U.S. Supreme Court to Hear Case Challenging Premium Tax Credits Provided Through Federally Facilitated Exchanges

Posted by admin on November 21, 2014  |   No Comments »

On Nov. 7, 2014, the U.S. Supreme Court agreed to address the provision of premium tax credits through federally facilitated exchanges. Challengers claim PPACA’s express language authorized premium tax credits only through exchanges established “by the state.” Such an interpretation would disallow the provision of premium tax credits in any states that have refused to establish their own exchanges and instead defaulted to a federally-facilitated exchange. The IRS has interpreted that same section of PPACA to authorize premium tax credits in both state and federally facilitated exchanges because the federally facilitated exchanges are standing in the shoes of state exchanges. In King v. Burwell, 2014 WL 3582800 (4th Cir. 2014), the Fourth Circuit Court of Appeals ruled that ambiguity about premium tax credits in the law makes the regulation allowing premium tax credits in federally-facilitated exchanges a permissible exercise of agency discretion.

It is anticipated that the case will be argued in the spring with a decision expected toward the end of the Court’s current term in June 2015. This case is significant because premium tax credits are an essential part of PPACA. A finding that premium tax credits are not available through federally facilitated exchanges could cripple the law. Without premium tax credits, employer mandate penalties would have no trigger in those states.

On Nov. 12, 2014, the Court of Appeals for the District of Columbia Circuit decided to suspend their rehearing of Halbig, et al. v. Burwell, because the U.S. Supreme Court has decided to hear another challenge that addresses the same issue. The case will, therefore, be held in abeyance pending the Supreme Court’s decision in King v. Burwell.

Order List Confirming Granted Cert
Abeyance Order

IRS Issues Guidance That Encourages Use of Annuities in 401(k) Plans

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

On Oct. 24, 2014, the IRS issued Notice 2014-66 which is meant to expand use of income annuities in 401(k) plans. The notice provides a special rule that enables qualified defined contribution plans to offer a series of target date funds that include deferred annuities among their assets, even if some of the target date funds are only available to older participants. If certain conditions are met, the special rule provides relief from IRS nondiscrimination rules in that a series of target date funds can be treated as a single right or feature. This permits the target date funds to satisfy the nondiscrimination requirements even if one or more of the target date funds considered on its own would not satisfy those requirements.

The IRS has put four conditions on target date fund qualification for the rule. First, the series of target date funds must be designed to serve as a single integrated investment program managed by the same investment manager applying the same generally accepted investment theories. Second, none of the deferred annuities can provide a guaranteed lifetime withdrawal benefit or guaranteed minimum withdrawal benefit feature. Third, the target date funds cannot hold employer securities that are not readily tradable on an established securities market. Fourth, each target date fund in the series must be treated in the same manner with respect to rights or features other than the mix of assets.

IRS Notice 2014-66 will be published in Internal Revenue Bulletin 2014-46 on Nov. 10, 2014.

IRS Notice 2014-66

IRS Issues 2015 Pension Plan Limitations and Cost of Living Adjustments

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

On Oct. 23, 2014, the IRS published IRS News Release IR-2014-99, which outlines the cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015.

For 2015, the elective deferral limit for employees who participate in 401(k), 403(b) and most 457 plans, and the federal government’s Thrift Savings Plan increased from $17,500 to $18,000. Additionally, the catch-up contribution limit for employees age 50 and over who participate in any of those plans increased from $5,500 to $6,000. The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts increased from $12,000 to $12,500.

Among other increases, the annual limit for defined contribution plans under Section 415(c)(1)(A) increased from $52,000 to $53,000, and the annual limit on compensation that can be taken into account for contributions and deductions increased from $260,000 to $265,000. The threshold for determining who is a “highly compensated employee” (HCE) increased from $115,000 to $120,000.

While there were a number of increases in the dollar limits, a few limits remained the same. These include the annual benefit for a defined benefit plan under Section 415(b)(1)(A), the dollar limitation concerning the definition of key employee in a top-heavy plan, the limitation on IRA contributions and the limit on the annual benefit under a defined benefit plan.

