It is that time of year…the holidays. BUT it is also the end of the tax year and the end of the plan year for plans operating on the calendar year. It is time to evaluate whether you need to take action to ensure your health and welfare plans remain compliant with applicable law.
Plan Document Updates
The start of a new plan year often brings changes to health and welfare plans. As a result, employers should ensure that documents are updated (or an amendment is adopted and a Summary of Material Modification issued) to reflect any changes being made for the new plan year. Employers should also take the opportunity to review plan documentation (e.g., written plan documents, Summary Plan Descriptions (SPDs), wrap plan documents, and wrapper documents) to ensure all previous changes to the plan have been incorporated into the documentation. Such actions are necessary to ensure compliance with both the Internal Revenue Code and, if applicable, ERISA.
This year, employers should specifically review their plan documentation to confirm that it has been updated to reflect the new ERISA disability claims and appeal procedures that became effective April 1, 2018. For ERISA plans that provide disability benefits (including non-disability plans under which a benefit is provided upon an employee becoming disabled), the written plan document and SPD must include a description of the procedures used under the plan for deciding claims and appeals. Those provisions need to be updated to incorporate the new rules. Such provisions may be found in insurance contracts, wrap plan documents and SPDs, wrapper plan documents and SPDs, and self-insured plan documents and SPDs.
Employers that sponsor plans operating on a calendar year plan year should be thinking about nondiscrimination testing.
Remember: No corrective action is allowed once the plan year closes. Any adjustments need to be made prior to the close of the plan year.
Various health and welfare benefit plans, including Section 125 cafeteria plans, self-insured medical and dental plans, health flexible spending accounts, dependent care assistance programs, health reimbursement arrangements (HRA), and group term life insurance plans, are subject to nondiscrimination requirements under the Internal Revenue Code. Those nondiscrimination requirements apply on a plan year basis.
As the end of the plan year nears, employers should consider whether a pre-test should be conducted prior to close of the plan year. To the extent there is a chance an employer’s plan might not pass the nondiscrimination requirements, testing the plan prior to the close of the plan year allows the employer to take corrective action. The end of the plan year also means employers should be preparing to have final testing done after the close of the plan year.
Year end is a good time to review compliance with the various federal laws that require sponsors of group health plans to notify employees or plan participants of certain information. In some cases, these laws require notices to be distributed annually, often at the start of the plan year. In other cases, notices must be distributed only when an employee is hired or enrolls in the plan for the first time or when a specific event occurs.
The following is a list of the key notice and disclosure requirements (primarily applicable to group health plans) with a brief explanation of when the notice/disclosure is required.
Federal Mandates (note, additional notice requirements apply to governmental plans that opt out of complying with various federal mandates.):
Patient Protection and Affordable Care Act (ACA):
The end of the calendar year means it is time again for employers that are “applicable large employers” for purposes of Section 4980H of the Internal Revenue Code (a/k/a the employer mandate) or that sponsor self-insured health plans constituting minimum essential coverage to prepare for ACA reporting. Although the individual coverage mandate is repealed effective January 1, 2019, insurance carriers and employers that sponsor self-insured health plans constituting minimum essential coverage (MEC) continue to have an obligation to report coverage provided under the plan to covered individuals and the IRS. Furthermore, applicable large employers remain obligated to report offers of coverage to their full-time employees.
The IRS recently announced an extension of the deadline for providing statements (Forms 1095-B and 1095-C) to participants and full-time employees (respectively) from January 31st to March 4th. The due date for filing the relevant forms with IRS was not extended. Forms must be filed with the IRS by February 28th if filing by mail or April 1st if filing electronically.
Cash In Lieu Arrangements
Although there have been no recent developments regarding cash in lieu of coverage arrangements (i.e., when an employer provides an employee with the ability to waive major medical coverage and instead receive a cash payment), we continue to receive questions about these arrangements. Employers intending to provide cash in lieu in 2019 should review their arrangement to ensure it does not create any compliance problems under the Internal Revenue Code and/or the ACA.
Providing cash in lieu creates compliance issues for all employers under the constructive receipt doctrine and the cafeteria plan rules. Furthermore, providing cash in lieu can create affordability issues for applicable large employers that are subject to the ACA’s employer mandate found in Section 4980H of the Internal Revenue Code.
Transition Relief Still Available But Is Limited. In IRS Notice 2015-87, the IRS provided transition relief for certain arrangements established on or before December 16, 2015. The transition relief addresses how the amount of available cash is treated for purposes of the affordability determination. Such transition relief does not provide relief from the requirement to provide the cash in lieu through a cafeteria plan. Employers that offer cash in lieu should carefully review their arrangements to ensure compliance with the cafeteria plan requirement and to determine the impact of the arrangement on the affordability of the employer’s coverage.
New Tax Rules Regarding Employer Provided Parking
Beginning in 2018, the Tax Cuts and Jobs Act changed the tax rules that apply to qualified transportation fringe benefits provided by employers to employees, such as transit and parking benefits. In general, under the new rules, for-profit employers are unable to take a deduction for qualified transportation fringe benefits provided to employees and non-profit employees are deemed to have unrelated business taxable income (UBTI) in the amount of the qualified transportation fringe benefits provided to employees. The application of these rules to employers that sponsor transportation plans under which employees’ transit and/or parking expenses are paid or reimbursed (either by the employer or through employee salary reduction contributions) are fairly straight forward. The rules, however, also apply in situations in which an employer provides parking for employees in an employer-owned or leased parking facility.
On December 10, 2018, the IRS issued interim guidance to assist employers that provide parking to employees in employer-owned or leased parking facilities apply the new rules. That guidance is available at https://www.irs.gov/pub/irs-drop/n-18-99.pdf. In general, the guidance provides that all or portion of the expenses an employer incurs to maintain the employer-owned or leased parking facility are non-deductible (or included in UBIT) depending on the manner in which the parking facility is used (e.g., whether there are parking spots reserved for employee use, the primary usage of non-reserved spots, the amount of employee usage, etc.).
One important provision of the guidance is relevant to employers who have parking arrangements in which parking spots are reserved for employees. That provision allows such employers to reduce the amount of non-deductible expenses (or additional UBTI) by reducing or eliminating the number of spots reserved for employees on or before March 31, 2019. All employers that own or lease parking lots or facilities that are used by employees should review this interim guidance and discuss it with their tax or legal counsel.
Watch for Future Regulatory Developments in 2019
If you have any questions about the foregoing items, or need assistance bringing your plans, policies, or notices into compliance, please contact us.
As a leader in employee benefits law, Darcy Hitesman founded Hitesman & Wold in order to help public and private employers, insurers and third-party administrators nationwide stay informed and minimize the risk of non-compliance issues.
Hitesman & Wold provides a wealth of legal experience to their clients in the areas of ERISA, COBRA, HIPAA, Health Care Reform, welfare plans, cafeteria plans, HRAs, and VEBAs.
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