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Generally, the count is based on the number of Forms W-2 filed under each separate EIN for the previous calendar year. To determine if an employer must provide the cost of coverage for 2018, the employer would look back and determine if they filed fewer than 250 Forms W-2 under their EIN in 2017. If less than the 250-form threshold, then they wouldn’t be subject to the Form W-2 cost of coverage reporting for 2018, even if they are self-insured.

Please note that the aggregation/controlled group rules don't apply when it comes to the 250 threshold for the Forms W-2 reporting requirement. This means that if there are entities that have different EINs and that separately file their Forms W-2, their employees can be counted separately. So, if each EIN corresponded to less than 250 Forms W-2 in the prior year, the reporting requirement would not apply. However, if the entity is set up with different divisions within the same EIN, then they would have to look at the entire employee count for this reporting requirement.

If an employer did file more than 250 Forms W-2 during the previous year, what coverage costs are included within the report? The total cost of coverage to be included is the employee and employer contributions that are excludable from the employee’s gross income under IRC Section 106 (or that would be excludable if it were paid by the employer). This includes employer-sponsored major medical coverage, both fully and self-insured (e.g., PPO, POS or HDHP). It would also include prescription drug coverage and any dental/vision coverage that is combined with major medical coverage.

An employer would not report any “excepted benefits” (those not subject to HIPAA, and thereby exempt from ACA), including stand-alone dental or vision plans, non-coordinated and independent benefits (such as hospital indemnity or specific-illness plans), and health FSA salary reduction elections (but there are special rules regarding optional employer flex credits that could be used to contribute to an FSA). HRAs, HSA contributions, long-term care and coverage under Archer MSAs also are not included.

Employers will also want to review their EAP, wellness and on-site medical clinic arrangements and programs. If COBRA applies to those plans, then the cost of these programs will need to be included in the reportable cost. Whether COBRA applies is a bit trickier analysis, but it basically comes down to whether the EAP, wellness program or on-site medical clinic is providing medical care. Employers should work with outside counsel in making that determination.

If the employer continues to have questions, they should review their obligations under this requirement with their advisor. Additionally, the IRS has provided a Q&A (https://www.irs.gov/newsroom/employer-provided-health-coverage-informational-reporting-requirements-questions-and-answers) to assist employers in both determining whether they are subject to the reporting requirement and calculating the total cost of coverage. NFP has information as well. Please ask your advisor for more information.

A more than 2% S-corporation shareholder is not considered an employee for IRC Section 125 purposes. They are considered self-employed. Only employees can participate in pre-tax benefits through a Section 125 cafeteria plan. This means that individuals who are considered self-employed are not eligible to participate on a tax-advantaged basis. So, the health FSA and dependent care FSA (DCAP) options become less valuable because their only purpose is the tax savings. Once that is taken away, there really isn’t a point to participating.

On the other hand, they can still continue participation in the underlying health plans through a Section 125 plan (medical, dental, vision), but cannot make premium contributions on a pre-tax basis. The same would be true for any qualified benefit offered through the cafeteria plan. So, owners may generally participate in the plan, but certain owners cannot participate on a pre-tax basis under Section 125. In other words, self-employed owners are allowed to participate in the plan itself (assuming they are otherwise eligible per the terms of the plan), but self-employed owners are not allowed to participate on a tax-favored basis under Section 125, whether the plan is a fully insured plan or a self-insured plan. So, if the owner is not an employee, they would just have to participate by paying premiums post-tax. C-corporation owners are generally treated as employees and eligible to participate on a pre-tax basis.

In regards to an HSA, they may make post-tax contributions and then claim them as a deduction on their individual tax return. See IRS Form 8889 instructions, page 3. Since they are not employees, they also cannot receive pre-tax employer contributions to their HSAs.

In regards to an HRA, the IRS has stated that 2% S-corporation shareholders, sole proprietors, and partners in a partnership are treated as self-employed and are not eligible for the tax-free benefits of an HRA. Further, the IRS has informally stated that such individuals would not even be eligible for the HRA on a taxable basis. Conversely, C-corporation owners are typically considered employees and could participate in the HRA and receive tax-free benefits.

Lastly, these rules not only apply to the S-corporation shareholder but also to the shareholder’s children, parents, and grandparents due to ownership attribution rules contained in the IRC. Specifically for S-corporation shareholders, the Section 125 rules refer to 2% shareholder ownership as incorporating the family attribution rules (found in IRC Section 318). Section 318 basically says that someone that has a certain relationship with the owner is treated as having the same ownership interest as the owner. Specifically, an individual is deemed to own the interest held by his or her spouse, children, grandchildren and parents.

In order for an individual to be eligible to open and contribute to an HSA, they must be enrolled in a qualified HDHP and in no other disqualifying coverage (no “first-dollar coverage”). A qualified HDHP cannot pay any benefits before the minimum statutory deductible is met ($1,350 for self only HDHP and $2,700 for family HDHP in 2019). There is also a maximum out of pocket (OOP) limit for QHDHPs ($6,750 and $13,500 for 2019, respectively).

There is a special rule regarding embedded deductibles for individuals with family HDHP coverage. In order for the health plan to remain an HSA-qualified HDHP, the plan cannot pay benefits for an individual under the family tier of coverage until the minimum statutory family deductible has been met. This is tied to the statutory family deductible, not the plan’s family deductible. So, benefits could not be paid for an individual with family HDHP coverage in 2019 before the insured has met at least $2,700 of the deductible.

For example, Pat is enrolled in self-only HDHP; his deductible is $1,500. All covered expenses are paid 100 percent after he has met his deductible.

John, Jane and Junior are enrolled as family on an HDHP. The whole family has to meet $3,000 deductible for everyone’s expenses to be paid 100 percent for the rest of the year. If any one individual in the family has $2,700 in expenses, that one person has met the individual embedded deductible and has their own covered expenses paid 100 percent while the other family members continue to accumulate up to $3,000. Typically, one person in the family tends to meet their full deductible in the year. So, the scenario could be Jane has $2,700 in expenses and meets her embedded individual deductible, John has $100 and Junior has $200. Then claims would be paid 100 percent for all members going forward. Another way they could meet the family deductible would be if Jane incurs $1,000, John incurs $1,500 and Junior incurs $500. In this case, the embedded deductible was never triggered, but would still be a qualified HDHP.

Additionally, there are separate ACA rules to consider. The ACA OOP max for 2019 is $7,900 for individual coverage and $15,800 for family (for 2019). Non-grandfathered plans must have embedded individual max OOPs with family coverage. HHS guidance confirms that the ACA’s self-only annual cost-sharing limit acts as an embedded limit when an HDHP provides coverage other than self-only coverage (that is, family HDHP coverage). In other words, if an individual stays in-network, then under no circumstances should that individual pay more than $7,900 (in 2019), even if it is non-embedded/aggregate.

Therefore, putting these rules together (the embedded minimum deductible under QHDHP and embedded max OOP under ACA), this could result in an individual embedded maximum OOP being less than the plan’s family deductible. For example, if a carrier says that an individual must meet $10,000 in OOP (to match the family deductible), that design would be out of compliance with the ACA requirement.

So, the embedded OOP for an individual with QHDHP family coverage in 2019 must meet both of these conditions:

• At least $2,700 (the statutory family deductible for QHDHPs)
• Equal to or less than $7,900 (the statutory ACA individual max OOP)

As another example, four individuals (A, B, C and D) are enrolled in family coverage with an OOP max of $13,500. A incurs $10,000 in covered expenses, and B, C and D each incur $3,000 in covered expenses. Since the self-only max OOP applies to each person ($7,900 in 2019), A’s cost sharing is limited to $7,900, and the plan has to pay the difference ($10,000 - $7,900). With respect to cost-sharing incurred by all four individuals, the aggregate is limited to $13,500, so the plan has to pay the difference ($7900 + $3000 + $3000 + $3000 = $16,900), which is $16,900 - $13,500 ($3,400).

