District Court Vacates Parts of ACA Section 1557 Nondiscrimination Rule

Any programs administered by the Department of Health and Human Services (HHS) or any health program or activity administered by an entity established under Title I of the ACA falls under Section 1557 of the ACA. Recently, the U.S. District Court for the Northern District of Texas (District Court) vacated portions of the current rule implementing Section 1557. Read this blog post from UBA to learn more about this compliance update.


As background, the Patient Protection and Affordable Care Act (ACA) Section 1557 provides that individuals shall not be excluded from participation in, denied the benefits of, or be subjected to discrimination under any health program or activity which receives federal financial assistance from the Department of Health and Human Services (HHS), on the basis of race, color, national origin, sex, age, or disability. The current rule applies to any program administered by HHS or any health program or activity administered by an entity established under Title I of the ACA. These applicable entities are “covered entities” and include a broad array of providers, employers, and facilities. On May 13, 2016, the Department of Health and Human Services (HHS) issued a final rule (current rule) implementing Section 1557, which took effect on July 18, 2016.

On October 15, 2019, the U.S. District Court for the Northern District of Texas (District Court) vacated portions of the current rule implementing Section 1557 that prohibit discrimination on the basis of gender identity and pregnancy termination. The District Court remanded the vacated portions of the current rule to HHS for revision. While those portions of the current rule have been vacated, covered entities subject to Section 1557 may still face private lawsuits for discrimination based on gender identity and pregnancy termination.

Employers who are subject to Section 1557 should stay informed on this litigation because it is anticipated that the District Court’s ruling will be appealed to the Fifth Circuit Court of Appeals.

SOURCE: Hsu, K. (21 November 2019) "District Court Vacates Parts of ACA Section 1557 Nondiscrimination Rule" (Web Blog Post). Retrieved from http://blog.ubabenefits.com/district-court-vacates-parts-of-aca-section-1557-nondiscrimination-rule


IRS increases retirement contributions for 2020

Workers who contribute to 401(k), 403(b), 457 and the federal government’s Thrift Savings Plans will be able to contribute up to $19,500 in 2020, according to a recent announcement from the Internal Revenue Service (IRS). Read the following to learn more about this increase in retirement contributions.


The IRS said this week that workers contributing to 401(k), 403(b), 457 and the federal government’s Thrift Savings Plans plans can add $19,500 next year, an increase from $19,000 in 2019.

The move could help workers save more for retirement, but it may be inconvenient for employers who’ve already started open enrollment, experts say. Employees are now able to set aside $500 more for retirement.

“Every penny counts when you’re saving for retirement, and the higher contribution limit is definitely going to help,” says Jacob Mattinson, partner at McDermott, Will & Emery, a Chicago-based law firm. “But since companies are in the midst of open enrollment, employers may have to go back in and change the entries for employees who want to contribute the max.”

There are about 27.1 million 401(k) plan participants using roughly 110,794 employer-sponsored 401(k) plans, the Employee Benefit Research Institute says. Ninety-three percent of employers offer a 401(k) plan, and around 74% of companies match workers’ contributions, according to data from the Society for Human Resource Management.

While the vast majority of employers do offer retirement savings plans, employees may still be struggling to sock away money. Around 70% of workers say debt has negatively impacted their ability to save for retirement, EBRI says.

“Thirty-two percent of workers with a major debt problem are not at all confident about their prospects for a financially secure retirement, compared with 5% of workers without a debt problem,” says Craig Copeland, EBRI senior research associate.

The IRS also upped contribution limits on Savings Incentive Match Plan for Employees plans, or SIMPLE retirement accounts, to $13,500 from $13,000. The agency did not change the contribution limits to IRAs, which remain at $6,000 annually.

SOURCE: Hroncich, C. (7 November 2019) "IRS increases retirement contributions for 2020" (Web Blog Post). Retrieved from https://www.benefitnews.com/news/irs-increases-retirement-contributions-for-2020


It’s time to consider a wage and hour audit

When is the last time your company conducted a wage and hour audit? According to the Department of Labor (DOL), a record $322 million of unpaid wages were recovered for the 2019 fiscal year, $18 million more than what was recovered for the 2018 fiscal year. Read this blog post to learn more.


