2015 comes to a close, plan sponsors may wish to review their employee benefit plans and programs and consider various new rules that take effect in 2016. The summary below highlights a number of today’s important benefits issues and the related deadlines. Of special interest are the latest provisions to take effect under the Patient Protection and Affordable Care Act and its companion law, the Health Care and Education Reconciliation Act (jointly, the “Affordable Care Acts” or “ACA”).
Health Care Plans
Employer Mandate for Employers With 50 to 99 Employees Goes Into Effect
On January 1, 2016, the employer shared responsibility rules under the Affordable Care Acts, and applicable penalties, go into effect for employers with 50 to 99 full-time equivalent employees. (The rules went into effect on January 1, 2015 for employers with 100 or more full-timers.) Employers that are subject to the so-called “employer mandate” must offer acceptable health coverage to at least 95% of their full-time employees.
Employers should be monitoring their employee headcount to determine whether they are subject to the mandate starting in 2016. If the rules apply, employers must ensure that they are offering essential health benefits coverage that provides at least “minimum value,” and that the cost of such health coverage does not exceed the statutory limit (generally, 9.5% of W-2 income).
ACA Reporting Obligations
For 2015, “applicable large employers” or “ALEs” are required under the ACA to file information returns regarding employer-provided health insurance. Generally, an ALE is an employer that, during the year in question, had 50 or more full-time equivalent employees.
In addition, all employers providing self-insured health coverage — whether ALEs or not — must file information returns for 2015, giving information not only about employees, but about other covered individuals (spouses, dependents) as well.
The forms to be used depend on the employer’s status:
- An ALE, including a self-insured ALE, should file a Form 1095-C for each employee who was a full-time employee for any month of 2015. Form 1094-C (a transmittal form giving employer information) must accompany the Forms 1095-C.
- A self-insured non-ALE should file Forms 1095-B with a simple transmittal form, Form 1094-B.
The Internal Revenue Service (IRS) will accept paper forms from non-ALEs and from ALEs filing less than 250 Forms 1095-C. An ALE filing 250 or more Forms 1095-C must file electronically. Paper filings are due by February 28, 2016, while electronic filings are due by March 31, 2016.
Important: Each employee must receive a copy of the Form 1095-B or 1095-C giving his/her individual information. In the case of an ALE, forms must be mailed to employees by January 31, 2016, which is before the required IRS filing date.
Fees Due in January for ACA Reinsurance Program
The Affordable Care Acts require insurance issuers and self-funded group health plans to pay fees for 2014, 2015, and 2016 to fund the “Transitional Reinsurance Program.” Typically, insurers will remit the fees for fully insured plans.
This year, there is good news for some plans — self-funded plans are generally not required to pay the fees for 2015 and 2016.
Where required, the fee for 2015 is $3.67 per participant per month (or $44 per participant per year). The fee can be paid in one installment or two:
- If paying in one installment, the 2015 fee is due January 15, 2016.
- If paying in two installments, the first installment of $33 per participant is due January 1, 2016, and the second installment of $11 per participant is due November 15, 2016.
For additional details on how to pay the fee, click here .
Increase in Health FSA Limit
Under the ACA, a cafeteria plan was originally required to limit the amount that a participant could contribute to a health flexible spending arrangement to $2,500 per year (or less). Since the contribution limit has now risen to $2,550, cafeteria plans should be amended to incorporate the increased limit.
Tax-Qualified Retirement Plans
December 1 Notice Deadline for Calendar-Year 401(k) Plans
Administrators of calendar-year 401(k) plans may need to issue the following year-end notices to plan participants by December 1, 2015:
QDIA Notice. Where a 401(k) plan uses a qualified default investment alternative (“QDIA”) as the investment fund for participants who fail to make timely investment elections, the employer must provide an annual notice describing the QDIA and the rights of participants at least 30 days before the beginning of each plan year.
Automatic Enrollment Notice. Where a 401(k) plan contains automatic enrollment features, the employer must provide an annual notice explaining automatic enrollment and the right to opt out at least 30 days before the beginning of each plan year.
Safe Harbor Notice. Where a 401(k) plan provides safe harbor contributions designed to automatically satisfy applicable nondiscrimination requirements, the employer must provide an annual notice explaining the safe harbor design at least 30 days before the beginning of each plan year.
