The Hill  (2/17, Pecquet) “Healthwatch” blog reports that HHS Secretary Kathleen Sebelius said, “We have heard from many in the provider community who have concerns about the administrative burdens they face in the years ahead.” Sebelius added, “We are committing to work with the provider community to reexamine the pace at which HHS and the nation implement these important improvements to our health care system.” The secretary “framed the delay as part of President Obama’s commitment to reducing regulatory burden.”

CQ  (2/17, Subscription Publication) reports, however, that “Sebelius didn’t say what the new compliance date would be, rather that HHS ‘will initiate a process to postpone the date by which certain health care entities have to comply with International Classification of Diseases, 10th Edition diagnosis and procedure codes (ICD-10).’”

Modern Healthcare  (2/17, Blesch, Subscription Publication) points out that earlier this week, “acting CMS Administrator Marilyn Tavenner said that the CMS ‘would re-examine the time frame’” for ICD-10 implementation.

The NPR  (2/17, Hensley) “Shots” blog reports that “the American Medical Association, among others,” had “argued the regulatory burden imposed on doctors by ICD-10 is heavy and is inconsistent with President Obama’s executive order telling federal agencies to look for ways to reduce bureaucratic headaches.”

Modern Healthcare  (2/17, Robeznieks, Subscription Publication) also covers the story.

This morning HHS, DOL and Treasury announced two important rules – final SBC regulations and additional information regarding the automatic enrollment and employer penalty requirements.

Summary of Benefits and Coverage (SBC)

As noted during a prior update, the agencies have delayed the application of the final SBC rules to the first plan year on or after September 23, 2012.  Effectively, this means that SBCs must be issued for the 2013 calendar year, as well as new hires and special enrollments beginning January 1, 2013.  Although additional clarification may be needed from the agencies, it appears that employers have until December 1, 2012 to issue SBCs effective for the 2013 calendar year.  Our team will be preparing an analysis of these rules for distribution next week.  The public announcement can be found at the following link:

http://www.hhs.gov/news/press/2012pres/02/20120209a.html

Auto Enrollment and Employer Penalty Requirements

Separately, the IRS issued Notice 2012-17.  The Notice provides information on questions from employers and other stakeholders regarding the provisions of the Affordable Care Act governing automatic enrollment, the employer penalty, and the 90-day limitation on waiting periods.  The Notice also outlines various approaches that the agencies are considering proposing in future regulations or other guidance. Our team will also be preparing and analysis of the Notice for distribution next week.  The Notice can be found at the following link:

http://www.irs.gov/pub/irs-drop/n-12-17.pdf
Mark L. Stember
Kilpatrick Townsend & Stockton LLP
Suite 900 | 607 14th Street, NW | Washington, DC  20005-2018
office 202 508 5802 | cell 202 714 5019 | fax 202 585 0018
mstember@kilpatricktownsend.com | My Profile | vCard

Frequently Asked Questions from Employers Regarding Automatic Enrollment, Employer Shared Responsibility, and Waiting Periods

February 9, 2012

Introduction

Many provisions of the Patient Protection and Affordable Care Act (Affordable Care Act) that become effective beginning in 2014 are designed to expand access to affordable health coverage. These include provisions for automatic enrollment of full-time employees in an employer’s health plan, shared responsibility of employers regarding health coverage, coverage to be offered through State-based Affordable Insurance Exchanges (Exchanges), premium tax credits to assist individuals in purchasing coverage through Exchanges, and other related provisions. The Departments of Labor, Health and Human Services, and the Treasury (the Departments) are working together to develop regulations and other administrative guidance that will respond to questions and assist stakeholders with implementation.

This Technical Release, which is being issued in substantially identical form by the other two Departments, provides information on questions from employers and other stakeholders regarding the provisions of the Affordable Care Act governing automatic enrollment, employer shared responsibility, and the 90-day limitation on waiting periods. Also outlined below are various approaches that the Departments are considering proposing in future regulations or other guidance. Comments and input are welcome on all intended proposals below.

Background

Automatic Enrollment

Section 18A of the Fair Labor Standards Act (FLSA), as added by section 1511 of the Affordable Care Act, directs an employer to which the FLSA applies, and that has more than 200 full-time employees, to automatically enroll new full-time employees in one of the employer’s health benefits plans (subject to any waiting period authorized by law), and to continue the enrollment of current employees in a health benefits plan offered through the employer. Section 18A further requires adequate notice and the opportunity for an employee to opt out of any coverage in which the employee was automatically enrolled.

