President Signs SHRM-Backed Measures that Include Cadillac Tax Repeal

The Society for Human Resource Management supported long-sought reforms

Stephen Miller, CEBS By Stephen Miller, CEBS December 19, 2019
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U.S. Capitol Building
updated December 26, 2019

Congress overwhelmingly passed and President Donald Trump has signed into law an end-of-year spending bill and a companion tax extenders measure that contain several agenda items championed by the Society for Human Resource Management (SHRM), including full repeal of the so-called Cadillac tax on high-cost health plans. The SECURE Act, a measure to promote savings by easing compliance burdens on defined-contribution and defined-benefit retirement plans, was attached to the appropriations bill.

The package also extends for another year the SHRM-supported Work Opportunity Tax Credit (WOTC), which provides employers with a tax incentive to hire employees from disadvantaged groups. SHRM continues to advocate for legislation making the WOTC permanent.

E-Verify also was extended for another year, along with other workplace-immigration programs.

The House approved these measures on Dec. 17 and Senate passage followed two days later. President Donald Trump signed the legislation on Dec. 20.

Some of the items in the package that were previously passed by the House were consolidated in the new bills to facilitate the Senate's consideration and approval.

Key items in the appropriations bill that SHRM has worked with Congress to pass are listed below.

'Cadillac Tax' Repeal

The spending bill includes full repeal of the so-called Cadillac tax on high-cost health plans, which the House passed in July but the Senate had yet to consider. The spending bill also repeals two other Affordable Care Act (ACA) taxes not paid directly by employers: the health insurance tax (HIT) on fully insured health plans and the ACA's tax on medical devices.

The Cadillac tax scheduled to take effect January 2022, which was included in the ACA but delayed several times from being implemented, is a 40 percent excise tax on the cost of employer health plans in excess of annual cost thresholds. While the excise tax was intended to target high-value plans, without repeal "modest plans will also be impacted, meaning millions of Americans and their families could face higher co-pays and deductibles, causing some to decline employer-provided health care," wrote Johnny C. Taylor, Jr., SHRM-SCP, president and CEO of SHRM, in a letter sent in July to Congress.

SHRM has long-advocated for full repeal of this tax and was successful in advocating for two delays and now ultimately preventing the tax from ever taking effect.

AHIP, a national association of health insurers, said that because insurers passed along the cost of the HIT to employers in the form of higher premiums, "families in the small-employer market could see their premiums go up an additional $7,000 over the next 10 years because of this tax," absent repeal.

HR consultancy Mercer noted: "By axing the ACA's Cadillac, health insurance (repealed effective 2021) and medical device (repealed effective 2020) taxes, the spending package removes nearly all of the law's major funding provisions, except the employer shared-responsibility assessments."

SECURE Act Passage

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, originally passed by the House in May, contains numerous compliance changes to 401(k)-type defined contribution plans and to defined-benefit pension plans. The SECURE Act will, among other changes:

  • Increase the business tax credit for plan startup costs to make setting up 401(k) plans more affordable for small businesses.
  • Allow unaffiliated employers to offer their workers a 401(k) through a multiple employer plan (MEP), with eased compliance requirements compared to current MEPs.
  • Delay required retirement distributions from 401(k) plans to age 72, up from age 70 1/2.
  • Allow automatic-enrollment safe-harbor 401(k) plans to increase the cap on automatically raising payroll contributions.
  • Create a 401(k) safe harbor from liability for offering in-plan annuities.
  • Reduce annual testing requirements on "frozen" defined-benefit pension plans closed to new hires.

The effective dates for SECURE Act provisions vary by tax, calendar and plan years.

SHRM joined the employer community for the past year in advocating in support of the SECURE Act.

"This legislation will help hard-working Americans prepare for a financially secure future by incentivizing small businesses to set up employer-sponsored retirement plans," said SHRM Chief of Staff Emily M. Dickens, who oversees SHRM Government Affairs.

"The passage of the SECURE Act is the biggest step taken in decades to make it easier and more affordable for small- and mid-sized businesses to offer retirement benefits," said Allison Brecher, general counsel at Vestwell, a retirement-plan digital-platform firm. "At the same time, the new legislation is just the start of a critical conversation around the importance of retirement savings, and how we can make retirement plans work better for employees."

