SECURE Act Adopted in Government Appropriations Bill

On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act of 2020 (HR 1865) into law. The main purpose of this legislation is to continue funding certain government operations. However, the bill also adopts the Setting Every Community Up for Retirement Enhancement (SECURE) Act relating to retirement plans.

The SECURE Act is the most comprehensive retirement legislation passed since the Pension Protection Act of 2006. The law includes sweeping changes that will affect how retirement plans are offered.

As background, the SECURE Act comes after multiple bills attempted to include similar provisions. Specifically, the Retirement Enhancement and Savings Act (RESA) was approved by the Senate Finance Committee and the Family Savings Act was passed by the House in 2018, respectively. The SECURE Act was passed by the House of Representatives in May 2019 and included provisions found in both of those previous bills and added some new provisions.

The SECURE Act (as passed in the appropriations bill) is broken up into four titles, and some of the major provisions are summarized as such:

  • Title I: Expanding and Preserving Retirement Savings
    *Allows open multiple employer plans, meaning that unrelated employers can band together to offer retirement benefits to their employees
    *Increases auto enrollment safe harbor cap to 15%
    *Simplifies 401(k) safe harbor, notably eliminating the notice requirement
    *Increases tax credit for small employer plan start ups
    *Provides credit for small employers that start plans that include automatic enrollment
    *Prohibits plan loan distribution through credit cards
    *Allows portability of lifetime income investments for defined contribution, 403(b), and governmental plans
    *Requires employers to offer 401(k) plan participation to long-term part-time workers
    *Provides penalty-free withdrawals for qualified births and adoptions
    *Increases the age for required minimum distributions from age 70.5 to age 72
    *Allows individuals to continue making IRA contributions after attaining age 70.5
  • Title II: Administrative Improvements
    *Permits plans adopted by the employer’s tax return due date to be treated as in effect as of the close of the plan year
    *Requires annual benefit statements to include a lifetime income disclosure
    *Provides safe harbor for fiduciaries that select lifetime income provider
  • Title III: Other Benefits
    *Expands Section 529 plans to cover additional educational costs, notably including student loan repayment
  • Title IV: Revenue Provisions
    *Modifies required minimum distribution rules relating to death of the account owner
    *Increases penalties for the failure to file a Form 5500
  • As noted, this legislation will result in an overhaul of many of the retirement regulations that have been in place for decades. Some provisions of the bill are effective immediately, some effective beginning in the plan year after December 31, 2019, while others will become effective at later dates. Retirement plan sponsors should work with their plan advisors, recordkeepers, and other service providers to amend their plan as necessary.

    Further Consolidated Appropriations Act of 2020 (SECURE Act begins on page 1532) »

    Source: NFP BenefitsPartners

    Filed under: Abentras Blog

    Fifth Circuit Rules ACA Individual Mandate Unconstitutional, But Does Not Rule on Whether Entire ACA Must Fall

    On December 18, 2019, a three-judge panel of the United States Court of Appeals for the Fifth Circuit ruled that the MEC provision (otherwise known as the “individual mandate”) of the ACA is unconstitutional. However, the appeals court declined to rule on whether the individual mandate rendered the entire ACA unconstitutional or if it can be severed from the ACA. The appeals court remanded that matter back to the district court to make the determination. As a reminder, the matter came before the appeals court after US District Judge Reed O’Connor of the Northern District of Texas ruled that the individual mandate was unconstitutional and so integral to the ACA that the entire law must be overturned.

    The question of whether the individual mandate is unconstitutional hinges upon the tax penalty imposed upon taxpayers who fail to obtain health insurance that provides MEC. A previous ruling by the US Supreme Court, back in 2012, determined that Congress had the authority to create an individual mandate in the ACA through its power to tax. Thus, as long as the law imposed a tax, the mandate was constitutional. In late 2017, Congress reduced the tax to $0, and in response 20 states and two individuals challenged the ACA on the basis that Congress waived its authority to impose the individual mandate when it declined to impose a tax. Both the district court and the appeals court accepted this argument.

