IRS Extends ACA Reporting Deadlines and Offers Penalty Relief
On December 2, 2019, the IRS released IRS Notice 2019-63, extending the deadlines for distributing ACA reporting forms to individuals. The IRS also provided relief from penalties for good faith effort and from the requirement to distribute the Form 1095-B to individuals. As background, the ACA imposes two reporting requirements under Sections 6055 and 6056. Section 6055 requires entities that provide minimum essential coverage to report to the IRS and to covered individuals the months in which the individuals were covered. Section 6056 requires applicable large employers (under the employer mandate) to report to the IRS and full-time employees whether they offered minimum essential coverage that was affordable and minimum value.
As the IRS has done for the last four reporting years, they have extended the date by which employers must distribute Forms 1095-B or 1095-C to individuals. Those forms must now be distributed by March 2, 2020 (instead of January 31, 2020). However, as in previous years, this notice does not extend the date by which employers must file Forms 1094-B/C and 1095-B/C with the IRS. So reporting entities must still file Forms 1094-B/C and 1095-B/C with the IRS by February 28, 2020, if filing by paper and March 31, 2020, if filing electronically.
If an employer doesn’t comply with the deadlines, the employer can be subjected to penalties. The IRS also indicates that employers can no longer request an automatic extension of the due date by which they must distribute the forms to individuals, as the extension they’ve provided is just as generous. In fact, the IRS will not respond to any such extension. Employers may still request an automatic extension to file the Forms 1094-B/C and 1095-B/C with the IRS, as long as they submit a Form 8809 on or before the due date of those filings.
The IRS is also reinstating relief recognizing good faith effort made by employers that file the 2019 forms. Specifically, employers that timely file and distribute their required Forms 1094-B/C and 1095-B/C will not be subject to penalties if the information is incorrect or incomplete. In determining what constitutes a good faith effort, the IRS will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to a reporting service provider or testing its ability to use the ACA Information Return Program electronic submission process. This relief doesn’t apply to a failure to timely furnish or file a statement or return, and it doesn’t extend to employer mandate penalties (for large employers that didn’t offer affordable, minimum value coverage to full-time employees pursuant to the ACA’s employer mandate).
Notably, this notice also provides penalty relief for employers, which will allow them to forego distributing the Form 1095-B to individuals. This comes after the IRS accepted comments on the necessity of the Form 1095-B now that the individual mandate penalty has been zeroed out. As long as employers post a notice on their website that the document is available upon request, and then fulfill any such request within 30 days, they don’t have to distribute the Forms 1095-B to covered individuals.
This relief is not available for Form 1095-C, but can be applied to employees who are not full-time and only receive a Form 1095-C to meet the Form 1095-B reporting requirement. In other words, those employees who are only receiving a Form 1095-C because the employer uses Part III to comply with Section 6055 no longer have to be provided a Form 1095-C. Also keep in mind that employers that must provide and file Form 1095-C to full-time employees must still complete Part III of the Form, indicating the covered spouses and dependents of the full-time employees.
Employers should keep this guidance in mind as they are preparing their filings and distributions. Our Benefits Compliance Team will continue to monitor any developments that might impact employer reporting obligations in future years.
IRS Releases 2019 Draft Forms 1095-B and 1095-C
The IRS recently released the 2019 draft versions of the Forms 1095-B and 1095-C. As background, the ACA imposes two reporting requirements under Sections 6055 and 6056. Section 6055 requires entities to report on Forms 1094-B and 1095-B that they provided minimum essential coverage to covered individuals during the year. Section 6056 requires applicable large employers (under the employer mandate) to report on Forms 1094-C and 1095-C that they provided affordable and minimum value coverage to full-time employees.
On December 4, 2019, the IRS released the 2019 draft of Form 1095-C. On December 5, 2019, the IRS released the 2019 draft of Form 1095-B. The forms are basically unchanged from their 2018 versions, with the exception being that the Form 1095-B reflects the fact that the individual mandate penalty has been zeroed out.
