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Commuting and Adoption Benefit Amounts Rise in 2019

Posted on November 20, 2018July 15, 2019 by Bobbi Kloss, BAN Director of Human Capital Management

Employees don’t pay income taxes on the value of these benefits.

Written by Stephen Miller, CEBS including interview questions with Bobbi Kloss, Director of Human Capital Management Services.

Employees and employers can put $5 more into monthly transit and parking benefits in 2019, the IRS announced Nov. 15.

Revenue Procedure 2018-57, which increased the annual limit on health flexible spending account contributions by $50 to $2,700, also adjusted limits and thresholds for other employee benefits—most notably qualified transportation and parking benefits, and adoption assistance benefits.

Transit and Parking Costs

Employer-funded parking and mass-transit subsidies are tax-exempt for employees. Using pretax income, employees can also pay their own mass-transit or workplace parking costs through an employer-sponsored salary deferral program.

These expenses include the value of mass-transit passes and van pooling services, and parking on or near the business worksite or a location from which employees…[Read the full article here]

Legal Alert: IRS Increases Health FSA Contribution Limit for 2019, Adjusts Other Benefit Limits

Posted on November 19, 2018December 28, 2018 by Benefit Advisors Network

On November 15, 2018, the Internal Revenue Service (IRS) released Revenue Procedure 2018-57, which raises the health Flexible Spending Account (FSA) salary reduction contribution limit by $50 to $2,700 for plan years beginning in 2019. The Revenue Procedure also contains the cost-of-living adjustments that apply to dollar limitations in certain sections of the Internal Revenue Code.

Qualified Commuter Parking and Mass Transit Pass Monthly Limit Increase

For 2019, the monthly limits for qualified parking and mass transit are $265 each (up $5 from 2018).

Adoption Assistance Tax Credit Increase

For 2019, the credit allowed for adoption of a child is $14,080 (up $270 from 2018). The credit begins to phase out for taxpayers with modified adjusted gross income in excess of $211,160 (up $4,020 from 2018) and is completely phased out for taxpayers with modified adjusted gross income of $251,160 or more (up $4,020 from 2018).

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) Increase

For 2019, reimbursements under a QSEHRA cannot exceed $5,150 (single) / $10,450 (family), an increase of $100 (single) / $200 (family) from 2018.

Reminder: 2019 HSA Contribution Limits and HDHP Deductible and Out-of-Pocket Limits

Earlier this year, the IRS announced the inflation-adjusted amounts for HSAs and high deductible health plans (HDHPs).

The ACA’s out-of-pocket limits for in-network essential health benefits have also increased for 2019. Note that all non-grandfathered group health plans must contain an embedded individual out-of-pocket limit within family coverage if the family out-of-pocket limit is above $7,900 (2019 plan years). Exceptions to the ACA’s out-of-pocket limit rule are also available for certain small group plans eligible for transition relief (referred to as “Grandmothered” plans). Unless extended, relief for Grandmothered plans ends December 31, 2019.

ACA Reporting Penalties (Forms 1094-B, 1095-B, 1094-C, 1095-C)

The table below describes penalties related to returns filed in the applicable year (e.g., the 2019 penalty is for returns filed in 2019 for calendar year 2018). Note that failure to issue a Form 1095-C when required may result in two penalties, as the IRS and the employee are each entitled to receive a copy (increased for willful failures, with no cap on the penalty).

About the Author. This alert was prepared for Benefit Advisors Network by Stacy Barrow. Mr. Barrow is a nationally recognized expert on the Affordable Care Act. His firm, Marathas Barrow Weatherhead Lent LLP, is a premier employee benefits, executive compensation and employment law firm. He can be reached at sbarrow@marbarlaw.com.

This message is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

Benefit Advisors Network and its smart partners are not attorneys and are not responsible for any legal advice. To fully understand how this or any legal or compliance information affects your unique situation, you should check with a qualified attorney.

The Benefits of A 401(k), Including Reducing Student Loan Debt

Posted on October 29, 2018October 30, 2018 by Benefit Advisors Network

Written by Bobbi Kloss, Human Capital Management Director. Published in the Los Angeles Advertising Human Resources Professionals Monthly, October 2018.

