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


Severance plans: How savvy employers can stay ERISA compliant

There are significant benefits associated with severance arrangements that are also ERISA plans. Read this blog post to find out how you can stay ERISA compliant with your severance plans.


An employer’s promise to provide severance benefits may be written or oral, formal or informal, and individual or group. Determining whether an ERISA plan already exists, or whether an employer wants its severance arrangement to be subject to ERISA, is an important consideration in determining an employer’s obligation and liabilities associated with a severance arrangement.

There are significant advantages associated with a severance arrangement that is an ERISA plan as discussed in detail below. An employer, however, cannot unilaterally decide that the severance arrangement is an ERISA plan. Instead, an employer, when designing and administering a severance arrangement, can take definitive steps to ensure that the arrangement is treated as an ERISA plan.

Employers may assume that the first step to ensure the existence of an ERISA plan is to have a written plan document, which is required by ERISA. Surprisingly, this is not necessarily determinative as to whether an ERISA plan exists. Courts have held that ERISA plans can exist without a written plan document and vice versa.

Case law has provided the broad outlines of the nature of an ERISA-governed severance plan. An essential characteristic of ERISA severance plans is that, by their nature, they necessitate “an ongoing administrative scheme.” Courts have looked at the following indicators when determining what constitutes an ongoing administrative scheme:

  • The employer’s discretion in determining (1) eligibility for benefits or (2) available plan benefits
  • The form of payment such as lump sums versus periodic payments
  • Any ongoing demand on the employer’s assets such that there is an ongoing scheme to coordinate and control the distribution of benefits
  • Calculations based on certain factors such as job performance, length of service, reemployment prospects, and so forth.

Severance plans or arrangements that normally do not require an ongoing administrative scheme, and therefore, do not implicate ERISA, are plans that have lump-sum payments that are calculated under a formula and are mechanically triggered by a single event (such as termination). Where severance payments are made over time (through payroll, for example) and/or additional benefits (such as continuation of benefits or outplacement services) are provided, the severance arrangement is likely subject to ERISA.

As a practical matter, whether severance arrangements are ad hoc or recognized in a formal plan document, they may end up providing ERISA-covered benefits. In a dispute, an employer generally prefers that ERISA applies because of ERISA’s preemption of state laws. Preemption protects employers from state laws that may favor employees and generally limits the dispute to an ERISA claim for benefits, thereby avoiding the potential exposure to punitive, extra-contractual or special damages under state laws. In addition, ERISA’s claim procedure, which provides a pre-litigation administrative process for dispute resolution, will apply if proper plan language is provided. If employees with a severance claim fail to faithfully follow the ERISA claims procedure, their lawsuits may be dismissed for failure to exhaust administrative remedies.

Typically, the plan document gives the employer, in its capacity as plan administrator, the discretionary authority to interpret the plan’s language and make decisions about the plan. If the employee follows the claim procedures and the claim is denied, the decision-making process of the employer (or its designee) if done properly, is given deferential treatment by a reviewing court. Moreover, in many cases, judicial review is limited to only those matters addressed in the administrative record of the claim. In other words, many federal courts would decline to consider factual matters that were not raised by the employee in the claim procedure process.

Another consideration for the savvy employer is that severance benefits are almost always considered to be “welfare” benefits. Welfare benefits, as opposed to pension benefits, are afforded an extremely low level of protection under ERISA. Essentially, the employer’s exposure as to promised severance benefits is only as broad as its express contractual commitment to them. By appropriately documenting the benefits with “best practices” language (such as specifying that the amendment or termination of benefits may be done with or without advance notice), employers can take advantage of the opportunity afforded by the relatively thin protections provided by ERISA. On the other hand, poor or no documentation of a severance arrangement may leave an employer with difficult-to-prove assertions as to what severance commitments were actually made.

In summary, an ERISA-governed plan provides an employer with significant advantages in litigation. In addition, a severance arrangement subject to ERISA will enjoy the powerful benefits of ERISA preemption and the ERISA claims procedures.

