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New IRS Memo Confirms Tax Treatment of Wellness Programs & Incentives

June 14, 2016


In a recently released IRS Chief Counsel Memo, the IRS confirmed that wellness incentives are generally taxable. The memo also, indirectly, confirmed the tax treatment of wellness programs more generally.

As to the incentives, the IRS held that a cash payment to employees for participating in a wellness program is taxable to the employees. The memo did not deal with incentives paid to dependents, but we presume those would be taxable to the applicable employee as well.  The IRS did say that certain in-kind fringe benefits (like a tee shirt) might be so de minimis as to be exempt as fringe benefits.  Confirming the IRS’s long-standing position, however, cash does not qualify for this exception and is taxable.

This tax treatment also applies to premium reimbursements if the premiums were paid for on a pre-tax basis through a cafeteria plan. Therefore, if employees who participate in a wellness program

New ACA, et. al. FAQs Cover Items From “Top” to “Bottom”

April 26, 2016


On April 20, the “Big Three” agencies (DOL, Treasury/IRS, and HHS) released another set of FAQs (the 31st, for those of you counting at home). Consistent with earlier FAQs, the new FAQs cover a broad range of items under the Affordable Care Act, Mental Health Parity and Addiction Equity Act, and Women’s Health Cancer Rights Act. The authors are admittedly curious about how “Frequently” some of these questions are really asked, but we will deal with all of them in brief form below.

1. Bowel Preparation Medication – For those getting a colonoscopy, there is good news. (No, you still have to go.) But the ACA FAQs now say that medications prescribed by your doctor to get you ready for the procedure should be covered by your plan without cost sharing. Plans that were not already covering these at the first dollar will need to start.

2. Contraceptives – As a reminder, plans are

The Force Awakens on 2016

January 4, 2016


The Force Awakens on 2016

January 4, 2016

Authored by: Carrie Byrnes

The ball dropped on 2016, but don’t drop the ball on your benefit plan compliance.  As part of our annual tradition, we’re pleased to present this year’s Top Ten New Year’s Countdown for the reading pleasure of our fellow ERISA geeks.  You may remember last year’s Top Ten list was set to Pop Culture themes that dominated 2014?  Well, we’ve decided to embrace the Star Wars fever that currently has a firm grip on our society and devote our entire list to Star Wars’-themed tips.  Get your lightsabers ready…

  • This epic space opera list starts just where you’d expect it:  A long time ago in a galaxy far, far away (called Congress)…there was born a law called the Patient Protection and Affordable Care Act. The law made it through infancy and even toddlerhood…but then it required reporting of a kind never seen before.  If you’re reading this article, you likely
  • 2016 Qualified Plan Limits

    October 28, 2015


    2016 Qualified Plan Limits

    October 28, 2015

    Authored by: Lisa Van Fleet

    They’re here—the 2016 IRS plan limitations-but they’re not new. Because the change in the cost-of-living index doesn’t trigger an adjustment, the qualified plan limits identified here do not change in 2016. See the chart below to see the 2016 limits as well as a summary of the limits over the preceding three years. Note that certain other limitations do change for 2016 (e.g. certain IRA limits), but not the qualified plan limits reported here.

    Type of Limitation 2016 2015 2014 2013 Elective Deferrals (401(k), 403(b), 457(b)(2) and 457(c)(1)) $18,000 $18,000 $17,500 $17,500 Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans (457(b)(3) and 402(g) provide separate catch-up rules to be considered as appropriate) $6,000 $6,000 $5,500 $5,500 SIMPLE 401(k) or regular SIMPLE plans, Catch-Up Deferrals $3,000 $3,000 $2,500 $2,500 415 limit for Defined Benefit Plans $210,000 $210,000 $210,000 $205,000 415 limit for Defined Contribution Plans $53,000 $53,000 $52,000 $51,000

    A Small PACE in the Right Direction

    October 22, 2015


    A Small PACE in the Right Direction

    October 22, 2015

    Authored by: Brian Berglund

    Overview. On October 8, 2015, President Obama signed the Protecting Affordable Coverage for Employees Act (“PACE”). As originally enacted, the Affordable Care Act (“ACA”) included a provision which, beginning in 2016, would have expanded the universe of employers considered “small employers” to include those employers with 51 to 100 employees. PACE eliminates this provision and instead leaves each state with the option of defining a small employer as an employer with up to 100 employees. As a result, the existing ACA definition of “small employer”, which currently includes only groups with 50 or fewer employees, will remain in effect after 2015, except in those states that choose to expand the definition.

