The ICHRA Notice: What Are The Requirements?

September 29 - Posted at 10:23 PM Tagged: , ,

The Departments of the Treasury, Labor, and Health and Human Services (the Departments) released information regarding the individual coverage HRA (ICHRA) notice requirements earlier this year.

The notice, which must be sent to all eligible employees 90 days before the benefit is offered, is primarily intended to inform eligible employees of how the ICHRA affects premium tax credits. This information will help employees make an informed decision on whether to participate in the ICHRA or opt out. It also notifies employees that a benefit is being offered and what they can expect from the ICHRA.

This highlights everything your ICHRA notice needs to include so that you’re offering the benefit in a compliant way.

When offering an ICHRA an employer must provide a notice including the following:

  • A description of the terms of the ICHRA. This should include the maximum dollar amount available for each participant in the HRA, which family members (if any) are included in the benefit, and whether the allowance amount will vary based on family size or age. The terms should also indicate the date in which coverage will first become effective and what date the plan year begins and ends. The notice must also provide information on when amounts will be made available (for example, monthly or annually). If the allowance does vary based on family size, the notice should clearly indicate the amount provided for a single individual. That’s the amount employees will use to determine affordability, which is a major component of determining premium tax credit eligibility under an ICHRA.
  • A statement of the right of the participant to opt out of and waive future reimbursement under the HRA. This should make clear to the employee that they have the ability to opt out of or decline the benefit. Be sure to inform them how and when they should opt out of coverage. It’s best practice to have the employee advise in writing they were offered the benefit and are choosing not to accept it.
  • A statement on how the ICHRA will affect premium tax credit (PTC) availability, whether the employee opts out or chooses to accept the benefit. If an employee accepts the benefit, they lose the option of utilizing a PTC. If an employee opts out and the ICHRA offering is deemed unaffordable, they may qualify for a PTC depending on income and other eligibility factors. If an employee opts out and the ICHRA coverage is deemed affordable, they won’t qualify for a PTC.
  • A statement that the participant must inform any Exchange to which they apply for APTC (advanced premium tax credit) of certain relevant information. This should notify the employee to disclose the ICHRA offering when applying for coverage on the Exchange. That will allow the Exchange to determine if they’re eligible for a tax credit.
  • A statement about how the ICHRA differs from other HRAs. The notice should contain a description about what the ICHRA is. It should also provide clarification that there other types of HRAs and that the plan being offered is not a QSEHRA, or any other type of HRA.
  • A statement about the availability of an SEP for employees and dependents who newly gain access to the HRA. The requirements state that employees must be notified that they gain access to a special enrollment period (SEP) when they are newly offered the HRA. If an ICHRA starts on a date other than January 1 or if an employee is newly hired during the plan year, they can enroll in individual health insurance coverage outside of open enrollment using an SEP. If an employee becomes eligible for an ICHRA that would start at the beginning of the plan year, they’ll need to enroll in an individual coverage plan within the 60-day period before the first day of the plan year. If an employee becomes eligible for HRA coverage that would start mid-year (as with a new employee, or an employee with a change in hours), they may enroll in individual coverage up to 60 days before the first day that their ICHRA can begin, or up to 60 days after this date.
  • A statement about how the participant can find assistance for determining their individual coverage HRA affordability. The Exchange website will provide information on how the employees can determine affordability under the ICHRA. 
  • A statement that the ICHRA can be integrated with Medicare. Employees must be informed that Medicare can be integrated with the ICHRA. The statement must also disclose that Medicare beneficiaries are ineligible for a premium tax credit, regardless of whether the ICHRA the individual is offered is affordable, provides minimum value, or whether the individual opts out of the HRA.
  • Contact information of an individual or a group of individuals who participants can contact with questions regarding their ICHRA. The notice must include, at least, a phone number of an individual or group that participants may contact with questions about the ICHRA. The employer is allowed to determine who is best suited to help the participants.

Note: Per the Departments, for ERISA-covered plans, other disclosure requirements may require participants to be provided with a reasonable opportunity to become informed of their rights and obligations under the ICHRA.

When must the notice be provided?

For new ICHRAs, including those starting January 1, 2020, businesses must adhere to a 90-day notice requirement. That means that 90 days before the ICHRA’s start date, they must send employees a notice including each of the components above and notifying them of their eligibility for the benefit. For a plan starting on January 1, 2020, businesses must provide notice to employees on or before October 3, 2019.

The 90-day notice must provided every year your business chooses to offer the ICHRA.

For newly eligible employees (newly hired employees or employees who gain eligibility after the initial start of the plan year), the timing is different. Your business can provide the notice up until the first day the employee’s ICHRA coverage begins. It’s best to provide notice as soon as possible, so the employee has ample time to review coverage options and enroll in a plan.

Conclusion

The Departments have provided a model notice that employers can use as a template for their notice. It’s not required that you use the model, but the Departments have advised use of the model is sufficient for good faith compliance of the requirements as long as it’s provided within the correct time frame. Whether you use the model or not, be sure to include each of the requirements listed above and send the notice within the 90-day notice period.