SOURCE: Rothman, J.; Ninneman, S. (3 October 2018) "Severance plans, Part 1: How savvy employers can stay ERISA compliant" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/opinion/how-employers-can-stay-erisa-compliant-with-severance-plans


Compliance Recap - September 2018

September was a relatively busy month in the employee benefits world.

The Internal Revenue Service (IRS) released draft 2018 instructions for Forms 1094-B, 1095-B, 1094-C, and 1095-C. The IRS also issued an information letter regarding health flexible spending accounts and guidance on the employer credit for paid family and medical leave. The Congressional Research Service published its updated Federal Requirements for Private Health Insurance Plans.

UBA Updates

UBA released one new advisor: IRS Releases Draft Forms and Instructions for 2018 ACA Reporting

UBA updated existing guidance:

IRS Issues Draft 2018 Instructions for Forms 1094-B, 1095-B, 1094-C, and 1095-C

The Internal Revenue Service (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-B, 1095-B, 1094-C, and 1095-C. There 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 Forms 1095-B and 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.

Read more about the draft ACA reporting forms and instructions.

IRS Issues Information Letter Regarding Health FSAs

The Internal Revenue Service (IRS) issued Information Letter 2018-0012 to reiterate that employers can include a provision in a heath flexible spending arrangement (FSA) that allows up to $500 in unused amounts at the end of the plan year to be carried over to the next plan year. However, any carryover amount cannot be accumulated in the health FSA over several years.

The IRS also indicates that a health savings account (HSA) would allow unused amounts to be accumulated and used in any later year. Further, the IRS indicates that a heath reimbursement arrangement (HRA) can be structured to allow for unused amounts to be accumulated and used for medical expenses in later years.

IRS Issues Guidance on Employer Credit for Paid Family and Medical Leave

The Internal Revenue Service (IRS) released Notice 2018-71 (Notice) that provides Q&A guidance on the Internal Revenue Code Section 45S employer credit for paid family and medical leave (FML). The IRS clarified several items in its guidance, including:

  • An employer does not need to be subject to Title I of the Family and Medical Leave Act of 1993 (FMLA) to be eligible for the employer credit for FML
  • A description of what the employer’s written policy must contain, including sample “non-interference” language
  • Under Section 45S, paid leave is considered FML only if the leave is specifically designated for one or more FMLA purposes, may not be used for any other reason, and is not paid by a state or local government or required by state or local law
  • An employee does not need to work a minimum number of hours per year to be a qualifying employee
  • Each member of a controlled group generally makes a separate election of whether to claim the credit
  • An employer must file IRS Form 8994, Employer Credit for Paid Family and Medical Leave, and IRS Form 3800, General Business Credit, with its tax return to claim the credit

Read more about the IRS’ Q&A guidance.

CRS Publishes Updated Federal Requirements on Private Health Insurance Plans

The Congressional Research Service (CRS) published its updated Federal Requirements on Private Health Insurance Plans which summarizes federal requirements that apply to the private health insurance market, including a table that indicates whether a particular federal requirement applies to a fully-insured large group plan, fully-insured small group plan, self-funded plan, or individual coverage.

Question of the Month

Q. We recently received a medical loss ratio (MLR) rebate. How should the money be distributed?

A. If the plan document states how a rebate should be used, then the plan administrator should follow the plan document’s terms.

If the plan document is silent on how the rebate should be distributed, then the following general principles apply.

How should the rebate be divided?

Assuming both the employer and employees contribute to the cost of coverage, the rebate should be divided between the employer and the employees, based on the employer’s and employees’ relative share. Employers may divide the rebate in any reasonable manner – for example, the rebate could be divided evenly among the employees who receive it, or it may be divided based on the employee’s contribution for the level of coverage elected.

Employers are not required to precisely determine each employee’s share of the rebate, and so do not need to perform special calculations for employees who only participated for part of the year, moved between tiers, etc.

Using the example that the rebates are based on premiums paid to the carrier for calendar year 2017, the employer may pay the rebate only to employees who participated in the plan in 2017 and are still participating, only to current participants (even though the rebate relates to 2017), or to those who participated in 2017, regardless whether they are currently participating.

