IRS Announces 2019 HSA Contribution Limits, HDHP Minimum Deductibles and HDHP Maximum Out-of-Pocket Amounts

The IRS has announced 2019 HSA and HDHP limits as follows:

Annual HSA contribution limitation. For calendar year 2019, the annual limitation on deductions for HSA contributions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $3,500 (up from $3,450 in 2018), and the annual limitation on deductions for HSA contributions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $7,000 (up from $6,900 in 2018).

High deductible health plans. For calendar year 2019, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage (unchanged from 2018), and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,750 for self-only coverage or $13,500 for family coverage (up from $6,650 and $13,300 in 2018).

Rev. Proc. 2018-30

IRS Grants Relief Raising the 2018 Annual HSA Contribution Limit for Family Coverage Back up to $6,900

On April 26, 2018 the Internal Revenue Service issued Revenue Procedure 2018-27, which provides relief for 2018 for taxpayers with family coverage under a High Deductible Health Plan (HDHP) who contribute to a Health Savings Account (HSA). For 2018, taxpayers with family coverage under an HDHP may now treat $6,900 as the maximum deductible HSA contribution.

History

The $6,900 annual limitation was originally published in 2017, in Revenue Procedure 2017-37.

In March 2018, as discussed in our prior post, the IRS reduced the maximum 2018 deductible HSA contribution for taxpayers with family coverage under an HDHP by $50, to $6,850, due to a change in the inflation adjustment calculations for 2018 under the Tax Cuts and Jobs Act.

Now, with the issuance of Revenue Procedure 2018-27, the IRS has announced this relief for affected taxpayers, which allows the $6,900 limitation to remain in effect for 2018.

Question: Do we Need to Offer COBRA Coverage to the Domestic Partner of a Terminated Employee?

Hypothetical: Employer’s self-insured medical plan covers domestic partners. An employee with EE + Domestic Partner coverage terminates employment. We offer the employee COBRA coverage, but do we need to also offer COBRA to the domestic partner?

Answer: COBRA does not require you to offer continuation coverage to the domestic partner. The COBRA regulations at 26 CFR 54.4980B-3 provide that only a covered employee, or their spouse or their dependent child is a qualified beneficiary under COBRA (plus any child who is born to or placed for adoption with a covered employee during a period of COBRA coverage).

While COBRA does not require the employer to offer continuation coverage, the employer ought to check their plan documents to see whether the Plan Documents provide continuation coverage to domestic partners. If the Plan document provides continuation coverage for domestic partners, then the Plan must offer it.

IRS Revises 2018 Annual HSA Contribution Limit for Family Coverage to $6,850 (down from $6,900)

The IRS has issued Rev. Proc. 2018-18, which revises the previously-published annual limitation on deductions under Code § 223(b)(2)(B) for 2018 for an individual with family coverage under a high deductible health plan. The originally published limitation was $6,900. It has now been reduced to $6,850.

Why the Change?

The recently enacted Tax Cuts and Jobs Act requires cost of living adjustments be made using the Chained Consumer Price Index for All Urban Consumers (C-CPI-U), which over time will reduce the cost of living adjustments made to various IRS limits.

What to Do

Employers making Health Savings Account (HSA) contributions for employees (either directly, or through their cafeteria plans) should review the elections made by their employees and adjust those elections to avoid exceeding the $6,850 limitation for 2018. Likewise, individuals making HSA contributions should revise any automatic contribution schedule they have established to avoid exceeding the limit.

The following chart summarizes various significant employee benefit Plan limits for 2016 through 2018:

Type of Limitation 2018 2017 2016
415 Defined Benefit Plans $220,000 $215,000 $210,000
415 Defined Contribution Plans $55,000 $54,000 $53,000
Defined Contribution Elective Deferrals $18,500 $18,000 $18,000
Defined Contribution Catch-Up Deferrals $6,000 $6,000 $6,000
SIMPLE Employee Deferrals $12,500 $12,500 $12,500
SIMPLE Catch-Up Deferrals $3,000 $3,000 $3,000
Annual Compensation Limit $275,000 $270,000 $265,000
SEP Minimum Compensation $600 $600 $600
SEP Annual Compensation Limit $275,000 $270,000 $265,000
Highly Compensated $120,000 $120,000 $120,000
Key Employee (Officer) $175,000 $175,000 $170,000
Income Subject To Social Security Tax  (FICA) $128,400 $127,200 $118,500
Social Security (FICA) Tax For ER & EE (each pays) 6.20% 6.20% 6.20%
Social Security (Med. HI) Tax For ERs & EEs (each pays) 1.45% 1.45% 1.45%
SECA (FICA Portion) for Self-Employed 12.40% 12.40% 12.40%
SECA (Med. HI Portion) For Self-Employed 2.9% 2.9% 2.90%
IRA Contribution $5,500 $5,500 $5,500
IRA Catch-Ip Contribution $1,000 $1,000 $1,000
HSA Max. Contributions Single/Family Coverage $3,450/ $6,850 $3,400/ $6,750 $3,350/ $6,750
HSA Catchup Contributions $1,000 $1,000 $1,000
HSA Min. Annual Deductible Single/Family $1,350/ $2,700 $1,300/ $2,600 $1,300/ $2,600
HSA Max. Out Of Pocket Single/Family $6,650/ $13,300 $6,550/ $13,100 $6,550/ $13,100