On December 22, 2010, the Departments issued frequently asked questions (FAQ) on section 18A of the FLSA, which noted that the statute provides that employer compliance with the automatic enrollment provisions of section 18A shall be carried out “[i]n accordance with regulations promulgated by the Secretary [of Labor].”⁽¹⁾ That FAQ also stated that it is the view of the Department of Labor that, until such regulations are issued, employers are not required to comply with section 18A. Finally, the FAQ indicated that the Department of Labor intends to complete this rulemaking by 2014.

Employer Shared Responsibility

The employer shared responsibility provisions, contained in section 4980H of the Internal Revenue Code (Code), provide that an applicable large employer (for this purpose, an employer with 50 or more full-time equivalent employees) could be subject to an assessable payment if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction payment. Generally, this may occur where either:

1. The employer does not offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; or
2. The employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that either is unaffordable relative to an employee’s household income or does not provide minimum value.

For purposes of section 4980H, a “full-time employee” is an employee who is employed on average at least 30 hours per week.

The Treasury Department and the Internal Revenue Service (IRS) have requested and received comments on a number of issues and potential approaches to interpreting and applying the employer shared responsibility provisions. In particular, IRS Notice 2011-36 (2011-21 I.R.B. 792)⁽²⁾ described and requested comments on a possible approach that would use a “look-back/stability period safe harbor” method that employers might use in determining whether current employees (those who are not newly-hired or transferred) are full-time employees for purposes of the employer shared responsibility provisions. Comments were also requested on potential rules for determining full-time status of new employees and employees who move into full-time status mid-year.

In addition, Treasury and the IRS have described (in IRS Notice 2011-73 (2011-40 I.R.B. 474))⁽³⁾ a safe harbor allowing employers, for purposes of determining whether they owe an assessable payment under section 4980H(b), to use an employee’s Form W-2 wages (as reported in Box 1) instead of household income in determining whether coverage offered is affordable. Treasury and the IRS requested and received comments on the safe harbor.

90-Day Limitation on Waiting Periods

Public Health Service (PHS) Act section 2708, as added by the Affordable Care Act, provides that, in plan years beginning on or after January 1, 2014, a group health plan or group health insurance issuer shall not apply any waiting period that exceeds 90 days.⁽⁴⁾ PHS Act section 2704(b)(4), ERISA section 701(b)(4), and Code section 9801(b)(4) define a waiting period to be the period that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan. In previous regulations, the Departments defined a waiting period to mean the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.⁽⁵⁾ Unlike Code section 4980H, PHS Act section 2708 does not distinguish between full-time and part-time employees.

In addition to requesting comments on the employer shared responsibility provisions, IRS Notice 2011-36 requested comments on behalf of the Departments regarding the 90-day waiting period limitation under PHS Act section 2708, including how rules relating to the potential look-back/stability period safe harbor method for determining the number of full-time employees under Code section 4980H should be coordinated with the 90-day waiting period limitation.

Discussion

The following questions and answers respond to inquiries the Departments are receiving regarding automatic enrollment, employer shared responsibility, and the 90-day limitation on waiting periods. As discussed above, the questions and answers below provide information and identify various approaches that the Departments are considering proposing in future regulations or other guidance. Guidance that employers may rely upon with respect to the issues addressed below will be provided with sufficient lead time for employers to comply. Comments are requested on these approaches.

Q1. What is the current timeline for issuing guidance on automatic enrollment under FLSA section 18A?

A1. The Department of Labor has been working with stakeholders to ensure that it has the necessary information and data to develop regulations relating to automatic enrollment, and is sensitive to stakeholder concerns regarding the need for adequate time to comply with any regulations that are ultimately issued. In addition, the Department of Labor is aware of the need to coordinate the work it will be undertaking to develop guidance relating to automatic enrollment with the guidance being developed regarding other related Affordable Care Act provisions, including the employer shared responsibility provision and the 90-day limitation on waiting periods, described above.

In view of the need for coordinated guidance and a smooth implementation process, including an applicability date that gives employers sufficient time to comply, the Department of Labor has concluded that its automatic enrollment guidance will not be ready to take effect by 2014. It remains the Department of Labor’s view that, until final regulations under FLSA section 18A are issued and become applicable, employers are not required to comply with FLSA section 18A.