Companies under common control are considered a ‘single employer’ for purposes of ERISA, the Internal Revenue Code (IRC) and for benefit offerings. That means one plan can be offered to the employees of all of the companies under common control. That said, there’s no requirement to offer the same plan to employees of all the commonly-controlled companies. It’s really up to the companies—and perhaps the parent company, if there is one—to decide how to offer benefits among the different companies. However, there are several compliance considerations.

First, the group of employers needs to consider the ACA’s employer mandate. All employees of all companies under common control must be included in the full-time employee/equivalent count in determining if the mandate applies. This means a smaller company that’s owned by a larger company may be subject to the mandate, even though on their own they may have fewer than 50 full-time employees/equivalents. In addition, the plans offered to full-time employees for all members of the controlled group would need to meet the minimum value and affordability standards under the mandate. Otherwise, the employer may be risking mandate penalties. Also, while each member of the controlled group is separately liable for such penalties, the group could come together and have one company offer the plan and perform reporting on behalf of the other controlled group members. But whatever the approach, the commonly-held companies would need to review their compliance obligations under the employer mandate.

Second, careful review of controlled group status should be made to avoid multiple employer welfare arrangement (MEWA) status. A MEWA is a plan that covers the employees of two or more separate (non-controlled group) companies. While MEWA status isn’t necessarily prohibited, it brings additional (and in some instances onerous) compliance obligations (such as Form M-1 filings and state requirements). Employers should ensure there’s sufficient common ownership before offering a single plan to companies within a controlled group in order to avoid additional MEWA obligations.

Third, if the group of commonly-owned companies offers different plans to different companies, there may be nondiscrimination testing required. The nondiscrimination rules prohibit a plan design that somehow favors highly compensated individuals (HCIs). There are two sets of rules that may apply: IRC Section 105 (if one of the offerings is self-insured) and IRC Section 125 (if employees can pay their portion of the premium pre-tax through salary reduction). While employers can vary plans (and employer contributions, among other things) by company (that is to say, different tax ID numbers/business lines within a controlled group), the result must not favor HCIs (which could happen if one of the companies had a much richer plan in place and that company had a disproportionate number of HCIs as compared to non-HCIs).

Fourth, whether the group offers one or multiple plans, arrangements should be outlined in related plan documents. Employers as plan sponsors have the ERISA obligation to create written plan documents and SPDs, and those should describe which company is sponsoring the plan and which companies’ employees are eligible to participate. So, after deciding to offer one plan versus multiple plans, the group should appropriately and sufficiently document their arrangements and offerings. They will also have to comply accordingly with other ERISA obligations (such as the Form 5500 and SAR reports).

Finally, the group of employers should work with outside counsel in running through the different considerations. Not only is the determination of actual controlled group status a tax and legal issue, but it also has consequences beyond benefits (primarily, employment tax and labor/employment law issues). Outside counsel would be in the best position to access and understand all of the facts and circumstances, and to advise the group of companies accordingly.

When FMLA isn’t an issue – either because the employer isn’t subject to it or because the employee isn’t eligible – there is no federal requirement to continue an employee’s health benefits while the employee is out on the non-FMLA leave. However, sometimes there are state laws that will mandate certain leave be provided, and require that health coverage be continued.

Generally, insurance contracts include “actively at work” policies that stipulate how long an employee can be on non-FMLA leave before they becomes ineligible for health coverage. Many insurance contracts make employees ineligible for coverage once they have been out on non-FMLA leave for a period of 30 days or more. The employer should keep that in mind for these employees as well, because the employees’ coverage could be limited by the eligibility terms of the insurance contract (or self-insured plan document).

If the insurance contract and plan document don’t include such an “actively at work” clause, then the employer should review their policies to be consistent with what’s provided to employees on other types of unpaid leave. For example, if benefits continue for employees on sabbatical or personal leaves of absence, then the employer would probably want to do the same thing with employees who take non-FMLA medical leave. This is especially the case if the employee is taking leave due to a disability. The employer wouldn’t want to be at risk of violating the Americans with Disabilities Act or HIPAA’s nondiscrimination rules related to medical conditions and disability.

The employer should also consider any state or local requirements to continue coverage. While many states don’t give any additional protection outside of FMLA, other states do.

Finally, an employer who ceases to offer coverage to an employee taking leave should be sure to offer COBRA when the employee’s coverage is terminated (assuming the employer is subject to COBRA). Since the employee would be experiencing a reduction in hours and a loss of coverage, they would be eligible for COBRA. As such, the employer would need to send the employee a COBRA election notice once their coverage was terminated. This would give the employee the opportunity to elect COBRA for the maximum coverage period.

In general, when maintaining group health plan records, an employer must consider ERISA, HIPAA and ACA guidelines.

ERISA
The recommendation is to maintain ERISA related documents for eight years. Based upon DOL rulings and statute, records required to be maintained under ERISA include vouchers, worksheets, receipts, and applicable resolutions, claims records, plan documents, summary plan descriptions, copies of filed Form 5500s and Schedules, accountants' reports, enrollment materials, requests for reimbursement for health FSA plans, lists of covered employees, and records of payroll deductions. The ERISA retention period for group health plans is six years and is measured from the date of filing a Form 5500. Because Form 5500 is often filed many months after the end of the plan year, the six year retention period is actually closer to seven years when measured from the end of a plan year. When adding in the possibility of a filing extension, many group health plans use eight years as a rule of thumb for ERISA document retention.

Many items may be able to be kept electronically rather than in paper form. According to DOL regulations, records may be maintained electronically if the electronic recordkeeping system meets certain requirements:

• The system must have reasonable controls to ensure the integrity, accuracy, authenticity and reliability of the records — and should not allow the modification of documents.
• The system must maintain the records in a reasonable order. (It should have some type of filing system so the records could be retrieved or inspected as necessary.)
• The system must maintain the records in a safe manner and should be backed up properly.
• The system needs to be able to print a readily legible paper copy of the documents.

HIPAA
With regard to HIPAA, covered entities and business associates must retain documentation for the privacy rule for six years from the date the documentation is created or the date it was last in effect, whichever is later. The documentation under the privacy rule includes any action, activity or designation that the privacy rule requires to be documented. Group health plan brokers and employers of fully-insured plans are generally considered to be business associates.

If the documents include protected health information (PHI), HIPAA requires that the information be safeguarded. Any PHI should be kept in files separate from the personnel or files with expanded staff access. Only those who need the information to perform the duties of their job should be granted access.

ACA
The PCOR fee is considered an excise tax under the Internal Revenue Code. As such, the Form 720 instructions indicates that tax returns, records, and supporting documentation must be maintained for at least four years from the date the tax became due, the date the claim was filed, or the date the tax was paid, whichever was later. However, with respect to the documents and records substantiating the enrollment count that was reported, those records must be maintained for at least 10 years. The IRS generally accepts electronic records. However, they retain the right to examine any books, papers or records which may be relevant to a filing.

With regard to the employer mandate, this isn’t specifically addressed in the regulations or instructions, but it appears that the same IRS rule that applies to the PCOR filing may also apply here. In other words, records regarding enrollment and offers related to the medical plan must generally be kept for four years, and the IRS retains the right to examine books, papers or records relevant to the filing.

Storage and retention of SPDs, enrollment information, claims information and so on would likely fall under ERISA and HIPAA’s requirements to maintain claims records and PHI (and to properly safeguard if documents include PHI). Therefore, the most conservative time frame would be to retain group health plan records for at least eight years measured from the date of filing Form 5500. In other words, an employer would need to retain past documents for at least eight years based upon the date of filing Form 5500. Additionally, retention of PCOR fee filings and employer mandate forms and records likely falls under the IRS’s requirements to maintain records for at least four years, but records substantiating those filings should be kept for at least 10 years.

The SAR is an annual summary of the latest Form 5500 for a group health plan. So, a SAR is required only where the plan is subject to Form 5500 filing requirements. If a plan isn’t required to file a Form 5500, then a SAR is not required. Under the DOL SAR regulations, a totally unfunded welfare plan, regardless of size, need not provide SARs (even though large, unfunded welfare must file a Form 5500). In contrast, large insured plans are subject to the SAR requirement. Employers with self-insured plans should work with outside counsel in determining if they are funded because large funded self-insured plans are subject to the SAR requirements. Generally, an unfunded plan means that benefits are paid out of general assets and that no plan assets are maintained. Segregating participant contributions from an employer's general assets could result in plan assets and thus a funded plan.