 

 

Supreme Court Rejects “Yard-Man” Inference of Vesting of Retiree Health Benefits

The United States Supreme Court has ruled in the case of CNH Indus. N.V. v. Reese, that courts cannot simply infer lifetime vesting of retiree health benefits from a collective bargaining agreement. Instead, lifetime vesting must be expressly written into the agreement.

The Case

The employer in this case provided health benefits to certain employees who were eligible for benefits under the employer’s pension plan, in accordance with a collective bargaining agreement (CBA). When the CBA expired in 2004, some retirees sued, arguing that their health benefits were vested for life.

While the lawsuit was pending, the Supreme Court decided M&G Polymers USA, LLC v. Tackett, which held that courts must interpret CBAs according to “ordinary principles of contract law.” The trial court in this case then ruled for the retirees, and the Sixth Circuit affirmed, relying on presumptions the 6th Circuit originally established in UAW v. Yard-Man, Inc., even though the Supreme Court had explicitly rejected those presumptions in Tackett. The Sixth Circuit’s decision turned on its holding that the CBA’s 2004 expiration date was inconclusive as to whether the retiree health benefits terminated in 2004 or were vested for life because (1) the CBA specified that certain benefits, such as life insurance, ceased at a time different from other provisions, and (2) the CBA tied health care benefits to pension eligibility. The court acknowledged that Tackett precluded it from inferring vesting based on these plan provisions, but concluded that the provisions nevertheless rendered the CBA ambiguous, allowing consideration of extrinsic evidence that supported lifetime vesting.

The Supreme Court reversed, stating that “inferences applied in Yard-Man and its progeny” do not represent ordinary principles of contract law and therefore cannot be used to generate a reasonable inference that then creates ambiguity. The Court acknowledged that, when a contract is ambiguous, courts can consult extrinsic evidence to determine the parties’ intentions—but a contract is not ambiguous unless it is susceptible to at least two reasonable but conflicting meanings. In this case, the Supreme Court held that the CBA contained a durational clause that applied to all benefits, with no exception for retiree health benefits, and that therefore there is only one reasonable interpretation of the CBA – that it does not vest retiree health benefits for life.

Take-Aways

This case is re-assuring for employers offering retiree medical plans – that they are less at risk of inadvertently creating a vested lifetime retiree health benefit than if the Plantiffs had prevailed in this case. However, the long standing advice still stands: Employers should be explicit in their retiree health plan documents and SPDs that the benefit is not vested and that the employer retains full and unfettered discretion to amend or terminate the plan and the benefits at any time.

Updated Disability Claims Procedures Go Into Effect April 2, 2018

The Department of Labor’s final rules updating the procedures for disability claims goes into effect on April 2, 2018. This post summarizes the new rules; which plans are affected by the new rules; and the next steps affected plans should take.

Affected Plans

The Claims Procedure Regulations at C.F.R. §2560.503-1 affect all ERISA Plans, including pension plans such as defined benefit and 401(k) plans, welfare benefit plans like medical and disability insurance plans. As a practical matter, the changes to the rules for disability claims only impacts plans that actually make disability determinations. Therefore, if your pension or 401(k) Plan relies on disability determinations made by a third party, like the Social Security Administration, you should not need to make any changes to your plan documents or your claims procedures as a result of the new rules.

Next Steps

Affected plans have until December 31, 2018 to adopt the necessary plan amendments, but the amendment will need  to be effective, and Plans will need to comply with the revised rules, as of April 2, 2018. Affected Plans will also need to update their Summary Plan Descriptions to reflect the new rules.