Q2. Do Treasury and the IRS intend to issue proposed regulations or other guidance permitting employers to use an employee’s W-2 wages as a safe harbor in determining the affordability of employer coverage, as outlined in IRS Notice 2011-73?

A2. Yes. As described in Notice 2011-73, Treasury and the IRS intend to issue proposed regulations or other guidance permitting employers to use an employee’s Form W-2 wages (as reported in Box 1) as a safe harbor in determining the affordability of employer coverage.

Q3. Do Treasury and the IRS intend to issue proposed regulations or other guidance addressing how the employer shared responsibility provisions under Code section 4980H and the 90-day waiting period limitation under PHS Act section 2708 are coordinated?

A3. Yes. Treasury and the IRS intend to issue proposed regulations or other guidance under Code section 4980H (which imposes shared responsibility on large employers with respect to coverage of full-time employees). That guidance is expected to address the intersection of the Code section 4980H rules and the PHS Act section 2708 rules applicable to the 90-day waiting period limitation and will be coordinated with upcoming tri-Department proposed rules under PHS Act section 2708 (discussed below). Treasury and the IRS are mindful of employers’ requests for safe harbors and simplicity and will seek to accommodate those requests to the extent feasible and consistent with the terms of the statute.

The upcoming guidance is expected to provide that, at least for the first three months following an employee’s date of hire, an employer that sponsors a group health plan will not, by reason of failing to offer coverage to the employee under its plan during that three-month period, be subject to the employer responsibility payment under Code section 4980H.

Q4. For purposes of determining whether an employee (other than a newly-hired employee) is a full-time employee for purposes of Code section 4980H, do Treasury and the IRS intend to issue proposed regulations or other guidance allowing employers to use a look-back/stability period safe harbor, based on the approach outlined in IRS Notice 2011-36?

A4. Yes. Having reviewed the comments in response to IRS Notice 2011-36, Treasury and the IRS intend to issue proposed regulations or other guidance that would allow employers to use a “look-back/stability period safe harbor” method based on the approach outlined in the Notice for purposes of determining whether an employee (other than a newly-hired employee) is a full-time employee. Accordingly, it is anticipated that the guidance will allow look-back and stability periods not exceeding 12 months.

For a description of anticipated guidance regarding newly-hired employees, see Q&A-5.

Q5. For purposes of determining whether a newly-hired employee is a full-time employee, do Treasury and the IRS intend to issue proposed regulations or other guidance under Code section 4980H?

A5. Yes. Treasury and the IRS also intend to issue proposed regulations or other guidance that will address how to determine whether a newly-hired employee is a full-time employee for purposes of Code section 4980H.

As stated in Q&A-3, the upcoming guidance is expected to provide that, at least for the first three months following an employee’s date of hire, an employer that sponsors a group health plan will not, by reason of failing to offer coverage to the employee under its plan during that three-month period, be subject to the employer responsibility payment under Code section 4980H. The guidance is also expected to provide that, in certain circumstances, employers have six months to determine whether a newly-hired employee is a full-time employee for purposes of section 4980H and will not be subject to a section 4980H payment during that six-month period with respect to that employee. Treasury and the IRS intend to propose an approach under which the period of time that an employer will have to determine whether a newly-hired employee is a full-time employee (within the meaning of section 4980H) will depend upon whether, based on the facts and circumstances, (a) the employee is reasonably expected as of the time of hire to work an average of 30 or more hours per week on an annual basis and (b) the employee’s first three months of employment are reasonably viewed, as of the end of that period, as representative of the average hours the employee is expected to work on an annual basis.

Specifically, it is intended that the upcoming proposed regulations or other guidance would provide, for purposes of section 4980H, that:

• If a newly-hired employee is reasonably expected to work full-time on an annual basis and does work full-time during the first three months of employment, the employee must be offered coverage under the employer’s group health plan as of the end of that period in order to avoid the possibility that the employer would be subject to a section 4980H payment after the end of that three-month period.
• If, based on the facts and circumstances as of the time of hire, it cannot reasonably be determined that a newly-hired employee is expected to work full-time, the following rules will apply for purposes of determining whether the newly-hired employee is considered a full-time employee in applying section 4980H with respect to the employer’s group health plan:
  • If the employee works full-time during the first three months of employment, and the employee’s hours during that period are reasonably viewed, as of the end of that period, as representative of the average hours the employee is expected to work on an annual basis, the employee will first be considered a full-time employee for purposes of section 4980H as of the end of that three-month period. (If the employee works part-time during the first three months of employment, then no section 4980H penalty applies during the first or second three month period.)
  • If the employee works full-time during the first three months of employment, but the employee’s hours during that period are reasonably viewed, as of the end of that period, as not representative of the average hours the employee is expected to work on an annual basis, the plan is permitted an additional three-month period to determine the employee’s status, and no section 4980H payment would be required with respect to that employee during the first or second three-month periods. (If the employee works part-time during the second three months of employment, then no section 4980H penalty applies during the first, second, or third three-month period.)

