2014 Mid-Year Compliance Update
While 2014 has been a relatively quiet year in terms of new rules affecting retirement plans, the January 1, 2015 effective date for the Affordable Care Act employer shared responsibility mandate is now in sight. This summary discusses a few key developments regarding employee benefit plans – especially group health plans – for employers to consider as they move into the second half of 2014.
Benefit Plan Definitions of "Spouse" After the Windsor Decision
Last year's Supreme Court decision in United States v. Windsor continues to influence the legal compliance agenda as federal agencies offer guidance regarding the impact of the decision on benefit plans and employment policies.
- Retirement Plan Amendments May Be Necessary. In the immediate aftermath of the Windsordecision, the IRS and DOL each adopted a "place of celebration" rule under which the marriage of a same-sex couple will be recognized for federal law purposes if it is valid under the laws of the state or foreign country in which it was entered into, regardless of the couple's state of residence. Earlier this year the IRS followed up with guidance concerning the retroactive application of the Windsor decision to retirement plans. IRS Notice 2014-19 requires an employer to amend a retirement plan only if necessary to eliminate or modify terms that are inconsistent with the holding in Windsor and related IRS guidance. Therefore, a plan that defines "spouse" by reference to the federal Defense of Marriage Act or recognizes marriages only between persons of the opposite sex would require modification. If a plan amendment is required, it must be adopted by December 31, 2014 (for calendar year plans) and it must be effective no later than June 26, 2013. Note that the guidance permits employers to recognize same-sex marriages prior to June 26, 2013 for purposes of plan administration if the employer wishes to do so. Employers should review their retirement plans to determine whether an amendment is required by the end of this plan year.
- Welfare Benefit Plans and Church Plans. Self-funded welfare benefit plans and church plans exempt from ERISA may have more flexibility in defining "spouse" and "marriage." Employers sponsoring these types of plans should review plan language to determine how the plans define "spouse" and evaluate the possible consequences.
- FMLA Guidance. Currently the federal Family and Medical Leave Act (FMLA) defines marriage by reference to a couple's state of residence. On June 27, 2014 the DOL released a proposed regulation that would apply the place of celebration rule to FMLA's definition of spouse. This change is consistent with prior guidance issued by the DOL and is expected to be finalized relatively quickly. Employers subject to FMLA should review their FMLA policies to ensure they have a compliant definition of spouse.
- Cycle D Determination Letter Filing Window Is Open. The deadline for cycle D filers – namely, employers with tax identification numbers ending in 4 or 9 and multi-employer plans – to file determination letter applications is January 31, 2015. Due in part to the new form of determination letter application (below discussed), cycle D employers may want to begin preparing determination letter applications now.
- New Form for Determination Letter Applications. Determination letter applications filed on or after July 1, 2014 must be submitting on the new version of Form 5300 (published in December 2013). The new Form 5300 expands the scope of the information that must be provided by an applicant, including details regarding plan amendments, plan mergers, the resolution of any compliance issues, and identification of the tax form(s) the employer uses to file any annual return. Plan sponsors should allow adequate time to collect the additional information required by the new form and plan to begin the process earlier than in years past.
Health Care Reform Update
- Final Regulations Implementing the Employer Mandate. In February 2014 the IRS released final regulations implementing the employer shared responsibility component of the Affordable Care Act (ACA). The final regulations provide transition relief as well as more detailed information about several aspects of the employer mandate. Below are select highlights from the final regulations:
Determining Large Employer Status for 2015. The final regulations provide that for 2015 only an employer may use any six consecutive month period in 2014 to determine whether it is a large employer subject to the employer mandate.
Employer Mandate Delayed for Certain Employers. The final regulations delay enforcement of the employer mandate until 2016 for certain employers with 50 to 99 full-time (including full-time equivalent) employees. To qualify for this relief an employer must certify that it has not (1) reduced the size of its workforce or overall hours of service of its employees, or (2) eliminated or materially reduced existing health coverage, as determined under the regulation.
Transition Relief for All Employers. The effective date of the employer mandate for employers employing 100 or more full-time (including full-time equivalent) employees remains January 1, 2015. However, for 2015 only an employer will not be subject to a Code Section 4980H(a) penalty for failure to offer coverage if the employer offers coverage to at least 70 percent (rather than 95 percent as effective in 2016) of its full-time employees and their children under age 26. Also, employers that have not since 2013 and do not currently offer coverage for some or all under age 26 children of full-time employees will not be assessed a penalty in 2015 with respect to those children so long as the employer takes steps in 2014 or 2015 to arrange for the required coverage.
Identifying Full-Time Employees. Under the final regulations an employee working at least 30 hours per week (or a monthly equivalent of 130 hours) is considered "full-time." The final regulations include an optional look back method whereby an employer may identify full-time employees by looking to a specified period of months (a measurement period) and then locking in the employee's status for a future period (the stability period). The rules regarding length of measurement and stability periods vary according to whether an individual is an ongoing or new employee, and whether a new employee is variable-hour or seasonal (where seasonal means customary annual employment of six months or fewer). Generally, each employee who works an average of 30 hours per week during the measurement period will be considered a full-time employee during the subsequent stability period. For stability periods beginning in 2015 an employer may, regardless of the length of the stability period, use a measurement period of as few as six consecutive months as long as the measurement begins no later than July 1, 2014 and ends no earlier than 90 days before the first day of the 2015 plan year.