Insurers must send a notice to all employees who participated in the plan in 2017 stating that a rebate has been issued to the employer, so employers who choose to limit rebate payments to those who are currently participating should be prepared to explain why the rebate is only being paid to current participants. This might include the fact that since the rebate would be taxable income, the amount involved does not justify the administrative cost to locate former participants and issue a check.

Are former plan participants entitled to a share of the rebate?

Whether former participants should be included in any rebate allocations depends on the type of plan involved. For ERISA plans, there is no requirement that former participants be included or excluded. However, the Department of Labor’s (DOL) Technical Release, in discussing fiduciary decisions regarding distribution of rebates, states that if a fiduciary determines that the cost of including former participants in a rebate distribution approximates the amount of the rebate, the fiduciary may properly decide to allocate the rebate only to current participants. This means that plan fiduciaries should consider whether to include former participants and should make a prudent decision based on all of the facts and circumstances.

For non-federal governmental plans, the interim final regulations specifically require any portion of a rebate that is based on former participants’ contributions to be aggregated and used for the benefit of current participants.

For nongovernmental, non-ERISA plans, the interim final regulations provide that if the rebate is paid to the policyholder (which is only permissible if the policyholder has given the insurer written assurance that meets the requirements of the regulations), the policyholder must allocate the rebate to current participants only, in the same way as a non-federal governmental plan. If the rebate is paid directly to participants by the insurer (because the policyholder has declined to provide a written assurance), the insurer must distribute the rebate equally among those who were participants during the MLR reporting year on which the rebate is based.

How may the employer use the rebate?

The employer may pay the rebate in cash, use it for a premium holiday, or use it for benefit enhancements. The rebate must be applied or distributed within 90 days after it is received.

A cash rebate is taxable income to the employee if it was paid with pre-tax dollars.

A premium holiday should be completed within 90 days after the rebate is received (or the rebate needs to be deposited into a trust).

Benefit enhancements include reduced copays or deductibles (which may not be practical due to the timing requirements) or wellness-type benefits that the employer would not have offered without the rebate, such as free flu shots, a health fair, a lunch and learn on nutrition or stress reduction, or a nurse line.

How should the rebate be provided?

The employer should consider the practical aspects of providing a rebate in a particular form.

Generally, the larger the amount that would be due to an individual, the more effort the employer should make to directly benefit the person (either through a cash rebate or premium holiday). While benefit enhancements are permissible, a large rebate should be used to provide a direct benefit enhancement, such as a reduced co-pay, and not for a general benefit, such as flu shots.

The agencies have not provided any details as to what amount is so small that it does not need to be returned to the employee. (Insurers are not required to issue a rebate check to individuals if the amount is less than $5.00.) A cash rebate is taxable income if the premium was paid with pre-tax dollars, so issuing a check that is very small after taxes should not be necessary. If an employer knows it costs $2.00 to issue a check, issuing a rebate check for $1.00 should not be necessary. However, an employer cannot simply keep the rebate if it determines that cash refunds are not practical – it will need to use the employee share of the rebate to provide a benefit enhancement or premium reduction.

*This information is general and is provided for educational purposes only. It is not intended to provide legal advice.
You should not act on this information without consulting legal counsel or other knowledgeable advisors.


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


Oct. 15 Deadline Nears for Medicare Part D Coverage Notices

Are you ready for the Medicare Part D coverage notice deadline? Plan sponsors that offer prescription drug coverage must provide notices to Medicare-eligible individuals before October 15. Continue reading to learn more.


Plan sponsors that offer prescription drug coverage must provide notices of "creditable" or "non-creditable" coverage to Medicare-eligible individuals before each year's Medicare Part D annual enrollment period by Oct. 15.

Prescription drug coverage is creditable when it is at least actuarially equivalent to Medicare's standard Part D coverage and non-creditable when it does not provide, on average, as much coverage as Medicare's standard Part D plan.

The notice obligation is not limited to retirees and their dependents covered by the employers' plan, but also includes Medicare-eligible active employees and their dependents and Medicare-eligible COBRA participants and their dependents.

Background

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires group health plan sponsors that provide prescription drug coverage to disclose annually to individuals eligible for Medicare Part D whether the plan's coverage is creditable or non-creditable.

