The Internal Revenue Service (IRS) recently released the 2019 annual contribution limits for Health Flexible Spending Accounts (FSA) which will take effect on January 1, 2019.
The annual limit on voluntary employee salary reductions for contributions to a health flexible spending account will be $2,700 in 2019, which is an increase from the prior limit of $2,650. The annual limit also applies to the limited purpose FSA, which can be used for dental and vision expenses.
When does this affect your plan?
The limit increase will apply when the employer’s FSA plan year begins. For example, if the plan year begins on June 1, the limit increase will kick in on June 1, 2019 during the open enrollment period.
|Health Flexible Spending Accounts Contribution Limits
For more information on the increased Health FSA limits, review the IRS news release, IRS: Plan now to use Health Flexible Spending Arrangements in 2019.
Interested in learning more about Flexible Spending Accounts? Click here.
Working in the public sector can provide an employee with some unique retirement benefits that are not generally available to those who work for private companies. One such benefit is a Special Pay Plan, which pays out based on special forms of compensation, such as unused sick leave or vacation pay. These types of compensation are normally paid out as taxable earned income and are reported on a W-2 form. A Special Pay Plan mitigates this tax hit and provides a valuable investment vehicle in the process. If your employer offers a Special Pay Plan, it’s adding value for you in many ways.
What is a Special Pay Plan?
A Special Pay Plan is an interest-bearing 401(a)/403(b) retirement account that is established by your employer in your name. Your employer makes pre-tax deposits/contributions into this account in lieu of disbursing a check for your unused sick leave, separation of service pay, or other retirement incentive pay. The funds deposited into the Special Pay Plan are invested, which leads to earnings over time, helping you to meet your retirement goals.
From a tax perspective, a Special Pay Plan is a valuable benefit in the following ways:
- You will permanently save 7.65% on FICA taxes. For example, if your benefit amount is $10,000, you will take home the entire $10,000 less income tax, saving $765 in FICA.
- Funds in a Special Pay Plan can be available before age 59½ without penalty. If you are at least age 55 at the time of retirement and remain separated from service, you can access the funds and avoid the 10% early withdrawal penalty.
- The account is tax-deferred, meaning that you are not taxed until you withdraw funds. In addition, if your tax bracket is lower after retirement, you could potentially save on tax when you withdraw funds. A Special Pay Plan allows you to control the timing of your cash distributions as well as the timing of your tax obligations.
Other Benefits of the Special Pay Plan
Besides the built-in tax advantages, a Special Pay Plan provides a valuable savings vehicle for your retirement in other ways. During your working years, the benefit continues to grow. Once you retire, you are free to roll the accumulated funds into an IRA or another qualified plan, or take a partial or lump sum distribution. If desired, periodic distributions may be taken monthly, quarterly, or annually. The funds can be used at your discretion, for any expense. This type of plan provides complete liquidity for withdrawals or rollovers, enabling you to manage your financial future on your terms.
As a public sector employee, you already know your retirement benefits offer some unique opportunities. If your employer offers a Special Pay Plan, consider yourself fortunate. This lovely benefit converts otherwise taxable incentives into a tax-advantaged retirement option for you. Having this added sense of financial security may convince you to get off the fence about retiring early.
A Health Reimbursement Arrangement (HRA) is another valuable savings tool that can benefit you in retirement. If your employer offers an HRA, please click here to learn how this benefit can make a difference for you.
If you are contemplating retirement, one of your foremost concerns is probably the issue of medical insurance. How will you pay for it when you are no longer receiving a regular paycheck? If remaining on your employer’s medical plan is an option, this may be something to consider. However, it’s very possible that your employer is eager to transition you off their medical plan and offer you a Health Reimbursement Arrangement (HRA) instead.
What is an HRA?
A Health Reimbursement Arrangement is an interest-bearing, employer-funded account created in your name. Deposits can be made completely tax-free¹, meaning that you receive 100% of the value of each benefit dollar.
The HRA account is designed to reimburse retirees for their eligible medical expenses and/or premiums to offset their out-of-pocket costs. Your employer determines which qualified medical expenses are eligible for reimbursement under the plan.
What are my HRA Options?
There are two HRA options designed to benefit retirees: a Defined Contribution HRA or a Retiree HRA.
- With a Defined Contribution HRA, funds are deposited while you are still actively working, growing over time, and becoming available for use upon retirement or separation of service. Participants are 100% vested immediately, meaning that you own the account balance as soon as the account is established.
