2016 Limits and Other Developments

 
Benefits Brief
October 27, 2015

The IRS has announced the various qualified plan related limits for 2016. For the most part, the limits have not changed from 2015. The following table includes the most widely used limits relating to qualified plans and includes both the 2015 and 2016 amounts.

 

2015

2016

Compensation limit

$265,000

$265,000

Section 415(b) limit

$210,000

$210,000

Section 415(c) limit

$53,000

$53,000

Section 402(g)/401(k) limit

$18,000

$18,000

Catch-up contributions

$6,000

$6,000

HCE threshold

$120,000

$120,000

Officer (top heavy) threshold

$170,000

$170,000

Taxable Wage Base

$118,500

$118,500


PAY OR PLAY PENALTY TAXES AND HEALTH COVERAGE REPORTING

Employers with at least 50 full-time equivalent employees (determined on a controlled group basis and based on prior year data) are reminded that the so-called "pay or play" mandate becomes fully effective beginning in 2016. Employer-level (and for self-insured plans, plan-level) reporting requirements (Forms 1094 and 1095 –B and –C) for the 2015 year are due to the IRS by February 29, 2016 (March 31, 2016 if filing electronically) and to employees by February 1, 2016. 

As fully implemented in 2016, the pay or play penalties kick in under two circumstances. First, if a member of a large employer controlled group fails to offer group health coverage to almost all of its full-time employees and one of its full-time employees receives subsidized coverage through a public health exchange, a penalty of $2,000 per year for each full-time employee of the controlled group member may be assessed (less 30 employees for the entire controlled group). In order to avoid this penalty, the controlled group member must offer coverage to all but 5% of their full-time employees (or all but 5 full-time employees, if greater). Second, even if coverage is offered to a sufficient number of full-time employees, a separate penalty could apply if any particular full-time employee is not offered group health coverage or that coverage is not "affordable" or does not provide "minimum value."

This second penalty is $3,000 per year for each full-time employee who is not offered qualifying coverage and receives subsidized coverage through a public health exchange.

Because these penalties can apply if even one full-time employee is not offered qualifying coverage, employers are encouraged to carefully examine their workforces to determine who is a full-time employee under the ACA’s technical look-back and full-time equivalency rules. In doing so, keep in mind that the 5% cushion is intended to provide a margin of safety in the event that one or more full-time employees are inadvertently missed, and the regulators view the pay or play mandate as requiring in the first instance that all full-time employees be offered coverage. It is also generally not possible to exclude classes of employees – there are no categorical exclusions for temporary or irregular employees or student interns, for example, and independent contractors will be examined closely to determine if they should be properly classified as employees. Employers are also advised that while employees hired through a staffing firm are not currently counted against the employer if they are offered coverage through the staffing agency, the requirements for qualifying for this relief are strict and may change in the future. Contracts with staffing firms should be reviewed to ensure that employers are indemnified in the event a pay or play penalty is assessed.

OUR GROUP KEEPS GROWING

We are pleased to announce that Susanne Hafer and Corrine Hood Greene have joined the Employment & Benefit Group. Both based in Boston, Susanne and Corinne each have extensive employment and litigation counseling experience and join the firm’s Litigation Department.