This policy describes the applicability of a potential section 4980H payment with respect to newly-hired employees. Forthcoming guidance is expected also to coordinate the rules for newly-hired employees with those applicable to other employees (including employees who are transferred from one employment classification or status to another).

The following examples illustrate the intended approach described above:

Example 1: Newly-hired employee expected to work full time

Facts: Employer D, an applicable large employer (i.e., an employer with at least 50 full-time equivalent employees), hires Employee X as a computer programmer on December 1. Employee X is expected to work full-time on an annual basis and does work full-time for the months of December, January, and February. Employer D offers health coverage to its full-time workers (and their dependents).

Conclusion: Employee X must be able to enroll in coverage beginning in March or the employer potentially would be subject to a section 4980H payment. However, failure to offer coverage to Employee X during the first three months (December-February) would not subject Employer D to a potential section 4980H payment.

Example 2: Newly-hired employee who seasonally works full-time

Facts: Same as Example 1 except that Employer D hires Employee Y as a salesperson who is expected to work full-time during the holiday season and part-time the rest of the year. Employee Y works an average of 35 hours per week in December, January, and February and 20 hours per week in March, April, and May.

Conclusion: If, based on the facts and circumstances at the end of the period, the three-month period of December through February is reasonably viewed as not representative of the average hours Employee Y is reasonably expected to work on an annual basis, Employer D may use a second three-month period (March-May) as a look-back period. Failure to offer coverage under Employer D’s group health plan to Employee Y during the first (December-February) and the second (March-May) three-month periods would not subject Employer D to a potential section 4980H payment. (Failure to offer coverage to Employee Y for June also would not subject Employer D to a potential section 4980H payment because Employee Y was determined to be part-time during the March-May look-back period.)

Q6. When PHS Act section 2708 (which imposes a 90-day limitation on waiting periods) becomes effective in 2014, will it require an employer to offer coverage to part-time employees or to any other particular category of employees?

A6. No. Many employers make distinctions in eligibility for coverage based on full-time or part-time status, as defined by the employer’s group health plan (which may differ from the standard under Code section 4980H). PHS Act section 2708 does not require the employer to offer coverage to any particular employee or class of employees, including part-time employees. PHS Act section 2708 merely prohibits requiring an otherwise eligible employee to wait more than 90 days before coverage is effective. Furthermore, nothing in the Affordable Care Act penalizes small employers for choosing not to offer coverage to any employee, or large employers for choosing to limit their offer of coverage to full-time employees, as defined in the employer shared responsibility provisions.

Q7. How do the Departments intend to address the application of the 90-day waiting period limitation in PHS Act section 2708 to an offer of coverage by an employer?

A7. Having reviewed the comments in response to IRS Notice 2011-36, the Departments intend to retain, for purposes of PHS Act section 2708, the definition in existing regulations that the 90-day waiting period begins when an employee is otherwise eligible for coverage under the terms of the group health plan. This is the definition of waiting period used for purposes of Title XXVII of the PHS Act, Part 7 of ERISA, and chapter 100 of the Code.⁽⁶⁾ Under this approach, if a plan were to provide that full-time employees are eligible for coverage without satisfying any other condition, and an employee were hired as a full-time employee, the waiting period (if the employer were to choose to impose one) for that employee would begin on the date of hire and could not exceed 90 days. Consistent with PHS Act section 2708, eligibility conditions that are based solely on the lapse of a time period would be permissible for no more than 90 days.

Other conditions for eligibility under the terms of a group health plan would generally be permissible under PHS Act section 2708, unless the condition is designed to avoid compliance with the 90-day waiting period limitation. For example, eligibility conditions such as full-time status, a bona fide job category, or receipt of a license would be permissible.

