IRS Amends Safe Harbor Explanations for Eligible Rollover Distributions

Posted by admin on December 22, 2014  |   No Comments »

On Nov. 24, 2014, the IRS issued Notice 2014-74, which amends the safe harbor explanations that can be used to satisfy the IRC requirement that certain information be distributed to recipients of eligible rollover distributions. The notice specifically modifies the explanations to reflect changes in the law that occurred after the explanations were released in 2009, and to make other clarifying changes.

As background, IRS Notice 2009-68 contained two safe harbor explanations. One was for payments from a designated Roth account, and the other was for payments not from a designated Roth account. Additionally, IRS Notice 2014-54 introduced proposed regulations that would allow simultaneous distributions to multiple destinations to be treated as a single distribution for allocation purposes. (See the Oct. 7 Compliance Corner article entitled “IRS Issues Guidance on Allocation of After-tax Amounts to Rollovers”). In addition to other clarifications, Notice 2014-74 specifically amends the safe harbor explanations by making them compatible with the changes found in Notice 2014-54 concerning the allocation of pre-tax and after-tax amounts.

Notice 2014-74

PBGC Releases Final Rules on the Treatment of Rollovers from Defined Contribution Plans to Defined Benefit Plans

Posted by admin on December 19, 2014  |   No Comments »

On Nov. 24, 2014, the Pension Benefit Guaranty Corporation (PBGC) released final rules concerning the treatment of benefits resulting from a rollover distribution from a defined contribution plan to a defined benefit plan, in the event that the defined benefit plan is terminated and trusteed by PBGC. As background, the PBGC administers the defined benefit plan termination insurance program under Title IV of ERISA. When a covered defined benefit plan is underfunded and terminated, the PBGC is appointed the statutory trustee of the plan and becomes responsible for paying benefits.

When a covered plan terminates, ERISA mandates that each participant’s plan benefit be assigned to one or more of six “priority categories,” which will determine the order in which benefits will be paid. Under the final regulations, benefits resulting from rollover amounts will be treated as accrued benefits derived from mandatory employee contributions, placing them in the second highest priority category (PC2).

ERISA also imposes two statutory limitations on the payment of non-forfeitable benefits provided by the plan. The first is a limitation on the maximum guaranteed benefit paid by PBGC, which is set by law and updated each calendar year. The maximum guaranteed benefit is currently $59,320 per year. The second limitation is a five-year phase-in limitation, which generally means that benefit increases from changes in the final five years of the covered plan are only partially guaranteed. However, under the final regulations, benefits resulting from rollover amounts will generally not be subject to PBGC’s maximum guaranteed benefit or phase-in limitations.

The PBGC also made some clarifications to the proposed regulations in response to public comments. Specifically, the final regulations only apply to rollovers to defined contribution plans; rollover amounts include both salary deferral contributions made by the participant, any additional employer contributions, and earnings on both; and the annuity benefit resulting from a rollover amount is a pension benefit.

The final regulations become effective Dec. 26, 2014.

Final Regulation

IRS Issues Guidance Related to Transportation Benefits and Electronic Media

Posted by admin on December 17, 2014  |   No Comments »

On Nov. 21, 2014, the IRS issued Revenue Ruling 2014-32, which outlines eight different scenarios involving employer-provided transportation benefits and electronic media and whether these benefits are excludable from gross income as a qualified transportation fringe benefit. In general, an employer’s contributions to a smartcard, terminal-restricted debit card or merchant category code (MCC) restricted debit card are excluded from an employee’s gross income as a qualified transportation fringe benefit if certain criteria are met. The card must be restricted in a way that the employee can only use the card to purchase transit fare. If the card can be used to purchase other items or services, the employer would need to implement procedures to substantiate the employee’s expenses.

With regard to vanpooling, some vendors charge a delivery fee if the employee purchases the transit pass online. The delivery fee incurred by an employee in acquiring transit benefits is included as part of the transit benefit. Thus, the fee is excluded from gross income as a qualified benefit.

In 2006, the IRS issued Revenue Ruling 2006-57, which permitted employers to provide cash reimbursement for transit passes when a terminal-restricted debit card was not available. The agency now believes such cards to be readily available. Effective Jan. 1, 2016, cash reimbursement is not permitted in geographic areas where terminal-restricted debit cards are readily available. If cash reimbursement is provided in such situations, the value would be included in the employee’s gross income.

