Recently in Employee Benefits Category

April 11, 2014

Employee Benefits-Multiemployer Pension Plans May Have to Be Amended To Comply With IRS Guidance On The Treatment of Same- Sex Marriage By Retirement Plans THE IRS GUIDANCE

In Notice 2014-19 (the "Notice") and accompanying Frequently Asked Questions posted on its website (the FAQs), the Internal Revenue Service (the "IRS") provides guidance on the application of the Supreme Court's decision in United States v. Windsor ("Windsor") and the holdings of Rev. Rul. 2013-17 to the treatment of same-sex marriages by a multiemployer pension plan (and any other tax-qualified retirement plan).

BACKGROUND ON SAME-SEX MARRIAGE ISSUE

Prior to Windsor , section 3 of the Defense of Marriage Act ("DOMA") prohibited the recognition of same-sex spouses for purposes of Federal tax law. Windsor ruled that section 3 is unconstitutional. Based on this decision, Rev. Rul. 2013-17 held the following:

(1) For Federal tax purposes, the terms "spouse," "husband and wife," "husband," "wife" : (a) include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term "marriage" includes such a marriage between individuals of the same sex and (b) do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term "marriage" does not include such formal relationships.

(2) For Federal tax purposes, the IRS adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex, even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.

These holdings apply to a multiemployer pension plan, prospectively as of September 16, 2013.

PLAN PROVISIONS AFFECTED

Very briefly, the Windsor outcome will affect any plan provision that considers a participant's marital status, such as those pertaining to qualified joint and survivor annuities ("QJSAs"), qualified preretirement survivor annuities ("QPSAs"), beneficiary designations, loans, section 415 limits, incidental death benefit requirements, minimum required distributions, rollovers, safe harbor hardship withdrawals, qualified domestic relations orders ("QDROs") and stock ownership attribution rules.

RULES UNDER THE NOTICE

The Notice establishes the following rules for a multiemployer pension plan:

Uniform Treatment. Any retirement plan qualification rule, under section 401(a) of the Internal Revenue Code (the "Code"), that applies because a participant is married must be applied with respect to a participant who is married to an individual of the same sex. For example, a participant in a plan subject to the rules of section 401(a)(11) of the Code who is married to a same-sex spouse cannot waive a QJSA without obtaining spousal consent pursuant to section 417 of the Code.

Mandatory Effective Date. Plan operations must reflect the outcome of Windsor as of June 26, 2013. A plan will not be treated as failing to meet the requirements of section 401(a) of the Code merely because it did not recognize the same-sex spouse of a participant as a spouse before June 26, 2013.

Amendment Prior To Mandatory Effective Date. A plan will not lose its qualified status due to an amendment to reflect the outcome of Windsor for some or all purposes of the plan and the Code as of a date prior to June 26, 2013, if the amendment complies with applicable qualification requirements (such as those in section 401(a)(4)). For example, for the period before June 26, 2013, a plan sponsor may choose to amend its plan to reflect the outcome of Windsor solely with respect to the QJSA and QPSA requirements of section 401(a)(11) and, for those purposes, solely with respect to participants with annuity starting dates or dates of death on or after a specified date.

Transition Rule. A plan will not be treated as failing to meet the requirements of section 401(a) merely because the plan, prior to September 16, 2013, recognized the same-sex spouse of a participant only if the participant was domiciled in a state that recognized same-sex marriages.

SPECIFIC APPLICATION UNDER THE FAQs

The FAQs provide guidance on specific applications of the Windsor decision, Rev. Rul. 2013-17 and the Notice (together, the "Notice Requirements") to a multiemployer pension plan:

Particular Rule For Beneficiary Designations. In a profit-sharing or stock bonus plan, to the extent the section 401(a) qualification rules require a married participant's spouse to be the participant's beneficiary with respect to all or part of the participant's benefits (unless the spouse consents to the participant's designation of another beneficiary), the plan must treat a participant who is lawfully married on the date of death to an individual of the same sex as married for purposes of applying those qualification rules with respect to a participant who dies on or after June 26, 2013. This applies regardless of any conflicting plan terms and regardless of any prior beneficiary or other designation to which the participant's spouse has not consented that specifies an individual other than the participant's spouse to receive those benefits (except as provided in a QDRO).