 

Oct. 15th Deadline Nears for Medicare Part D Coverage Notices

- Posted at 10:16 PM Tagged: , , ,

Prior to each year’s Medicare Part D annual enrollment period, plan sponsors that offer prescription drug coverage must provide notices of creditable or noncreditable coverage to Medicare-eligible individuals.

The required notices may be provided in annual enrollment materials, separate mailings or electronically. Whether plan sponsors use the federal Centers for Medicare & Medicaid Services (CMS) model notices or other notices that meet prescribed standards, they must provide the required disclosures no later than Oct. 15, 2019.

Group health plan sponsors that provide prescription drug coverage to Medicare Part D-eligible individuals must also disclose annually to the CMS—generally, by March 1—whether the coverage is creditable or noncreditable. The disclosure obligation applies to all plan sponsors that provide prescription drug coverage, even those that do not offer prescription drug coverage to retirees.

Background

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires group health plan sponsors that provide prescription drug coverage to disclose annually to individuals eligible for Medicare Part D whether the plan’s coverage is “creditable” or “noncreditable.” Prescription drug coverage is creditable when it is at least actuarially equivalent to Medicare’s standard Part D coverage and noncreditable when it does not provide, on average, as much coverage as Medicare’s standard Part D plan. The CMS has provided a Creditable Coverage Simplified Determination method that plan sponsors can use to determine if a plan provides creditable coverage.

Disclosure of whether their prescription drug coverage is creditable allows individuals to make informed decisions about whether to remain in their current prescription drug plan or enroll in Medicare Part D during the Part D annual enrollment period. Individuals who do not enroll in Medicare Part D during their initial enrollment period (IEP), and who subsequently go at least 63 consecutive days without creditable coverage (e.g., they dropped their creditable coverage or have non-creditable coverage) generally will pay higher premiums if they enroll in a Medicare drug plan at a later date.

Who Gets the Notices?

Notices must be provided to all Part D eligible individuals who are covered under, or eligible for, the employer’s prescription drug plan—regardless of whether the coverage is primary or secondary to Medicare Part D. “Part D eligible individuals” are generally age 65 and older or under age 65 and disabled, and include active employees and their dependents, COBRA participants and their dependents, and retirees and their dependents.

Because the notices advise plan participants whether their prescription drug coverage is creditable or noncreditable, no notice is required when prescription drug coverage is not offered.

Also, employers that provide prescription drug coverage through a Medicare Part D Employer Group Waiver Plan (EGWP) are not required to provide the creditable coverage notice to individuals who are eligible for the EGWP.

Notice Requirements

The Medicare Part D annual enrollment period runs from Oct. 15 to Dec. 7. Each year, before the enrollment period begins (i.e., by Oct. 14), plan sponsors must notify Part D eligible individuals whether their prescription drug coverage is creditable or non-creditable. The Oct. 14 deadline applies to insured and self-funded plans, regardless of plan size, employer size or grandfathered status

Part D eligible individuals must be given notices of the creditable or non-creditable status of their prescription drug coverage:

  • Before an individual’s IEP for Part D.
  • Before the effective date of coverage for any Medicare-eligible individual who joins an employer plan.
  • Whenever prescription drug coverage ends or creditable coverage status changes.
  • Upon the individual’s request.

According to CMS, the requirement to provide the notice prior to an individual’s IEP will also be satisfied as long as the notice is provided to all plan participants each year before the beginning of the Medicare Part D annual enrollment period.

Model notices that can be used to satisfy creditable/non-creditable coverage disclosure requirements are available in both English and Spanish on the CMS website. Plan sponsors that choose not to use the model disclosure notices must provide notices that meet prescribed content standards.

Notices of creditable/non-creditable coverage may be included in annual enrollment materials, sent in separate mailings or delivered electronically. Plan sponsors may provide electronic notice to plan participants who have regular work-related computer access to the sponsor’s electronic information system. However, plan sponsors that use this disclosure method must inform participants that they are responsible for providing notices to any Medicare-eligible dependents covered under the group health plan.

Electronic notice may also be provided to employees who do not have regular work-related computer access to the plan sponsor’s electronic information system and to retirees or COBRA qualified beneficiaries, but only with a valid email address and their prior consent. Before individuals can effectively consent, they must be informed of the right to receive a paper copy, how to withdraw consent, how to update address information, and any hardware/software requirements to access and save the disclosure. In addition to emailing the notice to the individual, the sponsor must also post the notice (if not personalized) on its website.

In Closing

Plan sponsors that offer prescription drug coverage will have to determine whether their drug plan’s coverage satisfies CMS’s creditable coverage standard and provide appropriate creditable/noncreditable coverage disclosures to Medicare-eligible individuals no later than Oct. 15, 2019.