Revenue Ruling 2014-32

IRS Provides 2016 Indexing Adjustments Related to the Individual Mandate and Premium Tax Credits

Posted by admin on December 15, 2014  |   No Comments »

On Nov. 21, 2014, the IRS released Revenue Procedure 2014-62 announcing the indexed applicable percentage table in IRC Sec. 36B(b)(3)(A). That table is used to calculate an individual’s premium tax credit for tax years beginning after calendar year 2015 (i.e. plan years starting in 2016). The applicable percentage table is as follows:


Household income percentage of Federal poverty line: Initial percentage Final percentage
Less than 133% 2.03% 2.03%
At least 133% but less than 150% 3.05% 4.07%
At least 150% but less than 200% 4.07% 6.41%
At least 200% but less than 250% 6.41% 8.18%
At least 250% but less than 300% 8.18% 9.66%
At least 300% but not more than 400% 9.66% 9.66%


Also announced in the Revenue Procedure is the 2016 update to the required contribution percentage, which is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage. The percentage increases from 9.56 percent to 9.66 percent for plan years beginning in 2016.

Revenue Procedure 2014-62 will appear in Internal Revenue Bulletin 2014-50 dated Dec. 8, 2014.

Revenue Procedure 2014-62

IRS Issues Notice Describing Certain Individual Mandate Hardship Exemptions

Posted by admin on December 12, 2014  |   No Comments »

On Nov. 21, 2014, the IRS published Notice 2014-76, which provides a list of individual mandate hardship exemptions that taxpayers may claim on their individual federal income tax return without obtaining a hardship exemption certification from a state health insurance exchange (also called a ‘marketplace’). Generally, the individual mandate rules require individuals to obtain certificates from health exchanges to prove they are exempt from the requirement to obtain health coverage because they qualify for a hardship exemption. However, the rules permit the IRS to issue guidance exempting individuals from the exchange certification requirement. Notice 2014-76 appears to be that guidance.

According to the notice, exchange certification is not required for hardship exemptions for individuals:

  • With income below a federal income tax return filing level;
  • For whom coverage is unaffordable;
  • Enrolled (or in line to enroll) in marketplace coverage on or before Mar. 31, 2014;
  • Who applied for the CHIP program during the 2014 open enrollment period and were found eligible;
  • Who enrolled in minimum essential coverage outside the exchange on or before May 1, 2014;
  • Eligible for services through an Indian health care provider; and
  • With specified household incomes who reside in a state that did not expand Medicaid.

While the notice relates to individuals and the individual mandate, employers should be aware of the notice in case employees have questions relating to hardship exemptions.

Notice 2014-71

IRS Issues Final Regulations on Individual Mandate Exemption for Unaffordable Coverage

Posted by admin on December 10, 2014  |   No Comments »

On Nov. 26, 2014, the IRS finalized proposed regulations relating to minimum essential coverage under PPACA’s individual mandate. The proposed regulations were issued Jan. 23, 2014 (covered in the Jan. 28, 2014, edition of Compliance Corner) and describe an exemption from the individual mandate for individuals that cannot afford minimum essential coverage. This is separate from the affordability requirements under the employer mandate. However, whether an individual qualifies for the exemption depends on whether employer coverage is affordable via a separate standard: Coverage is unaffordable if the cost of that coverage (whether through an employer’s plan or the lowest cost bronze plan on an exchange) exceeds a percentage (8 percent for 2014 and 8.1 percent for 2015) of the individual’s household income for the most recent tax year. The proposed regulations addressed how employer contributions made via an HRA or wellness program affect the affordability exemption for an individual. The final regulations mostly adopt those regulations.

On HRAs, an employer’s contributions are taken into account when determining (in other words, they reduce) an employee’s required premium contribution towards the employer coverage if the HRA is integrated with the employer’s plan and the employee may use the s contributions to pay premiums. HRAs that may be used only for cost-sharing will not reduce an employee’s required contributions towards coverage.

On wellness incentives, the incentive (i.e., premium reduction) is taken into account when determining an employee’s required contributions only if the incentive is related to tobacco use.

Lastly, the proposed regulations requested comments on how to treat cafeteria plan contributions with respect to the unaffordable coverage exemption. The final regulations state that an employee’s required contribution is reduced by any employer contributions made available for the current plan year under a cafeteria plan that:

  • May not be taken as a taxable benefit
  • May be used to pay for minimum essential coverage; and
  • May be used only to pay for medical care (as that term is defined under IRC Section 213).

Although the final regulations relate to requirements for individuals under the individual mandate, employers should be aware of the regulations, since an employer-sponsored HRA, tobacco-related wellness program or cafeteria plan contribution may affect an individual’s ability to qualify for the unaffordability exemption.

