American Benefits Council
Benefits Byte


September 19, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

Click here to read past issues on the Benefits Byte Archive page.

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IRS Releases PPACA Guidance Addressing Cafeteria Plans, Full-Time Employee Measurement, PCORI Fee

Late on September 18, the Internal Revenue Service issued several notices addressing various elements of the Patient Protection and Affordable Care Act (PPACA).

Permitted Election Changes for Cafeteria Plans

IRS Notice 2014-55expands the application of permitted change rules for health coverage under Internal Revenue Code Section 125 cafeteria plans. 

The notice addresses two specific situations in which a cafeteria plan participant may want to revoke (during a plan year) the election of employer-sponsored coverage under a cafeteria plan in order to purchase Qualified Health Plan through a Health Insurance Marketplace (also known as a health exchange). The two specific circumstances refer to:

  • A participating employee whose hours of service are reduced so that the employee is expected to average less than 30 hours of service per week, but for whom the reduction does not affect the eligibility for coverage under the employer’s group health plan.
  • An employee participating in an employer’s group health plan who would like to cease coverage under the group health plan and purchase coverage through an exchange without that resulting either in a period of duplicate coverage or a period of no coverage.

In these situations, the notice permits a cafeteria plan to allow an employee to prospectively revoke an election of coverage under a group health plan (that is not a health FSA) and that provides minimum essential coverage provided certain conditions are met. The Treasury Department and IRS intend to amend cafeteria plan regulations to reflect Notice 2014-55. The notice is effective September 18, 2014, and may be relied upon pending further guidance.

Application of the Look-Back Measurement Method for Determining Full-Time Employees

IRS Notice 2014-49 describes a proposed approach employers may use to apply the “look-back” method of measuring employees’ work hours, which may be used to determine if an employee is a full-time employee for purposes of the employer “shared responsibility” provisions of PPACA.

The “look-back” measurement method permits an employer to test whether an employee is reasonably expected to work more than 30 hours per week during a “measurement period.” If the employee works, on average, a full-time schedule, the employee must be offered minimum essential coverage for the duration of a corresponding “stability period.” (See the Council’s Benefits Blueprint on the shared responsibility provisions for more details.)

The approach described in Notice 2014-49 addresses instances in which the measurement period applicable to an employee changes, including:

  • Where an employee in a position to which one period applies transfers within the same "applicable large employer "(ALE) to a position to which a different measurement period applies (for example, an employee moves from an hourly position to which a 12-month measurement period applies to a salaried position to which a 6-month measurement period applies).
  • Where an ALE changes the measurement method applicable to employees within a permissible category (for example, an ALE changes the measurement period for all hourly employees for the next calendar year from a 6-month to a 12-month measurement period).

The notice describes how to address these situations for employees in a stability period and those not yet in a stability period. The notice provides several examples illustrating the approach described in the notice.

The U.S. Treasury Department and the IRS invite public comments, through December 29, 2014, on the proposed approach set out in the notice. Comments are specifically requested regarding the potential application of the proposed approach in the context of a corporate transaction such as a merger or acquisition involving employers using different measurement methods.

According to the notice, employers may rely on this approach until further guidance is issued, at least through the end of the 2016 calendar year, including employers involved in a corporate transaction in which employers use different measurement periods. 

PCORI Fee Amounts

IRS Notice 2014-56 indicates an increase in the applicable dollar amount to be multiplied by the average number of covered lives for purposes of calculating the fee on health insurance policies and self-insured health plans to fund the Patient-Centered Outcomes Research Institute (PCORI) Trust Fund.

PPACA established PCORI to conduct research to evaluate and compare the clinical effectiveness, risks and benefits of medical treatments, services, procedures, drugs or other items or strategies that treat, manage, diagnose or prevent illness or injury. As described in the statute and final regulationsissued in December 2012, the per capita fee is imposed on issuers of health insurance policies for each policy year ending on or after October 1, 2012, and before October 1, 2019, and plan sponsors of applicable self-insured health plans for each plan year ending on or after October 1, 2012, and before October 1, 2019.

Under Notice 2014-56, the fee has been increased from $2 to $2.08, multiplied by “the average number of lives covered under the policy.” This amount applies to policy years and plan years that end on or after October 1, 2014, and before October 1, 2015.

For more information on regulatory activity related to PPACA, contact Kathryn Wilber, senior counsel, health policy.

IRS Finalizes Rules for Executive Compensation of Health Providers

Under final regulations that will be published formally on September 23, the Internal Revenue Service (IRS) provided guidance onthe application of the $500,000 deduction limit on the compensation of some individuals by certain Covered Health Insurance Providers (CHIPs).

The limitation, contained in tax code Section 162(m)(6), as added by the Patient Protection and Affordable Care Act (PPACA), imposes a $500,000 per year limit on the deduction that a CHIP may claim with respect to the compensation paid to its officers, directors, employees and certain other service providers. Compensation, for purposes of applying the limitation in a given year, can include deferred compensation not actually paid or otherwise deductible until a later year.

The final regulations largely adopt, with some modifications, the proposed regulations, issued in April 2013, and Notice 2011-02. (See the December 23, 2010, Benefits Byte for more details and a summary of the prior notice.) These earlier issuances included several suggestions offered by the Council (with America’s Health Insurance Plans) in a March 2011 comment letter to IRS.

For more information on executive compensation matters, contact Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700. 

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).