USDOL Releases Overtime Rule 2.0 For 2020

September 25 - Posted at 6:44 PM Tagged: , , , , , , , ,

The suspense is over – the Department of Labor announced  yesterday the revised Overtime Rule, which will set the minimum salary threshold for the Fair Labor Standard Act’s white-collar exemptions at $684 per week, or $35,568 per year. The rule, which will expand overtime pay obligations to an estimated 1.3 million additional workers, will take effect on January 1, 2020. The big question is what do you need to know about this breaking news?

Proposed Rule In A Nutshell

  • The minimum salary threshold will be $684 per week, annualized to $35,568 per year.
    • The rule provides for one threshold regardless of exemption, industry, or locality, subject to a few exceptions that already existed.
    • Employers will be able to credit certain non-discretionary payments in limited ways.
  • The highly compensated employee exemption’s additional total annual compensation requirement will be set at $107,432 per year.
  • No changes will be made to the duties tests – the crux of the relevant exemptions.
    • The changes are limited to the executive, administrative, professional, and highly compensated employee exemptions.
    • No change has been made to the various other exemptions (for example, outside sales) that do not specifically include a salary requirement even if the employee happens to earn a salary.
  • There will be no “automatic” updates, or even a formal schedule of future adjustments to these figures.
    • However, you can expect that the salary threshold will be assessed more frequently than it has been in the past, but hopefully not so often that it essentially drives the market.

A Brief History Of The Overtime Rule Saga

It seems an eternity ago when President Obama directed the U.S. Department of Labor (USDOL) to revise the regulations governing the outdated white-collar exemptions of the Fair Labor Standards Act (FLSA). The proposal eventually released by the USDOL would have radically altered the federal compensation rules. Most notably, the agency would have more than doubled the salary threshold and applied, essentially, a formula to update the amount every three years. This minimum threshold was set to become effective on December 1, 2016, and the “updating” would begin, ironically, on January 1, 2020.

But concerned states and business groups sought to block the rule from taking effect, and, at the last minute, a federal court issued a preliminary injunction preventing the rule from being implemented on a nationwide basis. Since the Texas court put the final nail in Overtime Rule 1.0’s coffin by striking down the rule once and for all in August 2017, employers have been patiently awaiting a revised rule.

Under the current administration, USDOL leadership indicated that it would no longer advocate for the $913 per week proposal but would instead undertake further rulemaking to determine what the salary level should be. In what seemed like a painstakingly long process, the agency held public forums, issued a request for information, and sought comments on a proposed rule that, like Overtime Rule 1.0, focused solely on the pay component but without completely overshadowing the duties tests. After all, the FLSA authorizes the agency to define and delimit the executive, administrative, and professional exemptions – not supplant them. Today, finally, all of the work culminated in the release of Overtime Rule 2.0.

Will This Rule Survive?

After the drama surrounding the last-minute injunction blocking the 2016 proposal, it would be natural for employers to feel gun-shy about adjusting to these changes. After all, isn’t there a chance that another court will once again block these changes and put us in yet another state of limbo? While there is always a chance for litigation to unfold in such a way that it would impact the implementation of this rule, there are several reasons why you should be preparing as if this rule will go into effect as planned on January 1, 2020.

First, while there is no magic number for setting the salary threshold (that’s the whole point), there is something to be said for certainty. The new rule skirts some of the more problematic areas that existed with the first attempt at revisions. The $684 per week threshold will require the reclassification (or pay increases) of some employees, but a far less significant portion than would have seen increases had the $913-per-week proposal of three years ago was adopted. 

Second, while the rule contains some of the same flaws as Overtime Rule 1.0, they generally are not the kinds of concerns that were previously raised in lawsuits. Employer advocates will have more difficulty taking the position that this particular threshold eclipses the duties tests. Likewise, while employee advocates might feel that the threshold is set at too low a level, meeting the pay component does not make someone exempt in and of itself, so this argument is more philosophic in nature and may not warrant the rule being blocked.

Finally, the USDOL must be well prepared at this point to defend the rule. Even aside from the litigation, it has received voluminous public feedback on an increase from $455 per week numerous times, including those shared in 2015, 2017, and 2018. So, while litigation seems inevitable, employers should not be idle in preparing for this rule to take effect.

Avoiding The Last-Minute Panic

As recounted above, the drama surrounding Overtime Rule 1.0 was a painfully long process for employers as they waited to see what might happen. The best practice, though, is to assume Overtime Rule 2.0 is the real thing. That said, you should not run out tomorrow and make immediate changes to your compensation structure. Instead, you should use this time to start evaluating not just whether changes will be necessary, but how best to make those changes (timing, communications, etc.).

If you made changes in 2016 in anticipation of the $913 per week threshold, you are certainly ahead of the curve. If you did some of the work but decided to wait to implement once the preliminary injunction was put in place, you also have a great head start. Nonetheless, in both cases, you must keep in mind that three years have passed and it is possible that an employee’s work has changed in the interim. 