The forms must be filed with the IRS by February 28, 2020, if filing by paper and March 31, 2020, if filing electronically. The Forms 1095-B and 1095-C must be distributed to applicable employees by March 2, 2020. The penalties for failure to file and report are $270 per failure. This means that an employer who fails both to file a completed form with the IRS and to distribute a form to an employee/individual would be at risk for a $540 penalty. Keep in mind, though, that the IRS has provided relief that would allow reporting entities not to distribute the Form 1095-B if certain conditions are met.
We’ll keep you updated of any developments, including release of the finalized forms and instructions.
IRS Releases 2019 Instructions for Form 8994: Employer Credit for Paid Family and Medical Leave
The IRS recently released the 2019 Instructions for Form 8994: Employer Credit for Paid Family and Medical Leave. Employers who provide family and medical leave to their employees may complete Form 8994 in order to claim a credit for tax years 2018 and 2019. In order to claim the leave, employers must have a written policy that provides at least two weeks of paid leave to full-time employees (prorated for part-time employees), and the paid leave must be at least 50% of the wages normally paid to the employee.
Family and medical leave, for purposes of this credit, is leave granted by the employer in accordance with written policy for one or more of the following reasons:
- Birth of an employee’s child and to care for the child
- Placement of a child with the employee for adoption or foster care
- To care for the employee’s spouse, child, or parent who has a serious health condition
- A serious health condition that makes the employee unable to do the functions of their position
- Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces
- To care for a service member who’s the employee’s spouse, child, parent, or next of kin
The credit is a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year. The applicable percentage falls within a range from 12.5% to 25%. In certain cases, an additional limit may apply. An employer can claim credit only for leave taken after the written policy is in place, and the credit is scheduled to expire for tax years beginning after 2019.
Employers seeking to claim this credit should work with their accountants or tax professionals to do so.
IRS Provides Early Draft of 2020 Fringe Benefits Guide
On November 26, 2019, the IRS provided an early release draft of the 2020 IRS Publication 15-B, the Employer’s Tax Guide to Fringe Benefits. This publication provides an overview of the taxation of fringe benefits and applicable exclusion, valuation, withholding, and reporting rules.
As background, the IRS modifies Publication 15-B each year to reflect any recent legislative and regulatory developments. Additionally, the revised version provides the applicable dollar limits for various benefits for the upcoming year. As standard procedure, the IRS releases a preliminary draft of the updated guide prior to final publication.
Among the changes for 2020 is a new Form 1099-NEC. The Form 1099-NEC will be used to report nonemployee compensation paid in 2020 and will be due on February 1, 2021. However, employers reporting nonemployee compensation paid in 2019 should continue to use Form 1099-MISC, which is due January 31, 2020.
With respect to 2020 annual limits, the monthly exclusion for qualified parking is $270 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $270. For plan years beginning in 2020, the maximum salary reduction permitted for a health FSA under a cafeteria plan is $2,750.
Employers should be aware of the changes reflected in the early release of the fringe benefits guide. The IRS is accepting comments regarding the proposed publication. Accordingly, employers should also recognize that some changes to the released draft may occur prior to finalization.
DOL Provides Transparency in Coverage Model Disclosures
The DOL recently released model disclosures in relation to the proposed Transparency in Coverage rule, which was issued on November 15, 2019. (We discussed this rule in the November 28, 2019, edition of Compliance Corner.) These model disclosures are designed to assist employer sponsored group health plans (including self-insured plans) and issuers in meeting the new cost-sharing disclosure requirements.
As explained in our previous article, the proposed rule involves two new approaches to promote greater price transparency in the health care system. First, a plan or issuer would be required to provide an individualized estimate of a participant’s cost sharing responsibility for a covered item or service. Second, these entities would be required to publicly disclose negotiated rates for in-network providers and historical out-of-network allowed amounts in standardized files on their website.
