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Every year Applicable Large Employers (ALEs) must file and furnish their ACA information to the IRS and their employees, respectively. Failing to do so can result in significant IRS penalty assessments.
To recap, only groups with 50 or more full time or equivalent employees or those groups under 50 with self funded medical coverage are required to furnish their employees with copies of either the 1095-B or 1095-C forms (based on group size)
Employers will need to be sure you meet the following IRS deadlines for complying with the ACA’s Employer Mandate for 2020:
Failing to meet these deadlines can result in penalties under IRC 6721/6722, which the IRS is issuing through Letter 972CG. If you receive one of these notices, you only have 45 days from the issue date to respond to the penalty notice.
For the 2020 tax year, the penalties associated with failing to comply with IRC 6721/6722 for employers with average gross receipts of more than $5 million in the last three years are as follows:
Failure to timely file and furnish correct information returns
If employers file ACA information returns with the IRS no more than 30 days after the deadline they could be subject to a $50 penalty per return not filed, not to exceed an annual maximum of $556,500. If the ACA information returns are 31 or more days late, up to August 1, 2021, the penalty per return jumps up to $110, not to exceed an annual maximum of $1,669,500. After August 1, the penalty amount steepens to $270 per return, not to exceed an annual maximum of $3,339,000. For intentional disregard, meaning the deadline was missed willfully, the penalty more than doubles to $550 per return with no annual maximum limit.
The penalty amounts for employers with gross receipts of $5 million or less in the last three years will have the same penalty amounts per return with lower annual maximums, except in the case of intentional disregard. For more information on the penalty schedules for failing to meet the IRS deadlines click here.
As if the penalties for failing to meet the filing and furnishing deadlines weren’t enough, the IRS is also issuing penalties to employers that fail to comply with the ACA’s Employer Mandate. As a reminder to employers in conjunction with the Employer Shared Responsibility Payment (ESRP), the ACA’s Employer Mandate, Applicable Large Employers (ALEs), organizations with 50 or more full-time employees and full-time equivalent employees, are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is affordable for the employee, or be subject to Internal Revenue Code (IRC) 4980H penalties. These penalties are being issued through IRS Letter 226J.
The IRS has issued relief from certain Form 1094-C and 1095-C reporting requirements under the Affordable Care Act relating to employee health plans, as well as relief from certain reporting-related penalties.
As a refresher, the ACA generally requires four forms to be produced each year, and the names are anything but intuitive:
Which form your plan would be required to file or furnish depends on whether you are an ALE, and how you fill out the form and whether you offer fully insured or self-insured coverage.
The IRS has extended the deadline for furnishing Forms 1095-B and 1095-C to individuals. The typical deadline to report 2020 plan information is January 31, 2021. However, the new relief extends the deadline to March 2, 2021. The extension is automatic, and the IRS has indicated that no further extensions will be granted, and it will not respond to such requests.
Be aware that this extension does not apply to the 1094-B and 1094-C filings with the IRS. The deadline for submitting these filings to the IRS will remain March 1, 2021 (since the original due date of February 28 falls on a Sunday), for paper filings and March 31, 2021, for those filing electronically. However, while the automatic extension does not apply to these deadlines, filers may still request an extension from the IRS.
Recognizing that the main purpose of Forms 1095-B and 1095-C was to allow an individual to compute his or her tax liability relating to the individual mandate, and because the individual mandate has been reduced to zero, the IRS has granted relief from furnishing certain documents to individuals.
The IRS indicated that it will not assess penalties for failure to furnish a Form 1095-B if two conditions are met. First, the reporting entity must post a prominent notice on its website stating that individuals may receive a copy of their 2020 Form 1095-B upon request, along with an email address, physical address, and phone number. Second, the reporting entity must furnish the 2020 Form 1095-B to the responsible individual within 30 days of receipt of the request. The statements may be furnished electronically if certain additional requirements are met.