The Centers for Medicare & Medicaid Services (CMS) has provided a Creditable Coverage Simplified Determination method that plan sponsors can use to determine if a plan provides creditable coverage.

Disclosure of whether their prescription drug coverage is creditable allows individuals to make informed decisions about whether to remain in their current prescription drug plan or enroll in Medicare Part D during the Part D annual enrollment period.

Individuals who do not enroll in Medicare Part D during their initial enrollment period, and who subsequently go at least 63 consecutive days without creditable coverage (e.g., because they dropped their creditable coverage or have non-creditable coverage) generally will pay higher premiums if they enroll in a Medicare drug plan at a later date.

Who Must Receive the Notice?

The notice must be provided to all Medicare-eligible individuals who are covered under, or eligible for, the sponsor's prescription drug plan, regardless of whether the plan pays primary or secondary to Medicare. Thus, the notice obligation is not limited to retirees and their dependents but also includes Medicare-eligible active employees and their dependents and Medicare-eligible COBRA participants and their dependents.

Notice Requirements

The Medicare Part D annual enrollment period runs from Oct. 15 to Dec. 7. Each year, before the enrollment period begins (i.e., by Oct. 14), plan sponsors must notify Medicare-eligible individuals whether their prescription drug coverage is creditable or non-creditable. The Oct. 15 deadline applies to insured and self-funded plans, regardless of plan size, employer size or grandfathered status.

Part D eligible individuals must be given notices of the creditable or non-creditable status of their prescription drug coverage:

  • Before an individual's initial enrollment period for Part D.
  • Before the effective date of coverage for any Medicare-eligible individual who joins an employer plan.
  • Whenever prescription drug coverage ends or creditable coverage status changes.
  • Upon the individual's request.

According to CMS, the requirement to provide the notice prior to an individual's initial enrollment period will also be satisfied as long as the notice is provided to all plan participants each year before the beginning of the Medicare Part D annual enrollment period.

An EGWP exception

Employers that provide prescription drug coverage through a Medicare Part D Employer Group Waiver Plan (EGWP) are not required to provide the creditable coverage notice to individuals eligible for the EGWP.

The required notices may be provided in annual enrollment materials, separate mailings or electronically. Whether plan sponsors use the CMS model notices or other notices that meet prescribed standards, they must provide the required disclosures no later than Oct. 14, 2017.

Model notices that can be used to satisfy creditable/non-creditable coverage disclosure requirements are available in both English and Spanish on the CMS website.

Plan sponsors that choose not to use the model disclosure notices must provide notices that meet prescribed content standards. Notices of creditable/non-creditable coverage may be included in annual enrollment materials, sent in separate mailings or delivered electronically.

What if no prescription drug coverage is offered?

Because the notice informs individuals whether their prescription drug coverage is creditable or non-creditable, no notice is required when prescription drug coverage is not offered.

Plan sponsors may provide electronic notice to plan participants who have regular work-related computer access to the sponsor's electronic information system. However, plan sponsors that use this disclosure method must inform participants that they are responsible for providing notices to any Medicare-eligible dependents covered under the group health plan.

Electronic notice may also be provided to employees who do not have regular work-related computer access to the plan sponsor's electronic information system and to retirees or COBRA qualified beneficiaries, but only with a valid email address and their prior consent. Before individuals can effectively consent, they must be informed of the right to receive a paper copy, how to withdraw consent, how to update address information, and any hardware/software requirements to access and save the disclosure. In addition to emailing the notice to the individual, the sponsor must also post the notice (if not personalized) on its website.

Don't forget the disclosure to CMS

Plan sponsors that provide prescription drug coverage to Medicare-eligible individuals must also disclose to CMS annually whether the coverage is creditable or non-creditable. This disclosure must be made no more than 60 days after the beginning of each plan year—generally, by March 1. The CMS disclosure obligation applies to all plan sponsors that provide prescription drug coverage, even those that do not offer prescription drug coverage to retirees.