"Among the many valuable elements of the SECURE Act is a measure that would address a glitch in the nondiscrimination rules affecting participants in frozen pension plans," said Lynn Dudley, senior vice president for global retirement and compensation policy at the American Benefits Council, which represents benefit plan sponsors. "Hundreds of thousands of participants could lose future pension benefits as of Jan. 1, 2020, without a legislative fix."

WOTC Extension

The legislation extends the WOTC for one year, through Dec. 31, 2020. The WOTC otherwise would have expired at the end of 2019.

"The WOTC helps both employers that are experiencing labor shortages and certain groups of people who need assistance finding jobs, such as the long-term unemployed, the formerly incarcerated, individuals with disabilities and military veterans," said Chatrane Birbal, director of policy engagement at SHRM. Other disadvantaged groups include people living in government-designated rural renewal counties or empowerment zones, and certain welfare-benefit recipients.

SHRM supports proposed legislation to make the WOTC permanent. More than 450 SHRM members advocated in support of WOTC during the Volunteer Leaders' Business Meeting Hill Day on Nov. 14.

About $1 billion in tax credits are claimed each year under the WOTC program, according to the Department of Labor.

E-Verify and Other Workplace Immigration Programs

E-Verify and related programs that provide U.S. employers access to global talent are extended through Sept. 30, 2020. The bill's extensions cover the E-Verify, Conrad 30 for foreign medical graduates, the non-minister special immigrant religious worker and EB-5 programs. Of importance, the bill also retains a directive to protect J-1 educational and cultural exchange programs from any modification unless it goes through a formal rulemaking, Congress is consulted, and the modification is publicly reported.

SHRM advocates for a modern workplace immigration system that allows employers to access top global talent while protecting U.S. workers.

Other benefits-compliance changes in the year-end legislation are discussed below.

Parking Tax on Tax-Exempt Organizations Repealed

The year-end spending bill retroactively repeals a controversial parking tax on nonprofit organizations.

Section 512(a)(7) of the 2017 Tax Cuts and Jobs Act required tax-exempt organizations to pay a 21 percent unrelated business income tax (UBIT) on subsidized parking they provide to employees. The new legislation "repeals section 512(a)(7) in its entirety and retroactive to the date of its enactment—in other words, it is as if section 512(a)(7) never existed," according to an alert by law firm Seyfarth.

The Seyfarth attorneys expect the IRS to issue guidance relating to the repeal, including rules for amending Forms 990-T, which includes the parking tax, and for claiming refunds of those taxes. "In the meantime, tax-exempt organizations may cease making any estimated tax payments related to the repealed parking tax," the firm advised. Also, "nonprofits can consider promptly re-installing 'employee parking only' signage that was removed in response to the 2017 act."

"This tax unfairly expanded the UBIT statute to tax basic parking and transit benefits that nonprofits provide to their employees," said Susan Robertson, American Society of Association Executives' interim president and CEO. Repeal will "allow associations and other nonprofit organizations to focus their limited resources on mission-oriented programs and services that benefit society."

Paid Family Leave Tax Credit Extended for Another Year

The tax extenders bill provides a one-year extension of the federal tax credit for employers providing paid family and medical leave through 2020. The credit was originally enacted as a two-year pilot program under the Tax Cuts and Jobs Act of 2017.

Employers can only claim the credit for paid family leave provided to certain lower-compensated employees.

"Currently, large employers and employers of management and professional employees are most likely to provide paid family leave," reported Congressional Research Service. "Employers of management and professional employees, however, are less likely to have large shares of employees below the wage threshold."

PCORI Fees Extended for 10 Years

While the spending bill repeals a number of ACA taxes, it revives another, the annual fee to fund the federal Patient-Centered Outcomes Research Institute (PCORI), which had been set to expire for plan years ending after Sept. 30, 2019. The bill extends the inflation-adjusted PCORI fee on health insurance policies and self-insured health plans for another 10 years, along with program changes sought by employers.

Related SHRM Articles:

SECURE Act Will Alter 401(k) Compliance Landscape, SHRM Online, December 2019

One-Year Extension of Work Opportunity Tax Credit Is Only a Start, SHRM Online, December 2019

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