- With a Retiree HRA, funds are deposited in a lump sum upon retirement/separation of service. The funds are invested once deposited, and can be used immediately upon deposit.
For both types of HRA, account balances roll over year to year, qualified expenses are reimbursed tax-free, and funds can be used to reimburse eligible medical expenses incurred by you, your spouse, and any qualifying dependents.
Additionally, both of these HRA types provide an opportunity to bridge the gap between retirement and Medicare eligibility. Given this financial incentive from your employer, you may consider retiring earlier than planned, and you may choose to seek an alternative healthcare option, rather than remaining on your employer’s plan.
Similar to a Special Pay Plan, both the Defined Contribution HRA and Retiree HRA can be funded using your unused sick leave or vacation pay.
Although a Special Pay Plan is structured differently than an HRA, it is an equally valuable retirement benefit. If your employer offers a Special Pay Plan and you’d like to learn more about its advantages, please click here.
¹Not subject to FICA, Federal or State income taxes
It’s widely known that work-related injuries and illnesses, chronic diseases, absenteeism, and sick employees who return to work before getting well negatively impact the bottom line of companies of all sizes. According to the CDC Foundation, these occurrences cost U.S. employers billions of dollars each year. With healthcare costs continuing to rise, employers have realized that improving employee health and wellness is an effective way to lower costs, improve productivity, and decrease absenteeism. By now, you may have realized the advantage of embedding wellness into your own workplace culture. If not, you may want to consider how you can promote good health and fitness among your employees, and the potential long-term benefits to both your company and your workforce.
What is Workplace Wellness?
The CDC (Centers for Disease Control and Prevention) defines a workplace health program as “a health promotion activity or organization-wide policy designed to support healthy behaviors and improve health outcomes while at work”. Wellness programs can focus on issues such as smoking cessation, diabetes management, weight management, and preventative health screenings, among many others.
Workplace wellness programs also embrace policies aimed at promoting employee health, including time allowances for exercise, providing on-site kitchens and eating areas, stocking the vending machines with healthy food options, and offering financial and other incentives for participation. Effective wellness programs and supportive policies are those that successfully motivate employees to not only care about their health but to actually take steps to maintain and/or improve it, which in the long run can positively impact employers, employees, their families, and communities at large.
Why Workplace Wellness?
Wellness programs sponsored by employers promote long-term employee health and reduce total insurance spending. These programs allow an employer to offer premium discounts, cash rewards, gym memberships, and other incentives to participate. Employers can provide a supportive environment to encourage their workers to adopt healthier lifestyles, which can in turn result in reduced claims, increased productivity, and fewer sick days. When employees commit to taking better care of themselves, they can benefit physically, emotionally, mentally, and financially. Health and wellness can have an impact on the bottom line of all concerned.
Rewarding the Positive
The 2016 Employer Health Benefits Survey conducted by the Kaiser Family Foundation states that 83% of large firms (200+ employees) offer
a wellness program that supports smoking cessation, weight management, or behavioral/lifestyle coaching. Forty-two percent of these large firms offer financial incentives for participation, such as lower premium contributions and cash to employees. Incentives are key to the success of a wellness program, and can be incorporated into the program by rewarding employees for attaining certain health-related goals, such as completing a health risk questionnaire or a biometric screening. Competition and one-on-one coaching are also common features of wellness programs. The PwC Health and Wellbeing Touchstone Survey from June 2016 shows that program participation increases when incentives are added to the mix. For example, when a health screening was offered with no incentive, participation was at 40%, as opposed to 57% when an incentive was involved.
Is it All Worthwhile?
In any business, employers are keen on seeing a return on their investments. With wellness programs, employers tend to see ROI in tangible ways, such as reduced absenteeism and a reduction in certain medical claims (e.g. urgent care visits instead of emergency room visits). An added benefit is that employers will often see an increase in the Value of Investment (VOI), indicated by increased loyalty, employee retention, and a boost in employee morale.
According to findings from the International Foundation of Employee Benefit Plans Workplace Wellness 2017 Survey Report, employers that offer and measure their wellness initiatives experienced increases in both ROI and VOI, with 92% of workplaces that offer wellness programs reporting their initiatives to be very or somewhat successful.
|Financial Sustainability/Growth in the Organization
|Increased Employee Satisfaction
The IFEBP 2017 survey results also seem to indicate that responding employers are not primarily concerned with controlling or reducing health-related costs. In fact, the adjacent graphic illustrates that 75% of respondents were more concerned with improving overall health and well-being. Employers are increasingly realizing that wellness is more than just physical health. It also impacts the health of the organization, employee productivity, and overall happiness. Employees that feel empowered to take better care of themselves should experience less stress in their lives both on the job and off, creating happier, more productive employees.
