Congress and the IRS were busy
changing laws governing employee benefit plans and issuing new guidance under
the ACA in late 2015. Some of the results of that year-end governmental
activity include the following:
Americans from Tax Hikes Act of 2015 (“PATH Act”)
The PATH Act, enacted by Congress
and signed into law on December 18, 2015, made some the following changes to
federal statutory laws governing employee benefit plans:
- The ACA’s 40% excise tax (aka “Cadillac Tax”) on excess benefits under applicable employer sponsored coverage — so called “Cadillac Plans,” due to the perceived richness of such coverage — is delayed from 2018 to 2020.
- Formerly a nondeductible excise tax, any Cadillac Tax paid by employers will now be deductible as a business expense.
- Beginning with plan years after November 2, 2015, employers with 200+ employees will not be required to automatically enroll new or current
employees in group health plan coverage, as originally required under the ACA.
- After December 31, 2015, individual taxpayers who purchase private health insurance via the Healthcare Exchange will not be eligible to claim a Health Care Tax Credit on their tax returns.
On December 16, 2015, the IRS issued
Notice 2015-87, providing guidance on employee accident and health plans and
employer shared-responsibility obligations under the ACA. Guidance provided
under Notice 2015-87 applies to plan years that begin after the Notice’s
publication date (December 16th), but employers may rely upon the guidance provided by the
Notice for periods prior to that date.
Notice 2015-87 covers a wide-range
of topics from employer reporting obligations under the ACA to the application
of Health Savings Account rules to rules for identifying individuals who are
eligible for benefits under plans administered by the Department of Veterans
Affairs. Following are some of the highlights from Notice 2015-87, with a focus
on provisions that are most likely to impact non-governmental employers.
- Under the ACA, an HRA may only reimburse medical expenses of those individuals (employee, spouse, and/or dependents) who are also covered by the employer’s group health plan providing minimum
essential coverage (“MEC”) that is integrated with the HRA.
- Employer opt-out payments (i.e., wages paid to an employee solely for waiving employer-provided coverage) may, in the view of Treasury and the IRS, effectively raise the contribution cost for employees who desire to participate in a MEC plan. Treasury and the IRS intend to issue
regulations on these arrangements and the impact of the opt-out payment on the employee’s cost of coverage. Employers are put on notice that if an opt-out payment plan is adopted after December 16, 2015, the amount of the offered opt-out payment will likely be included in the employee’s cost of coverage for purposes of determining ACA affordability.
- Treasury and the IRS will begin to adjust the affordability safe harbors to conform with the annual adjustments for inflation applicable to the “9.5% of household income” analysis under the ACA. For plan years beginning in 2015, employers may rely upon 9.56% for one or more of the affordability safe harbors identified in regulations under the ACA, and 9.66% for plan years beginning in 2016. For example, in a plan year beginning in 2016, an employer’s MEC plan will meet affordability standards if the employee’s contribution for lowest cost, self-only coverage does not exceed 9.66% of the employee’s W-2 wages (Box
- To determine which employees are “full-time” under the ACA, “hours of service” are intended to include those hours an employee works and is entitled to be paid, and those hours for which the employee is entitled to be paid but has not worked, such as sick leave, paid vacation, or periods of legally protected leaves of absence, such as FMLA or USERRA leave.
- The Treasury and IRS remind applicable large employers that they will provide relief from penalties for failing to properly complete and submit Forms 1094-C and 1095-C if the employers are able to show that they made good faith efforts to comply with their reporting obligations.