Summary of the Changes

The new rules amend the claims procedure regulation at 29 C.F.R. §2560.503-1 for disability benefits to require that plans, plan fiduciaries, and insurance providers comply with additional procedural protections when dealing with disability benefit claimants. Specifically, the final rule includes the following changes in the requirements for the processing of claims and appeals for disability benefits:

  • Basic Disclosure Requirements. Benefit denial notices must contain a more complete discussion of why the plan denied a claim and the standards used in making the decision. For example, the notices must include a discussion of the basis for disagreeing with a disability determination made by the Social Security Administration if presented by the claimant in support of his or her claim.
  • Right to Claim File and Internal Protocols. Benefit denial notices must include a statement that the claimant is entitled to receive, upon request, the entire claim file and other relevant documents. Previously, this statement was required only in notices denying benefits on appeal. Benefit denial notices also have to include the internal rules, guidelines, protocols, standards or other similar criteria of the plan that were used in denying a claim or a statement that none were used. Previously, instead of including these internal rules and protocols, benefit denial notices have the option of including a statement that such rules and protocols were used in denying the claim and that a copy will be provided to the claimant upon request.
  • Right to Review and Respond to New Information Before Final Decision. The new rule prohibits plans from denying benefits on appeal based on new or additional evidence or rationales that were not included when the benefit was denied at the claims stage, unless the claimant is given notice and a fair opportunity to respond.
  • Avoiding Conflicts of Interest. Plans must ensure that disability benefit claims and appeals are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. For example, a claims adjudicator or medical or vocational expert could not be hired, promoted, terminated or compensated based on the likelihood of the person denying benefit claims.
  • Deemed Exhaustion of Claims and Appeal Processes. If plans do not adhere to all claims processing rules, the claimant is deemed to have exhausted the administrative remedies available under the plan, unless the violation was the result of a minor error and other specified conditions are met. If the claimant is deemed to have exhausted the administrative remedies available under the plan, the claim or appeal is deemed denied on review without the exercise of discretion by a fiduciary and the claimant may immediately pursue his or her claim in court. The revised rule also provides that the plan must treat a claim as re-filed on appeal upon the plan’s receipt of a court’s decision rejecting the claimant’s request for review.
  • Certain Coverage Rescissions are Adverse Benefit Determinations Subject to the Claims Procedure Protections. Rescissions of coverage, including retroactive terminations due to alleged misrepresentation of fact (e.g. errors in the application for coverage) must be treated as adverse benefit determinations, thereby triggering the plan’s appeals procedures. Rescissions for non-payment of premiums are not covered by this provision.
  • Notices Written in a Culturally and Linguistically Appropriate Manner. The final rule requires that benefit denial notices have to be provided in a culturally and linguistically appropriate manner in certain situations.

Cadillac Tax Delayed to 2022

The legislation passed by Congress and signed by President Trump on January 23, 2018 to continue funding the government through February 8, 2018 also delays the “Cadillac Tax” another two years.

The Cadillac Tax is now not scheduled to become effective until 2022. While it is likely future Congresses will continue to delay, or perhaps eliminate the tax entirely, employers and others that sponsor Cadillac plans should continue to monitor the situation and have contingencies to deal with it if the tax does in fact go into effect.

See our prior post on this related topic: IRS Proposes Various Approaches to Cadillac Tax Implementation

Updated Form 5500s Released for 2017

The U.S. Department of Labor’s Employee Benefits Security Administration, the IRS, and the Pension Benefit Guaranty Corporation (PBGC) have releasedadvance informational copies of the 2017 Form 5500 annual return/report and related instructions. The “Changes to Note” section of the 2017 instructions highlight important modifications to the Form 5500 and Form 5500-SF and their schedules and instructions.

Modifications are as follows:

  • IRS-Only Questions. IRS-only questions that filers were not required to complete on the 2016 Form 5500 have been removed from the Form 5500, Form 5500-SF and Schedules, including preparer information, trust information, Schedules H and I, lines 4o, and Schedule R, Part VII, regarding the IRS Compliance questions (Part IX of the 2016 Form 5500-SF).
  • Authorized Service Provider Signatures. The instructions for authorized service provider signatures have been updated to reflect the ability for service providers to sign electronic filings on the plan sponsor and Direct Filing Entity (DFE) lines, where applicable, in addition to signing on behalf of plan administrators.
  • Administrative Penalties. The instructions have been updated to reflect an increase in the maximum civil penalty amount under ERISA Section 502(c)(2), as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Department regulations published on Jan. 18, 2017, increased the maximum penalty to $2,097 a day for a plan administrator who fails or refuses to file a complete or accurate Form 5500 report. The increased penalty under section 502(c)(2) is applicable for civil penalties assessed after Jan. 13, 2017, whose associated violation(s) occurred after Nov. 2, 2015 – the date of enactment of the 2015 Inflation Adjustment Act.
  • Form 5500/5500-SF-Plan Name Change. Line 4 of the Form 5500 and Form 5500-SF have been changed to provide a field for filers to indicate the name of the plan has changed. The instructions for line 4 have been updated to reflect the change. The instructions for line 1a have also been updated to advise filers that if the plan changed its name from the prior year filing(s), complete line 4 to indicate that the plan was previously identified by a different name.
  • Schedule MB. The instructions for line 6c have been updated to add mortality codes for several variants of the RP-2014 mortality table and to add a description of the mortality projection technique and scale to the Schedule MB, line 6 – Statement of Actuarial Assumptions/Methods.
    Form 5500-SF-Line 6c. Line 6c has been modified to add a new question for defined benefit plans that answer “Yes” to the existing question about whether the plan is covered under the PBGC insurance program. The new question asks PBGC-covered plans to enter the confirmation number – generated in the “My Plan Administration Account system” – for the PBGC premium filing for the plan year to which the 5500-SF applies. For example, the confirmation number for the 2017 premium filing is reported on the 2017 Form 5500-SF.

