Darcy L. Hitesman, Esq.
Darcy’s Input
763-503-6620
www.HitesmanLaw.com
Friday, September 20, 2013
• Employer Penalty
• Individual Premiums
IRS Circular 230 Disclosure: To insure compliance with Treasury Regulations, we are required to inform you that any tax advice contained in this communication (including any attachments) was not intended or
written by us to be used, and may not be used by you or anyone else, for the purpose of: (i) avoiding penalties imposed by the Internal Revenue Code; or (ii) promoting, marketing, or recommending to another
party any tax-related matter addressed in this communication.
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Employer Penalties
At issue when you do not do something you are
supposed to or where you do not do something the
way you are supposed to.
• Look at the requirement – what is the penalty?
• Keep in mind that some requirements have been
delayed
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Large employer Play or Pay
Reporting under Sections 6055, 6056
Nondiscrimination testing for fully insured
Automatic enrollment
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Employer Penalties
• If the requirement has been delayed, the
penalty is effectively delayed too
• If the requirement has not been delayed, the
penalty may or may not be delayed
– SBC penalty – transitional relief extended
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What about a requirement that does
not have a penalty?
• Exchange (Marketplace) Notification
• DOL statement Sept. 11, 2013 – no penalty
Caution: Consider all possible sources. No penalty in one
area does not necessarily mean no penalty or law suit
possible from other areas.
Additional Thought: HCR elements have been included in
DOL Audit letters.
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Excise Tax
• In general, non-compliance triggers a $100 per
day, per person penalty.
• Self-reported on Form 8928
• Special rule -- “reasonable cause and not willful
neglect”
• No tax liability if:
– Did not know or exercising reasonable diligence would
have known; or
– Corrected within 30 days after knew or reasonably
should have known
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Requirements That Could
Result in Penalty
• Coverage requirements
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No annual or lifetime maximum
First dollar preventive care
Claims and appeals procedures
Clinical trials
Maximum 90 day waiting period
Rescission
Deductibles/out-of-pocket
• Effective date – varies based on requirement
– First dollar preventive care
– Maximum 90 day waiting period
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Individual Premiums-HRAs
• Impact on HRAs that pay premiums “plus" or just premiums
• Need to be an HRA excepted from the coverage mandates or amend to be
an HRA excepted from the coverage mandates
• HRA by definition has an annual maximum – the account balance
• Subject to no annual limit, preventive care first dollar unless fits within
excepted HRA category
– Integrated
– Retiree only
– Limited scope
Important Note: Section 106 (c)(2) health FSA not applicable because only
intended to reach health FSAs offered through cafeteria plan; no independent
existence
• Cannot have an HRA that pays individual premiums for active employees
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Individual Premiums – Cafeteria Plan
• Impact on Section 125 plans with individual premium
payment feature
Observation: Guidance could have been more clear in this area.
• Look at the environment
– Have proposed cafeteria plan regulations
– HCR amendment to 125 specifically providing no exchange
individual polices can be paid pre-tax (not qualified
benefit)
How hard would it have been?
Question: Can individual premiums (for other than excepted coverage) be
paid pre-tax through a cafeteria plan?
Answer: No.
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Individual Premiums – Cafeteria Plan
• The guidance did not do that -- what does that
mean?
– Intended to still leave pre-tax payment of nonexchange individual policies as a possibility?
– Intended to completely foreclose pre-tax payment
(in which case, they could have done a better
job)?
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Individual Premiums – Cafeteria Plan
• Meaning of “employer payment plan”
– What is it?
– Does it include the individual premium payment feature of
a cafeteria plan? If yes, why not just say so?
Observation: Guidance refers to coverage paid through a Section 125 plan
as part of a list that includes employer payment plan; suggests are
different rather than one in the same.
– Does it include employer contributions allocated to the
individual premium payment feature of a cafeteria plan
but still permit employee salary reduction? If yes, why not
just say so?
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Individual Premiums – Cafeteria Plan
• What is a “group health plan” for purposes of
the HCR coverage requirements?
– A group health plan under Section 106 of the
Code?
– A group health plan under ERISA?
– Could you be a group health plan under the Code
but not under ERISA?
Observation: Guidance suggests ERISA voluntary safe harbor still available.
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Individual Premiums – Cafeteria Plan
• Can individual premiums for exchange coverage
be paid with after tax dollars through a cafeteria
plan? [If paid after tax, then arguably does not
need to be a qualified benefit?]
• Can individual premiums for non-exchange
coverage be paid with after tax dollars through a
cafeteria plan? [Clearly not within the Section
125 amendment]
– Can it reach employer contributions?
– Does it just reach employer contributions?
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Conservative Approach
• “Adjust” the individual premium payment
feature
– No exchange individual policies
– No outside exchange individual policies other than
excepted coverage
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Less Conservative Approach
• Adjust individual premium payment feature
– No exchange individual policies
– Individual policies other than exchange individual
policies can continue to be paid pre-tax
• Check administrative services agreement
language
• Disclaimer on all communications – not
providing legal or tax advice
• Plan B: be prepared to flip the switch
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Questions
• Submit questions to:
– Mike Melnychuk
• Mike.Melnychuk@HRsimplified.com
– Darcy Hitesman
• Darcy@HitesmanLaw.com
– Larry Grudzien
Visit the Hitesman website to
register to receive our
informational Client Alerts!
www.HitesmanLaw.com
• larry@larrygrudzien.com
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