SHRM Asks IRS for Relief with Health Plan Compliance During Pandemic

Many Affordable Care Act obligations are difficult under present circumstances

Stephen Miller, CEBS By Stephen Miller, CEBS April 24, 2020
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The Society for Human Resource Management (SHRM) has asked IRS Commissioner Charles Rettig for relief with regulatory requirements regarding health care and related benefit plans, and, in particular, with certain obligations under the Affordable Care Act (ACA).

"As employers and their employees navigate the current crisis, workplace health care has emerged as a critical issue requiring flexibility," wrote Emily M. Dickens, SHRM corporate secretary, chief of staff and head of government affairs, in a letter to Rettig on April 16. "Due to the pandemic, employers are short-staffed, working remotely, and generally stretched thin because of leaves of absence, child-care limitations, and furloughs. Similar issues plague vendors engaged by employers for reporting compliance."

ACA Reporting

SHRM asked the IRS to make the following changes to employer reporting obligations under the ACA:

  • Extend the time for employers to respond to IRS 226-J penalty notification letters. The IRS has begun aggressive enforcement of the ACA, sending out Letter 226-J penalty notices for noncompliance with the employer shared responsibility payment provision. SHRM asked that 226-J letters that were distributed on or after March 1, 2020, allow an additional 60 to 90 days for a response following the end of the national, state and local emergencies.

SHRM did not request a full extension of report filing deadlines but, instead, for relief for those that missed the deadlines in February and March and the associated penalties for those missed deadlines.

According to SHRM research, 62 percent of HR professionals identified reporting requirements as their biggest ACA challenge.

W-2 Affordability Safe Harbor

Employer-sponsored health coverage will satisfy the ACA's affordability requirement in 2020 if the lowest-cost, self-only coverage option available to employees does not exceed 9.78 percent of an employee's household income.

Because employers are not likely to know their employees' household incomes, there are affordability safe harbors employers can use based on information the employer does have. The most common safe harbor is the employee's W-2 wages, generally as of the first day of the plan year.

SHRM requested that the W-2 affordability waiver be extended for employers that may fall out of compliance when they've been forced to furlough employees. Specifically, Dickens asked that the IRS clarify that the IRS W-2 safe harbor would be met as long as the employee cost for self-only coverage was affordable during the timeframes outside of any furlough window.

"While the safe harbor is intended to provide predictability, employers did not predict a pandemic and the associated economic fallout," Dickens wrote. "Many employers have been forced to furlough workers to preserve capital. While employers are attempting to maintain active employee premium rates during such furloughs, many employers may find that coverage is no longer affordable under the W-2 safe harbor because of the employees' associated reduction in salary."

As an unintended consequence, she noted, "many employers are facing the difficult decision to instead terminate employment … to avoid potential penalties" for failing to meet the ACA's affordable coverage requirements for furloughed full-time employees still on the books but not drawing wages.

COVID-19 Special Enrollment Right

Section 125 of the tax code limits mid-year election changes for participants who fund their benefit plans with pretax dollars through payroll deferral. "We understand that most major carriers/third-party administrators are implementing a one-time, pandemic-related special open enrollment window for persons who declined [health care] coverage at the start of the calendar year," Dickens wrote. "While this window is optional for self-funded plans, we understand it is mandatory for many fully insured employer-sponsored group plans."

This situation creates an administrative challenge for employers, Dickens pointed out, "as there is no express mid-year qualifying life status event under Section 125 that would permit employees to modify their pretax premium election made during open enrollment. As such, employers in these fully insured plans are forced to either disregard IRS rules or permit enrollment on a post-tax basis."

SHRM asked that the IRS clarify that an insurance carrier-initiated, one-time, pandemic-related special enrollment would constitute a mid-year election change event, permitting participants who take advantage of a mid-year enrollment to pay for coverage on a pretax basis.

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Coronavirus and COVID-19

FSA Adjustments

SHRM asked the IRS to view the pandemic as a qualifying life event that would allow flexible spending account (FSA) plan participants to make a mid-year adjustment to the amount of pretax dollars they put into their health care or dependent care FSA.

"Many employers are struggling with employee requests for election changes and whether such a change would be permitted under IRS guidance," Dickens wrote.

SHRM also asked the IRS to increase the annual $500 carryover limit for health FSAs, for plans that use the carryover option.

Employees should not be penalized because their anticipated annual medical expense estimates need to be adjusted, she noted.

"Many employees … carefully contemplated a health care FSA election based on [elective] medical procedures that will no longer occur," Dickens pointed out, and these employees should not be penalized because their anticipated annual medical expense estimates need to be adjusted.

Disaster PTO Donation Programs

IRS Notice 2006-59 established the circumstances under which employers may establish a major disaster relief paid time off (PTO) donation program to allow employees to donate PTO to other affected employees with no tax consequences for the donor. One condition is that the president must declare relief for a state that has requested "individual assistance or individual and public assistance" under the Stafford Act.

While more than 30 states have requested public assistance to date, only a handful have requested "individual or public assistance" using the language specified in the Stafford Act. "This would appear to significantly narrow the pool of individuals eligible to receive donated PTO under an employer major disaster program," Dickens noted.

"At a time when employers are desperate to find ways to assist their employees who need time away from work, the IRS should clarify that a request from a state for public assistance (with no accompanying request for individual assistance) is sufficient to trigger the tax relief under IRS Notice 2006-59 for a major disaster PTO donation program," she urged.

Related SHRM Articles:

Special COVID-19 Health Insurance Enrollment Windows and WaiversSHRM Online, March 2020

Using Leave-Sharing Plans During the COVID-19 Pandemic, SHRM Online, March 2020

Deadlines Loom as Employers Prep for ACA Reporting in 2020, SHRM Online, January 2020

IRS Lowers Employer Health Plans' 2020 Affordability Threshold, SHRM Online, July 2019


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