Information copies of the forms, schedules and instructions are available online

IRS Will Begin Assessing 2015 Employer Shared Responsibility Payments in Late 2017

The Internal Revenue Service has issued some updated Q&As explaining how it will notify employers that it intends to assess employer mandate penalties for 2015. The new Q&As (#55-58, set forth below) are part of a larger set of Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act.

Tip for employers: be on the lookout for Letter 226J from the IRS, because if you receive one of these letters you have 30 days to respond. That will not leave you much time to consult with legal counsel and formulate a response. Failure to respond will make it difficult or impossible to contest the assessment of the penalties.

The new Q&As are set forth below:

  1. How does an employer know that it owes an employer shared responsibility payment?

The general procedures the IRS will use to propose and assess the employer shared responsibility payment are described in Letter 226J.  The IRS plans to issue Letter 226J to an ALE if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee).

Letter 226J will include:

  • a brief explanation of section 4980H,
  • an employer shared responsibility payment summary table itemizing the proposed payment by month and indicating for each month if the liability is under section 4980H(a) or section 4980H(b) or neither,
  • an explanation of the employer shared responsibility payment summary table,
  • an employer shared responsibility response form, Form 14764, “ESRP Response”,
  • an employee PTC list, Form 14765, “Employee Premium Tax Credit (PTC) List” which lists, by month, the ALE’s assessable full-time employees (individuals who for at least one month in the year were full-time employees allowed a premium tax credit and for whom the ALE did not qualify for an affordability safe harbor or other relief (see instructions for Forms 1094-C and 1095-C, Line 16), and the indicator codes, if any, the ALE reported on lines 14 and 16 of each assessable full-time employee’s Form 1095-C,
  • a description of the actions the ALE should take if it agrees or disagrees with the proposed employer shared responsibility payment in Letter 226J, and
  • a description of the actions the IRS will take if the ALE does not respond timely to Letter 226J.

The response to Letter 226J will be due by the response date shown on Letter 226J, which generally will be 30 days from the date of Letter 226J.

Letter 226J will contain the name and contact information of a specific IRS employee that the ALE should contact if the ALE has questions about the letter.

  1. Does an employer that receives a Letter 226J proposing an employer shared responsibility payment have an opportunity to respond to the IRS about the proposed payment, including requesting a pre-assessment conference with the IRS Office of Appeals?

Yes.  ALEs will have an opportunity to respond to Letter 226J before any employer shared responsibility liability is assessed and notice and demand for payment is made.  Letter 226J will provide instructions for how the ALE should respond in writing, either agreeing with the proposed employer shared responsibility payment or disagreeing with part or all or the proposed amount.

If the ALE responds to Letter 226J, the IRS will acknowledge the ALE’s response to Letter 226J with an appropriate version of Letter 227 (a series of five different letters that, in general, acknowledge the ALE’s response to Letter 226J and describe further actions the ALE may need to take).  If, after receipt of Letter 227, the ALE disagrees with the proposed or revised employer shared responsibility payment, the ALE may request a pre-assessment conference with the IRS Office of Appeals.  The ALE should follow the instructions provided in Letter 227 and Publication 5, Your Appeal Rights and How To Prepare a Protest if You Don’t Agree, for requesting a conference with the IRS Office of Appeals.  A conference should be requested in writing by the response date shown on Letter 227, which generally will be 30 days from the date of Letter 227.

If the ALE does not respond to either Letter 226J or Letter 227, the IRS will assess the amount of the proposed employer shared responsibility payment and issue a notice and demand for payment, Notice CP 220J.