State Law Not Applicable. If a plan's terms designate a particular state's laws as applying to the plan, and that state does not recognize same-sex marriage for purposes of applying state law, it is not permissible , on and after June 26, 2013, for the plan to be operated in a manner that does not recognize a participant's same-sex spouse with respect to the section 401(a) qualification requirements which apply to married participants. Thus, if-on or after June 26, 2013- a plan administrator does not recognize the participant's same-sex spouse for purposes of the plan provisions that are required under section 401(a) because a plan administrator interprets the terms of the plan by applying a designated state's laws (such as under a plan's choice of law provision) to identify a participant's marital status, then the plan would violate the qualification requirements of section 401(a).

Retroactive Application of Amendments. A plan that is retroactively amended to be consistent with the Notice Requirements will not fail to retain its qualified status if the retroactive amendment is implemented using principles similar to those in the Employee Plans Compliance Resolution System (the "EPCRS"), as set forth in Rev. Proc. 2013-12. For example, if the plan is retroactively amended to apply the spousal consent rules under sections 401(a)(11) and 417 consistently with the Notice Requirements, the plan may obtain spousal consent to remedy a prior lack of spousal consent under the principles described in section 6.04(1) of Rev. Proc. 2013-12.

New Rights. In light of the Windsor decision, a plan sponsor may wish to amend a plan to provide new rights or benefits with respect to participants with same-sex spouses - such as an amendment that provides those participants with a new opportunity to elect a QJSA - to make up for benefits that were not previously available to those participants. Such an amendment must comply with the applicable qualification requirements (such as section 401(a)(4)).

REQUIRED AMENDMENTS

The Notice requires that amendments be adopted by a multiemployer pension plan as follows:

(1) If the plan's terms with respect to the requirements of section 401(a) define a marital relationship by reference to section 3 of DOMA or are otherwise inconsistent with the outcome of Windsor or the guidance in Rev. Rul. 2013-17 or the Notice, then an amendment to the plan that reflects such outcome or guidance must be adopted.

(2) An amendment is required if a plan sponsor chooses to apply the rules with respect to married participants in a manner that reflects the outcome of Windsor for a period before June 26, 2013. The amendment must specify the date as of which, and the purposes for which, the rules are applied in this manner.

(3) An amendment is not required, if a plan's terms are not inconsistent with the outcome of Windsor and the guidance in Rev. Rul. 2013-17 and the Notice (for example, the term "spouse," "legally married spouse" or "spouse under Federal law" is used in the plan without any distinction between a same-sex spouse and an opposite-sex spouse).

(4) The deadline to adopt an amendment required in (1) or (2) above is the latest of: (a) the last day of the tenth month following the close of the plan year in which June 26, 2013 falls or (b) December 31, 2014.

Note: For a multiemployer pension plan, an amendment required in (1) is not subject to the requirements of section 432 of the Code (generally prohibiting an amendment which increases liabilities through changes to benefits, benefit accruals, or vesting schedules for a plan in endangered or critical status), while an amendment required in (2) is subject to those requirements.

PLAN SPONSOR ACTION

A plan sponsor of a multiemployer pension plan (normally the Trustees) needs to review the plan to determine if an amendment is required under the Notice and FAQs. Further, since the plan must comply with the requirements of the Notice and FAQs in operation, the plan sponsor needs to review the plan procedures, summary plan descriptions, election forms and notices, and other participant communications to see if revisions to them are needed. New communications may be required in any event if any options change or new beneficiary designations must be made. Finally, the plan sponsor should review whether the plan has complied with the Windsor outcome on and after June 26, 2013 (except as otherwise allowed by the Transition Rule) (e.g., whether QJSAs and QPSAs were properly made available).


April 9, 2014

Employee Benefits-IRS Provides Guidance On Keeping Your SARSEP Compliant

Do you have a Salary Reduction Simplified Employee Pension ("SARSEP") plan? If so, you need to keep the SARSEP in compliance with technical requirements. To help, the Internal Revenue Service ("IRS") has provided a "SARSEP Checklist" and a "SARSEP Plan Fix-It Guide". Check them out.