The upcoming guidance under section 2708 is also expected to address situations in which, under the terms of an employer’s plan, employees (or certain classes of employees) are eligible for coverage once they complete a specified cumulative number of hours of service within a specified period (such as 12 months). It is anticipated that, under the upcoming guidance, such eligibility conditions will not be treated as designed to avoid compliance with the 90-day waiting period limitation so long as the required cumulative hours of service do not exceed a number of hours to be specified in that guidance.

Comments are requested on how this possible approach would apply to plans that credit hours of service from multiple different employers and plans that use hours banks.

Example 3: Employee ineligible under terms of plan by reason of job classification

Facts: Same as Example 1 except that Employer D’s plan does not cover computer programmers.

Conclusion: Unlike Code section 4980H, in which the determination of full-time status is governed by a statutory standard (working an average of 30 hours per week), the waiting period limitation under PHS Act 2708 applies only to employees who are otherwise eligible under the terms of the plan. Because Employee X is excluded under the plan’s eligibility criteria, and the plan’s terms are not designed to avoid compliance with PHS Act section 2708, the plan’s eligibility provision does not violate PHS Act section 2708.

Example 4: Part-time employee, hours of service requirement

Facts: Employer E hires Employee Z to work 20 hours per week. Employer E’s plan requires part-time employees to complete 750 hours of service in order to participate. Solely for purposes of illustration in this example, it is assumed that upcoming guidance under PHS Act section 2708 permits plans to require part-time employees to complete up to, but no more than, 750 hours of service in order to participate.

Conclusion: Part-time employees who work 20 hours per week will complete 750 hours of service in 37½ weeks or just under 9 months. The waiting period under PHS Act section 2708 begins when Employee Z satisfies the cumulative service requirement, thereby becoming eligible (but for the waiting period) for coverage under the plan. Employer E must provide coverage to Employee Z no later than 90 days after Employee Z completes 750 hours of service, which is about one year after Employee Z is hired and begins working part-time. (No Code section 4980H payment applies because Employee Z is part-time.)

By Ric Joyner, CEBS, GBA, CFCI

The IRS clarifies verbal comments regarding those who receive Indian Health Services medical care. Similar to Veterans Administration Benefits, a person is not an eligible individual for purposes of participant in an HSA who uses VA and now IHS within the last 3 months. However, the IRS clarifies in notice 2012-14 that if an eligible individual uses IHS (and assuming VA) for dental, vision, well baby, and preventative care they ARE eligible to contribute and maintain their HSA and does not disqualify the person from an HSA.

Significant Excerpts:

This notice provides guidance on whether an individual eligible to receive medical services at an Indian Health Service facility is an “eligible individual” with respect to Health Savings Accounts (HSAs) under § 223 of the Internal Revenue Code (the Code).

Section 223(c)(1) provides that an eligible individual means, for any month, an individual who is covered by a high deductible health plan (HDHP) on the first day of such month and, generally, is not covered by any other health plan, with certain exceptions. In addition, an eligible individual cannot be claimed as a tax dependent on another person’s tax return and cannot be enrolled in Medicare. Section 223(b)(6) and (7). An eligible individual may establish and make tax-free contributions to an HSA.

Indian Health Service (IHS) is a Division within the U.S. Department of Health and Human Services. An “IHS facility” means a facility operated directly by IHS, or by a tribe or tribal organization under the Indian Self-Determination and Education Assistance Act.

HSA ELIGIBILITY RULES AND IHS FACILITIES:

An individual who is eligible to receive medical services at an IHS facility, but who has not actually received such services during the previous three months, is an eligible individual within the meaning of § 223(c)(1) who may establish and make tax-free contributions to an HSA. However, an individual generally is not an eligible individual if the individual has received medical services at an IHS facility at any time during the previous three months. Notice 2004-2, Q&A-6, provides that the receipt of permitted coverage, such as dental and vision care, or the receipt of preventive care, such as well-baby visits, immunizations, weight-loss and tobacco cessation programs, does not affect an individual’s eligibility.

Publication 969 will assist taxpayers for 2011 tax years.

Obama administration gives groups more time to comply with birth control rule

By N.C. Aizenman, Friday, January 20, 11:51 AM

The Obama administration will allow religious organizations an additional year to comply with a new rule requiring employers that offer their workers health insurance to include coverage of birth control without out-of-pocket costs, Secretary of Health and Human Services Kathleen Sebelius announced Friday.

But the rule itself and the types of employers covered by it remain unchanged. This is likely to disappoint religious groups such as the U.S. Conference of Catholic Bishops, which had lobbied vigorously for a permanent exemption for all employers that oppose birth control on religious grounds.