Final Regulations

CMS Issues Proposed Benefit and Payment Parameters for 2016

Posted by admin on December 8, 2014  |   No Comments »

On Nov. 21, 2014, CMS issued proposed regulations related to benefit and payment parameters for the 2016 benefit year. The regulations address several topics, outlined below.

Transitional Reinsurance Contributions. The proposed contribution amount for 2016 is $27 per covered life. This is a decrease from the 2015 contribution amount of $44. The contribution is currently not payable on fully insured expatriate plans. The proposed regulations would also exempt self-insured expatriate plans in 2016.

Marketplace Open Enrollment. The open enrollment period for the individual marketplace would be from Oct. 1, 2015 through Dec. 15, 2015 with a coverage effective date of Jan. 1, 2016.

Special Enrollment Periods (SEP). An individual who is eligible for a non-calendar year employer sponsored plan would experience a SEP at the end of the plan year, permitting the individual to enroll in the marketplace outside of open enrollment. The regulations also propose a SEP for an individual who is making less than 100 percent of the federal poverty level (FPL) and resides in a state that has not expanded Medicaid. The SEP would apply if the individual has a subsequent change in household income to between 100 and 400 percent of FPL, resulting in premium tax credit eligibility.

Individual Mandate Exemptions. An individual who is required to pay more than 8.1 percent of household income for minimum essential coverage would be exempt from the individual mandate. This is an increase from the current 8.0 percent.

SHOP. SHOPS would be permitted to assist employers with COBRA premium processing. The SHOP would, at the employer’s request, collect COBRA premium payments directly from participants and forward the payments to the insurer. The employer would still be responsible for all other COBRA administrative functions including notice requirements.

Out-of-pocket (OOP) maximum. For 2016, the proposed OOP maximum is $6,850 for self-only coverage and $13,700 for family coverage. This is an increase from the 2015 OOP maximums of $6,600 for self-only and $13,200 for family.

Pediatric services. Pediatric dental and vision services, which are essential health benefits (EHB), would be offered to children through the end of the calendar year in which they turn 19 years of age. This is a change from the current requirement to provide coverage until age 19.

Habilitative services. The proposed regulations define habilitative services, which is a category of EHB, as services and devices provided for an individual to attain, maintain or prevent deterioration of a skill or function never learned or acquired due to a disabling condition. This is different from rehabilitative services which are provided to an individual who had acquired such skills but lost them or became impaired because of illness, injury or a disabling condition. An example of an habilitative service is therapy for a child who is not walking or talking at the expected age.

Prescription drugs. Plans required to provide coverage for EHB could not limit prescription drug coverage to mail-order delivery. There would be an exception for certain drugs that have limited access and are not generally available through retail pharmacies. The plan would be permitted to charge different cost-sharing amounts for pharmacy versus mail-order delivery. Also, plans would be required to publish a complete list of all covered drugs on its formulary drug list including any tiering structure.

Discrimination in EHB. The regulations identify several practices which the agency would generally consider to be discriminatory and in violation of the EHB regulations. Examples include placing all drugs for a specific condition on a high-cost sharing tier and limiting coverage for hearing aids to participants who are 6 years of age or younger.

Minimum Value. The regulations propose rules in line with IRS Notice 2014-69, which state a group health plan would not be considered to provide minimum value unless the plan includes coverage for inpatient hospitalization and physician services. The notice provided an exception for employers who entered into a binding written commitment or began enrolling employees prior to Nov. 4, 2014 and the plan year begins by Mar. 1, 2015. The proposed regulations clarify that a binding written commitment exists when an employer is contractually required to pay for an arrangement, and a plan begins enrolling employees when it begins accepting employee elections to participate in the plan.

MLR. Currently, a group health plan that is subject to ERISA and receives a MLR rebate (which represents plan assets) must use the rebate within three months or place the rebate amount in trust. Non-federal government plans and church plans are not subject to ERISA and do not have a similar timeframe imposed to use the rebate. The regulations propose that employer plan sponsors not subject to ERISA must use the rebate within three months. They could use the rebate to reduce the employees’ portion of premium for the subsequent policy year (including spreading the reduction over all 12 months of the policy year), but the policy year must begin within three months of receiving the rebate. Otherwise the employer must distribute the rebate in the form of a cash refund or apply a mid-year premium credit to the employees.

CMS is accepting comments on the proposed regulations through Dec. 26, 2014.