On Oct. 30, 2014, the IRS issued Revenue Procedure 2014-61, which relates to certain cost-of-living adjustments for a wide variety of tax-related items.

According to the revenue procedure, the annual limit on employee contributions to a health FSA increases from $2,500 to $2,550 for plan years beginning in 2015.

Regarding the small business health care tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10. The average annual wage level at which the credit phases out for small employers is $25,800 (up $400 from 2014).

Finally, regarding qualified transportation fringe benefits, the monthly limit that may be excluded from income for parking benefits remains $250 and the combined limit for transit passes and vanpooling remains $130.

NFP has a white paper which includes the updated annual employee benefit limits. Please ask your advisor for a copy.

Rev. Proc. 2014-61

CMS Provides Additional Reinsurance Contributions Guidance, Deadline Extended to Nov. 17

Posted by admin on November 14, 2014  |   No Comments »

As a reminder, PPACA created a temporary reinsurance program for insurers. The program is funded by transitional reinsurance contributions from insurers and group health plans. The employer plan sponsor of a self-insured plan is responsible for this requirement, but may contract with a third party administrator or administrative services only contractor to file on behalf of the plan. For fully insured plans, responsibility for this requirement lies with the carrier.

The employer must report its annual enrollment count through www.pay.gov. The original deadline was Nov. 15, 2014. Because that date falls on a Saturday, CMS will accept submissions through Monday, Nov. 17, 2014. (FAQ 5415) CMS has clarified that neither the calculation method nor employee level information is required to be reported. The employer must only report plan level information and the average enrollment count. (FAQ 6447) For recordkeeping purposes, documentation supporting the calculation method and the enrollment count should be maintained for 10 years.

When calculating the number of covered lives, those who have Medicare Part A or B as primary coverage may be excluded. This is an important clarification for retiree plans which are subject to the fee and may have participants who have primary Medicare coverage. (FAQs 6437 and 6449)

CMS has published a detailed manual with step-by-step instructions and screen shots to assist plans with the submission process.

FAQ 5415
FAQ 6437
FAQ 6447
CMS Reinsurance Program Manual

Online Enrollment in SHOP Marketplace Begins Nov. 15

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

On Oct. 8, 2014, CMS issued a bulletin reminding employers that enrollment in the SHOP marketplace would begin Nov. 15, 2014. As a reminder, employers wishing to obtain a small business tax credit must purchase coverage through the SHOP marketplace in 2015. The bulletin includes a link to the SHOP full-time equivalent calculator to determine eligibility based on employee count, a tax credit estimator tool and information about SHOP coverage including the plans and premium estimates. Remember that the determination of the full-time employee count for the small business tax credit is not the same calculation as determining whether an employer is an applicable large employer (subject to the employer mandate). NFP has a small business tax credit calculator. Ask your advisor for details.


HPID Requirement Delayed Indefinitely

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

On Oct. 31, 2014, CMS announced that enforcement of HIPAA’s health plan identifier (HPID) requirement has been delayed indefinitely. As background, HIPAA requires health plans to obtain an HPID, which is to be used by the plan in certain HIPAA-related transactions. The HPID is a unique identifier for the plan, similar to a taxpayer identification number—a standard number that applies in all transactions so that the parties involved know the true identity of the plan. Large health plans (those with annual receipts of more than $5 million) were supposed to obtain an HPID by Nov. 5, 2014 while small health plans had an additional year to comply. The HPID regulations also introduced two new (and somewhat confusing) terms—“controlling health plan” (CHP) and “sub-health plan” (SHP). A CHP is a plan that controls its own business operations, and which is required to obtain its own HPID. A SHP, on the other hand, is a plan that takes direction from a controlling health plan, and which is not required to obtain its own HPID (although a CHP can direct an SHP to obtain an HPID or obtain one on their behalf).