Women’s advocates and some Democratic lawmakers greeted the decision with relief, because they had feared the administration was planning to significantly broaden the categories of religious employers exempt from the requirement.

The rule, which was originally proposed by the administration last August and will take effect this Aug. 1, does exempt employers such as churches whose primary purpose is to inculcate religious beliefs and that mainly employ and serve individuals who share those beliefs. However, the bishops had argued that this definition was too narrow — excluding a wide swath of church-affiliated universities, hospitals and schools.

The one-year delay option announced Friday will not be available to religious institutions that already offer some degree of contraception coverage — including many Catholic universities and hospitals in states that have their own birth control requirements.

To qualify for the delay, an institution must certify to federal authorities that it is a nonprofit and that, for religious reasons, it does not presently offer contraception to its workers. The employer must also notify employees that contraceptive coverage is available through other sources such as community health centers, public clinics and hospitals, with support provided to low-income patients who might otherwise have difficulty paying for it.

Obama officials said the arrangement was intended to address complaints by religious groups that they would face logistical difficulties complying with the new rule within a matter of months.

“This proposal strikes the appropriate balance between respecting religious freedom and increasing access to important preventive services,” Sebelius said in a statement.

It is unclear how many women will be affected by the delay. National estimates of the number of workers employed by church-affiliated institutions are rough, ranging from 1 million to 2 million. It is also not known how many of these individuals and their dependents get health insurance through such employers, and if so, whether those plans already include birth control coverage.

By Ric Joyner, CEBS, GBA, CFCI

Hi Ric, thanks for the information.  You are such a value to us for doing this.  When the ACA first talked about requiring this information I read an opinion from an accounting firm when an employee leaves their employer – he is entitled to request his W-2 at that time.  Would you know if this is still the rule?  If it is, then this W-2 reporting has to be ready to go during this year (for anyone leaving).

Hi Ric,

The answers are:

(1)  Section 6051(a) of the internal revenue code requires an employer to provide a W-2 within 30 days after receipt of a written request from a terminated employee.

(2)  Notice 2011-28 provides that employers are not required to report the cost of health coverage on any W-2 forms required to be furnished to employees prior to January 2013. 

I have attached Section 6051(a) and a link to Notice 2011-28.

Let me now if you have questions or need anything else on this.

http://www.irs.gov/pub/irs-drop/n-11-28.pdf

26 U.S.C. § 6051 : US Code – Section 6051: Receipts for employees

(a) Requirement
Every person required to deduct and withhold from an employee a
tax under section 3101 or 3402, or who would have been required to
deduct and withhold a tax under section 3402 (determined without
regard to subsection (n)) if the employee had claimed no more than
one withholding exemption, or every employer engaged in a trade or
business who pays remuneration for services performed by an
employee, including the cash value of such remuneration paid in any
medium other than cash, shall furnish to each such employee in
respect of the remuneration paid by such person to such employee
during the calendar year, on or before January 31 of the succeeding
year, or, if his employment is terminated before the close of such
calendar year, within 30 days after the date of receipt of a
written request from the employee if such 30-day period ends before
January 31, a written statement showing the following:
(1) the name of such person,
(2) the name of the employee (and his social security account
number if wages as defined in section 3121(a) have been paid),
(3) the total amount of wages as defined in section 3401(a),
(4) the total amount deducted and withheld as tax under section
3402,
(5) the total amount of wages as defined in section 3121(a),
(6) the total amount deducted and withheld as tax under section
3101,
(7) the total amount paid to the employee under section 3507
(relating to advance payment of earned income credit),
(8) the total amount of elective deferrals (within the meaning
of section 402(g)(3)) and compensation deferred under section
457, including the amount of designated Roth contributions (as
defined in section 402A),
(9) the total amount incurred for dependent care assistance
with respect to such employee under a dependent care assistance
program described in section 129(d),
(10) in the case of an employee who is a member of the Armed
Forces of the United States, such employee’s earned income as
determined for purposes of section 32 (relating to earned income
credit),
(11) the amount contributed to any Archer MSA (as defined in
section 220(d)) of such employee or such employee’s spouse,
(12) the amount contributed to any health savings account (as
defined in section 223(d)) of such employee or such employee’s
spouse, and
(13) the total amount of deferrals for the year under a
nonqualified deferred compensation plan (within the meaning of
section 409A(d)).
In the case of compensation paid for service as a member of a
uniformed service, the statement shall show, in lieu of the amount
required to be shown by paragraph (5), the total amount of wages as
defined in section 3121(a), computed in accordance with such
section and section 3121(i)(2). In the case of compensation paid
for service as a volunteer or volunteer leader within the meaning
of the Peace Corps Act, the statement shall show, in lieu of the
amount required to be shown by paragraph (5), the total amount of
wages as defined in section 3121(a), computed in accordance with
such section and section 3121(i)(3). In the case of tips received
by an employee in the course of his employment, the amounts
required to be shown by paragraphs (3) and (5) shall include only
such tips as are included in statements furnished to the employer
pursuant to section 6053(a). The amounts required to be shown by
paragraph (5) shall not include wages which are exempted pursuant
to sections 3101(c) and 3111(c) from the taxes imposed by sections
3101 and 3111. In the case of the amounts required to be shown by
paragraph (13), the Secretary may (by regulation) establish a
minimum amount of deferrals below which paragraph (13) does not
apply.