    The appeals court remanded back to the district court the issue regarding whether the individual mandate being invalidated causes the whole ACA to fail. The appellate court asks the district court to do two things: 1) Explain which provisions in the ACA are so intertwined with the individual mandate that they must also be severed from the ACA; and 2) Decide whether the court can enjoin only those provisions of the ACA that injure the states and individuals that brought the suit or declare the ACA unconstitutional only as to those states and individuals.

    The lawsuit will continue to move through the courts for some time. The states defending the ACA in this lawsuit have already appealed this decision to the Supreme Court. Even if the Supreme Court declines to take up the matter at this time, the district court must now reconsider key issues, as noted above, and issue new rulings that will very likely be appealed as well. Although it is very difficult to predict the course of any lawsuit, it is not unreasonable to expect this one to take many more months to resolve.

    For employers and group health plans, the Fifth Circuit decision does not change any requirements or obligations currently imposed under the ACA. Specifically, employers should continue their efforts toward timely ACA employer reporting and compliance with other coverage mandates, as the regulatory agencies will continue enforcing the ACA. We will report future developments in Compliance Corner.

    TX v. US »

    Source: NFP BenefitsPartners

    Filed under: Abentras Blog

    Congress Repeals the ACA’s Cadillac, HIT, and Medical Device Taxes; Revives PCOR Fee; and Extends the Paid Family and Medical Leave Tax Credit

    On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act of 2020 (HR 1865) into law. The main purpose of this legislation is to continue funding certain government operations. However, the bill also includes a number of employee benefits-related provisions. Specifically, the bill repeals the tax on high cost health coverage (aka the Cadillac tax), the health insurance tax (HIT, aka the Health Insurance Providers Fee), and the medical device tax. The bill also extends the ACA’s PCOR fee for 10 years (until 2029) and the paid family and medical leave tax credit for one year, and retroactively eliminates a commuter benefit tax for tax-exempt organizations.

    ACA Tax Repeals

    *Cadillac Tax: The Cadillac tax was introduced by the ACA and would have imposed a 40% excise tax on employer-sponsored coverage that exceeded a certain threshold. The tax was originally set to become effective in 2018, but had been delayed through 2022. HR 1865 completely repeals the tax, meaning it will never be imposed on any employer plan.

    *HIT: The HIT is a tax imposed on insurers that was meant to help fund the cost of ACA implementation and the exchanges. Although the tax applied to insurers, insurers were allowed to push those costs through to group health plans through increased premium rates. HR 1865 repeals the tax effective January 1, 2021. However, the tax will still be due for the 2020 plan year.

    *Medical Device Tax: The medical device tax was a 2.3% excise tax on manufacturers and importers of certain medical devices. The tax was originally set to become effective in 2013, but has been delayed multiple times. HR 1865 repeals the tax entirely.

    PCOR Fee Extension
    HR 1865 extends the PCOR fee for 10 more years. As background, the ACA imposes a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans to help fund the Patient-Centered Outcomes Research Institute. The fee, required to be reported only once a year on the second quarter Form 720 and paid by its due date, July 31, is based on the average number of lives covered under the policy or plan.

    The PCOR fee previously applied to policy or plan years ending on or after October 1, 2012, and before October 1, 2019. However, HR 1865 extends the fee through 2029.

    Employers with self-insured plans (including HRAs) will need to continue their compliance with the PCOR fee requirement by filing Form 720 by July 31 each year. We anticipate the IRS will issue additional guidance on the extension, including applicable fee amounts, prior to the July 31, 2020, deadline.

    Employer-Paid Family and Medical Leave Tax Credit
    HR 1865 extends the employer-paid family and medical leave tax credit for one year. As background, the 2017 Tax Cuts and Jobs Act established a business tax credit for certain employer-paid family and medical leave, which ranges from 12.5% to 25% of the wages paid to qualifying employees, where such wage payments are at least 50% of the wages normally paid to the employee. The credit was originally available to employers only for wages paid in 2018 and 2019, HR 1865 extends the credit through 2020.

    Retroactive Elimination of Commuter Benefit Tax for Tax-Exempt Organizations
    HR 1865 also eliminates a tax on commuter benefits for tax-exempt organizations. As background, Congress (as part of the 2017 Tax Cuts and Jobs Act), enacted Section 512(a)(7), which required tax-exempt organizations to include in unrelated business taxable income their costs for providing “qualified transportation fringe benefits” to their employees. HR 1865 repeals section 512(a)(7) retroactive to the date of its enactment. We anticipate that the IRS will issue guidance relating to the repeal, including how to amend Forms 990-T (used to report and pay the tax), and how to claim related refunds.