It is imperative to confirm your prior findings at least for any employee that might receive a salary increase to qualify for exempt status under Overtime Rule 2.0. No employee is automatically entitled to be treated as exempt; in contrast, increasing the salary for an employee that does not meet the duties tests can only make matters worse.

Right now, you should begin:

  • Analyzing whether those exemptions you have been relying upon will still apply;
  • Considering the possible application of alternative FLSA exemptions; and
  • Developing FLSA-compliant pay plans for employees who have been treated as exempt but who no longer will be.

Courtesy of Fisher Phillips LLP

 

What Employers Need To Know (And Avoid) About HRAs

September 03 - Posted at 2:44 PM Tagged: , , , , , , , ,

Health Reimbursement Arrangements (HRAs) are account-based health plans funded with employer contributions to reimburse eligible participants and dependents for medical expenses. Prior to the Affordable Care Act, HRAs were not uncommon. 

After the ACA, however, HRAs – which were classified as group health plans (GHPs) – had to satisfy the ACA’s market reform requirements, such as the prohibition against annual limits. Thus, unless an HRA was integrated with a GHP, HRAs usually could not satisfy these requirements alone.

Recent Developments

On June 13, the Departments of Treasury, Labor, and Health and Human Services issued final regulations regarding HRAs, which will be effective on January 1, 2020. The regulations discuss two types of HRAs: (1) the individual coverage HRA (ICHRA); and (2) the expected benefit HRA.

An ICHRA can satisfy GHP requirements by integrating the HRA with individual market coverage or Medicare. The expected benefit HRA permits an employee to obtain excepted benefits like dental, vision, or short-term limited-duration insurance with an HRA. This article will focus on ICHRAs.

General ICHRA Requirements

In order to offer an ICHRA, employers must ensure that a number of requirements are satisfied. For example, all individuals covered by the HRA need to be enrolled in individual health insurance or Medicare. Additionally, before any reimbursements are made, the employer must substantiate such enrollment with documentation from a third party or the participant’s attestation. An attestation, however, must be disregarded, if the employer has actual knowledge that the individual is not enrolled in eligible coverage.

Additionally, HRA coverage must be offered uniformly on the same terms and conditions to all employees in the class. Classes will be discussed in more detail below, but the regulations permit an employer to increase the maximum benefit for (1) older participants if that increase applies to all similarly aged participants in that class, and (2) participants with more dependents. 

Further, being covered by an ICHRA will make an individual ineligible for a Premium Tax Credit (PTC). For this reason, the regulations have numerous notice requirements. First, employers must provide notice to eligible ICHRA employees 90 days before the beginning of a plan year that their participation in the ICHRA will make them ineligible for a PTC. For newly eligible employees, the notice must be provided no later than the date they are first eligible to participate. Moreover, there must be an opt-out provision at least annually and upon termination.

Defining A Class

The ICHRA regulations make it possible for employers to offer an HRA to a certain class of employees and a traditional GHP to another class. It is important to note that an employer may not offer the same class of employees the option of an ICHRA or a traditional GHP. 

The regulations also provide strict rules regarding how to define classes. The classes must be of a minimum size based on the number of employees the employer has: 

  • If the employer has fewer than 100 employees, the minimum class size is 10;
  • If the employer has over 100 employees but fewer than 200, the minimum class size is 10% of the total number of employees; and
  • If the employer has over 200 employees, the minimum class size is 20 employees.

Additionally, the classes must be based on named classes in the regulations which are based on objective criteria:

  • full-time;
  • part-time;
  • salaried;
  • non-salaried;
  • employees whose primary site of employment is in the same rating area;
  • seasonal employees;
  • employees covered by the same collective bargaining agreement sponsored by the employer;
  • employees who have not satisfied a waiting period;
  • non-resident aliens with no US-based income;
  • employees hired by a staffing firm; and
  • any group of participants that fit into two or more of the above classes.

The regulations also clarify that employers may still offer retiree-only HRAs and they will not be subject to the ICHRA rules.

Conclusion

Given that there is a notice requirement and that open enrollment for plans that begin January 1, 2020 will generally begin in the fall, employers that would like to implement an ICHRA would likely have to start making plan design decisions soon. Even though the concept of an HRA may be familiar to many employers, these new regulations are nuanced, and employers will likely need assistance to navigate them.

Form I-9 Expires August 31st

August 27 - Posted at 9:57 PM Tagged: ,

The federal government’s Form I-9, used by HR departments across the country to verify workers’ employment eligibility, is expiring at the end of this month.

The Department of Homeland Security (DHS) is expected to extend the current version of the form (marked 8/31/2019) without changes, although minor clarifications will be made to the form’s instructions. The agency has directed employers to continue using the current version of the form despite the expiration date until a revised version is available.

