Assessing Employer Shared Responsibility Penalties

download
Are you an applicable large employer that has received rejected Forms 1095-C from the IRS? If so, you’re not alone. The good news is that there are a few ways organizations can face the challenge.

The background: We now know that the IRS was unprepared for the 2016 employer shared responsibility information filing season, according to the Taxpayer Advocate Service 2016 Annual Report to Congress. It reports that the IRS was not equipped to test the accuracy of the information reporting data before the 2016 filing season—it anticipated receiving 77 million Forms 1095-C from ALEs while it actually received 104 million such returns by the end of last August, with 5.4% of such Forms 1095-C being rejected.

The given reasons for the rejected returns include faulty transmission validation, missing attachments, errors in reading the file or duplicate files. Congress could certainly help the IRS, and therefore help ALEs, by expanding the taxpayer identification number matching program to include health insurers and self-insured employers that are required to file Form 1095-B. But it has yet to act.

By not expanding the matching program, information return reporting leads to mismatches and unnecessary notices, which are all occurring now. This is causing concern over the possible assessment of employer shared responsibility penalties and penalties for failure to timely, and correctly, file information returns.

As of this writing, we have been unable to determine whether any of these types of penalties have been assessed, although based on the TAS, it appears that none have as of yet. The IRS explains in its Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act, in Q&A no. 56, that it expects to send letters in early 2017 informing ALEs of their 2015 potential liability.

his is of particular concern to ALEs because efforts that must be taken to either correct or confirm that correct information was submitted to the IRS are costly and time-consuming. It is especially frustrating if the information provided to the IRS is correct, but due to TIN mismatches, the automatic rejection errors were “false positives.”

Practical tips for dealing with rejected returns
There are few ways, short of communicating with each employee about the rejected return, to determine whether the return is correct or whether it was rejected due to a false positive. We provide a few practical tips to navigate this latest employer shared responsibility development.

  • ALEs should revise and resubmit rejected returns if the rejection was due to faulty transmission, validation, missing attachments, error reading the file or duplicate file. Remember, an initial rejection after an IRS computer review is not the same as a notice of a penalty assessment.
  • If the rejection is more complicated, for example a Form 1095-C was rejected due to a TIN mismatch, ALEs should spot-check to see whether these are actual errors or false-positives.
  • If and when the IRS issues rejection notices with an assessment of proposed penalties, ALEs should decide whether to appeal the penalty assessment. Such notices will include instructions for appealing the rejection and penalty assessment.

With respect to information reporting that gives rise to assessments of employer shared responsibility penalties, pre-existing regulations require the IRS to inform employers of their potential liability and provide them with an opportunity to respond before any penalty is assessed or notice and demand for payment is made.
Note that ALEs reporting and employer shared responsibility assessments were slated to be effective for the 2014 calendar year, but the IRS delayed the effective date until 2015 and to 2016 for employers between 50-99 employees.

For 2015, the IRS provided eight forms of transition relief related to the assessments and reporting, and made clear in 2016 and then again in 2017 that employers that made good faith efforts to comply with information reporting and could show “reasonable cause” under Treas. Reg. § 301.6724-1, would likely be able to avoid reporting penalties.

In any event, ALEs should continue to monitor the situation, keep all documentation from the IRS and make note of any correction attempts, including for potential reasonable cause relief from penalties. ALEs should continue to respond to rejected returns and otherwise comply with all existing reporting requirements.

By
Kurt Linsenmayer, Melanie K. Curtice, Tomer Vandsburger, Employee Benefit News

Attorneys Christine A. Williams , Margret Warrick Truax , , Kiran Griffith and Anne M. Redman contributed to this story.

Employers Slow to Incorporate Benefits Technology

The cost of all-in-one HR platforms is hindering employers from engaging with technology that helps with vital HR functions, including benefits education and communication, according to a new study from LIMRA.

The report, which surveyed 1,403 private employers who have been in business for at least three years, found that the size and location of the company, the type of industry, the age of the workforce and how long the company has been in business has influenced the use of technology by HR professionals.

HR professionals overwhelmingly use technology to manage payroll (70%), yet utilization rates drop to an average of 24.5% for other key functions, such as employee performance management and retirement benefit enrollment, according to LIMRA’s “Convenient and Connected: How are Employers Using Technology Today?” report.