For those subject to the SAR requirement, the plan administrator must distribute a SAR to all plan participants covered under the plan within nine months of the end of the plan year. The SAR is only required to be distributed to plan participants who are enrolled at the time of the SAR distribution. For this purpose, a participant is defined as an employee or former employee (e.g., retiree, COBRA beneficiary) who’s actually enrolled on the plan — not terminated employees who are no longer covered. Also, it doesn’t include the participant’s beneficiaries (spouses or dependents).

SARs must be distributed two months after the Form 5500 filing deadline. For calendar year plans with a July 31 Form 5500 deadline, the SAR must be distributed by Sept. 30, which is fast approaching. If an extension of time to file the Form 5500 was granted, then the SAR deadline is two months after the extension date.

As far as the distribution method, mail is always an acceptable form of delivery. Email is also generally acceptable, so long as the DOL safe harbor on electronic distribution is followed. Essentially, employees must have computer access (e.g., a work email or a work computer station) as an integral part of their job, or they must give permission to receive communications at a separate email address. The employee also needs to have the ability to receive a hard copy of the SAR without additional cost. Employers using email delivery should use return-receipt features to maintain proof of delivery.

Lastly, the SAR can’t simply be posted on a company internal website; the employer must also send an email explaining what the document is, the importance of the document, where it can be located on the internal website, and the right for the employee to request a paper copy (and how to make that request).

The answer depends upon which qualifying event is involved, but yes, the employee has the right to switch benefit plan options under certain circumstances.

As a reminder, when an employer offers coverage through a Section 125 cafeteria plan, employee elections cannot be changed mid-year without a permissible qualifying event. It’s called the irrevocable coverage rule and applies any time employees contribute to the cost of health coverage on a pre-tax basis with salary reductions. There are two types of qualifying events: HIPAA Special Enrollment Rights (SER) and the optional Section 125 qualifying events.

The HIPAA SER events are:

• Birth
• Adoption
• Marriage
• Loss of eligibility for other group coverage
• Loss of Medicaid or CHIP
• Gain of eligibility for Medicaid or CHIP premium assistance program

Employees currently enrolled in the group medical plan who experience a HIPAA SER have the right to switch benefit plan options. For example, if an employee is enrolled in HDHP single coverage and gets married, they have the right to add the spouse and switch to a different medical plan option (such as an HMO plan). This is an entitlement under HIPAA. Neither the employer nor the insurer may deny the employee the right to switch plans under these circumstances.

Please note that the HIPAA SER rules don’t apply to stand alone dental or vision plans, which are generally excepted from HIPAA portability governance.

The second type of qualifying events are the optional events under Section 125:

• Change in status (employment, marital status, number of dependents, residence)*
• Change in cost (significant* and insignificant)
• Significant coverage curtailment*
• Addition or significant improvement of benefits package option*
• Change in coverage under other employer plan
• Loss of coverage sponsored by governmental or educational institution
• Certain judgments, orders or decrees
• Medicare or Medicaid entitlement
• FMLA leaves of absence
• Reduction of hours without loss of eligibility
• Exchange enrollment

These events are optional for both an employer and an insurer. If an employer intends to permit mid-year election changes based on these events, their written Section 125 Plan Document would need to provide for such and the insurer’s policy would need to be in agreement. Those events identified with an asterisk allow for an employee to switch benefit plan options (including not only medical, but also dental and vision) based on the employer and insurer election rules. Where there’s overlap between the HIPAA SER and optional Section 125 rules (for example, between the HIPAA SER event of marriage and the Section 125 event of change in marital status), remember that the HIPAA SER events along with the right to switch medical plan options are an entitlement to an eligible employee and cannot be denied by employer or insurer practice.

Lastly, remember that employers must operate the plan in accordance with the Section 125 rules and their written Section 125 Plan Document. Allowing employee election changes outside of those guidelines would put the employer at risk for disqualification of the plan’s tax status. On the other hand, denying an employee a HIPAA SER could result in DOL enforcement, an IRS excise tax penalty or legal action against the plan.

Some employers have been receiving IRS Letter 5699, which is a letter from the IRS inquiring about an employer’s informational reporting forms (Forms 1094-C and 1095-C), which may have been due in past years. As background, under the employer mandate and the related reporting, applicable large employers (ALEs—those with 50 or more full time employees, including equivalents) are required to identify and offer affordable coverage to all full time employees (those working 30 hours or more per week) and to file Forms 1094-C and 1095-C (which detail the offer of coverage) with the IRS. ALEs were generally required to offer coverage beginning in 2015, and are required to file informational reporting forms regarding the prior year’s compliance (that is, file reports in 2016 reporting on 2015 compliance, in 2017 reporting on 2016 compliance, and so on).

The IRS sends Letter 5699 to employers that may have failed to submit their informational reports. In other words, if the IRS doesn’t have a record of a company’s Forms 1094-C and 1095-C, and the IRS believes the company should have submitted those reports, the IRS could send Letter 5699 to that company. Letter 5699 identifies the year of the alleged failed reporting, and provides the employer with five options for responding. Specifically, employers who receive this letter can:

1. Acknowledge they were an ALE for the year indicated, and that they actually did file the appropriate forms (and identify the date and employer EIN used to file).
2. Acknowledge they were an ALE for the year indicated, but that they didn’t file appropriately or on time for the year. The employer would also include in their response the appropriate forms and explain the reasons for the late filing.
3. Acknowledge ALE status and promise to report within 90 days of the letter (and explain the reasons for the late filing).
4. Claim they were not an ALE for the year in question.
5. Categorize their response as “Other,” which is a catch-all option for the employer to explain why they didn’t file and any actions they plan to take to fix the failure.

The letter reminds the employer that there are penalties for failing to file the appropriate informational returns. Although the letter does not list specific penalty amounts, the IRS has previously indicated that the penalty amount for tax filings made in 2017 or after is $260 for each return to which a failure relates (capped at $3,218,500 — although there’s a lower cap for employers with $5 million or less in annual gross receipts). For failures in 2016, the penalty is $250 (with a $3 million cap). Keep in mind that the failure to provide a form to the IRS and to a given participant is considered two separate failures.

Employers that receive IRS Letter 5699 should review the letter closely and review their filing for the year indicated in the letter. Employers are required to respond to the letter within 30 days. The first page of the letter contains IRS contact information and employers should reach out to that IRS contact to let them know they’ve received the letter and are working towards its resolution. After reviewing and assessing whether the filings were made in the year in question, the employer should check the box relating to their response (under one of the five options above). The employer may also need to provide an explanation of the situation or the reasons for the failure, as well as any corrective action they plan on taking. Working directly with the IRS agent, the employer may also want to attach additional documentation or substantiation relating to the informational reports. If the employer has specific questions or needs exact advice, they should work with outside counsel.

The General Data Protection Regulation (GDPR) is a law adopted in the European Union (EU) which took effect on May 25, 2018. GDPR seeks to protect the personal data of EU data subjects (citizens and residents) and affords privacy protection for such individuals. The regulation broadly defines personal data as any information that relates to an identifiable, living human being, which can include the person’s name, address, phone number, location, health records, income and banking information, etc. Essentially, if one can use the data to identify a person in any way, it is likely personal data that would render an entity receiving that data subject to the law.

Specifically, the law imposes requirements on entities that collect, use and process personal data of EU data subjects. Since the law does not limit its scope to EU-based companies, companies all over the world that employ individuals in the EU, offer goods and services to individuals in the EU, or track or profile individuals in the EU are impacted by this regulation.

The GDPR also recognizes two different roles that determine an entity’s responsibilities under the regulation – data controllers and data processors. Data controllers determine the purpose and means of processing personal data. Data processors process the data on behalf of the data controller. As an example, a US-based company with EU employees would likely be a data controller since as an employer it collects personal data on those EU employees for business/employment purposes. That same company with EU employees might contract with a health and welfare broker who takes some of that personal data and processes it to enroll the employees in the company’s health plan. The broker would likely be a data processor in this instance, as they are processing that information on behalf of a data controller (i.e., the employer company).