It seems clear that wellness is “shaping up” to be a key area of investment and strategy for employers year after year. Creating a healthier work environment may be a critical piece of your organization’s success. Introducing wellness programs can show your employees that you are their partner, which is likely to be a win-win for both you and your workforce.
The Department of the Treasury and the Internal Revenue Service (IRS) have determined that additional time will be needed for many employers, insurers, and other providers of minimum essential coverage (MEC) to gather the necessary information to prepare the 2017 Forms 1095-B and 1095-C that must be issued to individuals under Sections 6055 and 6056. With the release of Notice 2018-06 on December 22, 2017, the IRS has exercised its right to grant an extension of up to 30 days to furnish Forms 1095-B and 1095-C, delaying the January 31, 2018 deadline to March 2, 2018.
Employers should now be aware of these important deadlines:
- March 2, 2018 – Forms 1095-B and 1095-C must be provided to employees
- February 28, 2018 – Deadline for 2017 paper filing with the IRS
- April 2, 2018 – Deadline for 2017 electronic filing with the IRS
Even though an extension has been granted, employers and other coverage providers are encouraged to issue their 2017 statements to employees as soon as they are able. There has been no change to the deadline for filing 2017 returns with the IRS, and taxpayers do not need to wait to receive Forms 1095-B and 1095-C before filing their tax returns.
The Affordable Care Act added Sections 6055 and 6056 to the Internal Revenue Code, thereby requiring sponsors of health care plans to maintain minimum essential coverage of their employees throughout the year or face potential fees. Further, every provider of MEC must report coverage information by filing an information return with the IRS and furnishing a statement to individual employees.
MidAmerica’s ACA Reporting Solutions help ease the sponsor’s administrative and compliance burden by filing 1094 and 1095 forms on behalf of the employer. Whatever your form-filing needs are, we have a solution that works for you. With over 20 years of public sector compliance experience, we have the products and industry knowledge to ensure our clients are compliant under the ever-changing ACA regulatory landscape. If you are ready to save time and headaches on forms filing, while avoiding the risk of inaccurate reporting, click the button below to enroll in MidAmerica’s ACA Reporting Solution.
ACA Reporting: Enroll Now
Comprehensive healthcare reform legislation was signed into law by President Barack Obama on March 23, 2010. Known as the Patient Protection and Affordable Care Act, it was nicknamed the ACA or Obamacare. The ACA stipulates “employer shared responsibility rules” which require applicable large employers (ALEs) to offer affordable, minimum value health insurance coverage to their full-time employees or pay a penalty. These rules apply to employers with at least 50 full-time employees during the preceding calendar year. The employer shared responsibility rules are also known as the “employer mandate” or the “pay or play” rules. An “ALE” may be penalized if one or more full-time employees obtain a subsidy through the healthcare exchange because the employer did not offer health coverage, or the coverage offered is not affordable or does not provide minimum value.
The ACA Is Questioned
Upon his inauguration as President on January 20, 2017, Donald Trump signed an executive order to minimize the economic burden of the ACA until the law can be repealed and replaced. The order did not provide specific guidance related to any particular provision or requirement of the ACA, and appeared to be more of a mission statement for the President’s administration going forward. Further, only Congress is authorized to make changes to the ACA, i.e. through the legislative process. The President is not empowered to alter legislation. Nevertheless, business owners took notice of this executive order and began to wonder if the employer mandate would go away, along with any associated penalties.
The IRS Responds
The President’s executive order created confusion when it directed the Department of Health and Human Services and other federal agencies to “waive, delay, or grant exemptions from ACA requirements that may impose a financial burden”. In response, the Office of Chief Counsel within the IRS issued Letter numbers 2017-0010 and 2017-0013 on April 14, 2017, to clarify the impact (or lack of impact) of the executive order on the employer mandate rule. These letters confirmed that the pay or play rules continue to apply. Taxpayers must still adhere to the ACA requirements, including paying any penalties they may owe.
Where Do We Stand?