April 7, 2014

Employee Benefits- Treasury And IRS Issue Guidance Facilitating Tax-Free Rollovers To Employer-Sponsored Retirement Plans

According to a Press Release dated 4/3/14, the U.S. Department of the Treasury and the Internal Revenue Service ("IRS") have issued guidance-in the form of a Revenue Ruling- designed to help individuals accumulate and consolidate retirement savings by facilitating the transfer of savings from one retirement plan to another. This guidance will increase pension portability by making it easier for employees changing jobs to move assets to their new employers' retirement plans.

The Press Release says that the ruling simplifies the rollover process by introducing an easy way for a receiving plan to confirm the sending plan's tax-qualified status. The plan administrator for the receiving plan can now simply check a recent annual report filing for the sending plan on a database that is readily available to the public online. This eliminates the need for the two plans to communicate (with the individual as go-between), expedites the rollover process, and reduces associated paperwork.

The Revenue Ruling is here.

April 4, 2014

Employee Benefits-Department Of Health & Human Services Provides Guidance On Health Coverage Of Same-Sex Spouse

The Department of Health & Human Services (the "DHHS") has provided guidance on coverage of same-sex spouses by employee benefit plans. The guidance is here. It says the following:

Background. On February 27, 2013, the Centers for Medicare & Medicaid Services ("CMS") of the DHHS published final regulations implementing section 2702 of the Public Health Service Act (the "PHS Act"). Section 2702 of the PHS Act requires health insurance issuers offering non-grandfathered health insurance coverage in the group or individual markets (including qualified health plans offered through Affordable Insurance Exchanges) to guarantee the availability of health coverage unless one or more exceptions applies. The preamble to the final regulations (78 FR at 13417) indicates that discriminatory marketing practices or benefit designs represent a failure by health insurance issuers to comply with the guaranteed availability requirements, and the final regulations at 45 CFR 147.104(e) establish certain marketing and nondiscrimination standards in the regulation text.

New Guidance. The following serves to clarify the meaning of the terms used in 45 CFR 147.104(e) for the purposes of describing the requirements health insurance issuers must meet to ensure guaranteed availability of coverage.

1) If a health insurance issuer in the group or individual market offers coverage of an opposite-sex spouse, the issuer may not refuse to offer coverage of a same-sex spouse. Federal regulations at 45 CFR 147.104(e) provide that a health insurance issuer offering non-grandfathered group or individual health insurance coverage cannot employ marketing practices or benefit designs that discriminate on the basis of certain specified factors. One such factor is an individual's sexual orientation. As CMS has used the terms in this regulation, an issuer violates this requirement if-

-- the issuer offers coverage of an opposite-sex spouse; and

-- the issuer chooses not to offer, on the same terms and conditions as those offered to an opposite-sex spouse, coverage of a same-sex spouse based on a marriage that was validly entered into in a jurisdiction where the laws authorize the marriage of two individuals of the same sex, regardless of the jurisdiction in which the insurance policy is offered, sold, issued, renewed, in effect, or operated, or where the policyholder resides.

2) This regulation does not require a group health plan (or group health insurance coverage provided in connection with such plan) to provide coverage that is inconsistent with the terms of eligibility for coverage under the plan, or otherwise interfere with the ability of a plan sponsor to define a dependent spouse for purposes of eligibility for coverage under the plan. Instead, this regulation prohibits an issuer from choosing to decline to offer to a plan sponsor (or individual in the individual market) the option to cover same-sex spouses under the coverage on the same terms and conditions as opposite sex-spouses.

3) CMS expects issuers to come into full compliance with the regulations as clarified in this guidance no later than for plan or policy years beginning on or after January 1, 2015. It also expect States to begin enforcing the regulations in accordance with this clarification by the same time. CMS will not consider a State to be failing to substantially enforce PHS Act section 2702 in connection with this clarification for earlier policy years.

March 31, 2014

Employee Benefits-Reminder: Tomorrow Is April 1: Don't Forget Your Required Minimum Distribution From Your Company Retirement Plan Or IRA

An Internal Revenue Service News Release reminds taxpayers who turned 70½ during 2013 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Tuesday, April 1, 2014. The Press Release offers some helpful points and may be found here.