When private employers think about financial wellness they typically center their thoughts on 401(k) plans. The conversation today though has expanded the discussion on 401(k) programs to include student loan debt and other high-impact life events that have the ability to redirect an employee’s thoughts, and finances, off of savings. These events have the potential to impact saving for today, tomorrow, or the future.

To an employer, it can appear that the focus of the majority of employees is on the financial challenges of today, not on saving for their future. This has prompted employers with an existing 401(k) plan to get involved and figure out how to solve the participation challenge. These challenges also deter other employers contemplating a 401(k), wondering if it would be worth it.

According to a ten-year trend survey from 2007―2017 by Transamerica Center for Retirement Studies, more employers are confident that their employees are saving for the future. Meanwhile, plan participation shows that 61% of employees say they are confident that they can retire comfortably versus ten years ago. Additionally, 70% of employers see their 401(k) as an important benefit for the attraction and retention of employees and 80% of employees say a 409(k) plan is an attraction for making an employment [Read More].

Bobbi Kloss is the Director of Human Capital Management Services for the Benefit Advisors Network, a national network of independent employee benefit brokerage and consulting companies. For more information, please email the author at bkloss@benefitadvisorsnetwork.com.

Taking family leave? Your employer could get a tax credit for paying you while you’re out

Posted on October 16, 2018October 16, 2018 by Bobbi Kloss, BAN Director of Human Capital Management

Written by: Lindsay Von Someren, Credit Karma, with contributions from Bobbi Kloss, BAN Director of Human Capital Management Services.

In a nutshell: The Tax Cuts and Jobs Act contains a hidden gem: a tax credit for your employer if your employer pays you while you’re out on family or medical leave. If you’re lucky, you might be able to persuade your employer to take advantage of the credit. Here are a few things both employers and employees should know about the new credit.

Have you heard of the employer credit for family and medical leave?

No? There’s also a good chance your employer hasn’t heard about the new credit either.

“It was one of the new tax laws that was not given as much attention as some of the others,” says Ari Brown, a CPA with Black Mountain Tax & Consulting of Fort Collins, Colo. As a result, Brown says, “I have seen very few businesses respond to the new tax credit.”

But there is a good reason both employers and employees should pay attention. This new family leave credit does provide an incentive for your employer to offer you paid leave. But there are rules and limitations for who can claim the credit. And the IRS has not yet issued detailed guidance to help employers better understand how the credit works.

The good: Your employer can now get a tax credit for paying you while you’re on leave

It’s no secret that maintaining a steady flow of income can be a problem if you need to take leave to have a baby or care for a sick family member. While the Family and Medical Leave Act, or FMLA, may require your employer to give you at least 12 weeks of leave per year to care for yourself or a qualifying family member, it doesn’t require your employer to pay you during that time.

That can create a one-two punch to your finances, because your expenses might be increasing due to family or medical circumstances at the same time your income declines.

Tax reform may have you covered, having created a family leave credit for employers who pay workers at least 50% of their normal wages while they’re on family and medical leave.

Not all “family” and “medical” leave counts, though — a few days off recovering from a cold likely won’t count. Instead, you’d need to have a “serious health condition” that makes you “unable to perform the functions” of your job after any paid sick leave runs out.

This credit is available to employers who provide leave pay for all qualified employees — both part-time and full-time. But there are other qualifications. You’ll need to have worked for your employer for at least a year. And there’s a wage cap that applies for the year prior to the tax year the credit is being claimed. For example, for an employer claiming a credit for wages paid to you in 2018, you must not have earned more than $72,000 in 2017.

The bad: The family leave credit is complicated

Unfortunately for your employer, this tax credit could require some additional paperwork.

To claim the credit, employers must have a written paid leave policy in place that provides for a least two weeks of paid family and medical leave annually to all full-time qualifying employees. The policy must provide paid leave that’s at least half of the wages the employer would normally pay the qualifying employee.

If your employer doesn’t already have such a policy in place, it would need to write one in order to claim this credit. What’s more, the IRS has left several questions about the credit unanswered, including when the written policy must be in place. The uncertainty could make it difficult for employers and their accountants to figure out whether they can claim this tax credit — which could mean fewer will see it as an incentive to pay workers on leave.