News About Determination Letters
Plan sponsors whose employer identification numbers end in -5 or -0 are in “Cycle E” of the IRS’s determination letter program. Cycle E plan sponsors must apply for new determination letters by January 31, 2016. Each determination letter application must be accompanied by an amended and restated plan document.
After Cycle E closes on January 31, 2016, plan sponsors will no longer be required to request new determination letters every five years. The IRS has announced that it is scaling back its determination letter program — effective January 1, 2017, it will issue determination letters only to new plans and terminating plans.
The scope of the determination letter program is changing, the IRS says, because the IRS needs to “more efficiently direct its limited resources.” Going forward, the IRS intends to focus on different ways to help plan sponsors comply with the qualified plan document requirements.
Discretionary Plan Amendments
Any plan sponsor that made discretionary changes to a tax-qualified retirement plan during the 2015 plan year must formally adopt a written plan amendment embodying the changes by the last day of the plan year — December 31, 2015 for calendar-year plans.
Fiduciary Duty to Review Plan Asset Performance
Sponsors of pension, 401(k), and 403(b) plans have a fiduciary duty to monitor the investment performance of plan assets. Many observers suggest that it is appropriate for investment performance reviews to take place on a quarterly basis. It is generally acknowledged that a plan sponsor is well served by hiring a qualified investment advisor to help with reviews.
Even in the case of a 401(k) or 403(b) plan that provides for participant-directed investments, investment performance reviews are required, because the suitability of the investment choices available to plan participants must be assessed periodically. Such fiduciary concerns also apply to investment of plan assets under a nonqualified deferred compensation plan.
As the calendar year comes to a close, plan sponsors should begin to focus on a year-end review early in the first quarter of next year. And, to the extent that a plan sponsor has not implemented a periodic review process, strong consideration should be given to developing appropriate plan administrative procedures. At a minimum, such procedures would deal with engaging a qualified investment advisor, developing and drafting investment policy statements for each plan, setting periodic review dates, and creating a process by which all these actions are memorialized.
Defined Contribution Plans Must Allocate Forfeitures by Year-End
In general, qualified defined contribution plans may not carry unallocated suspense accounts from one plan year to the next. The IRS makes specific exceptions to this rule for suspense accounts arising from (a) the correction of excess annual additions and (b) assets transferred from a terminated defined benefit plan to be allocated over a seven-year period. Otherwise, the IRS expects all plan assets to be allocated among participant accounts at year-end.
Generally, whether a defined contribution plan reallocates forfeitures, applies them as a credit toward employer contributions, or applies them as a credit toward plan expenses, there should be no unallocated forfeitures remaining at year-end. Plan documents may contain language specifically addressing when forfeitures must be applied.
Benefit Limits for 2016
Most benefit limits affecting tax-qualified retirement plans remain unchanged for 2016. However, sponsors of defined benefit plans will experience an increase in PBGC premiums. The limits for 2016 are shown below:
Annual Benefit Plan Limits
Click here to view the table.
Reminder: Summary Plan Descriptions
An updated summary plan description (SPD) must be furnished every five years if changes have been made to information in the SPD, or if the related plan has been updated during that time period. (Otherwise, a new SPD must be furnished every 10 years.) In the interval between updated SPDs, plan participants must receive a summary of any “material modifications” to their plan no later than 210 days after the end of the plan year in which the modifications were adopted.
H-1B Visa Lottery Certain for April 1, 2016
Each year, U.S. employers scramble to obtain H-1B visas for the foreign national professionals they employ. In the past three years, the demand for new H-1B visas has exceeded availability on the first day of filing, April 1. Only 85,000 H-1B visas become available each year, and in 2015 the number of new H-1B petitions filed exceeded 230,000.
As the 2016 filing season approaches, employers should assume, once again, that there will be more demand for H-1B visas than there are numbers available.
The earliest filing date for the next allotment of H-1B visas is April 1, 2016. If — as is certain — more H-1B petitions are filed than there are numbers available, the U.S. Citizenship and Immigration Services will subject all petitions submitted on the first day to a random selection to determine which will be processed. The H-1B petitions not selected in this lottery will be returned to the employers who filed them, and the affected workers will be unable to seek H-1B status for another year.
Given the importance of getting new H-1B petitions filed on the first day of the 2016 filing season, we advise employers to work with counsel to have the petitions prepared well before the end of March, 2016. There is no guarantee that any particular petition will be selected in the H-1B visa lottery, but unless the petition is filed on April 1, 2016, it will stand no chance of acceptance.