United States: January 2016 Employee Benefits Update

COMPLIANCE DEADLINES AND REMINDERS

Upcoming Retirement Plan Compliance Deadlines and Reminders

  1. Determination Letter Filing. The Cycle E Remedial Amendment Period for individually designed plans must be submitted for a favorable IRS determination letter by January 31, 2016. Cycle E plans include those sponsored by employers with tax identification numbers ending in 5 or 0, as well as government plans.Additionally, the Cycle A Remedial Amendment Period opens on February 1, 2016. Cycle A plans are those sponsored by employers with tax identification numbers ending in 1 or 6, as well as plans sponsored by a controlled group or affiliated service group. Following the completion of the Cycle A Remedial Amendment Period, the IRS will no longer accept determination letter applications under the current determination letter program. The IRS issued Notice 2016-03, summarized below, revising the determination letter program for Cycle A applications.

Upcoming Health Plan Compliance Deadlines and Reminders

  1. Forms 1095 B and 1095 C. Forms 1095-B and 1095-C must be distributed to participants and filed with the Internal Revenue Service ("IRS"). Plan sponsors of self-funded health plans and Applicable Large Employers ("ALEs") must provide Forms 1095 B and 1095 C to employees by March 31, 2016. IRS Notice 2016 4, issued on December 28, 2015, extended this deadline from February 1, 2016. Due to the extension, employers should not rely on the IRS to grant any additional extension of this deadline. IRS Notice 2016-4 did not explicitly extend the deadline for filing Forms 1095-B and 1095-C with the IRS. Plan sponsors and ALEs should continue preparing these reports to ensure they meet the applicable deadlines.
  2. Forms 1094 B and 1094 C. Plan sponsors and ALEs must also file the first reports required under the Affordable Care Act ("ACA") with the IRS no later than May 31, 2016 (or June 30, 2016 if filing electronically). IRS Notice 2016 4 extended this deadline from February 29, 2016 (or March 31, 2016 if filing electronically). Plan sponsors and ALEs should continue preparing these reports to ensure they meet the applicable deadlines.

RETIREMENT PLAN DEVELOPMENTS

The PBGC Finalizes Rule on Partitions of Eligible Multiemployer Plans

On December 23, 2015, the Pension Benefit Guaranty Corporation ("PBGC") finalized its rule regarding partitions of eligible multiemployer plans, which was released in June 2015. The finalized rule details the information a multiemployer plan must provide as part of its application for partition. Under the finalized rule, the PBGC may not authorize the partition of a multiemployer plan until the following requirements are satisfied:

  • the plan is in "critical and declining" status, as defined in ERISA section 305(b)(6);
  • the PBGC determines the plan sponsor has taken all reasonable measures to avoid insolvency;
  • the PBGC expects the partition will reduce the PBGC's long term loss with respect to the plan and the partition is necessary for the plan to remain solvent;
  • the PBGC certifies to Congress that its ability to meet existing financial assistance to other plans will not be impaired by the partition; and
  • the cost to the PBGC arising from the partition is paid exclusively from the PBGC fund for basic benefits guaranteed for multiemployer plans.

Upon approval of an application for partition, the PBGC will provide an order transferring to the successor plan the minimum amount of the original plan's liabilities necessary for the original plan to remain solvent. Additionally, if an employer withdraws from the original plan within ten years of the partition order, withdrawal liability will be computed for both the original and successor plans. The original plan must also pay premiums for participants whose benefits were transferred to the successor plan for ten years following the partition. The finalized rule will apply to all partition applications submitted on or after January 22, 2016.

Court Finds ESOP Fiduciary's Investment Decision Requires Only Prudent Process

In a recent case, Pfeil v. State Street Bank & Trust Co. (6th Cir. 2015), the Sixth Circuit Court of Appeals found a third party fiduciary did not breach its fiduciary duty despite continuing to invest in company stock prior to the company declaring bankruptcy. The General Motors ("GM") Employee Stock Ownership Plan ("ESOP") began incurring losses in early 2008. However, State Street Bank & Trust continued to invest in GM stock until November 2008 and did not completely divest the ESOP of GM stock until November 2009. The court found that, absent special circumstances, a fiduciary's reliance on market price for any publicly traded securities has a presumption of prudence. The dissenting opinion criticized the majority opinion as essentially immunizing publicly traded stock plans from imprudence claims.

