Benefit Limitations Remain Unchanged from 2009 to 2011

If you were hoping to be able to sock away more money into your 401(K) Plan in 2011 than you did in 2011, fuggedaboutit! The maximum elective deferrals for 2011 remains the same as it was for 2009 and 2010 — $16,500. The catch-up contribution limitation for those who are at least age 50 during 2011 is also unchanged at $5,500. The annual limit on compensation remains at $245,000, the defined contribution limit on contributions remains at $49,000 and the maximum benefit payable from a defined benefit remains at the lesser of 100% of compensation or $195,000.

Congress established the method by which the IRS determines the inflation adjusted annual benefit plan limitations. However, it seems like bad public policy to limit amounts that will be payable to employees upon retirement by the current cost of living increases, especially when the stock market is performing sluggishly.

Look for the complete listing of the adjustments to the benefit limitations when we publish our 2011 Benefits Update Card, a link to which will be posted on this blog.

*This post was written by Timothy J. Snyder, Esq.  Tim is the Chair of Young Conaway’s Tax, Trusts and Estates, and Employee Benefits Sections.

IRS Delays Requirement to Report Cost of Group Health Coverage*

The provisions of the Affordable Care Act of 2010 (the “ACA”) that require employers to report the aggregate cost of employer-sponsored health-care coverage on 2011 Forms W-2 will be optional and not mandatory. According to the IRS, this interim relief is being provided to allow employers to make necessary changes to their payroll systems. The IRS has also announced that it anticipates issuing guidance on this reporting requirement prior to the end of 2010. The ACA requires the “aggregate cost” is to be determined under rules similar to the rules for determining the “applicable premium” under COBRA. The aggregate cost will include the portions of the cost paid by both the employer and the employee.

Notice 2010-69

*This post was written by Timothy J. Snyder, Esq.  Tim is the Chair of Young Conaway’s Tax, Trusts and Estates, and Employee Benefits Sections.  His primary area of practice is employee benefits, which involves both the benefit provisions of provisions of the Internal Revenue Service and ERISA.  He represents businesses and professionals in establishing, monitoring, and administering employee-benefit plans, new comparability retirement plans, non-qualified deferred-compensation plans, health, disability and life benefits, COBRA, HIPAA, ADA and ADEA.

Employers Must Play or Pay Under Health-Care Reform

Health care reform is now law and many of the so called “insurance market reforms” go into effect for most employers on January 1, 2011. However, the portion of the law that will require certain large employers to offer and contribute to employees’ health insurance or pay a penalty are deferred until 2014.Health care symbol

Under the law, effective January 1, 2014, each Applicable Large Employer must offer minimum essential coverage to its full-time employees (and their dependents) or it will be required to pay a penalty for each month that any of its full-time employees purchases health insurance through a state health insurance exchange (“Exchange”) and receives a tax credit or cost-sharing reduction (generally granted to individuals based on income levels).

An Applicable Large Employer is one that employed an average of at least 50 full-time employees during the preceding calendar year. A full-time employee is one who for any month works an average of at least 30 hours or more each week is counted as one employee and those employees who work less than 30 hours per week are counted as proportionate employees based on 30 hours per week. An Applicable Large Employer will be subject to the penalty only if the employer has any full-time employees who are certified as having purchased health insurance through an Exchange and received a tax credit or cost-sharing reduction.

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Health FSA Uniform Coverage Rule Precludes Recoupment

In 1989, when the Internal Revenue Service wrote the first proposed regulations for health flexible spending accounts (“FSAs”), it came up with the requirement that health FSAs must exhibit the “risk-shifting and risk-distribution characteristics of insurance”. This concept has been translated into of the “uniform coverage” rule.

The uniform-coverage rule requires that the maximum amount of an employee’s elective contributions to a health FSA must be available from the first day of the plan year to reimburse the employee’s qualified medical expenses. This means that if an employee elects to contribute to the health FSA $100 per month for the year, the employee must be reimbursed for qualified medical expenses up to the full $1,200 from the first day of the year, regardless of the amount actually contributed to the plan at the time that reimbursement is sought.

Under the uniform-coverage rule, an employee can potentially terminate employment having been reimbursed under the health FSA for more than she contributed up to the time of her termination. This rule has caused most employers to limit the amounts that employees can contribute to a health FSA, even though, prior to the effective date of provisions in the recent healthcare reform legislation ($2,500 annual cap after 2012), there is no statutory limit on contributions to health FSAs.

On March 26, 2010, the IRS released Chief Counsel Advice No. 201012060 (pdf), in which the Chief Counsel concluded that, if an employee’s reimbursements from a health FSA exceed her contributions to the health FSA at the time of the termination of her employment, the employer cannot recoup the difference from the employee. Neither the previous proposed regulations nor the current proposed regulations regarding health FSAs (Prop. Treas. Reg. § 1.125-5(d)(1) (pdf)) stated explicitly that such recoupment is not permitted. This has always been known by practitioners to be the rule, much to the chagrin of our clients. Any attempt at recoupment of this sort will remove the risk shifting/risk distribution and result in the loss of favorable tax status for the benefits paid under the health FSA.

 

 

*This post was written by Timothy J. Snyder, Esq.  Tim is the Chair of Young Conaway’s Tax, Trusts and Estates, and Employee Benefits Sections.  His primary area of practice is employee benefits, which involves both the benefit provisions of provisions of the Internal Revenue Service and ERISA.  He represents business and professionals in establishing, monitoring, and administering employee-benefit plans, new comparability retirement plans, non-qualified deferred-compensation plans, health, disability and life benefits, COBRA, HIPAA, ADA and ADEA.

