One of the following will be a fact when the sun sets on Sunday, February 7, 2016. Which one do you think it is?
1. The New York Jets will be NFL champions after dispatching the New York Giants in Super Bowl 50 in Santa Clara.
2. Your employees will have received Internal Revenue Service (IRS) Form 1095-C from you, which they need to complete their 2015 federal Form 1040 individual tax return.
3. Your employees will be completely knowledgeable about the information on Form 1095-C and will not confuse it with the 2015 Form W-2 you also sent them (perhaps in the same envelope).
If you picked 1, you are a wearing a Joe Namath jersey and have limited knowledge of football. If you picked 2, you are fine as long as they received it by February 1, 2016. If you picked 3, you still have enough time to make it happen if you start planning and working on it now.
Let’s review Form 1095-C, which provides employees eligible for employer-sponsored health insurance under the Patient Protection and Affordable Care Act (ACA) with information about their options, and why an Applicable Large Employer (ALE) such as your company needs to prepare it and distribute it to employees.
The ACA mandated that ALEs must provide evidence that 70% of your employees were offered minimum essential coverage (MEC) in an employer qualified health plan (QHP) during 2015. The QHP can be self-funded by you as the employer, or you could have fully insured the plan with a health insurance provider. This task is required under IRC Section 6056. Form 1095-C (along with the companion Form 1094-C, a cover sheet a reporting employer must send the IRS) is used in determining whether an employer owes a payment under the employer shared responsibility provisions of IRC Section 4980H.
This new administrative task comes with a complete new set of instructions from the IRS, and the ALE has the choice of preparing the form using its own human resources (HR) information system or hiring a third-party administrator to do so.
Milliman consultants had another prolific publishing year in 2014, with blog topics ranging from healthcare reform to HATFA. As 2014 comes to a close, we’ve highlighted Milliman’s top 20 blogs for 2014 based on total page views.
20. Mike Williams and Stephanie Noonan’s blog, “Four things employers should know when evaluating private health exchanges,” can help employers determine whether a PHE makes sense for them.
19. Kevin Skow discusses savings tools that can help employees prepare for retirement in his blog “Retirement readiness: How long will you live in retirement? Want to bet on it?”
18. The Benefits Alert entitled “Revised mortality assumptions issued for pension plans,” published by Milliman’s Employee Benefit Research Group, provides pension plan sponsors actuarial perspective on the Society of Actuaries’ revised mortality tables.
17. In her blog, “PBGC variable rate premium: Should plans make the switch?,” Milliman’s Maria Moliterno provides examples of how consultants can estimate variable rate premiums using either the standard premium funding target or the alternative premium funding target for 2014 and 2015 plan years.
16. Milliman’s infographic “The boomerang generation’s retirement planning” features 12 tips Millennials should consider when developing their retirement strategy.
15. “Young uninsureds ask, ‘Do I feel lucky?’” examines the dilemma young consumers face when deciding to purchase insurance on the health exchange or go uninsured.
14. Last year’s #1 blog, “Retiring early under ACA: An unexpected outcome for employers?,” is still going strong. The blog authored by Jeff Bradley discusses the impact that the Patient Protection and Affordable Care Act could have on early retirees.
13. Genny Sedgwick’s “Fee leveling in DC plans: Disclosure is just the beginning” blog also made our list for the second consecutive year. Genny explains how different fee assessment methodologies, when used with a strategy to normalize revenue sharing among participant accounts, can significantly modify the impact of plan fees in participant accounts.
12. Doug Conkel discusses how the Supreme Court’s decision to rule on Tibble vs. Edison may impact defined contribution plans in his blog “Tibble vs. Edison: What will it mean for plan sponsors and fiduciaries?”
11. In her blog “Retirement plan leakage and retirement readiness,” Kara Tedesco discusses some problems created by the outflow of retirement savings. She also provides perspective on how employers can help employees keep money in their plans.
Now that the U.S. Supreme Court has declared Section 3 of the Defense of Marriage Act (DOMA) unconstitutional, everyone seems to be an expert on what it means.
I will be the first to admit I am not a DOMA expert, but I am among those who want to prudently assess the guidance that federal agencies are required to publish, in order to comply with governance for employer compensation and benefit programs.
Here are some technical issues upon which I am speculating (note my formal admission of speculation) that we will need guidance:
Retroactive applicability of DOMA for FICA taxes on health benefits. If I am an employer with employees in any of the 13 states or the District of Columbia that permit same-sex marriages, do I have to refund 2013 Federal Insurance Contributions Act (FICA) taxes withheld on premiums my employee paid to cover his or her same-sex spouse under the company’s health insurance plan? What about FICA taxes withheld for tax years before 2013? Sounds like a lot of work if I have to do this.
Question: What will I have to do for the 37 states that have yet to recognize same-sex marriage?
Validation of marriages. Am I going to have to ask for evidence of a marriage certificate from employees with same-sex spouses if I have not been asking for evidence of marriage in the past? What if my employee(s) were married outside the United States?
DOMA and ACA. Although my employer-sponsored healthcare plan is likely to be superior to, and more tax-efficient than, the plans that will be offered on the state healthcare exchanges under the reforms associated with the Patient Protection and Affordable Care Act (ACA), do I have any obligation to tell my employees that by filing a joint federal tax return after they are married, they may forfeit any healthcare exchange premium tax credits they were anticipating because their joint modified adjusted gross income (MAGI) will increase?
I’ll be thinking about more of these issues from a practical standpoint as I await the required guidance from federal agencies. Meanwhile, I’ll just watch the Milliman Healthcare Town Hall countdown clock hurtle toward midnight on October 1, 2013.
According to gpoaccess.gov, federal tax expenditures on employer-sponsored healthcare plans are expected to be approximately $185 billion in federal fiscal year (FFY) 2012. That value represents forgone federal taxes on the medical insurance premiums paid by employers and medical benefit claims incurred by their employees in these plans. (There are corresponding multi-billion dollar federal tax expenditures for other types of employer-sponsored plans.)
Whether Congress will introduce legislation to explore reducing the favorable tax status of these employer plans as a new source of tax revenue for the federal government is speculation; but the idea should not be surprising in this age of our multi-trillion dollar federal deficit. (State governments could also follow suit.)
But let’s assume for the moment that Congress makes no attempt at eliminating the tax subsidy for employers (while we acknowledge that the impact of the 2014 exchanges is still quite uncertain) and employer-sponsored insurance (ESI) continues. There could still be an opportunity for newfound federal tax revenue that has yet to be considered, as follows.
Under the health reform law, employers will be required to report the annual “value” of employer healthcare benefits on Form W-2. Employees should see it on the tax year 2012 Form W-2 in January 2013. Congress could introduce legislation that would require this value to be taxed as ordinary personal income as part of the tax year 2012 Form 1040, permanently ending a genuine “tax-free” benefit. (Contrast this to the benefits paid from employer pension plans, which are “tax-deferred.”)
Let’s call this new taxable income the PPACA stealth income. It could result in a severe financial hardship for an employee, who would need to come up with enough money to pay for the additional tax liability generated by this “income.” Perhaps Congress could also view this value as taxable for Social Security taxes. U.S. taxpayers could wind up under-withheld for personal taxes and possibly fined for it. There are a myriad of other issues that could be listed, but would violate the spirit of a brief blog entry.
What do you think?