Those who believed the Trump administration would scale back the Obama-era Department of Labor’s aggressive enforcement of wage and hour laws may be surprised to learn that the DOL recently announced that it recovered a record $322 million in unpaid wages for fiscal year 2019. This is $18 million more than that recovered in the last fiscal year, which was the previous record.

The agency has set records in back wages collected every year since 2015, according to data released by the DOL. This year, the average wages DOL recovered per employee were $1,025. The agency’s office of federal contractor compliance also announced that it had recovered a record $41 million in settlements over discrimination actions involving federal contractors, an increase of 150% over the last fiscal year.

Effective Jan. 1, the new salary threshold that most salaried employees must earn to be exempt from overtime pay will be $35,568, or $684 per week, under the final rule issued by the DOL in September.

With the new salary threshold taking effect soon, and the DOL continuing to aggressively enforce wage and hour laws, it is a good time to consider conducting a wage and hour audit to ensure that employees are properly classified as exempt or nonexempt and that other pay practices comply with the law.

Employers who did this in 2016, only to find out later that the Obama administration’s proposed hike in the salary threshold would not take effect, may have a strong feeling of déjà vu. But this time, there does not appear to be any viable legal challenge that would delay or block the salary threshold change, so employers must be prepared to either increase salaries of “white-collar” exempt employees (who earn less than $35,568) or reclassify them as hourly employees by January.

Among other things, a wage and hour audit should include the following:

  • Review all individuals classified as independent contractors;
  • Review all employees classified as exempt from overtime under one or more “white-collar” exemptions (administrative, executive, and professional), who must earn at least the $35,568 salary threshold beginning January 1, 2020;
  • Review all other employees classified as exempt from overtime, including computer and sales employees; and
  • Review all individuals classified as interns, trainees, volunteers, and the like.

In addition to ensuring whether employees are properly classified as exempt or nonexempt, a thorough wage and hour audit should look at a number of other issues, including timekeeping and rounding of hours worked, meal and rest breaks, whether bonuses and other special payments need to be included in employees’ regular rate of pay for calculating overtime, and payments besides regular wages, such as paid leave and reimbursement of expenses.

SOURCE: Allen, S. (8 November 2019) "It’s time to consider a wage and hour audit" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/employers-should-consider-a-wage-and-hour-audit


IRS Releases Information Letter on Employer Shared Responsibility Penalties under the ACA

An informational letter was just released by the Internal Revenue Services (IRS) in response to an inquiry of whether employer shared responsibility penalties (ESRPs) may be waived or reduced based on hardship or other factors. Read this blog post to learn more.


The Internal Revenue Services (IRS) released an information letter responding to an inquiry of whether employer shared responsibility penalties (ESRPs) may be waived or reduced based on hardship or other factors and whether the IRS will extend the transition relief for employers with fewer than 100 employees.

The letter notes that the law does not provide for waiver of ESRPs. While the IRS provided several forms of transition relief in 2015 and 2016, no transition relief is available for 2017 and future years. Although the January 20, 2017, executive order Minimizing the Economic Burden of the ACA Pending Repeal directs federal agencies to exercise authority and discretion to waive, defer, and grant exemptions from the ACA provisions, the ACA’s legislative provisions are still in force until Congress changes them.

SOURCE: Hsu, K. (7 November 2019) "IRS Releases Information Letter on Employer Shared Responsibility Penalties under the ACA" (Web Blog Post). Retrieved from http://blog.ubabenefits.com/irs-releases-information-letter-on-employer-shared-responsibility-penalties-under-the-aca


IRS updates rules on retirement plan hardship distributions

Updates to the hardship distribution regulations were recently finalized by the Internal Revenue Service (IRS). The new regulations are intended to make the requirements more flexible and participant friendly. Read the following article to learn more about these updated regulations.


