Compliance Recap - November 2018

Compliance Recap

November 2018

November was a busy month in the employee benefits world.

The Internal Revenue Service (IRS) extended the due date for employers to furnish Forms 1095-C or 1095-B to individuals, extended “good faith compliance efforts” relief for 2018, and issued specifications for employer-provided substitute ACA forms. The Department of the Treasury (Treasury), Department of Labor (DOL), and Department of Health and Human Services (HHS) released two final rules on contraceptive coverage exemptions.

The IRS released indexed Patient-Centered Outcomes Research Institute (PCORI) fees and inflation-adjusted limits for various benefits. The DOL, IRS, and the Pension Benefit Guaranty Corporation (PBGC) released advance informational copies of the 2018 Form 5500 annual return/report and instructions.

For survivors of the 2018 California wildfires, the IRS provided tax relief and the DOL released employee benefit guidance. The IRS provided guidance to employers who adopt leave-based donation programs to provide charitable relief for victims of Hurricane Michael. The Treasury released its Priority Guidance Plan that lists projects that will be the focus of the Treasury and IRS for the period from July 1, 2018, through June 30, 2019.

UBA Updates

UBA released one new advisor: 2019 Annual Benefit Plan Amounts card

UBA updated or revised existing guidance:

IRS Extends Due Date to Furnish ACA Forms to Participants and Provides Good Faith Penalty Relief

The Internal Revenue Service (IRS) issued Notice 2018-94 to extend the due date to furnish 2018 Forms 1095-B and 1095-C to individuals. The due date moves from January 31, 2019, to March 4, 2019.

The IRS also extends “good faith compliance efforts” relief for 2018. As in prior years, this relief is applied only to incorrect or incomplete information reported in good faith on a statement or return. The relief does not apply to a failure to timely furnish a statement or file a return.

Read more about the notice.

IRS Issues Specifications for Employer-Provided Substitute ACA Forms

The Internal Revenue Service (IRS) issued Publication 5223 General Rules and Specifications for Affordable Care Act Substitute Forms 1095-A, 1094-B, 1095-B, 1094-C, and 1095-C that describes how employers may prepare substitute forms to furnish ACA reporting information to individuals and the IRS.

Treasury, DOL, and HHS Release Two Final Rules on Contraceptive Coverage Exemptions

The Department of the Treasury (Treasury), Department of Labor (DOL), and Department of Health and Human Services (HHS) (collectively, Departments) released two final rules on contraceptive coverage exemptions. These rules finalize the Departments’ interim final rules that were published on October 13, 2017. HHS also issued a press release and fact sheet on these final rules.

The first final rule provides an exemption from the contraceptive coverage mandate to entities (including certain employers) and individuals that object to services covered by the mandate on the basis of sincerely held religious beliefs.

The second final rule provides an exemption from the contraceptive coverage mandate to nonprofit organizations, small businesses, and individuals that object to services covered by the mandate on the basis of sincerely held moral convictions.

The final rules will be effective on January 14, 2019.

Read more about the final rules.

IRS Releases Indexed PCORI Fee

The Patient Protection and Affordable Care Act (ACA) imposes a fee on insurers of certain fully insured plans and plan sponsors of certain self-funded plans to help fund the Patient-Centered Outcomes Research Institute (PCORI). The PCORI fee is due by July 31 of the year following the calendar year in which the plan or policy year ends.

The Internal Revenue Service issued Notice 2018-85 to announce the PCORI fee of $2.45 for policy years and plan years that end on or after October 1, 2018, and before October 1, 2019.

Plan/Policy Year

Last Year Fee Is
Due (2.45,
indexed/person)

Nov. 1, 2017 – Oct. 31, 2018

July 31, 2019

Dec. 1, 2017 – Nov. 30, 2018

July 31, 2019

Jan. 1, 2018 – Dec. 31, 2018

July 31, 2019

Feb. 1, 2018 – Jan. 31, 2019

July 31, 2020

March 1, 2018 – Feb. 28, 2019

July 31, 2020

April 1, 2018 – March 31, 2019

July 31, 2020

May 1, 2018 – April 30, 2019

July 31, 2020

June 1, 2018 – May 31, 2019

July 31, 2020

July 1, 2018 – June 30, 2019

July 31, 2020

Aug. 1, 2018 – July 31, 2019

July 31, 2020

Sept. 1, 2018 – Aug 31, 2019

July 31, 2020

Oct 1, 2018 – Sept. 30, 2019

July 31, 2020

Read more about the PCORI fee.

IRS Releases 2019 Inflation-Adjusted Limits

The Internal Revenue Service (IRS) released its inflation-adjusted limits for various benefits. For example, the maximum contribution limit to health flexible spending arrangements (FSAs) will be $2,700 in 2019. Also, the maximum reimbursement limit in 2019 for Qualified Small Employer Health Reimbursement Arrangements will be $5,150 for single coverage and $10,450 for family coverage.

Read more about the 2019 limits.

Advance Informational Copies of 2018 Form 5500 Annual Return/Report

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) released advance informational copies of the 2018 Form 5500 annual return/report and related instructions.