Here are three of the proposed revisions:

  • Employers may designate anyone to be an authorized representative to complete Section 2 of the form. The employer is still liable for any violations committed by the designated person. Employers face difficulties in completing I-9s for remotely hired workers and need more-specific instructions to clarify who may serve as an authorized representative to complete the form.
  • Writing “N/A,” or not applicable, in the identity-document columns is no longer necessary. When entering document information in the List A column (or, alternatively, in the List B and List C columns), you will not need to enter “N/A” in the columns that are not used. “The requirement to enter ‘N/A’ in certain portions of the form could be burdensome and unclear,” Fay said. “Now, for example, if you have an employee present a U.S. passport, which is recorded in the List A column, you do not need to write ‘N/A’ in all of the fields in the List B and List C columns.”
  • The form’s List C documents that establish employment authorization do not include a worker’s Employment Authorization Document (EAD). The List C documents include a Social Security card and birth certificate, while the EAD (Form I-766) providing temporary employment authorization to work in the United States is a List A document.

DOL’s Proposed Changes to FMLA Forms Get Mixed Reviews

August 16 - Posted at 3:00 PM Tagged: , , ,

The U.S. Department of Labor (DOL) is suggesting changes to the forms employers commonly use to administer the Family and Medical Leave Act (FMLA). The DOL said its goal is to make the optional forms  easier to understand, but some management attorneys worry doctors will be confused by the revisions.

The department is seeking comment on the proposed revisions through Oct. 4th. It noted that the proposed changes would include:

  • Fewer questions requiring written responses. Instead, the forms would have statements with check boxes.
  • Reorganization of medical certification forms to more quickly determine if an impairment is a serious health condition covered by the FMLA.
  • Clarifications to reduce the demand on health care providers for follow-up information.

Improvements

The proposed revisions are an improvement, but most still view the forms as lengthy. The increased reliance on check boxes would avoid the confusion that results when a health care provider filling out a medical certification has poor handwriting.

“Physicians do not like completing FMLA forms as a general rule,” said Scott Eldridge, an attorney with Miller Canfield in Lansing, Mich. “Employers should therefore welcome attempts to simplify the process for employees and their physicians.”

While health care providers often provide narrative responses to the questions on the current forms, the responses don’t always clearly indicate whether the health care provider thinks the employee has a serious health condition. This usually ends up with the the employer being left to surmise as to the doctor’s intent or go back for a clarification. The new check boxes would help minimize the need for clarification.

The presentation of questions on the existence of a serious health condition are an improvement as well.

The current forms ask if the patient was admitted for an overnight stay or when the patient was treated, whereas the proposed forms ask if the patient has been admitted or is expected to be admitted for an overnight stay and the days they were seen or will be seen. Under the current forms, the health care provider is not encouraged to explain future inpatient status or future treatment. Contemplation of future treatment is critical, since employees are required to report leave at least 30 days in advance when the need for leave is foreseeable.
The revised forms also capture information to support leaves taken for chronic conditions and permanent or long-term conditions, while the existing forms do not.

Incomplete certification forms often delay employers’ designating leave as FMLA. The proposed revisions would reduce follow-up by presenting the questions on intermittent leave in a more organized manner.

Current forms ask for the health care provider to estimate the hours the patient needs care and provide a somewhat confusing and misaligned template to record the frequency and duration. The proposed forms have a tidy template for use to complete the duration and frequency and instruct the health care provider to provide their best estimate.

The proposed revisions also note that some state or local laws may prohibit disclosure of the patient’s diagnosis. This note supports compliance with laws such as the California Family Rights Act and is helpful for employers using a single form to designate federal FMLA and state leave.

Concerns Raised

The proposed revisions do have some problems, according to Sarah Platt, an attorney with Ogletree Deakins in Milwaukee.

The layout of the proposed form to certify an employee’s serious health condition has check boxes that are likely to be missed, she said. “The new form would call for the health care provider to check a box on the left side of the form for the type of serious health condition at issue, and then also complete check boxes within each category,” she said.

“The forms seem to call for health care providers to make legal conclusions at issue, rather than merely answer questions,” she added. “I would not be surprised if we see health care providers checking boxes in multiple categories on the proposed certification forms.”

While follow-up on FMLA medical certification is common, that often is because a health care provider skips questions on the current forms or writes something vague, such as “unknown.” The new forms will not necessarily eliminate this problem.

The proposed medical certification forms organize the questions around the different definitions of a serious health condition. The existing forms gather the same information but do not include headings highlighting the different definitions.

Platt is concerned that with the proposed revisions, health care providers may answer questions that don’t apply to the circumstances involved in the leave request. “I think it would be helpful to at least have a check box for ‘yes’ or ‘no’ or ‘not applicable’ along the left margin for each section,” she said.

Revised Forms

The forms the DOL has proposed updating are:

  • WH-380-E Certification of Health Care Provider for Employee’s Serious Health Condition.
  • WH-380-F Certification of Health Care Provider for Serious Health Condition of the Family Member.
  • WH-381 Notice of Eligibility and Rights and Responsibilities.
  • WH-382 Designation Notice.
  • WH-384 Certification of Qualifying Exigency for Military Family Leave.
  • WH-385 Certification for Serious Injury or Illness of a Current Servicemember for Military Family Leave.
  • WH-385-V Certification for Serious Injury or Illness of a Veteran for Military Caregiver Leave.

