Tag Archives: Affordable Care Act

Penalty for Failure to File Form 5500 Almost Doubles

Contributed by Kelly Haab-Tallitsch, July 29, 2016

On July 1, 2016, the DOL issued an interim final rule that significantly increases the penalty amounts that may be imposed on plan sponsors for certain ERISA violations. The final rule ups the penalties for certain failures including failure to file an annual Form 5500 and failure to provide the Summary of Benefits and Coverage, as required by the Affordable Care Act.

calendarThese increases are the result of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 whereby federal agencies were directed to adjust their civil monetary penalties for inflation each year. The increased penalty amounts will become effective Aug. 1, 2016, and may apply for any violations occurring after Nov. 2, 2015.

The new penalty amounts will affect both retirement and health and welfare plans, and some increases are substantial. Examples of increased maximum penalty amounts are below:

  • Failure to file a Form 5500: $2,063 per day (from $1,100 per day)
  • Failure of a multiple employer welfare arrangement to file a Form M-1: $1,502 per day (from $1,100 per day)
  • Failure to furnish plan-related information requested by the DOL: $147 per day, up to $1,472 per request (from $110 per day, up to $1,100 per request)
  • Willful failure by a health plan sponsor to provide a Summary of Benefits and Coverage: $1,087 per failure (from $1,000 per failure)
  • Failure of a defined contribution plan to provide participants with blackout notices or notice of the right to divest employer securities: $131 per day (from $100 per day)
  • Payment by a pension plan in violation of benefit restrictions and limitations: $15,909 per distribution (from $10,000 per distribution)
  • Failure of a pension plan to:
    • notify participants of certain benefit restrictions and/or benefit limitations
    • furnish certain multiemployer plan financial and actuarial reports upon request
    • furnish an estimate of withdrawal liability
    • furnish automatic contribution arrangement notices: $1,632 per day (from $1,000 per day)

Beginning in 2017, ERISA penalties will be adjusted on an annual basis no later than Jan. 15 of each year.

The increased penalty amounts are a reminder that it’s important for employers to understand the requirements imposed on them by ERISA and make sure they are in compliance with those requirements to avoid potential penalties at the newly increased rates.

ACA Information Reporting Deadlines Extended by the IRS

Contributed by Kelly Haab-Tallitsch

Late yesterday afternoon, the Internal Revenue Service (IRS) announced it was extending the due dates for certain 2015 Affordable Care Act (ACA) information reporting requirements. The welcome delay gives employers almost two additional months to furnish statements to employees and close to three additional months to file required returns with the IRS.

Specifically, Notice 2016-4 extends:

  • the due date for providing individual Forms 1095-C and 1095-B to clock and calendaremployees from February 1, 2016, to March 31, 2016
  • the due date for filing Forms 1094-B, 1094-C and 1095-C with the IRS from February 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016 if filing electronically

Previous posts covering the ACA information reporting requirements for employers can be found here and here.

How does the extension impact employees?

The IRS is also providing relief to employees who receive their Form 1095-C or Form 1095-B after they have filed their individual tax returns.  Individuals are required to furnish information from their Form 1095-C or Form 1095-B with their individual tax returns to determine eligibility for the ACA premium tax credit and demonstrate compliance with the individual mandate to maintain qualified health coverage.  According to the Notice, individuals who rely upon other information received from employers or health coverage providers about their coverage, or offers of coverage when filing their 2015 income tax returns, will NOT be required to amend their return once they receive their Forms 1095-C or 1095-B.  As such, employers should not be concerned that providing the Forms 1095-C on the extended timeline will require employees to file amended 2015 income tax returns.

What if an employer fails to meet the new deadlines?

In light of the extended due dates, the IRS states that requests for additional extensions of time to furnish individual statements and or file information returns will not be granted.  Employers that fail to meet the extended due states are still encouraged to comply and the IRS states that it will take such filing and furnishing of statements into account when determining whether to abate penalties for reasonable cause. Additionally, the IRS will take into account whether an employer made reasonable efforts to prepare for reporting for 2015 and the extent to which the employer is taking steps to ensure that it is able to comply with the reporting requirements for 2016.

