2017 Reminders and Developments

 
S&W Client Advisory
January 23, 2017

Key 2017 Benefits Related Limits

 

2016

2017

Taxable wage base

$118,500

$127,200

Compensation limit

$265,000

$270,000

Section 415(b) limit

$210,000

$215,000

Section 415(c) limit

$53,000

$54,000

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

$175,000

Health flexible spending account

$2,550

$2,600

Health Savings Accounts

2016

2017

Individual contribution limit

$3,350

$3,400

Family contribution limit

$6,750

$6,750

   

New Relief for Small Employer Health Reimbursement Arrangements

As mentioned in prior advisories, the Departments of Labor, Health and Human Services and Treasury have taken the position that employers cannot reimburse employees for the cost of individual health insurance policies (whether on a pre-tax or after-tax basis).  The recently enacted 21st Century Cures Act (the “Cures Act”) reverses this position for small employers with less than 50 full-time equivalent employees and beginning in 2017.  The small employer concept is applied on a controlled group basis but if an employer qualifies and does not otherwise offer a group health plan to any of its employees, an employer can pay or reimburse eligible health care expenses (including premiums for individual health insurance coverage) of up to $4,950 a year for individuals ($10,000 if the employee’s family is also covered).  The arrangement must be provided on the same terms to generally all full-time employees (with certain exclusions permitted) and must be funded solely by the employer.  No salary reduction contributions are permitted.

Also, for plan years beginning before January 1, 2017, the Cures Act extends relief from otherwise applicable Affordable Care Act (“ACA”) penalties that apply to small employers who reimburse individual health insurance policy premiums or Medicare Part B or Part D premiums.  This relief does not apply to large employers nor does it apply to stand-alone health reimbursement arrangements (HRAs) that are not integrated with a group health plan.

Plan Sponsors With Insured PPO Arrangements Take Note

Sullivan & Worcester’s State and Local Tax (“SALT”) Group recently secured a litigation victory in a case of first impression at the Massachusetts Appellate Tax Board involving the premium excise tax imposed by the Commonwealth of Massachusetts on insurance companies operating preferred provider (“PPO”) plans in Massachusetts.

The underlying issue involved the question of whether the excise tax is imposed on all premiums or only on premiums paid with respect to Massachusetts residents.  Historically, the excise tax had been paid on “gross” premiums (meaning that the excise tax was paid with respect to coverage for both Massachusetts residents and nonresidents).  The Appellate Tax Board held that the excise tax is properly imposed only on premiums paid with respect to Massachusetts residents.  As a result, the insurer won a substantial abatement and refund of taxes previously paid.

This decision, if not appealed by the Massachusetts Department of Revenue, has far-reaching implications for multi-state employers that sponsor medical and dental PPO arrangements with participants that reside both inside and outside of Massachusetts.  Although the premium excise tax is imposed on insurance companies operating PPO plans, the tax is typically passed on to plan sponsors and participants through increased premiums.  Plan sponsors that may be affected by this issue should (and may have a fiduciary duty to) contact their brokers about whether the right amount of tax was (and/or whether excess premiums were) paid and whether a refund may be due.  How that refund is then shared between sponsors and employees (to the extent they helped to pay for coverage) has interesting ERISA implications for plan fiduciaries.

Earlier IRS Form W-2 Filing Deadline and Extension Changes

The Consolidated Appropriations Act, 2016 moved up the deadline to file the IRS copies of Forms W-2, and any Forms 1099-MISC reporting nonemployee compensation in Box 7, to January 31, beginning with 2016 Forms W-2 and 1099-MISC filed in 2017.  The deadline had been February 28 (March 31 if e-filing).  Failure to meet the deadline can result in a per failure penalty of up to $260 (for 2016 Forms).  In addition, changes have been made to the extension request system for Forms W-2.  Only one 30-day extension to file Forms W-2 is now available, and this extension is no longer automatic.

Extension of Deadline to Issue 2016 Forms 1095-B and 1095-C to Employees

The IRS has extended the deadline for issuing ACA-related information returns to employees (the 2016 Form 1095-C and, for sponsors of self-insured plans and insurers, the 2016 Form 1095-B) from January 31, 2017, to March 2, 2017.  The deadline for filing the ACA information returns with the IRS (the 2016 Form 1094-C or, for sponsors of self-insured plans and insurers, the 2016 Form 1094-B) has not changed and continues to be February 28, 2017 (March 31, 2017, if e-filing).  The IRS has also extended good faith transition relief available for filers of these 2016 information returns who make a good-faith effort to comply with the ACA information return reporting requirements.

Employers are reminded that the same controlled group rules that apply for various retirement plan and welfare and fringe benefit purposes under the Internal Revenue Code also apply in determining whether any particular is an “applicable large employer” with 50 or more full-time equivalent employees, which is what subjects them to the ACA’s information return reporting requirements.  Where an employer is a member of an applicable large employer group, it has a separate ACA information return filing obligation and should coordinate with other group members to ensure that controlled group information is accurately reported.

For more information on the ACA’s information return filing obligations, including controlled group rules, please contact a member of the Employment & Benefits Group. 

Training Reminders 

A variety of training requirements apply in the employment and benefits realm.  For example, so-called covered entities (including potentially employers sponsoring self-insured health arrangements including HRAs or health care flexible spending accounts) are required to train their workforce with respect to protected health information under HIPAA.  In addition, training is often encouraged by regulators, or viewed as a best practice, even where not required.  In Massachusetts, for example, employers are encouraged to conduct anti- discrimination and sexual harassment training annually.  And employees responsible for plans subject to ERISA, such as 401(k) plans, often benefit from fiduciary training.

If you are interested in arranging training on these or other employment or benefits-related topics, please contact a member of the Employment and Benefits Practice Group.