“I do see tax professionals tend to avoid some topics that the IRS hasn’t lent additional clarification on,” says Brown.

That’s especially unfortunate for this tax credit, which requires employers to get a written plan in place so that they can claim the tax credit next year.

“I see many tax professionals wait until January to brush up on the tax laws and credits before tax season starts. Nobody wants to leave tax savings on the table for their clients, but this is a topic tax professionals should be talking to and informing their clients of before tax season,” Brown adds.

The ugly: The family leave credit is short-lived

Further complicating things, this tax credit is only available for the 2018 and 2019 tax years.

That’s right — your employer could go through the hassle of getting a paid leave plan in place (even though the IRS itself isn’t sure yet how it works) only to be able to claim the credit for a scant two years.

Finally, to put the cherry on top, the maximum credit your employer could possibly get for paying you while you’re on leave is 25% of the amount it paid to you.

The minimum credit is 12.5% of your leave pay, if your employer pays you 50% of your regular pay while you’re on leave. The credit amount increases by a quarter of a point for each percentage point above 50% of the regular wages your employer pays you while you’re on leave. In addition to the 25% cap, other limitations may apply.

Here’s an example of how the family leave credit could work for an employer. Say your employer pays you a total of $6,000 while you’re on leave, and that’s half your normal wage. Provided you and your employer meet all other eligibility requirements, your employer could get a credit for 12.5% of that amount — or $750.

“The short-term tax credit gain does not appear to be an impetus for some employers to work through the strategies necessary to develop a new policy,” says Bobbi Kloss, director of human capital management services for Benefit Advisors Network, a nationwide employee benefits firm. “Right now, it appears to be ‘All Quiet on the Western Front’ in regard to employers being tempted to take this tax credit.”

Bottom line

The new family and medical leave credit has pros and cons — for both employers and employees. On one hand, an employer who already has or will soon have a paid leave policy in place could see a tax benefit thanks to the new credit. And employers who were considering offering paid leave might see the new credit as added incentive to offer their employees this valuable benefit.

But if your employer doesn’t yet offer paid leave, could you ask it to now that there’s a possible tax credit for doing so?

“It would be a big ask of an employer to determine if it should restructure their policy and budget at the time of a leave request,” says Kloss. “With all the considerations, to implement any policy for an employer cannot happen overnight.”

Instead, Brown suggests using this as an opportunity to start a discussion with your employer before you need to take leave.

“Employees having some knowledge of tax laws and credits that could benefit them is a great way to start the dialogue with their employers,” Brown says. “If their employer doesn’t offer paid leave, it could simply be because they do not know about it or just never thought about it.”

“My advice is to ask questions, be open with your employer,” he says, “and never be afraid to speak up for benefits that are important to you and your individual situation.”

Legal Alert: Medical Loss Ratio Rebates

Posted on October 5, 2018October 5, 2018 by Stacy Barrow

Medical Loss Ratio Rebates Under the Affordable Care Act
The U.S. Department of Health and Human Services (“HHS”) has provided guidance on the Affordable Care Act’s (“ACA’s”) medical loss ratio (“MLR”) rule, which requires health insurers to spend a certain percentage of premium dollars on claims or activities that improve health care quality or provide a rebate to policyholders. HHS has released amended and final regulations (the “Regulations”), which govern the distribution of rebates by issuers in group markets. At the same time, the U.S. Department of Labor (“DOL”) issued Technical Release 2011-04 (“TR 2011-04”), which clarifies how rebates will be treated under the Employee Retirement Income Security Act of 1974 (“ERISA”).

Medical Loss Ratio Rule
The MLR rule requires health insurance companies in the group or individual market to provide an annual rebate to enrollees if the insurer’s “medical loss ratio” falls below a certain minimum level—generally, 85 percent in the large group market and 80 percent in the small group or individual market. For these purposes, the numerator of the MLR equals the insurer’s incurred claims and expenditures for activities that improve health care quality, and the denominator equals the insurer’s premium revenue minus federal and state taxes and licensing and regulatory fees.