    HR 1865 »

    Source: NFP BenefitsPartners

    Filed under: Abentras Blog

    IRS Extends ACA Reporting Deadlines and Offers Penalty Relief

    On December 2, 2019, the IRS released IRS Notice 2019-63, extending the deadlines for distributing ACA reporting forms to individuals. The IRS also provided relief from penalties for good faith effort and from the requirement to distribute the Form 1095-B to individuals. As background, the ACA imposes two reporting requirements under Sections 6055 and 6056. Section 6055 requires entities that provide minimum essential coverage to report to the IRS and to covered individuals the months in which the individuals were covered. Section 6056 requires applicable large employers (under the employer mandate) to report to the IRS and full-time employees whether they offered minimum essential coverage that was affordable and minimum value.

    As the IRS has done for the last four reporting years, they have extended the date by which employers must distribute Forms 1095-B or 1095-C to individuals. Those forms must now be distributed by March 2, 2020 (instead of January 31, 2020). However, as in previous years, this notice does not extend the date by which employers must file Forms 1094-B/C and 1095-B/C with the IRS. So reporting entities must still file Forms 1094-B/C and 1095-B/C with the IRS by February 28, 2020, if filing by paper and March 31, 2020, if filing electronically.

    If an employer doesn’t comply with the deadlines, the employer can be subjected to penalties. The IRS also indicates that employers can no longer request an automatic extension of the due date by which they must distribute the forms to individuals, as the extension they’ve provided is just as generous. In fact, the IRS will not respond to any such extension. Employers may still request an automatic extension to file the Forms 1094-B/C and 1095-B/C with the IRS, as long as they submit a Form 8809 on or before the due date of those filings.

    The IRS is also reinstating relief recognizing good faith effort made by employers that file the 2019 forms. Specifically, employers that timely file and distribute their required Forms 1094-B/C and 1095-B/C will not be subject to penalties if the information is incorrect or incomplete. In determining what constitutes a good faith effort, the IRS will take into account whether an employer or other coverage provider made reasonable efforts to prepare for reporting, such as gathering and transmitting the necessary data to a reporting service provider or testing its ability to use the ACA Information Return Program electronic submission process. This relief doesn’t apply to a failure to timely furnish or file a statement or return, and it doesn’t extend to employer mandate penalties (for large employers that didn’t offer affordable, minimum value coverage to full-time employees pursuant to the ACA’s employer mandate).

    Notably, this notice also provides penalty relief for employers, which will allow them to forego distributing the Form 1095-B to individuals. This comes after the IRS accepted comments on the necessity of the Form 1095-B now that the individual mandate penalty has been zeroed out. As long as employers post a notice on their website that the document is available upon request, and then fulfill any such request within 30 days, they don’t have to distribute the Forms 1095-B to covered individuals.

    This relief is not available for Form 1095-C, but can be applied to employees who are not full-time and only receive a Form 1095-C to meet the Form 1095-B reporting requirement. In other words, those employees who are only receiving a Form 1095-C because the employer uses Part III to comply with Section 6055 no longer have to be provided a Form 1095-C. Also keep in mind that employers that must provide and file Form 1095-C to full-time employees must still complete Part III of the Form, indicating the covered spouses and dependents of the full-time employees.

    Employers should keep this guidance in mind as they are preparing their filings and distributions. NFP’s Benefits Compliance Team will continue to monitor any developments that might impact employer reporting obligations in future years.

    IRS Notice 2019-63 »

    Source: NFP BenefitsPartners

    Filed under: Abentras Blog

    IRS Releases Draft Instructions for 2019 ACA Reporting Forms

    On November 13, 2019, the IRS published a draft version of the instructions for 2019 reporting forms 1094-B and 1095-B, which are used by insurers and small self-insured employers to report that they offered MEC. The IRS also published a draft version of the instructions for 2019 reporting Forms 1094-C and 1095-C, which are used by applicable large employers to comply with Section 6056 reporting under the ACA. These drafts are for informational purposes only but employers should familiarize themselves with the forms in preparation for 2019 plan year filings.