FLSA Now Requires Breastfeeding Breaks and a Place to Take Them

The Patient Protection and Affordable Care Act signed last week by President Obama will affect employers in numerous ways, many of which have not yet been explored in detail, owing to the newness of the law.  One provision of the law that is certain to have a very real impact on employers across the country but that we have heard virtually nothing about is Section 4207.  Section 4207, titled, Reasonable Break Time for Nursing Mothers amends the Fair Labor Standards Act (“FLSA”).  Because it is born to the FLSA, its provisions apply to almost all employers-every employer engaged in interstate commerce of at least $500,000 per year, hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies. 

So, what does the new law require?  Quite a bit. The Act adds the following to Section 7 of the FLSA as a new subsection (r):

An employer shall provide:

(A) a reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth; and
(B) a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.

There are some exceptions to these requirements.

First, employers are not required to pay employees who take a breastfeeding break-unless, of course, there is a state law that says otherwise.  Second, an employer with less than 50 employees is exempt from the requirements if the requirements would “impose an undue hardship” by causing it “significant difficulty or expense” as compared to the employer’s size, resources, and the structure of its business. 

Is Your Qualified Plan (Adequately) Bonded?*

The IRS recently announced the results of two special audit programs it conducted. The first program involved audits of approximately 50 Form 5500 filings for defined contribution plans with asset values greater than $100,000 but less than $250,000. The second program audited 50 401(k) plans covering three to eight participants. Surprisingly (maybe not, given our experience), the most common error revealed by both projects was the failure to have the plan adequately bonded as required by ERISA section 412.

The amount of bond required by ERISA is 10% of the assets in the plan but not less than $1,000 and but not more than $500,000 ($1,000,000 for plans that hold employer securities). The bond must cover all persons, including fiduciaries, who handle funds or other property of an employee benefit plan. The purpose of the bond is to protect the employee benefit plan from risk of loss due to fraud or dishonesty on the part of persons who handle plan funds. The United States Department of Labor’s Field Assistance Bulletin No. 2008-04 discusses the bonding requirements in an FAQ format

Note that an ERISA fidelity bond, which is required, is not the same as fiduciary liability insurance, which is not required. Fiduciary liability insurance covers the fiduciaries of the employee benefit plan in the event of a breach their fiduciary duties, which may involve imprudence but may not rise to the level of fraud or dishonesty. If there is no bond available when a defalcation occurs, those responsible for obtaining the bond could be liable to the plan for its losses. An ERISA bond can usually be obtained through your property and casualty insurance broker.

 

*This post was written by guest blogger, Timothy J. Snyder, Esq.  Tim is the Chair of Young Conaway’s Tax, Trusts and Estates, and Employee Benefits Sections.  His primary area of practice is employee benefits, which involves both the benefit provisions of provisions of the Internal Revenue Service and ERISA.  He represents business and professionals in establishing, monitoring, and administering employee-benefit plans, new comparability retirement plans, non-qualified deferred-compensation plans, health, disability and life benefits, COBRA, HIPAA, ADA and ADEA.

COBRA Subsidy Is Extended*

The eligibility for the COBRA premium subsidy was about to expire for those individuals who are involuntarily terminated and become eligible for COBRA benefits after December 31, 2009.  However, on December 21, 2009, the President signed legislation that extends the eligibility for the subsidy to those individuals who are involuntarily terminated and become eligible for COBRA coverage before February 28, 2010. 

The legislation also extends from 9 months to 15 months the length of the subsidy period and the extension applies to those who became eligible for the subsidy after February, 2009, even if their initial nine months has already expired.  The extension is retroactive for those individuals who lost COBRA coverage because they stopped paying the premiums due to the expiration of their subsidy.  Thus, individuals who became eligible for the subsidy in March were subsidy eligible through November 30, 2009.  If such an individual did not pay his or her December, 2009 COBRA premium because the subsidy expired, the individual can re-enroll in COBRA and receive the subsidy for December, 2009 (without any gaps in coverage) and another 5 months until May, 2010.

The COBRA subsidy extension was attached to H.R. 3326, the Department of Defense appropriations bill for the fiscal year ending September 30, 2010 which passed by an overwhelming vote in the House of 395 to 35.  According to Rep. Charles Rangel, D-N.Y., chair of the House Ways and Means Committee, “This bill ensures that workers who have lost their jobs through no fault of their own will not lose the unemployment and health benefits they rely upon to provide for their families.  The immediate benefits and assistance provided in this bill help provide some measure of economic security for millions of our fellow Americans struggling during this holiday season, helping ease their pain as they search for their next job opportunity.”

More to come as details of the legislation emerge.

See also, ARRA COBRA Subsidy Information

*Written by guest author Timothy J. Snyder, Esq.  Tim is the Chair of Young Conaway’s Tax, Trusts and Estates, and Employee Benefits Sections.  His primary area of practice is employee benefits, which involves both the benefit provisions of provisions of the Internal Revenue Service and ERISA.  He represents business and professionals in establishing, monitoring, and administering employee-benefit plans, new comparability retirement plans, non-qualified deferred-compensation plans, health, disability and life benefits, COBRA, HIPAA, ADA and ADEA.