If an entity is a data controller, then they are subject to the GDPR’s requirement that data processing be fair and transparent, for a specified and legitimate purpose, and limited to the data needed to fulfill that processing purpose. The regulation also gives specific legal grounds under which a controller can process personal data, including if the person gives his/her consent, if there is a contractual or legal obligation, if doing so will protect the vital interests of the person, or if it is to carry out a task that is in the public interest or in the company’s legitimate interest. Keep in mind, though, that the regulation makes it clear that an individual’s right to their personal data will often trump the business’ interests.

Even if a company has the legal grounds to process certain personal data, they are still obligated to protect the individuals whose data they possess. Specifically, companies must:

• Provide individuals with information on who is processing their data and why;
• Provide individuals with access to their personal data when requested;
• Erase an individual’s personal data when requested (under certain circumstances); and
• Correct incorrect information or complete incomplete information when necessary or stop processing that data if the individual objects.

Data controllers are also required to ensure that any data processor they use offers sufficient privacy and data protection guarantees through a written contract between the controller and processor. This contract must specify, among other things, that the data processor will only process data as directed by the controller.

Ultimately, this regulation is aimed at allowing EU data subjects more rights and control over their personal data in an increasingly technological world. Keep in mind, though, that this regulation is much more detailed and complex than what we can summarily provide in this FAQ. The potential fines and costs associated with noncompliance of this regulation can be significant, up to twenty million euros or 4 percent of an entity’s worldwide revenue (in addition to any court proceedings or damage to an entity’s reputation). As such, companies that feel they might be subject to the GDPR should work with legal counsel to review and assess compliance with the regulation.

GDPR »
About the GDPR »
GDPR Fact Sheet »

As background, employer wellness programs involving a disability-related inquiry (e.g., a health risk assessment) or a medical examination (e.g., a biometric screening) are limited to a 30 percent wellness reward under the EEOC’s final wellness rules. A financial incentive may be provided to individuals who voluntarily provide genetic information as long as certain requirements are met. Additionally, a notice must be provided to participants prior to the inquiry or examination. Pursuant to the judge’s decision in AARP v. EEOC, those rules would be vacated effective 2019, if the EEOC fails to finalize new regulations in 2018. (We discussed that ruling in the Jan. 9, 2018 edition of Compliance Corner.)

Specifically, this means that if the EEOC doesn’t reissue their regulations by Jan. 1, 2019, then the 30 percent inducement might no longer be permitted. If this happens, then it’s presumed that things would revert back to the ambiguous language of the EEOC’s requirement that a plan be voluntary if it offers an incentive. Thus, an employer with a 30 percent inducement under the HIPAA wellness rules with a health screening or disability inquiry could be in violation of the EEOC’s previous guidance.

In addition, if the EEOC doesn’t issue new rules, this impacts the ability to have a spouse complete a health risk assessment. This information is generally considered genetic information, but there was a specific exception in the EEOC GINA rules that allowed for it as long as it was up to 30 percent, only considered the spouse’s previous or current manifestation of a condition and the reward/inducement was separate from the employee’s reward. This is another part of the inducement rule that would be vacated. In other words, employers likely couldn’t provide a reward for a spouse’s completion of a health risk assessment.

However, this is all still speculation. We don’t know if the EEOC is going to promulgate new rules or impose some type of non-enforcement policy on plans that rely on their rules after Jan. 1, 2019. For now, nothing has changed, and the EEOC’s rules remain in place. We’ll report any updates in Compliance Corner and other resources as soon as the EEOC issues new rules or if the rules do become vacated. Also, it’s unlikely that there wouldn’t be some type of transition relief for any plans to come into compliance (in other words, we don’t believe the rules would be vacated automatically, making everyone offering this type of program out of compliance on Jan. 1, 2019).

It’s ultimately up to employers to determine how they’ll proceed in light of the EEOC rules possibly becoming vacated. Some may choose to rely on the EEOC’s rule in the future (especially when you consider the 30 percent reward allowed under HIPAA wellness program regulations). Others may instead choose to take a more conservative route and not offer any incentive to provide disability-related information. Either way, we could not advise on a specific course of action due to lack of guidance and would recommend employers discuss the issue with outside counsel.

Due Date
The PCOR fee is due Tuesday, July 31, 2018, for all plan years that ended in 2017. The fee is generally due on July 31 of the year following the plan year end date. Please keep in mind that the PCOR fee applies to plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019. So, the end of the PCOR fee era is near.

Responsibility
Insurers are generally responsible for the PCOR fee payment and filing for fully insured plans; whereas the employer is generally responsible for the PCOR fee payment and filing for self-insured plans. Special rules apply for determining who is responsible in the situation of an association plan, MEWA or VEBA. The IRS has a helpful chart to remind employers which types of plans are subject to the fee. The requirement to pay the fee will remain in place until the plan years ending before Oct. 1, 2019.

Fee Calculation
The general rule is that the PCOR fee is based on the average number of covered lives during the plan year. Importantly, this includes not only employees, but also dependents (spouses, children and others) as well as former employees still receiving coverage under the plan (former employees on disability who are still covered, retirees, COBRA participants, etc.). The IRS allows employers to use any one of four methods for calculating lives, as described below:

1. Actual Count Method: Calculate the sum of the lives covered for each day of the plan year and divide that sum by the number of days in the plan year.
2. Snapshot Method: Add the total number of lives covered on any date (or more dates, if an equal number of dates are used for each quarter) during the same corresponding month in each of the four quarters of the benefit year (provided that the date used for the second, third and fourth quarters must fall within the same week of the quarter as the corresponding date used for the first quarter). Divide that total by the number of dates on which a count was made.
3. Snapshot Factor Method: The calculation is the same as the snapshot method, except that the number of lives covered on a date is calculated by adding the number of participants with self-only coverage on the date to the product of the number of participants with coverage other than self-only coverage on the date and a factor of 2.35. For this purpose, the same months must be used for each quarter (for example, January, April, July and October).
4. Form 5500 Method: The plan may use the data reported on the most recent Form 5500. A plan may only use this method if it filed the Form 5500 by July 31. A plan filing an extension for the Form 5500 would have to use another calculation method. If a plan covers only employees, then the plan sponsor would add the number of participants at the beginning of the plan year and at the end of the plan year and divide by two. If the plan covers dependents, the plan sponsor would add the number of participants reported for the beginning of the plan year and the number of participants at the end of the plan year, and report this total.

Employers may switch methods from one year to the next, and should calculate the average number of lives under all four methods and choose the one that is most favorable. For example, a plan that has many covered dependents (employees generally cover three or more dependents) may find that the snapshot factor method is advantageous, since it allows employers to disregard actual dependent count and instead assume 2.35 lives per covered employee. Similarly, if the employer hires more individuals at the end of quarters, the snapshot method may allow an employer to use a date early in each quarter to make a count, which may be advantageous.

Payment
The PCOR fee is filed and paid via IRS Form 720, Quarterly Federal Excise Tax Return. The PCOR fee is reported in Part II of that form, which also includes the amount of the fee (based on when in 2017 the plan year ended). Employers should work with their advisors and tax advisers in ensuring proper filing and payment of the fee.

Penalties
The PCOR fee is treated as a tax. As such, it is generally assessed, collected and enforced in the same manner by the IRS as other taxes. We know of no amnesty or leniency for noncompliance with the PCOR fee filing.

Specifically, the fee is found in the excise tax portion of the IRC, and since the fee is reported on IRS Form 720, there are general penalties that apply for failure to file a return or pay a tax. Those are found in IRC Section 6651 and the penalties vary based on the amount failed to be reported or paid.

The general penalty would be up to 25 percent for a failure that is beyond five months. Like any other tax payment failures, there is also the risk of interest on top of the required amount. There are additional penalties if the failure was due to willful neglect, which means that the employer knew about the requirement but did nothing about it. So, there is definitely a risk involved with not filing and paying the PCOR.