Here are some of the changes that the instructions highlight:

  • Principal Business Activity Codes. Principal Business Activity Codes have been updated to reflect updates to the North American Industry Classification System (NAICS). For Line 2d, a plan administrator would enter the six-digit Principal Business Activity Code that best describes the nature of the plan sponsor’s business from the list of codes on pages 78-80 of the Form 5500 Instructions.
  • Administrative Penalties. The instructions have been updated to reflect that the new maximum penalty for a plan administrator who fails or refuses to file a complete or accurate Form 5500 report has been increased to up to $2,140 a day for penalties assessed after January 2, 2018, whose associated violations occurred after November 2, 2015.Because the Federal Civil Penalties Inflation Adjustment Improvements Act of 2015 requires the penalty amount to be adjusted annually after the Form 5500 and its schedules, attachments, and instructions are published for filing, be sure to check for any possible required inflation adjustments of the maximum penalty amount that are published in the Federal Register after the instructions have been posted.
  • Form 5500-Participant Count. The instructions for Lines 5 and 6 have been enhanced to make clearer that welfare plans complete only Line 5 and elements 6a(1), 6a(2), 6b, 6c, and 6d in Line 6.

Be aware that the advance copies of the 2018 Form 5500 are for informational purposes only and cannot be used to file a 2018 Form 5500 annual return/report.

ERISA imposes the Form 5500 reporting obligation on the plan administrator. Form 5500 is normally due on the last day of the seventh month after the close of the plan year. For example, a plan administrator would file Form 5500 by July 31, 2019, for a 2018 calendar year plan.

Tax Relief for Victims of November Wildfire in California

Victims of the wildfires that took place beginning on November 8, 2018, in California may qualify for tax relief from the Internal Revenue Service (IRS). The President declared that a major disaster exists in California. The Federal Emergency Management Agency’s major declaration permits the IRS to postpone deadlines for taxpayers who have a business in certain counties within the disaster area.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.

DOL Releases Employee Benefit Guidance and Relief for 2018 California Wildfire Survivors

The Department of Labor (DOL) released its FAQs for Participants and Beneficiaries Following the 2018 California Wildfires to answer health benefit and retirement benefit questions.

The FAQs cover topics including:

  • Whether an employee will still be covered by an employer-sponsored group health plan if the worksite closed
  • Potential options such as special enrollment rights, COBRA continuation coverage, individual health coverage, and health coverage through a government program in the event that an employee loses health coverage

The DOL also released its Fact Sheet: Guidance and Relief for Employee Benefit Plans Impacted by the 2018 California Wildfires to recognize that employers may encounter problems due to the wildfires. The DOL advises plan fiduciaries to make reasonable accommodations to prevent workers’ loss of benefits and to take steps to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established time frames.

The DOL also acknowledged that there may be instances when full and timely compliance by group health plans may not be possible due to physical disruption to a plan’s principal place of business. The DOL’s enforcement approach will emphasize compliance assistance, including grace periods and other relief where appropriate.

IRS Provides Guidance on Leave-Based Donation Programs’ Tax Treatment

The IRS issued Notice 2018-89 to guide employers who adopt leave-based donation programs to provide charitable relief for victims of Hurricane Michael. These leave-based donation programs allow employees to forgo vacation, sick, or personal leave in exchange for cash payments that the employer will make to charitable organizations described under Internal Revenue Code Section 170(c).

The employer’s cash payments will not constitute gross income or wages of the employees if paid before January 1, 2020, to the Section 170(c) charitable organizations for the relief of victims of Hurricane Michael. Employers do not need to include these payments in Box 1, 3, or 5 of an employee’s Form W-2.

Treasury Releases 2018-19 Priority Guidance Plan

The Department of the Treasury (Treasury) released its 2018-2019 Priority Guidance Plan (Plan) that describes the priorities for the Treasury and the Internal Revenue Service (IRS) for the period from July 1, 2018, through June 30, 2019. The Plan contains a list of projects that will be the focus of the Treasury and IRS, including:

  • Guidance on employer shared responsibility provisions
  • Regulations regarding the excise tax on high cost employer-provided coverage (also known as the “Cadillac tax”).

Question of the Month

Q. Under the ACA, which employers must report information on Form W-2 and what information must be reported?

A. The ACA requires employers to report the cost of coverage under an employer-sponsored group health plan. Reporting the cost of health care coverage on Form W-2 does not mean that the coverage is taxable.

Employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement. This includes businesses, tax-exempt organizations, and federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families). Federally recognized Indian tribal governments are not subject to this requirement.

Employers that are subject to this requirement should report the value of the health care coverage in Box 12 of Form W-2, with Code DD to identify the amount. There is no reporting on Form W-3 of the total of these amounts for all the employer’s employees.

In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. Please see the chart below from the IRS’ webpage and its questions and answers for more information.

The chart below illustrates the types of coverage that employers must report on Form W-2. Certain items are listed as “optional” based on transition relief provided by Notice 2012-9 (restating and clarifying Notice 2011-28). Future guidance may revise reporting requirements but will not be applicable until the tax year beginning at least six months after the date that the IRS issues its guidance.