 

New Guidance: A Reminder the Cadillac Tax is Still Looming

Contributed by Kelly Haab-Tallitsch

The Internal Revenue Service (IRS) recently released its second set of guidance discussing approaches to the excise tax on employer-sponsored health coverage, often referred to as the “Cadillac tax.” Starting in 2018, the Cadillac tax imposes a 40% tax on the cost of employer-sponsored health coverage in excess of $10,200 for self-only coverage and $27,500 for family coverage. Intended to target overly-generous employer-provided health plans, the Cadillac tax continues to be one of the most controversial parts of the Affordable Care Act (ACA) as dollar thresholds set in 2010 look increasingly too low for 2018 plan costs.

The Cadillac tax is extremely complex and we don’t expect final regulations any time soon. The guidance issued so far Health insurnce photodescribes “potential approaches” that may be incorporated into future regulations. Although this preliminary guidance cannot be relied on, it gives some insight into the direction the agency is going.

Notice 2015-52, released July 30, 2015, addresses employer aggregation and the payment of the tax, among other issues. The guidance suggests that related employers will be treated as a single employer for tax calculation and payment purposes. Annually, employers will calculate the cost of the coverage for each month of the calendar year to see if the ‘Cadillac’ threshold was exceeded. The employer will then inform the IRS and the coverage provider (insurance company for a fully insured plan) of their share of the tax. For multiemployer plans, the plan sponsor will make the calculations and provide notice to the IRS.

Notice 2015-16, released February 23, 2015, addressed the definition of applicable coverage, the determination of the cost of coverage and application of the annual statutory limits. Most notably, applicable coverage would include both fully insured and self-insured employer-sponsored health plans, regardless of whether the employer or employee pays for the coverage or whether it is paid for with pretax or post-tax dollars. This would include major medical coverage, employer and employee contributions to health flexible spending accounts (FSAs) and health savings accounts (HSAs), health reimbursement arrangements (HRAs), onsite medical clinics, retiree coverage and executive physical programs.

What is the bottom line? Although opponents of the Cadillac tax continue to fight to have the provision amended or repealed, employers should proceed with the expectation that the Cadillac tax will be implemented in 2018 as planned. Employers should review the coverage offered to employees and begin to take steps to reduce exposure to the tax. Further, employers should consider providing input into the regulatory process—directly or through trade groups—by providing comment on the preliminary guidance.

Penalties Doubled for Affordable Care Act Reporting Noncompliance

Contributed by Kelly Haab-Tallitsch

The Trade Preferences Extension Act of 2015 (“Trade Bill”), signed into law by President Obama on June 29, significantly increases potential penalties for employers and insurers that fail to comply with the Affordable Care Act (ACA) reporting requirements, beginning in early 2016.

As a reminder:

  • IRS Code 6056 requires employers with 50 or more full-time equivalent employees to file reports with the IRS annually stating whether the employer offered health coverage to full-time employees and their dependents during the preceding calendar year.
  • IRS Code 6055 requires all employers with self-insured plans, and insurers, to file reports with the IRS indicating whether an individual had health coverage during the preceding year. These reports must also be furnished to employees.
  • The reporting requirements help the IRS enforce the ACA individual and employer mandates, and are effective for the 2015 calendar year, with reports first due in early 2016.

The penalty for failure to file a required information return with the IRS was increased by the Trade Bill from $100 per return to $250 per return. The annual cap on penalties doubled from $1,500,000 to $3,000,000. In the event a failure to file is due to intentional disregard, the new $250 penalty is doubled and no annual cap applies. Records Room

In addition to filing reports with the IRS, the ACA requires employers to provide certain forms to employees, similar to the existing WS-2 reporting requirements. It is important for employers to be aware that the penalties apply separately to both requirements. For example, a failure to file a Form 1095-C with the IRS and a failure to furnish the same Form 1095-C to the employee will result in two penalties of $250 each, or $500 per affected employee.