    Staying in the large group market is significant for employers with 51-100 employees because several ACA requirements apply in the small group market that do not apply in the large group market. These small group requirements

    Don’t Be Confused – 9.56% may still just be 9.5% for you

    February 13, 2015


    In prior posts, we have described how coverage has to be “affordable” to avoid the ACA play or pay penalty. We’ve usually used the shorthand that the premium must be no more than 9.5% of an employee’s household income. However, that 9.5% is subject to periodic adjustments designed to approximate the difference between the growth in insurance premium costs and income. For 2015, that percentage has been adjusted to 9.56%.

    However, there’s a catch here: the percentage applies to actual household income, which is something an employer is very unlikely to know. Recognizing this, the IRS has provided some safe harbors based on information more readily available to an employer. Those are the W-2, rate of pay, and Federal Poverty Line safe harbors.   Without describing all the details, the general rule is that if the premium for an employer’s coverage is less than 9.5% of the employee’s

    Anthem Data Breach Implications for Employers

    February 5, 2015


    As has now been widely reported, Anthem, Inc. was the unfortunate target of a cyber-attack potentially impacting 80 million current and former customers. Some reports have indicated that the HIPAA breach notification rules will not apply to this breach. However, the information stolen appears to include individually identifiable information, potentially including health plan enrollment information. Enrollment information, in the hands of a health plan, is protected health information (PHI), so it is possible that the HIPAA data breach notification rules are applicable. As such, both insured and self-funded customers utilizing Anthem as their TPA should review information concerning the Anthem breach carefully before concluding that the HIPAA breach notification rules do not apply.

    Additionally, given that claims for other Blue Cross Blue Shield customers may have been submitted through Anthem for employees and dependents in an Anthem service area, it is possible that Anthem has information on individuals

    Reimbursing Employees for Individual Health Insurance Policies Subjects Employers to Hefty Excise Taxes

    December 4, 2014


    What, you may ask? That’s right. It no longer works to reimburse employees for the purchase of an individual health insurance policy. I know, many of you have always done this. Well, not any longer under guidance issued under the Affordable Care Act (ACA). Beginning with an IRS Notice issued in September 2013 and most recently in November 2014 DOL FAQs, the federal government has made it clear that this practice does not work under the ACA. While it flew under the radar for some, this rule became effective in 2014.


    Why, you may ask? When an employer reimburses an employee for an individual health insurance premium, or pays the premium directly to the insurer, it has (perhaps inadvertently) established a “group health plan” which is subject to the so-called Public Health Service Act mandates of ACA.

    HIPAA Audits Are Coming (Again) – Are You Ready?

    July 3, 2014


    The Office of Civil Rights (“OCR”) of the U.S. Department of Health and Human Services (“HHS”) is required to conduct periodic audits of compliance with the Privacy, Security and Breach Notification Rules under the Health Insurance Portability and Accountability Act (“HIPAA”).

    In Phase I, which closed on December 31, 2012, OCR conducted 115 performance audits.  Now, OCR is preparing for Phase II.

    To have a broad range of covered entities audited in Phase II, OCR is sending electronic pre-audit surveys to 550-800 eligible entities this summer. The pre-audit surveys are designed to ascertain the size, location, services and best contact information of the covered entities.

    OCR is expected to select 350 covered entities for audit (232 health care providers, 109 health plans and 9 health care clearinghouses).  Audit notifications and request letters will be mailed to selected covered entities in the fall of 2015.

    The Phase II audits will

    For ACA, Don’t Stop At Your Benefits Plans: Remember To Check Your Handbook

    June 3, 2014


    Employers have been diligently working on revisions to their benefits plans and summary plan descriptions to comply with the requirements of the Affordable Care Act.  After those revisions are in place, it is critical to remember an additional step:  Make sure that applicable employee handbook language is also revised to reflect these changes.

    Generally, it is best to keep any discussions of benefits to a minimum in employee handbooks, so as to avoid confusion and the potential for conflict with plan documents and summary plan descriptions.  However, employers usually desire to include some benefits-related information in their handbooks, if only to point employees in the right direction for obtaining additional information.

    Thus, if your handbook contains benefits-related information, you should consider reviewing that information and make any necessary revisions so that the information is both consistent with the Affordable Care Act and consistent with your plans and other communications.

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