Though nearly half of employers use technology for benefits enrollment, just 22% use technology for benefits education and communication. More than one in 10 (36%) use technology for employee benefit administration.

Although companies with more than 1,000 employees fared better with technology use than small (less than 100 employees) and medium (less than 1,000 employees) sized employers, cost was a major hindrance for 34% of large employers, according to the report.

Similarly, 24% of small employers and 22% of mid-sized employers reported cost as a reason for not using technology.

“Those systems that wrap everything up in one are expensive,” says Kimberly Landry, assistant research director of workplace benefits research at LIMRA. “The main thing holding people back is the price tag associated with that.”

LIMRA found that satisfaction was high — scoring higher than 75% — for almost every type of HR technology LIMRA listed. Still, only 64% of employers use benefits technology that handles all functions on one platform, according to the report. Another 27% of employers split enrollment between multiple technology platforms.

The report indicated there may be increased use of benefits technology in the near future.

Nearly one in 10 employers are actively looking to add enrollment technology while nearly a quarter of employers are interested in switching to a new benefits platform, according to LIMRA.

Employers said they are most likely to switch to obtain a better price or improved data security, according to the report. Only 17% of employers would switch to a platform that handles all benefits on one system solely for that reason.

The report found that employers are willing to spend up to $2.30 per employee per month for a fully immersive system, versus $1.80 for enrollment technology and $1.89 for enrollment and administrative technology.

While those price ranges are lower than the cost of such technologies, Landry says companies that want an upgrade to their current system or are actively looking for benefits technology will pay a bit more.

By Amanda Eisenberg
Employee Benefit News

16 Areas Where Employers Want Help From Their Broker

download

By Cort Olsen, Employee Benefit News
April 27 2017

Brokers can be a lifeline for employers looking to evolve their benefits experience to one that views the employee holistically and enables work-life harmony. At least 81% of employers say an insurance agent or broker plays a crucial role when developing their benefit plans, and 75% say a benefits consultant or consulting firm assisted during their renewal period, according to MetLife’s most recent benefit trends study.

To help guide advisers in the right direction, MetLife has put together 16 subjects where employers seek the most advice — and how much that desire increased between 2015 and 2016. These items range from providing global benefit solutions to advising on healthcare reform requirements.

View List Here

IRS Sets 2018 HSA Contribution Limits

iStock-636732058_fjrqzpHealth savings account caps rise $50 for self-only plans, $150 for family coverage.  The amount that individuals may contribute annually to their health savings accounts (HSAs) for self-only coverage will rise by $50 next year. For HSAs linked to family coverage, the contribution cap will rise by $150.

In Revenue Procedure 2017-37, issued May 4, the IRS provided the inflation-adjusted HSA contribution limits effective for calendar year 2018, along with minimum deductible and maximum out-of-pocket expenses for the high-deductible health plans (HDHPs) that HSAs must be coupled with.

These rate changes reflect cost-of-living adjustments, if any, and rounding rules under Internal Revenue Code Section 223.

“The contribution limits for various tax advantaged accounts for the following year are usually announced in the fall, except for HSAs, which come out in the spring,” explained Harry Sit, CEBS, who edits The Financial Buff blog. Due to a mild uptick in inflation and rounding rules, the 2018 HSA limit will have small increases, he noted.

A comparison of the 2018 and 2017 limits is shown below:

2017 HSA Contribution Limits:

Contribution and Out-of-Pocket Limits for Health Savings Accounts and High-Deductible Health Plans
  2018 2017 Change
HSA contribution limit (employer + employee) Self-only: $3,450
Family: $6,900
Self-only: $3,400
Family: $6,750
Self-only: +$50
Family: +$150
HSA catch-up contributions (age 55 or older)* $1,000 $1,000 No change**
HDHP minimum deductibles Self-only: $1,350
Family: $2,700
Self-only: $1,300
Family: $2,600
Self-only: +$50
Family: +$100
HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums) Self-only: $6,650
Family: $13,300
Self-only: $6,550
Family: $13,100
Self-only: +$100
Family: +$200
* Catch-up contributions can be made any time during the year in which the HSA participant turns 55.
** Unlike other limits, the HSA catch-up contribution amount is not indexed; any increase would require statutory change.

