Employee Benefits

Presented by:

Danielle Capilla, Director of Compliance, Employee Benefits, Alera Group

Common Compliance Mishaps in 2019

Danielle CapillaDirector of Compliance, Employee Benefits, Alera Group

About the Presenter:

Danielle is the Director of Compliance for Alera’s Employee Benefits division. She previously served as the Senior Vice President of Compliance and Operations and Chief Compliance officer at United Benefit Advisors (UBA). Additionally, she served as an Adjunct Professor at DePaul University. She worked as a Senior Writer Analyst at Wolters Kluwer and as a Law Clerk at Clifford Law Offices.

Danielle graduated with a B.A. in Sociology, History, and Business at Tulane University. She earned her JD in Health Law from DePaul University College of Law.

Common Compliance Mishaps in 2019Danielle Capilla, JD

2019

AgendaTexas v. United States: Again?

Are you forgetting imputed income?

FSAs versus HSAs: Helping Employees

Understand

NOTES:

Danielle CapillaAlera Group

Director of Compliance, Employee Benefits

JD: DePaul University College of Law

Health Law Certification: DePaul University College of Law

BA: Tulane University (Sociology, History, Business)

Associate Professor: DePaul University College of Law (Health Care Compliance)

Texas v. United States

Lawsuit over the constitutionality of the individual mandate & the entire ACA

A group of 20 Republican state attorneys general and governors, later joined by two individuals, brought the lawsuit in February 2018 after Congress brought the individual mandate penalty to $0 in the 2017 tax reform bill.They argue that without the individual mandate, the entire ACA should be struck down 17 Democratic state attorney generals intervened in 2018 to defend the ACAThe DOJ did not to defend the constitutionality of the mandate and noted its belief that certain additional provisions of the ACA could not be severed from the mandate.

Texas v. United States

In December 2018 the Northern District of Texas ruled that the entire ACA was invalid, and then reaffirmed the decision, which was then appealed to the 5th Circuit. Maine & Wisconsin have withdrawn as plaintiffs, and 4 states have joined the defenseThe DOJ filed a letter with the 5th

Circuit stating it fully agrees with the district court that the entire ACA should be invalidatedMany of the DOJs attorneys on this case have resigned/left the DOJ during these proceedings

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Texas v United States

Oral Arguments at the 5th Circuit are set for July Always a likelihood that this goes to the Supreme CourtMost legal scholars believe the law will be upheld

- Current Supreme Court structure makes an ACA victory far from certain, however, as a general trend, many laws are found to be severable from portions that are invalidated or struck down

• If the case goes to the Supreme Court, the earliest decision would come in May or June of 2020

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Imputed Income

Imputed Income

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Domestic Partners

Certain Life Insurance Premiums

NOTES:

Domestic PartnersA domestic partner is not the same as a “spouse.” A spouse is a same or opposite sex individual who is legally married to an employee. A domestic partner is an unmarried individual (same or opposite sex) who is partners with an employee. In employee benefit rules, an individual in a civil union who is not married is a domestic partner. Some states have an official license or registration process for domestic partners. Some states do not.

If a domestic partner is not an employee’s tax dependent under Code 105(b), the employee will owe imputed income on the value of the domestic partner’s coverage.

If Sam elects coverage for themselves and their domestic partner, the $450 that the employer pays towards the employee’s coverage has no impact on Sam’s paycheck. Sam must pay imputed income on the value of the coverage their domestic partner receives. That would be calculated by multiplying the employee only COBRA premium by 12, which represents the fair market value of the coverage provided to the domestic partner. If Sam elected to pay $150 of the premium with post-tax dollars, that would be subtracted from the imputed income total, so ($500-$150) x12.

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Domestic Partners

Monthly Premium Total Cost Employee Pays Employer Pays Employee Only $500 $50 $450 Employee + Spouse or Domestic Partner

$1200 $200 $1000

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Domestic Partners

Employees are unable to spend money from account-based plans on their domesticpartner, unless their domestic partner is a tax dependent. Below are the individualswho can have their eligible medical expenses reimbursed by an FSA, an HRA, and anHSA.