Wave of IRS Notices Slam Employers with Aggressive Penalties for Late ACA Filings

August 13 - Posted at 10:51 PM Tagged: , , , , , , , , , , ,

Since the IRS began enforcing the Affordable Care Act (ACA), it has been lenient in its enforcement of the penalties associated with the ACA particularly with regard to late and incorrect Forms 1094-C and 1095-C. This position appears to have changed with regard to the 2017 reporting season. Recently, a number of employers received a Notice 972CG from the IRS. The Notice 972CG proposes penalties under IRC section 6721 for late or incorrect filings. The focus of this is to explain the Notice 972CG and the basic steps employers who receive this letter should follow.

 Typically, the employer received a Letter 5699 inquiring why the employer had not filed the Forms 1094-C and 1095-C for the 2017 reporting season. The reasons the employer had not filed timely have varied but most employers filed the Forms 1094-C and 1095-C with the IRS well past the original due date, but well within the parameters discussed in the Letter 5699. Afterwards, these employers reported they then received a Notice 972CG from the IRS.

The Notice proposes penalties under IRC section 6721 for each late Form 1095-C filed by the employer. For the 2017 tax year, the penalty for each section 6721 violation is $260 per return. Therefore, if an employer filed 200 Forms 1095-C late, the Notice 972CG has proposed a penalty of $52,000.

The proposed penalty amounts in the Notice can be smaller than $260 per return if the employer filed the return within 30 days of the original due date (March 31 if the Forms were filed electronically not factoring in the automatic extension). If an employer filed within 30 days of the original March 31 due date, the penalty is $50 per return. If the employer’s returns were filed after 30 days of the original due date but prior to August 1 of the year in which the Forms were due, the employer’s penalty will be $100 per return. Each of these scenarios is unlikely if the employer filed after receiving the Letter 5699 as the IRS did not send these Letters out by the August 1 cutoff to allow employers to mitigate the potential penalties under section 6721.

An employer has 45 days from the date on the notice to respond to the IRS. A business operating outside of the United State has 60 days to respond to the Notice 972CG. If an employer does not respond within this time frame, the IRS will send a bill for the amount of the proposed penalty. Therefore, a timely response to the Notice 972CG is mandatory if an employer wishes to abate or eliminate the proposed penalty.

An employer has three courses of action when responding to the Notice 972CG. First, the employer could agree with the proposed penalty. If an employer agrees with the proposed penalty, box (A) should be checked and the signature and date line below box (A) should be completed. Any employer selecting this option should follow the payment instructions provided in the Notice.

Alternatively, an employer can disagree in part with the Notice’s findings or an employer can disagree with all of the Notice’s findings. If an employer disagrees in part with the Notice, the employer will check box (B). If an employer disagrees entirely with the Notice, the employer will check box (C). If box (B) or (C) are checked, the employer will be required to submit a signed statement explaining why the employer disagrees with the Notice. An employer should include any supporting documents with the signed statement. Any employer who partially disagrees with the Notice should follow the payment instructions provided in the Notice.

An employer checking box (B) or (C) in its response will have to convince the IRS that the employer’s late filing (or incorrect filing) of the Forms 1094-C and 1095-C was due to a “reasonable cause.” The Code discusses what may constitute a “reasonable cause” in exhaustive regulations that must be reviewed thoroughly before any employer responds to a Notice 972CG with box (B) or (C) checked. For an employer to establish a “reasonable cause” the employer will have to establish “significant mitigating factors” or that the “failure arose from events beyond the filer’s control.” Furthermore, to prove “reasonable cause” the employer will have to show that it acted in a “responsible manner” both before and after the failure occurred. An employer should craft its response using the template roughly outlined in the IRS regulations and Publication 1586.

Any employer who receives a Notice 972CG must take action immediately. An employer should consult an attorney or tax professional familiar with its filing process and the pertinent rules, regulations, and publications. Moving forward, it is imperative that employers file the Forms 1094-C and 1095-C in a timely, accurate fashion. 

How Employers Can Push Back Against Punitive I-9 Fines

August 02 - Posted at 1:00 PM

Climate change may make our summers hotter, but the ICEman still cometh. Since late 2017, Immigration and Customs Enforcement (ICE) has significantly increased the number of Notices of Inspections issued to employers nationwide. This spike in I-9 audits has also resulted in an increase in assessed civil penalties and punitive fines to employers with non-compliant I-9s. While ICE audits and fines are on the rise, this article will walk you through options to assist with breaking the ICE and decreasing assessed fines.  

What Employers Can Expect In 2019 Through The Election

If your business has not yet had an ICE I-9 Notice of Inspection, consider yourself lucky. However, if you think you are in the clear – think again. In the upcoming election year where politics will be dominated by immigration news, ICE will continue to punish employers for failures to complete I-9s properly and maintain a culture of immigration compliance. Driven by a “zero-tolerance” agenda, ICE will likely push for higher penalty amounts, and have less interest in coming to a reasonable settlement amount with most employers.

