2015 Year-End Reminders and Developments

The IRS has recently announced the various qualified plan related limits for 2015. The following table includes the most widely used limits relating to qualified plans and includes both the 2014 and 2015 amounts.

IRS Announces Key 2015 Indexed Limits

Reimbursing Individual Health Insurance Prohibited (Even On a Taxable Basis)

In just released informal guidance, the Departments of Labor, Health and Human Services and Treasury clarify that employers reimbursing employees for the cost of individual health policies with after-tax dollars are violating the “market reform” provisions of federal health care reform.

Last year the agencies took the position that employers could not reimburse employees for the cost of individual health insurance (including policies purchased on a public exchange) on a pre-tax basis. That left open the possibility of continuing reimbursement arrangements on an after-tax basis (with or without a gross-up for taxes). The new guidance makes it clear that even an after-tax reimbursement arrangement is no longer permitted.

The penalties for violating these rules are significant – up to $100 per day per reimbursed employee. Clients who have been reimbursing the cost of individual health insurance premiums on an after-tax basis are urged to contact a member of the Employment and Benefits Practice Group or another advisor on this issue as soon as practicable.

Reminder to Amend Welfare Plans For Federal Health Care Reform

Welfare plans may need to be amended by the end of the year to reflect certain federal health care reform changes. In particular, health care flexible spending accounts (health FSAs) that prior to 2013 imposed a contribution limit in excess of $2,500 must be amended by the end of this year to reflect the new $2,500 limit imposed under federal health care reform. (As indexed for inflation, the limit for 2015 is $2,550.) In addition, health FSAs that allow participants to carry over a balance of up to $500 must be amended to add this provision by the end of the health FSA plan year in which the carryover amount arises, with a special transition rule for plans that adopted a carryover provision for 2013. For calendar year plans that first allow a carryover from 2014 to 2015, the plan must be amended by the end of this year to permit the carryover. (For more information on the carryover rules, please see our 2013 Benefits Brief.)

In addition, clients may wish to take advantage of recently released guidance that makes it easier for employees to move from employer-sponsored group health plan coverage to public exchange-based coverage. Employees wishing to enroll in exchange-based coverage have not always been able to revoke their pre-tax cafeteria plan election to pay their share of the cost of employer-sponsored group health plan coverage. This is because circumstances that permit enrollment in the public exchanges (the exchange’s open enrollment period or experiencing an “exchange open enrollment right”) have not always qualified as “change in status” events under the cafeteria plan. 

Recent IRS guidance now allows participants in a cafeteria plan to revoke their pre-tax elections in two new situations: (1) where the participant wishes to transition to public exchange-based coverage (either in a public exchange open enrollment period or due to a public exchange special enrollment right); or (2) if the participant’s hours are reduced to part-time status and the participant wishes to enroll in another group health plan or in public exchange-based coverage. Employers that wish to allow these new change in status events under the cafeteria plan must amend their documents by the end of the plan year in which the change is effective. Under a special transition rule, plans have until the end of their 2015 plan year to make this amendment effective for the 2014 plan year.

Finally, employers with more than 50 full-time equivalent employees (determined on a controlled group basis and based on 2014 data) are reminded that the so-called “pay or play” mandate becomes effective beginning in 2015. Although transition relief will blunt the initial impact of these rules, related employer-level reporting requirements will apply for the 2015 calendar year, with forms due to the IRS by February 29, 2016 (March 31, 2016 if filing electronically) and to employees by February 1, 2016. In addition, sponsors of self-insured group health plans must report certain group health plan coverage information by February 29, 2016.  Both sets of reporting obligations require detailed tracking of employees and coverage on a monthly basis, and employers are advised to review these rules and coordinate with payroll to establish tracking systems early in the year. Draft reporting Forms 1094-B and 1095-B and Forms 1094-C and 1095-C and instructions are available on the IRS website and are expected to be finalized this year.

As we near the end of the roll-out of federal health care reform, please contact us if you would like us to review your documents or if you have any other questions with respect to the effects of federal health care reform.

Defined Contribution Plan Year-End Reminders

Notice season is almost upon us. The list of notices required in connection with the administration of retirement plans is lengthy but for a typical calendar year-end defined contribution plan, the key notices include the following –

• Employers using a “safe harbor” 401(k) plan design with a calendar year plan year will need to distribute the 2015 safe harbor notice by the end of November;
• Employers using the provision that allows a participant’s first automatic contributions to be withdrawn within 90 days must provide an annual notice apprising employees of their rights and obligations within a period of at least 30 days prior to the beginning of the year, again by the end of November in the case of a calendar year plan;
• Employers taking advantage of a qualified default investment alternative (“QDIA”) arrangement must provide participants with information about the arrangement at least 30 days prior to the start of each plan year; and
• Another round of comprehensive participant fee disclosures.

If you have questions about these or other periodic reporting requirements, please feel free to contact a member of the Employment & Benefits Practice Group.