Healthcare Reform
CMS Provides 2021 SBC Materials and Supporting Documents
On November 8, 2019, CMS provided the 2021 Summary of Benefits and Coverage (SBC), instructions, SBC Calculator Guide, and Narratives. As background, the ACA requires group health plans and insurers to provide an SBC to applicants and enrollees whenever they are deciding whether to enroll in health plan coverage.
The updated SBC will be used for plan years beginning on or after January 1, 2021. Although insurers will complete this form for insured clients, employer plan sponsors should familiarize themselves with the updated forms.
IRS Releases Updated Publication 5165 for Electronically Filing ACA Information Returns
On November 4, 2019, the IRS released a revised version of Publication 5165, entitled “Guide for Electronically Filing Affordable Care Act (ACA) Information Returns for Software Developers and Transmitters,” for tax year 2019 (processing year 2020). This publication outlines the communication procedures, transmission formats, business rules, and validation procedures for returns transmitted electronically through the Affordable Care Act Information Return System (AIR). The filing is quite technical. The forms must be filed using the Extensible Markup Language (XML) schemas outlined in the publication.
Employers who plan to electronically file Forms 1094-B, 1095-B, 1094-C, or 1095-C should review the latest guidance and make any necessary adjustments to their filing process. Because of the complexity, most employers partner with a payroll or software vendor to assist them with the electronic filing. Those employers still have a responsibility to review the forms for accuracy before submission to the IRS and distribute to employees. Employers filing fewer than 250 forms may file by paper with the IRS.
At this time, no extensions have been announced related to the due dates. Thus, the Forms 1095-C and 1095-B would need to be distributed to employees by January 31, 2020, and those forms along with the Forms 1095-B and 1094-B would need to be filed with the IRS by March 31, 2020, if filing electronically and by February 28, 2020, if filing by paper.
Federal Updates
IRS Announces 2020 Limits for Health FSAs, Commuter Benefits, and Adoption Assistance
On November 6, 2019, the IRS published Revenue Procedure 2019-44, which relates to certain cost-of-living adjustments for a wide variety of tax-related items, including health FSA contribution limits, transportation and parking benefits, qualified small employer health reimbursement arrangements (QSEHRAs), penalties for ACA reporting, the small business tax credit, and other adjustments for tax year 2020. Those changes are outlined below.
- Health FSAs: For plan years beginning in 2020, the annual limit on employee contributions to a health FSA will be $2,750 (up $50 from 2019).
- Transportation/Commuter Benefits: For 2020, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking increases to $270 (up $5 from 2019), as does the aggregate fringe benefit exclusion amount for transit passes.
- Adoption Assistance: For 2020, the maximum amount an employee may exclude from their gross income under an employer-provided adoption assistance program for the adoption of a child is $14,300 (up from $14,080 in 2019).
- QSEHRAs: For 2020, the maximum amount of reimbursement under a QSEHRA may not exceed $5,250 for self-only coverage and $10,600 for family coverage (an increase from $5,150 and $10,450, respectively, in 2019).
- ACA Employer Reporting Penalties: For 2020 employer mandate reporting (Forms 1094/95-C filed in early 2021), the penalties for failure to report will be $280 per return, with a maximum of $3,392,000 (up from $270 per return and a $3,275,000 per calendar year maximum for 2019 returns).
- Small Business Tax Credit: For 2020, the average annual wage level at which the credit phases out for small employers is $27,600 (up $500 from 2019). The maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10.
Employers with limits that are changing (such as for health FSAs, transportation/commuter benefits, and adoption assistance) will need to determine whether their plan documents automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.
Retirement Update
IRS Announces 2020 Limits on Benefits and Contributions for Qualified Retirement Plans
On November 6, 2019, the IRS issued Notice 2019-59, which provides certain cost-of-living adjustments for a wide variety of tax-related items, including retirement plan contribution maximums and other limitations. Several key figures are highlighted below. These cost-of-living adjustments are effective January 1, 2020.
The elective deferral limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases to $19,500 in 2020 (from $19,000 in 2019). Additionally, the catch-up contribution limit for employees age 50 and over who participate in any of these plans increases from $6,000 to $6,500. Accordingly, participants in these plans who have attained age 50 will be able to contribute up to $26,000 in 2020. The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts will increase from $13,000 to $13,500.
