Healthcare and welfare benefits became increasingly important and complex, particularly because the Affordable Care Act (ACA) ushered in new regulations requiring guidance. We help you manage the entire spectrum of employee welfare benefits, including:
- Major medical plans that are either fully insured or self-insured
- Other health plans, such as dental, vision, prescription, medical expense reimbursement plans (MERPs) and health reimbursement arrangements (HRAs)
- Retiree health plans
- Cafeteria or flex plans, including health flexible spending arrangements (FSAs) and dependent care assistance programs (DCAPs)
- Group-term life insurance
- Disability benefits
If you want or need to fund benefits through the use of trusts that qualify either as taxable ERISA trusts, nontaxable voluntary employees’ beneficiary associations (VEBAs), or governmental Code section 115 trusts, we can help. We know how to get IRS and FTB tax exemptions for trusts that qualify as VEBAs and we have a deep understanding of the unrelated business taxable income (UBTI) rules for otherwise tax-exempt trusts.
When designed and executed correctly, cafeteria plans provide tax magic. They transform what would otherwise be taxable income for your employees into nontaxable benefits. We can build a cafeteria plan that allows your employees to:
- Pay for their share of their health insurance premiums with pre-tax salary reductions
- Set aside pre-tax funds for medical expense reimbursements through a health flexible spending arrangement (FSA)
- Set aside pre-tax funds for dependent care expenses
- Make pre-tax contributions to a health savings account (HSA), if eligible
- Pay disability insurance premiums on either a pre-tax or after-tax basis
- Receive cash in lieu of benefits (or opt-out payments) under certain conditions without being taxed if the employee does not elect to opt out
Dependent Care Assistance Programs
You may choose to provide a tax-favored dependent care assistance program (DCAP) for employees who have young children or disabled family members. Whether offered through a cafeteria plan or funded by the employer (or both), the plan needs to be well-designed and compliant with tax laws. We provide advice to employers and their other advisors on all aspects of DCAPs, including plan design, plan documents, compliance, reporting, plans in mergers and acquisitions, and plan termination. We also fully understand Code section 129’s requirements, including its often-overlooked nondiscrimination requirements.
Educational Assistance Programs
Employer-provided educational assistance is often overlooked. We advise employers on all aspects of educational assistance programs, including program design, program documents, nondiscrimination requirements, reporting, and the Code’s limits on benefits. Employers can generally provide educational assistance on a tax-free basis in two different ways.
- If the educational assistance is job-related education, the benefit can be excluded from an employee’s gross income as a “working condition fringe benefit” under Code section 132 if it meets certain criteria, such as maintaining or improving the employee’s skills for the job or meeting requirements.
- Educational assistance that is not job-related can be excluded from an employee’s gross income, within certain limitations imposed by the Code. It requires that the program meet a number of requirements, including that there must be a separate written plan and it must be nondiscriminatory in favor of highly compensated employees.
Properly set up, formal funds removed from the employer’s general assets are protected from creditors and often meet terms required by collective bargaining agreements. We specialize in helping employers design and build fully funded employee welfare benefit plans and make these arrangements meet all employer criteria, such as:
- Must establish a trust that qualifies as a tax-exempt voluntary employees’ beneficiary association (VEBA) under a prevailing wage law that requires that employee welfare benefit contributions be held in trust
- Must be a governmental entity that wants to establish a qualified Code section 115 exempt trust to set aside funds for its retiree health benefits for GASB reporting purposes
- Must be a member of an association that offers medical benefits to the employees of its member employers and the employer makes contributions to the association’s VEBA
Life insurance has a number of options and coverage levels for all benefit-eligible employees. We understand the nuances of each type of life insurance and help employers design, implement, or improve life insurance plans that are delivered on a tax-free basis (e.g., group-term life insurance subject to Code section 79), on a reduced tax basis (e.g., group-term life insurance in excess of $50,000 under Code section 79), or on a more elaborate tax basis (e.g., split-dollar life insurance). Our services include plan design, plan documents, summary plan descriptions (SPDs), nondiscrimination requirements, reporting, plans in mergers and acquisitions, plan termination, and the Code section 409A ramifications of certain split-dollar life insurance plans.
Employers face regulatory, tax, and expense challenges whether they provide a simple major medical plan as required by the Affordable Care Act (ACA) or more comprehensive medical plans. We help with ACA compliance, plan design, plan documents, summary plan descriptions (SPDs), nondiscrimination requirements, reporting, domestic partner taxation, plans in mergers and acquisitions, COBRA, and plan termination.