Form W-2 Reporting of Employer-Sponsored Health Coverage

Form W-2, Box 12, Code DD
Coverage Type

Report

Do Not 
Report

Optional

Major medical

X

Dental or vision plan not integrated into another medical or health plan

X

Dental or vision plan which gives the choice of declining or electing and paying an additional premium

X

Health flexible spending arrangement (FSA) funded solely by salary-reduction amounts

X

Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits

X

Health reimbursement arrangement (HRA) contributions

X

Health savings account (HSA) contributions (employer or employee)

X

Archer Medical SAvings Account (Archer MSA) contributions (employer or employee)

X

Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis

X

Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer

X

Employee assistance plan (EAP) providing applicable employer-sponsored healthcare coverage Required if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
On-site medical clinics providing applicable employer-sponsored healthcare coverage Required if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
Wellness programs providing applicable employer-sponsored healthcare coverage Required if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
Multi-employer plans

X

Domestic partner coverage included in gross income

X

Governmental plans providing coverage primarily for members of the military and their families

X

Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government

X

Self-funded plans not subject to federal COBRA

X

Accident or disability income

X

Long-term care

X

Liability insurance

X

Supplemental liability insurance

X

Workers’ compensation

X

Automobile medical payment insurance

X

Credit-only insurance

X

Excess reimbursement to highly compensated individual, included in gross income

X

Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income

X

Other situations
Employers required to file fewer than 250 Forms W-2 for the preceding calendar year (determined without application of any entity aggregation rules for related employers)

X

Forms W-2 furnished to employees who terminate before the end of a calendar year and rquest, in writing, a Form W-2 before the end of that year

X

Forms W-2 provided by third-party sick-pay provider to employees of other employers

X

11/30/2018


2019: A Look Forward

A number of significant changes to group health plans have been made since the Affordable Care Act (ACA) was enacted in 2010. Many of these changes became effective in 2014 and 2015 but certain changes to a few ACA requirements take effect in 2019.

 Changes for 2019 

  1. Cost-sharing Limits – Non-grandfathered plans are subject to limitations on cost sharing for essential health benefits (EHB). The annual limits on cost sharing for EHB are $7,900 for self-only coverage and $15,800 for family coverage, effective January 1, 2019.
    • Health plans with more than one service provider can divide maximums between EBH as long as the combined amount does not exceed the out-of-pocket maximum limit for the year.
    • Beginning in 2016, each individual – regardless of the coverage the individual is enrolled – is subject to the self-only annual limit on cost sharing.
    • The ACA’s annual cost-sharing limits are higher than high deductible health plans (HDHPs) out-of-pocket maximums. For plans to qualify as an HDHP, the plan must comply with HDHP’s lower out-of-pocket maximums. The HDHP out-of-pocket maximum for 2019 is $6,750 for self-only coverage and $13,500 for family coverage.
  2. Coverage Affordability Percentages – If an employee’s required contribution does not exceed 9.5 percent of their household income for the taxable year (adjusted each year), then the coverage is considered affordable. The adjusted percentage for 2019 is 9.86 percent.
  3. Reporting of Coverage – Returns for health plan coverage offered or provided in 2018 are due in early 2019. For 2018, returns must be filed by February 28, 2019, or April 1, 2019 (if electronically filed). Individual statements must be provided by January 31, 2019.
    • ALEs are required to report information to the IRS and their eligible employees regarding their employer-sponsored health coverage. This requirement is found in Section 6056. Reporting entities will generally file Forms 1094-B and 1095-B under this section.
    • Every health insurance issuer, self-insured health plan sponsor, government agency that provides government-sponsored health insurance, and any other entity that provides MEC is required to finalize an annual return with the IRS, reporting information for each individual who is enrolled. This requirement is found in Section 6055. Reporting entities will generally file Forms 1094-C and 1095-C under this section.
    • ALEs that provide self-funded plans must comply with both reporting requirements. Reporting entities will file using a combined reporting method on Forms 1094-C and 1095-C.
    • Forms Used for Reporting – Reporting entities must file the following with the IRS:
      1. A separate statement for each individual enrolled
      2. A transmittal form for all returns filed for a given calendar year.
    • Electronic Reporting – Any reporting entity that is required to file 250 or more returns in either section must file electronically on the ACA Information Returns (AIR) Program. Reporting entities that file less than 250 returns can file in paper form or electronically on the ACA Information Returns (AIR) Program.
    • Penalties – Entities that fail to comply with the reporting requirements are subject to general reporting penalties for failure to file correct information returns and failure to furnish correct payee statements. Penalty amounts for failure to comply with the reporting requirements in 2019 are listed below:
Penalty Type Per Violation Annual Maximum Annual Maximum for Employers with up to $5 million in Gross Receipts
General $270 $3,275,500 $1,091,500
Corrected within 30 days $50 $545,500 $191,000
Corrected after 30 days but before August 1 $100 $1,637,500 $545,500
Intentional Disregard $540* None N/A

**Intentional disregard penalties are equal to the greater of either the listed penalty amount or 10 percent of the aggregate amount of the items required to be reported correctly. 