The Transparency in Coverage Model Notice (Appendix 1) is designed to illustrate the first obligation to provide a customized participant cost summary upon request. The proposed format includes sections for key terms and explanations of prerequisites or limitations applicable to the cost-sharing estimate. The model language is designed to be incorporated in a website self-service tool or in paper format. Although use of the model is encouraged, modifications and additions are permissible. However, any changes must be consistent with the proposed rule’s content and plain language requirements.
With respect to the second approach, the Negotiated Rate Machine-Readable File Data Elements (Appendix 2) provides a model for posting in-network provider negotiated rates through a machine readable file on the internet. The proposed data elements to be included on the file include the publishing entity, plan and provider information, and specifics regarding the negotiated rates and covered services. Similarly, the Allowed Amount Machine-Readable File Data Elements (Appendix 3) is intended as an example for the required disclosure of out-of-network allowed amounts. The proposed data elements would include detailed historical information, such as a list of the allowed dollar amount for each unique out-of-network covered item or service during a 90 day period beginning 180 days prior to the file’s publication date.
Employers may want to review these model disclosures in conjunction with the underlying proposed Transparency in Coverage rules. However, it is important to recognize that the rules are not currently in effect. Accordingly, changes may occur (which could also affect the model disclosures) prior to finalization.
IRS Releases Required Amendment List for Retirement Plans
On December 4, 2019, the IRS issued Notice 2019-64, which is the 2019 Required Amendments List (RA List) for qualified retirement plans. The yearly RA Lists provide changes in retirement plan qualification requirements that could result in disqualifying provisions and require a remedial amendment. A disqualifying provision is a required provision that isn’t listed in the plan document, a provision in the document that doesn’t comply with the qualification requirements, or a provision that the IRS defines as such.
The RA List is divided into two parts: Part A and Part B. Part A gives changes in qualification requirements that generally will require affected plans to be amended. Part B gives changes that would likely not require amendments to most plans, but might require an amendment because of an unusual plan provision in a particular plan.
This year, Part A includes two changes in requirements that would require plan document amendments. The first requires plan sponsors to amend their plan documents to reflect the recently adopted changes to the hardship distribution rules. Specifically, those changes no longer require employers to suspend employees’ elective deferrals after they’ve taken a hardship distribution or to require that employees represent that they do not have sufficient cash or liquid assets to use for the hardship. The second change requires plan sponsors to amend their plan document to reflect the final rules on cash balance and hybrid defined benefit plans. There are no Part B entries. Notably, this RA list also applies to 403(b) plans.
The remedial amendment deadline for disqualifying provisions resulting from items on the 2019 RA List is December 31, 2021 (or later, for certain governmental plans). Therefore, plan sponsors should determine whether amendments are necessary for their particular retirement plans.
New Mailing Address for IRS Employee Plan Submissions
On November 29, 2019, the IRS provided a new mailing address for employee plan submissions regarding determination letters, letter rulings, and IRA opinion letters. This update provides an additional address for regular United States Postal Service delivery.
The address for regular USPS delivery is:
Internal Revenue Service
P.O. Box 12192
TE/GE Stop 31A Team 105
Covington, KY 41012-0192
The address for deliveries by private delivery services is:
Internal Revenue Service
7940 Kentucky Drive
TE/GE Stop 31A Team 105
Florence, KY 41042
This address change will affect the place to which a number of different forms must be mailed. However, many employers will not utilize this new address, as it applies to very specific forms. Plan sponsors should familiarize themselves with the announcement to ensure that they are sending their plan submissions to the correct address.
What benefit compliance considerations are there when large clients acquire smaller organizations? Is there a deadline by which a buyer must enroll acquired employees onto their plans?