There is no specific guidance on how to correct a failure. Ultimately the employer will want to consult their tax advisor as soon as the problem has been identified. However, as with other tax form and payment failures, it seems prudent and appropriate to come into compliance as soon as possible. Most likely, the employer could start by filing a Form 720 for past years as soon as possible. Generally speaking, the employer needs to file a separate Form 720 for each year, but could file multiple at the same time. Ideally, the employer should consult their tax adviser for advice on precisely how to proceed.

Here are some helpful IRS links:

IRS PCOR Fee Landing Page »
IRS PCOR Fee FAQs »
IRS Form 720 »
IRS Form 720 Instructions »

As a reminder, the employer mandate (also known as the employer shared responsibility) only applies to employers with 50 or more full-time employees, including full-time equivalents (FTEs).

In November 2017, the IRS began enforcement of the employer mandate. Their efforts thus far have focused only on calendar year 2015. In 2015, most small employers with 50 to 99 FTEs qualified for transition relief. This transition relief exempted them from employer mandate penalties for that year, but they were still required to comply with Section 6056 reporting (Forms 1094-C and 1095-C).

The method of enforcement used by the IRS involves issuing a Letter 226J to the employer. The letter will identify the total assessment that the IRS believes the employer owes, the reasoning for the assessment, including a listing of the employees who received a premium tax credit, and instructions for appealing the assessment.

To our knowledge, the first round of letters sent by the IRS assessed Penalty A for failure to offer minimum essential coverage (MEC) to substantially all full-time employees (70 percent in 2015). Almost all of the letters we’ve seen were due to a reporting mistake rather than actual failure to comply with the employer mandate. In other words, the employer indeed offered MEC to substantially all full-time employees, but their Form 1094-C didn’t indicate that fact. Specifically, column (a) of the Form 1094-C was incorrectly marked “No” in response to whether they offered MEC to full-time employees.

The most recent letters we’ve seen seem to assess Penalty B for an employer’s failure to offer minimum value, affordable coverage to specific employees who received a premium tax credit. Again, the penalties are generally due to erroneous reporting. A common scenario is that the employee was indeed not offered coverage, but the employer had a valid reason for not offering it. For example, the employee was in an initial measurement period, part-time or not employed for that month. The employer entered 1H on line 14 of the Form 1095-C, but failed to claim the correct safe harbor code on Line 16.

In most cases, the IRS has been cooperative with employers. They have advised employers as to what documentation is necessary to eliminate or reduce the penalty assessment. In some cases, the IRS representative granted a 30-day extension to give the employer more time to respond and gather documentation.

The letters are still being sent out on a regular basis. We saw several employer letters just last week. So, just because you haven’t seen one yet doesn’t mean you’re in the clear. And remember, so far, they’ve only focused on 2015. We haven’t seen any enforcement action related to 2016 or 2017 yet. However, several IRS representatives have told employers that if the employer has knowledge that their 2016 or 2017 Forms 1095-C or 1094-C are incorrect, they encourage them to file a correction as soon as possible.

For now, the employer mandate is still in effect with no immediate changes expected. Large employers should continue to offer minimum value, affordable coverage to full-time employees. And just as important as the offer, an employer must have records documenting the offer, the cost of coverage for affordability purposes, and employee hours. An employer just might need these records to successfully appeal a potential assessment from the IRS.

Generally, employers will have to decide how to handle an adjusted MLR rebate check received from an insurance carrier. This can be somewhat confusing for employers, since the adjustments generally relate to prior years. Overall, though, the employer's MLR rebate distribution responsibilities hinge on whether there's a portion of the rebate that's attributable to employee contributions (which makes them “plan assets,” a status that places some stricter rules on whether and how they should be refunded to employees).

If the entire rebate is attributable to employer contributions (e.g., the employer contributed 100 percent of the premium), then the employer can generally keep the rebate. If, however, employees contributed toward the cost of coverage, the portion of the MLR rebate that's attributable to employee contributions is considered plan assets, meaning it must be used in a way that benefits those employees/participants.

There are basically three ways an employer can use the plan assets portion of the MLR rebate to benefit employees/participants: providing a taxable cash refund, allowing a premium reduction (sometimes called a “premium holiday”), or adding some type of benefit enhancement (such as coverage for an additional service, an additional contribution to an HRA or something similar) to the overall plan design. Most employers settle on using a cash refund or premium holiday to benefit participants. One reason is that the MLR rules require the rebate to be used within 90 days and only on behalf of that specific plan's participants. So, for example, the amount couldn't be used to provide a wellness program that benefits all employees. If the employer instead chooses a premium reduction, the employer could limit the distribution to only those who are currently participating in the plan. Further, the employer could limit the distribution to only those who are participating now AND were also participating in that same plan in the relevant year.

With regard to former participants, the DOL provides employers a bit of flexibility. Since a benefit enhancement or premium holiday wouldn't help a former participant, the only method that would be appropriate for former participants is a cash refund. If the cost of distributing rebates to former participants is approximately equal to or greater than the amount of the rebate, then the employer may decide to limit rebates to current participants. It's unclear what can be taken into consideration in determining cost. While it may include the time to track down individuals, the more conservative approach is that the employer should look only at “hard” costs (e.g., postage, cost of having check cut, locator fees, etc.). Ultimately, since the employer is the fiduciary of the plan assets, they'll have to decide the overall cost-effectiveness of distributing to former participants (but couldn't do the same for current participants).

In addition, there isn't a de minimis threshold. The only consideration is the one outlined above regarding the cost of including former employees compared to the distribution amount. The proportionate amount related to plan assets must be distributed to current participants even if it's a small amount.

Lastly, there's one exception to the general rule that plan assets must be distributed to participants in one of the three ways outlined above. Specifically, if the employer placed specific language in the plan document to retain the rebate amount (which is extremely rare), it's possible they could retain it. Employers relying on that exception should work with outside counsel to ensure compliance with the MLR rules in that situation.

In summary, if employees originally contributed towards the cost of coverage, an employer couldn't keep the entirety of an adjusted MLR rebate. This is because a portion of the rebate is attributable to plan assets and must be handled accordingly. If the rebate is an insignificant amount, the employer may be able to exclude former participants, but it would be required to include current participants in one of the three distribution methods outlined above.

The Uniformed Services Employment and Reemployment Rights Act (USERRA) provides certain protections for employees who must be absent from work due to uniformed service. These protections include re-employment rights, protection from discrimination and the right to the continuation of group health coverage.

Specifically, when an employee is absent due to uniformed service, the employer must satisfy USERAA obligations for continuation of group health coverage with respect to that employee. Namely, an employee who is absent from work due to uniformed service is entitled to continue his/her group health coverage for a period of 24 months.

If the leave of absence is to be 30 days or less, the employer should pay its normal share of premiums. If the leave of absence is expected to be 31 days or more, the employer isn't required to pay its normal share of premiums (not even for the first 30 days). However, the applicable premium cannot be more than 102 percent of the normal cost of coverage.

If the employer is also subject to COBRA, then a leave of absence to serve in the armed forces would likely also be considered a COBRA triggering event. So, when an employee leaves for deployment, the employer should offer the employee continued coverage under USERRA and COBRA. To that end, the COBRA election notice can be modified to include USERRA language.

Also keep in mind that if the employee returns and is rehired after his or her service, USERRA requires that the employer allow the employee to re-enter the group health plan. This is true whether the employee continued coverage under COBRA or USERRA or not.

HSA eligibility is determined on a monthly basis and not on a plan year or calendar year basis. An individual is only allowed to establish and contribute to an HSA if they’re enrolled in a qualified HDHP and have no other disqualifying coverage (e.g., general purpose health FSA or HRA, copay-type medical plan, Medicare, TRICARE, etc.) for that same month. For example, if an employee enrolls in a general purpose FSA or a copay-type medical plan, the individual wouldn’t be eligible to make contributions into an HSA for that same month or for any other months while still enrolled in disqualifying coverage.

