Updated October 19, 2020: COVID-19 State Quick Reference Chart
IRS Releases 2020 ACA Reporting Forms and Instructions
The IRS recently published the final versions of the 2020 reporting Forms 1094-B and 1095-B, 2020 reporting Forms 1094-C and 1095-C, and instructions for those forms. Forms 1094-B and 1095-B are used by insurers and small self-insured employers to report that they offered MEC. Forms 1094-C and 1095-Cs are used by ALEs to report that they offered minimum value, affordable coverage to their full-time employees. These forms are filed with the IRS, and copies of Forms 1095-B and 1095-C are also distributed to individuals.
This year’s forms feature a few new changes. The Plan Start Month section of Form 1095-C must now be completed. In addition, the penalty for the failure to file a correct information return increased to $280 per return (up from $270 for each incorrect return), and the penalty cap is raised to a total of $3.392 million for a calendar year, up from a cap of $3.339 million in 2019. Finally, the updated draft 1095-C form shows that the affordability safe harbor percentage threshold is 9.78% in 2020, down from the 9.86% threshold in 2019.
The 2020 forms and instructions also require employers to include information concerning Individual Coverage Health Reimbursement Arrangements (ICHRAs), if applicable. The instructions for Form 1094-C state that offers of ICHRA coverage count as offers of minimum essential coverage and both Forms 1095-B and 1095-C have new codes for information concerning ICHRAs offered to employees. Line 8 of Form 1095-B has a new Code G, which identifies ICHRAs as the type of employer-sponsored coverage. Form 1095-C’s Line 14 now has codes to identify the full-time or part-time status of the employee offered an ICHRA, whether the ICHRA was offered to a full-time employee’s spouse or dependents, whether the ICHRA is affordable, and whether the affordability was based upon where the full-time employee lives or works (the ZIP code of the full-time employee’s residence or place of work can be entered on Line 17, if the employee was offered an ICHRA). The employee’s contribution is recorded on Line 15.
As a reminder, the date by which employers must distribute Forms 1095-B or 1095-C to individuals has been extended. 2020 forms must now be distributed to individuals by March 2, 2021 (instead of January 31, 2021). Even though this extension is provided, employers are encouraged to furnish the 2020 statements as soon as they are able. Further, as in prior years, this notice does not extend the date by which employers must file Forms 1094-B/C and 1095-B/C with the IRS. That said, reporting entities must still file Forms 1094-B/C and 1095-B/C with the IRS by March 1, 2021 (as February 28, 2021, falls on a Sunday) if filing by paper, and March 31, 2021, if filing electronically. As noted above, the penalty for failure to comply is $280 per failure. This means that an employer who fails to file a completed form with the IRS and distribute a form to an employee/individual would be at risk for a $560 penalty.
IRS Announces 2021 Limits for Health FSAs, Commuter Benefits and Adoption Assistance
On October 26, 2020, the IRS published Revenue Procedure 2020-45, 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 2021. Those changes are outlined below.
Health FSAs: For plan years beginning in 2021, the annual limit on employee contributions to a health FSA remains $2,750 (the same as in 2020).
Transportation/Commuter Benefits: For 2021, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking remains $270, as does the aggregate fringe benefit exclusion amount for transit passes.
Adoption Assistance: For 2021, 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 $14,440 (up from $14,300 in 2020).
QSEHRAs: For 2021, the maximum amount of reimbursement under a QSEHRA may not exceed $5,300 for self-only coverage and $10,700 for family coverage (an increase from $5,250 and $10,600, respectively, in 2020).
ACA Employer Reporting Penalties: For 2021 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 2020 returns).
Small Business Tax Credit: For 2021, the average annual wage level at which the credit phases out for small employers is $27,800 (up $200 from 2020). 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.
