Employee Benefits Blog

Archives for 2013

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IRS Notice 2013-54 and S Corporation Shareholder-Employees

In a previous post we discussed IRS Notice 2013-54, in which the IRS reversed its previous position by indicating that, when an employer pays for an employee’s individual health insurance policy premiums, the benefit can no longer be provided on a pre-tax basis and must now be treated as taxable wages.  We encountered a situation recently which led us to conclude that, while it is not free from doubt, it appears that S corporation owner employees who directly or indirectly own at least 2% of the shares may now potentially be in a more favorable position than owner-employees of C corporations.

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2013 Changes to Form 5500

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Last week, the Internal Revenue Service, Department of Labor and Pension Benefit Guaranty Corporation released an informational advanced copy of the 2013 Form 5500 and instructions

There are few significant changes from the 2012 form.  One of them is the addition of a “Form M-1 Compliance Information” section.  Most plans that are multiple employer welfare arrangements (MEWAs) or Entities Claiming Exception (ECEs) are subject to Form M-1 filing requirements.  Generally, a Form M-1, “Report for Multiple Employer Welfare Arrangements and Certain Entities Claiming Exception” must be filed each year by March 1st following the calendar year in which a plan operates subject to the Form M-1 filing requirement.

The new section to the Form 5500, “Form M-1 Compliance Information,” sets forth information that must be completed by all welfare plans. Specifically, the form asks whether the plan is subject to the Form M-1 filing requirements and whether it is compliant.  Further, all welfare plans required to file the Form M-1 annual report are now required to file the Form 5500 regardless of the plan size or type of funding.  Thus, the requirement provides the Department of Labor with an avenue for oversight over MEWAs.  Failure to answer the Form M-1 Compliance questions would constitute an incomplete filing and cause the Form 5500 to be rejected. 

Other 2013 changes to the Form 5500 include changing the manner of reporting PBGC coverage by eliminating Plan Characteristic Code 1G from line 8a and adding new Line 5c to Schedule H.

Posted Under: Form 5500

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IRS Modifies “Use-It-or-Lose-It” Rule for Health Flexible Spending Accounts

On October 31, 2013, the IRS issued Notice 2013-71, which significantly modifies the “use-it-or-lose-it” rule applicable to health flexible spending accounts (health FSAs).

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IRS Announces Pension Plan Limitations and Other Inflation-Adjusted Amounts for 2014

On October 31, 2013, the Internal Revenue Service issued IR-2013-86, a news release announcing the 2014 inflation adjustments affecting pension plans and other retirement-related items.

Posted Under: 401(k) plans, IR-2013-86

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Individual Health Insurance Policies Can Now Be Provided to Employees Only On After-Tax Basis

On Friday, September 13, the IRS issued Notice 2013-54 to discuss the application of the “market reform” provisions of the Affordable Care Act (ACA)  to certain employer healthcare arrangements, including, among others, arrangements under which employers pay for employees’ individual health insurance policies, either by paying the insurance company directly or by reimbursing the employee. The Notice, which mirrors substantially identical guidance issued by the DOL, also covers health reimbursement accounts under Section 105 and health flexible spending arrangement under Code Section 125.  The “market reform” provisions include the requirements to provide certain preventive services with no cost-sharing and to refrain from imposing a lifetime cap on benefits.  There are many aspects to this Notice, but this post will focus only on its impact on employers’ subsidies of employees’ individual health insurance policies.

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Waiting In The Wings: Obamacare’s Nondiscrimination Rules for Insured Group Health Plans

During the past several months, numerous provisions of the Affordable Care Act have taken their turn on center stage.  For example, starting in early July we have had constant reminders of first the one-year delay in the employer mandate, then the Patient Center Outcomes Research Institute (PCORI) fee, then the exchange notices, and most recently the possibility of a government shutdown over funding the ACA.  There is another ACA provision that has received very little attention to date that may turn out to be among the Act’s most significant changes: the new nondiscrimination rules applicable to insured group health plans.

One of the traditional quirks in the taxation of employee benefits is that, whereas self-insured health plans are subject to significant and potentially punitive nondiscrimination rules under Code Section 105(h), health plans funded through commercial insurance are subject to no discrimination rules.  (In general, Section 105(h) prohibits discrimination as to either eligibility or benefits in favor of highly compensated employees.  For this purpose, the definition of “highly compensated employee” is very broad, in that it includes the highest paid 25% of all employees.)  Thus, employers have been free to provide very rich insurance coverage to certain employees and far inferior coverage to others.  Congress attempted to address this discrepancy in the late 1980’s by enacting Code Section 89.  However, this section was so convoluted and controversial that it was repealed before it came into effect.