However, health FSA elections are generally irrevocable for the full plan year unless there’s a qualifying life event that would allow the employee’s FSA election to be revoked. So, if an employee enrolls in an FSA as of Jan. 1, for example, the individual couldn’t also establish or contribute to an HSA while enrolled in the FSA and couldn’t decide to change their FSA election later without experiencing a qualifying event. However, an employee could wait until open enrollment to waive health FSA participation and contribute to the HSA after the end of the FSA plan year.

Lastly, an individual is generally responsible for IRS compliance with an HSA because they’re the account holder. However, if the employer sponsors an HSA and HDHP, then they also have a responsibility to determine whether individuals’ HSA contributions are excludable from income. IRS guidance says that the employer who sponsors the non-HDHP coverage has the responsibility to confirm that an employee is covered under the HDHP and isn’t covered under any other disqualifying coverage sponsored by that employer if an employee is contributing to an HSA. In other words, if an employer sponsors a health FSA, they have an obligation to make sure employees are actually eligible to make HSA contributions if they offer an HSA and HDHP (including any employer HSA contributions).

Thus, once non-HDHP coverage ends and an individual enrolls in a qualified HDHP, even if it’s in the same calendar year or plan year, they could generally contribute to an HSA for the remaining months. Importantly, though, employers must keep in mind their responsibly to determine whether an employee’s HSA contributions are excludable from income and clearly communicate HSA-eligibility to employees.

Generally speaking, employees and former employees may participate in an HRA. If the HRA is a general-purpose HRA for active employees, the ACA requires that the HRA be integrated with group health coverage. Very generally, “integrated” means that the HRA covers expenses relating to the group coverage (i.e., deductibles, co-insurance, etc.). The participating employees must be enrolled in a group health plan (either directly through the employer or through outside coverage, such as through a spouse’s employer). If the HRA is a limited-purpose (reimburses only dental and/or vision expenses) or a stand-alone retiree-only HRA, it isn’t subject to the ACA (and therefore doesn’t have to be integrated with group coverage). So, an employer could make all former employees eligible for a retiree-only HRA (even if they didn’t have group coverage).

Because HRAs are only for employees or former employees, self-employed individuals are generally not eligible to participate in an HRA. A self-employed individual includes a sole proprietor, partner in a partnership (sometimes also called a “K-1 earner”) and a more-than-2% S corporation shareholder. For LLCs, if the LLC is taxed as a partnership, the owners will generally be considered self-employed. On the other hand, if the LLC is taxed as a corporation, and for C corporation owners, the owner may participate as long as they are otherwise treated as an employee (i.e., receive W2 income).

As for distributions from the HRA, employees and former employees may use HRA funds to pay or reimburse medical expenses of their federal tax dependents. That generally includes a spouse and a child (step/adopted child included). Expenses for children can be reimbursed up until the end of the year in which the child turns age 26, regardless of whether the child is a tax dependent of the employee. A “child” may also include an eligible foster child (one placed by an authorized agency or by judgment or other decree/order of a court). An employee may use HRA funds for a domestic partner’s expenses only if the domestic partner is the federal tax dependent of the employee.

Employers are generally free to determine eligibility and restrict distributions to certain expense types (such as a dental/vision-only HRA) as they see fit. Because an HRA is considered self-insured and therefore subject to the Section 105 nondiscrimination rules, employers shouldn’t favor their more highly compensated individuals (such as a management or executive group) in their HRA eligibility and benefit/reimbursement design. Beyond that, employers should document eligibility and plan design in the related plan documents and communicate them to employees.

Please ask your advisor for a copy of our white paper HRAs and Other Employer Reimbursement Arrangements.

No. Simply posting the SPDs on your intranet is not enough. Employers must ensure the intended recipients receive the SPDs. For example, merely providing employees with access to a computer in a common area (e.g., a computer kiosk) is not a permissible means to electronically furnish ERISA-required documents.

As background, ERISA requires a plan administrator to obtain written consent prior to electronically delivering ERISA disclosures to beneficiaries and other plan participants who do not have work-related access to a computer. Plan administrators are required to use measures reasonably calculated to ensure actual receipt of the material by plan participants and beneficiaries (e.g., the plan administrator must make use of electronic mail features such as return-receipt or notice that the email was not delivered). The plan must also conduct periodic reviews to confirm receipt of the transmitted information.

In general, the regulations recognize two groups of employees when determining whether electronic distribution is sufficient: those who have electronic access as an integral part of their job and those who don’t. These categories are determined by whether the employee can access electronic documents at a location where they are reasonable expected to perform their job duties.

Importantly, the first group are not just employees with a work email or who have access to a computer station at work (clock-in locations/kiosks included). Instead, they actually have to have the ability to access electronic documents at a location where they normally work. Thus, an employer should consider their workforce and determine which employees (if any) fit into the first category.

So, if an employee does not have access as an integral part of their job, the employee may provide the employer with an email address to send the notices, but the employee must affirmatively give consent to receiving electronic notices before the documents are distributed with that personal email. The email must explain what documents will be provided electronically, that their consent can be withdrawn at any time, procedures for withdrawing consent and changing the email address, the right to request a paper copy of the document and if there is an applicable fee, and what hardware or software would be required. If an employee doesn’t give consent, then the employer should mail them a hard copy or provide it through another verified delivery method.

Further, whenever an email is sent to the employee with the notice (e.g., SPD), the employer must also explain what the notice is, explain the importance of the document, and advise on the ability to access and obtain a paper copy. So there is supplementary language that should be included in the email with the notice the employer should be aware of.

Finally, some notices are not appropriate for electronic disclosure. For example, the COBRA initial and election notices must be sent to covered spouses as well as to covered employees upon enrollment in the plan. Thus, the group should deliver these documents through another verifiable method if not included under the DOL safe harbor.

Please ask your advisor for a copy of our white paper (Required Group Health Plan Notifications for Employees) that describes which documents should be included in the eligibility/enrollment packet, which documents should be distributed upon enrollment, and which documents should be distributed upon termination from the plan. It identifies the required notices that may be provided electronically (indicated by an asterisk). Additionally, to assist with understanding the electronic disclosure requirements, take a look at this helpful chart regarding the DOL’s electronic disclosure safe harbor describing the requirements for certain employee groups to receive (or provide consent to receive) documents electronically.

Employers are often faced with situations that result in employees’ inability to pay insurance premiums. Whether the employee has experienced a reduction in hours, is on unpaid leave, is a tipped employee or must be offered coverage due to being in a stability period under the employer mandate, there are different times that the employee’s wages may not be enough to cover their health insurance premiums.

Unfortunately, the IRS hasn’t provided specific guidance regarding situations where there’s a pay shortage due to employees working fewer hours during certain periods of the year. However, we believe that we can look to the regulations that address how to finance employees’ benefits during FMLA leave for guidance on pay shortages.

These regulations provide three options for handling the contribution obligations of employees who continue group health coverage during an unpaid FMLA leave:

1. Prepayment with a special salary reduction
2. Pay-as-you-go on an after-tax basis
3. Catch-up salary reductions (or after-tax payment) upon return from the leave

Thus, the IRS has indicated that salary reduction elections for group health coverage, at least in the context of FMLA leave, can be accelerated, deferred or paid on an after-tax basis when there is no pay. It seems reasonable to apply similar concepts in the non-FMLA context, as well. Moreover, there’s no requirement that salary reduction contributions be made in equal amounts every pay period. Keep in mind, though, that the plan document should contain language flexible enough to accommodate the employer's method for handling pay shortages.

The first option under the FMLA regulations – prepayment by acceleration of the salary reduction – isn’t likely to be useful unless the pay shortage is predicted, perhaps as in the event of a planned leave or an annual slow time for a commissions-only salesperson. It’s worth noting, however, that the FMLA regulations don’t allow prepayment to be the sole option made available to employees on FMLA leave. Further, the prepayment option cannot be used to pay for benefits in a subsequent plan year.

The second option – pay-as-you-go on an after-tax basis – will only be useful for participants that have additional resources to pay the amount out-of-pocket (like a workers’ comp or disability policy). The employer will also need to notify any such participants of how they will pay the premiums while out. For example, will they direct payment to the employer or the insurer?