IRS Announces Maximum Amounts for Excepted Benefit Health Reimbursement Arrangements
On October 16, 2020, the IRS released Revenue Procedure 2020-43 announcing the maximum benefit amount for excepted benefit health reimbursement arrangements (EBHRAs) for plan years beginning after December 31, 2020, and before January 1, 2022. In brief, the maximum amount is unchanged and remains at $1,800.
As background, EBHRAs are non-integrated HRAs that were first available for plan years beginning after January 1, 2020. Employers of any size can now offer an EBHRA that is not integrated with any health coverage, as long as certain conditions are met. Specifically, the employer must ensure that they offer other traditional coverage; limit the benefit to $1,800 per plan year (indexed for inflation); not reimburse premiums for individual health coverage, Medicare or non-COBRA group coverage; and make the EBHRA uniformly available, among other requirements. For reference, an EBHRA may generally reimburse out-of-pocket Code §213(d) medical expenses, premiums for coverage consisting solely of excepted benefits and premiums for short-term limited-duration insurance coverage. While the benefit limit is indexed each year for inflation, any increase that is not a multiple of $50 is rounded down to the next lowest multiple of $50.
This recent guidance confirms that the benefit amount for plan years beginning after December 31, 2020, and before January 1, 2022, will remain $1,800. Further, the IRS announced that it intends to publish the adjusted amount for plan years beginning after December 31, 2021, by June 1, 2021.
Employers, especially those sponsoring an EBHRA, should be aware of these developments.
IRS Announces 2021 Limits on Benefits and Contributions for Qualified Retirement Plans
On October 26, 2020, the IRS issued Notice 2020-79, 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, 2021.
The elective deferral limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains at $19,500 in 2021. Additionally, the catch-up contribution limit for employees age 50 and over who participate in any of these plans remains at $6,500. Accordingly, participants in these plans who have attained age 50 will still be able to contribute up to $26,000 in 2021.
The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts remains at $13,500.
The annual limit for defined contribution plans under Section 415(c)(1)(A) increases to $58,000 (from $57,000). The limitation on the annual benefit for a defined benefit plan under Section 415(b)(1)(A) also remains $230,000. Additionally, the annual limit on compensation that can be taken into account for allocations and accruals increases from $285,000 to $290,000.
The threshold for determining who is a highly compensated employee under Section 414(q)(1)(B) remains at $130,000. The dollar limitation concerning the definition of a key employee in a top-heavy plan increases also remains $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 Provides Guidance on Effect of Transferring Funds from Qualified Plans to State Unclaimed Property Funds
On October 16, 2020, the IRS released Revenue Ruling 2020-24, addressing the tax treatment and reporting of qualified retirement plan funds that are transferred to state unclaimed property funds. As background, when a designated distribution is made from a qualified retirement plan, the plan administrator must withhold the appropriate federal income taxes.
This guidance indicates that retirement funds that are transferred or escheated to state unclaimed property funds are, indeed, designated distributions. As such, the plan administrator must withhold taxes from those funds and report on the payment using Form 1099-R. Employers must comply with this guidance as soon as they are able, but in no case later than January 1, 2022.
The IRS also released Revenue Procedure 2020-46 on October 16, 2020. The revenue procedure adds distributions to a state unclaimed property fund as a reason that individuals can certify that they missed the 60-day deadline to roll over their retirement funds to an eligible retirement account.
As background, distributed retirement funds can generally be excluded from an individual’s gross income if they are transferred to another retirement account within 60 days of the distribution. The IRS can waive that 60-day rollover limitation where the individual’s failure to roll the funds over was beyond their control. An individual is able to self-certify to the IRS that they missed the 60-day deadline for a number of reasons. Rev. Proc. 2020-46 adds the fact that the distribution was transferred to a state unclaimed property fund to the list of reasons that an individual may request a waiver from the 60-day requirement.