Age 55 Catch Up Contribution

Account holders who will be 55 or older by the end of year can contribute an additional $1,000to their HSA. “If you are married, and both of you are age 55, each of you can contribute additional $1,000,” Sit said. But there’s a catch, he added.

An HSA is in an individual’s name—there is no joint HSA even when the plan provides family coverage—so only an account holder age 55 or older can contribute the additional $1,000 in his or her own name. “If only the husband is 55 or older and the wife contributes the full family contribution limit to the HSA in her name, the husband has to open a separate account for the additional $1,000. If both husband and wife are age 55 or older, they must have two HSA accounts if they want to contribute the maximum,” Sit said.

[SHRM members-only HR Q&A: Are employer contributions to an employee’s health savings account (HSA) considered taxable income to the employee?]

Not All High-Deductible Plans Are HSA Eligible

Besides a high deductible, to qualify as an HDHP, a health insurance plan must not offer any benefit beyond preventive care before those covered by the plan (individuals or families) meet their annual deductible. “An otherwise high deductible plan fails the HSA qualification when it tries to be nice and it gives you some benefits before you meet the deductible,” Sit explained. For instance, if the plan provides coverage in the following areas before the individual or family satisfies their deductible, it is not HSA-eligible.

  • Prescription drugs. Plans may not cover nonpreventive prescription drugs with only a co-pay before an individual or family meets the annual deductible.
  • Office visits. Excluding preventive care such as physical checkups or immunizations, plans may not cover office visits with only a co-pay, without having to meet the annual deductible first.
  • Emergency. Plans may not cover emergency services with a co-pay outside the deductible.

Besides the minimum deductible, the out-of-pocket maximum of an HSA-eligible plan also can’t be higher than an inflation-adjusted number published by the IRS every year. “If your plan has a high deductible and a high out-of-pocket maximum, higher than the IRS published number, it’s also not HSA-eligible,” Sit said.

Coverage of Adult Children

While the Affordable Care Act (ACA) allows parents to add their adult children (up to age 26) to their health plans, the IRS has not changed its definition of a dependent for health savings accounts. This means that an employee whose 24-year-old child is covered on her HSA-qualified health plan is not eligible to use HSA funds to pay that child’s medical bills.

If account holders can’t claim a child as a dependent on their tax returns, then they can’t spend HSA dollars on services provided to that child. Under the IRS definition, a dependent is a qualifying child (daughter, son, stepchild, sibling or stepsibling, or any descendant of these) who:

  • Has the same principal place of abode as the covered employee for more than one-half of the taxable year.
  • Has not provided more than one-half of his or her own support during the taxable year.
  • Is not yet 19 (or, if a student, not yet 24) at the end of the tax year, or is permanently and totally disabled.

Affordable Care Act Limits Differ

There are two sets of limits on out-of-pocket expenses that employers should keep in mind, which can be a source of confusion.

Starting in 2015, the Department of Health and Human Services (HHS) established annual out-of-pocket or cost-sharing limits under the ACA, applying to essential health benefits covered by a plan (grandfathered plans are not subject to the ACA’s cost-sharing limits).

The ACA’s annual out-of-pocket maximums have been slightly higher than the IRS’s out-of-pocket limits on HSA-qualified HDHPs. To qualify as an HDHP, a plan must comply with the lower out-of-pocket maximum for HDHPs.

HHS published its 2018 ACA out-of-pocket limits in the Federal Register on Dec. 22, 2016, in itsNotice of Benefit and Payment Parameters for 2018 final rule.

“The ACA requires the out-of-pocket maximum to be updated annually based on the percent increase in average premiums per person for health insurance coverage,” explains an ACA compliance bulletin by the Stellar Benefits Group in Solon, Ohio, which provides an overview of the HHS’s 2018 updates.

Below is a comparison of the two sets of limits.

 

2018

2017

Out-of-pocket limits for ACA-compliant plans (set by HHS)

Self-only: $7,350

Family: $14,700

Self-only: $7,150

Family: $14,300

Out-of-pocket limits for HSA-qualified HDHPs (set by IRS)

Self-only: $6,650

Family: $13,300

Self-only: $6,550

Family: $13,100

 

Beginning in 2016, the ACA’s self-only annual limit on cost-sharing applies to each covered individual, regardless of whether the individual is enrolled in self-only coverage or family coverage.

By Stephen Miller, CEBS May 5, 2017

1 2 3 7