  1. How does an employer make an employer shared responsibility payment?

If, after correspondence between the ALE and the IRS or a conference with the IRS Office of Appeals, the IRS or IRS Office of Appeals determines that an ALE is liable for an employer shared responsibility payment, the IRS will assess the employer shared responsibility payment and issue a notice and demand for payment, Notice CP 220J. Notice CP 220J will include a summary of the employer shared responsibility payment and will reflect payments made, credits applied, and the balance due, if any.  That notice will instruct the ALE how to make payment, if any.  ALEs will not be required to include the employer shared responsibility payment on any tax return that they file or to make payment before notice and demand for payment.  For payment options, such as entering into an installment agreement, refer to Publication 594, The IRS Collection Process.

  1. When does the IRS plan to begin notifying employers of potential employer shared responsibility payments?

For the 2015 calendar year, the IRS plans to issue Letter 226J informing ALEs of their potential liability for an employer shared responsibility payment, if any, in late 2017.

For purposes of Letter 226J, the IRS determination of whether an employer may be liable for an employer shared responsibility payment and the amount of the potential payment are based on information reported to the IRS on Forms 1094-C and 1095-C and information about full-time employees of the ALE that were allowed the premium tax credit.

IRS Notice 2017-67 Provides Guidance On Qualified Small Employer Health Reimbursement Arrangements

IRS Notice 2017-67 provides guidance on the requirements for providing  qualified small employer health reimbursement arrangement (QSEHRA) under section 9831(d) of the Internal Revenue Code (Code), the tax consequences of the arrangement, and the requirements for providing written notice of the arrangement to eligible employees.

The guidance in Notice 2017-67 includes sections on the following topics:
A. Eligible employer
B. Eligible employee
C. Same terms requirement
D. Statutory dollar limits
E. Written notice requirement
F. MEC requirement
G. Proof of MEC requirement
H. Substantiation requirement
I. Reimbursement of medical expenses
J. Reporting requirement
K. Coordination with PTC
L. Failure to satisfy the requirements to be a QSEHRA
M. Interaction with HSA requirements
N. Effective date

In addition, Executive Order 13813 (82 Fed. Reg. 48385, Oct. 17, 2017), directed the Secretaries of the Treasury, Labor, and Health and Human Services to consider revising guidance, to the extent permitted by law and supported by sound policy, to increase the usability of health reimbursement arrangements (HRAs), expand employers’ ability to offer HRAs to their employees, and to allow HRAs to be used in conjunction with non-group coverage. The guidance provided in Notice 2017-67 addresses each of those objectives. The Treasury Department and IRS are expected to issue additional guidance in the future in response to Executive Order 13813.

Background on QSEHRAs

The 21st Century Cures Act (Cures Act), P.L. 114-255, 130 Stat. 1033, was enacted on December 13, 2016. Section 18001 of the Cures Act amends the Code, the Employee Retirement Income Security Act of 1974 (ERISA), and the Public Health Service Act (PHS Act), to permit an eligible employer to provide a QSEHRA to its eligible employees.

Pursuant to section 9831(d)(1), a QSEHRA is not a group health plan, and as a result, is not subject to the group health plan requirements that apply under the Code and ERISA. Generally, payments from a QSEHRA to reimburse an eligible employee’s medical expenses are not includible in the employee’s gross income if the employee has coverage that provides minimum essential coverage (MEC) as defined in Code section 5000A(f). For this purpose, “medical expenses” means expenses for medical care, as defined in section 213(d) (which includes premiums for other health coverage, such as individual health insurance policies).

The Cures Act provides that a QSEHRA is an arrangement that meets the following criteria:

(a) The arrangement is funded solely by an eligible employer, and no salary reduction contributions may be made under the arrangement;

(b) The arrangement provides, after the eligible employee provides proof of coverage, for the payment or reimbursement of the medical expenses incurred by the employee or the employee’s family members (in accordance with the terms of the arrangement);

(c) The amount of payments and reimbursements for any year does not exceed $4,950 ($10,000 for an arrangement that also provides for payments or reimbursements of medical expenses of the eligible employee’s family members (family coverage)); and

(d) The arrangement is generally provided on the same terms (the “same terms requirement”) to all eligible employees of the eligible employer.

To be an eligible employer that may provide a QSEHRA, the employer must not be an applicable large employer (ALE), as defined in Code section 4980H(c)(2) and the regulations thereunder (and, thus, may not be an employer that, generally, employed at least 50 full-time employees, including full-time equivalent employees, in the prior calendar year), and must not offer a group health plan (as defined in section 5000(b)) to any of its employees. Pursuant to Code section 4980H(c)(2), an employer whose workforce increases to 50 or more full-time employees during a calendar year will not become an ALE before the first day of the following calendar year.