February 13, 2015
- New IRS Fact Sheet Summarizes Employer 'Shared Responsibility' Payments under PPACA
- IRS Issues RFI on Benefit Suspensions in Multiemployer Pension Plan Provisions
- New FAQ Guidance Addresses Supplemental Excepted Benefits
New IRS Fact Sheet Summarizes Employer 'Shared Responsibility' Payments under PPACA
The Internal Revenue Service issued a new fact sheet in question and answer format, containing basic information on the two different types of “shared responsibility” payments for which employer plan sponsors may be responsible under Section 4980H. The document is a description of current law and does not contain any new guidance or information.
While the document is labeled as “Types of Employer Payments and How They Are Calculated,” the document refers only to the shared responsibility payments and not to any other taxes or fees imposed by PPACA.
The document describes the two different employer payments (or “penalties”) under 4980H:
(1) the payment for failure to offer minimum essential coverage (MEC) and
(2) the payment for failure to offer affordable minimum essential coverage that provides minimum value.
For each type of payment, the fact sheet describes which employers will owe the payment and how the payment will be calculated. For the first type of payment described above, the fact sheet describes applicable transition relief for 2015. For the second type of payment described above, the fact sheet provides examples of how the payment would be applied under certain scenarios. The document provides several examples for how payments will be calculated for failure to offer minimum essential coverage.
The fact sheet also describes the IRS’ assessment and collection process, noting that “employers will not report or include an employer shared responsibility payment with any tax return they may file. Instead, based on information from the employer and from employees’ tax returns, the IRS will calculate the potential employer shared responsibility payment and contact the employer to inform it of any potential liability.”
The fact sheet further explains that the employer will then have an opportunity to respond before any assessment or notice and demand for payment is made.
An employer will not be contacted by the IRS regarding an employer shared responsibility payment until after their employees’ individual income tax returns are due for that year – which would show any claims for the premium tax credit. If, after the employer has had an opportunity to respond to the initial IRS contact, the IRS determines that an employer is liable for a payment, the IRS will send a notice and demand for payment to the employer. That notice will instruct the employer how to make the payment. The fact sheet states that the IRS will adopt procedures to ensure that employers receive certification when one or more employees receive the premium tax credit for purchasing coverage through the Marketplace.
As we reported in the February 9 Benefits Byte, the IRS recently finalized the applicable forms. These reportingrequirements are effective for 2015, with the first required reporting due in 2016.
The fact sheet also explains what an “offer of coverage” is and confirms that employer shared responsibility payments are not deductible for federal income tax purposes.
IRS Issues RFI on Benefit Suspensions in Multiemployer Pension Plan Provisions
On February 13, the Internal Revenue Service (IRS) issued a proposed rule and request for information on future guidance to implement the multiemployer defined benefit plan suspension provisions included in the Consolidated and Further Continuing Appropriations Act (H.R. 83), enacted in December 2014.
As we reported in the December 10, 2014, Benefits Byte, the measure that passed Congress contained a number of provisions to permanently address the funding crisis threatening the multiemployer pension plan system, including the addition of a new status called “critical and declining status” for multiemployer defined benefit plans. A plan is considered in critical and declining status if it is projected to become insolvent anytime in the “current plan year or any of the 14 succeeding plan years (or 19 succeeding plan years if the plan has a ratio of inactive participants to active participants that exceeds two to one or if the funded percentage of the plan is less than 80 percent).”
Under the new law, sponsors of multiemployer defined benefit plans in critical and declining status are generally permitted to “suspend certain benefits following the provision of specified notice, consideration of public comments, approval of an application for suspension, and satisfaction of other specified conditions (including a participant vote).”
The IRS notice invites public comments for information on future guidance that would address implementation of the benefit suspensions, including:
- How future guidance should address actuarial and other issues, including duration.
- How a plan sponsor could identify which benefits are based on a disability, as reductions based on disabilities are prohibited.
- Practical issues to be considered for participants who have and have not retired.
- Satisfying the requirement that notices of the proposed suspension are distributed to plan participants and beneficiaries concurrently with the submission of the application for approval.
New FAQ Guidance Addresses Supplemental Excepted Benefits
The latest “frequently asked questions” (FAQ) documentrelating to the Patient Protection and Affordable Care Act (PPACA), released jointly by the U.S. departments of Labor (DOL), Health and Human Services (HHS) and Treasury on February 13, clarifies whether health insurance coverage that supplements group health coverage by providing additional categories of benefits can be characterized as supplemental excepted benefits. According the FAQ, the departments have become aware of health insurance issuers selling supplemental products that provide a single benefit and that this type of coverage is being characterized as an excepted benefit.
As explained in the FAQ, most provisions of ERISA, the tax code and the Public Health Service Act do not apply to excepted benefits, as defined under those laws. One category of excepted benefits is supplemental excepted benefits, if they are provided under a separate policy, certificate, or contract of insurance and are either: Medicare supplemental health insurance (also known as Medigap), TriCare supplemental programs, or “similar” supplemental coverage provided to coverage under a group health plan. Regulations provide that similar supplemental coverage “must be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles.” In addition to these requirements, prior guidance set forth additional criteria for determining whether supplemental coverage is similar to Medigap or TriCare and therefore qualifies as an excepted benefit.
According to the FAQ, the agencies intend to propose regulations clarifying the circumstances under which supplemental insurance products that do not fill in cost-sharing under the primary plan are considered to be specifically designed to fill gaps in primary coverage. Specifically, the agencies intend to propose that coverage of additional categories of coverage would be considered to be designed to “fill in the gaps” of the primary coverage only if the benefits covered by the supplemental insurance product are not an essential health benefit (EHB) in the state where it is being marketed. If any benefit in the coverage is an EHB in the State where it is marketed, the insurance coverage would not be an excepted benefit.
The FAQ also sets out circumstance under which the agencies will not initiate an enforcement action pending publication and finalization of proposed regulations.For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.