Employers that sponsor a pre-approved 401(k), profit sharing, or other defined contribution plan must adopt a restated plan by April 30, 2016. Many 401(k) plans are pre-approved prototype or volume submitter plans. The IRS requires plan sponsors to periodically adopt an updated plan document that incorporates changes in the laws. Plan vendors should have provided a revised plan document, approved by the IRS, that complies with the Pension Protection Act of 2006 (PPA) and other law changes (sometimes called a “PPA restatement”).
Employers who have not yet received and adopted a PPA restatement plan should contact their document providers right away, and be sure to comply with the April 30 adoption deadline.
The IRS has extended the due dates for the 2015 Affordable Care Act reporting requirements.
One thing employers can cross off their ACA to-do list: thinking about having to auto-enroll employees in health coverage. As part of the Bipartisan Budget Act of 2015 that was signed on November 2, 2015, the provision that would have required employers with 200 or more full-time employees to automatically enroll new hires in an employer health plan was repealed. The Department of Labor had previously issued guidance to state that compliance with the auto-enrollment requirement would be delayed until after final regulations had been issued on the subject (which were never issued).
The IRS recently announced major changes to its determination letter program in Announcement 2015-19. Starting January 1, 2017, determination letter applications will only be accepted for newly created and for terminating individually designed plans (IDPs). At that time, the IRS will no longer accept applications from existing IDPs to determine the ongoing qualified status of the plan. Many plan sponsors use IDPs, as opposed to prototype or volume submitter plans, because they wish to have customized plan design features and provisions. Sponsors of IDPs have long been able to file an application with the IRS to request a determination that the plan as written is tax-qualified. After next year, such a determination will only be available to plan sponsors upon starting and terminating a plan.
In past years, instead of or in addition to offering a group health plan, many employers agreed to reimburse their employee’s health insurance premiums (usually up to a pre-determined limit) if the employee obtained an individual policy of her own.
Among the many changes brought about by the Affordable Care Act, however, were new requirements that essentially make this type of arrangement impossible to offer to employees without violating the statute and incurring very onerous penalties.
If there was any doubt about whether employers could continue to offer these so-called employer payment plans, the IRS has made it abundantly clear: employers can no longer reimburse employees for the cost of premiums for health insurance purchased on the individual market. This is the case regardless of whether:
There are only very limited exceptions, such as for employer payment plans with fewer than two active employees (e.g., retiree-only plans).
Employers who continue to offer these types of employer payment plans may be liable for excise taxes under Section 4980D of the tax code. Because this rule has been the source of much confusion over the past several months, the IRS has provided a limited transition relief period for small businesses to come into compliance with the rules. The transition period is available (1) for 2014 for employers that are not “applicable large employers” (“ALEs”) for 2014, and (2) for January 1 through June 30, 2015 for employers that are not ALEs for 2015. ALEs are generally those employers who employ an average of at least 50 full-time equivalent employees during the calendar year.
If an employer qualifies for the relief, it will not be liable for the excise taxes that would otherwise apply under Section 4890D of the tax code. After June 30, 2015, such employers may be liable for the excise tax – which is a whopping $100 per day per employee who receives this type of payment or reimbursement for health insurance coverage. No transition relief was provided to employers that are ALEs.
IRS Notice 2015-17 provides guidance on the transition relief and is available here.
The Departments of Labor, Treasury and HHS have issued additional Frequently Asked Questions (FAQs) regarding certain employer reimbursement of health coverage premiums.
The FAQs address arrangements where employers (i) reimburse employees for the cost of individual insurance plan coverage or (ii) offer cash to employees with high-risk claims who opt of the employer’s health plan. The FAQs provide that these arrangements are not in compliance with market reforms. Additionally, the FAQs specifically disallow an arrangement some vendors have promoted, whereby employers set up a Code Section 105 reimbursement plan to reimburse employees for individual insurance coverage (including Marketplace coverage for which the employee may have received premium tax credits).