Generally speaking, in the fully insured context, the insurer is responsible for obtaining an HPID. In the self-insured context, though, the employer assumes that responsibility. CMS had recently published several items of guidance to assist insurers and employers in determining which health plans must obtain an HPID and in walking through the process of obtaining the HPID. Those items were covered in the Oct. 7, 2014, edition of Compliance Corner.

The announced delay pushes off HPID penalty enforcement indefinitely for all health insurers and health plans. Importantly, the announcement also references a letter from the National Committee on Vital and Health Statistics (NCVHS) to HHS recommending that covered entities not use the HPID in connection with HIPAA transactions. NCVHS’s recommendation is based on several conclusions, including a lack of clear business need and purpose for using HPID in health care administrative transactions, confusion about how the HPID would be used in conjunction with the current payer identification numbers that have already been widely adopted in the industry, and costs to health plans if software has to be modified to account for the HPID. NCVHS also cited the challenges faced by health plans with respect to the definitions of ‘controlling health plans’ and ‘sub-health plans’, something employers have been struggling with over the past year as they attempted to understand and comply with the HPID rules.

With an indefinite delay in enforcement and a recommendation that lacks support for the HPID’s purpose, the HPID requirement’s future is unknown. For now, though, it is clear that insurers and employers will not be penalized for failing to obtain an HPID by the above dates. NFP Benefits Compliance will continue to monitor developments on this issue.

CMS HPID Announcement
NCVHS Recommendation

IRS: Plans Without Coverage for Hospital or Physician Services Do Not Meet Employer Mandate’s Minimum Value Requirement

Posted by admin on November 7, 2014  |   No Comments »

On Nov. 4, 2014, the IRS published Notice 2014-69, which addresses group health plans that fail to cover in-patient hospitalization services or exclude substantial coverage of physician services. These types of plans have often been referred to as “skinny” or “limited benefit” plans, and are referred to in the notice as “non-hospital/non-physician services plans”. These plans have been a subject of substantial debate over the past two years. The debate centers on whether such plans are considered as meeting the minimum value (MV) requirements under PPACA’s employer mandate. The federal government previously provided three methods for determining whether a plan meets MV: An HHS MV calculator, a design-based MV checklist and via actuarial certification. Arguably (and the reason for the debate), a non-hospital/non-physician services plan could meet MV based on the calculator.

However, according to Notice 2014-69, non-hospital/non-physician services plans do not provide the intended MV and therefore will not be considered as meeting the MV requirement. The notice states that in the immediate future the federal government will issue proposed regulations to formalize that position, and that those regulations will be finalized and fully applicable in 2015. Accordingly, going forward, employers may not rely solely on the MV calculator or actuarial certification to demonstrate that a non-hospital/non-physician services plan provides MV value.

That said, the notice does contain a limited exception. If an employer has entered into a binding written commitment to adopt, or has begun enrolling employees in, a non-hospital/non-physician services plan prior to Nov. 4, 2014, and the employer did so based on the reliance of the MV calculator, the employer will not be subject to an employer mandate penalty with respect to the plan before the end of the plan year (as in effect under the terms of the plan on Nov. 3, 2014)—so long as that plan year begins no later than Mar. 1, 2015. In other words, if an employer prior to Nov. 4, 2014, had entered into an agreement with a non-hospital/non-physician services plan (or had begun enrolling employees into that plan), the plan will be considered as meeting MV for purposes of the employer mandate through the end of the plan year (so long as the plan year begins by Mar. 1, 2015).

Importantly, though, an employee that is covered under a non-hospital/non-physician services plan may still qualify for a premium tax credit through the exchange. This is meant to allow an employee to still qualify for assistance in obtaining a richer plan through the exchange.

An employer that offers a non-hospital/non-physician services plan (including one adopted prior to Nov. 4, 2014) to an employee is also subject to two other obligations. First, the employer must not state or imply in any disclosure that the plan precludes an employee from obtaining a premium tax credit (if otherwise eligible). Second, the employer must timely correct any prior disclosures that state or implied that the plan would preclude an otherwise eligible employee from obtaining a premium tax credit.