Expected Changes

  1. Health FSA Contributions – Effective January 1, 2018, health FSA salary contributions were limited to $2,650. The IRS usually announces limit adjustments at the end of each year. This limit does not apply to employer contributions or limit contributions under other employer-provided coverage.
  2. Employer Shared Responsibility Regulations – The dollar amount for calculating Employer Shared Responsibility 2 penalties is adjusted for each calendar year. Applicable large employers (ALEs) must offer affordable, minimum value (MV) healthcare coverage to full-time employees and dependent children or pay a penalty. If one or more full-time employees of an ALE receive a subsidy for purchasing healthcare coverage through an Exchange, the ALE is subject to penalties.
    • Applicable Large Employer Status – ALEs are employers who employ 50 or more full-time employees on business days during the prior calendar year.
    • Offering Coverage to Full-time Employees – ALEs must determine which employees are full-time. A full-time employee is defined as an employee who worked, on average, at least 30 hours per week or 130 hours in a calendar month. There are two methods for determining full-time employee status:
      1. Monthly Measurement Method – Full-time employees are identified based on a month-to-month analysis of the hours they worked.
      2. Look-Back Measurement Method – This method is based on whether employees are ongoing or new, and whether they work full time or variable, seasonal or part-time. This method involves three different periods:
        • Measurement period – for county hours of service
        • Administration period – for enrollment and disenrollment of eligible and ineligible employees
        • Stability period – when coverage is provided based on an employee’s average hours worked.
      3. Applicable Penalties – ALEs are liable for penalties if one or more full-time employees receive subsidies for purchasing healthcare coverage through an Exchange. One of two penalties may apply depending on the circumstances:
        • 4980H(a) penalty – Penalty for not offering coverage to all full-time employees and their dependents. This penalty does not apply if the ALE intends to cover all eligible employees. ALEs must offer at least 95 percent of their eligible employees’ health care coverage. Monthly penalties are determined by this equation:
          1. ALE’s number of full-time employees (minus 30) X 1/12 of $2,000 (as adjusted), for any applicable month
          2. The $2,000amount is adjusted for the calendar year after 2014:
          3. $2,080 – 2015; $2,160 – 2016; $2,260 – 2017; $2,320 – 2018
        • 4980H(b) penalty – penalty for offering coverage – ALEs are subject to penalties even if they offer coverage to eligible employees if one or more full-time employees obtain subsidies through an Exchange because:
          1. The ALE didn’t offer all eligible employees coverage
          2. The coverage offered is unaffordable or does not provide minimum value.
          3. Monthly penalties are determined by this equation: 1/12 of $3,000 (as adjusted) for any applicable month
            1. $3,120 – 2015; $3,240 – 2016; $3,390 – 2017; $3,480 – 2018

Contact one of our expert advisors for assistance or if you have any questions about compliance in the New Year.

SOURCES: www.dol.gov, www. HHS.gov, https://www.federalregister.gov/documents/2018/04/17/2018-07355/patient-protectionand-affordable-care-act-hhs-notice-of-benefit-and-payment-parameters-for-2019, https://www.irs.gov/e-fileproviders/air/affordable-care-act-information-return-air-program


IRS bumps up 401(k) contribution limit for 2019

The Internal Revenue Service (IRS) recently increased the annual contribution cap for participants of 401(k) and other retirement plans. Read this blog post to learn what the new contribution caps are.


Participants in 401(k) and other defined contribution retirement accounts will see their annual contribution cap raised from $18,500 to $19,000 in 2019, according to the Internal Revenue Service.

The catch-up contribution limit on defined contribution plans remains unchanged at $6,000.

Savers with IRAs will see the annual contribution cap raised from $5,500 to $6,000 — the first time the cap on IRA deferrals has been raised since 2013. The annual catch-up contribution for savers age 50 and over will remain at $1,000.

Cost-of-Living Adjustment (COLA) increases will also be applied to the deduction phase-out scale for IRA owners who are also covered by a workplace retirement plan:

  • for single filers the scale will be $64,000 to $74,000, up $1,000
  • for joint filers where the spouse contributing to an IRA is also covered by a workplace plan, the phase-out slot increase to $103,000 to $123,000
  • for an IRA contributor whose spouse is covered by a plan, the income phase-out is $193,000 to $2003,000

Single contributors to Roth IRAs will see the income phase-out range increase to $122,000 to $137,000, up $2,000 from last year. For married couples filing jointly the range will increase to $193,000 to $203,000, up $4,000 from last year.

More low and moderate-income families may be able to claim the Saver’s Credit on their tax returns for contributions to retirement savings plans. The threshold increases $1,000 for married couples, to $64,000; $48,000 for head of households, up $750; and $32,000 for singles and single filers, up $500 from last year.

The deferred compensation limit in defined contribution plans for pre-tax and after-tax dollars will increase $1,000, to $56,000. And the maximum defined benefit annual pension will increase $5,000, to $225,000.

SOURCE: Thornton, N. (1 November 2018) "IRS bumps up 401(k) contribution limit for 2019" (Web Blog Post). Retrieved from https://www.benefitspro.com/2018/11/01/irs-bumps-401k-contribution-limit-for-2019/


IRS Releases Draft Forms and Instructions for 2018 ACA Reporting

The IRS recently released instructions and draft forms for ACA reporting for 2018. Continue reading to learn about the form and instructions changes.


The IRS recently released draft instructions for both the 1094-B and 1095-B and the 1094-C and 1095-C and the draft forms for 1094-B1095-B1094-C, and 1095-CThere are no substantive changes in the forms or instructions between 2017 and 2018, beyond the further removal of now-expired forms of transition relief. There is a minor formatting change to draft Form 1095-C for 2018. There are dividers for the entry of an individual’s first name, middle name, and last name.