The same reporting relief does not extend to ALEs that are required to furnish Form 1095-C. This form must continue to be furnished to full-time employees, and penalties will continue to be assessed for a failure to furnish Form 1095-C. However, the relief does generally apply to furnishing the Form 1095-C to participants who were not full-time employees for any month of 2019 if the requirements above are met. This would typically include part-time employees, COBRA continuees, or retirees.
Note that while these requirements for furnishing the 1095-B and 1095-C to individuals has been modified, these forms must still be transmitted to the IRS along with their Form 1094 counterparts.
In the final piece of good news from the IRS, it announced relief from penalties for incorrect or incomplete information on any of these forms. This relief applies to both missing and inaccurate taxpayer identification numbers and birthdays, as well as other required information.
The reporting entity must be able to show that it made a good faith effort to comply with the reporting requirements. A successful showing of good faith will show that an employer made reasonable efforts to prepare for the reporting requirements and the furnishing to employees, such as gathering and transmitting the necessary information to the person preparing the forms.
However, the relief does not apply to reporting entities that completely fail to file or furnish the forms at all.
Finally, and importantly, the IRS has indicated that this will be the last year that it will provide this good faith reporting relief.
IRS Notice 2020-44 was issued last week as a reminder that Patient-Centered Outcomes Research Institute (PCORI) fees were extended under the Further Consolidated Appropriations Act of 2020 and are now not scheduled to expire until plan years ending after September 30, 2029. Annual PCORI fees will still need to be paid by insurers for employers with fully insured group health plans (and will remain to be included in annual premiums). Groups that offer self-insured plans are responsible for filing and paying the fee on IRS Forms 720, which must be filed by July 31 each year.
The IRS Notice also clarifies there is still a filing obligation owed for all such group health plan filings for plan years ending on or after October 1, 2019, and before October 1, 2020, with the PCORI Fee amount being $2.54 (up from $2.45 for the previous PCORI fee period). However, the guidance recognizes that insurers and self-funded plan sponsors may not have been accurately tracking the number of covered lives to be reported and paid for the plan year periods from October 1, 2019, through October 1, 2020, because the previous PCORI fee assessments under the Affordable Care Act were scheduled to end after September 30, 2019. To allow for ease in current reporting of covered lives information, the Notice clarifies that in addition to the other statutory methods of reporting covered lives, for the PCORI reporting periods for plan years ending from October 1, 2019, through October 1, 2020, the IRS will allow insurers and plan sponsors to use a “reasonable” method to calculate the average number of covered lives for this period.
Impact on Employers
Employers with fully insured health plan coverage provided by an insurance carrier may see a slight increase in future insurance premiums to account for this recent update from the IRS. Self-funded health plan sponsors need to ensure they timely file their annual Form 720 by July 31, 2020, using the appropriate PCORI fee amount (i.e., $2.45 per covered life for plan years ending on or before September 30, 2019, or $2.54 per covered life for plan years ending on or after October 1, 2019), based on the calculated covered lives formula alternatives (e.g., actual count method, snapshot method, Form 5500 method, or for the October 1, 2019, through October 1, 2020, periods, a “reasonable” method for average covered lives).
If you are feeling a sense that the rules around benefits haven’t changed enough in the last three months, this is a reminder of a change made during the long ago time of December 2019. We all thought the annual PCORI (Patient-Centered Outcomes Research Institute) was set to expire back in 2019 but the SECURE Act extended the PCORI fee for another 10 years, meaning the fee will be in effect until 2029 for most plans (2030 for others, depending on the plan’s year-end).
If your company had a self-insured group health plan in 2019, make sure you’ve set your calendar alerts to pay the PCORI fee for the 2019 plan year. As a reminder, the PCORI fee was put into place by the ACA to help fund the Patient Outcomes Research Institute and is based on the average number of covered lives under the plan. The fee and the related IRS Form 720 are due no later than July 31st.