SOURCE: Chan, K.; Stover, R. (10 September 2018) "Oct. 15 Deadline Nears for Medicare Part D Coverage Notices" (Web Blog Post). Retrieved from https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/medicare-d-notice-deadline.aspx/


2017 OSHA's Most Frequently Cited Standards

Manufacturing (NAICS 31)

The Occupational Safety and Health Administration (OSHA) keeps records not only of the most frequently cited standards overall, but also within particular industries. The most recent statistics from OSHA reveal the top standards cited in the fiscal year 2017 for the manufacturing industry. This top 10 list comprises establishments engaged in the mechanical, physical or chemical transformation of materials, substances or components into new products.

Description of Violation Cited Standard Number ACV*
1.    Control of Hazardous Energy (Lockout/Tagout) – Following minimum performance requirements for controlling energy from the unexpected start-up of machines or equipment. 29 CFR 1910.147 $6,195
2.    General Requirements for All MachinesProviding proper machine guarding to protect the operator and other employees from hazards. 29 CFR 1910.212 $8,396
3.    Process Safety Management of Highly Hazardous Chemicals – Preventing or minimizing the consequences of catastrophic releases of toxic, reactive, flammable or explosive chemicals that may result in toxic, fire or explosion hazards. 29 CFR 1910.119

 

$7,395
4.    Hazard CommunicationProperly transmitting information on chemical hazards through a comprehensive program, container labeling, SDS and training. 29 CFR 1910.1200 $1,472
5.    Mechanical Power-transmission Apparatus – Following the general requirements on the use of power-transmission belts and the maintenance of the equipment. 29 CFR 1910.219 $2,926
6.    Powered Industrial TrucksEnsuring safety of employees on powered industrial trucks through fire protection, design, maintenance and proper use. 29 CFR 1910.178 $2,645
7.    Wiring Methods, Components and Equipment for General UseUsing proper wiring techniques and equipment to ensure safe electrical continuity. 29 CFR 1910.305 $1,812
8.    Respiratory Protection – Properly administering a respiratory protection program, selecting correct respirators, completing medical evaluations to determine which employees are required to use respirators and providing tight-fitting equipment. 29 CFR 1910.134

 

$717
9.    General Electrical Requirements – Ensuring electric equipment is free from recognized hazards likely to cause death or serious physical harm to employees. 29 CFR 1910.303 $2,761
10. Grain Handling Facilities – Taking proper measures to prevent grain dust fires and explosions by having safety programs in place for quick response and control. 29 CFR 1910.272 $32,603

*ACV (Average Cost per Violation) – The dollar amount represents the average cost per violation that employers in this industry paid in 2017. To understand the full capacity and scope of each standard, click on the standard number to visit www.osha.gov and view the language in its entirety. Source: OSHA.gov  


Compliance Overview - OSHA Inspections

OSHA Inspections

The Occupational Safety and Health Act (OSH Act) requires employers to provide a safe work environment for their workers. The Occupational Safety and Health Administration (OSHA) is responsible for creating workplace safety standards and enforcing compliance with the OSH Act.

OSHA enforces compliance with the OSH Act by conducting inspections, gathering evidence and imposing penalties on noncompliant employers. OSHA penalties are civil penalties that may result in fines. However, OSHA may refer certain violations to the U.S. Department of Justice for criminal prosecution. Actual penalties imposed on an employer take into consideration the gravity of the violation, the size of the employer’s business, good faith efforts the employer makes to comply with the law and the employer’s compliance history.

This Compliance Overview provides a summary of the OSHA inspection process as well as some tips and reminders that employers should be aware of during an actual inspection.

LINKS AND RESOURCES

  • OSHA enforcement programs website
  • OSHA on-site consultations webpage
  • OSHA recommended practices for safety and health programs webpage

COMPLIANCE OFFICERS

  • Conduct inspections
  • Assign specialists to accompany and assist during an inspection
  • Issue citations for noncompliance
  • Can obtain inspection warrants

TIPS FOR EMPLOYERS

  • Check inspector credentials.
  • Notify management when inspector arrives.
  • Determine the purpose and scope of the inspection.
  • Be prepared to prove compliance.
  • Get a copy of the complaint, if possible.
  • Set ground rules for inspection.
  • Cooperate and be responsive.
  • Take note of what the inspector documents.