Employers who allow for hardship distributions from their 401(k) or 403(b) plans should be aware that the Internal Revenue Service recently finalized updates to the hardship distribution regulations to reflect legislative changes. The new rules make the hardship distribution requirements more flexible and participant-friendly.

Hardship distributions are in-service distributions from 401(k) or 403(b) plans that are available only to participants with an immediate and heavy financial need. Plans are not required to offer hardship distributions. But there are certain requirements if a plan does offer hardship distributions. Generally, a hardship distribution may be made to a participant only if the participant has an immediate and heavy financial need, and the distribution is necessary and not in excess of the amount needed (plus related taxes or penalties) to satisfy that financial need.

An administrator of a 401(k) or 403(b) plan can determine whether a participant satisfies these requirements based on all of the facts and circumstances, or the administrator may rely on certain tests that the IRS has established, called safe harbors.

Over the last fifteen years, Congress has changed the laws that apply to hardship distributions. The new rules align existing IRS regulations with Congress’s legislative changes. Some of the changes are mandatory and some are optional. The new rules make the following changes. The following changes are required.

Elimination of six-month suspension.

Employers may no longer impose a six-month suspension of employee elective deferrals following the receipt of a hardship distribution.

Required certification of financial need.

Employers must now require participants to certify in writing or by other electronic means that they do not have sufficient cash or liquid assets reasonably available, in order to satisfy the financial need and qualify for a hardship distribution.

There were also some optional changes made to hardship distributions.

Removal of the requirement to take a plan loan.

Employers have the option, but are not mandated, to eliminate the requirement that participants take a plan loan before qualifying for a hardship distribution. In order to qualify for a hardship distribution, participants are still required to first take all available distributions from all of the employer’s tax-qualified and nonqualified deferred compensation plans to satisfy the participant’s immediate and heavy financial need. The optional elimination of the plan loan requirement may first apply beginning January 1, 2019.

Expanded safe harbor expenses to qualify for hardship.

The new hardship distribution regulations expand the existing list of pre-approved expenses that are deemed to be an immediate and heavy financial need. Prior to the new regulations, the list included the following expenses:

  • Expenses for deductible medical care under Section 213(d) of the Internal Revenue Code;
  • Costs related to the purchase of a principal residence;
  • Payment of tuition and related expenses for a spouse, child, or dependent;
  • Payment of amounts to prevent eviction or foreclosure related to the participant’s principal residence;
  • Payments for burial or funeral expenses for a spouse, child, or dependent; and
  • Expenses for repair of damage to a principal residence that would qualify for a casualty loss deduction under Section 165 of the Internal Revenue Code.

The new regulations expand this list of permissible expenses by adding a participant’s primary beneficiary under the plan as a person for whom medical, tuition and burial expenses can be incurred. The new regulations also clarify that the immediate and heavy financial need for principal residence repair and casualty loss expenses is not affected by recent changes to Section 165 of the Internal Revenue Code, which allows for a deduction of such expenses only if the principal residence is located in a federally declared disaster zone. Finally, the new regulations add an additional permissible financial need to the list above for expenses incurred due to federally declared disasters.

New contribution sources for hardships.

The law and regulations provide that employers may now elect to allow participants to obtain hardship distributions from safe harbor contributions that employers use to satisfy nondiscrimination requirements, qualified nonelective elective contributions (QNECS), qualified matching contributions (QMACs) and earnings on elective deferral contributions. However, 403(b) plans are not permitted to make hardship distributions from earnings on elective deferrals, and QNECS and QMACs are distributable as hardship distributions only from 403(b) plans not held in a custodial account.

As this list indicates, the new regulations make substantial changes to the hardship distribution rules.

The deadline for adopting this amendment depends on the type of plan the employer maintains and when the employer elects to apply the changes. Plan sponsors should work with their document providers and legal counsel to determine the specific deadlines for making amendments.

SOURCE: Tavares, L. (01 November 2019) "IRS updates rules on retirement plan hardship distributions" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/irs-updates-rules-on-401k-403b-plan-hardship-distributions


IRS Announces Health Insurance Providers Fee to Resume in 2020

Recently, the Internal Revenue Services (IRS) announced that the health insurance providers fee will resume in 2020. This fee is imposed by the Patient Protection and Affordable Care Act (ACA) and was suspended for 2019. Read this blog post from UBA to learn more.