The Department of Labor has issued guidance for plan fiduciaries who need to locate missing plan participants and beneficiaries. Field Assistance Bulletin No. 2014-01 describes the steps a plan fiduciary should use to locate these missing plan participants and beneficiaries.
The FAB discusses locating missing participants in the context of a plan termination, when plan accounts must be distributed to all participants; however, the guidance is also informative in other situations where the plan must make a distribution to a participant or beneficiary, such as a plan correction requiring cash-out distributions to former participants.
If a participant remains missing after using any standard methods of communicating with participants, such as first-class mail or e-mail, the Department of Labor believes that plan fiduciaries should take all of the following steps to locate the missing participant:
If the plan fiduciaries still cannot locate the participant using the methods above, the DOL advises that use of additional search methods that may incur charges may be appropriate, depending on the size of the participant’s account relative to the cost of the search. These additional search methods include:
The reasonable costs of the search for a missing participant can be charged to the participant’s account.
The U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act earlier this year, effectively resulting in the recognition of same-sex marriage for purposes of federal law and regulations. Since then, the IRS has announced that they will recognize all legal same-sex marriages, and will do so on a retroactive basis.
The IRS recently issued special guidance that is intended to simplify the process of employers applying for a refund of Federal Insurance Contributions Act (FICA) taxes and federal income tax withholding paid with respect to benefits provided to same-sex spouses.
In short, IRS Notice 2013-61 allows employers to use the 2013 fourth quarter Form 941 to correct for overpayments of FICA and income tax withholding made during 2013 (including with respect to imputed income paid on employee benefits). Further, for tax years prior to 2013, employers can file one Form 941-X to claim a refund or adjustment for all four quarters of the calendar year (generally employers must file a Form 941-X for each calendar quarter). Employers may, but are not required, to use the relief provided in the Notice.
Employers may also apply for refunds of Federal Unemployment Tax Act (FUTA) and Railroad Retirement Tax Act (RRTA) taxes, but no special procedures are necessary because the returns for those taxes are filed annually.
The IRS has added a new option to health flexible spending accounts (FSAs) offered under Section 125 cafeteria plans. Participants who contribute to their health FSA can now “carry over” up to $500 of unused amounts remaining in their FSAs at the end of the year. The prior rule required that all unused amounts in a health FSA be forfeited at the end of the plan year.
This new option is an alternative to the grace period rule. The carry over feature is not permitted for FSAs that allow a grace period during which a participant can use amounts contributed in a prior year toward expenses incurred in the first two and a half months of the subsequent year.
The plan must still forfeit any amounts in the health FSA that exceed $500 at the end of the plan year, and amounts in the FSA at termination of employment (unless the participant elects COBRA).
The cafeteria plan document must be amended to reflect the carry over provision, and employers can provide for a lower carry over amount (the $500 limit is a maximum).
The IRS guidance is available here.
The Department of Treasury and IRS have confirmed that they will recognize all same-sex marriages for Federal tax purposes. This means that same-sex couples lawfully married in a state that recognizes same-sex marriages but residing in a state that does not recognizes same-sex marriage will be treated as married for all Federal tax purposes.
This ruling affects the administration of employee benefit plans in a number of respects, and the IRS has announced that it plans to issue additional guidance on the application of its ruling to employee benefits.
The agencies based the ruling on their own precedent, specifically a Revenue Ruling from 1958, which concluded that a taxpayer in a common-law marriage that later moves to a state that does not recognize common-law marriage was nonetheless treated as married for Federal income tax filing purposes. In addition, the agencies acknowledged the financial and administrative burden, on the IRS as well as employers, if the determination of marital status was based on state of domicile, rather than state of ceremony.
Affected taxpayers can file amended tax returns for prior years where the statute of limitations (generally three years) has not yet run. The decision also applies retroactively to employee benefits and fringe benefits (e.g., after-tax payment of premiums/imputed income for same-sex spouses under a group health plan). The IRS intends to issue additional guidance with respect to the retroactive effect of the ruling on employee benefits.