March 28, 2014

Employee Benefits-Supreme Court Rules That Severance Payments Are Wages Subject FICA Tax

In United States v. Quality Stores, Inc., No. 12-1408 (S.Ct. 2014), Quality Stores, Inc. and its affiliates (collectively "Quality Stores") made severance payments to employees who were involuntarily terminated as part of Quality Stores' Chapter 11 bankruptcy. Payments-which were made pursuant to plans that did not tie payments to the receipt of state unemployment insurance-varied based on job seniority and time served. Quality Stores paid and withheld FICA taxes on the payments, treating the payments as wages. Later believing that this treatment, and payment and withholding of FICA taxes, was not correct, Quality Stores sought a refund from the Internal revenue Service (the "IRS") on behalf of itself and about 1,850 former employees. When the IRS did not allow or deny the refund, Quality Stores initiated proceedings in the Bankruptcy Court, which granted summary judgment in its favor. The District Court and Sixth Circuit affirmed, concluding that severance payments are not wages under FICA.

The Supreme Court reversed the decisions of the lower courts, holding that the severance payments are wages subject to FICA tax. The Supreme Court said that FICA defines "wages" broadly as "all remuneration for employment." IRC §3121(a). As a matter of plain meaning, severance payments fit this definition: They are a form of remuneration made only to employees in consideration for employment. "Employment" is "any service . . . performed . . . by an employee" for an employer. IRC §3121(b). By varying according to a terminated employee's function and seniority, the severance payments at issue confirm the principle that "service" "mea[ns] not only work actually done but the entire employer-employee relationship for which compensation is paid." Social Security Bd. v. Nierotko (S.Ct.) This broad definition is reinforced by the specificity of FICA's lengthy list of exemptions, none of which apply in the instant case.

The Supreme Court added that the Internal Revenue Code's provisions for income-tax withholding would similarly treat the severance payments at issue as wages. Consistent with the major principle of Rowan Cos. v. United States (S.Ct.), for simplicity of administration and consistency of statutory interpretation, the meaning of "wages" should be in general the same for income-tax withholding and for FICA calculations.

March 27, 2014

Employee Benefits-IRS Provides Guidance On Application of One-Per-Year Limit on IRA Rollovers

In Announcement 2014-15, the Internal Revenue Service ("IRS") addresses the application to Individual Retirement Accounts and Individual Retirement Annuities (collectively, "IRAs") of the one-rollover-per-year limitation of § 408(d)(3)(B) of the Internal Revenue Code (the "Code") and provides transition relief for owners of IRAs. Here is what the Announcement says:

Section 408(d)(3)(A)(i) of the Code provides generally that any amount distributed from an IRA will not be included in the gross income of the distributee to the extent the amount is paid into an IRA for the benefit of the distributee no later than 60 days after the distributee receives the distribution. Section 408(d)(3)(B) provides that an individual is permitted to make only one rollover described in the preceding sentence in any 1-year period. Proposed Regulation § 1.408-4(b)(4)(ii) and IRS Publication 590, Individual Retirement Arrangements (IRAs), provide that this limitation is applied on an IRA by IRA basis.

However, a recent Tax Court opinion, Bobrow v. Commissioner, T.C. Memo. 2014-21, held that the limitation applies on an aggregate basis, meaning that an individual could not make an IRA-to-IRA rollover if he or she had made such a rollover involving any of the individual's IRAs in the preceding 1-year period. The IRS anticipates that it will follow the interpretation of § 408(d)(3)(B) in Bobrow and, accordingly, intends to withdraw the proposed regulation and revise Publication 590 to the extent needed to follow that interpretation. These actions by the IRS will not affect the ability of an IRA owner to transfer funds from one IRA trustee directly to another, because such a transfer is not a rollover and therefore is not subject to the one-rollover-per-year limitation of section 408(d)(3)(B). Revenue Ruling 78-406, 1978-2 C.B. 157.

The IRS has received comments about the administrative challenges presented by the Bobrow interpretation of § 408(d)(3)(B). The IRS understands that adoption of the Tax Court's interpretation of the statute will require IRA trustees to make changes in the processing of IRA rollovers and in IRA disclosure documents, which will take time to implement. Accordingly, the IRS will not apply the Bobrow interpretation of § 408(d)(3)(B) to any rollover that involves an IRA distribution occurring before January 1, 2015. Regardless of the ultimate resolution of the Bobrow case, the Treasury Department and the IRS expect to issue a proposed regulation under § 408 that would provide that the IRA rollover limitation applies on an aggregate basis. However, in no event would the regulation be effective before January 1, 2015.