As background, the Patient Protection and Affordable Care Act (ACA) imposes a fee on each covered entity (for example, health insurers or a non-fully insured MEWA) engaged in the business of providing health insurance for United States health risks.

There was a moratorium on the fee for 2017 and there is a suspension on the fee for 2019. Under IRS Notice 2019-50, absent legislative action, the fee will resume for 2020. According to an estimate by the American Academy of Actuaries, the fee will increase premiums by one to three percent in 2020.

SOURCE: Hsu, K. (29 October 2019) "IRS Announces Health Insurance Providers Fee to Resume in 2020" (Web Blog Post). Retrieved from http://blog.ubabenefits.com/irs-announces-health-insurance-providers-fee-to-resume-in-2020


Compliance Recap - October 2019

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

The U.S. District Court for the Northern District of Texas vacated portions of the current rule implementing Section 1557 that prohibit discrimination on the basis of gender identity and pregnancy termination. The U.S. Court of Appeals for the 9th Circuit affirmed a district court’s preliminary injunction of final rules regarding contraceptive coverage exemptions.

The Office for Civil Rights (OCR) and the Office of the National Coordinator for Health Information Technology (ONC) released the latest version of the Department of Health and Human Services (HHS) Security Risk Assessment Tool. The Internal Revenue Service (IRS) updated its webpage that has general information about the CP233J notice. The Treasury released its 2019-2020 Priority Guidance Plan.

UBA Updates

UBA released one new advisor: Health Reimbursement Arrangements Comparison Chart

UBA updated or revised existing guidance:

District Court Vacates Parts of ACA Section 1557 Nondiscrimination Rule

As background, the Patient Protection and Affordable Care Act (ACA) Section 1557 provides that individuals shall not be excluded from participation in, denied the benefits of, or be subjected to discrimination under any health program or activity which receives federal financial assistance from the Department of Health and Human Services (HHS), on the basis of race, color, national origin, sex, age, or disability. The current rule applies to any program administered by HHS or any health program or activity administered by an entity established under Title I of the ACA. These applicable entities are “covered entities” and include a broad array of providers, employers, and facilities. On May 13, 2016, the Department of Health and Human Services (HHS) issued a final rule (current rule) implementing Section 1557, which took effect on July 18, 2016.

On October 15, 2019, the U.S. District Court for the Northern District of Texas (District Court) vacated portions of the current rule implementing Section 1557 that prohibit discrimination on the basis of gender identity and pregnancy termination. The District Court remanded the vacated portions of the current rule to HHS for revision. While those portions of the current rule have been vacated, covered entities subject to Section 1557 may still face private lawsuits for discrimination based on gender identity and pregnancy termination.

Employers who are subject to Section 1557 should stay informed on this litigation because it is anticipated that the District Court’s ruling will be appealed to the Fifth Circuit Court of Appeals.

Please see our UBA Advisors “Update on Nondiscrimination Regulations Relating to Sex, Gender, Age, and More” and “Update on Nondiscrimination Regulations Relating to Sex, Gender, Age, and More – for Health Care Providers” for more information.

Court of Appeals Affirms Preliminary Injunction of Contraceptive Coverage Exemptions Final Rule

As background, the Patient Protection and Affordable Care Act (ACA) requires that non-grandfathered group health plans and health insurance issuers offering non-grandfathered group or individual health insurance coverage provide coverage of certain specified preventive services, including contraceptive services, without cost sharing. The Treasury, Department of Labor (DOL), and Department of Health and Human Services (HHS) (collectively, the Departments) released two final rules on November 7, 2018, regarding contraceptive coverage exemptions based on religious beliefs and moral beliefs. These rules finalize the Departments’ interim final rules that were published on October 13, 2017.