Clients that are engaging in mergers and acquisitions should generally consult with legal counsel about the implications of the transaction on the two business entities involved. Counsel would be best suited to analyze the plans of the two clients and analyze obligations given the purchase agreement and benefits-related laws. However, we can provide some general considerations.
The initial step in determining what obligations the buyer in a transaction might have is to understand the legal structure of the transaction. The type of transaction is important because it determines whether the seller's rights and obligations are transferred by law to the buyer (although the parties can contract otherwise). With an asset purchase, any employees of the seller who will soon be working for the buyer would generally be considered terminated and rehired by a new employer (the buyer). With a stock purchase, the same employees would just continue to be employed by the same legal entity, soon to be owned by the buyer.
When it comes to the benefits plans of the buyer and seller, there is no one set transition timeframe. The timeframes would depend not only on the type of transaction and acquisition closing date, but on the type of benefits offered, applicable legal mandates, and the contractual agreements between the parties. Several considerations are outlined below. The buyer should discuss these with their counsel and work out the details prior to the transaction closing date.
First, the buyer should be cautious about an arrangement in which the seller agrees to continue to provide benefits for a transitional period after the closing date to former employees who are now newly hired employees of the buyer. This may result in the inadvertent creation of a MEWA, with additional compliance obligations and possible liability under both state and federal laws. Although some of those obligations are curtailed by law for certain transactions, the buyer will need to be sure of the implications of such a transitional period.
Second, there may be ACA considerations. If the buyer’s company had 50 or more full time or equivalent employees last year, it is an applicable large employer (ALE). As an ALE, the buyer is subject to the requirement to offer affordable minimum value coverage to full time employees.
It is not clear what the employer mandate would require if the acquired company is a non-ALE or an ALE. The general view is that if a non-ALE is acquired (via stock purchase) by an ALE group during a calendar year, the acquired entity becomes an ALE member beginning with the month in which the acquisition occurs. So, if the transaction occurs mid-month and the acquired entity was not previously an ALE that offered affordable minimum value coverage to full time employees, this could subject the buyer to potential penalties. If the acquired company was also an ALE complying with the ACA mandates, there are still issues concerning the measurement and stability periods that would need to be reviewed and addressed (particularly if the lookback method was used). If the acquired company used different measurement methods, an option may be available to continue using such methods for a transition period following the transaction closing date.
Third, there may be cafeteria plan issues. If the employees currently make pre-tax premium and other benefit payments through the seller’s cafeteria plan, will they now be offered participation in an existing cafeteria plan of the buyer? With an asset purchase, upon the closing date, the employees of the acquired business will cease to participate in the seller’s cafeteria plan and their elections would normally terminate at that time. New elections should be obtained from these employees for the buyer’s plan. If applicable, there may also be an option to transfer FSA balances from the seller’s plan to the buyer’s plan.
With a stock purchase, the buyer assumes sponsorship of the cafeteria plan covering the employees of the acquired business, and the elections under the plan could continue. Alternatively, the buyer may want to terminate the acquired business’ cafeteria plan at closing and enroll the employees in the buyer’s plan. A short plan year (for the acquired plan) would be allowed in this instance, provided the plan was amended and Form 5500 timely filed (which would be under an accelerated schedule). Although there is no direct regulatory guidance, new benefit elections for the acquired employees should also be permissible. However, if the transaction occurs mid-year and the cafeteria plan benefits include health or dependent care benefits, the employees should be given as much advance notice as possible so they can use their existing balances.
An additional and related issue is non-discrimination testing. Upon acquiring the stock (or assets) of a business, the buyer must determine the potential impact of including the employees of the acquired business in its benefit plans. Note that with respect to retirement plan coverage testing, there is a transition period from the closing date to the last day of the following plan year in which plans can be tested separately. Although it would seem reasonable to apply such a rule to Section 125 cafeteria plan testing, there is no direct regulatory guidance to that effect. A self-insured plan would also be subject to the Code Section 105 testing. Prior to the closing date, it would be advisable for the employer to assess the highly compensated versus non-highly compensated populations of the acquired employees and the effect upon testing results. This will help to prevent test failures and taxation of benefits for highly compensated employees.