The third option – catch-up salary reductions – is most likely to work when the pay shortage is unexpected. This option allows the employer and employee to agree that the employer will advance payment of the premiums and that the employee will pay the employer back upon their return. If it seemed that a given employee was going to go back to working full-time hours, then the catch-up salary reductions may be an option.

However, the risk in allowing catch-up salary reductions is that the employer may not be able to recoup the deferred salary reductions. So an employer permitting this option might consider establishing an outside limit for the deferral (e.g., 30 or 60 days) and then stopping or reducing coverage at the end of the time period if the catch-up salary reduction isn’t made or is insufficient to cover the amount due.

Note that there’s added risk in using this method under a health FSA, because the uniform coverage requirement isn’t suspended.

So, although there’s no specific guidance on what to do when an employee’s paycheck doesn’t cover the health premiums, the employer could explore the options provided for unpaid FMLA leave, as long as the plan document reflects the method that’s chosen. The employer ultimately may also want to seek outside legal counsel on this issue, since the IRS hasn’t provided specific guidance.

An employee who regularly works 30 or more hours per week is considered full-time and, therefore, must be offered health coverage by an employer, subject to the employer mandate. If an employee is reasonably expected to work full-time hours, based on determinative factors such as comparable full-time positions, how it was advertised in a job description, etc., the employee should be offered coverage no later than the first day of the fourth month and shouldn't be placed in a look-back measurement period. In other words, the normal new-hire waiting period would apply and coverage would be effective following the waiting period. However, if an employee's hours vary above and below 30 hours per week and there's no reasonable expectation that they'll always work full-time hours upon hire, they should be placed in a look-back measurement period. Importantly, employees shouldn't be moved back and forth from variable hour to full-time just because they start working more or fewer hours.

If an employer is using the look-back measurement method for variable-hour employees and if the employee was determined to be full-time and eligible for benefits during the defined standard measurement period, the employee should remain eligible through the end of the corresponding stability period, regardless of the number of hours worked during the stability period. In other words, when an employee earns full-time status during the measurement period, their status as an eligible full-time employee is essentially locked in for the entire stability period, even if their hours drop below 30 hours per week. This is true even if the employee's hours drop voluntarily.

In addition, there's an exception that says if an employee transfers to a position that would have been considered part-time if originally hired into that position, the employer can switch to the monthly measurement period starting on the first day of the fourth full month following the month of transfer, However, this only applies if both of these conditions are met: 1) The employee actually averages less than 30 hours/week for the full three calendar months after the transfer and 2) the employer has continuously offered minimum value coverage starting no later than the first day of the month after the employee's first three months of employment through the calendar month in which the transfer occurs. This means the second condition would only apply if the employee was offered minimum value coverage after their first three months of employment. This condition wouldn't apply if the employee were offered coverage after meeting the measurement period. Thus, both conditions listed above would need to be satisfied for this exception to apply. If this exception doesn't apply, the employer would need to offer coverage for the full stability period for which it was determined they were a full-time, eligible employee.

Importantly, though, COBRA must be offered whenever there's a loss of eligibility and a triggering event. The triggering events include reduction of hours, termination of employment, divorce, death of the employee, and child ceasing to be eligible under the terms of the plan. So, if an employee was previously eligible because they averaged 30 hours or more per week and are now ineligible because they didn't average at least 30 hours during the corresponding standard measurement period (i.e., at the end of the stability period), then they've lost eligibility due to reduction of hours. COBRA would then be offered for the plan that the employee (and covered dependents and spouse) had before the COBRA event.

FMLA was enacted on Feb. 5, 1993, which means it celebrated its 25th anniversary last month. Even after all these years, it can still be one of the more complex laws with which an employer needs to comply.

First, it's important to first understand to whom FMLA applies. FMLA applies to governmental agencies and schools (public school boards, public and private elementary and secondary schools) of any size. It also applies to private employers with 50 or more employees in 20 or more workweeks in the current or previous calendar year.

Covered employers must post the General Notice in the workplace. Additionally, covered employers must include the language of the notice either in an employer handbook, if available, or as a separate notice distributed to new employees.

It's a common misconception that FMLA only applies to employers with 50 or more employees within a 75-mile radius. The mileage provision is related to which employees are eligible for leave — not which employers are subject to FMLA. This means that all covered employers, discussed above, must comply with the posting requirement regardless of whether they would actually have any employees eligible for FMLA under the mileage provision.

An employee is eligible if they meet all of the following service requirements:

• Have worked for the employer for at least 12 months
• Have at least 1,250 hours of service within the last 12 months
• Work at a location where the employer has at least 50 employees within 75 miles of the employee's worksite

An employee without a specific worksite (such as a salesperson or a telecommuter) is considered to work at the home base from which they are assigned work or to which they report. When determining whether an employee meets the service requirements, it's important for an employer to consider the service time performed for a predecessor employer when there's been a corporate restructure or merger.

An eligible employee is entitled to leave for any the following qualifying reasons:

• Birth of placement of a child for adoption or foster care
• To bond with a child up to 1 year following birth or placement
• To care for the employee's family member who has a serious health condition
• For the employee's own serious health condition
• For qualifying exigencies related to the deployment of a military member who is the employee's family member
• To care for next of kin who is a covered service member with a serious injury or illness

Another common mistake made by employers is failure to recognize an employee's leave for a work-related injury or illness under FMLA. If an employee is absent from work due to their own serious health condition, FMLA applies regardless of whether the injury or illness is work-related.

FMLA is generally unpaid leave. While on leave, though, an employee has the right to continue health plan coverage at the same cost as an active employee. They cannot be charged more than the normal required contribution. If the employee is receiving compensation (such as accrued paid time off), health plan deductions would be taken as normal. However, if the employee isn't receiving compensation, the employer will need to make other arrangements for the employee's contributions. The employee may choose to prepay the contributions if the leave is foreseeable, the employer may require the employee to pay during the leave or the employer may permit the employee to pay upon return.

It's important for the employer to communicate the employer's payment policy as soon as possible upon designating the leave. The combined Notice of Eligibility and Rights and Responsibilities Notice includes language related to payment of contributions. Employers should make sure that the language accurately reflects their policy and procedures. Further, an employee may choose to terminate coverage during the leave and be reinstated upon a timely return.

Finally, there's often confusion as to when health plan coverage would terminate if an employee doesn't return to work within 12 weeks. There are many considerations with this issue. The employer should first determine whether the employee is eligible for continuation of coverage under any other leave entitlement, including state law and employer policy. Next, the employer should review its terms of eligibility in the plan documents. Often the plan document states that employees remain eligible if they work a specified number of hours per week or are on a specific type of leave. Applicable large employers need to also consider their look-back measurement method procedures under the ACA's employer mandate, if applicable. If an employee was determined to be an eligible full-time employee during the most recent measurement period, they'll remain eligible during the entire stability period regardless of current hours worked.

Once the employee no longer meets the terms of eligibility, health plan coverage should be terminated and COBRA offered. A common mistake is that employers continue eligibility for employees who have exhausted all leave and no longer meet the terms of eligibility. This exposes the employer to risk, as an insurer or stop-loss provider may deny claims for the ineligible employee, leaving the employer to possibly self-insure the expense.

The DOL publication entitled "The Employer's Guide to the Family and Medical Leave Act" provides helpful guidance to employers. NFP has an FMLA Checklist, which also may be helpful. Please ask your advisor for a copy.

To determine size for employer mandate and reporting purposes, an employer would only count the employees (and service hours) of those who receive U.S.-source income. They wouldn’t include hours of service for which the compensation constitutes foreign-source income. So, if the employees were in Canada receiving Canadian compensation (i.e., Canadian payroll and taxes) and not U.S. income, then they aren’t included in the count to determine whether the employee has 50 full-time-equivalent employees. But if a Canadian is working in the U.S. and, thus, receiving U.S.-source income, then that time counts as hours of service for employer mandate and reporting purposes.

This determination is important because, if an employer has more than 50 full-time employees, including equivalents, then the employer mandate applies. Once it’s determined that the mandate does apply, the employer will be evaluated and potentially penalized for not properly following the law. That means the employer becomes responsible for offering coverage, ensuring that it’s affordable and reporting their compliance to the IRS.