In past years, the IRS provided relief to employers who made a good faith effort to comply with the information reporting requirements and determined that they would not be subject to penalties for failure to correctly or completely file. This did not apply to employers that failed to timely file or furnish a statement.

For 2018, the IRS has stated that it does not anticipate extending the “good faith compliance efforts” relief relating to reporting requirements. Employers should be ready to fully meet the reporting requirements in early 2019 with a high degree of accuracy. There is, however, relief for de minimis errors on Line 15 of the 1095-C.

The IRS confirmed there is no code for Form 1095-C, Line 16 to indicate an individual waived an offer of coverage. The IRS also kept the “plan start month” box as an optional item for 2018 reporting.

Employers must remember to provide all printed forms in landscape format, not portrait.

SOURCE: Hsu, K. (27 September 2018) "IRS Releases Draft Forms and Instructions for 2018 ACA Reporting" (Web Blog Post). Retrieved from http://blog.ubabenefits.com/irs-releases-draft-forms-and-instructions-for-2018-aca-reporting


5 reasons to offer a student loan repayment benefit in 2019

By the first quarter of 2018, 44 million Americans owed $1.5 trillion in student loan debt. According to the Federal Reserve, this debt surpassed both credit card and auto loan debt. Read on to learn five reasons businesses should offer a student loan repayment benefit in 2019.


With human resources managers across the country working to finalize their 2019 benefits packages this month, many are asking themselves: How can we add more value for our talent and help the company grow? For many employers, the answer is helping employees manage their student loan debt.

Over the years, student loan debt has reached an astronomical sum. As of 2008, college tuition fees rose by 439% from 1982. And by the first quarter of 2018, 44 million Americans owed a total of $1.5 trillion in student loan debt, exceeding both credit card debt and auto loan debt, according to the Federal Reserve. Not only is this an extreme amount of debt, but has also taken an enormous emotional toll, with more than half of college-educated adults (54%) surveyed by Laurel Road in 2018 feeling that they will never make enough money to reach their financial goals.

Fast forward to today, and borrowers are seeking creative ways to tackle their debt and save more. Recently, in a private ruling, the IRS granted Abbott Laboratories, a national healthcare company, the option to contribute to employee 401(k) plans based on the employee’s student loan payments. Other companies — from corporate behemoths to busy startups — have partnered with student loan refinancing companies to offer employees refinancing options that can help them save, often at no cost to the company.

With Americans quitting their jobs at the fastest rate since 2001, keeping employees happy is imperative. And part of keeping millennials happy is to provide practical benefits, not just the fun perks. Employees are looking to foster meaningful relationships with their employers — so looping in student loan repayment benefits can pay off for both the employer and the employee.

So what’s to gain? Here are some of the top reasons employers should consider incorporating student loan repayment benefits into their 2019 benefits package.

1. Recruit, retain and stand out

In a competitive talent landscape, student loan debt relief is a modern benefit that any company can offer to incentivize the younger generation to join their team. In a recent survey conducted by Laurel Road, we found that 58% of millennials would trade an additional vacation day for student loan repayment assistance, showing how valuable meaningful benefits are to this generation. This benefit can be a deciding factor for talent, and a way for employers to attract top-performing talent by offering to support their financial futures.

2. It’s flexible and free

As an employer, you have options to create a student loan program that works for your team’s needs and the company’s bottom line. A lot of this comes from choosing the right lending or refinancing partner that can provide savings to employees. Lenders can offer companies the option to contribute or not and work to tailor the program to the specific needs and interests of the company’s workforce — with some options coming in at no cost to the employer.

3. Eliminate the student loan vs. retirement conflict

Employees with student debt often feel deeply conflicted about whether or not to save for retirement first or pay off their student loan debt. A recent study from Boston College’s Center for Retirement Research found that college graduates with student debt accumulate 50% less retirement wealth in their 401(k) by age 30 than those without. Employees shouldn’t have to choose between contributing to retirement and paying off their student loan debt, as both are necessary to financial health. The student loan relief benefit allows employees to make a dent in both, reducing financial stress.

4. Help employees save

One of the reasons why the student loan benefit is attractive for employees is the significant savings it can lead to. If refinancing is an option, employees have the potential to save thousands of dollars over the life of their loan through a lower loan interest rate and lower monthly payments.

In the long run, the cumulative savings can add up to several thousand dollars or more. Employers should keep in mind that the savings amount will change depending on the financing company you choose to work with. Many can offer employer customers exclusive rates, which leads to even greater savings.

5. Boost morale and productivity

According to another benefits company, 31% of employees surveyed say their money concerns affect their work. Meanwhile, 74% of people feel stress daily about their student loan debt and spend time at work thinking about it, impacting their overall productivity in the workplace. So in addition to the hard savings employees are earning through these programs, they are also rewarded with the soft benefits of reduced stress and anxiety at work.

With student loan debt reaching record highs in recent years, employers have recognized that there’s a crucial need to provide employees with options to help them pay down their student loan debt. And when options like refinancing come at no cost to them, this benefit will likely become more popular. In the future, we can expect more employers to pave the way for student loan repayment programs. Will you be one of the trailblazers?