COBRA may also be a consideration. If the seller maintains a plan after the sale, the seller would provide COBRA coverage to any COBRA qualified beneficiaries. However, if the seller ceases to maintain any group health plan in connection with the sale, then a group health plan maintained by the buyer must provide the COBRA coverage if 1) the buyer maintains a group health plan; and 2) in the case of an asset sale, the buyer is a successor employer. As with other issues, the parties can contract to allocate the responsibilities in a different manner.
Once these benefit decisions are determined, the plan document/SPD should be amended and employee disclosures and communications updated to reflect any changes.
To summarize, there is no one set period to transition the acquired employees to the new plans. It first should be determined whether the acquisition is an asset or stock purchase. Then, each benefit and its related compliance concerns would need to be reviewed. A brief summary of some potential issues are outlined above. Given the complexities and potential liabilities associated with benefit plans, it would be wise for the client to consult with counsel and develop a plan to address these issues well in advance of the transaction closing date.
District of Columbia
Employer Reporting Responsibility Related to Individual Health Insurance Mandate
Since the beginning of 2019, D.C. residents must have minimum essential health care coverage or pay a tax penalty. As a result, employers will have reporting responsibilities to the District. The responsibility will be satisfied by submitting the same IRS Forms 1094-B, 1095-B, 1094-C, and 1095-C to the D.C. Office of Tax and Revenue (OTR). In other words, employers will file them with the IRS to comply with their federal responsibility under the employer mandate. They will then file the same forms with the OTR to satisfy their District responsibility.
The requirement applies to employers with 50 or more employees, one of whom resides in D.C. The forms will need to be filed electronically through the MyTax.DC.gov website. For this first year, the filing deadline for the 2019 forms will be June 30, 2020. In future years, the deadline will be 30 days following the IRS deadline for submitting forms.
There is no mention of the requirement only applying to self-insured employers. It appears that both fully insured and self-insured large employers would need to comply, even though the carrier for a fully insured plan will already be submitting the Forms 1094-B and 1095-B on behalf of the plan. Hopefully, future guidance will be issued prior to June 2020. We will keep you updated on any developments. In the interim, employers should work with reporting vendors and internal personnel to prepare for the new requirement.
Paid Leave Law
On October 4, 2019, Labor Commissioner Chambers issued Advisory Opinion 2019-02 concerning that state’s new paid leave law (SB 312), effective January 1, 2020. SB 312 requires Nevada employers with 50 or more employees in the state to provide employees with at least 0.01923 hours of paid leave for each hour worked in a benefit year, and employees can use that leave for any reason. The advisory opinion seeks to provide guidance on the new law.
The opinion points out that SB 312 does not apply to employers during the first two years of operation or to employers who already have leave policies that exceed the 0.01923 hours paid leave per hour of work. Temporary, seasonal, or on-call employees (those employees called out to work on an hourly or daily basis based upon employer need) do not count towards the 50 employee threshold. Employers can “frontload” an employee’s total accrual on the first day of the benefit year, but employers are not required to pay out any unused leave upon the employee’s termination.
Employers with Nevada employees should consult this advisory opinion for these and other clarifications of SB 312 while updating their leave policies.
This material was created by PPI Benefit Solutions to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The service of an appropriate professional should be sought regarding your individual situation. PPI does not offer tax or legal advice. "PPI®" is a service mark of Professional Pensions, Inc., a subsidiary of NFP Corp. (NFP). All rights reserved.
Industry news topics covered in the Compliance Corner are chosen based on general interest to most employers and may include articles about services not available through PPI.
What benefit compliance considerations are there when large clients acquire smaller organizations? Is there a deadline by which a buyer must enroll acquired employees onto their plans?