Once the distribution to the state unclaimed property fund no longer prevents the individual from rolling the funds over (i.e. once the individual is given access to those funds), they have 30 days to roll the funds over to a qualified retirement account or IRA. If these steps are taken, the individual’s self-certification is valid unless the IRS indicates otherwise. Rev. Proc. 2020-46 also provides a sample “Certification for Late Rollover Contribution” that individuals may use to self-certify.
Employer plan sponsors who send unclaimed retirement amounts to state unclaimed property funds should be mindful of this guidance and ensure that they appropriately tax and report on these funds. They can also advise employees who may return looking for their funds to consult with an accountant or tax advisor on how to go about claiming the funds and facilitating a rollover to another retirement account.
Now Available: Employee Benefits Annual Limits White Paper - Updated for 2021
The Benefits Compliance team has recently updated the "Employee Benefits Annual Limits" white paper to reflect 2021 adjustments. This document includes revised limits on HSA contributions, qualified HDHPs, health FSAs, qualified transportation benefits, retirement plans, QSEHRAs and several additional limits.
Employers may want to review these limits and make any necessary adjustments to plan documents and communications.
FAQ: If an employer sponsors a cafeteria plan, do employees need to make affirmative elections each year or are default, or “rolling,” elections permitted?
Under the Code Section 125 cafeteria plan rules – which apply to benefits that are paid on a pre-tax basis – eligible employees should be provided the opportunity to change their elections no later than 12 months after their last election. Additionally, ALEs subject to the ACA’s employer mandate provisions should ensure that they provide an adequate opportunity to opt into or out of medical coverage annually; otherwise, the requirement to offer coverage at least once a year (or to offer a chance to decline coverage that fails to meet minimum value or affordability mandates) will not be satisfied.
However, the plan is not required to obtain affirmative elections from eligible employees. Of course, some employers prefer the affirmative method because it provides a clear written record of the employee’s choice and consent to payroll deductions.
But a plan is permitted to use a negative or “default” election approach, under which employees who do not want health coverage must affirmatively elect not to participate in the cafeteria plan. In addition, the employer could continue the default approach on an ongoing basis through the use of rolling or “evergreen” elections for re-enrollment.
With default elections, it is important that at the time of hire and again before the beginning of each subsequent plan year, the employer provides a detailed notice to employees. Specifically, the notice must include all of the following:
- An explanation of the automatic enrollment process and the employee's right to decline coverage and have no salary reduction
- The salary reduction amounts for employee-only coverage and family coverage
- Procedures for exercising the right to decline coverage
- Information on the time by which an election must be made
- The period for which an election will be effective
- For a current employee, a description of the employee's existing coverage
The plan documents, election forms and enrollment communications should be drafted to clearly and consistently incorporate the default process. The employer will also want to allow employees adequate time to determine whether they wish to affirmatively opt out of the coverage.
As an alternative to the default approach, an employer may prefer that an employee make an initial affirmative election, which would thereafter roll over for future years unless the employee made an affirmative election to change it. If such rolling or “evergreen” elections are used, the employer must distribute open enrollment materials to all participants each year, preferably including a copy of their current elections. The disclosures should include any changes to plan design and employee contribution rates, as well as other information. The use of rolling elections should also be disclosed in the plan documents and in the initial affirmative election form signed by the participant. There may also be state wage withholding laws to consider.
However, the rolling election feature is typically not used for certain benefit offerings, such as HSAs and FSAs. Instead, employers offer active enrollment, so employees can choose how much they want to fund these accounts for the year based upon the annual IRS maximum contribution levels and any changes in their personal lives and budgets since the prior year. Additionally, requiring HSA active enrollment each year reminds the employee to reassess their eligibility. (Perhaps in the upcoming year, an employee will be covered by a spouse’s FSA or other medical plan that would make the employee ineligible to contribute to the HSA.) Furthermore, regardless of the open enrollment approach, HSA accountholders must still be given the opportunity to change their contribution deferral elections at least monthly.