These increased penalties also apply to other IRS information returns and filings, such as W-2s, and are effective in 2016. Reduced penalties apply when the failure to file is corrected within a certain period of time and the cap is reduced to $500,000 for employers (or insurers) with $5,000,000 or less in gross annual receipts.

Despite the hike in penalties, the IRS’s enforcement policy for the first year of ACA reporting remains unchanged. The IRS has stated it will not penalize employers that can show they made good faith efforts to comply with the ACA reporting requirements for 2015.

Employers can reduce the risk of noncompliance by taking the following steps:

  • Ensure you are capturing and tracking the data needed to complete the required forms now, to allow for reporting in early 2016
  • Understand what forms are required and their applicable due dates (statements to employees are due as early as January 31)
  • Review the 2014 IRS forms and instructions available at www.irs.gov

IRS Begins Implementation of the ACA “Cadillac Tax” for High-Cost Health Plans

Contributed by Kelly Haab-Tallitsch

The IRS and Treasury Department recently issued Notice 2015-16 discussing initial approaches to implementing the 40% excise tax imposed on high-cost health plans under the Affordable Care Act (ACA).  This notice is the first step in the process leading to final regulations.

Beginning in 2018, the excise tax, also called the “Cadillac Tax,” will impose a 40% tax on the cost of employer-sponsored health plans that exceeds certain thresholds. The tax may affect few plans initially, but is expected to affect many more over time as the cost of health care grows faster than inflation.

Notice 2015 -16 addresses three key areas, including:

  • The definition of “applicable coverage”;
  • The determination of the cost of applicable coverage; and
  • The application of the annual statutory limits.

Benefits considered “applicable coverage” will be subject to the excise tax. The notice addresses several areas that were previously unclear.  Most notably, the agencies anticipate that pretax salary reduction contributions made by employees to health savings accounts (HSAs) will be subject to the tax. The ACA statute provides that employer contributions to an HSA are subject to the excise tax, but did not address employee pretax contributions.  Retiree coverage, multiemployer plan coverage, executive physicals and health reimbursement arrangements are also expected to be included as applicable coverage.

Notice 2015-16 anticipates excluding from applicable coverage onsite medical clinics that offer only de minimis care to employees, provided the care consists primarily of first aid during work hours for treatment of an illness or injury that occurs during work hours. Still undetermined is the treatment of onsite clinics that provide additional services such as immunizations, allergy injections, nonprescription pain relievers, and treatment of work injuries beyond first aid.

Self-insured dental and vision plans (consistent with the exclusion of fully insured dental and vision plans in the statute), employee after tax contributions to HSAs, accident or disability insurance, workers’ compensation, long-term care insurance and possibly employee assistance programs are also expected to be excluded.

What This Means for Employers

The cost of applicable coverage that exceeds the thresholds (currently $10,200 for self-only and $27,500 for family coverage) will be subject to a 40% non-deductible excise tax imposed on the employer. To avoid the tax, employers must continue to analyze health plan costs and explore strategies now to manage future costs.

The anticipated treatment of employee pretax contributions to HSAs will likely have a significant impact on HSA programs. As described, many employer plans that provide for HSA contributions will be subject to the tax as early as 2018, unless an employer limits the amount an employee can contribute on a pretax basis.

Another Supreme Court Challenge to Health Care Reform? Why It May Matter to an Employer…

By Rebecca Dobbs Bush

I know, I know.  You may have seen the headlines indicating that the Supreme Court is going to be reviewing another case challenging the Affordable Care Act and not even bothered to read the articles this time.  After all, who hasn’t become a little tired of hearing about challenges and changes to the Affordable Care Act with constant updates occurring over the now almost five years since the act was signed into law by President Obama? Or perhaps it isn’t that you are tired of hearing about the ACA; you were just distracted when Kim Kardashian broke the internet.  In any event, the Supreme Court has recently decided to hear King v. Burwell, and their somewhat surprising decision to do so could affect employer ACA compliance strategies in as many as 36 states.

