December 16, 2015
- ‘Omnibus’ Spending Deal Includes Two-Year ‘Cadillac Tax’ Delay
- Tax ‘Extenders’ Package Unveiled with Some Benefits Provisions
- Treasury Department, IRS Release Guidance on Range of ACA Issues
- PBGC Releases 2016 Premium Filing Instructions
‘Omnibus’ Spending Deal Includes Two-Year ‘Cadillac Tax’ Delay
Late on December 15, congressional leaders unveiled a year-end “omnibus” spending package that includes a two-year delay of the 40 percent “Cadillac Tax”. The Council issued an Action Alert on December 16 asking members to contact their lawmakers and emphasize the harmful effect the tax would have on business.
The “Cadillac Tax” is a non-deductible excise tax, enacted as part of the Affordable Care Act (ACA), that applies to the cost of employer-sponsored health coverage exceeding certain limits – $10,200 (self-only coverage) and $27,500 (family coverage) starting in 2018.
The omnibus spending bill would:
- make the tax effective in 2020 rather than 2018. Notably, the starting thresholds in 2020 would be what they would be with indexation from 2018, even if the tax were not delayed. This would ensure that thresholds in 2020 would not be $10,200/$27,500.
- make the tax deductible for employers, which would significantly reduce the cost burden on employers paying the tax.
- commission a study by the U.S. Comptroller General on possible adjustments to the current benchmark for claims data to better reflect the age and gender characteristics of the national workforce. (The Council recommended such adjustments in its October 1 letter to the Internal Revenue Service.)
The Joint Committee on Taxation estimates that the omnibus measure will cost $57.6 billion over ten years, of which nearly $20 billion is attributable to the changes to the “Cadillac Tax.” The measure is not paid for with revenue offsets.
Along with delay of (and changes to) the “Cadillac Tax,” the measure also provides a one-year delay of a separate annual tax on health insurers. Additionally, the package of tax extenders to expiring tax provisions includes a two-year delay of the medical device tax (see related story from December 16).
The Council continues to pursue full repeal of the “Cadillac Tax” – both as part of our own advocacy strategy and as the organizer of the Alliance to Fight the 40 coalition. But in the absence of immediate action on repeal we have expressed support for delay as a helpful step toward ultimately achieving full repeal.
The Council has been working very closely with both Republican and Democratic leadership offices in the Senate and House of Representatives, as well as with the bipartisan leaders of both tax-writing committees in Congress. Additionally, the Council sent letters to all U.S. House of Representatives and Senate offices on December 16, as well as a news release, commending the inclusion of the two year delay in the omnibus package and urging lawmakers to support the delay as a first step toward ultimate repeal of the tax.
Delaying the tax is likely to reduce the cost of its repeal, since it will remove two years’ worth of projected revenue from the traditional ten-year budget window. Full repeal of the tax continues to be a high priority for the Council in 2016.
The omnibus spending package did not include any provisions related to the U.S. Department of Labor’s fiduciary rule project, as we speculated in the December 11 Benefits Byte.
The House is scheduled to vote on the measure on December 18, with the Senate to follow. President Obama, who has been forceful in his defense of the Cadillac Tax, has not issued a veto threat. For more information on the 40 percent tax and the Council’s repeal efforts, contact Katy Spangler, senior vice president, health policy. For more information on the fiduciary rule project, contact Lynn Dudley. Both may be reached at (202) 289-6700.