On January 13, 2019, the U.S. District Court for the Northern District of California (California Court) granted a preliminary injunction that prohibits the final rules’ implementation and enforcement against California, Connecticut, Delaware, Hawaii, Illinois, Maryland, Minnesota, New York, North Carolina, Rhode Island, Vermont, Washington, Virginia, and the District of Columbia. On October 22, 2019, the U.S. Court of Appeals for the 9th Circuit affirmed the California Court’s preliminary injunction that prohibits the two final rules’ implementation and enforcement against the thirteen plaintiff states and the District of Columbia.

Read more about the status of the final rules.

OCR and ONC Release HHS Security Risk Assessment Tool Version 3.1

The Office for Civil Rights (OCR) and the Office of the National Coordinator for Health Information Technology (ONC) have released version 3.1 of the HHS Security Risk Assessment (SRA) Tool. The tool is designed to help small- to medium-sized health care organizations perform risk assessments regarding potential malware, ransomware, and other cyberattacks.

IRS Updates CP233J Notice Webpage

The Internal Revenue Service (IRS) updated its webpage titled “Understanding Your CP233J Notice.” The CP233J notice notifies employers of changes to the amount of the employer shared responsibility payment due to the IRS. The IRS webpage has general information about the notice including what the notice is, what an employer needs to do when it receives the notice, and answers to common questions.

The Treasury Releases 2019-2020 Priority Guidance Plan

The Treasury released its 2019-2020 Priority Guidance Plan (Priority Guidance Plan) that sets forth guidance priorities for the Treasury and the Internal Revenue Service (IRS) during the twelve-month period from July 1, 2019, through June 30, 2020. The Priority Guidance Plan lists several priorities, including guidance under Section 125 on health flexible spending accounts (HFSAs), guidance on contributions to and benefits from paid family and medical leave programs, and guidance on the Cadillac tax.

Question of the Month

Q: Has the Internal Revenue Service (IRS) released the 2020 health flexible spending account (health FSA) contribution limit (also known as the employee deferral limit) or the 1094 / 1095 reporting forms for 2019?

A: No. The IRS has not released the 2020 health FSA contribution limit and has not released the 1094 / 1095 reporting forms for 2019. The IRS has not indicated when it plans to release either the health FSA contribution limit or the 1094 / 1095 reporting forms. At a recent conference, IRS staff (in their unofficial capacity) said that the 1094 / 1095 reporting forms have been delayed, in part, because the IRS is considering whether to change the forms to reflect the fact that the individual mandate’s penalty is $0 as of 2019.

11/1/2019


IRS Publishes Proposed Rules on Affordability Safe Harbors and Nondiscrimination for ICHRAs

Proposed rules clarifying how employer shared responsibility provisions and Section 105(h) nondiscrimination rules apply to HRAs were recently published by the Internal Revenue Service (IRS). Read this informational blog post from UBA to learn more.


The Internal Revenue Service (IRS) published proposed rules clarifying how the employer shared responsibility provisions and Section 105(h) nondiscrimination rules apply to health reimbursement arrangements (HRAs) and other account-based group health plans that are integrated with individual health insurance coverage or Medicare.

Public comments on the IRS’ proposed rules are due by December 30, 2019. Because employers may want to offer individual coverage HRAs beginning on January 1, 2020, before the IRS publishes its final regulations, the IRS provides a time period within which employers may rely on the proposed regulations.

SOURCE: Hsu, K. (22 October 2019) "IRS Publishes Proposed Rules on Affordability Safe Harbors and Nondiscrimination for ICHRAs" (Web Blog Post). Retrieved from http://blog.ubabenefits.com/irs-publishes-proposed-rules-on-affordability-safe-harbors-and-nondiscrimination-for-ichras


DOL Fact Sheet: Final Overtime Rule

The Department of Labor (Department) is updating the earnings thresholds necessary to exempt executive, administrative or professional (EAP) employees from the Fair Labor Standards Act (FLSA) minimum wage and overtime pay requirements.

The Department is updating both the minimum weekly standard salary level and the total annual compensation requirement for “highly compensated employees” (HCEs) to reflect growth in wages and salaries. The new thresholds account for growth in employee earnings since the currently enforced thresholds were set in 2004. The Department believes that the update to the standard salary level will maintain the traditional purposes of the salary level test and will help employers more readily identify exempt employees.