The IRS Releases Revisions to the Determination Letter Program for Cycle A Plans

The IRS issued Notice 2016 03 providing the following modifications to the determination letter program for Cycle A plans:

  • controlled groups and affiliated service groups that maintain more than one plan may submit a determination letter application during the Cycle A submission period only if they made a Cycle A election prior to January 31, 2012;
  • expiration dates included in determination letters issued prior to January 4, 2016 are no longer operative; and
  • the deadline for an employer to adopt a defined contribution preapproved plan and to apply for a determination letter is extended from April 30, 2016 to April 30, 2017, if the plan was adopted on or after January 1, 2016. This will allow employers who currently maintain individually designed plans a longer period to move to a preapproved plan document.

The PBGC Releases Guidance Regarding Filing and Premium Requirements for 2016

On December 10, 2015, the PBGC released the premium filing instructions for 2016. The filing instructions remain unchanged, but the flat-rate premium rates increased to $64 per participant for single employer plans and $27 per participant for multiemployer plans. Additionally, the variable rate premium increased to $30 per $1,000 of unfunded benefits.

HEALTH AND WELFARE PLAN DEVELOPMENTS

Congress Delays Implementation of the Cadillac Tax

The effective date of the Cadillac Tax has been delayed until 2020. Additionally, when the tax takes effect, it will be tax deductible.

Court Finds Employers May Condition Enrollment in a Sponsored Health Plan on Participation in a Wellness Program

In a recent case, EEOC v. Flambeau, Inc. (W.D. Wis. 2015), the Western District of Wisconsin found that a plan requiring an employee to participate in a wellness program did not violate the Americans with Disabilities Act ("ADA"). In this case, Flambeau, Inc. had initially provided a $600 credit to all employees enrolled in its health plan who participated in its health risk assessment and biometric screening process. Flambeau later eliminated the credit, and instead, conditioned health plan enrollment on participation in the risk assessment and biometric screening. The EEOC claimed this requirement violated the ADA as it conditioned enrollment in the Plan on a completion of medical examinations. The District Court found that Flambeau's wellness program fell within the ADA's safe harbor for insurance benefit plans. In its decision, the court also recommended that plan sponsors and employers include any wellness program or biometric screening requirement in the Plan's Summary Plan Description, particularly when enrollment in such programs affects an individual's eligibility to participate in the plan.

IRS Issues Guidance Regarding Tax Treatment of Reimbursement of Group Health Coverage From a Spouse's Employer

The IRS released a Chief Counsel Advice ("CCA") memorandum regarding when an employer may use a Health Reimbursement Arrangement ("HRA") to reimburse employees for medical premiums paid under a health plan maintained by a spouse's employer. The CCA provides seven scenarios that establish the following rules:

  • An employee's HRA may be used to reimburse the employee on a tax free basis for premiums paid by the employee's spouse under a health plan maintained by the spouse's employer.
  • The tax free nature of the reimbursement applies only if the premiums are paid on an after tax basis.
  • The above rules apply to other forms of "employer payment plans" even if they are not a qualified HRA.

HHS Releases Proposed Notice of Benefit and Payment Parameters for 2017

On December 2, 2015, the Department of Health and Human Services ("HHS") issued proposed rules regarding payment parameters and various topics related to the provision of welfare benefits. Notable provisions include:

  • Premium Adjustment Percentage. The premium adjustment percentage for 2017 is proposed to be 13.2%. As a result, for 2017:

    • The maximum in-network, out-of-pocket limit for a nongrandfathered plan would increase to $7,150 per person and $14,300 per family. The increased out-of-pocket limits do not apply until the first day of the plan year beginning on or after January 1, 2017.
    • The annual employer shared responsibility penalties would increase to $2,260 for a 4980H(a) penalty and $3,390 for a 4980H(b) penalty.
  • Plan Year. HHS interprets "plan year" to be a period that does not exceed 12 months. A plan year in excess of 12 months is inconsistent with the ACA.
  • Notice of Premium Tax Credit Eligibility. Under the current regulations, an Exchange must provide an employer notice if an employee is determined eligible for advanced payment of premium tax credits. Under the proposed regulations, an Exchange would be required to notify an employer only when an employee actually enrolls in subsidized coverage. This change more accurately reflects the shared responsibility penalty as the penalty is not triggered unless a full-time employee receives a premium tax credit and enrolls in a qualified health plan. Under the proposed rule, if an employer receives a notice, the employer is considered to have knowledge that the shared responsibility penalty has been triggered.
  • Risk Stabilization Programs. HHS would be authorized to audit TPAs, ASOs and other third parties that assisted contributing entities with calculating or submitting reinsurance contributions from 2014–2016. The contributing entity would remain liable for payment but the proposed regulations would require cooperation from the third party service provider.
  • SHOP. Employers using the federally facilitated Small Business Health Options Programs ("SHOP") could offer employees a "vertical" choice among all plans available from a single insurer across all coverage levels.

IRS Issues Guidance Regarding the Effect of Certain Health Care Reform Provisions on Employer Sponsored Health Plans

On December 16, 2015, the IRS issued Notice 2015 87 to provide guidance on how certain health care reform provisions affect employer-sponsored health plans. Some highlights in IRS Notice 2015 87 include:

  • Health Reimbursement Arrangements.

    • An HRA that covers two or more participants who are current employees and that permits participants to use the HRA to purchase individual market coverage at any time is deemed not integrated with another group health plan. As a result, the HRA will fail to satisfy the ACA rules prohibiting annual dollar limits and mandatory coverage of preventive care services without in-network cost sharing. An HRA that covers fewer than two current employees may continue to reimburse individual insurance premiums.
    • An HRA is permitted to reimburse medical expenses of a participant's spouse or dependents only if those individuals are enrolled in both the HRA and the employer's integrated group health plan. The IRS will not begin enforcing this limitation until 2017.
    • An HRA may reimburse premiums for individual market coverage providing only excepted benefits (e.g., vision or dental coverage).
  • Definition of "Hour of Service" for Employer Shared Responsibility Full-Time Employee Determination.

    • Short-term or long term disability results in credited hours of service for periods in which the recipient retains employee status and receives disability benefits funded by the employer. Disability paid for by the employee with an after-tax
      arrangement would not constitute benefits funded by the employer and, therefore, would not constitute hours of service.
    • An hour of service does not include hours after termination of employment or hours paid solely to comply with worker's compensation, unemployment or disability insurance laws.
    • The 501-hour limit on hours of service required to be credited due to a continuous period during which the employee performs no service if the hours would otherwise qualify as hours of service (e.g., due to a leave of absence) provided in the "hour of service" definition does not apply to the full-time employee determination.
  • Affordability. IRS Notice 2015 87 provides detailed rules to determine whether and how employer contributions to an HRA and employer flex credits impact the affordability of coverage offered to employees. Additionally, IRS Notice 2015 87 clarifies that employer contributions cannot reduce an employee's required contributions if they can be received as taxable benefits or used to purchase nonhealth benefits. Finally, IRS Notice 2015 87 provides that unconditional opt out payments should be treated as increasing an employee's required contribution for employer sponsored coverage. The IRS anticipates issuing proposed regulations reflecting this rule, and this rule would apply only to unconditional opt out arrangements adopted after December 16, 2015.
  • Adjustments to the 9.5% Affordability Standard. In 2015, the IRS began indexing the percentage of household income that employees may be required to pay for employer sponsored plans. This guidance clarifies that the indexing applies to all provisions under Code sections 4980H and 6056. As a result, the affordability standards are:

    • 56% for 2015; and
    • 66% for 2016.
  • Penalty Relief. Penalties for incorrect or incomplete Forms 1094/1095-B and C furnished to employees relating to 2015 coverage will not be imposed on an ALE that can demonstrate a good faith effort to comply with the reporting requirements.
  • Health FSA Carryovers. IRS Notice 2015 87 confirms that any Flexible Spending Account ("FSA") carryover amount is included in the maximum FSA benefit available under COBRA. IRS Notice 2015 87 also clarifies that employers may limit FSA carryovers to employees who participant in the FSA in a subsequent year and may limit FSA carryovers to a maximum period.