SOURCE: Schaefer, A. (28 September 2018) "5 reasons to offer a student loan repayment benefit in 2019" (Web Blog Post). Retrieved from https://www.benefitnews.com/list/5-reasons-to-offer-a-student-loan-repayment-benefit-in-2019?brief=00000152-14a5-d1cc-a5fa-7cff48fe0001

Business meal deductions likely here to stay after new IRS guidelines

After much confusion following the IRS’s decision to end deductions for client entertainment, they are expected to release guidance regarding business meal deductions. Read this blog post to learn more.


Employers wondering whether they can still deduct business meals from their tax returns may soon be getting an answer from the Internal Revenue Service.

The agency is expected to release guidance saying that business meals will continue to be 50% deductible, according to an article in the Wall Street Journal.

The confusion over the deductibility of business meals stems from the IRS’s decision to end deductions for client entertainment, a move that was part of the government’s tax overhaul. Previously, the entertainment-related deduction was 50% of qualified expenses.

The elimination of deductions for client entertainment left many tax professionals wondering whether client meals might be considered entertainment and therefore no longer qualify for deductions.

The anticipated IRS guidance — which comes at the urging of the American Institute of Certified Public Accountants and other groups — is expected to preserve the 50% deduction for the cost of meals with clients and elaborate on how the 50% meal write-off meshes with entertainment expenses, the Wall Street Journal said.

If a business owner or employee, for example, takes a client to a ballgame, the cost of the tickets is not deductible because the expense is for entertainment. Hots dogs and drinks purchased at the event, however, could still be 50% deductible, the IRS is expected to say, according to the Wall Street Journal.

The IRS, which did not respond to a request for comment, is not likely to change the normal requirements corporate executives must meet to take deductions for client meals.

They must discuss business with the client before, during and after the meal, and the meal must not be “lavish or extravagant,” the Wall Street Journal said.

SOURCE: Correia, M. (28 September 2018) "Business meal deductions likely here to stay after new IRS guidelines" (Web Blog Post). Retrieved from https://www.benefitnews.com/news/business-meal-deductions-likely-here-to-stay-after-new-irs-guidelines?brief=00000152-14a5-d1cc-a5fa-7cff48fe0001


IRS updates required tax notice to address plan loan offsets

Recently, the IRS updated the model notice that must be sent out to all plan participants. This model notice modifies the prior model notices that were published four years ago in 2014. Continue reading to learn more.


The IRS has updated the model notice that is required to be provided to participants before they receive an “eligible rollover distribution” from a qualified 401(a) plan, a 403(b) tax-sheltered annuity, or a governmental 457(b) plan.

Notice 2018-74, which was published on September 18, 2018, modifies the prior safe-harbor explanations (model notices) that were published in 2014. Like the 2014 guidance, the 2018 Notice — sometimes referred to as the “402(f) Notice” or “Special Tax Notice” — includes two separate “model” notices that are deemed to satisfy the requirements of Code Section 402(f): one for distributions that are not from a designated Roth account, and one for distributions from a designated Roth account. The 2018 Notice also includes an appendix that can be used to modify (rather than replace) existing safe-harbor 402(f) notices.

The model notices were updated to take into consideration certain legislation that has been enacted, and other IRS guidance that has been published, since 2014. They include:

  • changes related to qualified plan loan offsets under the Tax Cuts and Jobs Act of 2017;
  • changes in the rules for phased retirement under the Moving Ahead for Progress in the 21st Century Act (“MAP-21”);
  • changes in the exceptions to the 10% penalty for early distributions from governmental plans under the Defending Public Safety Employees’ Retirement Act; and
  • IRS guidance (in Revenue Procedure 2016-47) regarding a self-certification procedure for waivers of the 60-day rollover deadline.

The model notices also make some “clarifying” changes to the 2014 notices, including:

  • clarification that the 10% additional tax on early distributions applies only to amounts includible in income;
  • an explanation of how the rollover rules apply to governmental 457(b) plans that include designated Roth accounts;
  • clarification that certain exceptions to the 10% tax on early distributions do not apply to IRAs; and
  • recognizing that taxpayers affected by federally declared disasters and other events may have an extended deadline for making rollovers.

The updated model 402(f) notices should be particularly useful in communicating to participants the extension, under the Tax Cuts and Jobs Act, of the time to roll over a “qualified plan loan offset amount.”

Inside the plan load offset

By way of background, Notice 2018-74 reminds us that distribution of a “plan loan offset amount” is an eligible rollover distribution, and that a “plan loan offset” occurs when, under the plan terms governing a plan loan, the participant’s accrued benefit is reduced, or offset, in order to repay the loan. According to the Notice, this can occur when, for example, the terms of the plan loan require that, in the event of an employee’s termination of employment or request for a distribution, the loan is to be repaid immediately or treated as in default.

The Notice also indicates that a plan loan offset may occur when, under the terms of the plan loan, the loan is canceled, accelerated, or treated as if it were in default (for example, when the plan treats a loan as in default upon an employee’s termination of employment or within a specified period thereafter). The Notice also reminds us, however, that a plan loan offset cannot occur prior to a distributable event.

