Benefits Update. Robb Schlimgen Davenport, Evans, Hurwitz & Smith, L.L.P.

Transcription

1 Benefits Update An Employer s Guide to Benefits in the Wake of Health Care Reform, the Delayed Employer Mandate, and the Supreme Court s Decision in Windsor Robb Schlimgen Davenport, Evans, Hurwitz & Smith, L.L.P.

2 Overview Health Care Reform Changes already in effect 2014: The upcoming individual mandate and the delay of the employer mandate Provisions yet to take effect United States v. Windsor What the decision means and how it will impact benefits

3 Health Care Reform: How we got here Law passed in 2010 But provisions take effect between 2010 and 2018 Constitutionality challenged by many states (including South Dakota) June 2012: Supreme Court upholds Health Care Reform

4 Supreme Court Decision Central issue: Whether the individual mandate was constitutional Supreme Court holds that it is constitutional under Congress s power to tax. Although federal government cannot order people to buy health insurance, it can impose a tax on those who do not buy health insurance.

5 Major changes already in effect. Dependent coverage for children under 26 Lifetime limits on essential health benefits Rescission prohibition Small business health care tax credit W-2 Reporting Health Flexible Spending Account $2,500 Cap

6 The Mandates 2014 Individual Mandate takes effect 2015 Employer Mandate takes effect (delayed a year from 2014)

7 2014: The Individual Mandate Beginning in 2014, individuals must obtain minimum essential coverage for themselves and any nonexempt family or incur an individual shared responsibility penalty. IRS transitional relief If individuals have employer-sponsored coverage that runs on a non-calendar year basis, the individual mandate will not apply until the first day of the Plan year. Example: If employer has an August 1 to July 31 plan year, individual does not have to obtain coverage until August 1, 2014

8 Minimum Essential Coverage Includes a variety of insurance coverage, most notably, includes an eligible employersponsored plan Basically all employer offered coverage will qualify as an eligible employer sponsored plan.

9 The Individual Mandate Penalty The penalty is set up as the greater of a percentage of income or a dollar amount 2014: 1% of income or $95 times the number of uncovered individuals in the family. 2015: 2% of income or $325 times the number of uncovered individuals in the family. 2016: 2.5% of income or $695 times the number of uncovered individuals in the family.

10 The Individual Mandate Although it is the individual mandate, employers should not be ignoring it.

11 The Individual Mandate: Exchange Notices Exchange Notices must be given to employees by October 1, Exchange notices ask information about any employer provided coverage Allowed to modify (but be careful) Be prepared for employee questions!

12 Small Employers may be eligible to participate in SHOP Exchange In addition to the individual exchange, beginning in 2014, small employers may be able to offer coverage to employees through the SHOP Exchange. Participating employers must offer insurance coverage to all full-time employees.

13 South Dakota Exchange Health Care Reform requires each state to have a health insurance exchange in place by 2014 Federal government will run the South Dakota exchange Many unknowns about the exchanges and open enrollment is set to begin on October 1 with coverage starting as soon as January 1, 2014.

14 Companies Certified to Sell in the Exchange Healthcare Avera Health Plans Sanford Health Plans Dakotacare Dental Best Life and Health Delta Dental Dentegra

15 2015: The Employer Mandate Arrives Originally set to take effect in 2014 but IRS delayed reporting requirements which effectively delayed the mandate Employers are still encouraged to voluntarily comply Applies to all employers with 50 or more full-time equivalent employees Play or Pay : Must pay penalty if coverage is not offered

16 Planning for Play or Pay Step One: Are you an applicable large employer Step Two: Do you offer affordable coverage? Step Three: What will the penalty be?

17 Step One: Are you an applicable large employer Must look at entire controlled group Include unrelated businesses with certain common ownership Generally look for 80% common ownership Non-profits: look to 80% control of board of directors

18 Step One Continued: Determine number of employees Have to count "full-time and full-timeequivalent employees full-time employee is any employee who works, on average, 30 hours or more a week Full-time-equivalent employees are determined by aggregating the monthly hours of all part-time workers and then dividing that total by 120 Several ways for determining hours (see next slide) If a business has 50 or more total full-time and full-time equivalent employees, it is subject to the employer mandate

19 Step One Continued: Determining hours of service Hourly employees: Actual hours worked plus paid time off Salaried Employees Actual hours worked Days worked equivalency (8 hours per day) Weeks-worked equivalency (40 hours per week)

20 Step Two: Do you offer affordable coverage Employee cost for self-only coverage must be less than or equal to 9.5% of that employee s annual household income Safe Harbors W-2 earnings : But remember, pre-tax deductions from W-2 earnings. Rate of Pay : Hourly rate of pay on 1 st day of coverage period x 130 hours OR monthly salary on 1 st day of coverage period Federal Poverty Line : Based on Federal Poverty Line for single individual ($11,490 in 2013)

21 Step Two Continued: Is the affordable coverage offered to all full-time employees Penalty imposed if a full-time employee receives subsidized exchange coverage Thus, it is important to track employee hours IRS has introduced a measurement/administrative/stability period system Measurement and stability period can be from 3 to 12 months Rules extremely complex!

22 Step Three: Determining the Penalty Employer does not offer coverage to substantially all full time employees If the employer does not offer coverage to substantially all full-time employees and an employee enrolls in subsidized Exchange coverage the penalty is equal to the number of all full time employees (minus 30) multiplied by $2,000 To be eligible for subsidized coverage: Your household income must be less than 4 times the poverty level. This is about $46,000 for an individual and $94,000 for a family of four.