    This year’s forms feature a few new changes. They show that while the penalty for the failure to file a correct information return remains $270 for each incorrect return, the penalty cap is raised to a total of $3.339 million for a calendar year, up from a cap of $3,275,500 in 2018. In addition, the updated draft 1095-C form shows that the affordability safe harbor percentage threshold is 9.86% in 2019, up from the 9.56% threshold in 2018.

    Although many anticipated that instructions pertaining to the individual mandate would be removed since the mandate was eliminated effective 2019, those instructions remain. They can be found in Section III of the drafts for both Forms 1095-B and 1095-C.

    As a reminder, the forms must be filed with the IRS by February 29, 2020, if filing by paper and March 31, 2020, if filing electronically. The Forms 1095-B and 1095-C must be distributed to applicable employees by January 31, 2020. As noted above, the penalty for failure to comply is $270 per failure. This means that an employer who fails to file a completed form with the IRS and distribute a form to an employee/individual would be at risk for a $540 penalty.

    Draft Instructions for Forms 1094-B and 1095-B »
    Draft Instructions for Forms 1094-C and 1095-C »

    Source: NFP BenefitsPartners

    Filed under: Abentras Blog

    IRS Reminder: Health Insurance Tax Returns for 2020

    On November 15, 2019, the IRS revised its webpage related to the Health Insurance Providers Fee with a reminder that the fee was suspended in 2019, but will be in effect for 2020. The Health Insurance Providers Fee is commonly referred to as the Health Insurance Tax (HIT). It applies to insured medical, dental, and vision policies. It does not apply to self-insured plans.

    The fee is paid by the insurer, but may be passed on to the employer as the policyholder in the premiums charged. Employers may then pass along the fee to participating employees by considering it in their employee premium calculation. The amount of the fee varies based on the insurer’s ratio of net premiums compared to net premiums for all US health insurance policies. The amount passed along to group policyholders is generally considered to be 3% to 5% of the policy’s premium.

    There is no action required from employers. It is just a reminder that the fee will be back in effect in 2020, so employers may notice a line item on their premium invoice detailing the fee if the insurer chooses to itemize. Otherwise, the insurer may simply add the fee to the premium without itemizing on the invoice.

    IRS Reminder »

    Source: NFP BenfitsPartners

    Filed under: Abentras Blog

    Proposed Health Care Transparency Rule Requires New Cost-Sharing Disclosures

    On November 15, 2019, the Departments of Health and Human Services (HHS), Treasury, and Labor (the “Departments”) released the Transparency in Coverage proposed rule that imposes new cost-sharing disclosure requirements upon employer sponsored group health plans and health insurers. The proposal followed Executive Order 13877, issued on June 24, 2019, which instructed the Departments to determine how health plans, insurers, and providers should make information regarding out-of-pocket health care costs more accessible to consumers.

    As background, the Trump administration has focused on promoting greater price transparency in order to provide individuals with necessary cost-sharing data to make informed health care decisions. Under recently issued final rules effective in 2021, hospitals will soon be required to disclose standard charges for products and services, including negotiated rates with insurers. The Transparency in Coverage proposed rule builds upon these regulatory initiatives and is applicable to non-grandfathered group health plans (including self-insured plans) and health insurance issuers. Account-based plans such as health reimbursement arrangements and flexible spending accounts would not be subject to the new requirements.

    The proposed rule encompasses two approaches. First, the health plans and issuers would be required to make personalized out-of-pocket cost information for all covered health care items and services available through an online self-service tool and in paper format (upon request). This individualized disclosure is designed to provide participants with estimates of their cost-sharing liability with different providers, allowing them to better understand and compare health care costs prior to receiving care. The format could be similar to an Explanation of Benefits and would include actual negotiated rates, out-of-network allowed amounts, real-time accumulated amounts towards deductibles and out-of-pocket maximums and treatment limitations. Any prerequisites for coverage, such as prior authorization, would also need to be referenced. The rules do not require disclosure of balance billing amounts for out-of-network providers, but provide for a disclaimer to alert participants of a potential balance bill.