Paid Time Off Cash Outs
If you offer employees the chance to cash out their accumulated paid time off (PTO), these PTO cash-outs must be handled a certain way. Both you and your employees can be on the hook for unexpected taxes even if your employees do not exercise the cash-out option. That’s because of an income tax doctrine known as “constructive receipt,” which taxes income that the taxpayer could have received even though the taxpayer does not elect to receive it.
The good news is that you can still provide PTO cash-out options without this harsh result. The cash-outs simply must be administered under a policy that complies with the constructive receipt rules as interpreted by the IRS. We can design PTO cash-outs to avoid the constructive receipt problem and correct tax reporting failures for open tax years.
Retiree Health Plans
Retiree health benefits are a great way to reward long-service employees and build loyalty, but employers must be careful when designing any retiree health plan. Our experts design and document retiree health plans that make promises that can be kept while adhering to regulations and protecting the employer from undue burdens and retirees from unexpected taxes.
Navigate the changing landscape of healthcare benefits.
The Affordable Care Act (ACA) made compliance an even bigger challenge surrounding health and welfare benefits, adding to the pre-ACA requirements under ERISA and the Code. We know the many compliance requirements for health and welfare benefits, and we know the common problems employers encounter. Here are some issues we help resolve for our clients regularly:
- Failing to meet ERISA requirements
- Not filing multiple Form 5500s when there is no documentation to support the position that all of the benefits are under a single plan
- Not complying with COBRA requirements
- Treating employee contributions as being made on a pre-tax basis without having a proper cafeteria plan document
- Ignoring the nondiscrimination requirements in the Code
- Having a medical expense reimbursement plan (MERP) or health reimbursement arrangement (HRA) that is not properly integrated with a group health plan
- Improper use of an employee welfare benefit trust
- Not realizing that the employer is part of a controlled group, under common control, or part of an affiliated service group such that its employee benefits are out of compliance with a number of statutory requirements
Reporting and Disclosure Obligations for Health and Welfare Plans
ERISA requires each plan to file Form 5500 by the end of the seventh month after the end of each plan year (extensions of time are available) unless the DOL has granted an exemption to this requirement. Under the DOL’s regulations, certain employee welfare benefit plans are not required to file a Form 5500 (e.g., if the plan covers fewer than 100 participants at the beginning of the plan year and the benefits are paid either (i) exclusively from the employer’s general assets, (ii) exclusively through insurance contracts or an HMO, or (iii) through a combination of the two). If a Form 5500 is required and the plan is funded through a trust, formal plan financial reports and an independent qualified public accountant’s opinion may be required.
The failure to file a Form 5500 required by ERISA can result in a penalty imposed by the DOL of up to $2,063 per day with no maximum unless the penalty is excused based upon reasonable cause. Late filers may obtain relief from these penalties under the DOL’s Delinquent Filer Voluntary Compliance (DFVC) Program under which late forms can be filed subject to a fixed penalty schedule that is less onerous than the penalties that might otherwise apply.
Summary Annual Report (SAR)
Each year the plan administrator of a plan that is not exempt from filing a Form 5500 must provide a summary annual report (SAR) to the participants within nine months after the end of the plan year. In addition, a totally unfunded plan, under which the benefits are paid solely from the general assets of the employer, where there are no employee contributions, is exempt from the SAR requirement even if the plan administrator must file a Form 5500 because there are at least 100 participants. The SAR summarizes the information provided on the Form 5500 and tells the participants how to obtain a copy of the Form 5500. The requirements for a SAR are set forth in the DOL’s regulations.
Summary Plan Description
ERISA requires every plan be summarized in lay terms in a summary plan description (SPD). The willful violation of the requirement to provide SPDs, SARs, and certain other information requested by participants to the participants can result in a fine of up to $5,000, imprisonment for up to 1 year, or both if the person convicted is an individual. If the person convicted is not an individual (e.g., it is a corporation), the fine can be as high as $100,000. In addition, the failure to provide certain information requested by a participant or beneficiary within 30 days after a request can result in a civil penalty of up to $110 per day. This amount is payable to the participant or beneficiary involved.
ACA Reporting and Disclosure Requirements
The Affordable Care Act requires that “Applicable Large Employers” distribute Form 1095-C to employees enrolled in the employers group health plan showing that the employer has complied with ACA rules on offering health coverage that meets minimum requirements. Form 1095-C must also be filed with the IRS. Employers with self-insured health plans must distribute and file Form 1095-B to enrolled employees and file the form with the IRS regardless of whether they are an “Applicable Large Employer.” We recommend checking with your legal advisor as the status of these rules has been in flux and there are additional requirements for employers that are part of a controlled group.