This is helpful guidance for distinguishing between a “deemed distribution” of a defaulted loan (a taxable event which is not eligible for rollover) and a “plan loan offset amount,” which is an eligible rollover distribution.

Generally, if a default occurs before the participant has a distributable event (such as termination of employment, or attainment of age 59½), and the default is not cured by the last day of the cure period, it must be treated as a “deemed distribution” and reported on Form 1099. Such defaulted amounts are not eligible for rollover.

However, if the default occurs at or after a distribution event, and the plan terms require that the participant’s account be offset to pay off the loan, then the reduction of the account may be treated as a plan loan offset, which is an eligible rollover distribution.

Notice 2018-74 (and the new model notices) also reflect that, prior to the Tax Cuts and Jobs Act of 2017, participants who incurred a “plan loan offset” only had 60 days to “roll” an equivalent amount of money to an IRA or another employer plan (to avoid the offset being treated as a taxable distribution). However, for plan loan offsets that occur after December 31, 2017, if the plan loan offset is a “qualified plan loan offset” (meaning it occurs in connection with termination of employment or termination of the plan), then the participant has significantly more time (until the extended due date of the participant’s tax return for the year of the offset) in which to roll an amount equal to the loan offset amount to an IRA or another employer plan.

SOURCE: Browning, R (4 October 2018) "IRS updates required tax notice to address plan loan offsets" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/opinion/irs-updates-required-tax-notice-to-address-plan-loan-offsets?brief=00000152-146e-d1cc-a5fa-7cff8fee0000


Compliance Recap - August 2018

August was a relatively quiet month in the employee benefits world.

The Internal Revenue Service (IRS), the Department of Health and Human Services (HHS), and the Department of Labor (DOL) published a final rule that amends the definition of short-term, limited-duration insurance. HHS also released a fact sheet on the final rule. To provide guidance on association health plans, the DOL posted a fact sheet and the IRS posted a new Q&A for employers. The IRS also released a memo regarding tax payment of a prior year’s fringe benefits

IRS, HHS, and DOL Issue Final Rule on Short-Term, Limited-Duration Insurance

On August 3, 2018, the Internal Revenue Service, the Department of Health and Human Services (HHS), and the Department of Labor (collectively, the Departments) published a final rule that amends the definition of short-term, limited-duration insurance. HHS also released a fact sheet on the final rule.

According to the Departments, the final rule will provide consumers with more affordable options for health coverage because they may buy short-term, limited-duration insurance policies that are less than 12 months in length and may be renewed for up to 36 months.

The final rule will apply to insurance policies sold on or after October 2, 2018. Read more about the final rule.

DOL and IRS Release Additional Information on Association Health Plans

On August 20, 2018, the Department of Labor (DOL) posted the Association Health Plans ERISA Compliance Assistance fact sheet.

On August 20, 2018, the IRS added a new Q&A 18 to its Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act. Q&A 18 confirms that:

  • An employer that is not an applicable large employer (ALE) under the employer shared responsibility provisions does not become an ALE due to participation in an AHP.
  • An employer that is an ALE under the employer shared responsibility provisions continues to be an ALE subject to the employer shared responsibility provisions regardless of its participation in an AHP.
  • The only circumstance when multiple employers are treated as a single employer for determining whether the employer is an ALE is if the employers have a certain level of common or related ownership.

Read more about the association health plan final rule.

IRS Releases Memo Regarding Tax Payment of Prior Year’s Fringe Benefits

The Internal Revenue Services (IRS) Office of Chief Counsel released Project Manager Technical Advice Memorandum 2018-015. The fact situation involves an employer that failed to include $10,000 in fringe benefits in an employee’s taxable wages for 2016. The employer will be satisfying its obligations by paying the federal income tax withholding and FICA taxes in 2018.

The IRS states that an employer’s payment of taxes that should have been withheld in a prior year does not create additional wages to the employee for the prior year.

Further, if the employer deducts the employee FICA tax from other remuneration paid to the employee (or otherwise collects the amount from the employee), the payment of employee FICA tax by the employer is not additional compensation to the employee in 2018.

However, if the employer does not seek repayment of the employee FICA tax from the employee, the employer’s payment of employee FICA tax in 2018 (without collecting the amount from the employee) is additional wages to the employee when paid in 2018 and is subject to employment taxes.

Question of the Month

Q. Under the ACA, if an employer’s size grows, when does the employer need to offer coverage and report on coverage offered?

A. If the employer employs an average of at least 50 full-time or full-time equivalent employees during calendar year 2018, then it would make offers of coverage in 2019, and report in 2020 on its offers of coverage made in 2019.

The applicable large employer determination is a three-year cycle. For example, an employer’s size, calculated at the conclusion of 2018 determines its obligations for 2019, which it reports on in 2020.

If 2018 is the first time that a company is an applicable large employer, then the company will have until April 1, 2019, to offer coverage. If the company has individuals who are currently full-time employees and the company offers a group health plan, then the company must offer coverage to those full-time employees on January 1, 2019.


Avoiding red flags: How to lower your plan's audit risk

The largest plans aren’t the only ones that are audited. Audits are triggered by big events. Read this blog post to learn more.