    Second, these entities would be required to publicly disclose negotiated rates for in-network providers and historical out-of-network allowed amounts in standardized files on their website. These machine-readable files would need to be updated regularly, and are intended to encourage price comparison and innovation.

    Additionally, the proposal offers medical loss ratio (MLR) credits to insurers that offer new plans that encourage participants to shop for lower-cost, higher-value providers and share in the resulting savings. According to HHS, this provision was included to ensure that issuers would not be required to pay rebates for innovative plan designs that benefit participants, but are not currently factored into the MLR calculation.

    The Departments are seeking public comments regarding all aspects of the proposed rule. They are also formally requesting information on whether to require price and cost-sharing information to be included in a publicly available forum through the use of certain technology that enables software to connect and exchange information. In addition, feedback is sought regarding whether provider quality measurements should be required with the cost-sharing information.

    These disclosure obligations are proposed to apply to plan years beginning one year from or following finalization of the rule. However, the MLR provision would be applicable beginning with the 2020 MLR reporting year.

    Employers should be aware of the proposed rules and new requirements. They also may want to discuss the potential disclosure obligations with their insurance carriers and/or third party administrators. However, it is important to understand that no immediate changes are necessary because the proposed rule is not currently in effect and may be modified prior to finalization. Additionally, some carriers may challenge the requirement to disclose negotiated rates, which they consider to be confidential information.

    Transparency in Coverage Proposed Rule »

    Source: NFP BenefitsPartners

    Filed under: Abentras Blog

    IRS Announces 2020 Limits for Health FSAs, Commuter Benefits, and Adoption Assistance

    On November 6, 2019, the IRS published Revenue Procedure 2019-44, which relates to certain cost-of-living adjustments for a wide variety of tax-related items, including health FSA contribution limits, transportation and parking benefits, qualified small employer health reimbursement arrangements (QSEHRAs), penalties for ACA reporting, the small business tax credit, and other adjustments for tax year 2020. Those changes are outlined below.

    Health FSAs: For plan years beginning in 2020, the annual limit on employee contributions to a health FSA will be $2,750 (up $50 from 2019).
    Transportation/Commuter Benefits: For 2020, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking increases to $270 (up $5 from 2019), as does the aggregate fringe benefit exclusion amount for transit passes.
    Adoption Assistance: For 2020, the maximum amount an employee may exclude from their gross income under an employer-provided adoption assistance program for the adoption of a child is $14,300 (up from $14,080 in 2019).
    QSEHRAs: For 2020, the maximum amount of reimbursement under a QSEHRA may not exceed $5,250 for self-only coverage and $10,600 for family coverage (an increase from $5,150 and $10,450, respectively, in 2019).
    ACA Employer Reporting Penalties: For 2020 employer mandate reporting (Forms 1094/95-C filed in early 2021), the penalties for failure to report will be $280 per return, with a maximum of $3,392,000 (up from $270 per return and a $3,275,000 per calendar year maximum for 2019 returns).
    Small Business Tax Credit: For 2020, the average annual wage level at which the credit phases out for small employers is $27,600 (up $500 from 2019). The maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10.

    Employers with limits that are changing (such as for health FSAs, transportation/commuter benefits, and adoption assistance) will need to determine whether their plan documents automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.

    Revenue Procedure 2019-44 »

    Source: NFP BenefitsPartnersContinue reading

    Filed under: Abentras Blog

    IRS Releases Updated Publication 5165 for Electronically Filing ACA Information Returns

    On November 4, 2019, the IRS released a revised version of Publication 5165, entitled “Guide for Electronically Filing Affordable Care Act (ACA) Information Returns for Software Developers and Transmitters,” for tax year 2019 (processing year 2020). This publication outlines the communication procedures, transmission formats, business rules, and validation procedures for returns transmitted electronically through the Affordable Care Act Information Return System (AIR). The filing is quite technical. The forms must be filed using the Extensible Markup Language (XML) schemas outlined in the publication.

    Employers who plan to electronically file Forms 1094-B, 1095-B, 1094-C, or 1095-C should review the latest guidance and make any necessary adjustments to their filing process. Because of the complexity, most employers partner with a payroll or software vendor to assist them with the electronic filing. Those employers still have a responsibility to review the forms for accuracy before submission to the IRS and distribute to employees. Employers filing fewer than 250 forms may file by paper with the IRS.