For plan years ending before October 1, 2019, the fee is $2.45/person. The IRS has not announced the specific fee for plan years ending between October 1, 2019 and December 31, 2019; however, it is expected to be slightly higher than $2.45 per covered member. Remember, covered lives include spouses, dependents, retirees, and COBRA beneficiaries. If you have not been through this process before, or if you just need a quick refresher, the IRS has issued detailed guidance on the multiple methods you may use to calculate the PCORI fee, as well as instructions for completing the Form 720 and submitting your payment.
This week the IRS released two new sets of rules impacting Section 125 Cafeteria Plans. Notice 2020-33 provides permanent rule changes that include an increase in the amount of unused benefits that Health FSA plans may allow plan participants to rollover from one plan year to the next. Notice 2020-29 provides temporary rules designed to improve employer sponsored group health benefits for eligible employees in response to the coronavirus pandemic. The relief provided under each notice is optional for employers. Employers who choose to take advantage of any of the offered plan options will be required to notify eligible employees and will eventually be required to execute written plan amendments.
Notice 2020-33 modifies the amount of annual rollover of unused benefits that Health FSA plans may offer to Plan participants. Up until now, rollovers have been limited to $500 per Plan Year. The new rule sets the annual rollover limit to 20% of the statutory maximum annual employee Health FSA contribution for the applicable Plan Year. Because the statutory maximum is indexed for inflation, most years it increases (in mandated increments of $50).
The notice provides that the increased rollover amount may apply to Plan Years beginning on or after January 1, 2020. Because the corresponding annual Health FSA employee contribution limit for those Plan Years is $2,750, the annual rollover limit may be increased up to $550.
The relief provided under Notice 2020-29 falls into two major categories, both of which apply only for calendar year 2020. First, the IRS introduces several significant exceptions to the mid-year change of election rules generally applicable to Section 125 Cafeteria Plans. Second, the notice contains a special grace period which offers Health Flexible Spending Arrangement (FSA) and Dependent Care Assistance Program (DCAP) Participants additional time to incur eligible expenses during 2020.
The temporary exceptions to mid-year participant election change rules for 2020 authorize employers to allow employees who are eligible to participate in a Section 125 Cafeteria Plan to:
None of the above described election changes require compliance with the consistency rules which typically apply for mid-year Section 125 Cafeteria Plan election changes. They also do not require a specific impact from the coronavirus pandemic for the employee.
Employers have the ability to limit election changes that would otherwise be permissible under the exceptions permitted by Notice 2020-29 so long as the limitations comply with the Section 125 non-discrimination rules. For allowable Health FSA or DCAP election changes, employers may limit the amount of any election reduction to the amount previously reimbursed by the plan. Interestingly, even though new elections to make Health FSA and DCAP contributions may not be retroactive, Notice 2020-29 provides that amounts contributed to a Health FSA after a revised mid-year election may be used for any medical expense incurred during the first Plan Year that begins on or after January 1, 2020.
For the election change described in item 3 above, the enrolled employee must make a written attestation that any coverage being dropped is being immediately replaced for the applicable individual. Employers are allowed to rely on the employee’s written attestation without further documentation unless the employer has actual knowledge that the attestation is false.
The special grace period introduced in Notice 2020-29 allows all Health FSAs and DCAPs with a grace period or Plan Year ending during calendar year 2020 to allow otherwise eligible expenses to be incurred by Plan Participants until as late as December 31, 2020. This temporary change will provide relief to non-calendar year based plans. Calendar year Health FSA plans that offer rollovers of unused benefits will not benefit from this change.
The notice does clarify that this special grace period is permitted for non-calendar year Health FSA plans even if the plan provides rollover of unused benefits. Previous guidance had prohibited Health FSA plans from offering both grace periods and rollovers but Notice 2020-29 provides a limited exception to that rule.
The notice raises one issue for employers to consider before amending their plan to offer the special grace period. The special grace period will adversely affect the HSA contribution eligibility of individuals with unused Health FSA benefits at the end of the standard grace period or Plan Year for which a special grace period is offered. This will be of particular importance for employers with employees who may be transitioning into a HDHP group health plan for the first time at open enrollment.