Tax ‘Extenders’ Package Unveiled with Some Benefits Provisions
In tandem with the year-end “omnibus” spending package (see related story) released on December 16, leaders of the U.S. Senate and House of Representatives tax-writing committees unveiled legislation to extend or make permanent certain expiring tax provisions (commonly known as a tax “extenders” bill)
The 2015 tax extenders bill, developed by Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Democrat Ron Wyden (D-OR), along with House Ways and Means Committee Chairman Kevin Brady (R-TX), includes a number of provisions related to employer-sponsored benefits. The bill would:
- Make permanent the mass transit benefit parity originally enacted as part of the American Taxpayer Relief Act of 2012 (H.R. 8), which provided for an increase in the pre-tax allowance for mass transit expenses, making it equal to the benefit provided for parking ($245 per month). [Section 105]
- Make permanent the longstanding provision allowing taxpayers age 70.5 and older to make a tax-free distribution from an individual retirement account (IRA) of up to $100,000 to a 501(c)(3) organization and simultaneously satisfy the minimum required distribution rules. [Section 112]
- Allow an individual to roll over amounts from an employer-sponsored retirement plan (such as a 401(k) plan) to a SIMPLE IRA, provided the plan has existed for at least two years. The provision applies to contributions made after the date of enactment. [Section 306]
- Change the treatment of church retirement plans, including preventing the IRS from aggregating certain church plans together for purposes of the non-discrimination rules, which prevent highly compensated participants from receiving disproportionate benefits under the plan. The provision also provides flexibility for church plans to decide which other church plans they choose to associate with, prevents certain grandfathered church defined-benefit plans from having to meet certain requirements relating to maximum benefit accruals, allows church plans to offer auto-enroll accounts similar to 401(k)s, makes it easier for church plans to engage in certain reorganizations and allows church plans to invest in collective trusts. [Section 336]
- Require forms W-2, W-3, and returns or statements to report non-employee compensation (e.g., Form 1099-MISC), to be filed on or before January 31 of the year following the calendar year to which such returns relate. The provision would also provide additional time for the IRS to review refund claims based on the earned income tax credit and the refundable portion of the child tax credit. [Section 201]
- Extend for two years the above-the-line deduction for an individual’s qualified college tuition payments under Internal Revenue Code Section 222 (This is distinct from Code Section 127, which relates to employer-provided tuition assistance). [Section 153]
- Clarify the effective dates under which certain airline employees are allowed to contribute amounts received in certain bankruptcies to an IRA without being subject to the annual contribution limit. [Section 307]
- In addition, the tax extenders measure addresses a significant issue related to the Affordable Care Act. It provide for a two-year moratorium on the 2.3-percent excise tax imposed on the sale of medical devices. The tax will not apply to sales during calendar years 2016 and 2017. [Section 174]
The tax extenders measure, which is not paid for with revenue offsets, is projected by the Joint Committee on Taxation to cost $692 billion over ten years. An official section-by-section summary is also available. For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700.
Treasury Department, IRS Release Guidance on Range of ACA Issues
The Treasury Department and Internal Revenue Service (IRS) issued guidance late on December 16 addressing a broad range of outstanding issues with respect to the Affordable Care Act (ACA) that concern employer-sponsored coverage. The Council has advocated on several of these issues, including the treatment of employer flex credit contributions, “opt-out” payments and employer payments for fringe benefits made pursuant to the Service Contract Act. The guidance also discusses the definition of “hours of service” for purposes of determining status as a full-time employee for an individual receiving payments due to short or long-term diasbility.
Notice 2015-87 uses a question and answer (Q&A) format to clarify the application of various provisions to employer-provided health coverage:
- Questions 1 through 7 address the application of the market reforms that apply to group health plans under the ACA to various types of employer health care arrangements, such as health reimbursement arrangements (HRAs) (including HRAs integrated with a group health plan and similar employer-funded health care arrangements).
- Questions 8 and 9 clarify certain aspects of the employer shared responsibility provisions of Internal Revenue Code Section 4980H and their application to flex credits, opt-out payments, and Question 10 addreses fringe benefit payments required under the McNamara-O’Hara Service Contract Act (SCA) or other similar laws.
- Question 12 addresses the application of the adjusted 9.5 percent affordability threshold under Internal Revenue Code Section 36B to the safe harbor provisions under Section 4980H.
- Question 14 clarifies several issues related to crediting “hours of service” for an individual who is not performing services but is receiving payments for purposes of determining full-time employee status under section 4980H, including that a 501 hour limit may not be applied.
- Questions 21 and 22 discuss the application of the COBRA continuation coverage rules to unused amounts in a health flexible spending arrangement (health FSA) carried over and available in later years and conditions that may be put on the use of carryover amounts.
- Question 26 reiterates relief from penalties under Code Sections 6721 and 6722 that has been provided for employers that make a good faith effort to comply with the requirements under Code Section 6056 to report information about offers made in calendar year 2015.
The Treasury Department and IRS also issued final regulations on the calculation of “minimum value” of an eligible employer-sponsored plan and other rules regarding the health insurance premium tax credit under Section 36B. Under the ACA, an employer-sponsored plan fails to offer minimum value if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs. The ACA also provides that employees may be eligible for premium tax credits even if offered employment-based coverage (which could result in an employer’s liability for an assessable payment) if that coverage is “unaffordable.” Unaffordability is generally defined as costing an employee more than 9.5 percent of household income.
The Council will provide additional analysis in a future Benefits Byte. For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.
PBGC Releases 2016 Premium Filing Instructions
The Pension Benefit Guaranty Corporation (PBGC) released 2016 Comprehensive Premium Filing Instructions on December 15. These instructions include the illustrative form and set forth the due dates, counting methodology and other requirements for defined benefit plan sponsors.
As we reported in the October 28 Benefits Byte, Congress offset some of the cost of the Bipartisan Budget Act (H.R. 1314) with more than $4 billion in increased insurance premiums paid to the PBGC by employers who sponsor defined benefit pension plans. The 2016 instructions reflect these changes.
Although e-filing of premium information through the My Plan Administration Account (My PAA) application is mandatory, premium payments may be made either within My PAA or outside of My PAA. For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.