FSA HRA HSAThe eligible medical expensesof the employee, spouse,children under age 27 (at theend of the year) and taxdependents

The eligible medical expenses ofthe employee, spouse, childrenunder age 27 (at the end of theyear) and tax dependents

The eligible medical expenses ofthe employee, spouse, and taxdependents as defined by IRSCode Sec. 223(d)(2)(A)

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Group Term LifeEmployees can exclude the cost of up to $50,000 of employer-provided GTL from income for coverage on the employee’s life

Employers who allow employees to elect employer paid GTL over $50,000 (example: 1x or 2x salary elections) must impute income & withhold FICA taxes

Income is imputed based on the Table I rates (age bracket and cost per $1,000 protection/per month)

Employee Pays No PremiumTyler is 42 years old. Tyler has $70,000 of excess coverage ($120,000 - $50,000 = $70,000). To calculate Tyler’s imputed income, multiply 70 (the number of $1,000 units) by $0.10 (from Table I) by 12 (the number of months of coverage). Tyler’s imputed income is $84 for the year.

Employee Pays Premium Post-TaxTo calculate the Tyler’s imputed income, do the same calculations as in Example 1, then subtract the employee's after-tax contributions for the 12 months (12 × $3 = $36). The imputed income is $48 ($84 minus $36)Employee Pays Premium Pre-TaxTyler has $70,000 of excess coverage. As in Example 1, the imputed income is equal to the Table I cost for the $70,000 of coverage ($84), because no offset is allowed for pre-tax salary reduction contributions.

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Examples

FSAs v HSAs

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Employee Education is Key

Employee education by employers on the key terms of their account based plan is critical

Even if you only offer one type of plan (FSA or HSA)

Most individuals don’t understand the nuances

“I lost so much money on that last time…”

• Who can participate? • Any employee who is eligible to participate in the group medical plan sponsored by the

employer

• May an employee contribute? • Yes, up to the lesser of $2700 or the max set by the plan (carry over doesn’t count

toward the cap)

• May an employer contribute? • Yes, the greater of:• Up to 1x the employee’s contribution • $500

• What can it reimburse? – Only section 213 medical expenses

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FSAs

• Whose expenses? • Employee• Spouse• Children under age 27• Tax dependents

• HIPAA privacy rules apply• ERISA applies • Does not qualify as MEC, cannot count towards MV or affordability • No Medicare Part D Notice

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FSAs

NOTES:

• May unused contributions be carried forward? • No, unless the plan allows a carryover of up to $500. Alternatively the plan can have a

2.5 month grace period

• Are a plan document and an SPD required? YES• Which nondiscrimination rules apply? Section 125 and Section 105 rules • Can contributions be changed mid-year?

• No, unless it is allowed under section 125 rules. Only a limited number of change in status events permit a change in FSA contributions.

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FSAs

• Who can participate? • Any employee who is enrolled in qualifying HDHP, is not covered by other coverage,

and is not covered by Medicare or SS benefits due to age, is not claimed as a tax dependent

• May an employee contribute? • Yes, up to $3450 for single coverage, up to $6900 for other-than-single coverage

• May an employer contribute? • Yes up to the max (EE and ER contributions combined cannot exceed max)

• What can it reimburse? – Only section 213 medical expenses. If used for non-213 expenses, a 20% excise tax + income tax applies

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HSAs

• Whose expenses? • Employee• Spouse• Tax dependents

• HIPAA privacy rules do not apply to the account• Does not qualify as MEC, cannot count towards affordability, contributions

apply towards minimum value • No Medicare Part D Notice

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HSAs

NOTES:

• May unused contributions be carried forward? • Yes, HSA contributions belong to the account holder and cannot be recouped or

forfeited

• Are a plan document and an SPD required? NO• Which nondiscrimination rules apply? Section 125 or Comparable

Contribution Rules• Can contributions be changed mid-year?

• Yes, employees can change their contributions at any point

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HSAs

Questions?

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