As mentioned above, employers wishing to incorporate any of the allowable changes offered under Notices 2020-29 and 2020-33 will be required to execute written amendments to their Plan Documents and the changes should be reflected in the Plan’s Summary Plan Description and/or a Summary of Material Modification. Notice 2020-29 requires that any such Plan Amendment must be executed by the Plan Sponsor no later than December 31, 2021.
Last week the Department of Health and Human Services, DOL and the IRS extended deadlines for multiple items related to health plan administration. We don’t expect a huge influx of issues from the changes. However, you should be aware so you don’t inadvertently misinform your employees.
There were changes made regarding COBRA premium payments and election timeframes but since we have addressed those in a previous post, we won’t address it here. COBRA administration is outsourced and those impacted are no longer employees so you can direct their questions to your COBRA administrator or to our office. We’ll also skip the changes made to claims and appeals as that won’t apply to everyone. That leaves the changes to your benefit program.
As you are aware, most of the carriers have reduced or even eliminated the minimum number of hours a previously full-time employee must work to be covered by your plan. Meaning, we can offer coverage to furloughed employees or those that have otherwise reduced hours to below the full-time requirements.
In addition, the agencies, have decided to disregard the Outbreak Period (the time period between March 1st and at least 60 days after the announced end of the COVID 19 National Emergency) when establishing a deadline to request enrollment in coverage for certain qualifying events. Meaning, the agencies, added a “pause” to the time frame required for employees to notify you about special enrollment periods, such as marriage or birth of a child. We are not able to determine the exact end date of the Outbreak Period yet as that is based on an end to the National Emergency (and that had yet to be determined).
For our examples, we’ll assume the COVID 19 National Emergency ends for the country on June 30th. This would make the Outbreak Period March 1st to August 29th (60 days following June 30).
Example 1 – Sally has a baby on March 3rd. Normally, she would have 30 days to notify us that she would like to add the baby. However, you are being instructed to disregard the Outbreak Period, therefore she has until September 28th (30 days from the end of the Outbreak Period) to let us know her desire to add her child.
Example 2 – Tom gets married June 1st. He will have until September 28th to let us know if he intends to enroll his spouse.
Under these examples, the dependents would be enrolled back to their original eligibility date and the employee would owe those back premiums. I don’t expect this to become a big issue, however, depending on the employees circumstances it could. The drawback to employers, other than the inconvenience, is this could have an impact on the group claims. Normally Tom and Sally would only have 30 days to enroll their dependents. With the extensions, employees have information about any issues or medical expenditures that have already happened along the way. Carriers will be responsible to back up, enroll the dependent, and pay any claims incurred.
Please let us know of any questions you have.
On April 29, 2020, the Department of Labor (DOL) and the Internal Revenue Service (IRS) announced in a Notice a “pause” in the timelines that affect many COBRA and HIPAA Special Enrollment Period timelines during the National Emergency due to the COVID-19 pandemic.
The National Emergency declaration for COVID-19 was issued on March 13, 2020, and as of the date of this writing, is still in effect. However, for purposes of COBRA in the eyes of the DOL, the “pause” date is set to begin on March 1, 2020. According to the Notice, the period from March 1 through 60 days after the date the National Emergency is declared ended is known as the “Outbreak Period.”
Normally, group health plan Qualified Beneficiaries (QBs) have 60 days from the date of a COBRA qualifying event to elect COBRA coverage, or in the case of a second COBRA qualifying event, to make a new COBRA election. Once a COBRA election is made, the first payment (going back to the date of the COBRA qualifying event) is due no more than 45 days later. After that, plan sponsors must allow at least a 30 day grace period for late COBRA payments.
According to the Notice, all of these timelines are affected. The 60-day election “clock” is paused beginning March 1, 2020 or later until the the end of the Outbreak Period. Similarly, the 45-day first payment “clock” is also paused during the Outbreak Period, as is the 30-day grace period for making COBRA payments.
