Contributed by Rebecca Dobbs Bush
In the wake of Health Care Reform, we have seen quite a few changes to the rules relating to HSAs, FSAs and HRAs. Now with Notice 2013-71, the IRS has announced yet another change to the rules relating to health FSAs. Designed to encourage participation in health FSAs, the IRS is permitting (but not requiring) plans to allow participants to carry over balances into the next plan year in amounts up to $500.
The prior rules allowed for a grace period of up to 2 ½ months beyond the end of the plan year for participants to submit expenses. Beyond that, however, a participant stood to lose any amounts they contributed to a health FSA and didn’t use. This “use-it or lose-it” rule often deters many from participating due to the fear of leaving money on the table. In the alternative, the “use-it or lose-it” rule encourages wasteful spending with participants trying to incur additional unnecessary medical expenses near the end of the plan year in order to use up their account balances.
If an employer wants to implement the carryover allotment, the health FSA plan would need to be amended by the end of the plan year beginning in 2014. However, the notice also indicates that an employer cannot maintain both a grace period and a carryover allotment during the same plan year. Since a plan cannot remove their grace period retroactively, a plan currently utilizing a grace period needs to implement the necessary amendments by the end of 2013.
An employer wishing to implement the carryover allotment should work with counsel to ensure the appropriate amendments are adopted by their health FSA. In addition, for those employers currently utilizing a grace period, a review of current participant account balances would be prudent before taking any action. After all, with it being close to the end of a calendar plan year, participants may be planning to use more than the $500 carryover allotment during the existing grace period. A review of account balances would provide insight to an employer as to whether implementing the amendments for the 2014 plan year would be a welcome revision by its employees.
Contributed by Rebecca Dobbs Bush
With the ringing in of the New Year, we are now officially on the eve of the employer mandate provisions within Health Care Reform. The employer mandate provisions require those employers with 50 or more “full-time equivalent” employees to offer “minimum value” coverage to employees that work 30 or more hours per week. Where two or more companies have a common owner, or are otherwise related, they are combined for purposes of determining whether they employ enough employees. The coverage offered by the company must be “affordable” for employees. Where an employer does not do this, and at least one full-time employee receives a premium tax credit to help pay for coverage on an Exchange, the employer will be subject to penalties or a “tax” of $2,000 per full-time employee – with the first 30 full-time employees “free.”
The employer mandate provisions are now also being referred to as the “shared responsibility” provisions. The IRS has issued multiple Notices attempting to clarify the confusion over implementation and application. Most recently, the IRS issued proposed regulations and FAQ’s on December 28, 2012. The attempted clarification of the shared responsibility provisions have only served to confirm the confusing and complicated nature of the provisions.
What is imperative for every employer to understand is that the basis for determining how and whether the shared responsibility provisions apply to your business on January 1, 2014 depends upon the make-up and structure of your workforce during 2013. Accordingly, employers need to act now to understand whether and how the shared responsibility provisions of Health Care Reform will affect them come January 1, 2014.
Contributed by Rebecca Dobbs
This October, the IRS announced cost of living adjustments increasing 401(k) contribution limits. The new limits for 2013 are as follows:
|Maximum Elective Deferral By Employee
|Catch-Up Contributions (age 50 and over)
|Defined Contribution Maximum Deferral (employer/employee combined)
|Employee Annual Compensation Limit for Calculating Contributions
As many employees base their deferral percentages on the maximum elective deferral allotted by the IRS, employers should advise employees of their ability to raise this percentage come 2013.
For those employers with SIMPLE plans (savings incentive match plan for employees of small employers), permitted employee deferrals increase in 2013 from $11,500 to $12,000.
If participation in your plan is lacking, the raised limits on contribution deferrals also provides a reason for service provider(s) to come in and conduct educational meetings designed to help employees understand the value of a 401(k) plan. Even if your company is not in a position to provide a match, the value of earning compounded interest on employee contributions cannot be emphasized to participants enough.