ICE assesses penalties after an employer receives a Notice of Inspection and ICE completes its I-9 audit; after that, an employer may receive a Notice of Intent to Fine (NIF). This document title speaks for itself – ICE intends to fine the company a dollar amount.

After receiving a NIF, you have two options: (1) request a hearing before the Office of Chief Administrative Hearing Officer (OCAHO); or (2) agree to pay the fine assessed by ICE. Below we will walk you through these two options and the financial impact each can have on your business.

How OCAHO Can Affect Penalty Amounts 

OCAHO sits within the Executive Office of Immigration Review of the Department of Justice, where traditionally an Administrative Law Judge (ALJ) is assigned to adjudicate I-9 penalty hearings. The ALJ follows the same statutory regulations that ICE is required to follow, which includes the following five statutory factors to determine penalty amount: (1) the size of the employer’s business, (2) the employer’s good faith, (3) the seriousness of the violations, (4) whether or not the individual was an unauthorized alien, and (5) the employer’s history of previous violations.

Although the OCAHO ALJ and ICE follow the same five factors in determining penalty amount, the ALJ is not bound by ICE fine amounts. Instead, the ALJ has discretionary authority in considering a company’s financial situation when determining the fine amount. This flexible discretion can impact fine amounts dramatically.

ICE “Fine Matrix” Calculating Penalty Amounts

ICE follows a “fine matrix” – entirely an ICE invention and a ridged matrix tying base fine amounts to the violation percentage. The violation percentage is broken into six levels, with the highest base fine amount when a company’s violation percentage reaches 50 percent (meaning 50 percent or more of an employer’s I-9s were found to be deficient).  

Next, ICE utilizes its “enhancement matrix,” which will either add or decrease to the base fine based upon its audit findings. The aggravating and mitigating factors are the five statutory factors discussed above: business size, good faith, seriousness, unauthorized aliens, and company history. Each of these five factors has a plus or minus five percent (+/- 5 %) to the base fine amount, making the maximum increase +25 % and the maximum decrease -25%

Unlike OCAHO, ICE does not consider the company’s ability to pay or financial health when assessing fine amounts. Therefore, this ridged formula almost always leads to a hefty fine determination because it artificially inflates the base fine amount. ICE has traditionally demonstrated little interest in whether the fine proposal may have a devastating effect on the company. On the other hand, OCAHO ALJs regularly hold that the I-9 penalty should not be unduly punitive.

A Fine Calculation Example

Let’s assume your company received a Notice of Inspection, then presented 100 I-9 forms to ICE for inspection. During the audit, ICE determined that 50 of the forms presented were defective due to sustentative and uncorrected technical violations (uncorrected errors on the form itself). This would result in your company having a 50 percent violation rate. Using ICE’s fine matrix, it would calculate the fine using the highest base fine amount of $1,862 per defective I-9. Therefore, you would be facing a base fine already at $93,100 before factoring the aggravating and mitigation factors.

After ICE takes into account the aggravating and mitigating factors, the final fine amount will stand somewhere between $69,825 (base fine -25%) and $116,375 (base fine +25%).    

This simple example demonstrates how ICE’s unforgiving fine matrix artificially inflates the fine amount by setting the 50 percent violation rate as the threshold for the highest fine amount for each defective I-9 form. Even if your business has less than 100 employees, a small amount of defective I-9s can result in a hefty fine proposal.  

OCAHO ALJ Fine Determination History

Unlike ICE, however, OCAHO case law indicates that the ALJ’s fine determination has been far more lenient than ICE’s fine matrix and enhancement matrix. In fact, in a review of the 32 OCAHO I-9 cases from the past four years, not a single OCAHO fine determination resulted in a fine increase. Of the 32 cases, only two cases upheld ICE’s fine proposal without reduction. The other 30 cases allreceived a fine reduction, with the average fine reduction rate at over 40%. By way of example, in the simple example above with your company being assessed a fine from ICE of $116,375, an average OCAHO reduction could reduce this fine to $69,231.

In the most recent 2019 OCAHO case, U.S. v. Intelli Transport Services, the ALJ primarily used the employer’s small size to justify a nearly 80% fine reduction, which reduced the fine amount from ICE’s $21,506 proposal to a mere $4,500. In another 2015 OCAHO case, the dollar amount fine reduction was over $207,000. These cases demonstrate that when ICE’s fine proposal is high enough, there is truly little reason not to push back and litigate the case to the OCAHO.


Article courtesy of Fisher Phillips LLP

On July 22, 2019, the IRS announced that the ACA affordability percentage for the 2020 calendar year will decrease to 9.78%. The current rate for the 2019 calendar year is 9.86%.