March 21, 2014

Employee Benefits-IRS Offers Some Thoughts On Roth Options For Retirement Plan Participants

In Retirement Plan News For Employers, February 24, 2014, the IRS offers some thoughts on Roth options for retirement plan participants. Here is what the IRS says.

If you participate in a 401(k), 403(b) or governmental 457(b) retirement plan that has a designated Roth account, you should consider your Roth options. With a designated Roth account, you can:

• make designated Roth contributions to the account; and

• if the plan permits, roll over certain amounts in your other plan accounts to the
Roth account.

Designated Roth Contributions

Unlike pre-tax salary deferrals, which are not taxed when you contribute them to the plan, you have to pay taxes on your designated Roth contributions. This means your gross income for the year you make designated Roth contributions will be higher than if you had made only pre-tax salary deferrals.

However, any pre-tax salary deferrals and related earnings are taxable when you
withdraw them from the plan. Roth contributions, on the other hand, are not taxed when you withdraw them from the plan. Earnings on Roth contributions are also not taxed when they are withdrawn from the plan if your withdrawal is a qualified distribution. A "qualified distribution" is a distribution that is made:

• at least 5 years after the first contribution to your Roth account; and

• after you're age 59½ or on account of your being disabled, or to your beneficiaryafter your death.

In-Plan Roth Rollovers

Your plan may allow you to transfer amounts to your Roth account in the plan if the amounts are:

• eligible rollover distributions from your other plan accounts; or

• any amounts, including those not otherwise eligible for a distribution, from your
other plan accounts.

You must include in gross income in the year of transfer any previously untaxed amount you roll over to your designated Roth account. You don't include in gross income any withdrawal of the amount you rolled over to the Roth account.
However, you may have to pay:

• a special recapture tax; and

• tax on the earnings on the rolled over amounts that are withdrawn, unless the
withdrawal is a qualified distribution.

Check with your employer to find out if your plan has a Designated Roth account and whether it allows in-plan Roth rollovers.

March 19, 2014

Employee Benefits-IRS Provides Tips For Sole Proprietor On SIMPLE IRAs

In Retirement Plan News For Employers, February 24, 2014, the IRS provides tips to sole proprietors in calculating and reporting their own plan contributions to a SIMPLE IRA. The tips are here.

March 18, 2014

Employee Benefits-Reminder: NYC Requirements For Paid Sick Time Go Into Effect On April 1

Beginning April 1, private New York City employers, which have at least 5 employees, must allow their employees to start earning and taking up to 5 days of paid sick time each year. Want the details? I wrote a paper on the Paid Sick Time requirements. If you want a copy, please contact me through the blog.

March 12, 2014

Employee Benefits-IRS Offers Guidance On Fixing A SEP When Employees Of A Related Business Have Been Improperly Excluded

In Retirement Plan News For Employers, February 24, 2014, the IRS provides guidance on how to fix a SEP when employee of a related business have been improperly excluded from participating. The guidance is here.

March 11, 2014

Employee Benefits-Self-Insured Multiemployer Health Plans Could Be Exempt From ACA Reinsurance Fee In 2015 And 2016

The Department of Health and Human Services issued a final rule, on March 5, 2014, on the reinsurance fee imposed under the Affordable Care Act. The reinsurance fee is imposed on group health plans-if the plan is insured, the insurer pays the fee, and if the plan is self-insured, the plan itself pays the fee. The reinsurance fee applies in 2014, 2015 and 2016. It equals the yearly rate times the number of individuals covered by the plan, with the yearly rate being $63 for 2014, $44 for 2015 and to be announced for 2016.

Multiemployer health plans are subject to the reinsurance fee. The final rule does not provide any relief for these plans for 2014. However, for 2015 and 2016, the final rule exempts from the fee any multiemployer plan which is both self-funded and self-administered. It is easy to determine whether the plan is self-funded. The key question is whether the plan is self-administered.

The final rule says the following on whether the plan is self-administered:

--To be self-administered, the plan must retain responsibility for claims payment, claims adjudication (including internal appeals), and enrollment (such functions being the "core functions"). Thus, if the plan uses a third party for these functions, it would not be treated as self-administered for these purposes.