Accordingly, it is permissible for a cafeteria plan to be designed to allow for initial default and/or ongoing rolling elections, so long as the participants are provided with the necessary disclosures and the opportunity to change elections at least once during a 12-month period. The employer would need to keep the above considerations in mind and determine the benefits for which such an approach may be appropriate.
Non-ERISA Self-funded Plans Should Comply with State Laws on Internal and External Review
On October 13, 2020, Commissioner Clark released Advisory Opinion 2020-006, indicating that non-ERISA self-funded plans should comply with Kentucky state law on internal and external review procedures. While self-funded plans are generally not subject to state law because of ERISA preemption, Kentucky takes the position that self-funded non-ERISA plans fall within their jurisdiction (as they are not subject to any other jurisdiction).
The opinion specifically subjects non-ERISA, self-funded plans to all the requirements of the Kentucky Revised Statutes, Chapter 304, Subtitle 17A, including the rules on coverage denial review, internal appeal and external review.
This guidance would seemingly apply to any Kentucky-based, self-funded plan that is not subject to ERISA (i.e. local government plans and church plans). Clients to which this opinion applies should consult with their TPA on its application.
Governor’s COVID-19 Executive Orders Rescinded
On October 19, 2020, the Department of Insurance and Financial Services (DIFS) issued Bulletin 2020-41 explaining that effective immediately, the executive orders issued under the Emergency Powers of the Governor Act “are of no continuing legal effect.” This guidance supersedes Bulleting 2020-38 (which stated that such orders remained in effect).
As background, the Michigan Supreme Court recently held that Gov. Whitmer did not have the authority after April 30, 2020, to issue or renew any executive orders related to COVID-19 (as reported in the October 15, 2020, edition of Compliance Corner). In light of the court order, all executive orders related to the new coronavirus disease (COVID-19) issued after April 30, 2020, are rescinded. This includes, for example, Executive Order 2020-172, which limits COVID-19 leave protection (as discussed in the October 1, 2020, edition of Compliance Corner).
DIFS is reviewing its bulletins, orders and other guidance relating to the COVID-19 public health emergency to determine whether modifications are necessary. The guidance reiterates that regulated entities must remain in compliance with new or amended laws intended to address the public health emergency caused by the COVID-19, such as HB 6030 to 6032 and HB 6101 (prohibiting an employer from taking certain actions against an employee who does not report to work under certain circumstances related to COVID-19, among other requirements).
While this guidance largely does not impact employee benefits administration, employers should be aware of these developments and remain in compliance with all other guidance related to the public health emergency caused by the COVID-19 pandemic. We will continue to monitor and communicate any updates accordingly.
Small Group Health Insurance Rates Announced
On October 2, 2020, the Department of Commerce announced the rates for small group insurance plans in the state. The department asserts that the rates reflect a stabilizing market in the state, despite the pandemic. According to the announcement, the 2021 average rate changes range from a 1.60% decrease to a 4.99% increase. The announcement also stated that the number of plans available on the individual market will increase in anticipation of open enrollment staring on November 1.
Minnesota employers with 50 or fewer employees should be aware of these changes.
New York Paid Sick Leave FAQ
The state Department of Labor recently released a webpage with FAQs regarding the New York Paid Sick Leave Law (NYPSL). The information summarizes key provisions of the leave law and provides additional interpretive guidance.
As background, the NYPSL requires employer to provide leave for reasons related to physical or mental conditions or domestic violence affecting employees or their family members. The amount of the leave and whether it is paid or unpaid depends upon the employer’s total number of employees and net income. Although the payroll deductions required by the law took effect on September 30, 2020, many questions remained with respect to the leave implementation and administration. Accordingly, the FAQs provide clarification on topics including, but not limited to, definitions, accruals, permitted leave uses, eligibility, the applicable rate of pay, collective bargaining agreements, and employee rights and protections.
With respect to definitions, the guidance explains that the calendar year should be used to determine an employer’s total number of employees. However, for use and accrual of leave, the employer is permitted to use another 12-month period.