IRS Issues Final Rules Regarding Affordability and Minimum Value of Employer-Sponsored Plans

The IRS released final regulations on December 18, 2015 regarding an individual's eligibility for premium tax credits. Under the final regulation, an ALE may be liable for a shared responsibility penalty if coverage is not affordable or does not provided minimum value and a full-time employee receives the tax credit. Employer sponsored coverage is considered affordable if it does not exceed 9.5% (as indexed) of the employee's household income for the taxable year and the minimum value requirement is met if the employer sponsored plan covers at least 60% of the total allowed cost of benefits expected to be incurred.

The final regulation also provide the following:

  • Wellness Program Incentives. Wellness incentives are taken into account for affordability and minimum value only if they are related to tobacco use.
  • Employer Contributions to HRAs. Amounts newly made available for a current plan year in an integrated HRA are taken into account in determining a plan's affordability if they are used only for paying premiums. Amounts used only for cost-sharing but not for paying premiums are taken into account in determining the minimum value percentage.
  • Employer Contributions to Cafeteria Plans. In determining affordability, an employee's required contribution is reduced by employer contributions under a cafeteria plan that:

    • may not be taken as a taxable benefit;
    • may be used to pay for minimum essential coverage; and
    • may be used only to pay for medical care within the meaning of Code section 213.
  • Post Employment Coverage. An individual eligible for COBRA coverage is considered eligible for minimum essential coverage only for months the individual is enrolled in COBRA. This applies only to former employees and retirees, and does not apply to current employees with reduced hours.

GENERAL DEVELOPMENTS

Form 5500 for 2015 Plan Year Released

The Department of Labor has released the 2015 Form 5500 and the IRS has released a draft of the 2015 Form 5500 EZ. The IRS added a series of compliance questions to the Form 5500 series. These questions are optional for 2015 plan filings but will be required for 2016 reporting and beyond. The changes include:

  • Schedule H (Financial Information): Part IV includes two IRS specific questions about Unrelated Business Taxable Income ("UBTI") and in service distributions.
  • Schedule R (Retirement Plan Information): Part VII contains ten new IRS compliance questions covering: (1) 401(k) plan ADP and ACP requirements, (2) coverage requirements and plan aggregation, (3) recent plan amendments and type of plan; and (4) plans maintained in U.S. territories.
  • Form 5500 SF (Short Form Annual Return/Report of Small Employee Benefit Plan): The above changes are incorporated into the form. There is also an additional question regarding whether required minimum distributions were made to 5% owners who were age 70 1/2 or older.

The IRS issued guidance on December 4, 2015 regarding how plan sponsors should analyze and answer the new compliance questions. The guidance also strongly encourages plan administrators to answer the questions despite being optional for 2015 filings.

Congress Repeals Form 5500 Filing Extension

Legislation enacted in July 2015 provided for a maximum extension for filing of Form 5500 of 3 1/2 months. However, Congress recently passed Public Law No. 114 94 repealing the extension increase. As a result, the Form 5500 filing extension will remain at 2 1/2 months. This new legislation did not alter any other provisions of the July law changing the filing due dates for other tax forms.

IRS Issues Guidance Regarding Implications of Obergefell Decision

On December 9, 2015, the IRS issued guidance regarding the impact of the Supreme Court's decision in Obergefell v. Hodges, requiring state civil marriage laws to apply to same sex couples, on employee benefit plans. Notable clarifications include:

  • Qualified Retirement Plans.

    • The IRS does not require any amendments to comply with Obergefell as changes under Windsor were required to be adopted by December 31, 2014.
    • If a plan sponsor wishes to provide new rights or benefits for participants with same sex spouses, the plan sponsor must adopt such amendments by the last day of the plan year in which the amendment was operationally effective.
  • Health and Welfare Plans.

    • The IRS does not require health and welfare plans to provide specific rights or benefits to a participant's spouse regardless of gender.
    • If a plan's terms provide for coverage of a participant's spouse, the plan administrator may need to alter the plan's operation as of the date of change in state law. Any alterations to plan operations must be reflected in formal plan amendments.
    • If the terms or operations of a cafeteria plan's benefits change midyear due to the change in coverage of same sex spouses, affected participants may make an election change due to a "significant improvement" in coverage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.