-- As exceptions, the plan does not fail to be treated as self-administered merely because it-

(1) outsources core functions to an unrelated third party, provided that the underlying benefits are pharmacy benefits or ACA-excepted benefits;

(2) outsources a de minimis amount of its activity, even if core functions, for non-pharmacy or non-ACA-excepted benefits to a third party administrator (a "de minimis amount" means up to 5 percent, as measured generally by the number or cost of enrollment or claims processing transactions for non-pharmacy and non-ACA-excepted benefits which are outsourced);

(3) "leases" a network from an unrelated third party and also obtains provider network development, claims repricing, and similar services; or

(4) it uses a service provider that is affiliated with the plan, other than with an employer that contributes to the plan (admittedly this exception (4) is less than clear).

March 6, 2014

Employee Benefits-IRS Says It's Not Too Late for a Tax Break - Start a SEP Retirement Plan For 2013

In Retirement Plan News For Employers, February 24, 2014, the IRS says the following on setting up a SEP Retirement Plan.

If you own a business, you still have time to set up a Simplified Employee Pension (SEP) plan for 2013. If you set up and fund your SEP by the due date of your 2013 business return (including extensions), you can still take a deduction for 2013. If your business uses the calendar year for its tax year, the deadline to set up and contribute to a SEP plan for 2013 depends on the type of your business organization:

• If your business is a corporation, filing Form 1120 or 1120S, you have until March 15, 2014 (September 15, 2014, if you file for an extension).

• If your business is a partnership, filing Form 1065, you have until April 15, 2014 (September 15, 2014, if you file for an extension).

• If your business is a sole proprietorship, reported on Schedule C of Form 1040,
you have until April 15, 2014 (October 15, 2014, if you file for an extension).

You can set up a SEP plan for little or no cost at a bank, investment firm or insurance company.

SEP plans offer high contribution and deduction limits, minimal paperwork and no annual Form 5500 filing. You can contribute to a SEP plan even if you participate in an unrelated employer's plan (for example, a 401(k) plan). Contributions to a SEP plan are subject to the SEP contribution limits. Other kinds of business-sponsored retirement plans must have been established before the end of 2013 in order for the business to get a deduction for 2013.

February 24, 2014

Employee Benefits-IRS Issues Final Regulations On "Pay-Or-Play", Which Contains Relief For Multiemployer Health Plans

Further to my earlier blog today, on February 12, 2014, the Internal Revenue Service (the "IRS") published final regulations on the employer "pay-or-play" requirements introduced in the Affordable Care Act (the "ACA"). These requirements become effective in 2015. They apply to an employer with at least 50 full-time equivalent employees (at least 100 for 2015). Under "pay- or- play", such an employer will pay a penalty if it either:

(1) fails to offer to "substantially all" (70% in 2015, 95% thereafter) of its full-time employees (and their dependent children) group health coverage, and receives notice that at least one of its full-time employees, who qualifies for a premium tax credit or cost- sharing reduction, buys health coverage through an ACA health care marketplace or exchange (an "Exchange"), or

(2) fails to offer health coverage that is "affordable" (i.e., single only coverage that costs less than 9.5% of household income or another safe-harbor measure) and has "minimum value" (i.e., coverage that reimburses at least 60% of claims), and receives notice that at least one of its full-time employee, who qualifies for a premium tax credit or cost -sharing reduction, buys health coverage through an Exchange.

The monthly penalty for a failure in (1) is the number of the employer's full-time employees less 30 (80 in 2015), multiplied by 1/12 of $2,000. The monthly penalty for a failure in (2) is number of the employer's full-time employees, who qualify for a premium tax credit or cost -sharing reduction and buy health coverage through an Exchange, multiplied by 1/12 of $3,000, limited by the maximum penalty that could be imposed under (1).

The penalty is imposed on an employer. A multiemployer health plan pays for its participants' benefits with employer contributions that are required to be made under collective bargaining agreements. But the plan is not the employer on which a "pay- or- play" penalty could be imposed. So why would a multiemployer health plan care about "pay- or-play"? The answer: the multiemployer health plan would like to make available to each contributing employer a health plan under which the employer could cover its employees, or at least its unionized employees, and avoid a penalty with respect to those employees.

