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ACA and ERISA present a compliance double whammy.
The Employee Retirement Income Security Act (ERISA) and the Affordable Care Act (ACA) each impose a range of obligations on employee health and welfare plans, with steep penalties for noncompliance. Taken together, these complex requirements put employees at high risk for not surviving a Department of Labor (DOL) audit unscathed.
Eleven pointers on how to improve employers' odds were presented by Gary B. Kushner, president and CEO of Kushner & Co., a benefits advisory based in Portage, Mich., during the SHRM 2017 Annual Conference & Exposition in New Orleans.
1. Complete a review of all applicable plan documents and summary plan descriptions (SPDs).
The full plan document must be accessible to employees on request, while SPDs must be distributed annually. "Don't put SPDs in a drawer and forget about them. Record when and how they were sent out and to what lists of people," Kushner said. The DOL will ask for that information during an audit. Also, update your SPDs every five years, even if there were no plan changes. This applies to all ERISA-covered health and welfare plans, not just your primary medical plan.
2. Review the current Summary of Benefits and Coverage (SBC).
SBCs must be provided each year as part of open enrollment for the following plan year, and there is
a new template starting for plan year 2018. While employers with fully insured plans often rely on their insurer to produce and distribute SBCs, "if you're self-funded, the responsibility falls entirely on you," Kushner said.
3. Make a determination of Applicable Large Employer (ALE) status.
Employers with 50 or more full-time employees or part-time equivalents (when their hours are added up) are subject to the ACA's "play or pay" or shared-responsibility mandate to provide coverage to full-time (but not part-time) employees. A full-time employee is defined as one who works at least 30 hours a week. "The DOL will ask you to show your calculations of hours that employees worked per month if you're close to the 50-employee threshold," Kushner noted.
4. Review existing health plans for
minimum essential coverage,
minimum value and
affordability plan parameters.
Keep in mind that the affordability percentage—a limit on the percent of an employee's income that he or she can be charged for employer-sponsored coverage—is adjusted annually for inflation. It was originally set at 9.5 percent, with a safe harbor for employers to use an employee's Box 1 W-2 income for this determination. The affordability percentage rose to 9.69 percent of income in 2017 and
drops to 9.56 percent in 2018.
5. If applicable, determine the potential for employer-mandate penalties under Internal Revenue Code Sections 4980H(a) and/or (b).
Before open enrollment, determine if you have cleared the three health plan hurdles in No. 4, above. Keep in mind that the
ACA's penalties under the shared-responsibility provisions, already steep, are indexed for inflation.
6. Review and/or establish proper measurement, administrative and stability periods, both for current and for new and variable-hour employees.
"These parameters may be the most complex part of the ACA overall and are often not administered properly," Kushner said. Put simply, the measurement period is used to record the actual hours worked of a variable-hour employee, the administrative period is used to calculate the average hours worked over the measurement period, and the stability period is the time during which workers become and remain eligible for benefits. (Kushner
describes these three periods in greater depth, with examples, on his website).
In his presentation, he pointed out that "the 12-month measurement period is not your plan year, since it must be completed by open enrollment." He advised picking a 12-month period "that ends about a month before open enrollment typically begins."
Also, note that new employees who work variable hours are also subject to a measurement period, administrative period and stability period, but the initial periods are based on their date of hire before transitioning to the standard periods.
Review these processes, Kushner advised. "It's better for you to find out they are not being done correctly than for the DOL to find that out when they come in, so audit yourself first."
7. Establish a procedure to distribute and document all required health and welfare plan notices, including pre-ACA as well as ACA-required notices.
The DOL offers model notices for many of these plans. Annual notices can be combined and included in the open enrollment package. "Document that you've done so, and document when notices were given to new employees," Kushner advised. In addition to federal notices, don't forget about state-required notices.
8. Determine if a "wraparound" document would reduce the compliance burden and fulfill Form 5500 filing requirements.
Form 5500 is an annual joint filing that all ERISA plans must submit to the IRS and DOL. A combined Form 5500 can be used for all health and welfare plans, using what's called
a wraparound (or wrap) document. "See if doing so will make your life easier," Kushner recommended.
9. Review the need for annual PCORI filing.
The annual fee to fund the Patient-Centered Outcomes Research Institute (PCORI), paid by employers that sponsor self-insured health plans or by group health insurance providers, are due by July 1. The fee is assessed for each plan year ending after Sept. 30, 2012, and before Oct. 1, 2019, and is paid using IRS Form 720.
For plan years that end on or after Oct. 1, 2016, and before Oct. 1, 2017, the PCORI fee is $2.26 for each person covered under the applicable plan.
"PCORI fees apply not only to health plans, but to health reimbursement arrangements [HRAs] and to nonexcepted flexible spending accounts [FSAs]," Kushner said. Sponsors of health FSAs and HRAs that do not
qualify as excepted benefits are responsible for the PCORI fee.
10. Determine if any additional nondiscrimination testing must be performed on any of the underlying health and welfare plans.
To qualify for tax-favored status, a benefit plan must not discriminate in favor of highly compensated employees (HCEs) or key employees with respect to eligibility, contributions or benefits. Conduct all required nondiscrimination tests and document that you've done so. Again, this is not just for health plans so, for instance, "verify whether your life insurance plan is also meeting required nondiscrimination testing," Kushner said.
11. Determine applicable Form 5500 and Forms 1094/1095 ACA compliance-reporting requirements. If necessary, prepare processes to comply with reporting requirements.
ACA information reporting has been one of the statute's most onerous requirements. "Make sure you're putting the right codes in the right boxes," Kushner said.
As for the requirement to report the Social Security numbers of enrolled children and dependents, if best efforts fail to get this information, "document that you tried to get it, that you tried again, and that you made one last crack to get it," he advised.
"The ACA is the law of the land today," Kushner noted. "Is Congress going to change it? I don't know. I don't know if they know. But we have to play by today's rules."
Related SHRM Article:
ERISA Compliance Tips Shared at 'Benefits Boot Camp,' SHRM Online Conference Today, June 2017
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