Are only the largest retirement plans audited? The truth is that plans of any size can be audited by the IRS and the DOL. Your plan could be selected for a random audit, or as a result of IRS datasets that target certain types of plans. However, lots of audits are triggered by specific events. Learning to avoid the red flags can help reduce your risk and increase the odds that you will survive any audit for which you are selected without major problems.

Your Form 5500 can be audit bait

Bad answers to Form 5500 can attract the Labor Department’s attention and serve as audit bait. The best way to make sure that your Form 5500 filing doesn’t lead to an audit is to check it carefully — with outside assistance if necessary — to make sure that the compliance questions are answered correctly.

For example, one compliance question asks whether the plan is protected by an ERISA bond and if so, the amount of coverage. Never answer “no” to this question. If for some reason you didn’t have a bond before, get one now. It is even possible to obtain retroactive coverage.

A coverage amount that is too low is also a red flag. In most cases, the bond must be for at least 10% of plan assets at the beginning of the year, although plans with certain types of investments must have higher coverage. Since assets at prior year end and at the beginning of the year are also shown on the 5500, showing an amount lower than 10% of those assets will invite the DOL to follow up.

The DOL will also look at the investment and financial information shown in the asset report. If your plan has many alternative investments such as hedge funds, has invested in other hard-to-value investments, or if you have large amounts of un-invested cash, you may also be inviting a follow up by the DOL. If your asset values as of the end of the prior year do not match your opening year balance for the succeeding year, you are also inviting unwanted inquiries.

Other answers that may get you targeted for further investigation are: if you indicate that you have late deposits of employee contributions or that you have not made required minimum distributions to former employees who are 70.5 years old. Note that this question does not need to be answered “Yes” if reasonable efforts have been made to find the participants but they still can’t be located.

Don’t ignore employee claims and complaints

Many plan sponsors don’t realize that employee complaints to the IRS and DOL often lead to audits. Make sure that employee questions and complaints receive a response, and if a formal claim for benefits is filed, make sure to follow the ERISA regulations on benefit claims and appeals. It is a good idea to run any denials past your ERISA attorney to make sure they are consistent with the written plan terms and clearly explain the participant’s appeal rights and the reason for the denial.

Be prepared

If your plan is selected for IRS or DOL audit, expect to be asked to provide executed plan documents, participant notices and fiduciary policies, such as your Investment Policy Statement. Keep these in a file to avoid a last-minute scramble to satisfy the auditor’s requests. You should also be prepared to show that you are making diligent efforts to find missing participants, deal with defaulted loans and review plan fees, which are current hot issues for auditors.

To be even better prepared, you can do a self-audit to identify problems that need correction before the IRS or DOL do.

SOURCE: Buckmann, C (29 June 2018) "Avoiding red flags: How to lower your plan's audit risk" (Web Blog Post). Retrieved from: https://www.benefitnews.com/opinion/irs-dol-audit-red-flags-and-avoiding-plan-risks


Consequences and/or Remedies for Late or Missing Form 5500s

Do you know what to do if you forget to file your Form 5500? Continue reading to learn what your options are if you fail to file or if you file late.


The Form 5500 is due on the last day following seven months after the end of the plan year. In order to be granted an extension, the employer would have to send the IRS a Form 5558 for each plan subject to Form 5500 obligations. The Form 5558 needs to be postmarked by the original due date or it will be rejected.

Failure to file or failure to file required Form 5500s on time can prove to be costly for an employer as daily penalties are assessed for late or missing filings.

What should an employer do if they find out they never filed a Form 5500 or they failed to file the Form 5500 by the deadline?

The employer should consider their risk tolerance, the number of plans they have not filed and the potential penalties to determine what the best course of action is for them.

They have three options:

  1. Do not file and hope that no one questions them if they are audited. There is a potential consequence of $300/day for each plan (per plan/ per plan year) that did not get filed or get filed on time. Penalties capped at $30,000 per year.
  2. File late and hope that no one notices. There is a potential consequence of $50/day for each plan (per plan/per plan year) that filed late or not on time. No cap on the penalty in this case.
  3. File late under the Delinquent Filers Voluntary Compliance Program (DFVCP). There is late fee of $10/day for each plan (per plan per plan year) that is filing late. Penalties capped at $2,000 per large plan/$750 per small plan if filing multiple plan years for a plan. Penalties for large plans that file more than 1 delinquent plan year per plan number filing at the same time, the maximum penalty is $4,000 per plan and $1,500 for small plans.

The Bottom Line:

Employee Benefits Corporation can assist employers with the preparation of their delinquent Form 5500s as part of our Compliance Services offerings. Employers will pay the DFVCP penalties directly to the DOL online as part of the process. We can help educate the employer on the risk factors associated with each approach and to assist, if contracted to do so, in the preparation of the Form 5500s.

SOURCE:
Employee Benefits Corporation (29 June 2018) "Consequences and/or Remedies for Late or Missing Form 5500s" [Web Blog Post]. Retrieved from https://www.ebcflex.com/Education/ComplianceBuzz/tabid/1140/ArticleID/613/Consequences-and-or-Remedies-for-Late-or-Missing-Form-5500s.aspx?utm_source=7.19.18+Need+to+Know+%7C+Missing+Form+5500s&utm_campaign=7-19-18_Need+to+Know+email-Form+5500+season&utm_medium=email