Author: cyndimoore

ACA Employer Penalty Tax Update: Responding to Letter 227

Many applicable large employers received an unpleasant surprise earlier this year when they received Letter 226-J, which imposed an employer shared responsibility payment (ESRP) under Section 4980H of the Internal Revenue Code on Forms 1094-C and/or 1095-C filed for the 2015 calendar year.  Employers were required to respond to Letter 226-J within a short 30-day period, which in some cases was difficult as extensive data needed to be retrieved and vendors may not have been cooperative. As the next step in the penalty assessment process, an employer will receive one of five forms of Letter 227.  The IRS has created a webpage called “Understanding Your Letter 227”, which includes the form of each letter and provides some answers to common questions:  https://www.irs.gov/individuals/understanding-your-letter-227 The various forms of Letter 227 are acknowledgement letters sent by the IRS to close an ESRP inquiry or provide the next steps to the employer regarding the proposed penalty assessment. Letter 227-J acknowledges receipt of the signed Form 14764, ESRP Response, in which the employer agreed to the penalty assessment, and that the ESRP will be assessed.  No response is required, but the IRS will expect payment of the penalty that was assessed.  If payment is not made within 10 days from the date of the letter, the employer will receive a Notice and Demand for the balance due. Letter 227-K acknowledges receipt of the information...

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Is a Self-Funded STD Plan an ERISA Plan or an Exempt Payroll Practice?

ERISA generally governs all pension and welfare benefit plans. In regulations, the Department of Labor (“DOL”) has exempted certain types of plans or practices from the definition of a welfare benefit plan under Title I of ERISA.  One commonly used exemption is the “payroll practice” exemption.  Exempt payroll practices include “payment of an employee’s normal compensation, out of the employer’s general assets, on account of periods of time during which the employee is physically or mentally unable to perform his or her duties, or is otherwise absent for medical reasons (such as pregnancy, a physical examination or psychiatric treatment).”  29 CFR § 2510.3-1(b)(2). This regulation is used to exempt self-funded short-term disability (STD) plans and salary continuation plan from ERISA coverage. An exempt plan is not required to: maintain a plan document or an SPD; file Form 5500; or comply with ERISA claim procedures. The Requirements for Payroll Practice Exemption The exemption applies only if the benefits are paid from the employer’s general assets. An employer can use an insurer or other party as a third-party administrator and still have an exempt plan, but providing STD through an insurer will cause the plan to be covered by ERISA. A self-funded STD plan can qualify as an exempt payroll practice if it provides either full or partial payment of wages during a disability leave. See, e.g., DOL Opinion Letter 93-02A....

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Why Do I Need a Plan Document for my Welfare Benefit Plan?

An employee comes into your office and requests a copy of the plan document for the medical plan. What document do you give to the employee? One of the basic ERISA rules is that all employee benefit plans must have a written plan document.  Under ERISA Section 402, a plan document must include these elements: Provide a procedure for a funding policy and method; Describe any procedure under the plan for the allocation of responsibilities for the operation and administration of the plan; Provide a procedure for amending the plan and for identifying the persons who have authority to amend the plan; and Specify the basis on which payments are made to and from the plan. What is a formal plan document? For a retirement plan, the plan document is usually provided by the record keeper or your legal counsel, and the employer has a detailed plan document on hand. Defining the “plan document” for a welfare benefit plan can be more difficult. For a fully insured plan, many plan sponsors rely on the insurance policy. Although the policy will outline the eligibility rules, benefits, exclusions and claim procedures, it doesn’t usually comply with the ERISA Section 402 standards. A self-funded plan may rely on a benefit booklet, administrative service agreement, SBC or other collection of less formal documents, which also may not satisfy the ERISA Section 402 standards.What...

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The HR Blog is published by Dickinson Wright PLLC to inform the public of important developments within the firm and practice areas. The content is informational only and does not constitute legal or professional advice. We encourage you to consult a Dickinson Wright attorney if you have specific questions or concerns relating to any of the topics covered in this blog.

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