The annual limit for defined contribution plans under Section 415(c)(1)(A) increases to $57,000 (from $56,000). The limitation on the annual benefit for a defined benefit plan under Section 415(b)(1)(A) increases from $225,000 to $230,000. Additionally, the annual limit on compensation that can be taken into account for allocations and accruals increases from $280,000 to $285,000.
The threshold for determining who is a highly compensated employee under Section 414(q)(1)(B) increases to $130,000 (from $125,000). The dollar limitation concerning the definition of a key employee in a top-heavy plan increases from $180,000 to $185,000.
Employers should review the notice for additional information. Sponsors of benefits with limits that are changing will need to determine whether their plan documents automatically apply the latest limits or must be amended to recognize the adjusted limits. Any applicable changes in limits should also be communicated to employees.
IRS Proposes Rules that Would Update Life Expectancy and Distribution Tables
On November 8, 2019, the IRS released a proposed rule that would update the life expectancy and distribution period tables that are used to calculate required minimum distributions (RMDs). As background, in August 2018, President Trump issued an Executive Order on Strengthening Retirement Security in America. As part of that order, President Trump directed the treasury to review the life expectancy and distribution period tables to determine if they should be updated.
Subsequently, the IRS has proposed this rule, which will update the Single Life, Uniform Lifetime, and Joint and Last Survivor Tables to recognize longer life expectancies. This will ultimately reduce annual RMDs.
The updated life expectancy distribution tables would apply for any distribution calendar year beginning on or after January 1, 2021. The IRS is also requesting comments on how often they should update these tables. Retirement plan sponsors should keep this update in mind for future RMDs.
FAQ
We apply a premium contribution discount as a wellness program reward for employees who complete a biometric screening. How does that impact affordability under the employer mandate?
As background, large employers (those with 50 or more full time employees, including equivalents) must offer affordable coverage to all full time employees (those working 30 hours or more per week). The affordability rules say that incentives under a wellness program that reduce the amount employees have to pay for the employer's coverage are not treated as reducing the employee's required contribution for purposes of affordability, unless the incentive is related to tobacco use .
So, in this situation, since the wellness activity is not related to tobacco usage, the wellness incentives do not reduce an employee's required contribution (even if the employee actually receives the incentive). That means the employer will have to use the employee’s required contribution prior to the wellness incentive’s application, which likely makes it more difficult to achieve affordability.
As an example, if an employee’s required contribution is normally $100 per month, and the employer gives a $25 discount for employees who complete a biometric screening, the employer would still use the $100 per month contribution amount when calculating affordability (instead of using the $75 discounted rate). If the incentive were tied to tobacco use, the employer could use the $75 per month contribution.
As an aside, wellness programs raise many other issues under several different laws, including HIPAA, ERISA, ADA, and GINA. Employers that choose to connect their rewards with their employer-sponsored group health plans (such as through a premium discount or surcharge, a contribution to an HRA/HSA/FSA, or something similar) must consider the impact of those other laws as well.
State Updates
Illinois
Guidance on Short-Term Limited-Duration Insurance
On September 27, 2019, Director of Insurance Muriel issued Company Bulletin 2019-07 to provide guidance on fully insured short-term limited-duration insurance (STLDI) offered in Illinois. This bulletin is intended to remind carriers doing business in the state that state law isn’t preempted regarding short-term health insurance and, thus, carriers doing business in Illinois must continue to comply with state law.
As background, the federal government issued a rule in August 2018 that extended the initial contract term of STLDI policies issued on or after October 2, 2018, to be no more than 12 months while allowing renewals or extension of such policies of no more than 36 months. Unlike the federal rule, Illinois law limits an STLDI policy to a term that is less than 181 days. Moreover, short-term policies in Illinois cannot be renewed for 365 days after termination with a single issuer, and the insurer cannot issue a different STLDI to the same consumer for a period of 60 days from the expiration of the original policy.
The main purpose of this bulletin is to remind insurers doing business in Illinois that the state retains the right to regulate STLDI coverage. Employers do not need to take any action but may want to be familiar with the state’s individual insurance market requirements.
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.
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FAQ
We apply a premium contribution discount as a wellness program reward for employees who complete a biometric screening. How does that impact affordability under the employer mandate?
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