Defining Group Size
For purposes of the MLR rule, the Affordable Care Act defines “small” and “large” group markets by reference to insurance coverage sold to small employers or large employers. The Affordable Care Act defines a small employer as one that employs 1-100 employees and a large employer as one that employs 101 or more employees. However, states are permitted to limit the definition of a small employer to one that employs 1-50 employees.

Rebates under ERISA
TR 2011-04 clarifies that insurers must provide any rebates to the policyholder of an ERISA plan (typically, the employer). To the extent that a rebate is owed to a group health plan governed by ERISA, any rebates paid to such plan may become “plan assets,” subjecting the policyholder and plan sponsor to special obligations concerning the treatment of the rebates. If the rebates are plan assets, then any individual who has control over the rebates is a “fiduciary” under ERISA and must act accordingly.

To avoid ERISA’s trust requirements, rebates must be used within three months of receipt by the policyholder to provide refunds or pay premiums (for example, directing insurers to apply the rebate toward future participant premium payments or toward benefit enhancements adopted by the plan sponsor).

Treatment of Rebates to Enrollees under ERISA plans
The Regulations require insurers of group health plans to pay rebates directly to the policyholder, who will be responsible for ensuring that employees benefit from the rebates to the extent they contributed to the cost of coverage. Rebates will most often take the form of premium reductions or other reductions in cost-sharing under the plan.

To the extent employees are entitled to a share of a rebate, it is not taxable to them if provided in the form of a premium reduction or other reduction in cost sharing under the plan. Note that if an employee’s pre-tax premium contribution is reduced one month, then his/her paycheck will be slightly higher that month. For example, if an employee’s monthly contribution is $100, but due to a rebate it’s only $95 one month, the extra $5 remains in the employee’s paycheck and is subject to taxes and withholding.

Treatment of Rebates to Employers
In situations where a plan or its trust is the policyholder, the DOL’s position is that the rebates are generally assets of the plan. Generally, the DOL will use “ordinary notions of property rights” as a guide.

In situations where the employer is the policyholder, the employer may, under certain circumstances, retain some or all of the rebates. In such situations, the DOL will look to the terms of the documents governing the plan, including the insurance policy. If these governing documents are unclear, then the DOL will take into consideration the source of funding for the insurance premium payments. In such situations, the amount of a rebate that is not a plan asset (and that the employer may therefore retain) is generally proportional to the amount that the employer contributed to the cost of insurance coverage. For example, if an employer and its employees each pay a fixed percentage of the cost, a percentage of the rebate equal to the percentage of participants’ cost would be attributable to participant contributions. In the event that there are multiple benefit options, a rebate attributable to one benefit option cannot be used to benefit enrollees in another benefit option.

Allocating the Employees’ Share of the Rebate
The portion of the rebate that is considered a plan asset must be handled according to ERISA’s general standards of fiduciary conduct. However, as long as the employer adheres to these standards, it has some discretion when allocating the rebate.

For example, if the employer finds that the cost of distributing shares of a rebate to former participants approximates the amount of the proceeds, the employer may decide to distribute the portion of a rebate attributable to employee contributions to current participants using a “reasonable, fair, and objective” method of allocation. Similarly, if distributing cash payments to participants is not cost-effective (for example, the payments would be de minimis amounts, or would have tax consequences for participants) the employer may apply the rebate toward future premium payments or benefit enhancements. An employer may also “weight” the rebate so that employees who paid a larger share of the premium will receive a larger share of the rebate.

Ultimately, many employers provide the employees’ share of the rebate in the form of a premium reduction or discount to all employees participating in the plan at the time the rebate is distributed. Employers should review all relevant facts and circumstances when determining how the rebate will be distributed.

Lastly, note that employers could potentially draft their plans to be clear that the employer retains all rebates; however, employees receive communications from the carriers that they may receive a rebate, so employers should consider the potential employee relations issues of that approach as well.

Recommendations
Employers should ensure that they have appropriate procedures in place for determining the amount of any MLR rebate issued by an insurer that would be considered “plan assets” under ERISA. Employers may want to revisit how they have treated demutualization proceeds or other rebates for assistance as to how they should treat any MLR rebates.