EMPLOYERS SUBJECT TO OSHA

Most private sector employers in the United States, the District of Columbia and other U.S. jurisdictions are subject to the OSH Act, either directly or through an OSHA-approved state program. State plans are OSHA-approved job safety and health programs operated by individual states instead of federal OSHA. The OSH Act encourages states to develop and operate their own job safety and health programs. State-run safety and health programs must be at least as effective as the Federal OSHA program.

In general, state and local government employees (public employees) are not subject to the OSH Act. However, public employees may be covered through an approved state program.

OSHA INSPECTIONS

OSHA inspections are conducted by OSHA’s compliance safety and health officers. Compliance officers have authority to:

  • Conduct inspections;
  • Assign specialists to accompany and assist them during an inspection (as appropriate or required);
  • Issue citations for noncompliance;
  • Obtain court-issued inspection warrants; and
  • Issue administrative subpoenas to acquire evidence related to an OSHA inspection or investigation.

Whenever possible, OSHA will assign compliance officers with appropriate security clearances to inspect facilities where materials or processes are classified by the federal government.

Compliance officers are required to obey all employer safety and health rules and practices for the establishment that is being inspected. This includes wearing all required protective equipment and necessary respirators. Compliance officers must also follow restricted access rules until all required precautions have been taken.

Employers can request compliance officers to obtain visitor passes and sign visitor registers. However, compliance officers cannot sign any form or release, nor can they agree to any waiver. This prohibition extends to forms intended to protect trade secret information.

OSHA inspections can last for a few hours or take several days, weeks or even months. All inspections can be divided into three stages, an opening conference, a walk-around and a closing conference.

Inspection Scheduling

OSHA inspections can be either programmed or unprogrammed. Unprogrammed inspections generally take precedence over programmed ones.

Unprogrammed inspections are usually triggered by particular reports. OSHA gives priority to unprogrammed inspections in the following order: imminent dangers, fatalities or catastrophes, and employee complaints and referrals. OSHA may also conduct an unprogrammed follow-up investigation to determine whether previously cited violations have been corrected.

Programmed inspections are scheduled based on neutral and objective criteria. Programmed inspections typically target high-hazard industries, occupations or health substances. OSHA considers various factors when scheduling programmed inspections, including employer incident rates, citation history and employee exposure to toxic substances.

Inspection Notice

The OSH Act prohibits providing employers advance notice of an inspection. Individuals that provide advance notice of an OSHA inspection face criminal charges that may result in a fine of up to $1,000, imprisonment for up to 6 months or both.

However, the OSHA Act also allows OSHA to authorize exceptions to the no-notice requirement in situations where advance notice would:

  • Allow an employer to correct an apparent imminent danger as quickly as possible;
  • Facilitate an inspection outside of a site’s regular hours of operation;
  • Ensure the presence of employer and employee representatives or other appropriate personnel during the inspection; or
  • Enhance the probability of an effective and thorough inspection (such as in investigations for complex fatalities).

When an exception is approved, OSHA will not provide more than a 24-hour notice to affected employers.

Inspection Scope

The scope of an OSHA inspection can be comprehensive or partial. A comprehensive inspection is a complete and thorough inspection of the worksite. During a comprehensive inspection, the compliance officer will evaluate all potentially hazardous areas in the establishment. However, an inspection may be considered comprehensive even though, at the compliance officer’s discretion, not all potentially hazardous conditions or practices are actually inspected.

A partial inspection is usually limited to certain potential hazardous areas, operations, conditions or practices at the employer’s establishment. However, at his or her discretion, a compliance officer may expand the scope of a limited inspection. The compliance officer will generally make this decision based on the information he or she gathers during the inspection.

COMPLIANCE OFFICER ARRIVAL

OSHA inspections begin with the compliance officer’s arrival. In general, a compliance officer will arrive for a worksite inspection during the site’s hours of operation. However, OSHA may authorize additional times for an inspection as necessary.

Upon arrival, a compliance officer should present his or her credentials. If necessary, employers can contact their local OSHA office to confirm a compliance officer’s authority to conduct the inspection.