Counting Hours of Service. The final rules clarify the counting of hours of service for determining who is a full-time employee. Generally, an hour of service is any hour for which an employee is paid, or entitled to payment, for the performance of duties, vacation, holiday, illness, disability, layoff, leave of absence, and the like. Work done by students under a government subsidized work study program, by members of religious orders subject to a vow of poverty, and by certain volunteers will not, however, count as hours of service in determining full-time employee status.
Adjunct Faculty. The final regulations provide a safe-harbor method for crediting hours of service for adjunct faculty. Under the safe harbor an employer may credit adjunct faculty with 2.25 hours of service for each hour of teaching or classroom time and one hour of service for each hour spent on non-classroom duties (such as office hours or required attendance at faculty meetings).
Other Matters. The final regulations provide guidance on a number of other matters, such as the definition of employee, multi-employer plans, affordability safe harbors, and the assessment and payment of penalties for noncompliance. Employers should carefully consider the regulations and begin tracking hours of service to determine who may be a full-time employee and what transition relief, if any, may be available.
- Amendment Deadline for FSA Limits. Effective for plan years beginning on or after January 1, 2013, employee contributions to health flexible spending accounts were capped at $2,500 (indexed for inflation but unchanged for the 2014 plan year). Plan amendments reflecting this cap must be adopted by December 31, 2014.
- Information Reporting under Code Sections 6055 and 6056. In March 2014 the IRS released final regulations detailing the reporting requirements for information returns under Code Section 6055 (minimum essential coverage) and Code Section 6056 (employer sponsored coverage). All sponsors of self-funded plans, insurers, and governmental units must report under Section 6055, while only employers subject to the employer mandate (those employing 50 or more full-time employees, including equivalents) must report under Section 6056. Employers subject to the employer mandate should report on Form 1095-C (and related Form 1094-C transmittal), completing the entire Form if the plan is self-funded and only a portion of the Form if the plan is insured. Insurers, employers that sponsor self-funded plans but are not subject to the employer mandate, and providers of government-sponsored coverage should report on Form 1095-B (and Form 1094-B transmittal). All entities subject to reporting should provide an informational statement to covered individuals. The final regulations allow simplified reporting for employers meeting certain requirements. Reporting applies as of January 1, 2015, regardless of whether and when an employer becomes subject to the employer mandate. Employers should ensure that they can retrieve the required reporting information from their systems and consider whether they may qualify for simplified reporting.
- Maximum 90-day waiting period. Earlier this year the IRS, DOL, and HHS issued final regulations concerning the 90-day limit on waiting periods for health insurance coverage. The agencies caution that compliance with the waiting period regulations will not necessarily result in compliance with the employer mandate, which requires large employers to offer affordable, minimum value coverage to eligible full-time employees by the first day of the employee's fourth full calendar month of full-time employment. The final rules are effective for plan years beginning on or after January 1, 2015, though the 90-day waiting period limit is effective as the first plan year beginning on or after January 1, 2014.
- Health Plan Identifier Number Requirement. As required by the ACA, HHS has issued rules that require nearly all group health plans to obtain a unique health plan identifier number (HPID) by November 5, 2014 (November 5, 2015 for health plans with fewer than $5 million in annual receipts). The rule places responsibility with a self-funded health plan to register for its own HPID, even if the plan typically looks to a business associate or third party to conduct its standard transactions. To obtain an HPID a plan sponsor must complete an application and follow submission instructions provided at https://portal.cms.gov. The ACA also requires that health plans submit two one-time certifications from an outside vendor demonstrating compliance with the standard transaction requirements. Proposed rules suggest that the first certification must be submitted by December 31, 2015, but final rules have not yet been published.
- Breast Cancer Medications. Last September the U.S. Preventive Service Task Force recommended coverage of risk-reducing prescription medications for certain women at increased risk for breast cancer. Accordingly, for the plan years beginning on or after September 24, 2014 (January 1, 2015 for calendar year plans), non-grandfathered plans must cover these medications without cost sharing for women at risk for breast cancer.
- Transitional Reinsurance Program Assessment Fee. The ACA requires health insurance issuers and self-funded group health plans to pay a fee during calendar years 2014 through 2016 to help stabilize premiums in the individual insurance market. This fee is $63 per covered life in 2014 and will decrease in 2015 and 2016. Plan administrators must submit enrollment data by November 15, 2014, after which HHS will generate two invoices per plan (one on or before December 15, 2014 and the other in the fourth quarter of 2015). Invoices must be paid within 30 days of issuance and the fees can be treated as plan administrative expenses.
- PCORI Fee. For plan years 2012 through 2018 insurance issuers and employers that sponsor self-funded group health plans must pay a per member/per year fee to fund the Patient Centered Outcomes Research Institute. The fee for plan years ending between October 1, 2013 and September 30, 2014 is $2.00 per covered individual. Payment is submitted using IRS Form 720 and is due no later than July 31 of the year following the last day of the plan year.