The FAQs make clear that an employee is only entitled to accrue leave for hours worked, which would include on-call time, training time and travel time, but not time spent using the sick leave. In terms of permitted uses, an employee could use the sick leave time for doctor, dentist, or other routine appointments for medical treatment or preventive care. Although the leave is not intended for use as bereavement leave, it can be used for the prevention and treatment of mental and physical health conditions, regardless of whether diagnosed.
The eligibility section explains that all employees, including part-time seasonal workers, are entitled to accrue one paid sick hour for every 30 hours worked. Additionally, seasonal employers who maintain an ongoing relationship with the employer maintain their leave accruals through such breaks in employment. Employees who telecommute are covered by the law only for the hours they are physically working in the state, even if the employer is physically located outside of the state. Nonprofit employers must comply with the law; no exemption is provided.
In terms of the rate of pay, the law requires hourly employees to be compensated at their normal rate of pay or the applicable minimum wage, whichever is greater. Here, the FAQs clarify that overtime rate of pay would not be factored in, nor are employers required to pay employees for lost tips or gratuities. However, employers cannot take a tip credit for the leave time.
The guidance further provides that collective bargaining agreements entered into on or after September 30, 2020, may provide for different leave benefits, as long as the benefits are comparable to those under the NYPSL. In such case, the agreement should specify the law and identify the benefits deemed comparable.
If an employer fails to provide the required sick leave to employees, the FAQs indicate this will be viewed as a failure to pay wages and subject the employer to civil/administrative actions and/or criminal penalties, including an assessment of the wage underpayment, liquidated damages and civil penalties up to double the total amount due.
Employers should be aware of the webpage and may find the 44 newly released FAQs helpful in administering the leave provisions.
State Issues Guidance Regarding Mental Health Parity
On May 19, 2020, Gov. Stitt signed SB1718 into law, effective November 1. Similar to the MHPAEA, this law requires that health insurance companies and policies regulated by the state cover benefits for mental health and substance use disorders that are equal to benefits for treatment for all other physical diseases and disorders. Treatment limitations applicable to mental health or substance use disorder benefits shall be no more restrictive than the predominant treatment limitations applied to substantially all medical and surgical benefits covered by a plan. The law also requires that carriers must file annual reports no later than April 1 to the Insurance Department to demonstrate compliance with these requirements.
On October 9, 2020, Commissioner Mulready issued LH Bulletin No. 2020-04. The bulletin reminds carriers of their responsibilities under SB1718 and announces that further guidance on the format of the annual report is forthcoming.
Employers with plans regulated by the state should be aware of this development.
COVID-19 Testing and Telehealth Rules Extended
On October 15, 2020, Commissioner Kreidler extended Emergency Order No. 20-02 until November 13, 2020, requiring that COVID-19 testing be provided without cost sharing or preauthorization and that insurers provide increased flexibility regarding the use of telemedicine.
Employers can notify their plan participants that may still need to receive testing that the testing will continue to be provided without cost sharing and that telemedicine will still be available.
Extension of Emergency Orders on COVID-19 Testing and Surprise Billing
On October 23, 2020, Commissioner Kreidler issued orders further extending emergency orders 20-01 and 20-06. Emergency Order 20-01, which has been extended through November 24, 2020, requires health insurers to waive copays and deductibles for COVID-19 testing. The order also requires insurers to allow a one-time early refill for prescription drugs.
Emergency Order 20-06, which has also been extended through November 24, 2020, protects consumers from receiving surprise bills for lab fees related to COVID-19 diagnostic testing. The order also encourages insurers to report out-of-network labs that are not publishing or honoring the cash price of COVID-19 diagnostic testing.
These orders apply to insurers, but provide employers with information about the continued coverage of COVID-19 testing.
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If an employer sponsors a cafeteria plan, do employees need to make affirmative elections each year or are default, or “rolling,” elections permitted?