Todd

Todd W. Martin
Reinhart Boerner Van Deuren s.c.
22 East Mifflin Street, Suite 600 | Madison, WI 53703
Office: 608-229-2244 | Cell: 608-219-7196 | Fax: 608-229-2100
tmartin@reinhartlaw.com  | bio | vCard | reinhartlaw.com

Legal Alert PDF

From the KT Health and Welfare Team:EB Alert Updated Form W-2 Guidance (1-9-2012)

Last week, the Internal Revenue Service issued updated rules with respect to informational reporting to employees of their employer-sponsored group health plan coverage. The informational reporting requirement was added by the Affordable Care Act. Under this new requirement, employers must provide to each employee who is receiving coverage from an employer-sponsored group health plan information regarding the cost of such coverage. Employers are required to comply with the informational reporting requirement beginning with 2012 Forms W-2 (i.e., forms required for the 2012 calendar year that employers must furnish to employees in January 2013). The updated guidance provides a number of clarifications and exemptions for employers. Perhaps the greatest change made by the updated guidance is that the cost of coverage relating to EAPs, wellness programs and on-site medical clinics no longer are reportable, but only if the employer does not charge a COBRA premium for such coverage. Please see the attached Legal Alert for additional details.

Mark L. Stember
Kilpatrick Townsend & Stockton LLP
Suite 900 | 607 14th Street, NW | Washington, DC  20005-2018  
office 202 508 5802 | cell 202 714 5019 | fax 202 585 0018 
mstember@kilpatricktownsend.com | My Profile | VCard

For review here are the comparable rules from the HSA regulations.

¹Comparable contributions are contributions to all HSAs of an employer:

Which are the same amount or which are the same percentage of the annual deductible

May count only employees who are “eligible individuals” covered by the employer under the HDHP and who have the “same category of coverage” (i.e., self-only or family).No other classifications of employees are permitted

Part-time employees can be tested separately. “Part-time” means customarily employed fewer than 30 hours per week

Employers may contribute more on behalf of non-highly compensated employees.

Comparability rules do not apply to collectively bargained employees.

Straight and no non-sense. But let’s add a twist called section 125 plans. Section 125 is a cafeteria plan. Cafeteria plans have many names. For example: Flex plans, FSA plans, POP plans. You get the picture.

²But NO PRE-TAX salary reductions (contributions) can happen if a section 125 plan is not present for the employees. That statement is clear from the regs.

Two monumental results happen when adding a cafeteria plan. The first is the benefit of pre-taxing of employee contributions, and the second is the HSA comparable rules are eliminated.

³Employer matching contributions to the HSA through a cafeteria plan are not subject to the comparability rules

But cafeteria plan nondiscrimination rules apply

Contributions cannot be greater for higher paid employees than they are for lower paid employees contributions that favor lower paid employees are OK

The next logical question is what can we do with the section 125 nondiscrimination testing that we can’t do with the HSA comparable rules? As a side note, section 125 nondiscrimination rules include the health care (PPACA) 105 nondiscrimination testing and those you should be familiar even though they are on the back burner.

Section 125 non-discrimination testing are flexible in many ways, and I like to drive my colleagues in the TPA compliance field a bit crazy by saying; “you can do almost anything with plan design for employees as long as it doesn’t benefit the KEY (owners by stock or corporate status) or Highly Compensated Employees (HCE) (by salary or position of authority such as officer) according to the nondiscrimination testing factors.