For the time being, it’s business as usual. Although both houses of Congress challenged the ACA between May and September 2017, all efforts failed to repeal and replace the law. The result is that the ACA is still in effect until the Senate and/or House, both Republican-led, can craft a viable alternative that will garner sufficient votes to proceed to the President’s desk for signature. In the meantime, ALEs must continue to comply with the employer shared responsibility rule as well as any other reporting requirements.
In fact, The ACA Times has reported that “all signs point to the IRS being prepared to enforce the employer shared responsibility mandate of the ACA”. The website suggests that by December 2017, “the IRS could be sending enforcement notices to inform businesses with 50 or more employees what they owe for failing to comply with the employer shared responsibility mandate”. These notices will serve to enforce the ACA compliance mandate starting with the 2015 tax year. The IRS website does not contradict this opinion and provides a lengthy Q&A dedicated to the employer shared responsibility provisions under the ACA, including information on how employers will be notified of any penalties assessed and how payments will be collected. Now that the myth of the employer mandate waiver has been dispelled, employers would be wise to ensure they have filed all necessary documentation with the IRS to minimize any potential penalties, and then revisit the status of their health insurance offerings and prepare to be ACA compliant, to avoid possible penalties in future tax years.
Where Can Employers Find Help?
Despite a series of attempts to repeal the Affordable Care Act, the law is still intact. As your benefits compliance experts, MidAmerica will continue to monitor the status of any potential healthcare reform and ensure you are aware of any effects new legislation could have on your clients’ retirement and healthcare benefit plans. We are committed to providing quality benefits solutions to public sector employers while meeting their budget objectives. This commitment drives us to meet changes in the benefits environment with products that will ensure employers are compliant while receiving the best value for their money.
Three Forms Filing Service Options
The 1094/1095 forms filing deadlines for the § 6055 and § 6056 reporting requirements are quickly approaching. MidAmerica can help, no matter what your forms filing needs may be. We offer three ways to file your IRS required forms.
If you would like to learn more about our forms filing packages, please email AccountManagement@myMidAmerica.com.
If you sponsor a 403(b) plan for your employees, you must satisfy the “universal availability” requirement as established by the IRS. According to IRS.gov, all employees of the employer must be eligible to make elective deferrals if any employee has the right to do so, with certain limited exceptions. Certain part-time employees may be excluded from eligibility to make elective deferrals.
The IRS also requires that any employer sponsoring a 403(b) plan must notify all eligible employees of this benefit at least once annually. In doing so, you are providing an “effective opportunity” for eligible employees to participate in the plan.
Top Three Ways to Notify Your Employees
Your plan administrator may provide communication templates you can personalize and distribute to your employees to make the notification process simpler. There are 3 methods by which you can distribute the notices:
- Mail. If choosing this method, be sure to retain the list of addresses used and the postage receipt.
- Hand Delivery. Prepare a list of employee names and have each employee sign their name to acknowledge receipt.
- Email. Strict guidelines must be followed for electronic delivery, but email is permitted.
If you choose to email the Universal Availability notices, this method is recommended in addition to mailing or hand delivery, not instead of. It should not be assumed that all recipients have access to a computer.
IRS Distribution Guidelines
The IRS has indicated they are auditing an increasing number of 403(b) plans, particularly in regards to Universal Availability compliance. An employer found to be non-compliant may have to make contributions to the plan on behalf of any eligible employees who did not receive proper notice. According to the IRS, compliance must be shown on a “facts and circumstances” basis. Treas. Reg. Section 1.403(b)-5(b)(2) stipulates that:
“…An employee is not treated as being permitted to have section 403(b) elective deferrals contributed on the employee’s behalf unless the employee is provided an effective opportunity….Whether an employee has an effective opportunity is determined based on all the relevant facts and circumstances, including notice of the availability of the election, the period of time during which an election may be made, and any other conditions on elections. A section 403(b) plan satisfies the effective opportunity requirement only if, at least once during each plan year, the plan provides an employee with an effective opportunity to make (or change) a cash or deferred election between cash or a contribution to the plan….”
Although the IRS has not provided distribution guidelines specific to 403(b) plans, the “best practice” is to follow the clearer IRS and DOL rules that have been developed for other types of retirement programs. Failure to comply with Universal Availability could disqualify the entire plan, so it’s better to be safe than sorry.
Are you a current MidAmerica client? You can download Word templates of our Universal Availability notice by clicking on the links below.
For plans which exclude certain employees from participation.
For plans which allow all employees to contribute.