What is the case about?  Well, at the surface it appears to be a case that wouldn’t interest employers at all.  Specifically, King v. Burwell is about the ability of the federal government to provide tax subsidies for health insurance coverage purchased through federally-facilitated health insurance marketplaces.  The crux of the issue is that the ACA states that subsidies are to be provided to qualifying taxpayers and their dependents when they purchase coverage “through an Exchange established by the State.”  The question is whether Congress intended for a federally-facilitated marketplace to be included in the phrase “an Exchange established by the State.”

Why does this matter to employers in as many as 36 states?  Currently, there are 27 states that declined the opportunity to establish their own marketplace and elected to only make the federally-facilitated marketplace available to their residents.  In addition to those 27 states, other states currently partake in what is referred to as a “partnership” with the federally-facilitated marketplace.  Those states have also not technically established their own Exchange.  King v. Burwell could implicate employers in as many as 36 states as the shared responsibility penalties under the ACA are only triggered when a qualified individual purchases coverage and receives a subsidy.  If none of the individuals in a state are able to access the subsidies, employers would not have the potential risk for penalty exposure from employees residing in those states.

While no employer should use the Supreme Court’s pending review as a reason to procrastinate their ACA compliance planning, King v. Burwell will be a Supreme Court opinion that all employers should be watching and waiting for.

Hobby Lobby May Have Caught our Attention, but Halbig and King are the ACA Cases to Watch

Contributed by Kelly Haab-Tallitsch

In contrast to the Supreme Court’s ruling in the recent Hobby Lobby case, which directly affected only a handful of employers, two cases with the potential to derail the Affordable Care Act (“ACA”) were decided last Tuesday – with conflicting results. Less than two hours after a panel of the D.C. Circuit Court of Appeals ruled in Halbig v. Burwell that the insurance subsidies that help millions of Americans pay for health insurance are illegal in 36 states, the 4th Circuit Court of Appeals issued a contradictory ruling in King v. Burwell, affirming the exact opposite.

The contradictory rulings stem from different interpretations of the language establishing tax credits and subsidies for low- and middle-income individuals. The ACA states that tax credits would be available for insurance purchased through an “exchange established by the state.”  But currently, only 14 states run their own exchanges. In 36 states, including Illinois, Indiana, Wisconsin and Missouri, the exchange is run by the federal government. Plaintiffs in Halbig and King argued that an “exchange established by the state” does not include the federal exchange – an interpretation that makes the subsidies in those 36 states illegal.

ACA supporters argue that such a narrow interpretation is at odds with the law’s goal of providing all Americans with health insurance they can afford. Almost 5 million Americans bought subsidized policies through the federal exchange this year, often reducing their costs by hundreds of dollars a month. The Internal Revenue Service (IRS) is charged with administering ACA tax credits and has interpreted the law to mean that tax credits are available for insurance purchased through any government-run exchange, state or federal.

The Effect on ACA Employer Penalties

Aside from denying tax credits to millions of Americans, why are the Halbig and King cases such a big deal?  If individual tax credits disappear in 36 states, so do the employer penalties. The penalties imposed on large employers for failing to offer health coverage are the backbone of the legislation and the only enforcement mechanism available to encourage employers to comply. But an employer that doesn’t offer the mandated coverage is only subject to a penalty if one or more of its employees receive a tax credit to purchase individual coverage on the exchange.  If none of its employees receive a tax credit, an employer cannot be subject to a penalty.  This result would effectively nullify the ACA in over two-thirds of the country.

What Does This Mean for Employers?

The Halbig and King appellate court rulings have no immediate impact on individuals or employers. Both sides are likely to request review or appeal of last week’s decisions and the Obama administration will almost certainly request a stay of the D.C. court’s decision in the meantime.  But keep watching – the fight is far from over!