A compliance officer has the right to enter an employer’s premises if he or she has obtained consent from the employer or a warrant ordering the employer to admit the inspector. In either case, employers cannot unreasonably delay an inspection to await for the arrival of the employer representative (inspectors may wait up to one hour to allow an employer representative to arrive from an off-site location).

Tips and Reminders

  • Check inspector credentials.
  • Instruct staff on how to receive inspector.
  • Inform senior management or legal counsel as appropriate.
  • Determine whether you will demand a warrant.

Consent

Employers can consent to admit a compliance officer and perform a worksite inspection. Employers may also provide partial consent, and allow a compliance officer access only to certain areas of their facilities. Compliance officers will make note of any refusals or partial consent and will report it to OSHA. OSHA may take further action against any refusals, including any legal process it may see fit to obtain access to restricted areas.

In sites where multiple employers are present, the compliance officer does not need to obtain consent from all employers present. Consent from just one employer is sufficient to allow the inspector to access the entire worksite.

Warrant

Compliance officers are not required to ask for an employer’s consent when they have a court-issued warrant. The warrant allows the compliance officer access to the employer’s facilities to conduct an inspection.

Employers that do not provide consent have the right to require compliance officers to obtain a warrant before allowing them access to the premises. As a general practice, few employers actually require warrants, though some employers have done so to delay the start of an inspection.

There are, however, some exceptions to the employer’s right to require a warrant. A compliance officer does not need to obtain employer consent or a warrant to access the premises if he or she can establish:

  • The existence of a plain view hazard;
  • That the worksite is an open field or construction site; or
  • The existence of exigent circumstances.

OPENING CONFERENCE

In general, compliance officers will try to make the opening conference brief in order to proceed to the walkaround portion of the inspection as soon as possible. In general, the opening conference is a joint conference,

where both employer and employee representatives participate. However, the compliance officer may hold

separate opening conferences if either employer or employee representatives object to a joint conference.

During the opening conference, compliance officers will discuss with employers:

  • The purpose of the inspection;
  • Any complaints filed against the employer, if applicable;
  • The officers’ right to document evidence (handwritten notes, photos, video and audio recordings);
  • The advantages of immediate abatement and quick fixes;
  • The intended scope of the inspection;
  • A plan for the physical inspection of the worksite;
  • The audit of employee injury and illness records;
  • Referring violations not enforced by OSHA to appropriate agencies;
  • Employer and employee rights during the inspection; and
  • Any plans for conducting a closing conference.

Tips and Reminders

  • Determine the purpose and scope of the inspection.
  • Be prepared to prove compliance.
  • Get a copy of the complaint, if possible.
  • Set ground rules for inspection.
  • Cooperate and be responsive, but DO NOT volunteer information.

As applicable, during the opening conference, employers will also need to present their written certification of hazard assessment and produce a list of on-site chemicals (with their respective maximum intended inventory).

Compliance officers will use these documents to determine the hazards that may be present at the worksite and set initial benchmarks and expectations for the physical inspection of the establishment.

Finally, at their discretion, compliance officers can conduct abbreviated conferences in order to begin the walkaround portion of the inspection as soon as possible. During an abbreviated conference, a compliance officer will present his or her credentials, state the purpose for the visit, explain employee and employer rights, and request the participation of employee and employer representatives. All other elements of the opening conference will then be discussed during the closing conference.

WALK-AROUND

The walk-around is the most important stage of the inspection. Employer and employee representatives have the right to accompany compliance officers during the walk-around stage of the inspection. However, workers at an establishment without a union cannot appoint a union representative to act on their behalf during an OSHA inspection walkaround (see OSHA memo from 2017).

During the walk-around, compliance officers will take notes and document all facts pertinent to violations of the OSH Act. In general, compliance officers will also offer limited assistance (as appropriate) on how to reduce or eliminate workplace hazards.

The OSH Act requires compliance officers to maintain the confidentiality of employer trade secrets. Compliance officers should only document evidence involving trade secrets if necessary. Compliance officers must mark trade secret evidence as, “Confidential – Trade Secret,” and keep it separate from other evidence. Compliance officers that violate these requirements are subject to criminal sanctions and removal from office.

