Monthly Benefits Update - October 2013

by Franczek Radelet P.C.
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Monthly Benefits Update - October 2013 [pdf]

Health & Welfare Plans

Health Care Reform: Federal Health Insurance Marketplace Opens With Technical “Glitches”

The federal health insurance marketplace (also known as the federal “exchange”) began accepting enrollments beginning on October 1. Enrollment has encountered a number of technical difficulties, both on the federal website (www.HealthCare.gov) as well as individual state exchange websites. Information technology contractors have been unable to remedy the problem to date, and contractors, the Center for Medicare & Medicaid Services, and government officials have all received intense public pressure to fix the situation. Nevertheless, redesigns of the marketplace website are underway, and the Department of Health and Human Services has expanded staffing at its call centers to handle increased user traffic. While the marketplace remains somewhat of a work in progress, the initial open enrollment period is currently scheduled to last until March 31, 2014, so time remains to get the marketplace back on track. Many employers are depending on the success of the marketplace tool so that they can have an accurate picture of the real options available to their employees outside of employer-provided group health coverage.

Health Care Reform: House Committee Considers Full-Time Employee Definition Under ACA

A House Small Business Committee recently heard testimony concerning the ACA definition of full-time employee, and noted that the current rules may act as a disincentive for businesses to grow and add new jobs—especially full-time jobs. While action on this front may not be imminent, many employers remain hopeful that the current rules will be altered. Beginning in 2015, Section 4980H of the Internal Revenue Code will require all employers with 50 or more full-time equivalencies to either offer insurance to substantially all full-time employees or pay a tax. This “pay or play” mandate has been discussed in various prior alerts, and remains a major topic of discussion among employers even now in 2013. Central to the pay or play mandate is the need to determine which individuals are full-time employees. Currently, IRS proposed regulations provide employers with guidance on how to count and average hours worked over a “standard measurement period,” to determine whether or not an employee works at least 30 hours per week, and is therefore a full-time employee pursuant to ACA. This guidance has caused many businesses to adjust the work schedules for their employees to avoid or lessen tax exposure under Section 4980H of the Code.

Flexible Spending Account Plans – Modification of Use-It-Or-Lose-It Rule for Health FSAs

The IRS released Notice 2013-71, which provides a deviation from the longstanding “use-it-or-lose-it” rule for health FSAs. The rule permits employers to amend their Section 125 cafeteria plan documents, to allow employees to carry over up to $500 of unused amounts remaining at the end of the plan year in a health FSA. Such amounts could be used to reimburse plan participants for qualified medical expenses incurred in the following plan year. The carryover option provides an alternative to the current grace period rule for health FSAs.

Retirement Plans

IRS Announces Cost-Of-Living Adjustments on Retirement Plan Limits for 2014

The IRS announced (in IR-2013-86) its annual adjustments to the various limitations placed on deferrals, contributions, and other dollar limits affecting qualified retirement plans. The elective deferral limit for defined contribution plans remains the same as 2013, at $17,500, with an over-age-50 catch-up limitation of $5,500. However, other pension plan limitations will increase for 2014. The IRS also released guidance (in Rev. Proc. 2013-35) on limits for health FSAs and qualified transportation fringe benefit programs.

FICA Taxation

U.S. Supreme Court Grants Certiorari to Consider FICA Taxation of Supplemental Unemployment

The U.S. Supreme Court decided to consider the matter of United States v. Quality Stores, in which the Sixth Circuit found that supplemental unemployment compensation payments were not subject to FICA (which consists of Social Security and Medicare taxes on employers and employees). Specifically, the Sixth Circuit held that while severance payments generally may be subject to FICA taxation, supplemental unemployment compensation is treated differently. Congress’s intent was to exempt supplemental unemployment compensation payments from FICA taxation. Section 3121(a) of the Internal Revenue Code defines the term “wages” for FICA purposes. Wages include all remuneration for employment, with certain limited exceptions. IRS regulations interpreting Section 3121(a) further provide that remuneration for employment constitutes wages even though at the time paid the individual is no longer an employee. The IRS interprets the phrase “remuneration for employment” broadly, as does the U.S. Supreme Court. Nevertheless, the Sixth Circuit’s construction of Code Section 3402(o) – which appears to provide a different set of rules for supplemental unemployment compensation in particular – was a persuasive plain language reading of the Code and may ultimately be upheld by the Supreme Court. Oral arguments and a decision are expected in 2014.

Public Plans

Public Pension Reform in Illinois at the “One-Yard Line”

As the Illinois General Assembly is in the midst of its October-November veto session, State Representative Elaine Nekritz remarked that the Conference Committee on Pensions is “at the one-yard line” for coming to an agreement on pension reform. While a comprehensive pension reform bill has not yet been completed this session (as of the date of this alert), a “leaked” version of the conference committee’s reform package was intercepted by the press and described in various news reports. Governor Quinn and legislative leaders continue the long drive to the goal line as public finances across the State continue to feel intense pressure. Actuaries continue to analyze the Committee’s game plan, and it is unclear which reform measures have a schematic advantage. Governor Quinn has even indicated he would decline his own salary until a workable pension reform plan was proposed. All spectators involved continue to hope for a satisfying victory. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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