What ACA-related issues have had the most impact on welfare benefit plans and may surface during 2016?
JRN: 2015 is the year when the potential to be penalized for not offering employee health care coverage that is both affordable and provides minimum value is causing employers with more than 100 employees to adjust their plan offerings and eligibility for coverage, and calculate the most advantageous way to “count” employees for IRS reporting purposes. The reporting process is projected to be a source of consternation among employers, administrators and insurers. Since the actual reporting takes place in early 2016, but the application of possible penalties will not be calculated for months , the employee eligibility-for-coverage concerns will result in additional adjustments to health plans, as well as attention to Congressional efforts to repeal the “employer mandate” and other tax provisions.
An issue gaining momentum is the “Cadillac Tax”, an excise tax to be imposed in 2018 for “high-cost” employer health plans. The tax is 40% of the cost of health coverage that exceeds statutory limits ($10,200 for individuals and $27,500 for families). Proposed regulations in 2016 will likely include how the cost of coverage will be calculated and who will actually pay the tax, important to employers with self-insured plans. The cost of coverage may include numerous factors in addition to the actual premium cost, such as employer contributions to FSAs and HSAs. With an increasing bipartisan effort to repeal the tax due to anticipation that it will apply to more employers than originally intended, employers will be watching for political action, reacting to proposed regulations, and seeking ways to drive down costs.
Impact of Determination Letter Program Depends on Final Guidance From IRS
What impact will the IRS announcement that determination letters will no longer be issued for individually designed retirement plans have on mergers & acquisitions, plan design and plan administration?
SS: Until the IRS releases final guidance on the future of the individually designed determination letter program, it will be difficult to assess what the impact on M&A, plan design and plan administration will be. The IRS may continue to issue limited determination letters under certain circumstances and a certification program may be established allowing sponsors to represent that a good faith effort has been made to comply with plan document requirements. If, however, the determination letter program is discontinued and no other protection is granted, parties to M&A activity will have to place greater scrutiny on qualified plan document reviews during due diligence, strengthen representations, warranties and indemnification clauses in agreements, and weigh the risk of assuming individually designed plans following closing against the administrative and employee relations issues that may be created by pursuing plan termination. Plan design may be impacted when sponsors assess how customized provisions can be modified in order to better position their plans to fit within the parameters of a pre-approved document, such as a prototype or volume submitter plan, which brings the protection of an IRS opinion letter. The primary impacts on plan administration will be ensuring compliance with future document requirements and managing the annual Form 5500 plan audit process without being able to provide a plan’s independent auditor with a determination letter as evidence of compliance