As a reminder, under the Affordable Care Act’s employer mandate, an applicable large employer is generally required to offer at least one health plan that provides affordable, minimum value coverage to its full-time employees (and minimum essential coverage to their dependents) or pay a penalty. For this purpose, “affordable” means the premium for self-only coverage cannot be greater than a specified percentage of the employee’s household income. Based on this recent guidance, that percentage will be 9.78% for the 2020 calendar year.

Employers now have the tools to evaluate the affordability of their plans for 2020. Unfortunately, for some employers, a reduction in the affordability percentage will mean that they will have to reduce what employees pay for employee only coverage, if they want their plans to be affordable in 2020.

For example, in 2019 an employer using the hourly rate of pay safe harbor to determine affordability can charge an employee earning $12 per hour up to $153.81 ($12 X 130= 1560 X 9.86%) per month for employee-only coverage. However in 2020, that same employer can only charge an employee earning $12 per hour $152.56 ($12 X 130= 1560 X 9.78%) per month for employee-only coverage, and still use that safe harbor. A reduction in the affordability percentage presents challenges especially for plans with non-calendar year renewals, as those employers that are subject to the ACA employer mandate may need to change their contribution percentage in the middle of their benefit plan year to meet the new affordability percentage. For this reason, we recommend that employers re-evaluate what changes, if any, they should make to their employee contributions to ensure their plans remain affordable under the ACA.

As we have written about previously, employers will sometimes use the Federal Poverty Level (FPL) safe harbor to determine affordability. While we won’t know the 2020 FPL until sometime in early 2020, employers are allowed to use the FPL in effect at least six months before the beginning of their plan year. This means employers can use the 2019 FPL number as a benchmark for determining affordability for 2020 now that they know what the affordability percentage is for 2020.

IRS Permits New Benefits in High Deductible Health Plans

July 22 - Posted at 6:00 PM Tagged: , , , , , ,

The IRS has recently issued Notice 2019-45, which increases the scope of preventive care that can be covered by a high deductible health plan (“HDHP”) without eliminating the covered person’s ability to maintain a health savings account (“HSA”).

Since 2003, eligible individuals whose sole health coverage is a HDHP have been able to contribute to HSAs. The contribution to the HSA is not taxed when it goes into the HSA or when it is used to pay health benefits. It can for example be used to pay deductibles or copays under the HDHP. But it can also be used as a kind of supplemental retirement plan to pay Medicare premiums or other health expenses in retirement, in which case it is more tax-favored than even a regular retirement plan.

As the name suggests, a HDHP must have a deductible that exceeds certain minimums ($1,350 for self-only HDHP coverage and $2,700 for family HDHP coverage for 2019, subject to cost of living changes in future years). However, certain preventive care (for example, annual physicals and many vaccinations) is covered without having to meet the deductible. In general, “preventive care” has been defined as care designed to identify or prevent illness, injury, or a medical condition, as opposed to care designed to treat an existing illness, injury, or condition.

Notice 2019-45 expands the existing definition of preventive care to cover medical expenses which, although they may treat a particular existing chronic condition, will prevent a future secondary condition. For example, untreated diabetes can cause heart disease, blindness, or a need for amputation, among other complications. Under the new guidance, a HDHP will cover insulin, treating it as a preventative for those other conditions as opposed to a treatment for diabetes.

The Notices states that in general, the intent was to permit the coverage of preventive services if:

  • The service or item is low-cost;
  • There is medical evidence supporting high cost efficiency (a large expected impact) of preventing exacerbation of the chronic condition or the development of a secondary condition; and
  • There is a strong likelihood, documented by clinical evidence, that with respect to the class of individuals prescribed the item or service, the specific service or use of the item will prevent the exacerbation of the chronic condition or the development of a secondary condition that requires significantly higher cost treatments.

The Notice is in general good news for those covered by HDHPs. However, it has two major limitations:

  • Only the specific treatments covered by the Notice are covered. Even if other treatments may meet the three-pronged test described above, they are not permitted to be covered. For example, selective serotonin reuptake inhibitors (SSRIs) can be covered for a person who has depression. However, bupropion (which is similar in cost but affects brain chemicals other than serotonins) cannot be covered. Some people respond better to SSRIs, while others respond better to bupropion. The former can have their medications covered by a HDHP, while the latter cannot.
  • The Notice specifically says that male sterilization services (vasectomies) cannot be covered. This is an issue for two reasons. First, it means that while a HDHP can cover tubal ligations for women, it cannot cover the less expensive and less invasive comparable surgery for men. Some have suggested that this results in financial pressures on women, rather than their male partners, to undergo surgery. Second, many state laws require that health insurance cover vasectomies. In those states, anyone with health insurance (as opposed to an employer’s self-insured plan) will not be able to have an HSA.

Given the expansion of the types of preventive coverage that a HDHP can cover, and the tax advantages of an HSA to employees, employers who have not previously implemented a HDHP or HSA may want to consider doing so now. However, as with any employee benefit, it is important to consider both the potential demand for the benefit and the administrative cost.

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