To help the multiemployer health plans meet this goal, and to help employers who contribute to multiemployer plans avoid the "pay-or-play" penalties, the final regulations contain a transition rule. This rule was originally contained in the preamble to the proposed regulations on "pay-or-play", and it previously applied only in 2014. The transition rule is available to an employer which is subject to "pay-or-play", and which is required by a collective bargaining agreement or an appropriate related participation agreement to make contributions, with respect to some or all of its employees, to a multiemployer health plan. Under this rule, such an employer will not be treated, with respect to employees for whom it must make such contributions, as failing to offer the opportunity to enroll in group health coverage to full-time employees (and their dependents), and will not be subject to penalty (2) described above, so long as the multiemployer health plan:

-- offers, to individuals who satisfy the plan's eligibility conditions, coverage that is affordable and provides minimum value, and

--offers coverage to those individuals' dependents.

For purposes of determining whether coverage under the multiemployer plan is affordable, employers may use a new safe harbor measure, under which an employee's required contribution, if any, toward self-only health coverage under the plan does not exceed 9.5 percent of the wages reported to the multiemployer health plan. The amount of wages may be determined based on actual wages or an hourly wage rate under the applicable collective bargaining agreement or participation agreement.

The preamble to the final regulations indicates that employers may presently rely on the transition rule. It says that any future guidance that limits the scope of the transition rule will be applied prospectively, and will apply no earlier than January 1 of the calendar year beginning at least six months after the date of issuance of the guidance. This extends the transition rule beyond 2014. Moreover, it gives relying employers a reasonable period of protection, since the transition rule will be available at least until the IRS affirmatively modifies it, which may never happen, and then for at least 6 months after the modification is made. Thus, it will encourage employers to use multiemployer health plans to avoid "pay-or-play" penalties by agreeing under collective bargaining agreements to contribute to these plans.

February 24, 2014

Employee Benefits-Treasury Department and IRS Issue Final Regulations Implementing Employer Shared Responsibility Under the Affordable Care Act for 2015

A press release (dated 2/10/2014) says that the U.S. Department of the Treasury and the Internal Revenue Service ("IRS") have issued final regulations implementing the employer responsibility provisions under the Affordable Care Act ("ACA") that take effect in 2015. In addition, final regulations will be issued shortly that aim to substantially streamline employer reporting requirements for employers that offer highly affordable coverage to all or virtually all of their full-time employees. The employer responsibility rules assist employers affected by these policies in providing quality, affordable coverage to their workers. If employers decide not to offer insurance to their employees, they will make an employer shared responsibility payment beginning in 2015 to help offset the costs to taxpayers of their employees getting tax credits through the Health Insurance Marketplace.

The Press Release continues by saying:

"While about 96 percent of employers are not subject to the employer responsibility provision, for those employers that are, we will continue to make the compliance process simpler and easier to navigate," said Assistant Secretary for Tax Policy Mark J. Mazur. "Today's final regulations phase in the standards to ensure that larger employers either offer quality, affordable coverage or make an employer responsibility payment starting in 2015 to help offset the cost to taxpayers of coverage or subsidies to their employees."

The final rules issued today implement the employer shared responsibility provisions of the ACA, under section 4980H of the Internal Revenue Code. The rules make a number of commonsense improvements in response to input on the proposed regulations issued in December 2012.

Highlights of today's rules include addressing a number of questions about how plans can comply with the employer shared responsibility provisions; ensuring that volunteers such as firefighters and emergency responders do not count as full-time employees; and phasing in provisions for businesses with 50 to 99 full-time employees and those that offer coverage to most but not yet all of their full-time workers.

How the policy affects employers:

Small Businesses with fewer than 50 employees: (about 96% of all employers): Under the Affordable Care Act, companies that have fewer than 50 employees are not required to provide coverage or fill out any forms in 2015, or in any year, under the Affordable Care Act.

Larger employers with 100 or more employees (about 2% of employers): The overwhelming majority of these companies with 100 or more employees already offer quality coverage. Today's rules phase in the percentage of full-time workers that employers need to offer coverage to from 70 percent in 2015 to 95 percent in 2016 and beyond. Employers in this category that do not meet these standards will make an employer responsibility payment for 2015.

Employers with 50 to 99 employees (about 2% of employers): Companies with 50-99 employees that do not yet provide quality, affordable health insurance to their full-time workers will report on their workers and coverage in 2015, but have until 2016 before any employer responsibility payments could apply.

For more information, see the fact sheet here and the final rule here.