(See benefitblog.com for 2012 salary thresholds which include section 125 and retirement plans)

I have personally designed plans that allowed for funding of employer and employee contributions to staff with longevity (seniority), based on salary, percentage of salary, longevity and salary, logical business classes, full time, and part time etc.

I have even developed a nondiscrimination program for a Hardees Store chain based in Wisconsin. (Go Pack!) The group was experiencing 25% turnover each quarter. Their thought was that if they could increase benefits for employees that may slow the turnover statistic because of the high cost of training. Losing experienced staff, especially managers, was cutting into customer service and profits. The result was that when an employee was there for less than 1 year they could put in $300 into the Health FSA. 2 years gave them $750 and 3 years and beyond the sky was the limit.

Within six months I received a call telling me that the plan was popular and that the company had dropped turnover to 17% quarterly.

Another example was a hotel management chain. They had 300 employees. 75 were management. 225 were the hotel janitors, managers, cooks, and maids. Their question was how can they give immediate entry executive staff and 3 month entry to the management staff which had low turnover, were paid more. The next goal was to limit the entry to one year of service for the lower paid employees that managed and were on site at the hotels? Hint: This group had a one year of service requirement for the lower paid classes for the 401k and a 3 month entry wait for the management staff. But executive staff could enter immediately for health, and they wanted that for section 125 FSAs.

Can we do this? Sure can. It took some work with our attorneys and massaging the nondiscrimination testing. We accomplished this by passing the numerical averaging in section 125 concentrations test. But you say, “what about the benefits, eligibility and contributions test of 105?” Those passed too. There was enough of a spread of employees to satisfy the tests. We also clearly laid out the logic for rationale in documentation to show that we are not targeting the HCEs and Key employees, but that there were good business reasons to class employees the way we did which was because of turnover.

This is how flexible section 125 is juxtaposed against the comparable rules of HSA. What are the rules of section 125 nondiscrimination testing? The people you buy your service from will have those for you.

Please note this is copyrighted by eflexgroup.com. You may use this in the future if you give credit where credit is due.

Reference:

1. All About HSAs_072808.pdf page 22

2. All About HSAs_072808.pdf page 20

3. All About HSAs_072808.pdf page 23

I need your assistance.   One of my clients (who uses a bank to handle the employee HSAs) just determined that several employees have contributed over the maximum for2011.  I have done some research and found that most banks will allow the individuals to complete an “Excess Contribution Form” and withdraw the money before the tax filing deadline.

However, what happens with this on the employer level?   How would the employer have to go back and adjust their tax filings to account for the payroll tax benefits they received from the excess contributions?

On a side bar, if she had been using you guys for the administration, would you have alerted her to the fact that someone was going to exceed the allowable thresholds based on their payroll schedule and contribution amounts?

Your assistance on this is greatly appreciated.

ANSWER:

What happens if I contribute more than my maximum allowable contribution? 
You may withdraw the excess amount and any earnings on the excess amount prior to April 15th of the following year. However, you must pay income tax on your excess contributions and income tax on any earnings of the excess contribution. There is no 20% penalty on excess contributions.

What happens if I don’t withdraw my excess contributions prior to April 15th of the following year? 
You must pay a 6% excise tax on the excess contribution and on any earnings of the excess contribution. If in the next year you decreased your maximum contribution by the amount of your excess contribution made the year before, you do not have to pay the 6% excise tax again. If, however, you leave the excess contribution in, and do not decrease your maximum contribution by the amount of your excess contribution made the year before, you will have to pay the 6% excise tax each year the excess contributions and earnings are in the HSA.

 

posted from Federal Employees Website

Continued QUESTION:

Are there any penalties or adjustments needed on the employer side who payroll deducted the excess contributions, since theoretically they saved the matching FICA on those dollars?

 

ANSWER:

No penalties. But if they (employer and employee) make the change before January 1 to the correct amount, the employer can put on the W2 correctly. If not, the employee will have to pay their own taxes and presumably the bank (you hope) will give them a 1099 of some sort to file and the employee will pay taxes on that excess amount including 6% addtional. Does that help?

Don’t forget eflex has a fantastic HSA product that never requires an employee to contact a bank. The employees can get 10 investments that Fidelity manages, and they can get checks, correct answers every time they call in and debit cards. For a quote contact isaiah.joyner@eflexgroup.com