To summarize, the regulations state that an “hour of service” doesn’t include any hour for services to the extent the compensation for those services constitutes income from sources outside the U.S. If an employee has U.S. source income, then they would need to be offered coverage and be included in the annual reporting (assuming the employer is subject to the mandate and assuming the employee is working 30 hours or more per week). Finally, this determination of whether the income is U.S. or foreign source needs to be made by the employer’s tax counsel or CPA, since it could be construed as legal and/or tax advice (and since it matters for other reasons, such as employment tax and labor laws).

As a reminder, the ACA’s individual mandate was repealed as part of the 2017 tax reform bill. However, the individual mandate repeal doesn’t take effect until 2019. Therefore, the individual mandate remains in effect for 2018, meaning generally that all U.S. citizens must have health insurance coverage or risk a tax penalty. Beginning in 2019, though, individuals may forego health insurance without risking that tax penalty.

Keep in mind, though, the individual mandate repeal doesn’t impact an employer’s obligation to offer affordable coverage to all full-time employees (and their dependents) under the ACA’s employer mandate. Similarly, the repeal doesn’t impact an employer’s obligation to report to the IRS (and provide forms to employees) under IRC Sections 6055 and 6056 (relating to IRS Forms 1094/95-B and 1094/95-C). So, employers must continue to comply with the employer mandate and reporting requirements (unless Congress makes broader changes in the future).

That said, there are a few bills to watch in Congress in 2018 regarding smaller changes to the employer mandate and reporting. On the employer mandate, a bill has been introduced that would change the definition of “full-time employees” to those that work 40 hours per week (as opposed to the 30 hours per week under current employer mandate rules). On reporting, a bill has been introduced that greatly simplifies and streamlines employer reporting requirements. Nevertheless, both obligations remain in place for now, and employers should continue their compliance efforts to comply with both.

In the meantime, there’s debate on how the individual mandate repeal might impact employer group health plan participation. On the one hand, elimination of the individual mandate penalty tax could reduce enrollment in employer plans if participants opt out (i.e., decide they don’t want or need coverage). On the other hand, the repeal could result in a rise in premium costs in the individual market (as healthy individuals drop coverage), which could increase enrollment in employer plans.

Although it remains to be seen how this will all play out, employers should ensure that they comply with the law as it is currently. For now, that includes continuing to comply with the employer mandate and reporting requirements.

An employer is subject to the employer mandate and Section 6056 reporting if they have 50 or more full-time employees, including equivalents (FTEs), in the previous calendar year.

To calculate the employer’s size, an employer must first calculate the number of full-time employees for each month of the previous calendar year. A full-time employee is one who works on average at least 30 hours of service per week for a calendar month (or 130 hours per month). Please note that the employees of related employers with common ownership must be included in the calculation. Thus, all employer members of a controlled group would be included in this calculation.

If seasonal employees working less than four months (or 120 days) would cause an employer to have 50 or more FTEs, they may be excluded from the calculation. The four months/120 days need not be consecutive. Any employee working more than four months would not qualify for the seasonal exception and would need to be included in the calculation. An employer may also exclude any employees from the calculation who have coverage under TRICARE or the Veterans Administration. Additionally, any owners that are treated as self-employed individuals (such as partners in a partnership, more than 2-percent S corp shareholders and sole proprietors) are excluded.

Next, the employer will calculate the hours of each non-full-time employee, total them and divide by 120. The employer should not include more than 120 hours of any one individual in this step (because they would be considered a full-time employee and included in the initial step).

Lastly, the employer will add up the number of full-time employees plus the number of full-time equivalents and divide by 12. If the employer has 50 or more FTEs, they are subject to both the employer mandate and Section 6056 reporting for the following calendar year. The employer should not round up. If the employer’s calculation equals 49.9, they are still considered to have fewer than 50 FTEs.

Let’s look at an example. ABC Company has always been a small employer with fewer than 50 employees. In 2017, the company grew and hired many new employees. When completing the above calculation, the employer determines that they had 53 FTEs in 2017. They will be subject to the employer mandate beginning in 2018. They will also be subject to Section 6056 reporting in 2018, with the initial Form 1095-C forms due to employees and the IRS in first quarter 2019. They will not be subject to the reporting due in first quarter 2018.

As background, in order to be eligible to establish and contribute to an HSA, an individual must have qualifying HDHP coverage and must have no 'impermissible' coverage. Impermissible coverage is defined as coverage that pays for medical expenses below the statutory minimum deductible for the HSA--also known as 'first dollar' coverage. Impermissible coverage can include general purpose FSAs, HRAs, Medicare, or telemedicine. This FAQ addresses the corrective options available if an employer or employee discovers that the employee was ineligible for HSA contributions.

First, this employer should seek help from outside tax counsel or their accountant, as the contributions they made could lead to tax consequences. They should also encourage the employee to seek tax advice from an experienced tax preparer. This is because the employee may need to amend their individual tax filings to correct the situation, and they’ll most likely need an expert to assist them with this. Ultimately, all HSA contributions are distributions that must be substantiated by the individual employee with the IRS.

Next, an HSA-ineligible employee won’t be able to take a tax deduction for any contributions attributable to the period of ineligibility. The employee may also be subject to a 6 percent excise tax if the impermissible contributions and any attributable earnings aren’t removed from the employee's HSA within the timeframe allowed for correcting excess contributions (generally, by the tax filing deadline of the year following the impermissible contribution). Employer contributions to employees' HSAs that are made between January 1 and the date for filing the employee's federal income tax return without extensions (i.e., April 15 for most individuals) may be allocated to the prior taxable year. Since HSAs are individual accounts, the corrective action primarily will be on the employee, who will have to correct the issue or answer to the IRS (although in some cases the employee will likely be frustrated with the employer — even though there may have just been a lack of information on the employee’s eligibility status).

If an employer makes contributions to an employee’s HSA when the employer has knowledge that the employee is ineligible, the employer could also be subject to penalties under tax withholding laws, since an employer is authorized to exclude from compensation only those amounts that it reasonably believes an employee will be able to exclude from income. If the employer doesn’t have knowledge of the impermissible coverage, then the employer wouldn’t likely be liable for any penalties. That said, there are some difficulties for the employer in having the mistaken HSA contributions it has made refunded by the employee. This is because HSA contributions aren’t forfeitable, meaning that once a contribution has been made to the employee’s HSA account, the HSA account owner has a non-forfeitable right to receive them.

We then would look to the employer's corrective action. If the employer recognized the mistake and is trying to fix it as quickly as possible, the employer may be able to request a return of the contributions from the trustee or custodian of the account if it happens in the same calendar year (because there’s a non-forfeitable exception in circumstances where the employee was never HSA eligible). Generally, the trustee or custodian can choose whether they want to send money back to the employer or just cure it through a distribution. Some trustees or custodians won’t actually return it to the employer (they treat every contribution as non-forfeitable). But all custodians should allow a curative distribution (which results in a Form 1099-SA).

The above resolution becomes more difficult if the problem has been going on for a while. In these instances, the HSA account balance is frequently depleted and the funds are no longer available. In that case, the only alternative for the employer is to include the contribution amount for the period during which the employee was ineligible as gross income on the employee's W-2, and the employee will be subject to the excise tax as noted above. In some situations, this means the employer may have to file corrected W-2s related to the year the contribution was made, which would necessitate amended filings from the employee as to those years. Again, the affected employee is usually the one who ends up very unhappy in these situations.

In summary, this situation could result in the 6 percent excise tax if HSA funds were spent and the employee (or employer on their behalf) doesn’t repay them. However, the employee could avoid the penalty if any of the following occur:

• The funds are repaid before the employee’s tax filing deadline
• The funds are still available (unspent) and are either repaid to the employer or accounted for on employee’s W2 as taxable income
• The funds are distributed directly to the employee (via 1099-SA curative distribution)

Finally, as mentioned up front, because of the potential tax consequences, we would encourage the employer to seek the assistance of outside tax counsel or their accountant in these situations. They should also encourage the employee to seek tax advice from an experienced tax preparer.