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DISCLAIMER: This blog is published for general information only - it is not intended to constitute legal advice and cannot be relied upon by any person as legal advice.  U.S. Treasury Regulations require us to notify you that any tax-related material in this blog (including links and attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties, and may not be referred to in any marketing or promotional materials.  While we welcome you to contact our authors, the submission of a comment or question does not create an attorney-client relationship between the Firm and you. 

Friday
Jan222016

IRS Issues Guidance on Employer Health Plan Opt-Out Payment Arrangements

Late last month the IRS released, in the form of 26 Q/As in Notice 2015-87, guidance on the application of various provisions of the Affordable Care Act to employer-sponsored health coverage.  The Notice covers a number of important issues, including the effect of health reimbursement account contributions, cafeteria plan flex credits, and employer opt-out payments on an employee’s cost of coverage for purposes of determining affordability under Code § 4980H(b).  The Notice also addresses the application to government entities of the employer shared responsibility rules, information reporting for applicable large employers, health savings account matters for persons eligible for benefits through the Department of Veterans Affairs, COBRA continuation coverage for carried over health flexible spending account balances, and penalty relief for employers that make a good faith effort to comply with the ACA reporting rules. 

Regarding employer opt-out arrangements, for months the IRS has stated, informally in various settings, that an employer should include the value of an opt-out payment in determining and reporting an employee’s cost of coverage.  (An opt-out payment is taxable income provided to an employee for waiving coverage under the employer’s health plan.)  Under this rule an opt-out payment might cause an employee’s cost of coverage to become unaffordable, thereby potentially subjecting the employer to an assessable payment.  Though the statutory and regulatory basis for this position is somewhat thin, a senior official at the IRS confirmed this view to us last summer. 

Oddly enough, Notice 2015-87 both confirms and retreats from this position.  Specifically, it provides that until the issuance of further guidance a payment under any opt-out payment arrangement in place prior to December 17, 2015 need not be reported on Form 1095-C and will not, on its own, cause an employer to be subject to a shared responsibility penalty.  Further (as confirmed by communication with the principal author of the Notice) and again until IRS guidance states otherwise, a payment under a conditional opt-out arrangement (for example, one requiring an employee to show proof of coverage under the spouse’s plan in order to receive the payment) adopted at any time need not be reported on Form 1095-C and will not, on its own, cause an employer to be subject to a shared responsibility penalty. 

Though the Notice provides that, for the time being, opt-out payments under certain arrangements need not be added to an employee’s cost of coverage for purposes of reporting and determining affordability, such payments will be added to an employee’s cost of coverage for purposes of determining (i) the employee’s eligibility for a subsidy on the Exchange, and (ii) whether the employee might be exemption from a penalty under the individual mandate. 

Thursday
Jan142016

Client Advisory - Winter 2016

This Client Advisory highlights certain developments regarding the Affordable Care Act (most significantly, the delay of the ACA reporting requirements and the “Cadillac” tax), discusses the EEOC’s proposed rules for wellness programs and the outcome of recent EEOC wellness program litigation, reviews important cases recently decided by and pending before the U.S. Supreme Court, and provides updates regarding church plan litigation and the Department of Labor’s proposed fiduciary rule.  We also offer thoughts about what employers can expect to see in 2016 in the way of agency enforcement activities.  Since 2016 is a presidential election year, few observers expect to see much, if any, significant legislation enacted by Congress.  But regulatory agencies, entering the final year of the Obama administration, may be more active and productive in 2016.

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Monday
Jun292015

Restating Your Preapproved Plan Document: Opportunities and Pitfalls

Purveyors of preapproved defined contribution plan documents are now in the process of distributing document restatement packages to employers.  The restated documents reflect updates required by changes in law, including the Pension Protection Act of 2006, which previously had been reflected in a series of addenda and amendments to plan documents. Restatement packages will certainly include a new adoption agreement (describing the design and features of the employer’s plan) and the “base” or “basic” plan document (containing all legally required provisions and permitted alternatives, which are activated by the adoption agreement).  They may also include an updated trust agreement, a new summary plan description (assembled based on the provisions of the new adoption agreement), and possibly an overview of material changes made to the last version of the preapproved document.  All of these materials will come with the admonition that the employer should review the documents carefully with legal counsel before executing the new adoption agreement.  And employers would do well to heed that advice, because the restatement of a preapproved plan document presents opportunities both to identify existing administrative problems and avoid future problems.  With this review process in mind, we share these thoughts. 

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Thursday
May212015

Where There’s Smoke There’s Questions: Designing Compliant Wellness Programs That Target Tobacco Use

The final regulations concerning wellness programs under the Health Insurance Portability and Accountability Act, as amended (HIPAA) continue to generate a number of questions and concerns for employers whose programs seek to promote employee health by curbing tobacco use.  The compliance status of some programs is further complicated by the recent release of Equal Employment Opportunity Commission (EEOC) proposed rules, which depart from the 2013 HIPAA regulations in important ways when it comes to tobacco-related wellness programs.  Here is a sampling of questions we have received from clients, with brief responses that include observations about the proposed rules recently published by the EEOC.

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Monday
Apr272015

EEOC Finally Releases Notice of Proposed Rulemaking for Wellness Programs

For nearly a year the U.S. Equal Employment Opportunity Commission (EEOC) has endured harsh criticism from employers, members of the United States Senate, and the benefits community at large for commencing legal actions challenging employer-sponsored wellness programs before issuing guidance regarding the compliance status of those programs under the Americans with Disabilities Act (ADA).  At long last the EEOC has released a Notice of Proposed Rulemaking (the “Notice”) addressing how Title I of the ADA applies to employer wellness programs.  The good news is that the proposed regulations contained in the Notice hew fairly close to existing regulations published by other federal agencies and are generally limited to programs that involve disability-related inquiries and medical examinations. There are significant differences, however, regarding maximum rewards for programs that target tobacco use, the application of reward limits to certain participatory wellness programs, and the notice requirements that apply to wellness programs.  Perhaps most importantly, the Notice attempts to address what makes participation in a wellness program “voluntary” and, thus, compliant with one of the safe harbor exceptions to the prohibition on employer-sponsored medical examinations under the ADA.  Nevertheless, several questions affecting the legal compliance status of wellness programs remain.  

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