Wednesday Benefits Developments – Cadillac Tax, Fiduciary Rule, ACA Reporting & More

Interest rates going up? Easy call. But what about those benefits developments from Wednesday? There’s plenty to digest over the last few weeks in December. Here’s a sampling of what we found interesting.
Omnibus Spending Bill
  • Here’s the text of the bill as posted on the House Document Repository site. (docs.house.gov) We think it’s the final version, but double check before you rely on it. We’ll link to the GPO version when it’s available.
  • The Cadillac tax gets pushed down the road, with a new effective date of 2020 rather than 2018. It gets some new accessories as well, such as a tax deduction for employers and indexed limits. There’s also a study commissioned by the U.S. Comptroller General to look at various adjustments to reflect workforce characteristics.
  • Hoped for, but missing, is any change to the DOL’s proposed fiduciary rule—either by way of delayed funding or legislative changes.
And … just when you thought it was safe to turn out the lights and go home, we get the long-awaited grab-bag guidance from the IRS. (IRS Notice 2015-87) There are 26 Q&As and about 30 pages of text. Something for everyone. Here are just a few items that caught our attention, largely because we’ve been working on these topics. We’ll post more as we read more:
  • AmeriCorps members are not employees (of AmeriCorps or the grantee) for ACA purposes. This means theres no need to distribute Form 1095 to AmeriCorp members or count them as employees for purposes of the employer mandate.  See Q&A – 16.
  • Many employers continue to classify certain inactive, disabled individuals as employees for a period of time after they leave active employment. This has raised lots of questions under ACA — both for the employer mandate and reporting purposes. The analysis for this one starts with the “hour of service” definition in the Code Section 4980H regulations. The 4980H regulations defer to regulations under ERISA for situations where an employee is entitled “hours of service” when the employee isn’t actively at work.  In very broad terms, those ERISA regulations say that the employee is treated as having “hours of service” even when not actively working IF the employee is receiving certain kinds of pay. That’s where it gets confusing. Q&A – 14 gives us some guidelines around what pay results in imputed “hours of service.”
    • There are imputed hours of service for the inactive employee who is receiving payments from an employer-paid disability plan.
    • Those imputed hours are NOT limited to 501 hours as some had hoped.
    • Disability payments attributable to disability coverage purchased with after-tax contributions DO NOT result in imputed hours.

There are more details in the guidance.  See Q&A – 14.

Our partner, Liz Deckman, is especially interested in some of the Service Contract Act and Davis-Bacon guidance. Here are some observations from Liz:
  • For now, and at least through the 2016 plan year, employer fringe benefit payments to employees pursuant to the McNamara-O’Hara Service Contract Act (“SCA”) and the Davis-Bacon Act (“DBA”) are treated as  employer contributions for determining whether an employer has made an offer of affordable minimum value coverage, to the extent the payment does not exceed the amount required to satisfy the requirement to provide fringe benefit payments under the SCA or DBRA.
  • Similarly, an employer may treat the fringe benefit payments as reducing the employee’s required contribution for purposes of reporting on Form 1095-C, although employers are encouraged to treat these fringe benefit payments as not reducing the employee’s required contribution for these purposes. If an employee’s required contribution is reported without reduction and the employer is contacted by the IRS concerning a potential pay or play penalty, it may show that it is entitled to relief under the new guidance.
  • For purposes of receiving a premium tax credit and for the individual mandate, individual taxpayers are not required to take the fringe benefit payments into account as reducing the employee’s required contribution.
  • Because employers can report a lower amount as the employee’s required contribution, employees who enrolled in coverage through the Marketplace may need additional information regarding their required employee contribution to determine whether they may claim the premium tax credit. As such, employers using the relief described above are encouraged to notify employees that they may obtain accurate information about their required contribution using the employer contact telephone number provided to the employee on Form 1095-C.
Bob Seng

Bob Seng

With plenty of experience in private practice and as an Assistant General Counsel for Pay & Benefits in a Fortune 50 Company, Bob understands that employee benefits law isn’t for everyone. That’s why he takes pride in listening carefully and responding with clear answers and advice that can be followed by busy clients.

Elizabeth Deckman

Elizabeth Deckman

Liz has designed and implemented all types of tax-qualified retirement plans and trusts, including Section 401(k), profit sharing, money purchase, employee stock ownership (ESOP), cash balance, and defined benefit plans. Liz also drafts and implements health and welfare plans and advises employers on related issues, such as COBRA, health care reform, and fiduciary issues. She also works with deferred compensation plans and IRC Section 409A.

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