typically a self-insured program), then allow those same premium payments to be reimbursed to the employee as a tax-free “benefit”. Older programs simply reimbursed the employee their premium for the program (which the IRS responded to in Revenue Ruling 2002-3), while newer programs provide the funds back to the employee in the form of a “benefit” payment when they participate in (essentially) trivial required program actions.
The “reimbursement/benefit” paid to the employee usually corresponds with a specific portion of their wages (higher wage employees have a larger deduction, so they receive a larger “reimbursement/benefit”).
These programs are touted as providing a win-win to employers and employees to pocket tax savings, while employees see no reduction in their take-home pay.
An employee is certainly able to have a pre-tax salary reduction for a qualified health plan. The issue is the tax-free “reimbursement/benefit” – which is not permissible, as explained in the attached IRS memorandum. “Reimbursements/benefits” are considered taxable if they are received for events that do not result in medical expenses for the participant.
The general rule is, taxation applies to either the premium for the plan or the benefit received through the plan. For example, if an employee purchased a disability policy and paid the premiums pre-tax through a Section 125 plan, any disability benefit received by the employee would be taxed. Conversely, the employee could receive disability benefits tax free if the employee paid the premiums with after tax dollars and did not put them through the Section 125 plan. However, Section 105 provides an exception to this rule with tax-free reimbursements for allowable expenses incurred for medical care. The list of allowable medical care expenses is 213(d) – the same list of expenses an employee can receive reimbursement for through a Flex (FSA) plan. 213(d) does not apply to reimbursements/benefits received by the employee whether or not they incur an actual cost for care. Therefore, the reimbursements under these “abusive tax arrangements” are considered taxable.
Please contact your NEEBCo representative if you have been approached by or have any questions about these types of programs.
Chief Counsel Memorandum Tax Treatment Fixed Indemnity Health Plans