Employers should review their plan strategies in light of the IRS notice and consider whether the non-hospital/non-physician services plan is still a viable option in complying with the employer mandate. NFP Benefits Compliance will continue to monitor developments on this issue, including the forthcoming release of proposed regulations.

IRS Notice 2014-69

IRS Releases 401(k) Plan Checklist

Posted by admin on November 5, 2014  |   No Comments »
The IRS recently updated Publication 4531, which is a one-page 401(k) Plan checklist. Although the checklist does not describe all 401(k) plan requirements, it is a good tool to assist employers with keeping their 401(k) plans in compliance with many of the important rules.

IRS Issues Information Letter Explaining Vanpooling as Tax-free Benefit

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

On Aug. 1, 2014, the IRS issued Information Letter 2014-0028 in response to an employee’s inquiry about his employer’s interpretation of the 80/50 rule (described below). The letter provides helpful clarification about this rule and other considerations that apply when employer-sponsored qualified transportation benefits include tax-free vanpooling benefits. The letter explains the rules for the three types of vanpools that may be qualified transportation benefits.

  • Employer-operated. In an employer-operated vanpool, the employer purchases or leases vans (or contracts with a third party to provide vans, and pays some or all of the operating costs) to enable employees to commute to work. If the van is a “commuter highway vehicle,” then the value of a vanpool used by an employee (up to the monthly limit) can be excluded from the employee’s income under a qualified transportation plan. A commuter highway vehicle is a highway vehicle that seats six or more adults (not including the driver), where at least 80 percent of mileage use can reasonably be expected to be 1) for transporting employees between their residences and places of employment, and 2) on trips during which the number of employees transported for these purposes is at least 50 percent of the vehicle’s adult seating capacity not including the driver (the 80/50 rule). The letter notes that there is no requirement that the employee use the vanpool at least 50 percent of the time.
  • Employee-operated. Refers to when employees operate a van independent of their employer to commute to work. If the van is a commuter highway vehicle, then the employer’s reimbursement for expenses incurred in connection with the vanpool (up to the monthly limit and subject to substantiation rules) can be excluded from the employees’ income under a qualified transportation plan.
  • Transit-operated. Refers to a vanpool operated by public transit authorities or someone in the business of transporting persons for compensation or hire. The van must seat at least six adults (not including the driver), but the 80/50 rule does not apply. The exclusion for transit passes is available for passes, tokens, or similar items entitling a person to transportation in a transit-operated vanpool, and the employer must distribute passes to employees instead of providing cash reimbursements if passes are readily available for direct distribution within the meaning of the transit pass rules.

Vanpooling is just one type of qualified transportation plan that employers may offer. The others are qualified parking, transit passes, and bicycle commuting benefits. Transit and vanpooling benefits are subject to a combined, inflation-adjusted limit of $130 per month for 2014.

Information Letter 2014-0028

Federal Agencies Issue Guidance Related to Reference-based Pricing

Posted by admin on October 31, 2014  |   No Comments »
The DOL, IRS and HHS have jointly issued guidance related to reference-based pricing. As background, a plan that uses reference-based pricing pays a fixed dollar amount for a specific procedure. Certain health care providers accept this fixed amount as payment in full for the service rendered. The plan may treat these providers as the plan’s only in-network providers. If a participant uses a non-network provider, the plan may exclude the amount billed over the reference price from the maximum out-of-pocket calculation.

The new guidance, issued in the form of a frequently asked question, states that a plan may only use reference-based pricing for services for which the participant has sufficient time to make an informed choice of provider. For example, a plan could not use this form of payment for emergency services.

Plans should implement procedures to ensure reasonable access to quality providers, and are encouraged to consider the state network adequacy provisions. If a network provider is not available or if the quality of services could be compromised for a specific participant and service, the plan should allow services rendered by a non-network provider to be paid as if they were provided by a network provider.

Finally, plans must provide participants with information regarding pricing structure, a listing of services for which the reference based pricing applies and a listing of network providers.

The departments will continue to monitor this issue and may issue additional guidance in the future. The guidance above may be relied upon in the interim.