Tips and Reminders

  • Inspections may last several days. Plan accordingly.
  • Require inspectors to comply with establishment safety rules.
  • Take note of what the inspector documents.
  • DO NOT stage events or accidents.
  • DO NOT destroy or tamper with evidence.

CLOSING CONFERENCE

As with the opening conference, unless an objection exists, the closing conference is generally a joint conference. However, the closing conference may be conducted in person or over the phone. The inspection and citation process will move forward regardless of whether employers decide to participate in the closing conference.

The compliance officer will document all materials he or she provides to the employer during the closing conference as well as any discussions that took place. Discussion topics for the closing conference may include:

  • Employer rights and responsibilities
  • The strengths and weaknesses of the employer’s safety and health system
  • The existence of any apparent violations and other issues found during the inspection
  • Any plans for subsequent conferences, meetings and discussions

The closing conference is not the time for employers to debate or argue possible citations with the compliance officer. Employers should take sufficient time during the closing conference to understand the inspector’s findings and any possible consequences. Employers should also discuss any abatements completed during the inspection or any plans to correct issues in the near future.

During this conference, employers should also request copies of recorded materials and sample analysis summaries. Finally, employers should take time to discuss their right (and the process they must follow) to appeal any possible citations.


Covered Establishments in All States Must Now Submit OSHA Electronic Reports

HIGHLIGHTS

·      The electronic reporting rule now applies to all affected establishments, including establishments in states with OSHA-approved plans.

·      It does not matter whether the state has ratified the electronic reporting requirements.

·      The OSHA ITA is currently available and accepting reports on OSHA 300A forms with 2017 data.

IMPORTANT DATES

December 31, 2017

Due date for first OSHA electronic reports through ITA (submit 2016 data)

July 1, 2018

Due date for second OSHA electronic reports through ITA (submit 2017 data)

OVERVIEW

On April 30, 2018, the Occupational Safety and Health Administration (OSHA) announced it will require all establishments affected by the electronic reporting rule to submit their 2017 data to OSHA by July 1, 2018.

This announcement clarifies the requirement for establishments in states with an OSHA-approved plan. These establishments must submit electronic reports, regardless of whether the state has ratified or incorporated the electronic reporting rule into its OSHA state plan.

ACTION STEPS

Establishments in all states, including those with an OSHA-approved state plan, should prepare to submit electronic reports by July 1, 2018. Affected establishments can accomplish this by:

  • Becoming familiar with the requirements in the electronic reporting rule; and
  • Transitioning their OSHA records to an electronic format approved by the Injury Tracking Application (ITA)

OSHA Electronic Reporting

OSHA’s electronic reporting rule was issued in 2016. The rule requires establishments to report data from their injury and illness records to OSHA electronically if they:

  • Are already required to create and maintain OSHA injury and illness records and have 250 or more employees;
  • Have between 20 and 249 employees and belong to a high-risk industry; or
  • Receive a specific request from OSHA to create, maintain and submit electronic records, even if they would otherwise be exempt from OSHA recordkeeping requirements.

The electronic reporting rule applies to establishments, not employers. An employer may have several worksites or establishments. In these situations, some establishments may be affected while others are not.

To determine whether an establishment is affected, employers must determine each establishment’s peak employment during the calendar year. During this determination, employers must count every individual that worked at that establishment, regardless of whether he or she worked full-time, part-time, or was a temporary or seasonal worker.

OSHA-approved State Plans

The final rule required OSHA-approved state plans to adopt the electronic rule or “substantially identical” requirements within six months of the final rule’s publication date.

This means that OSHA-approved state plans have the authority to adopt reporting requirements that go above and beyond what is required by the federal rule. For this reason, establishments located in OSHA-approved state plan jurisdictions should consult with their local OSHA offices to make sure they are satisfying all electronic reporting requirements.

The OSHA-approved state plans shown on this map have not yet adopted the requirement to submit injury and illness reports electronically.

As a result, establishments in these states were not required to submit their 2016 data through the reporting website in 2017. However, OSHA has now clarified that they must submit their 2017 data in 2018.

All Employers
California

Maryland

Minnesota

South Carolina

Utah

Washington

Wyoming

Public Employers
Illinois

Maine

New Jersey

New York


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.