23 Step Three: Determining the Penalty continued If coverage is offered to substantially all employees but the coverage is not affordable or does not provide minimum value and an employee enrolls in subsidized Exchange coverage the penalty is equal to the lesser of: $3,000 x each employee who enrolls in the exchange and receives a subsidy or $2,000 x all full-time employees

24 Step Three: Determining the Penalty continued Example: Karen s bakery shop has 100 full-time employees. It makes an offer of coverage to forty employees who are classified as management. However, it does not cover any of its 60 cooks.

25 Step Three: Determining the Penalty continued Karen only offers coverage to 40% of her full-time employees. Thus, she has not provided coverage to substantially all (i.e. 95%) of employees Penalty Equals: 100 fulltime employees 30 x $2,000 penalty = $140,000

26 Factors Employers Should Consider Cannot take tax deduction for any penalty Value of employer-provided coverage is tax free and not subject to FICA If employer stops offering coverage, may need to increase taxable compensation. Company culture will you lose key employees if you do not offer coverage?

27 What employers should be doing now. Determine: Controlled group. Number of full-time employees Determine whether currently providing affordable coverage. Compliance systems in place

28 Beyond the mandates: Changes still to come Annual limits prohibited on essential health benefits Automatic enrollment Cost-sharing limitations Cadillac Tax

29 And of Course The many unknowns: Changes in law? New regulations? Changes to regulations?

30 United States v. Windsor Supreme Court ruled that Section 3 of the Defense of Marriage Act, or DOMA was unconstitutional. As a result, the definition of spouse and marriage under federal law must now include a same-sex marriage recognized by state law.

31 Hollingsworth v. Perry Supreme Court found that it lacked jurisdiction to rule on the broader question of whether all states must permit same-sex marriage. When read together, under Windsor and Hollingsworth states are still free to define marriage.

32 South Dakota Constitutional Amendment In 2006, South Dakota voters approved a constitutional amendment banning same-sex marriage in South Dakota. Windsor does not overturn this amendment. Thus, same-sex marriage is still illegal is South Dakota.

33 But This does not mean that South Dakota employers can ignore Windsor. Revenue Ruling

34 Revenue Ruling IRS concludes that under the Internal Revenue Code: Spouse and Marriage now includes same sex spouses lawfully married under state law husband and wife should be interpreted to include same-sex spouses However, marriage does not include domestic partnerships, civil unions, or other similar relationships not denominated as Marriage. Marital Status based on the laws of the state where a marriage is initially established. The state of celebration rule

35 The state of celebration rule IRS words: Under this rule, individuals of the same sex will be considered to be lawfully married under the Code as long as they were married in a state whose laws authorize the marriage of two individuals of the same sex, even if they are domiciled in a state that does not recognize the validity of same-sex marriage.

36 Jurisdictions Currently Recognizing Same Sex Marriage California Connecticut Delaware Iowa Maine Maryland Massachusetts Minnesota New Hampshire New York Rhode Island Vermont Washington

37 What this means for benefits In justifying the need for the state of celebration rule the IRS noted that if such a rule wasn t adopted to administer employee benefit plans, employers (or plan administrators) would need to inquire whether each employee receiving plan benefits was married and, if so, whether the employee's spouse was the same sex or opposite sex from the employee Employers would also have to continually track the state of domicile of all same-sex married employees and former employees and their spouses.

38 Rules for qualified retirement plans Qualified retirement plans are required to comply with the following rules: A qualified retirement plan must treat a same-sex spouse as a spouse for purposes of satisfying the federal tax laws relating to qualified retirement plans. For purposes of satisfying the federal tax laws relating to qualified retirement plans, must recognize a same-sex marriage that was validly entered into in a jurisdiction whose laws authorize the marriage. A person who is in a registered domestic partnership or civil union is not considered to be a spouse.

39 Must comply with these rules by September 16 th. IRS expects to issue guidance as to periods before Sept. 16 Also intends to issue further guidance addressing: Required plan amendments Any necessary corrections relating to plan operations for periods before future guidance issued

40 Other Impacted Benefits: Health Plan and Flex Benefits Imputation of Tax and Payroll taxes No longer have to impute tax if you cover same-sex spouse nor pay payroll taxes COBRA Extend COBRA-mandated health care continuation Health and Dependent Care Flexible Spending Account Now permitted to use pre-tax dollars for same-sex spouse HIPAA Special enrollment rights.

41 Impacted Benefits: Tax Qualified Retirement Plans Beneficiary Designation Special Distributions for Married Participants Qualified Domestic Relations Order ( QDRO ) Hardship Distributions Rollovers

42 Impacted Benefits: FMLA Leave An employee with a same-sex spouse will now be entitled to 12 weeks of unpaid leave to care for a same-sex spouse.

43 Employees: May be entitled to tax refund If an employer provided health coverage to a same-sex spouse or If employee paid premiums to cafeteria plan for a same-sex spouse on an after tax basis Employee may file a claim for refund for three years from the date of return was file or two years from the date the tax was paid, whichever is later

44 Employers: May also be entitled to tax refund An employer may also claim a refund for any excess social security taxes and Medicare taxes paid. IRS FAQ: A special administrative procedure is forthcoming saying how employers should do this

45 Steps Employers Should Be Taking Now Obtain same-sex marriage information Review plan documents Review payroll practices

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