ABC Company’s group health plan is subject to COBRA continuation coverage. Jane Jetson and her family are covered under ABC’s group health plan. On February 1, 2020 Jane terminates employment at ABC, and on February 5th, Jane receives her COBRA election notice informing her she has 60 days from February 1st to make an election. Normally, that election period would end on April 1, 2020, 60 days from February 1st.
However, with the new DOL/IRS Notice, the “pause” button on the 60 day election period was hit on March 1st, the beginning of the Outbreak Period, so the 60 day clock stops at 29 days and doesn’t resume until the end of the Outbreak Period. For sake of this example, let’s assume the National Emergency declaration is lifted on May 31, 2020. On July 30, 2020, 60 days after May 31st and thus the end of the Outbreak Period, the “pause” button is lifted and the COBRA election clock restarts for another 31 days to complete the 60 day COBRA election period, which now would end on August 30, 2020.
Continuing with the example and assumptions, if Jane did make her COBRA election to continue coverage on August 30th (the last day to do so), the 45 day clock to make the first payments back to February 1st would begin, and she would have to make all seven months’ payments by October 14, 2020. Of course, by that date she’d also owe payments for September and October as well, although she’d be in the middle of the grace period for October.
Similarly, the 30 day HIPAA Special Enrollment Period (SEP) for qualified changes of status that impacts group health plan enrollment changes is also “paused” until after the end of the Outbreak Period.
Homer Simpson also works for ABC Company, and has elected not to participate in ABC’s group health plan since he has coverage through his spouse Marge’s employer’s group health plan at XYZ Company. On March 15, 2020, Homer and Marge have a baby named Bart, and decide that Homer would like to cover his entire family under ABC’s plan. In normal times, Homer would have 30 days from the date of Bart’s birth to enroll in ABC’s group health plan utilizing the HIPAA SEP.
However, under the DOL/IRS Notice, that 30-day clock is on “pause” until the end of the Outbreak Period. Using the same assumption in the example above, that clock would start on July 30th, and Homer would have until August 30th to enroll his entire family.
Plan sponsors will need to pay close attention to this Notice and make proper adjustments in their established COBRA and HIPAA procedures to accommodate it.
The Internal Revenue Service has broadened the filing and payment relief provided under prior guidance. IRS Notice 2020-23 postpones, among other relief, the due date for employee benefit plans required to make the Form 5500 series filings due on or after April 1, 2020, and before July 15, 2020. Plans with original due dates or extended due dates falling within this period now have until July 15, 2020, to file their information reports.
Plan Administrators with original (un-extended) filing due dates falling within this announced 2 ½ month period who need additional time to file may request extensions by filing Form 5558 by July 15, 2020. However, the extended due date will not be later than what it would have been absent this relief.
The chart below highlights the plans with a plan year-end which may benefit from Notice 2020-23 and have until July 15, 2020, to complete the required filing.
Notice 2020-23 invokes the Rev. Proc. 2018-58 section about Postponements for Federally Declared Disasters, which also states, “whatever postponement of the Form 5500 series filing due date is permitted by the IRS under section 7508A will also be permitted by the Department of Labor and PBGC [Pension Benefit Guaranty Corporation] for similarly situated plan administrators and direct filing entities.”
The PBGC acknowledged this IRS notice in its own Disaster Relief Announcement but reminded filers there are certain actions listed on the PBGC’s Exception List that do not automatically qualify for the relief. The Exception List comprises actions that the PBGC views as creating a high risk of harm to plan participants. For those actions, the PBGC will consider relief on a case-by-case basis. For example, the PBGC filing relief may help those defined benefit plan sponsors recently engaging in significant layoffs who now need to file a PBGC Reportable Event due to a single cause active participant reduction.
IRS Notice 2020-23 also applies to the Form 990 series of filings that apply to tax-exempt trusts described in Internal Revenue Code Section 501(c)(9), referred to as VEBA (voluntary employees’ beneficiary association) trusts, among others, due on or after April 1, 2020, and before July 15, 2020. The due date for these information reports is extended as well to July 15, 2020.