    At this time, no extensions have been announced related to the due dates. Thus, the Forms 1095-C and 1095-B would need to be distributed to employees by January 31, 2020, and those forms along with the Forms 1095-B and 1094-B would need to be filed with the IRS by March 31, 2020, if filing electronically and by February 28, 2020, if filing by paper.

    Publication 5165 »

    Source: NFP BenefitsPartners

    Filed under: Abentras Blog

    DOL Proposes New Electronic Disclosure Safe Harbor

    On October 23, 2019, the DOL proposed a new rule to expand the options available to retirement plan sponsors for electronic delivery of required disclosures. The proposal followed Executive Order 13847, which instructed the DOL to determine whether regulatory actions could be taken to improve the effectiveness of participant disclosures and reduce their cost to employers. After review and consultation with other regulatory agencies, the DOL set forth a new “notice and access” safe harbor under which ERISA retirement plan disclosures could be made available on a website following specified notice.

    As background, in 2002, the DOL issued a safe harbor that permitted electronic delivery of disclosures provided that the method was reasonably calculated to ensure actual receipt, notice and content requirements were satisfied, and participants maintained the right to request paper copies. Under this prior safe harbor, employees with “integral access” to the employer’s computer system at work could be defaulted to electronic delivery; all others were required to affirmatively consent to the electronic method. In recognition of technological advances and increased participant internet access, the notice and access option is offered as a new alternative to (rather than a replacement of) the existing 2002 safe harbor.

    The proposed alternative permits required disclosures for retirement plans (including multi-employer plans) to be posted online following notice to covered individuals, who can then access the documents continuously using an internet connected device. Covered individuals are participants, beneficiaries, and any other individuals entitled to documents, who have provided the plan administrator (or designee) with an electronic address, such as email address or smartphone number. Alternatively, if an electronic address is assigned by an employer for this purpose, the employee is treated as if they provided the electronic address. Covered documents include all disclosures required under Title 1 of ERISA, with the exception of documents that must be furnished upon request (such as the plan document).

    The new safe harbor requires plan administrators to send a notice of internet availability to each covered individual’s electronic address whenever a covered document is made available on the website. Administrators are permitted to combine certain annual disclosures, for which the notice of availability would be considered timely if furnished not later than 14 months following the date of the prior plan year’s notice.

    The new safe harbor lays out specific content that must be included in the notice. The referenced website address must be “sufficiently specific” to provide ready access to the covered document, either by leading the covered individual directly to the covered document or to a login page that provides a prominent link to the covered document. Generally, the notice must not contain additional information or be accompanied by other documents and it must be written in a manner calculated to be understood by the average plan participant.

    The proposed rule includes two significant protections for individuals who prefer to receive paper versions of covered documents. First, any covered individual has the right to request and receive a paper copy free of charge. Second, a covered individual who prefers to receive all covered documents in paper may opt out of receiving covered documents electronically. If a plan administrator becomes aware of an invalid address (for example, if an email is returned as undeliverable), the individual must be treated as if they opted out of electronic delivery.

    Plan administrators who choose to use the new safe harbor must send an initial paper notification to apprise covered individuals of the new electronic delivery method and the opportunity to opt out.

    The DOL has requested public comments and information regarding the proposed alternative electronic delivery method on or before November 22, 2019. The new safe harbor option will be effective 60 days following publication of a final rule. In response to the executive order’s directive, the DOL is also seeking information and ideas regarding measures (in addition to the notice and access framework) that would enhance the effectiveness of ERISA disclosures for participants and beneficiaries. This second request focuses upon the design and content of the disclosures and includes specific questions upon which feedback is sought.

    Employers who are seeking an alternative electronic delivery method for retirement plan disclosures may want to review the proposed rule. It is important to note that the proposed notice and access delivery method does not currently incorporate welfare benefit plan disclosures. (The DOL declined to extend the proposal to welfare benefit plans, pending review and consultation with other regulatory authorities.)

    Please stay tuned to Compliance Corner for further updates on these initiatives.

    Default Electronic Disclosure Rule »

    Source: NFP BenefitsPartners

    Filed under: Abentras Blog