The Department estimates that, as a result of the final rule, 1.3 million currently exempt employees will become nonexempt.

Links and Resources

The DOL has published the following resources to help employers prepare for and understand the final white collar overtime exemption rule. The DOL’s final rule is available here.

Highlights

Important Changes

  • The final rule increases the standard salary level for the EAP exemptions to $684 per week ($35,568 per year).
  • The final rule increases the HCE salary level to $107,432 per year.
  • The final rule permits using an employee’s  nondiscretionary bonuses toward 10 percent of his or her salary level.

Important Dates

  • Sep. 24, 2019: Final overtime rule is announced.
  • Jan. 1, 2020: Final overtime rule becomes effective.

Key Provisions of the Final Rule

The final rule updates the salary and compensation levels needed for workers to be exempt in the final rule:

  1. Raising the “standard salary level” from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker);
  2. Raising the total annual compensation level for HCEs from the currently enforced level of $100,000 to $107,432 per year;
  3. Allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices; and
  4. Revising the special salary levels for workers in U.S. territories and in the motion picture industry.

Additionally, the Department intends to update the standard salary and HCE total annual compensation levels more regularly in the future through notice-and-comment rulemaking.

Standard Salary Level

The Department is setting the standard salary level at $684 per week ($35,568 for a full-year worker). The salary amount accounts for wage growth since the 2004 rulemaking by using the most current data available at the time the Department drafted the final rule.

The Department is updating the standard salary level set in 2004 by applying to current data the same method and long-standing calculations used to set that level in 2004—i.e., by looking at the 20th percentile of earnings of full-time salaried workers in the lowest-wage census region (then and now the South), and/or in the retail sector nationwide.

HCE Total Annual Compensation Requirement

The Department is setting the total annual compensation requirement for HCEs at $107,432 per year. This compensation level equals the earnings of the 80th percentile of full-time salaried workers nationally. To be exempt as an HCE, an employee must also receive at least the new standard salary amount of $684 per week on a salary or fee basis (without regard to the payment of nondiscretionary bonuses and incentive payments).

Special Salary Levels for Employees in U.S. Territories and Special Base Rate for the Motion Picture Producing Industry

The Department is maintaining a special salary level of $380 per week for American Samoa because minimum wage rates there have remained lower than the federal minimum wage. Additionally, the Department is setting a special salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands.

The Department also is maintaining a special “base rate” threshold for employees in the motion picture producing industry. Consistent with prior rulemakings, the Department is increasing the required base rate proportionally to the increase in the standard salary level test, resulting in a new base rate of $1,043 per week (or a proportionate amount based on the number of days worked).

Treatment of Nondiscretionary Bonuses and Incentive Payments

In the final rule, in recognition of evolving pay practices, the Department also permits employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.

If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the Department permits the employer to make a “catch-up” payment within one pay period of the end of the 52-week period. This payment may be up to 10 percent of the total standard salary level for the preceding 52-week period. Any such catch-up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.

Updating

Experience has shown that fixed earning thresholds become substantially less effective over time. Additionally, lengthy delays between updates necessitate disruptively large increases when overdue updates finally occur. Accordingly, in the final rule the Department reaffirms its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking.

Source: U.S. Department of Labor


DOL Issues Updated Medicaid / CHIP Model Notice

An updated Premium Assistance Under Medicaid and the Children’s Health Insurance Program (CHIP) Model Notice was recently issued by the Department of Labor (DOL). Read this post from UBA to learn more.


The Department of Labor (DOL) issued an updated Premium Assistance Under Medicaid and the Children’s Health Insurance Program (CHIP) Model Notice. Employers should distribute the updated model notice before the start of the plan year if they have any employees in a state listed in the notice.

SOURCE: Hsu, K. (10 October 2019) "DOL Issues Updated Medicaid / CHIP Model Notice" (Web Blog Post). Retrieved from http://blog.ubabenefits.com/dol-issues-updated-medicaid-/-chip-model-notice