HHS Fact Sheet

OPM Issues Proposed Rule Regarding Multi-State Plan Program

Posted by admin on December 5, 2014  |   No Comments »

On Nov. 24, 2014, the Office of Personnel Management (OPM) issued a proposed rule regarding establishment of the multi-state plan program for the state health insurance exchanges. In so doing, OPM republished the entire multi-state plan rule issued in 2013 with proposed changes embedded. We originally reported on final regulations regarding the multi-state plan program in the Mar. 12, 2013 edition of Compliance Corner. The proposed rule sets forth changes to the program based on experiences during the first year of the program.

As background, a multi-state plan (MSP) is a type of private health insurance administered by OPM and offered across state lines through the exchanges. In the 2014 plan year, the program was available in 31 states and the District of Columbia. For plan year 2015 OPM added a second group of issuers expanded the MSP into five additional States for a total of 36 States.

The proposed rule may provide greater flexibility and encourage more participation in the program. To that end, OPM is requesting comments regarding a relaxed definition of “group of insurers,” groups with which OPM can contract to provide a multi-state plan through the exchanges. Alternative structures (i.e. a group of cooperative plans) are being considered as possible MSP applicants. One of the goals of the MSP program was to provide an option for small employers with employees located in different states. Currently, very few insurers are offering MSP through the SHOP for employers. To resolve this issue, the OPM is considering relaxing original requirements regarding expansion and SHOP coverage. Also proposed is additional flexibility regarding benchmark plans. Other minor issues addressed include a refined definition of habilitative services, collection of user fees by OPM, and numerous technical corrections.

OPM Proposed Regulations

DOL Issues Guidance on State Regulation of Stop-loss Insurance

Posted by admin on December 3, 2014  |   No Comments »

On Nov. 6, 2014, the EBSA (a department of the DOL), issued Technical Release No. 2014-01, which provides guidance on state regulation of stop-loss insurance.

As background, employers sponsoring self-insured plans typically purchase stop-loss insurance in an effort to lessen their claims exposure. Stop-loss policies typically protect against claims that exceed a certain amount, known as an attachment point. Importantly, stop-loss insurance is generally not treated as health insurance under state law since it typically insures the employer in the event catastrophic claims occur under the group health plan offered to employees.

The National Association of Insurance Commissioners (NAIC) previously adopted a model law that prohibits the sale of stop-loss insurance with a specific annual attachment point below $20,000. For groups of 50 employees or fewer, the aggregate annual attachment point must be at least the greater of (i) $4,000 times the number of group members, (ii) 120 percent of expected claims or (iii) $20,000. For groups of 51 employees or more, the model law prohibits an annual aggregate attachment point that is lower than 110 percent of expected claims. According to TR 2014-01, approximately ten states have enacted laws using the same approach as the NAIC model, as a means of protecting the viability of their health insurance market by regulating stop-loss insurance policies with low attachment points.

In TR 2014-01, the EBSA clarifies that there is no ERISA preemption of stop-loss insurance. In enacting laws addressing stop-loss insurance, some states have taken the position that these laws are related to the regulation of insurance, which are not preempted by ERISA Section 514(a). Now EBSA has determined that states may regulate insurance policies issued to plans or plan sponsors, including stop-loss insurance policies, if the law regulates the insurance company and the business of insurance. Thus, a state law that prohibits insurers from issuing stop-loss contracts with attachment points below specified levels would not, in EBSA’s view, be preempted by ERISA. EBSA noted that it was not aware of any challenges to the stop-loss insurance laws based on ERISA preemption.

DOL Technical Release 2014-01

DOL Releases Interim Final Rule on Additional Reporting Requirements of Multiple-Employer Plans

Posted by admin on December 1, 2014  |   No Comments »

On Nov. 10, 2014, the DOL released interim final rules concerning the new Form 5500 requirements for multiemployer plans under the Cooperative and Small Employer Charity Pension Flexibility Act (CSEC Act). As background, the CSEC Act was enacted on Apr. 7, 2014, and it established additional annual reporting requirements for multiple-employer plans. The CSEC Act also added section 103(g) to Title I of ERISA.

The CSEC Act requires that the Form 5500 of a multiple-employer plan include a list of the participating employers and a good faith estimate of the percentage of total contributions made by each participating employer during the plan year. The CSEC Act defines ‘multiple-employer plan’ as a plan that is maintained by more than one employer and is not a “single employer plan” or a “multiemployer” plan for Form 5500 filing purposes.

The DOL also clarified that welfare plans that are exempt from filing financial statements with their Forms 5500 are required to include a “Multiple-Employer Plan Participating Employer Information” attachment, but are permitted to report only a list of participating employers in the attachment.

These rules apply to plan years beginning after Dec.13, 2013. The DOL is soliciting comments on these interim final rules.

Interim Final Rule